Note 4

Loans and Allowance for Credit Losses

The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:


	June 30, 2018					December 31, 2017
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	93,786		33.5	%	$	91,958		32.8	%
Lease financing		5,571		2.0			5,603		2.0
Total commercial		99,357		35.5			97,561		34.8
Commercial Real Estate
Commercial mortgages		28,187		10.0			29,367		10.5
Construction and development		11,212		4.0			11,096		4.0
Total commercial real estate		39,399		14.0			40,463		14.5
Residential Mortgages
Residential mortgages		48,682		17.4			46,685		16.6
Home equity loans, first liens		12,627		4.5			13,098		4.7
Total residential mortgages		61,309		21.9			59,783		21.3
Credit Card		21,566		7.7			22,180		7.9
Other Retail
Retail leasing		8,253		3.0			7,988		2.8
Home equity and second mortgages		16,083		5.7			16,327		5.8
Revolving credit		3,144		1.1			3,183		1.1
Installment		9,363		3.4			8,989		3.2
Automobile		18,567		6.6			18,934		6.8
Student (a)		313		.1			1,903		.7
Total other retail		55,723		19.9			57,324		20.4
Total loans, excluding covered loans		277,354		99.0			277,311		98.9
Covered Loans		2,823		1.0			3,121		1.1
Total loans	$	280,177		100.0	%	$	280,432		100.0	%

(a)

During the first six months of 2018, the Company sold all of its federally guaranteed student loans.

The Company had loans of $90.0 billion at June 30, 2018, and $83.3 billion at December 31, 2017, pledged at the Federal Home Loan Bank, and loans of $68.7 billion at June 30, 2018, and $68.0 billion at December 31, 2017, pledged at the Federal Reserve Bank.

Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs, and any partial charge-offs recorded. Net unearned interest and deferred fees and costs amounted to $823 million at June 30, 2018 and $830 million at December 31, 2017. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. The Company evaluates purchased loans for impairment at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are considered “purchased impaired loans.” All other purchased loans are considered “purchased nonimpaired loans.”

Changes in the accretable balance for purchased impaired loans were as follows:


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in Millions)	2018			2017			2018			2017
Balance at beginning of period	$	257		$	637		$	350		$	698
Accretion		(90	)		(89	)		(181	)		(179	)
Disposals		(15	)		(28	)		(27	)		(51	)
Reclassifications from nonaccretable difference (a)		5			30			15			83
Other		–			(4	)		–			(5	)
Balance at end of period	$	157		$	546		$	157		$	546

(a)

Primarily relates to changes in expected credit performance.

Allowance for Credit Losses The allowance for credit losses is established for probable and estimable losses incurred in the Company’s loan and lease portfolio, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure to the Company because those losses are recoverable under loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”). The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the adequacy of the allowance for incurred losses on a quarterly basis.

The allowance recorded for loans in the commercial lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience. For each loan type, this historical loss experience is adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic conditions. The results of the analysis are evaluated quarterly to confirm the selected loss experience is appropriate for each commercial loan type. The allowance recorded for impaired loans greater than $5 million in the commercial lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans, rather than the migration analysis. The allowance recorded for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, delinquency status, bankruptcy experience, portfolio growth and historical losses, adjusted for current trends. The Company also considers the impacts of any loan modifications made to commercial lending segment loans and any subsequent payment defaults to its expectations of cash flows, principal balance, and current expectations about the borrower’s ability to pay in determining the allowance for credit losses.

The allowance recorded for Troubled Debt Restructuring (“TDR”) loans and purchased impaired loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool, or the prior quarter effective rate, respectively. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status, refreshed loan-to-value ratios when possible, portfolio growth and historical losses, adjusted for current trends. The Company also considers any modifications made to consumer lending segment loans including the impacts of any subsequent payment defaults since modification in determining the allowance for credit losses, such as the borrower’s ability to pay under the restructured terms, and the timing and amount of payments.

The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for non-covered loans and reflects decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

In addition, subsequent payment defaults on loan modifications considered TDRs are considered in the underlying factors used in the determination of the appropriateness of the allowance for credit losses. For each loan segment, the Company estimates future loan charge-offs through a variety of analysis, trends and underlying assumptions. With respect to the commercial lending segment, TDRs may be collectively evaluated for impairment where observed performance history, including defaults, is a primary driver of the loss allocation. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. However, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. With respect to the consumer lending segment, performance of the portfolio, including defaults on TDRs, is considered when estimating future cash flows.

The Company’s methodology for determining the appropriate allowance for credit losses for each loan segment also considers the imprecision inherent in the methodologies used. As a result, in addition to the amounts determined under the methodologies described above, management also considers the potential impact of other qualitative factors which include, but are not limited to, economic factors; geographic and other concentration risks; delinquency and nonaccrual trends; current business conditions; changes in lending policy, underwriting standards and other relevant business practices; results of internal review; and the regulatory environment. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each of the above loan segments.

The Company also assesses the credit risk associated with off-balance sheet loan commitments, letters of credit, and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.

Activity in the allowance for credit losses by portfolio class was as follows:


Three Months Ended June 30 (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2018
Balance at beginning of period	$	1,386		$	826		$	443		$	1,064		$	672		$	4,391		$	26		$	4,417
Add
Provision for credit losses		63			(14	)		(3	)		228			55			329			(2	)		327
Deduct
Loans charged-off		83			2			12			248			92			437			–			437
Less recoveries of loans charged-off		(25	)		(2	)		(8	)		(38	)		(32	)		(105	)		–			(105	)
Net loans charged-off		58			–			4			210			60			332			–			332
Other changes (a)		–			–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,391		$	812		$	436		$	1,082		$	667		$	4,388		$	23		$	4,411

2017
Balance at beginning of period	$	1,429		$	842		$	485		$	955		$	622		$	4,333		$	33		$	4,366
Add
Provision for credit losses		44			5			(22	)		239			85			351			(1	)		350
Deduct
Loans charged-off		104			2			16			227			88			437			–			437
Less recoveries of loans charged-off		(26	)		(11	)		(8	)		(23	)		(29	)		(97	)		–			(97	)
Net loans charged-off		78			(9	)		8			204			59			340			–			340
Other changes (a)		–			–			–			–			–			–			1			1
Balance at end of period	$	1,395		$	856		$	455		$	990		$	648		$	4,344		$	33		$	4,377

(a)

Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.


Six Months Ended June 30 (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2018
Balance at beginning of period	$	1,372		$	831		$	449		$	1,056		$	678		$	4,386		$	31		$	4,417
Add
Provision for credit losses		137			(22	)		(2	)		447			115			675			(7	)		668
Deduct
Loans charged-off		177			5			25			496			187			890			–			890
Less recoveries of loans charged-off		(59	)		(8	)		(14	)		(75	)		(61	)		(217	)		–			(217	)
Net loans charged-off		118			(3	)		11			421			126			673			–			673
Other changes (a)		–			–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,391		$	812		$	436		$	1,082		$	667		$	4,388		$	23		$	4,411

2017
Balance at beginning of period	$	1,450		$	812		$	510		$	934		$	617		$	4,323		$	34		$	4,357
Add
Provision for credit losses		98			33			(35	)		450			150			696			(1	)		695
Deduct
Loans charged-off		200			5			33			439			177			854			–			854
Less recoveries of loans charged-off		(47	)		(16	)		(13	)		(45	)		(58	)		(179	)		–			(179	)
Net loans charged-off		153			(11	)		20			394			119			675			–			675
Other changes (a)		–			–			–			–			–			–			–			–
Balance at end of period	$	1,395		$	856		$	455		$	990		$	648		$	4,344		$	33		$	4,377

(a)

Additional detail of the allowance for credit losses by portfolio class was as follows:


(Dollars in Millions)	Commercial		Commercial Real Estate		Residential Mortgages		Credit Card		Other Retail		Total Loans, Excluding Covered Loans		Covered Loans		Total Loans
Allowance Balance at June 30, 2018 Related to
Loans individually evaluated for impairment (a)	$	19	$	3	$	–	$	–	$	–	$	22	$	–	$	22
TDRs collectively evaluated for impairment		14		3		136		61		16		230		1		231
Other loans collectively evaluated for impairment		1,358		803		300		1,021		651		4,133		–		4,133
Loans acquired with deteriorated credit quality		–		3		–		–		–		3		22		25
Total allowance for credit losses	$	1,391	$	812	$	436	$	1,082	$	667	$	4,388	$	23	$	4,411
Allowance Balance at December 31, 2017 Related to
Loans individually evaluated for impairment (a)	$	23	$	4	$	–	$	–	$	–	$	27	$	–	$	27
TDRs collectively evaluated for impairment		14		4		139		60		19		236		1		237
Other loans collectively evaluated for impairment		1,335		818		310		996		659		4,118		–		4,118
Loans acquired with deteriorated credit quality		–		5		–		–		–		5		30		35
Total allowance for credit losses	$	1,372	$	831	$	449	$	1,056	$	678	$	4,386	$	31	$	4,417

(a)

Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.

Additional detail of loan balances by portfolio class was as follows:


(Dollars in Millions)	Commercial		Commercial Real Estate		Residential Mortgages		Credit Card		Other Retail		Total Loans, Excluding Covered Loans		Covered Loans (b)		Total Loans
June 30, 2018
Loans individually evaluated for impairment (a)	$	272	$	53	$	–	$	–	$	–	$	325	$	–	$	325
TDRs collectively evaluated for impairment		158		135		3,377		233		184		4,087		34		4,121
Other loans collectively evaluated for impairment		98,927		39,175		57,931		21,333		55,539		272,905		876		273,781
Loans acquired with deteriorated credit quality		–		36		1		–		–		37		1,913		1,950
Total loans	$	99,357	$	39,399	$	61,309	$	21,566	$	55,723	$	277,354	$	2,823	$	280,177
December 31, 2017
Loans individually evaluated for impairment (a)	$	337	$	71	$	–	$	–	$	–	$	408	$	–	$	408
TDRs collectively evaluated for impairment		148		145		3,524		230		186		4,233		36		4,269
Other loans collectively evaluated for impairment		97,076		40,174		56,258		21,950		57,138		272,596		1,073		273,669
Loans acquired with deteriorated credit quality		–		73		1		–		–		74		2,012		2,086
Total loans	$	97,561	$	40,463	$	59,783	$	22,180	$	57,324	$	277,311	$	3,121	$	280,432

(a)

Represents loans greater than $5 million classified as nonperforming or TDRs.

(b)

Includes expected reimbursements from the FDIC under loss sharing agreements.

Credit Quality The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.

For all loan classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.

Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.

Consumer lending segment loans are generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Residential mortgage loans and lines in a junior lien position secured by 1-4 family properties are placed on nonaccrual status at 120 days past due or when they are behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is charged-off. Credit cards are charged-off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged-off at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relatively short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.

For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.

Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status and charge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows for some loans is not reasonably estimable, and those loans are classified as nonaccrual loans with interest income not recognized until the timing and amount of the future cash flows can be reasonably estimated.

The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:


	Accruing
(Dollars in Millions)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonperforming		Total
June 30, 2018
Commercial	$	98,847	$	228	$	58	$	224	$	99,357
Commercial real estate		39,250		42		3		104		39,399
Residential mortgages (a)		60,636		160		113		400		61,309
Credit card		21,054		263		249		–		21,566
Other retail		55,134		320		91		178		55,723
Total loans, excluding covered loans		274,921		1,013		514		906		277,354
Covered loans		2,644		47		126		6		2,823
Total loans	$	277,565	$	1,060	$	640	$	912	$	280,177
December 31, 2017
Commercial	$	97,005	$	250	$	57	$	249	$	97,561
Commercial real estate		40,279		36		6		142		40,463
Residential mortgages (a)		59,013		198		130		442		59,783
Credit card		21,593		302		284		1		22,180
Other retail		56,685		376		95		168		57,324
Total loans, excluding covered loans		274,575		1,162		572		1,002		277,311
Covered loans		2,917		50		148		6		3,121
Total loans	$	277,492	$	1,212	$	720	$	1,008	$	280,432

(a)

At June 30, 2018, $371 million of loans 30–89 days past due and $1.8 billion of loans 90 days or more past due purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $385 million and $1.9 billion at December 31, 2017, respectively.

At June 30, 2018, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $123 million ($103 million excluding covered assets), compared with $156 million ($135 million excluding covered assets) at December 31, 2017. These amounts exclude $237 million and $267 million at June 30, 2018 and December 31, 2017, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at June 30, 2018 and December 31, 2017, was $1.6 billion and $1.7 billion, respectively, of which $1.3 billion at both June 30, 2018 and December 31, 2017, related to loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs.

The Company classifies its loan portfolios using internal credit quality ratings on a quarterly basis. These ratings include pass, special mention and classified, and are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:


			Criticized
(Dollars in Millions)	Pass		Special Mention		Classified (a)		Total Criticized		Total
June 30, 2018
Commercial	$	97,207	$	1,216	$	934	$	2,150	$	99,357
Commercial real estate		38,192		543		664		1,207		39,399
Residential mortgages (b)		60,738		14		557		571		61,309
Credit card		21,317		–		249		249		21,566
Other retail		55,409		9		305		314		55,723
Total loans, excluding covered loans		272,863		1,782		2,709		4,491		277,354
Covered loans		2,780		–		43		43		2,823
Total loans	$	275,643	$	1,782	$	2,752	$	4,534	$	280,177
Total outstanding commitments	$	591,015	$	2,462	$	3,449	$	5,911	$	596,926
December 31, 2017
Commercial	$	95,297	$	1,130	$	1,134	$	2,264	$	97,561
Commercial real estate		39,162		648		653		1,301		40,463
Residential mortgages (b)		59,141		16		626		642		59,783
Credit card		21,895		–		285		285		22,180
Other retail		57,009		6		309		315		57,324
Total loans, excluding covered loans		272,504		1,800		3,007		4,807		277,311
Covered loans		3,072		–		49		49		3,121
Total loans	$	275,576	$	1,800	$	3,056	$	4,856	$	280,432
Total outstanding commitments	$	584,072	$	3,142	$	3,987	$	7,129	$	591,201

(a)

Classified rating on consumer loans primarily based on delinquency status.

(b)

At June 30, 2018, $1.8 billion of GNMA loans 90 days or more past due and $1.7 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.9 billion and $1.7 billion at December 31, 2017, respectively.

For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company will be unable to collect all amounts due per the contractual terms of the loan agreement. Impaired loans include all nonaccrual and TDR loans. For all loan classes, interest income on TDR loans is recognized under the modified terms and conditions if the borrower has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Interest income is generally not recognized on other impaired loans until the loan is paid off. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

Factors used by the Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and, therefore, whether those loans are impaired include, but are not limited to, the financial condition of the borrower, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on industry, geographic location and certain financial ratios. The evaluation of impairment on residential mortgages, credit card loans and other retail loans is primarily driven by delinquency status of individual loans or whether a loan has been modified, and considers any government guarantee where applicable. Individual covered loans, whose future losses are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing coverage not been in place.

A summary of impaired loans, which include all nonaccrual and TDR loans, by portfolio class was as follows:


(Dollars in Millions)	Period-end Recorded Investment (a)		Unpaid Principal Balance		Valuation Allowance		Commitments to Lend Additional Funds
June 30, 2018
Commercial	$	488	$	860	$	34	$	170
Commercial real estate		230		481		8		–
Residential mortgages		1,811		2,031		99		1
Credit card		233		233		61		–
Other retail		308		387		19		5
Total loans, excluding GNMA and covered loans		3,070		3,992		221		176
Loans purchased from GNMA mortgage pools		1,665		1,665		38		–
Covered loans		36		40		1		–
Total	$	4,771	$	5,697	$	260	$	176
December 31, 2017
Commercial	$	550	$	915	$	44	$	199
Commercial real estate		280		596		11		–
Residential mortgages		1,946		2,339		116		1
Credit card		230		230		60		–
Other retail		302		400		22		4
Total loans, excluding GNMA and covered loans		3,308		4,480		253		204
Loans purchased from GNMA mortgage pools		1,681		1,681		25		–
Covered loans		38		44		1		–
Total	$	5,027	$	6,205	$	279	$	204

(a)

Substantially all loans classified as impaired at June 30, 2018 and December 31, 2017, had an associated allowance for credit losses.

Additional information on impaired loans follows:


	2018				2017
(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three Months Ended June 30
Commercial	$	514	$	1	$	720	$	1
Commercial real estate		242		2		272		3
Residential mortgages		1,846		19		2,182		28
Credit card		234		1		229		1
Other retail		303		4		279		3
Total loans, excluding GNMA and covered loans		3,139		27		3,682		36
Loans purchased from GNMA mortgage pools		1,616		12		1,746		19
Covered loans		37		1		38		–
Total	$	4,792	$	40	$	5,466	$	55
Six Months Ended June 30
Commercial	$	530	$	2	$	769	$	2
Commercial real estate		255		4		275		5
Residential mortgages		1,880		39		2,211		57
Credit card		233		2		227		2
Other retail		301		8		279		7
Total loans, excluding GNMA and covered loans		3,199		55		3,761		73
Loans purchased from GNMA mortgage pools		1,620		24		1,696		37
Covered loans		37		1		37		–
Total	$	4,856	$	80	$	5,494	$	110

Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

The following table provides a summary of loans modified as TDRs during the periods presented by portfolio class:


	2018						2017
(Dollars in Millions)	Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance		Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance
Three Months Ended June 30
Commercial		724	$	132	$	126		671	$	62	$	40
Commercial real estate		30		15		14		41		29		31
Residential mortgages		105		20		20		144		17		16
Credit card		7,461		37		38		8,146		40		40
Other retail		535		17		17		639		15		14
Total loans, excluding GNMA and covered loans		8,855		221		215		9,641		163		141
Loans purchased from GNMA mortgage pools		2,248		298		295		1,043		141		137
Covered loans		–		–		–		3		1		1
Total loans		11,103	$	519	$	510		10,687	$	305	$	279
Six Months Ended June 30
Commercial		1,347	$	213	$	201		1,501	$	199	$	168
Commercial real estate		59		31		30		64		38		39
Residential mortgages		253		37		36		500		57		57
Credit card		16,007		80		81		17,551		85		86
Other retail		1,094		28		27		1,261		26		23
Total loans, excluding GNMA and covered loans		18,760		389		375		20,877		405		373
Loans purchased from GNMA mortgage pools		3,136		415		408		3,972		528		515
Covered loans		–		–		–		7		2		2
Total loans		21,896	$	804	$	783		24,856	$	935	$	890

Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the second quarter of 2018, at June 30, 2018, 44 residential mortgages, 22 home equity and second mortgage loans and 1,582 loans purchased from GNMA mortgage pools with outstanding balances of $13 million, $8 million and $208 million, respectively, were in a trial period and have estimated post-modification balances of $13 million, $7 million and $212 million, respectively, assuming permanent modification occurs at the end of the trial period.

The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a case-by-case basis in connection with ongoing loan collection processes.

For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market interest rate. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.

Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.

Modifications to loans in the covered segment are similar in nature to that described above for non-covered loans, and the evaluation and determination of TDR status is similar, except that acquired loans restructured after acquisition are not considered TDRs for accounting and disclosure purposes if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under loss sharing agreements with the FDIC.

The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) during the periods presented that were modified as TDRs within 12 months previous to default:


	2018				2017
(Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Three Months Ended June 30
Commercial		177	$	3		182	$	16
Commercial real estate		8		2		10		1
Residential mortgages		58		7		95		10
Credit card		1,933		8		1,984		8
Other retail		70		1		102		1
Total loans, excluding GNMA and covered loans		2,246		21		2,373		36
Loans purchased from GNMA mortgage pools		517		67		139		19
Covered loans		–		–		1		–
Total loans		2,763	$	88		2,513	$	55
Six Months Ended June 30
Commercial		416	$	12		355	$	24
Commercial real estate		16		6		18		3
Residential mortgages		114		11		167		19
Credit card		3,969		17		4,031		17
Other retail		147		2		231		3
Total loans, excluding GNMA and covered loans		4,662		48		4,802		66
Loans purchased from GNMA mortgage pools		749		98		357		49
Covered loans		1		–		1		–
Total loans		5,412	$	146		5,160	$	115

In addition to the defaults in the table above, the Company had a total of 201 and 476 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and six months ended June 30, 2018, respectively, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $23 million and $46 million for the three months and six months ended June 30, 2018, respectively.

Covered Assets Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include expected reimbursements from the FDIC. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:


	June 30, 2018								December 31, 2017
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other		Total
Residential mortgage loans	$	1,913	$	353	$	–	$	2,266	$	2,012	$	400	$	–	$	2,412
Other retail loans		–		110		–		110		–		151		–		151
Losses reimbursable by the FDIC (a)		–		–		331		331		–		–		320		320
Unamortized changes in FDIC asset (b)		–		–		116		116		–		–		238		238
Covered loans		1,913		463		447		2,823		2,012		551		558		3,121
Foreclosed real estate		–		–		20		20		–		–		21		21
Total covered assets	$	1,913	$	463	$	467	$	2,843	$	2,012	$	551	$	579	$	3,142

(a)

Relates to loss sharing agreements with remaining terms up through the fourth quarter of 2019.

(b)

Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements.

Interest income is recognized on purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses.