
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:


	September 30, 2018					December 31, 2017
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	93,692		33.3	%	$	91,958		32.8	%
Lease financing		5,581		2.0			5,603		2.0
Total commercial		99,273		35.3			97,561		34.8
Commercial Real Estate
Commercial mortgages		28,633		10.2			29,367		10.5
Construction and development		11,333		4.0			11,096		4.0
Total commercial real estate		39,966		14.2			40,463		14.5
Residential Mortgages
Residential mortgages		50,614		18.0			46,685		16.6
Home equity loans, first liens		12,290		4.3			13,098		4.7
Total residential mortgages		62,904		22.3			59,783		21.3
Credit Card		21,869		7.8			22,180		7.9
Other Retail
Retail leasing		8,447		3.0			7,988		2.8
Home equity and second mortgages		15,966		5.7			16,327		5.8
Revolving credit		3,129		1.1			3,183		1.1
Installment		9,666		3.4			8,989		3.2
Automobile		18,547		6.6			18,934		6.8
Student (a)		294		.1			1,903		.7
Total other retail		56,049		19.9			57,324		20.4
Total loans, excluding covered loans		280,061		99.5			277,311		98.9
Covered Loans (b)		1,400		.5			3,121		1.1
Total loans	$	281,461		100.0	%	$	280,432		100.0	%

(a)

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

(b)

Effective September 30, 2018, the Company transferred $1.3 billion of its covered residential mortgage loans to loans held for sale.

The Company had loans of $89.0 billion at September 30, 2018, and $83.3 billion at December 31, 2017, pledged at the Federal Home Loan Bank, and loans of $69.2 billion at September 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 $841 million at September 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 September 30						Nine Months Ended September 30
(Dollars in Millions)	2018			2017			2018			2017
Balance at beginning of period	$	157		$	546		$	350		$	698
Accretion		(96	)		(107	)		(277	)		(286	)
Disposals		(9	)		(17	)		(36	)		(68	)
Reclassifications from nonaccretable difference (a)		4			47			19			130
Other		–			(3	)		–			(8	)
Balance at end of period	$	56		$	466		$	56		$	466

(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-valueratios 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 September 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	$	1,391		$	812		$	436		$	1,082		$	667		$	4,388		$	23		$	4,411
Add
Provision for credit losses		88			(12	)		8			221			41			346			(3	)		343
Deduct
Loans charged-off		88			1			12			231			96			428			–			428
Less recoveries of loans charged-off		(22	)		(10	)		(8	)		(25	)		(35	)		(100	)		–			(100	)
Net loans charged-off		66			(9	)		4			206			61			328			–			328
Balance at end of period	$	1,413		$	809		$	440		$	1,097		$	647		$	4,406		$	20		$	4,426

2017
Balance at beginning of period	$	1,395		$	856		$	455		$	990		$	648		$	4,344		$	33		$	4,377
Add
Provision for credit losses		71			(12	)		2			216			84			361			(1	)		360
Deduct
Loans charged-off		115			2			16			214			86			433			–			433
Less recoveries of loans charged-off		(32	)		(9	)		(9	)		(27	)		(26	)		(103	)		–			(103	)
Net loans charged-off		83			(7	)		7			187			60			330			–			330
Balance at end of period	$	1,383		$	851		$	450		$	1,019		$	672		$	4,375		$	32		$	4,407


Nine Months Ended September 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		225			(34	)		6			668			156			1,021			(10	)		1,011
Deduct
Loans charged-off		265			6			37			727			283			1,318			–			1,318
Less recoveries of loans charged-off		(81	)		(18	)		(22	)		(100	)		(96	)		(317	)		–			(317	)
Net loans charged-off		184			(12	)		15			627			187			1,001			–			1,001
Other changes (a)		–			–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,413		$	809		$	440		$	1,097		$	647		$	4,406		$	20		$	4,426

2017
Balance at beginning of period	$	1,450		$	812		$	510		$	934		$	617		$	4,323		$	34		$	4,357
Add
Provision for credit losses		169			21			(33	)		666			234			1,057			(2	)		1,055
Deduct
Loans charged-off		315			7			49			653			263			1,287			–			1,287
Less recoveries of loans charged-off		(79	)		(25	)		(22	)		(72	)		(84	)		(282	)		–			(282	)
Net loans charged-off		236			(18	)		27			581			179			1,005			–			1,005
Balance at end of period	$	1,383		$	851		$	450		$	1,019		$	672		$	4,375		$	32		$	4,407

(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.

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 September 30, 2018 Related to
Loans individually evaluated for impairment (a)	$	30	$	8	$	–	$	–	$	–	$	38	$	–	$	38
TDRs collectively evaluated for impairment		13		4		124		64		15		220		1		221
Other loans collectively evaluated for impairment		1,370		795		316		1,033		632		4,146		–		4,146
Loans acquired with deteriorated credit quality		–		2		–		–		–		2		19		21
Total allowance for credit losses	$	1,413	$	809	$	440	$	1,097	$	647	$	4,406	$	20	$	4,426
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
September 30, 2018
Loans individually evaluated for impairment (a)	$	242	$	144	$	–	$	–	$	–	$	386	$	–	$	386
TDRs collectively evaluated for impairment		157		149		3,322		239		183		4,050		10		4,060
Other loans collectively evaluated for impairment		98,874		39,633		59,581		21,630		55,866		275,584		721		276,305
Loans acquired with deteriorated credit quality		–		40		1		–		–		41		669		710
Total loans	$	99,273	$	39,966	$	62,904	$	21,869	$	56,049	$	280,061	$	1,400	$	281,461
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 relative 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-offmay 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
September 30, 2018
Commercial	$	98,765	$	230	$	62	$	216	$	99,273
Commercial real estate		39,828		30		3		105		39,966
Residential mortgages (a)		62,302		167		118		317		62,904
Credit card		21,301		309		259		–		21,869
Other retail		55,412		365		97		175		56,049
Total loans, excluding covered loans		277,608		1,101		539		813		280,061
Covered loans (b)		1,382		6		12		–		1,400
Total loans	$	278,990	$	1,107	$	551	$	813	$	281,461
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 September 30, 2018, $414 million of loans 30–89 days past due and $1.7 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.

(b)

Effective September 30, 2018, the Company transferred $1.3 billion of covered loans to loans held for sale. Included in the amount transferred were $42 million of loans 30-89 days past due, $108 million of loans 90 days or more past due and $6 million of loans that were nonperforming.

At September 30, 2018, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $114 million, compared with $156 million at December 31, 2017. These amounts exclude $240 million and $267 million at September 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 September 30, 2018 and December 31, 2017, was $1.6 billion and $1.7 billion, respectively, of which $1.2 billion and $1.3 billion at September 30, 2018 and December 31, 2017, respectively, 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
September 30, 2018
Commercial	$	96,739	$	1,382	$	1,152	$	2,534	$	99,273
Commercial real estate		38,820		542		604		1,146		39,966
Residential mortgages (b)		62,401		14		489		503		62,904
Credit card		21,610		–		259		259		21,869
Other retail		55,732		8		309		317		56,049
Total loans, excluding covered loans		275,302		1,946		2,813		4,759		280,061
Covered loans		1,358		–		42		42		1,400
Total loans	$	276,660	$	1,946	$	2,855	$	4,801	$	281,461
Total outstanding commitments	$	595,205	$	2,810	$	3,517	$	6,327	$	601,532
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 September 30, 2018, $1.7 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
September 30, 2018
Commercial	$	453	$	812	$	44	$	141
Commercial real estate		327		538		13		17
Residential mortgages		1,747		1,875		95		–
Credit card		239		239		64		–
Other retail		309		391		19		5
Total loans, excluding GNMA and covered loans		3,075		3,855		235		163
Loans purchased from GNMA mortgage pools		1,668		1,668		30		–
Covered loans		10		31		1		–
Total	$	4,753	$	5,554	$	266	$	163
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 September 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 September 30
Commercial	$	470	$	3	$	624	$	3
Commercial real estate		279		4		272		2
Residential mortgages		1,779		18		2,111		25
Credit card		236		1		231		1
Other retail		309		4		288		4
Total loans, excluding GNMA and covered loans		3,073		30		3,526		35
Loans purchased from GNMA mortgage pools		1,666		12		1,672		17
Covered loans		23		–		38		–
Total	$	4,762	$	42	$	5,236	$	52
Nine Months Ended September 30
Commercial	$	510	$	5	$	720	$	5
Commercial real estate		263		8		274		7
Residential mortgages		1,846		57		2,178		82
Credit card		234		3		229		3
Other retail		304		12		282		11
Total loans, excluding GNMA and covered loans		3,157		85		3,683		108
Loans purchased from GNMA mortgage pools		1,635		36		1,688		54
Covered loans		33		1		37		–
Total	$	4,825	$	122	$	5,408	$	162

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 September 30
Commercial		700	$	42	$	33		616	$	40	$	27
Commercial real estate		38		123		125		29		18		16
Residential mortgages		144		19		17		141		15		16
Credit card		8,450		42		43		8,106		38		38
Other retail		763		17		16		1,949		39		32
Total loans, excluding GNMA and covered loans		10,095		243		234		10,841		150		129
Loans purchased from GNMA mortgage pools		1,649		216		211		1,340		169		171
Covered loans		3		1		1		3		–		–
Total loans		11,747	$	460	$	446		12,184	$	319	$	300
Nine Months Ended September 30
Commercial		2,047	$	255	$	234		2,117	$	239	$	195
Commercial real estate		97		154		155		93		56		55
Residential mortgages		397		56		53		641		72		73
Credit card		24,457		122		124		25,657		123		124
Other retail		1,857		45		43		3,210		65		55
Total loans, excluding GNMA and covered loans		28,855		632		609		31,718		555		502
Loans purchased from GNMA mortgage pools		4,785		631		619		5,312		697		686
Covered loans		3		1		1		10		2		2
Total loans		33,643	$	1,264	$	1,229		37,040	$	1,254	$	1,190

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 third quarter of 2018, at September 30, 2018, 66 residential mortgages, 36 home equity and second mortgage loans and 1,127 loans purchased from GNMA mortgage pools with outstanding balances of $12 million, $3 million and $149 million, respectively, were in a trial period and have estimated post-modification balances of $12 million, $3 million and $151 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 September 30
Commercial		207	$	51		200	$	25
Commercial real estate		10		2		10		3
Residential mortgages		34		4		84		7
Credit card		1,924		9		2,076		9
Other retail		93		1		89		1
Total loans, excluding GNMA and covered loans		2,268		67		2,459		45
Loans purchased from GNMA mortgage pools		380		50		354		46
Covered loans		–		–		1		–
Total loans		2,648	$	117		2,814	$	91
Nine Months Ended September 30
Commercial		623	$	63		555	$	49
Commercial real estate		26		8		28		6
Residential mortgages		148		15		251		26
Credit card		5,893		26		6,107		26
Other retail		240		3		320		4
Total loans, excluding GNMA and covered loans		6,930		115		7,261		111
Loans purchased from GNMA mortgage pools		1,129		148		711		95
Covered loans		1		–		2		–
Total loans		8,060	$	263		7,974	$	206

In addition to the defaults in the table above, the Company had a total of 240 and 716 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and nine months ended September 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 $27 million and $73 million for the three months and nine months ended September 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:


	September 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 (a)	$	669	$	245	$	–	$	914	$	2,012	$	400	$	–	$	2,412
Other retail loans		–		99		–		99		–		151		–		151
Losses reimbursable by the FDIC (b)		–		–		329		329		–		–		320		320
Unamortized changes in FDIC asset (c)		–		–		58		58		–		–		238		238
Covered loans		669		344		387		1,400		2,012		551		558		3,121
Covered loans held for sale (a)		–		–		1,296		1,296		–		–		–		–
Foreclosed real estate		–		–		19		19		–		–		21		21
Total covered assets	$	669	$	344	$	1,702	$	2,715	$	2,012	$	551	$	579	$	3,142

(a)

Effective September 30, 2018, the Company transferred $1.3 billion of covered residential mortgage loans to loans held for sale.

(b)

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

(c)

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.