Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2018

Receivables [Abstract]

Loans and Allowance for Credit Losses

 NOTE 5   Loans and Allowance for Credit Losses

The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as follows:

(Dollars in Millions)	2018		2017
Commercial
Commercial	$	96,849	$	91,958
Lease financing		5,595		5,603
Total commercial		102,444		97,561
Commercial Real Estate
Commercial mortgages		28,596		29,367
Construction and development		10,943		11,096
Total commercial real estate		39,539		40,463
Residential Mortgages
Residential mortgages		53,034		46,685
Home equity loans, first liens		12,000		13,098
Total residential mortgages		65,034		59,783
Credit Card		23,363		22,180
Other Retail
Retail leasing		8,546		7,988
Home equity and second mortgages		16,122		16,327
Revolving credit		3,088		3,183
Installment		9,676		8,989
Automobile		18,719		18,934
Student(a)		279		1,903
Total other retail		56,430		57,324
Covered Loans(b)		—		3,121
Total loans	$	286,810	$	280,432

(a) During 2018, the Company sold all of its federally guaranteed student loans.

(b) During 2018, the majority of the Company’s covered loans were sold and the loss share coverage expired. As of December 31, 2018, any remaining loan balances were reclassified to be included in their respective portfolio category.

The Company had loans of $88.7 billion at December 31, 2018, and $83.3 billion at December 31, 2017, pledged at the Federal Home Loan Bank, and loans of $70.1 billion at December 31, 2018, and $68.0 billion at December 31, 2017, pledged at the Federal Reserve Bank.

The majority of the Company’s loans are to borrowers in the states in which it has Consumer and Business Banking offices. Collateral for commercial loans may include marketable securities, accounts receivable, inventory, equipment and real estate. For details of the Company’s commercial portfolio by industry group and geography as of December 31, 2018 and 2017, see Table 7 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

For detail of the Company’s commercial real estate portfolio by property type and geography as of December 31, 2018 and 2017, see Table 8 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements. Collateral for such loans may include the related property, marketable securities, accounts receivable, inventory and equipment.

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 $872 million at December 31, 2018, and $830 million at December 31, 2017. All purchased loans 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.”

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 FDIC.

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

(Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Covered Loans			Total Loans
Balance at December 31, 2017	$	1,372		$	831		$	449		$	1,056		$	678		$	31		$	4,417
Add
Provision for credit losses		333			(50	)		23			892			211			(30	)		1,379
Deduct
Loans charged-off		350			9			48			970			383			–			1,760
Less recoveries of loans charged-off		(99	)		(28	)		(31	)		(124	)		(124	)		–			(406	)
Net loans charged-off		251			(19	)		17			846			259			–			1,354
Other changes(a)		–			–			–			–			–			(1	)		(1	)
Balance at December 31, 2018	$	1,454		$	800		$	455		$	1,102		$	630		$	–		$	4,441
Balance at December 31, 2016	$	1,450		$	812		$	510		$	934		$	617		$	34		$	4,357
Add
Provision for credit losses		186			19			(24	)		908			304			(3	)		1,390
Deduct
Loans charged-off		414			30			65			887			355			–			1,751
Less recoveries of loans charged-off		(150	)		(30	)		(28	)		(101	)		(112	)		–			(421	)
Net loans charged-off		264			–			37			786			243			–			1,330
Balance at December 31, 2017	$	1,372		$	831		$	449		$	1,056		$	678		$	31		$	4,417
Balance at December 31, 2015	$	1,287		$	724		$	631		$	883		$	743		$	38		$	4,306
Add
Provision for credit losses		488			75			(61	)		728			95			(1	)		1,324
Deduct
Loans charged-off		417			22			85			759			332			–			1,615
Less recoveries of loans charged-off		(92	)		(35	)		(25	)		(83	)		(111	)		–			(346	)
Net loans charged-off		325			(13	)		60			676			221			–			1,269
Other changes(a)		–			–			–			(1	)		–			(3	)		(4	)
Balance at December 31, 2016	$	1,450		$	812		$	510		$	934		$	617		$	34		$	4,357

(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		Covered Loans		Total Loans
Allowance Balance at December 31, 2018 Related to
Loans individually evaluated for impairment(a)	$	16	$	8	$	–	$	–	$	–	$	–	$	24
TDRs collectively evaluated for impairment		15		3		126		69		12		–		225
Other loans collectively evaluated for impairment		1,423		788		314		1,033		618		–		4,176
Loans acquired with deteriorated credit quality		–		1		15		–		–		–		16
Total allowance for credit losses	$	1,454	$	800	$	455	$	1,102	$	630	$	–	$	4,441
Allowance Balance at December 31, 2017 Related to
Loans individually evaluated for impairment(a)	$	23	$	4	$	–	$	–	$	–	$	–	$	27
TDRs collectively evaluated for impairment		14		4		139		60		19		1		237
Other loans collectively evaluated for impairment		1,335		818		310		996		659		–		4,118
Loans acquired with deteriorated credit quality		–		5		–		–		–		30		35
Total allowance for credit losses	$	1,372	$	831	$	449	$	1,056	$	678	$	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		Covered Loans(b)		Total Loans
December 31, 2018
Loans individually evaluated for impairment(a)	$	262	$	86	$	–	$	–	$	–	$	–	$	348
TDRs collectively evaluated for impairment		151		129		3,252		245		183		–		3,960
Other loans collectively evaluated for impairment		102,031		39,297		61,465		23,118		56,247		–		282,158
Loans acquired with deteriorated credit quality		–		27		317		–		–		–		344
Total loans	$	102,444	$	39,539	$	65,034	$	23,363	$	56,430	$	–	$	286,810
December 31, 2017
Loans individually evaluated for impairment(a)	$	337	$	71	$	–	$	–	$	–	$	–	$	408
TDRs collectively evaluated for impairment		148		145		3,524		230		186		36		4,269
Other loans collectively evaluated for impairment		97,076		40,174		56,258		21,950		57,138		1,073		273,669
Loans acquired with deteriorated credit quality		–		73		1		–		–		2,012		2,086
Total loans	$	97,561	$	40,463	$	59,783	$	22,180	$	57,324	$	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. These credit quality ratings are an important part of the Company’s overall credit risk management and evaluation of its allowance for credit losses.

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
December 31, 2018
Commercial	$	101,844	$	322	$	69	$	209	$	102,444
Commercial real estate		39,354		70		–		115		39,539
Residential mortgages(a)		64,443		181		114		296		65,034
Credit card		22,746		324		293		–		23,363
Other retail		55,722		403		108		197		56,430
Total loans	$	284,109	$	1,300	$	584	$	817	$	286,810
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
Covered loans		2,917		50		148		6		3,121
Total loans	$	277,492	$	1,212	$	720	$	1,008	$	280,432

(a) At December 31, 2018, $430 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.

Total nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms, other real estate and other nonperforming assets owned by the Company. For details of the Company’s nonperforming assets as of December 31, 2018 and 2017, see Table 16 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

At December 31, 2018, the amount of foreclosed residential real estate held by the Company, and included in OREO, was $106 million, compared with $156 million at December 31, 2017. These amounts exclude $235 million and $267 million at December 31, 2018 and 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 December 31, 2018 and 2017, was $1.5 billion and $1.7 billion, respectively, of which $1.2 billion and $1.3 billion, 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 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
December 31, 2018
Commercial	$	100,014	$	1,149	$	1,281	$	2,430	$	102,444
Commercial real estate		38,473		584		482		1,066		39,539
Residential mortgages(b)		64,570		1		463		464		65,034
Credit card		23,070		–		293		293		23,363
Other retail		56,101		6		323		329		56,430
Total loans	$	282,228	$	1,740	$	2,842	$	4,582	$	286,810
Total outstanding commitments	$	600,407	$	2,801	$	3,448	$	6,249	$	606,656
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
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 December 31, 2018, $1.7 billion of GNMA loans 90 days or more past due and $1.6 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. 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
December 31, 2018
Commercial	$	467	$	1,006	$	32	$	106
Commercial real estate		279		511		12		2
Residential mortgages		1,709		1,879		86		–
Credit card		245		245		69		–
Other retail		335		418		14		5
Total loans, excluding loans purchased from GNMA mortgage pools		3,035		4,059		213		113
Loans purchased from GNMA mortgage pools		1,639		1,639		41		–
Total	$	4,674	$	5,698	$	254	$	113
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
Covered loans		38		44		1		–
Total loans, excluding loans purchased from GNMA mortgage pools		3,346		4,524		254		204
Loans purchased from GNMA mortgage pools		1,681		1,681		25		–
Total	$	5,027	$	6,205	$	279	$	204

(a) Substantially all loans classified as impaired at December 31, 2018 and 2017, had an associated allowance for credit losses. The total amount of interest income recognized during 2018 on loans classified as impaired at December 31, 2018, excluding those acquired with deteriorated credit quality, was $164 million, compared to what would have been recognized at the original contractual terms of the loans of $226 million.

Additional information on impaired loans for the years ended December 31 follows:

(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized
2018
Commercial	$	497	$	8
Commercial real estate		273		13
Residential mortgages		1,817		76
Credit card		236		3
Other retail		309		16
Covered loans		25		1
Total loans, excluding loans purchased from GNMA mortgage pools		3,157		117
Loans purchased from GNMA mortgage pools		1,640		47
Total	$	4,797	$	164
2017
Commercial	$	683	$	7
Commercial real estate		273		11
Residential mortgages		2,135		103
Credit card		229		3
Other retail		287		14
Covered loans		37		1
Total loans, excluding loans purchased from GNMA mortgage pools		3,644		139
Loans purchased from GNMA mortgage pools		1,672		65
Total	$	5,316	$	204
2016
Commercial	$	799	$	9
Commercial real estate		324		15
Residential mortgages		2,422		124
Credit card		214		4
Other retail		293		13
Covered loans		38		1
Total loans, excluding loans purchased from GNMA mortgage pools		4,090		166
Loans purchased from GNMA mortgage pools		1,620		71
Total	$	5,710	$	237

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. The following table provides a summary of loans modified as TDRs for the years ended December 31, by portfolio class:

(Dollars in Millions)	Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance
2018
Commercial		2,824	$	336	$	311
Commercial real estate		127		168		169
Residential mortgages		526		73		69
Credit card		33,318		169		171
Other retail		2,462		58		55
Covered loans		3		1		1
Total loans, excluding loans purchased from GNMA mortgage pools		39,260		805		776
Loans purchased from GNMA mortgage pools		6,268		821		803
Total loans		45,528	$	1,626	$	1,579
2017
Commercial		2,758	$	380	$	328
Commercial real estate		128		82		78
Residential mortgages		800		90		88
Credit card		33,615		161		162
Other retail		3,881		79		68
Covered loans		11		2		2
Total loans, excluding loans purchased from GNMA mortgage pools		41,193		794		726
Loans purchased from GNMA mortgage pools		6,791		881		867
Total loans		47,984	$	1,675	$	1,593
2016
Commercial		2,352	$	844	$	699
Commercial real estate		102		259		256
Residential mortgages		1,576		168		178
Credit card		31,394		151		153
Other retail		2,235		41		40
Covered loans		39		6		7
Total loans, excluding loans purchased from GNMA mortgage pools		37,698		1,469		1,333
Loans purchased from GNMA mortgage pools		11,260		1,274		1,267
Total loans		48,958	$	2,743	$	2,600

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 fourth quarter of 2018, at December 31, 2018, 51 residential mortgages, 34 home equity and second mortgage loans and 1,022 loans purchased from GNMA mortgage pools with outstanding balances of $10 million, $2 million and $133 million, respectively, were in a trial period and have estimated post-modification balances of $10 million, $3 million and $133 million, respectively, assuming permanent modification occurs at the end of the trial period.

The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) for the years ended December 31, that were modified as TDRs within 12 months previous to default:

(Dollars in Millions)	Number of Loans		Amount Defaulted
2018
Commercial		836	$	71
Commercial real estate		39		15
Residential mortgages		191		18
Credit card		8,012		35
Other retail		334		5
Covered loans		1		–
Total loans, excluding loans purchased from GNMA mortgage pools		9,413		144
Loans purchased from GNMA mortgage pools		1,447		187
Total loans		10,860	$	331
2017
Commercial		724	$	53
Commercial real estate		36		9
Residential mortgages		374		41
Credit card		8,372		36
Other retail		415		5
Covered loans		4		–
Total loans, excluding loans purchased from GNMA mortgage pools		9,925		144
Loans purchased from GNMA mortgage pools		1,369		177
Total loans		11,294	$	321
2016
Commercial		531	$	24
Commercial real estate		27		12
Residential mortgages		132		17
Credit card		6,827		30
Other retail		434		9
Covered loans		4		1
Total loans, excluding loans purchased from GNMA mortgage pools		7,955		93
Loans purchased from GNMA mortgage pools		202		25
Total loans		8,157	$	118

In addition to the defaults in the table above, the Company had a total of 1,034 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the year ended December 31, 2018, 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 $98 million for the year ended December 31, 2018.