Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2019

Receivables [Abstract]

Loans and Allowance for Credit Losses

 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, 2019					December 31, 2018
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	98,444		33.7	%	$	96,849		33.8	%
Lease financing		5,536		1.9			5,595		1.9
Total commercial		103,980		35.6			102,444		35.7
Commercial Real Estate
Commercial mortgages		28,449		9.8			28,596		10.0
Construction and development		10,885		3.7			10,943		3.8
Total commercial real estate		39,334		13.5			39,539		13.8
Residential Mortgages
Residential mortgages		56,557		19.4			53,034		18.5
Home equity loans, first liens		11,356		3.9			12,000		4.2
Total residential mortgages		67,913		23.3			65,034		22.7
Credit Card		23,426		8.0			23,363		8.1
Other Retail
Retail leasing		8,467		2.9			8,546		3.0
Home equity and second mortgages		15,780		5.4			16,122		5.6
Revolving credit		2,942		1.0			3,088		1.1
Installment		10,711		3.6			9,676		3.4
Automobile		19,227		6.6			18,719		6.5
Student		248		.1			279		.1
Total other retail		57,375		19.6			56,430		19.7
Total loans	$	292,028		100.0	%	$	286,810		100.0	%

The Company had loans of $92.2 billion at June 30, 2019, and $88.7 billion at December 31, 2018, pledged at the Federal Home Loan Bank, and loans of $74.2 billion at June 30, 2019, and $70.1 billion at December 31, 2018, 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 $815 million at June 30, 2019 and $872 million at December 31, 2018. 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.”

The Company offers a broad array of lending products and categorizes its loan portfolio into two segments, which is the level at which it develops and documents a systematic methodology to determine the allowance for credit losses. The Company’s two loan portfolio segments are commercial lending and consumer lending. Previously, the Company categorized loans covered under loss sharing or similar credit protection agreements with the Federal Deposit Insurance Corporation (“FDIC”), along with the related indemnification asset, in a separate covered loans segment. During 2018 the majority of these loans were sold and the loss share coverage expired. Any remaining balances were reclassified to be included in their respective portfolio category.

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. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the appropriateness 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.

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			Covered Loans			Total Loans
2019
Balance at beginning of period	$	1,445		$	812		$	445		$	1,115		$	634		$	–		$	4,451
Add
Provision for credit losses		78			(17	)		(3	)		244			63			–			365
Deduct
Loans charged-off		98			3			11			262			90			–			464
Less recoveries of loans charged-off		(39	)		(2	)		(7	)		(35	)		(31	)		–			(114	)
Net loans charged-off		59			1			4			227			59			–			350
Balance at end of period	$	1,464		$	794		$	438		$	1,132		$	638		$	–		$	4,466
2018
Balance at beginning of period	$	1,386		$	826		$	443		$	1,064		$	672		$	26		$	4,417
Add
Provision for credit losses		63			(14	)		(3	)		228			55			(2	)		327
Deduct
Loans charged-off		83			2			12			248			92			–			437
Less recoveries of loans charged-off		(25	)		(2	)		(8	)		(38	)		(32	)		–			(105	)
Net loans charged-off		58			–			4			210			60			–			332
Other changes (a)		–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,391		$	812		$	436		$	1,082		$	667		$	23		$	4,411

(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			Covered Loans			Total Loans
2019
Balance at beginning of period	$	1,454		$	800		$	455		$	1,102		$	630		$	–		$	4,441
Add
Provision for credit losses		142			(5	)		(10	)		482			133			–			742
Deduct
Loans charged-off		209			4			19			519			186			–			937
Less recoveries of loans charged-off		(77	)		(3	)		(12	)		(67	)		(61	)		–			(220	)
Net loans charged-off		132			1			7			452			125			–			717
Balance at end of period	$	1,464		$	794		$	438		$	1,132		$	638		$	–		$	4,466
2018
Balance at beginning of period	$	1,372		$	831		$	449		$	1,056		$	678		$	31		$	4,417
Add
Provision for credit losses		137			(22	)		(2	)		447			115			(7	)		668
Deduct
Loans charged-off		177			5			25			496			187			–			890
Less recoveries of loans charged-off		(59	)		(8	)		(14	)		(75	)		(61	)		–			(217	)
Net loans charged-off		118			(3	)		11			421			126			–			673
Other changes (a)		–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,391		$	812		$	436		$	1,082		$	667		$	23		$	4,411

(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
Allowance Balance at June 30, 2019 Related to
Loans individually evaluated for impairment (a)	$	16	$	2	$	–	$	–	$	–	$	18
TDRs collectively evaluated for impairment		19		5		109		78		12		223
Other loans collectively evaluated for impairment		1,429		787		314		1,054		626		4,210
Loans acquired with deteriorated credit quality		–		–		15		–		–		15
Total allowance for credit losses	$	1,464	$	794	$	438	$	1,132	$	638	$	4,466
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

(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
June 30, 2019
Loans individually evaluated for impairment (a)	$	298	$	40	$	–	$	–	$	–	$	338
TDRs collectively evaluated for impairment		157		127		3,125		258		186		3,853
Other loans collectively evaluated for impairment		103,525		39,131		64,511		23,168		57,189		287,524
Loans acquired with deteriorated credit quality		–		36		277		–		–		313
Total loans	$	103,980	$	39,334	$	67,913	$	23,426	$	57,375	$	292,028
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

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

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-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. 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, 2019
Commercial	$	103,075	$	353	$	273	$	279	$	103,980
Commercial real estate		39,214		27		1		92		39,334
Residential mortgages (a)		67,353		184		113		263		67,913
Credit card		22,871		288		267		–		23,426
Other retail		56,724		384		98		169		57,375
Total loans	$	289,237	$	1,236	$	752	$	803	$	292,028
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

(a) At June 30, 2019, $403 million of loans 30–89 days past due and $1.6 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 $430 million and $1.7 billion at December 31, 2018, respectively.

At June 30, 2019, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $84 million, compared with $106 million at December 31, 2018. These amounts exclude $201 million and $235 million at June 30, 2019 and December 31, 2018, 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 was $1.5 billion at June 30, 2019 and December 31, 2018, of which $1.2 billion 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, 2019
Commercial	$	101,842	$	1,082	$	1,056	$	2,138	$	103,980
Commercial real estate		38,481		425		428		853		39,334
Residential mortgages (b)		67,485		3		425		428		67,913
Credit card		23,159		–		267		267		23,426
Other retail		57,078		3		294		297		57,375
Total loans	$	288,045	$	1,513	$	2,470	$	3,983	$	292,028
Total outstanding commitments	$	612,606	$	2,136	$	3,066	$	5,202	$	617,808
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

(a) Classified rating on consumer loans primarily based on delinquency status.

(b) At June 30, 2019, $1.6 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 $1.7 billion and $1.6 billion at December 31, 2018, 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.

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, 2019
Commercial	$	521	$	1,140	$	39	$	156
Commercial real estate		229		556		8		–
Residential mortgages		1,620		1,772		78		–
Credit card		258		258		77		–
Other retail		317		390		14		3
Total loans, excluding loans purchased from GNMA mortgage pools		2,945		4,116		216		159
Loans purchased from GNMA mortgage pools		1,598		1,598		31		–
Total	$	4,543	$	5,714	$	247	$	159
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

(a) Substantially all loans classified as impaired at June 30, 2019 and December 31, 2018, had an associated allowance for credit losses.

U.S. Bancorp 45

Additional information on impaired loans follows:

	2019				2018
(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three Months Ended June 30
Commercial	$	512	$	2	$	514	$	1
Commercial real estate		248		3		242		2
Residential mortgages		1,652		23		1,846		19
Credit card		256		–		234		1
Other retail		321		3		303		4
Covered Loans		–		–		37		1
Total loans, excluding loans purchased from GNMA mortgage pools		2,989		31		3,176		28
Loans purchased from GNMA mortgage pools		1,588		17		1,616		12
Total	$	4,577	$	48	$	4,792	$	40
Six Months Ended June 30
Commercial	$	498	$	3	$	530	$	2
Commercial real estate		261		5		255		4
Residential mortgages		1,674		47		1,880		39
Credit card		253		–		233		2
Other retail		326		6		301		8
Covered Loans		–		–		37		1
Total loans, excluding loans purchased from GNMA mortgage pools		3,012		61		3,236		56
Loans purchased from GNMA mortgage pools		1,598		34		1,620		24
Total	$	4,610	$	95	$	4,856	$	80

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:

	2019						2018
(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		823	$	90	$	86		724	$	132	$	126
Commercial real estate		24		25		24		30		15		14
Residential mortgages		105		12		13		105		20		20
Credit card		7,941		44		44		7,461		37		38
Other retail		642		13		13		535		17		17
Total loans, excluding loans purchased from GNMA mortgage pools		9,535		184		180		8,855		221		215
Loans purchased from GNMA mortgage pools		1,555		215		208		2,248		298		295
Total loans		11,090	$	399	$	388		11,103	$	519	$	510
Six Months Ended June 30
Commercial		1,736	$	126	$	115		1,347	$	213	$	201
Commercial real estate		44		72		70		59		31		30
Residential mortgages		201		26		26		253		37		36
Credit card		17,589		94		95		16,007		80		81
Other retail		1,215		24		23		1,094		28		27
Total loans, excluding loans purchased from GNMA mortgage pools		20,785		342		329		18,760		389		375
Loans purchased from GNMA mortgage pools		3,093		418		403		3,136		415		408
Total loans		23,878	$	760	$	732		21,896	$	804	$	783

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 2019, at June 30, 2019, 45 residential mortgages, 19 home equity and second mortgage loans and 1,125 loans purchased from GNMA mortgage pools with outstanding balances of $6 million, $1 million and $155 million, respectively, were in a trial period and have estimated post-modification balances of $6 million, $1 million and $153 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.

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.

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:

	2019				2018
(Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Three Months Ended June 30
Commercial		252	$	4		177	$	3
Commercial real estate		7		4		8		2
Residential mortgages		15		3		58		7
Credit card		1,922		10		1,933		8
Other retail		80		1		70		1
Covered loans		–		–		–		–
Total loans, excluding loans purchased from GNMA mortgage pools		2,276		22		2,246		21
Loans purchased from GNMA mortgage pools		310		43		517		67
Total loans		2,586	$	65		2,763	$	88
Six Months Ended June 30
Commercial		486	$	9		416	$	12
Commercial real estate		15		10		16		6
Residential mortgages		111		13		114		11
Credit card		3,976		19		3,969		17
Other retail		227		8		147		2
Covered loans		–		–		1		–
Total loans, excluding loans purchased from GNMA mortgage pools		4,815		59		4,663		48
Loans purchased from GNMA mortgage pools		434		60		749		98
Total loans		5,249	$	119		5,412	$	146

In addition to the defaults in the table above, the Company had a total of 156 and 415 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, 2019, 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 $56 million for the three months and six months ended June 30, 2019, respectively.