7. Allowance for Credit Losses

An analysis of the allowance for credit losses is presented in the following table:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in millions)
Balance at beginning of period	$	619		$	747		$	743		$	852
Provision for credit losses		84			78			173			171
Charge-offs		(76	)		(75	)		(329	)		(300	)
Recoveries		10			29			50			56
Allowance on loans transferred to held for sale		-			(30	)		-			(30	)

Balance at end of period	$	637		$	749		$	637		$	749

The following table summarizes the changes in the allowance for credit losses by product and the related loan balance by product during the three and nine months ended September 30, 2012 and 2011:


	Commercial												Consumer
	Construction and Other Real Estate			Business Banking and Middle Market Enterprises			Global banking			Other Comm’l			Residential Mortgage, Excl Home Equity Mortgages			Home Equity Mortgages			Credit Card			Other Consumer			Total
	(in millions)
Three Months Ended September 30, 2012:
Allowance for credit losses – beginning of period	$	198		$	80		$	44		$	18		$	188		$	47		$	31		$	13		$	619
Provision charged to income		(11	)		18			12			-			33			13			15			4			84
Charge offs		(9	)		(8	)		-			-			(24	)		(18	)		(14	)		(3	)		(76	)
Recoveries		3			2			-			-			3			-			2			-			10

Net charge offs		(6	)		(6	)		-			-			(21	)		(18	)		(12	)		(3	)		(66	)

Allowance for credit losses – end of period	$	181		$	92		$	56		$	18		$	200		$	42		$	34		$	14		$	637

Ending balance: collectively evaluated for impairment	$	79		$	82		$	41		$	17		$	93		$	36		$	29		$	14		$	391
Ending balance: individually evaluated for impairment⁽¹⁾		102			10			15			1			107			6			5			-			246

Total allowance for credit losses	$	181		$	92		$	56		$	18		$	200		$	42		$	34		$	14		$	637

Loans:
Collectively evaluated for impairment	$	7,387		$	12.389		$	18,868		$	3,054		$	13,462		$	2,365		$	780		$	615		$	58,920
Individually evaluated for impairment⁽¹⁾		533			108			143			86			345			22			16			-			1,253
Loans carried at the lower of amortized cost or fair value less cost to sell		-			-			-			-			1,279			-			-			-			1,279

Total loans	$	7,920		$	12,497		$	19,011		$	3,140		$	15,086		$	2,387		$	796		$	615		$	61,452

Three Months Ended September 30, 2011:
Allowance for credit losses – beginning of period	$	229		$	96		$	110		$	21		$	162		$	62		$	44		$	23		$	747
Provision charged to income		(10	)		5			28			(23	)		53			8			12			5			78
Charge offs		(3	)		(11	)		-			-			(24	)		(15	)		(16	)		(6	)		(75	)
Recoveries		1			3			-			20			1			-			3			1			29

Net charge offs		(2	)		(8	)		-			20			(23	)		(15	)		(13	)		(5	)		(46	)
Allowance on loans transferred to held for sale		-			(10	)		-			-			(4	)		(6	)		(6	)		(4	)		(30	)
Allowance for credit losses – end of period	$	217		$	83		$	138		$	18		$	188		$	49		$	37		$	19		$	749

Ending balance: collectively evaluated for impairment	$	114		$	68		$	31		$	14		$	102		$	45		$	30		$	19		$	423
Ending balance: individually evaluated for impairment⁽¹⁾		103			15			107			4			86			4			7			-			326

Total allowance for credit losses	$	217		$	83		$	138		$	18		$	188		$	49		$	37		$	19		$	749

Loans:
Collectively evaluated for impairment	$	7,066		$	9,842		$	11,908		$	1,650		$	12,653		$	2,604		$	766		$	733		$	47,222
Individually evaluated for impairment⁽¹⁾		707			155			147			144			137			14			22			-			1,326
Loans carried at the lower of amortized cost or fair value less cost to sell		-			-			-			-			1,052			-			-			-			1,052

Total loans	$	7,773		$	9,997		$	12,055		$	1,794		$	13,842		$	2,618		$	788		$	733		$	49,600

Nine Months Ended September 30, 2012:
Allowance for credit losses – beginning of period	$	212		$	78		$	131		$	21		$	192		$	52		$	39		$	18		$	743
Provision charged to income		(36	)		39			9			(9	)		72			55			35			8			173
Charge offs		(12	)		(31	)		(84	)		-			(73	)		(65	)		(47	)		(17	)		(329	)
Recoveries		17			6			-			6			9			-			7			5			50

Net charge offs		5			(25	)		(84	)		6			(64	)		(65	)		(40	)		(12	)		(279	)

Allowance for credit losses – end of period	$	181		$	92		$	56		$	18		$	200		$	42		$	34		$	14		$	637

Nine Months Ended September 30, 2011:
Allowance for credit losses – beginning of period	$	243		$	132		$	116		$	32		$	167		$	77		$	58		$	27		$	852
Provision charged to income		11			(4	)		22			(33	)		98			31			32			14			171
Charge offs		(46	)		(44	)		-			(2	)		(78	)		(53	)		(56	)		(21	)		(300	)
Recoveries		9			9			-			21			4			-			9			4			56

Net charge offs		(37	)		(35	)		-			19			(74	)		(53	)		(47	)		(17	)		(244	)
Allowance on loans transferred to held for sale		-			(10	)		-			-			(3	)		(6	)		(6	)		(5	)		(30	)
Allowance for credit losses – end of period	$	217		$	83		$	138		$	18		$	188		$	49		$	37		$	19		$	749

⁽¹⁾

For consumer loans, these amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow analysis is then applied to these groups of TDR Loans. The loan balance above excludes TDR loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $516 million and $303 million at September 30, 2012 and 2011, respectively.

We estimate probable losses for consumer loans and certain small balance commercial loans which do not qualify as troubled debt restructures using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off. This has historically resulted in the identification of a loss emergence period for these loans collectively evaluated for impairment using a roll rate migration analysis which approximates less than 12 months of loss coverage in the allowance for credit losses for certain loan products. A loss coverage of 12 months in our allowance for credit losses would be more aligned with U.S. bank industry practice. Our regulators have indicated they would like us to more closely align our loss coverage period with industry practice. During the fourth quarter of 2012, we will review our estimate of loss emergence to determine what changes should be made to our credit loss estimate which could result in an increase to our allowance for credit losses in the fourth quarter of 2012 in an amount that is not expected to exceed 15 percent of our total allowance for credit losses at September 30, 2012.