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) 2016 2015 Commercial Commercial $ 87,928 $ 83,116 Lease financing 5,458 5,286 Total commercial 93,386 88,402 Commercial Real Estate Commercial mortgages 31,592 31,773 Construction and development 11,506 10,364 Total commercial real estate 43,098 42,137 Residential Mortgages Residential mortgages 43,632 40,425 Home equity loans, first liens 13,642 13,071 Total residential mortgages 57,274 53,496 Credit Card 21,749 21,012 Other Retail Retail leasing 6,316 5,232 Home equity and second mortgages 16,369 16,384 Revolving credit 3,282 3,354 Installment 8,087 7,030 Automobile 17,571 16,587 Student 2,239 2,619 Total other retail 53,864 51,206 Total loans, excluding covered loans 269,371 256,253 Covered Loans 3,836 4,596 Total loans $ 273,207 $ 260,849 The Company had loans of $84.5 billion at December 31, 2016, and $78.1 billion at December 31, 2015, pledged at the Federal Home Loan Bank, and loans of $66.5 billion at December 31, 2016, and $63.4 billion at December 31, 2015, 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 Small 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, 2016 and 2015, 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, 2016 and 2015, 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. Net unearned interest and deferred fees and costs amounted to $672 million at December 31, 2016, and $550 million at December 31, 2015. 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 for the years ended December 31, were as follows: (Dollars in Millions) 2016 2015 2014 Balance at beginning of period $ 957 $ 1,309 $ 1,655 Accretion (392 ) (382 ) (441 ) Disposals (110 ) (132 ) (131 ) Reclassifications from nonaccretable difference (a) 244 163 229 Other (1 ) (1 ) (3 ) Balance at end of period $ 698 $ 957 $ 1,309 (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 FDIC. Activity in the allowance for credit losses by portfolio class was as follows: (Dollars in Millions) Commercial Commercial Residential Credit Other Total Loans, Covered Loans Total Balance at December 31, 2015 $ 1,287 $ 724 $ 631 $ 883 $ 743 $ 4,268 $ 38 $ 4,306 Add Provision for credit losses 488 75 (61 ) 728 95 1,325 (1 ) 1,324 Deduct Loans charged off 417 22 85 759 332 1,615 – 1,615 Less recoveries of loans charged off (92 ) (35 ) (25 ) (83 ) (111 ) (346 ) – (346 ) Net loans charged off 325 (13 ) 60 676 221 1,269 – 1,269 Other changes (a) – – – (1 ) – (1 ) (3 ) (4 ) Balance at December 31, 2016 $ 1,450 $ 812 $ 510 $ 934 $ 617 $ 4,323 $ 34 $ 4,357 Balance at December 31, 2014 $ 1,146 $ 726 $ 787 $ 880 $ 771 $ 4,310 $ 65 $ 4,375 Add Provision for credit losses 361 (30 ) (47 ) 654 193 1,131 1 1,132 Deduct Loans charged off 314 22 135 726 319 1,516 – 1,516 Less recoveries of loans charged off (95 ) (50 ) (26 ) (75 ) (98 ) (344 ) – (344 ) Net loans charged off 219 (28 ) 109 651 221 1,172 – 1,172 Other changes (a) (1 ) – – – – (1 ) (28 ) (29 ) Balance at December 31, 2015 $ 1,287 $ 724 $ 631 $ 883 $ 743 $ 4,268 $ 38 $ 4,306 Balance at December 31, 2013 $ 1,075 $ 776 $ 875 $ 884 $ 781 $ 4,391 $ 146 $ 4,537 Add Provision for credit losses 266 (63 ) 107 657 278 1,245 (16 ) 1,229 Deduct Loans charged off 305 36 216 725 384 1,666 13 1,679 Less recoveries of loans charged off (110 ) (49 ) (21 ) (67 ) (96 ) (343 ) (2 ) (345 ) Net loans charged off 195 (13 ) 195 658 288 1,323 11 1,334 Other changes (a) – – – (3 ) – (3 ) (54 ) (57 ) Balance at December 31, 2014 $ 1,146 $ 726 $ 787 $ 880 $ 771 $ 4,310 $ 65 $ 4,375 (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 Residential Credit Other Total Loans, Covered Total Allowance Balance at December 31, 2016 Related to Loans individually evaluated for impairment (a) $ 50 $ 4 $ – $ – $ – $ 54 $ – $ 54 TDRs collectively evaluated for impairment 12 4 180 65 20 281 1 282 Other loans collectively evaluated for impairment 1,388 798 330 869 597 3,982 – 3,982 Loans acquired with deteriorated credit quality – 6 – – – 6 33 39 Total allowance for credit losses $ 1,450 $ 812 $ 510 $ 934 $ 617 $ 4,323 $ 34 $ 4,357 Allowance Balance at December 31, 2015 Related to Loans individually evaluated for impairment (a) $ 11 $ 2 $ – $ – $ – $ 13 $ – $ 13 TDRs collectively evaluated for impairment 10 7 236 57 33 343 2 345 Other loans collectively evaluated for impairment 1,266 703 395 826 710 3,900 – 3,900 Loans acquired with deteriorated credit quality – 12 – – – 12 36 48 Total allowance for credit losses $ 1,287 $ 724 $ 631 $ 883 $ 743 $ 4,268 $ 38 $ 4,306 (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 Residential Credit Other Total Loans, Covered (b) Total Loans December 31, 2016 Loans individually evaluated for impairment (a) $ 623 $ 70 $ – $ – $ – $ 693 $ – $ 693 TDRs collectively evaluated for impairment 145 146 3,678 222 173 4,364 35 4,399 Other loans collectively evaluated for impairment 92,611 42,751 53,595 21,527 53,691 264,175 1,553 265,728 Loans acquired with deteriorated credit quality 7 131 1 – – 139 2,248 2,387 Total loans $ 93,386 $ 43,098 $ 57,274 $ 21,749 $ 53,864 $ 269,371 $ 3,836 $ 273,207 December 31, 2015 Loans individually evaluated for impairment (a) $ 336 $ 41 $ 13 $ – $ – $ 390 $ – $ 390 TDRs collectively evaluated for impairment 138 235 4,241 210 211 5,035 35 5,070 Other loans collectively evaluated for impairment 87,927 41,566 49,241 20,802 50,995 250,531 2,059 252,590 Loans acquired with deteriorated credit quality 1 295 1 – – 297 2,502 2,799 Total loans $ 88,402 $ 42,137 $ 53,496 $ 21,012 $ 51,206 $ 256,253 $ 4,596 $ 260,849 (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 90 Days or Nonperforming Total December 31, 2016 Commercial $ 92,588 $ 263 $ 52 $ 483 $ 93,386 Commercial real estate 42,922 44 8 124 43,098 Residential mortgages (a) 56,372 151 156 595 57,274 Credit card 21,209 284 253 3 21,749 Other retail 53,340 284 83 157 53,864 Total loans, excluding covered loans 266,431 1,026 552 1,362 269,371 Covered loans 3,563 55 212 6 3,836 Total loans $ 269,994 $ 1,081 $ 764 $ 1,368 $ 273,207 December 31, 2015 Commercial $ 87,863 $ 317 $ 48 $ 174 $ 88,402 Commercial real estate 41,907 89 14 127 42,137 Residential mortgages (a) 52,438 170 176 712 53,496 Credit card 20,532 243 228 9 21,012 Other retail 50,745 224 75 162 51,206 Total loans, excluding covered loans 253,485 1,043 541 1,184 256,253 Covered loans 4,236 62 290 8 4,596 Total loans $ 257,721 $ 1,105 $ 831 $ 1,192 $ 260,849 (a) At December 31, 2016, $273 million of loans 30–89 days past due and $2.5 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 $320 million and $2.9 billion at December 31, 2015, 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, 2016 and 2015, 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, 2016, the amount of foreclosed residential real estate held by the Company, and included in OREO, was $201 million ($175 million excluding covered assets), compared with $282 million ($250 million excluding covered assets) at December 31, 2015. This excludes $373 million and $535 million at December 31, 2016 and 2015, 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, 2016 and 2015, was $2.1 billion and $2.6 billion, respectively, of which $1.6 billion and $1.9 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 Classified (a) Total Total December 31, 2016 Commercial (b) $ 89,739 $ 1,721 $ 1,926 $ 3,647 $ 93,386 Commercial real estate 41,634 663 801 1,464 43,098 Residential mortgages (c) 56,457 10 807 817 57,274 Credit card 21,493 – 256 256 21,749 Other retail 53,576 6 282 288 53,864 Total loans, excluding covered loans 262,899 2,400 4,072 6,472 269,371 Covered loans 3,766 – 70 70 3,836 Total loans $ 266,665 $ 2,400 $ 4,142 $ 6,542 $ 273,207 Total outstanding commitments $ 562,704 $ 4,920 $ 5,629 $ 10,549 $ 573,253 December 31, 2015 Commercial (b) $ 85,206 $ 1,629 $ 1,567 $ 3,196 $ 88,402 Commercial real estate 41,079 365 693 1,058 42,137 Residential mortgages (c) 52,548 2 946 948 53,496 Credit card 20,775 – 237 237 21,012 Other retail 50,899 6 301 307 51,206 Total loans, excluding covered loans 250,507 2,002 3,744 5,746 256,253 Covered loans 4,507 – 89 89 4,596 Total loans $ 255,014 $ 2,002 $ 3,833 $ 5,835 $ 260,849 Total outstanding commitments $ 539,614 $ 3,945 $ 4,845 $ 8,790 $ 548,404 (a) Classified rating on consumer loans primarily based on delinquency status. (b) At December 31, 2016, $1.2 billion of energy loans ($2.8 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.1 billion of energy loans ($1.9 billion of total outstanding commitments) at December 31, 2015. (c) At December 31, 2016, $2.5 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 $2.9 billion and $1.9 billion at December 31, 2015, 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 (a) Unpaid Valuation Commitments December 31, 2016 Commercial $ 849 $ 1,364 $ 68 $ 284 Commercial real estate 293 697 10 – Residential mortgages 2,274 2,847 153 – Credit card 222 222 64 – Other retail 281 456 22 4 Total loans, excluding GNMA and covered loans 3,919 5,586 317 288 Loans purchased from GNMA mortgage pools 1,574 1,574 28 – Covered loans 36 42 1 1 Total $ 5,529 $ 7,202 $ 346 $ 289 December 31, 2015 Commercial $ 520 $ 1,110 $ 25 $ 154 Commercial real estate 336 847 11 1 Residential mortgages 2,575 3,248 199 – Credit card 210 210 57 – Other retail 309 503 35 4 Total loans, excluding GNMA and covered loans 3,950 5,918 327 159 Loans purchased from GNMA mortgage pools 1,913 1,913 40 – Covered loans 39 48 2 1 Total $ 5,902 $ 7,879 $ 369 $ 160 (a) Substantially all loans classified as impaired at December 31, 2016 and 2015, had an associated allowance for credit losses. The total amount of interest income recognized during 2016 on loans classified as impaired at December 31, 2016, excluding those acquired with deteriorated credit quality, was $237 million, compared to what would have been recognized at the original contractual terms of the loans of $308 million. Additional information on impaired loans for the years ended December 31 follows: (Dollars in Millions) Average Interest 2016 Commercial $ 799 $ 9 Commercial real estate 324 15 Residential mortgages 2,422 124 Credit card 214 4 Other retail 293 13 Total loans, excluding GNMA and covered loans 4,052 165 Loans purchased from GNMA mortgage pools 1,620 71 Covered loans 38 1 Total $ 5,710 $ 237 2015 Commercial $ 383 $ 13 Commercial real estate 433 16 Residential mortgages 2,666 131 Credit card 221 4 Other retail 336 14 Total loans, excluding GNMA and covered loans 4,039 178 Loans purchased from GNMA mortgage pools 2,079 95 Covered loans 42 1 Total $ 6,160 $ 274 2014 Commercial $ 414 $ 9 Commercial real estate 592 26 Residential mortgages 2,742 140 Credit card 273 9 Other retail 377 17 Total loans, excluding GNMA and covered loans 4,398 201 Loans purchased from GNMA mortgage pools 2,609 124 Covered loans 334 15 Total $ 7,341 $ 340 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 Pre-Modification Balance Post-Modification Balance 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 Total loans, excluding GNMA and covered loans 37,659 1,463 1,326 Loans purchased from GNMA mortgage pools 11,260 1,274 1,267 Covered loans 39 6 7 Total loans 48,958 $ 2,743 $ 2,600 2015 Commercial 1,607 $ 385 $ 396 Commercial real estate 108 78 76 Residential mortgages 2,080 260 258 Credit card 26,772 133 134 Other retail 2,530 54 54 Total loans, excluding GNMA and covered loans 33,097 910 918 Loans purchased from GNMA mortgage pools 8,199 864 862 Covered loans 16 5 5 Total loans 41,312 $ 1,779 $ 1,785 2014 Commercial 2,027 $ 238 $ 203 Commercial real estate 78 80 71 Residential mortgages 2,089 271 274 Credit card 26,511 144 145 Other retail 2,833 61 61 Total loans, excluding GNMA and covered loans 33,538 794 754 Loans purchased from GNMA mortgage pools 8,961 1,000 1,013 Covered loans 43 15 14 Total loans 42,542 $ 1,809 $ 1,781 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 2016, at December 31, 2016, 106 residential mortgages, 6 home equity and second mortgage loans and 1,366 loans purchased from GNMA mortgage pools with outstanding balances of $11 million, less than $1 million and $179 million, respectively, were in a trial period and have estimated post-modification balances of $13 million, less than $1 million and $175 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 Amount 2016 Commercial 531 $ 24 Commercial real estate 27 12 Residential mortgages 132 17 Credit card 6,827 30 Other retail 434 9 Total loans, excluding GNMA and covered loans 7,951 92 Loans purchased from GNMA mortgage pools 202 25 Covered loans 4 1 Total loans 8,157 $ 118 2015 Commercial 494 $ 21 Commercial real estate 18 8 Residential mortgages 273 36 Credit card 6,286 29 Other retail 636 12 Total loans, excluding GNMA and covered loans 7,707 106 Loans purchased from GNMA mortgage pools 598 75 Covered loans 5 1 Total loans 8,310 $ 182 2014 Commercial 629 $ 44 Commercial real estate 22 12 Residential mortgages 611 86 Credit card 6,335 33 Other retail 845 24 Total loans, excluding GNMA and covered loans 8,442 199 Loans purchased from GNMA mortgage pools 876 102 Covered loans 14 5 Total loans 9,332 $ 306 In addition to the defaults in the table above, the Company had a total of 1,697 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the year ended December 31, 2016, 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 $230 million for year ended December 31, 2016. 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 at December 31, consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table: 2016 2015 (Dollars in Millions) Purchased Purchased Other Total Purchased Purchased Other Total Residential mortgage loans $ 2,248 $ 506 $ – $ 2,754 $ 2,502 $ 615 $ – $ 3,117 Other retail loans – 278 – 278 – 447 – 447 Losses reimbursable by the FDIC (a) – – 381 381 – – 517 517 Unamortized changes in FDIC asset (b) – – 423 423 – – 515 515 Covered loans 2,248 784 804 3,836 2,502 1,062 1,032 4,596 Foreclosed real estate – – 26 26 – – 32 32 Total covered assets $ 2,248 $ 784 $ 830 $ 3,862 $ 2,502 $ 1,062 $ 1,064 $ 4,628 (a) Relates to loss sharing agreements with remaining terms up to three years. (b) Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements. Interest income is recognized on purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses. |