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) 2017 2016 Commercial Commercial $ 91,958 $ 87,928 Lease financing 5,603 5,458 Total commercial 97,561 93,386 Commercial Real Estate Commercial mortgages 29,367 31,592 Construction and development 11,096 11,506 Total commercial real estate 40,463 43,098 Residential Mortgages Residential mortgages 46,685 43,632 Home equity loans, first liens 13,098 13,642 Total residential mortgages 59,783 57,274 Credit Card 22,180 21,749 Other Retail Retail leasing 7,988 6,316 Home equity and second mortgages 16,327 16,369 Revolving credit 3,183 3,282 Installment 8,989 8,087 Automobile 18,934 17,571 Student 1,903 2,239 Total other retail 57,324 53,864 Total loans, excluding covered loans 277,311 269,371 Covered Loans 3,121 3,836 Total loans $ 280,432 $ 273,207 The Company had loans of $83.3 billion at December 31, 2017, and $84.5 billion at December 31, 2016, pledged at the Federal Home Loan Bank, and loans of $68.0 billion at December 31, 2017, and $66.5 billion at December 31, 2016, 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, 2017 and 2016, 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, 2017 and 2016, 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 $830 million at December 31, 2017, and $672 million at December 31, 2016. 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) 2017 2016 2015 Balance at beginning of period $ 698 $ 957 $ 1,309 Accretion (386 ) (392 ) (382 ) Disposals (83 ) (110 ) (132 ) Reclassifications from nonaccretable difference (a) 129 244 163 Other (8 ) (1 ) (1 ) Balance at end of period $ 350 $ 698 $ 957 (a) Primarily relates to changes in expected credit performance. Allowance for Credit Losses 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 Total Loans, Excluding Covered Loans Covered Loans Total Loans Balance at December 31, 2016 $ 1,450 $ 812 $ 510 $ 934 $ 617 $ 4,323 $ 34 $ 4,357 Add Provision for credit losses 186 19 (24 ) 908 304 1,393 (3 ) 1,390 Deduct Loans charged-off 414 30 65 887 355 1,751 – 1,751 Less recoveries of loans charged-off (150 ) (30 ) (28 ) (101 ) (112 ) (421 ) – (421 ) Net loans charged-off 264 – 37 786 243 1,330 – 1,330 Other changes (a) – – – – – – – – Balance at December 31, 2017 $ 1,372 $ 831 $ 449 $ 1,056 $ 678 $ 4,386 $ 31 $ 4,417 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 (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 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 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 (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 (b) Total Loans 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 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 (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 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, 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 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 (a) At December 31, 2017, $385 million of loans 30–89 days past due and $1.9 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 $273 million and $2.5 billion at December 31, 2016, 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, 2017 and 2016, 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, 2017, the amount of foreclosed residential real estate held by the Company, and included in OREO, was $156 million ($135 million excluding covered assets), compared with $201 million ($175 million excluding covered assets) at December 31, 2016. These amounts exclude $267 million and $373 million at December 31, 2017 and 2016, 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, 2017 and 2016, was $1.7 billion and $2.1 billion, respectively, of which $1.3 billion and $1.6 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, 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 December 31, 2016 Commercial $ 89,739 $ 1,721 $ 1,926 $ 3,647 $ 93,386 Commercial real estate 41,634 663 801 1,464 43,098 Residential mortgages (b) 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 (a) Classified rating on consumer loans primarily based on delinquency status. (b) At December 31, 2017, $1.9 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 $2.5 billion and $1.6 billion at December 31, 2016, 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, 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 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 (a) Substantially all loans classified as impaired at December 31, 2017 and 2016, had an associated allowance for credit losses. The total amount of interest income recognized during 2017 on loans classified as impaired at December 31, 2017, excluding those acquired with deteriorated credit quality, was $204 million, compared to what would have been recognized at the original contractual terms of the loans of $265 million. Additional information on impaired loans for the years ended December 31 follows: (Dollars in Millions) Average Recorded Investment Interest Income Recognized 2017 Commercial $ 683 $ 7 Commercial real estate 273 11 Residential mortgages 2,135 103 Credit card 229 3 Other retail 287 14 Total loans, excluding GNMA and covered loans 3,607 138 Loans purchased from GNMA mortgage pools 1,672 65 Covered loans 37 1 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 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 Troubled Debt Restructurings (Dollars in Millions) Number of Loans Pre-Modification Outstanding Loan Balance Post-Modification Outstanding Loan Balance 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 Total loans, excluding GNMA and covered loans 41,182 792 724 Loans purchased from GNMA mortgage pools 6,791 881 867 Covered loans 11 2 2 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 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 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 2017, at December 31, 2017, 37 residential mortgages, 25 home equity and second mortgage loans and 983 loans purchased from GNMA mortgage pools with outstanding balances of $5 million, $2 million and $125 million, respectively, were in a trial period and have estimated post-modification balances of $5 million, $2 million and $125 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 (Dollars in Millions) Number Amount 2017 Commercial 724 $ 53 Commercial real estate 36 9 Residential mortgages 374 41 Credit card 8,372 36 Other retail 415 5 Total loans, excluding GNMA and covered loans 9,921 144 Loans purchased from GNMA mortgage pools 1,369 177 Covered loans 4 – 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 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 In addition to the defaults in the table above, the Company had a total of 1,768 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the year ended December 31, 2017, 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 $206 million for the year ended December 31, 2017. Covered Assets 2017 2016 (Dollars in Millions) Purchased Impaired Loans Purchased Nonimpaired Loans Other Total Purchased Impaired Loans Purchased Nonimpaired Loans Other Total Residential mortgage loans $ 2,012 $ 400 $ – $ 2,412 $ 2,248 $ 506 $ – $ 2,754 Other retail loans – 151 – 151 – 278 – 278 Losses reimbursable by the FDIC (a) – – 320 320 – – 381 381 Unamortized changes in FDIC asset (b) – – 238 238 – – 423 423 Covered loans 2,012 551 558 3,121 2,248 784 804 3,836 Foreclosed real estate – – 21 21 – – 26 26 Total covered assets $ 2,012 $ 551 $ 579 $ 3,142 $ 2,248 $ 784 $ 830 $ 3,862 (a) Relates to loss sharing agreements with remaining terms up through the fourth quarter of 2019. (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. |