| Loans and Allowance for Credit Losses | Note 5 Loans and Allowance for Credit Losses The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
September 30, 2021 December 31, 2020
(Dollars in Millions) Amount Percent Amount Percent
Commercial
Commercial $ 95,876 32.2 % $ 97,315 32.7 %
Lease financing 5,137 1.8 5,556 1.9
Total commercial 101,013 34.0 102,871 34.6
Commercial Real Estate
Commercial mortgages 28,029 9.4 28,472 9.6
Construction and development 10,779 3.6 10,839 3.6
Total commercial real estate 38,808 13.0 39,311 13.2
Residential Mortgages
Residential mortgages 65,941 22.2 66,525 22.4
Home equity loans, first liens 9,013 3.0 9,630 3.2
Total residential mortgages 74,954 25.2 76,155 25.6
Credit Card 22,137 7.4 22,346 7.5
Other Retail
Retail leasing 7,505 2.5 8,150 2.7
Home equity and second mortgages 10,718 3.6 12,472 4.2
Revolving credit 2,682 .9 2,688 .9
Installment 16,166 5.5 13,823 4.6
Automobile 23,488 7.9 19,722 6.6
Student 137 – 169 .1
Total other retail 60,696 20.4 57,024 19.1
Total loans $ 297,608 100.0 % $ 297,707 100.0 % The Company had loans of $89.8 billion at September 30, 2021, and $96.1 billion at December 31, 2020, pledged at the Federal Home Loan Bank, and loans of $73.1 billion at September 30, 2021, and $67.8 billion at December 31, 2020, 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 $567 million at September 30, 2021 and $763 million at December 31, 2020. All purchased loans are recorded at fair value at the date of purchase. Beginning January 1, 2020, the Company evaluates purchased loans for more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans that have experienced more-than-insignificant deterioration from origination are considered purchased credit deteriorated loans. All other purchased loans are considered non-purchased Allowance for Credit Losses Beginning January 1, 2020, the allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. 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 credit losses on a quarterly basis. Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of uncertainties that exist. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions. The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rate, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of end-of-term charged-off The allowance recorded for Troubled Debt Restructuring (“TDR”) 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. TDRs generally do not include loan modifications granted to customers resulting directly from the economic effects of the COVID-19 Beginning January 1, 2020, when a loan portfolio is purchased, the acquired loans are divided into those considered purchased with more than insignificant credit deterioration (“PCD”) and those not considered purchased with more than insignificant credit deterioration. An allowance is established for each population and considers product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status and refreshed LTV ratios when possible. The allowance established for purchased loans not considered PCD is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the basis of the acquired loans. Any subsequent increases and decreases in the allowance related to purchased loans, regardless of PCD status, are recognized through provision expense, with charge-offs charged to the allowance. The Company did not have a material amount of PCD loans included in its loan portfolio at September 30, 2021. The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above, are adjusted by management to consider the potential impact of other qualitative factors not captured in the quantitative model adjustments which include, but are not limited to the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio. The Company also assesses the credit risk associated with off-balance off-balance Prior to January 1, 2020, the allowance for credit losses was established based on an incurred loss model. The allowance recorded for loans in the commercial lending segment was based on the migration analysis of commercial loans and actual loss experience. The allowance recorded for loans in the consumer lending segment was determined on a homogenous pool basis and primarily included consideration of delinquency status and historical losses. In addition to the amounts determined under the methodologies described above, management also considered the potential impact of qualitative factors. Activity in the allowance for credit losses by portfolio class was as follows:
Three Months Ended September 30 (Dollars in Millions) Commercial Commercial Residential Credit Other Total
2021
Balance at beginning of period $1,838 $1,409 $478 $1,891 $ 994 $6,610
Add
Provision for credit losses (75 ) (104 ) 3 (23 ) 36 (163 )
Deduct
Loans charged-off 40 14 3 154 55 266
Less recoveries of loans charged-off (26 ) (1 ) (13 ) (43 ) (36 ) (119 )
Net loan charge-offs (recoveries) 14 13 (10 ) 111 19 147
Balance at end of period $1,749 $1,292 $491 $1,757 $1,011 $6,300
2020
Balance at beginning of period $2,645 $1,269 $633 $2,156 $1,187 $7,890
Add
Provision for credit losses 20 263 (49 ) 369 32 635
Deduct
Loans charged-off 193 89 4 236 89 611
Less recoveries of loans charged-off (15 ) (6 ) (7 ) (35 ) (33 ) (96 )
Net loan charge-offs (recoveries) 178 83 (3 ) 201 56 515
Balance at end of period $2,487 $1,449 $587 $2,324 $1,163 $8,010
Nine Months Ended September 30 (Dollars in Millions) Commercial Commercial Residential Credit Other Total
2021
Balance at beginning of period $2,423 $1,544 $573 $2,355 $1,115 $8,010
Add
Provision for credit losses (577 ) (246 ) (107 ) (195 ) (35 ) (1,160 )
Deduct
Loans charged-off 184 28 13 536 193 954
Less recoveries of loans charged-off (87 ) (22 ) (38 ) (133 ) (124 ) (404 )
Net loan charge-offs (recoveries) 97 6 (25 ) 403 69 550
Balance at end of period $1,749 $1,292 $491 $1,757 $1,011 $6,300
2020
Balance at beginning of period $1,484 $ 799 $433 $1,128 $ 647 $4,491
Add
Change in accounting principle (a) 378 (122 ) (30 ) 872 401 1,499
Provision for credit losses 988 875 179 988 335 3,365
Deduct
Loans charged-off 406 112 15 775 316 1,624
Less recoveries of loans charged-off (43 ) (9 ) (20 ) (111 ) (96 ) (279 )
Net loan charge-offs (recoveries) 363 103 (5 ) 664 220 1,345
Balance at end of period $2,487 $1,449 $587 $2,324 $1,163 $8,010
(a) Effective January 1, 2020, the Company adopted accounting guidance which changed impairment recognition of financial instruments to a model that is based on expected losses rather than incurred losses. The decrease in the allowance for credit losses from December 31, 2020 to September 30, 2021 primarily reflected factors affecting economic conditions during the first nine months of 2021, including the enactment of additional benefits from government stimulus programs and broad vaccine availability in the United States that has reduced the risks associated with COVID-19, 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 portfolio 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 cont r 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 1-4 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 1-4 charged-off. charged-off 1-4 charged-off charged-off charge-off. 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 charged-off) 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 (b) Total
September 30, 2021
Commercial $ 100,595 $ 163 $ 39 $ 216 $101,013
Commercial real estate 38,459 32 21 296 38,808
Residential mortgages (a) 74,450 153 114 237 74,954
Credit card 21,807 183 147 – 22,137
Other retail 60,224 251 64 157 60,696
Total loans $ 295,535 $ 782 $385 $ 906 $297,608
December 31, 2020
Commercial $ 102,127 $ 314 $ 55 $ 375 $102,871
Commercial real estate 38,676 183 2 450 39,311
Residential mortgages (a) 75,529 244 137 245 76,155
Credit card 21,918 231 197 – 22,346
Other retail 56,466 318 86 154 57,024
Total loans $ 294,716 $1,290 $477 $1,224 $297,707
(a) At September 30, 2021, $946 million of loans 30–89 days past due and $1.5 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 $1.4 billion and $1.8 billion at December 31, 2020, respectively.
(b) Substantially all nonperforming loans at September 30, 2021 and December 31, 2020, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $4 million and $9 million for the three months ended September 30, 2021 and 2020, respectively, and $11 million and $19 million for the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $17 million, compared with $23 million at December 31, 2020. These amounts excluded $19 million and $33 million at September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020, was $778 million and $1.0 billion, respectively, of which $620 million and $812 million, 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 Company classifies its loan portfolio classes 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:
September 30, 2021 December 31, 2020
Criticized Criticized
(Dollars in Millions) Pass Special Classified (a) Total Total Pass Special Classified (a) Total Total
Commercial
Originated in 2021 $ 32,826 $ 346 $ 277 $ 623 $ 33,449 $ – $ – $ – $ – $ –
Originated in 2020 17,202 637 252 889 18,091 34,557 1,335 1,753 3,088 37,645
Originated in 2019 11,851 198 63 261 12,112 17,867 269 349 618 18,485
Originated in 2018 6,853 77 51 128 6,981 12,349 351 176 527 12,876
Originated in 2017 3,213 14 53 67 3,280 5,257 117 270 387 5,644
Originated prior to 2017 3,373 30 40 70 3,443 4,954 128 115 243 5,197
Revolving 23,204 353 100 453 23,657 22,445 299 280 579 23,024
Total commercial 98,522 1,655 836 2,491 101,013 97,429 2,499 2,943 5,442 102,871
Commercial real estate
Originated in 2021 9,456 50 772 822 10,278 – – – – –
Originated in 2020 8,238 119 435 554 8,792 9,446 461 1,137 1,598 11,044
Originated in 2019 7,382 298 694 992 8,374 9,514 454 1,005 1,459 10,973
Originated in 2018 3,662 142 330 472 4,134 6,053 411 639 1,050 7,103
Originated in 2017 1,943 25 150 175 2,118 2,650 198 340 538 3,188
Originated prior to 2017 3,239 26 103 129 3,368 4,762 240 309 549 5,311
Revolving 1,556 1 187 188 1,744 1,445 9 238 247 1,692
Total commercial real estate 35,476 661 2,671 3,332 38,808 33,870 1,773 3,668 5,441 39,311
Residential mortgages (b)
Originated in 2021 21,045 – – – 21,045 – – – – –
Originated in 2020 18,043 1 5 6 18,049 23,262 1 3 4 23,266
Originated in 2019 8,508 1 18 19 8,527 13,969 1 17 18 13,987
Originated in 2018 3,492 – 21 21 3,513 5,670 1 22 23 5,693
Originated in 2017 4,494 – 21 21 4,515 6,918 1 24 25 6,943
Originated prior to 2017 19,002 – 302 302 19,304 25,921 2 342 344 26,265
Revolving 1 – – – 1 1 – – – 1
Total residential mortgages 74,585 2 367 369 74,954 75,741 6 408 414 76,155
Credit card (c) 21,990 – 147 147 22,137 22,149 – 197 197 22,346
Other retail
Originated in 2021 17,248 – 3 3 17,251 – – – – –
Originated in 2020 13,318 – 8 8 13,326 17,589 – 7 7 17,596
Originated in 2019 8,300 – 16 16 8,316 11,605 – 23 23 11,628
Originated in 2018 4,332 – 16 16 4,348 6,814 – 27 27 6,841
Originated in 2017 2,130 – 11 11 2,141 3,879 – 22 22 3,901
Originated prior to 2017 2,259 – 16 16 2,275 3,731 – 29 29 3,760
Revolving 12,400 – 123 123 12,523 12,647 – 110 110 12,757
Revolving converted to term 473 – 43 43 516 503 – 38 38 541
Total other retail 60,460 – 236 236 60,696 56,768 – 256 256 57,024
Total loans $291,033 $2,318 $4,257 $ 6,575 $297,608 $285,957 $4,278 $7,472 $11,750 $297,707
Total outstanding commitments $645,955 $4,606 $6,342 $10,948 $656,903 $627,606 $8,772 $9,374 $18,146 $645,752
Note: Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.
(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At September 30, 2021, $1.5 billion of GNMA loans 90 days or more past due and $1.2 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 $1.8 billion and $1.4 billion at December 31, 2020, respectively.
(c) All credit card loans are considered revolving loans. 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. The following table provides a summary of loans modified as TDRs for the periods presented by portfolio class:
2021 2020
(Dollars in Millions) Number Pre-Modification Post-Modification Number Pre-Modification Post-Modification
Three Months Ended September 30
Commercial 506 $ 46 $ 47 699 $ 262 $ 159
Commercial real estate 14 12 13 51 105 81
Residential mortgages 171 54 54 374 108 108
Credit card 6,656 38 38 4,699 27 27
Other retail 382 9 9 508 26 26
Total loans, excluding loans purchased from GNMA mortgage pools 7,729 159 161 6,331 528 401
Loans purchased from GNMA mortgage pools 802 113 118 735 106 105
Total loans 8,531 $ 272 $279 7,066 $ 634 $ 506
Nine Months Ended September 30
Commercial 1,736 $ 133 $120 2,837 $ 505 $ 375
Commercial real estate 100 136 125 116 165 141
Residential mortgages 867 299 298 585 142 142
Credit card 17,492 102 103 19,282 110 112
Other retail 2,175 64 58 1,537 50 48
Total loans, excluding loans purchased from GNMA mortgage pools 22,370 734 704 24,357 972 818
Loans purchased from GNMA mortgage pools 1,839 267 276 3,648 514 503
Total loans 24,209 $1,001 $980 28,005 $1,486 $1,321 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. At September 30, 2021, 5 residential mortgages, 2 home equity and second mortgage loans and 43 loans purchased from GNMA mortgage pools with outstanding balances of less than $1 million, less than $1 million and $5 million, respectively, were in a trial period and have estimated post-modification balances of less than $1 million, less than $1 million and $5 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 For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case 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. Loan modifications or concessions granted to borrowers resulting directly from the effects of the COVID-19 As of September 30, 2021 and December 31, 2020, approximately billion and $10.1 billion, respectively, of loan modifications included on the Company’s consolidated balance sheet related to borrowers impacted by the COVID-19 pandemic, consisting primarily of payment deferrals. The following table provides a summary of TDR loans that defaulted (fully or partially charged-off
2021 2020
(Dollars in Millions) Number Amount Number Amount
Three Months Ended September 30
Commercial 244 $ 5 305 $ 21
Commercial real estate 4 1 5 8
Residential mortgages 20 2 5 2
Credit card 2,069 12 1,363 8
Other retail 124 2 55 1
Total loans, excluding loans purchased from GNMA mortgage pools 2,461 22 1,733 40
Loans purchased from GNMA mortgage pools 29 5 72 9
Total loans 2,490 $27 1,805 $ 49
Nine Months Ended September 30
Commercial 856 $29 922 $ 49
Commercial real estate 16 7 33 24
Residential mortgages 47 5 23 4
Credit card 5,638 32 5,169 27
Other retail 595 10 245 3
Total loans, excluding loans purchased from GNMA mortgage pools 7,152 83 6,392 107
Loans purchased from GNMA mortgage pools 102 15 427 57
Total loans 7,254 $98 6,819 $164 In addition to the defaults in the table above, the Company had a total of 10 and 45 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and nine months ended September 30, 2021, 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 $1 million and $7 million for the three months and nine months ended September 30, 2021, respectively. As of September 30, 2021, the Company had $158 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs. |
