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:


	September 30, 2017					December 31, 2016
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	91,449		32.8	%	$	87,928		32.2	%
Lease financing		5,479		2.0			5,458		2.0
Total commercial		96,928		34.8			93,386		34.2
Commercial Real Estate
Commercial mortgages		29,902		10.7			31,592		11.6
Construction and development		11,528		4.1			11,506		4.2
Total commercial real estate		41,430		14.8			43,098		15.8
Residential Mortgages
Residential mortgages		46,107		16.6			43,632		16.0
Home equity loans, first liens		13,210		4.7			13,642		5.0
Total residential mortgages		59,317		21.3			57,274		21.0
Credit Card		20,923		7.5			21,749		7.9
Other Retail
Retail leasing		7,923		2.8			6,316		2.3
Home equity and second mortgages		16,308		5.9			16,369		6.0
Revolving credit		3,225		1.2			3,282		1.2
Installment		8,900		3.2			8,087		3.0
Automobile		18,530		6.6			17,571		6.4
Student		1,973		.7			2,239		.8
Total other retail		56,859		20.4			53,864		19.7
Total loans, excluding covered loans		275,457		98.8			269,371		98.6
Covered Loans		3,262		1.2			3,836		1.4
Total loans	$	278,719		100.0	%	$	273,207		100.0	%

The Company had loans of $85.2 billion at September 30, 2017, and $84.5 billion at December 31, 2016, pledged at the Federal Home Loan Bank, and loans of $66.8 billion at September 30, 2017, and $66.5 billion at December 31, 2016, pledged at the Federal Reserve Bank.

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 $825 million at September 30, 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 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Millions)	2017			2016			2017			2016
Balance at beginning of period	$	546		$	891		$	698		$	957
Accretion		(107	)		(102	)		(286	)		(297	)
Disposals		(17	)		(23	)		(68	)		(77	)
Reclassifications from nonaccretable difference (a)		47			31			130			214
Other		(3	)		–			(8	)		–
Balance at end of period	$	466		$	797		$	466		$	797

(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 Federal Deposit Insurance Corporation (“FDIC”). The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the adequacy 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 an appropriate historical time frame is selected 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, 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.

The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for non-covered loans and reflects decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

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 September 30, (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2017
Balance at beginning of period	$	1,395		$	856		$	455		$	990		$	648		$	4,344		$	33		$	4,377
Add
Provision for credit losses		71			(12	)		2			216			84			361			(1	)		360
Deduct
Loans charged-off		115			2			16			214			86			433			–			433
Less recoveries of loans charged-off		(32	)		(9	)		(9	)		(27	)		(26	)		(103	)		–			(103	)
Net loans charged-off		83			(7	)		7			187			60			330			–			330
Other changes (a)		–			–			–			–			–			–			–			–
Balance at end of period	$	1,383		$	851		$	450		$	1,019		$	672		$	4,375		$	32		$	4,407
2016
Balance at beginning of period	$	1,473		$	748		$	544		$	884		$	643		$	4,292		$	37		$	4,329
Add
Provision for credit losses		90			34			(12	)		178			37			327			(2	)		325
Deduct
Loans charged-off		104			9			19			182			84			398			–			398
Less recoveries of loans charged-off		(17	)		(8	)		(7	)		(21	)		(30	)		(83	)		–			(83	)
Net loans charged-off		87			1			12			161			54			315			–			315
Other changes (a)		–			–			–			–			–			–			(1	)		(1	)
Balance at end of period	$	1,476		$	781		$	520		$	901		$	626		$	4,304		$	34		$	4,338

(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.


Nine Months Ended September 30, (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2017
Balance at beginning of period	$	1,450		$	812		$	510		$	934		$	617		$	4,323		$	34		$	4,357
Add
Provision for credit losses		169			21			(33	)		666			234			1,057			(2	)		1,055
Deduct
Loans charged-off		315			7			49			653			263			1,287			–			1,287
Less recoveries of loans charged-off		(79	)		(25	)		(22	)		(72	)		(84	)		(282	)		–			(282	)
Net loans charged-off		236			(18	)		27			581			179			1,005			–			1,005
Other changes (a)		–			–			–			–			–			–			–			–
Balance at end of period	$	1,383		$	851		$	450		$	1,019		$	672		$	4,375		$	32		$	4,407
2016
Balance at beginning of period	$	1,287		$	724		$	631		$	883		$	743		$	4,268		$	38		$	4,306
Add
Provision for credit losses		438			53			(63	)		514			42			984			(2	)		982
Deduct
Loans charged-off		322			19			67			559			243			1,210			–			1,210
Less recoveries of loans charged-off		(73	)		(23	)		(19	)		(64	)		(84	)		(263	)		–			(263	)
Net loans charged-off		249			(4	)		48			495			159			947			–			947
Other changes (a)		–			–			–			(1	)		–			(1	)		(2	)		(3	)
Balance at end of period	$	1,476		$	781		$	520		$	901		$	626		$	4,304		$	34		$	4,338

(a)

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 September 30, 2017 Related to
Loans individually evaluated for impairment (a)	$	25	$	2	$	–	$	–	$	–	$	27	$	–	$	27
TDRs collectively evaluated for impairment		12		4		139		62		16		233		1		234
Other loans collectively evaluated for impairment		1,346		840		311		957		656		4,110		–		4,110
Loans acquired with deteriorated credit quality		–		5		–		–		–		5		31		36
Total allowance for credit losses	$	1,383	$	851	$	450	$	1,019	$	672	$	4,375	$	32	$	4,407
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 Loans		Covered Loans (b)		Total Loans
September 30, 2017
Loans individually evaluated for impairment (a)	$	386	$	44	$	–	$	–	$	–	$	430	$	–	$	430
TDRs collectively evaluated for impairment		138		143		3,509		231		185		4,206		33		4,239
Other loans collectively evaluated for impairment		96,404		41,166		55,807		20,692		56,673		270,742		1,177		271,919
Loans acquired with deteriorated credit quality		–		77		1		–		1		79		2,052		2,131
Total loans	$	96,928	$	41,430	$	59,317	$	20,923	$	56,859	$	275,457	$	3,262	$	278,719
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 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.

Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status and charge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. 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
September 30, 2017
Commercial	$	96,389	$	218	$	52	$	269	$	96,928
Commercial real estate		41,242		62		4		122		41,430
Residential mortgages (a)		58,581		155		107		474		59,317
Credit card		20,375		296		251		1		20,923
Other retail		56,282		331		83		163		56,859
Total loans, excluding covered loans		272,869		1,062		497		1,029		275,457
Covered loans		3,056		48		152		6		3,262
Total loans	$	275,925	$	1,110	$	649	$	1,035	$	278,719
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 September 30, 2017, $297 million of loans 30–89 days past due and $1.8 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.

At September 30, 2017, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $182 million ($156 million excluding covered assets), compared with $201 million ($175 million excluding covered assets) at December 31, 2016. These amounts exclude $300 million and $373 million at September 30, 2017 and December 31, 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 September 30, 2017 and December 31, 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 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 that have a potential weakness deserving management’s close attention. Classified loans are those 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
September 30, 2017
Commercial (b)	$	94,127	$	1,328	$	1,473	$	2,801	$	96,928
Commercial real estate		39,998		640		792		1,432		41,430
Residential mortgages (c)		58,671		3		643		646		59,317
Credit card		20,671		–		252		252		20,923
Other retail		56,567		5		287		292		56,859
Total loans, excluding covered loans		270,034		1,976		3,447		5,423		275,457
Covered loans		3,209		–		53		53		3,262
Total loans	$	273,243	$	1,976	$	3,500	$	5,476	$	278,719
Total outstanding commitments	$	579,628	$	3,232	$	4,684	$	7,916	$	587,544
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

(a)

Classified rating on consumer loans primarily based on delinquency status.

(b)

At September 30, 2017, $611 million of energy loans ($1.3 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.2 billion of energy loans ($2.8 billion of total outstanding commitments) at December 31, 2016.

(c)

At September 30, 2017, $1.8 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 $2.5 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. 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. Individual covered loans, whose future losses are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing coverage not been in place.

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
September 30, 2017
Commercial	$	592	$	1,040	$	39	$	168
Commercial real estate		263		545		11		–
Residential mortgages		2,064		2,471		121		1
Credit card		231		231		62		–
Other retail		298		508		19		4
Total loans, excluding GNMA and covered loans		3,448		4,795		252		173
Loans purchased from GNMA mortgage pools		1,571		1,571		20		–
Covered loans		35		43		1		–
Total	$	5,054	$	6,409	$	273	$	173
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 September 30, 2017 and December 31, 2016, had an associated allowance for credit losses.

Additional information on impaired loans follows:


	2017				2016
(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three Months Ended September 30
Commercial	$	624	$	3	$	845	$	2
Commercial real estate		272		2		334		6
Residential mortgages		2,111		25		2,381		30
Credit card		231		1		214		1
Other retail		288		4		287		3
Total loans, excluding GNMA and covered loans		3,526		35		4,061		42
Loans purchased from GNMA mortgage pools		1,672		17		1,458		23
Covered loans		38		–		38		–
Total	$	5,236	$	52	$	5,557	$	65

Nine Months Ended September 30
Commercial	$	720	$	5	$	786	$	6
Commercial real estate		274		7		321		12
Residential mortgages		2,178		82		2,457		93
Credit card		229		3		212		3
Other retail		282		11		296		9
Total loans, excluding GNMA and covered loans		3,683		108		4,072		123
Loans purchased from GNMA mortgage pools		1,688		54		1,674		71
Covered loans		37		–		38		1
Total	$	5,408	$	162	$	5,784	$	195

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:


	2017						2016
(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 September 30
Commercial		616	$	40	$	27		638	$	200	$	169
Commercial real estate		29		18		16		26		225		223
Residential mortgages		141		15		16		700		81		87
Credit card		8,106		38		38		8,051		38		40
Other retail		1,949		39		32		593		9		9
Total loans, excluding GNMA and covered loans		10,841		150		129		10,008		553		528
Loans purchased from GNMA mortgage pools		1,340		169		171		2,609		317		308
Covered loans		3		–		–		15		3		3
Total loans		12,184	$	319	$	300		12,632	$	873	$	839
Nine Months Ended September 30
Commercial		2,117	$	239	$	195		1,734	$	692	$	567
Commercial real estate		93		56		55		70		242		240
Residential mortgages		641		72		73		1,192		129		136
Credit card		25,657		123		124		22,693		109		111
Other retail		3,210		65		55		1,669		27		28
Total loans, excluding GNMA and covered loans		31,718		555		502		27,358		1,199		1,082
Loans purchased from GNMA mortgage pools		5,312		697		686		6,978		770		761
Covered loans		10		2		2		35		6		6
Total loans		37,040	$	1,254	$	1,190		34,371	$	1,975	$	1,849

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 third quarter of 2017, at September 30, 2017, 61 residential mortgages, 46 home equity and second mortgage loans and 932 loans purchased from GNMA mortgage pools with outstanding balances of $8 million, $4 million and $122 million, respectively, were in a trial period and have estimated post-modification balances of $9 million, $4 million and $123 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.

Modifications to loans in the covered segment are similar in nature to that described above for non-covered loans, and the evaluation and determination of TDR status is similar, except that 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. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under loss sharing agreements with the FDIC.

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:


	2017				2016
(Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Three Months Ended September 30
Commercial		200	$	25		121	$	4
Commercial real estate		10		3		6		3
Residential mortgages		84		7		43		4
Credit card		2,076		9		1,617		7
Other retail		89		1		103		1
Total loans, excluding GNMA and covered loans		2,459		45		1,890		19
Loans purchased from GNMA mortgage pools		354		46		39		5
Covered loans		1		–		2		1
Total loans		2,814	$	91		1,931	$	25

Nine Months Ended September 30
Commercial		555	$	49		374	$	15
Commercial real estate		28		6		21		9
Residential mortgages		251		26		101		13
Credit card		6,107		26		4,822		21
Other retail		320		4		269		5
Total loans, excluding GNMA and covered loans		7,261		111		5,587		63
Loans purchased from GNMA mortgage pools		711		95		93		12
Covered loans		2		–		3		1
Total loans		7,974	$	206		5,683	$	76

In addition to the defaults in the table above, the Company had a total of 402 and 1,278 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, 2017, 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 $50 million and $156 million for three months and nine months ended September 30, 2017, respectively.

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 consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:


	September 30, 2017								December 31, 2016
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other		Total
Residential mortgage loans	$	2,052	$	422	$	–	$	2,474	$	2,248	$	506	$	–	$	2,754
Other retail loans		–		173		–		173		–		278		–		278
Losses reimbursable by the FDIC (a)		–		–		320		320		–		–		381		381
Unamortized changes in FDIC asset (b)		–		–		295		295		–		–		423		423
Covered loans		2,052		595		615		3,262		2,248		784		804		3,836
Foreclosed real estate		–		–		26		26		–		–		26		26
Total covered assets	$	2,052	$	595	$	641	$	3,288	$	2,248	$	784	$	830	$	3,862

(a)

Relates to loss sharing agreements with remaining terms up to two 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.