Asset Quality

3 Months Ended

Mar. 31, 2018

NOTE 3 ASSET QUALITY

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency rates may be a key indicator, among other considerations, of credit risk within the loan portfolios. The measurement of delinquency status is based on the contractual terms of each loan. Loans that are 30 days or more past due in terms of payment are considered delinquent.

Nonperforming assets include nonperforming loans and leases, OREO, foreclosed and other assets. Nonperforming loans are those loans accounted for at amortized cost whose credit quality has deteriorated to the extent that full collection of contractual principal and interest is not probable. Interest income is not recognized on these loans. Loans accounted for under the fair value option are reported as performing loans as these loans are accounted for at fair value. However, when nonaccrual criteria is met, interest income is not recognized on these loans. Additionally, certain government insured or guaranteed loans for which we expect to collect substantially all principal and interest are not reported as nonperforming loans and continue to accrue interest. Purchased impaired loans are excluded from nonperforming loans as we are currently accreting interest income over the expected life of the loans.

See Note 1 Accounting Policies in our 2017 Form 10-K for additional information on our loan related policies.

The following tables display the delinquency status of our loans and our nonperforming assets at March 31, 2018 and December 31, 2017, respectively.

Table 38: Analysis of Loan Portfolio (a)



	Accruing
Dollars in millions	Current or Less Than 30 Days Past Due			30-59 Days Past Due			60-89 Days Past Due			90 Days Or More Past Due			Total Past Due (b)				Nonperforming Loans			Fair Value Option Nonaccrual Loans (c)			Purchased Impaired Loans			Total Loans (d)
March 31, 2018
Commercial Lending
Commercial	$	111,754		$	53		$	22		$	53		$	128			$	426								$	112,308
Commercial real estate	28,695			21			12						33				107									28,835
Equipment lease financing	7,779			18			1						19				4									7,802
Total commercial lending	148,228			92			35			53			180				537									148,945
Consumer Lending
Home equity	25,919			94			31						125				820						$	835		27,699
Residential real estate	14,824			130			70			373			573			(b)	391			$	189		1,479			17,456
Credit card	5,540			40			26			45			111				6									5,657
Other consumer
Automobile	13,112			77			18			9			104				79									13,295
Education and other	8,257			94			54			148			296			(b)	9									8,562
Total consumer lending	67,652			435			199			575			1,209				1,305			189			2,314			72,669
Total	$	215,880		$	527		$	234		$	628		$	1,389			$	1,842		$	189		$	2,314		$	221,614
Percentage of total loans	97.41		%	.24		%	.11		%	.28		%	.63		%		.83		%	.09		%	1.04		%	100.00		%
December 31, 2017
Commercial Lending
Commercial	$	109,989		$	45		$	25		$	39		$	109			$	429								$	110,527
Commercial real estate	28,826			27			2						29				123									28,978
Equipment lease financing	7,914			17			1						18				2									7,934
Total commercial lending	146,729			89			28			39			156				554									147,439
Consumer Lending
Home equity	26,561			78			26						104				818						$	881		28,364
Residential real estate	14,389			151			74			486			711			(b)	400			$	197		1,515			17,212
Credit card	5,579			43			26			45			114				6									5,699
Other consumer
Automobile	12,697			79			20			8			107				76									12,880
Education and other	8,525			105			64			159			328			(b)	11									8,864
Total consumer lending	67,751			456			210			698			1,364				1,311			197			2,396			73,019
Total	$	214,480		$	545		$	238		$	737		$	1,520			$	1,865		$	197		$	2,396		$	220,458
Percentage of total loans	97.29		%	.25		%	.11		%	.33		%	.69		%		.85		%	.09		%	1.08		%	100.00		%


(a)	Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment in a loan includes the unpaid principal balance plus net accounting adjustments, less any charge-offs. Recorded investment does not include any associated valuation allowance.

(b)

Past due loan amounts exclude purchased impaired loans, even if contractually past due (or if we do not expect to receive payment in full based on the original contractual terms), as we are currently accreting interest income over the expected life of the loans. Past due loan amounts include government insured or guaranteed Residential real estate mortgages totaling $.5 billion and $.6 billion at March 31, 2018 and December 31, 2017, respectively, and Education and other consumer loans totaling $.3 billion at both March 31, 2018 and December 31, 2017.


(c)	Consumer loans accounted for under the fair value option for which we do not expect to collect substantially all principal and interest are subject to nonaccrual accounting and classification upon meeting any of our nonaccrual policies. Given that these loans are not accounted for at amortized cost, these loans have been excluded from the nonperforming loan population.


(d)	Net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase discounts and premiums totaling $1.2 billion at both March 31, 2018 and December 31, 2017.

At March 31, 2018, we pledged $19.1 billion of commercial loans to the Federal Reserve Bank (FRB) and $64.6 billion of residential real estate and other loans to the Federal Home Loan Bank (FHLB) as collateral for the ability to borrow, if necessary. The comparable amounts at December 31, 2017 were $18.7 billion and $62.8 billion, respectively.

Table 39: Nonperforming Assets



Dollars in millions	March 31 2018			December 31 2017
Nonperforming loans
Total commercial lending	$	537		$	554
Total consumer lending (a)	1,305			1,311
Total nonperforming loans	1,842			1,865
OREO, foreclosed and other assets	162			170
Total nonperforming assets	$	2,004		$	2,035
Nonperforming loans to total loans	.83		%	.85		%
Nonperforming assets to total loans, OREO, foreclosed and other assets	.90		%	.92		%
Nonperforming assets to total assets	.53		%	.53		%


(a)	Excludes most consumer loans and lines of credit not secured by residential real estate, which are charged off after 120 to 180 days past due and are not placed on nonperforming status.

Nonperforming loans also include certain loans whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance, these loans are considered troubled debt restructurings (TDRs). See Note 1 Accounting Policies in our 2017 Form 10-K and the TDR section of this Note 3.

Total nonperforming loans in Table 39 include TDRs of $.9 billion at March 31, 2018 and $1.0 billion at December 31, 2017. TDRs that are performing, including consumer credit card TDR loans, totaled $1.1 billion at both March 31, 2018 and December 31, 2017, and are excluded from nonperforming loans. Nonperforming TDRs are returned to accrual status and classified as performing after demonstrating a period of at least six months of consecutive performance under the restructured terms. Loans where borrowers have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us and loans to borrowers not currently obligated to make both principal and interest payments under the restructured terms are not returned to accrual status. See the TDRs section of this Note 3 for more information on TDRs.

Additional Asset Quality Indicators

We have two overall portfolio segments – Commercial Lending and Consumer Lending. Each of these two segments comprises multiple loan classes. Classes are characterized by similarities in initial measurement, risk attributes and the manner in which we monitor and assess credit risk. The Commercial Lending segment is composed of the commercial, commercial real estate and equipment lease financing loan classes. The Consumer Lending segment is composed of the home equity, residential real estate, credit card and other consumer loan classes.

Commercial Lending Loan Classes

The following table presents asset quality indicators for the Commercial Lending loan classes. See Note 3 Asset Quality in our 2017 Form 10-K for additional information related to our Commercial Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

Table 40: Commercial Lending Asset Quality Indicators (a)



			Criticized Commercial Loans
In millions	Pass Rated		Special Mention (b)		Substandard (c)		Doubtful (d)		Total Loans
March 31, 2018
Commercial	$	106,681	$	2,075	$	3,449	$	103	$	112,308
Commercial real estate	28,274		163		397		1		28,835
Equipment lease financing	7,606		91		102		3		7,802
Total commercial lending	$	142,561	$	2,329	$	3,948	$	107	$	148,945
December 31, 2017
Commercial	$	105,280	$	1,858	$	3,331	$	58	$	110,527
Commercial real estate	28,380		148		435		15		28,978
Equipment lease financing	7,754		77		102		1		7,934
Total commercial lending	$	141,414	$	2,083	$	3,868	$	74	$	147,439


(a)	Loans are classified as “Pass”, “Special Mention”, “Substandard” and “Doubtful” based on the Regulatory Classification definitions. We use PDs and LGDs to rate commercial loans.


(b)	Special Mention rated loans have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects at some future date. These loans do not expose us to sufficient risk to warrant a more adverse classification at the reporting date.


(c)	Substandard rated loans have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.


(d)	Doubtful rated loans possess all the inherent weaknesses of a Substandard rated loan with the additional characteristics that the weakness makes collection or liquidation in full improbable due to existing facts, conditions and values.

Consumer Lending Loan Classes

See Note 3 Asset Quality in our 2017 Form 10-K for additional information related to our Consumer Lending loan classes, including discussion around the asset quality indicators that we use to monitor and manage the credit risk associated with each loan class.

Home Equity and Residential Real Estate Loan Classes

The following table presents asset quality indicators for the home equity and residential real estate loan classes, excluding consumer purchased impaired loans of $2.3 billion and $2.4 billion at March 31, 2018 and December 31, 2017, respectively, and government insured or guaranteed residential real estate mortgages of $.7 billion and $.8 billion at March 31, 2018 and December 31, 2017, respectively.

Table 41: Asset Quality Indicators for Home Equity and Residential Real Estate Loans – Excluding Purchased Impaired and Government Insured or Guaranteed Loans (a)



	Home Equity				Residential Real Estate		Total
March 31, 2018 - in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	99	$	359	$	123	$	581
Less than or equal to 660 (b)	16		58		24		98
Missing FICO	1		4		1		6
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660	277		794		249		1,320
Less than or equal to 660 (b)	45		133		49		227
Missing FICO	1		8		5		14
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660	333		853		300		1,486
Less than or equal to 660	51		132		51		234
Missing FICO	2		8		3		13
Less than 90% and updated FICO scores:
Greater than 660	13,678		7,877		13,795		35,350
Less than or equal to 660	1,212		775		555		2,542
Missing FICO	42		56		97		195
Total home equity and residential real estate loans	$	15,757	$	11,057	$	15,252	$	42,066



December 31, 2017 - in millions	Home Equity				Residential Real Estate		Total
December 31, 2017 - in millions	1st Liens		2nd Liens		Residential Real Estate		Total
Current estimated LTV ratios
Greater than or equal to 125% and updated FICO scores:
Greater than 660	$	108	$	385	$	126	$	619
Less than or equal to 660 (b)	21		64		23		108
Missing FICO	1		5		1		7
Greater than or equal to 100% to less than 125% and updated FICO scores:
Greater than 660	300		842		253		1,395
Less than or equal to 660 (b)	46		143		45		234
Missing FICO	2		9		5		16
Greater than or equal to 90% to less than 100% and updated FICO scores:
Greater than 660	331		890		324		1,545
Less than or equal to 660	55		134		55		244
Missing FICO	2		9		4		15
Less than 90% and updated FICO scores:
Greater than 660	13,954		8,066		13,445		35,465
Less than or equal to 660	1,214		774		507		2,495
Missing FICO	42		57		95		194
Total home equity and residential real estate loans	$	16,076	$	11,378	$	14,883	$	42,337


(a)	Amounts shown represent recorded investment.

(b)

Higher risk loans are defined as loans with both an updated FICO score of less than or equal to 660 and an updated LTV greater than or equal to 100%. The following states had the highest percentage of higher risk loans at March 31, 2018: New Jersey 16%, Pennsylvania 13%, Illinois 12%, Ohio 10%, Maryland 8%, Florida 6%, North Carolina 5% and Michigan 4%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 26% of the higher risk loans. The following states had the highest percentage of higher risk loans at December 31, 2017: New Jersey 17%, Pennsylvania 13%, Illinois 13%, Ohio 9%, Maryland 8%, Florida 6%, North Carolina 5% and Michigan 4%. The remainder of the states had lower than 4% of the higher risk loans individually, and collectively they represent approximately 25% of the higher risk loans.

Credit Card and Other Consumer Loan Classes

The following table presents asset quality indicators for the credit card and other consumer loan classes.

Table 42: Credit Card and Other Consumer Loan Classes Asset Quality Indicators



	Credit Card				Other Consumer (a)
Dollars in millions	Amount		% of Total Loans Using FICO Credit Metric		Amount		% of Total Loans Using FICO Credit Metric
March 31, 2018
FICO score greater than 719	$	3,368	60	%	$	10,235	61	%
650 to 719	1,603		28	%	4,611		27	%
620 to 649	254		5	%	815		5	%
Less than 620	297		5	%	844		5	%
No FICO score available or required (b)	135		2	%	316		2	%
Total loans using FICO credit metric	5,657		100	%	16,821		100	%
Consumer loans using other internal credit metrics (a)					5,036
Total loan balance	$	5,657			$	21,857
Weighted-average updated FICO score (b)			733				737
December 31, 2017
FICO score greater than 719	$	3,457	61	%	$	10,366	63	%
650 to 719	1,596		28	%	4,352		27	%
620 to 649	250		4	%	659		4	%
Less than 620	272		5	%	715		4	%
No FICO score available or required (b)	124		2	%	314		2	%
Total loans using FICO credit metric	5,699		100	%	16,406		100	%
Consumer loans using other internal credit metrics (a)					5,338
Total loan balance	$	5,699			$	21,744
Weighted-average updated FICO score (b)			735				741

(a)

We use updated FICO scores as an asset quality indicator for non-government guaranteed or insured education loans, automobile loans and other secured and unsecured lines and loans. We use internal credit metrics, such as delinquency status, geography or other factors, as an asset quality indicator for government guaranteed or insured education loans and consumer loans to high net worth individuals, as internal credit metrics are more relevant than FICO scores for these types of loans.

(b)

Credit card loans and other consumer loans with no FICO score available or required generally refers to new accounts issued to borrowers with limited credit history, accounts for which we cannot obtain an updated FICO score (e.g., recent profile changes), cards issued with a business name and/or cards secured by collateral. Management proactively assesses the risk and size of this loan portfolio and, when necessary, takes actions to mitigate the credit risk. Weighted-average updated FICO score excludes accounts with no FICO score available or required.

Troubled Debt Restructurings (TDRs)

Table 43 quantifies the number of loans that were classified as TDRs, as well as the change in the loans’ recorded investment as a result of becoming a TDR during the three months ended March 31, 2018 and March 31, 2017. Additionally, the table provides information about the types of TDR concessions. See Note 3 Asset Quality in our 2017 Form 10-K for additional discussion of TDRs.

Table 43: Financial Impact and TDRs by Concession Type (a)



			Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the three months ended March 31, 2018 Dollars in millions	Number of Loans		Pre-TDR Recorded Investment (b)		Principal Forgiveness		Rate Reduction		Other		Total
Total commercial lending		32	$	10			$	1	$	7	$	8
Total consumer lending		2,979	49				30		16		46
Total TDRs		3,011	$	59			$	31	$	23	$	54
During the three months ended March 31, 2017 Dollars in millions
Total commercial lending		49	$	35	$	4	$	6	$	5	$	15
Total consumer lending		2,899	73				37		31		68
Total TDRs		2,948	$	108	$	4	$	43	$	36	$	83


(a)	Impact of partial charge-offs at TDR date are included in this table.


(b)	Represents the recorded investment of the loans as of the quarter end prior to TDR designation, and excludes immaterial amounts of accrued interest receivable.


(c)	Represents the recorded investment of the TDRs as of the end of the quarter in which the TDR occurs, and excludes immaterial amounts of accrued interest receivable.

After a loan is determined to be a TDR, we continue to track its performance under its most recent restructured terms. We consider a TDR to have subsequently defaulted when it becomes 60 days past due after the most recent date the loan was restructured. The recorded investment of loans that were both (i) classified as TDRs or were subsequently modified during each 12-month period preceding January 1, 2018 and January 1, 2017, respectively, and (ii) subsequently defaulted during the three months ended March 31, 2018 and March 31, 2017 totaled $21 million and $32 million, respectively.

Impaired Loans

Impaired loans include commercial and consumer nonperforming loans and TDRs, regardless of nonperforming status. TDRs that were previously recorded at amortized cost and are now classified and accounted for as held for sale are also included. Excluded from impaired loans are nonperforming leases, loans accounted for as held for sale other than the TDRs described in the preceding sentence, loans accounted for under the fair value option, smaller balance homogeneous type loans and purchased impaired loans. We did not recognize any interest income on impaired loans that have not returned to performing status, while they were impaired during the three months ended March 31, 2018 and March 31, 2017. Table 44 provides further detail on impaired loans individually evaluated for impairment and the associated allowance for loan and lease losses (ALLL). Certain commercial and consumer impaired loans do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

Table 44: Impaired Loans



In millions	Unpaid Principal Balance		Recorded Investment		Associated Allowance		Average Recorded Investment (a)
March 31, 2018
Impaired loans with an associated allowance
Total commercial lending	$	537	$	371	$	101	$	363
Total consumer lending	980		915		152		964
Total impaired loans with an associated allowance	1,517		1,286		253		1,327
Impaired loans without an associated allowance
Total commercial lending	427		326				345
Total consumer lending	1,158		693				666
Total impaired loans without an associated allowance	1,585		1,019				1,011
Total impaired loans	$	3,102	$	2,305	$	253	$	2,338
December 31, 2017
Impaired loans with an associated allowance
Total commercial lending	$	580	$	353	$	76	$	419
Total consumer lending	1,061		1,014		195		1,072
Total impaired loans with an associated allowance	1,641		1,367		271		1,491
Impaired loans without an associated allowance
Total commercial lending	494		366				330
Total consumer lending	1,019		638				648
Total impaired loans without an associated allowance	1,513		1,004				978
Total impaired loans	$	3,154	$	2,371	$	271	$	2,469


(a)	Average recorded investment is for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively.