Asset Quality

12 Months Ended

Dec. 31, 2018

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 and foreclosed 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 for additional information on our loan related policies.

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

Table 37: 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)
December 31, 2018
Commercial Lending
Commercial	$	116,300		$	82		$	54		$	52		$	188			$	346								$	116,834
Commercial real estate	28,056			6			3						9				75									28,140
Equipment lease financing	7,229			56			12						68				11									7,308
Total commercial lending	151,585			144			69			52			265				432									152,282
Consumer Lending
Home equity	24,556			66			25						91				797						$	679		26,123
Residential real estate	16,216			135			73			363			571			(b)	350			$	182		1,338			18,657
Automobile	14,165			113			29			12			154				100									14,419
Credit card	6,222			46			29			53			128				7									6,357
Education	3,571			69			41			141			251			(b)										3,822
Other consumer	4,552			12			5			8			25				8									4,585
Total consumer lending	69,282			441			202			577			1,220				1,262			182			2,017			73,963
Total	$	220,867		$	585		$	271		$	629		$	1,485			$	1,694		$	182		$	2,017		$	226,245
Percentage of total loans	97.62		%	.26		%	.12		%	.28		%	.66		%		.75		%	.08		%	.89		%	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
Automobile	12,697			79			20			8			107				76									12,880
Credit card	5,579			43			26			45			114				6									5,699
Education	4,154			90			58			152			300			(b)										4,454
Other consumer	4,371			15			6			7			28				11									4,410
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 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 December 31, 2018 and 2017, respectively, and Education loans totaling $.2 billion and $.3 billion at December 31, 2018 and 2017, respectively.


(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 December 31, 2018 and 2017.

In the normal course of business, we originate or purchase loan products with contractual characteristics that, when concentrated, may increase our exposure as a holder of those loan products. Possible product features that may create a concentration of credit risk would include a high original or updated loan-to-value (LTV) ratio, terms that may expose the borrower to future increases in repayments above increases in market interest rates, and interest-only loans, among others.

We originate interest-only loans to commercial borrowers. Such credit arrangements are usually designed to match borrower cash flow expectations (e.g., working capital lines, revolvers). These products are standard in the financial services industry and product features are considered during the underwriting process to mitigate the increased risk that the interest-only feature may result in borrowers not being able to make interest and principal payments when due. We do not believe that these product features create a concentration of credit risk.

At December 31, 2018, we pledged $17.3 billion of commercial loans to the Federal Reserve Bank (FRB) and $63.2 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. Amounts pledged reflect the unpaid principal balances.

Table 38: Nonperforming Assets



Dollars in millions	December 31 2018			December 31 2017
Nonperforming loans
Total commercial lending	$	432		$	554
Total consumer lending (a)	1,262			1,311
Total nonperforming loans	1,694			1,865
OREO and foreclosed assets	114			170
Total nonperforming assets	$	1,808		$	2,035
Nonperforming loans to total loans	.75		%	.85		%
Nonperforming assets to total loans, OREO and foreclosed assets	.80		%	.92		%
Nonperforming assets to total assets	.47		%	.53		%
Interest on nonperforming loans (b)
Computed on original terms	$	123		$	114
Recognized prior to nonperforming status	$	17		$	19


(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.


(b)	Amounts are for the year ended.

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 TDRs. See Note 1 Accounting Policies and the TDR section of this Note 3.

Total nonperforming loans in Table 38 include TDRs of $.9 billion at December 31, 2018 and $1.0 billion at December 31, 2017. TDRs that are performing, including consumer credit card TDR loans, totaled $1.0 billion and $1.1 billion at December 31, 2018 and 2017, respectively, 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 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, automobile, credit card, education and other consumer loan classes.

Commercial Lending Asset Classes

Commercial Loan Class

For commercial loans, we monitor the performance of the borrower in a disciplined and regular manner based upon the level of credit risk inherent in the loan. To evaluate the level of credit risk, we assign internal risk ratings reflecting our estimates of the borrower’s PD and LGD for each related credit facility. This two-dimensional credit risk rating methodology provides granularity in the risk monitoring process on an ongoing basis. These ratings are reviewed and updated, generally at least once per year. Additionally, no less frequently than on an annual basis, we review PD rates related to each rating grade based upon internal historical data. These rates are updated as needed and augmented by market data as deemed necessary. For small balance homogeneous pools of commercial loans, mortgages and leases, we apply statistical modeling to assist in determining the PD within these pools. Further, on a periodic basis, we update our LGD estimation methodology based upon historical data. The combination of the PD and LGD ratings assigned to commercial loans, capturing both the combination of expectations of default and loss severity in event of default, reflects the relative estimated likelihood of loss at the reporting date. In general, loans with better PD and LGD tend to have a lower likelihood of loss compared to loans with worse PD and LGD. The loss amount also considers an estimate of EAD, which we also periodically update based upon historical data.

Based upon the amount of the lending arrangement and our risk rating assessment, we follow a formal schedule of written periodic review. Quarterly, we conduct formal reviews of a market’s or business unit’s loan portfolio, focusing on those loans which we perceive to be of higher risk, based upon PDs and LGDs, or loans for which credit quality is weakening. If circumstances warrant, it is our practice to review any customer obligation and its level of credit risk more frequently. We attempt to proactively manage our loans by using various procedures that are customized to the risk of a given loan, including ongoing outreach, contact, and assessment of obligor financial conditions, collateral inspection and appraisal.

Commercial Real Estate Loan Class

We manage credit risk associated with our commercial real estate loan class similar to commercial loans by analyzing PD and LGD. Additionally, risks associated with commercial real estate activities tend to be correlated to the loan structure and collateral location, project progress and business environment. As a result, these attributes are also monitored and utilized in assessing credit risk.

As with the commercial class, a formal schedule of periodic review is also performed to assess market/geographic risk and business unit/industry risk. Often as a result of these overviews, increased scrutiny can be placed on areas of higher risk, including adverse changes in risk ratings, deteriorating operating trends, and/or areas that concern management. These reviews are designed to assess risk and take actions to mitigate our exposure to such risks.

Equipment Lease Financing Loan Class

We manage credit risk associated with our equipment lease financing loan class similar to commercial loans by analyzing PD and LGD.

Based upon the dollar amount of the lease and the level of credit risk, we follow a formal schedule of periodic review. Generally, this occurs quarterly, although we have established practices to review such credit risk more frequently if circumstances warrant. Our review process entails analysis of the following factors: equipment value/residual value, exposure levels, jurisdiction risk, industry risk and guarantor requirements as applicable.

Table 39: Commercial Lending Asset Quality Indicators (a)



In millions	Pass Rated		Criticized		Total Loans
December 31, 2018
Commercial	$	111,276	$	5,558	$	116,834
Commercial real estate	27,682		458		28,140
Equipment lease financing	7,180		128		7,308
Total commercial lending	$	146,138	$	6,144	$	152,282
December 31, 2017
Commercial	$	105,280	$	5,247	$	110,527
Commercial real estate	28,380		598		28,978
Equipment lease financing	7,754		180		7,934
Total commercial lending	$	141,414	$	6,025	$	147,439


(a)	Loans are classified as "Pass" and "Criticized" based on the Regulatory Classification definitions. The "Criticized" classification includes loans that were rated “Special Mention”, “Substandard” or “Doubtful” as of December 31, 2018 and 2017. We use PD and LGD to rate loans in the commercial lending portfolio.

Consumer Lending Asset Classes

Home Equity and Residential Real Estate Loan Classes

We use several credit quality indicators, including delinquency information, nonperforming loan information, updated credit scores, and originated and updated LTV ratios to monitor and manage credit risk within the home equity and residential real estate loan classes. A summary of asset quality indicators follows:

Delinquency/Delinquency Rates: We monitor trending of delinquency/delinquency rates for home equity and residential real estate loans. See Table 37 for additional information.

Nonperforming Loans: We monitor trending of nonperforming loans for home equity and residential real estate loans. See Table 37 for additional information.

Credit Scores: We use a national third-party provider to update FICO credit scores for home equity loans and lines of credit and residential real estate loans at least quarterly. The updated scores are incorporated into a series of credit management reports, which are utilized to monitor the risk in the loan classes.

LTV (inclusive of combined loan-to-value (CLTV) for first and subordinate lien positions): At least annually, we update the property values of real estate collateral and calculate an updated LTV ratio. For open-end credit lines secured by real estate in regions experiencing significant declines in property values, more frequent valuations may occur. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

We use a combination of original LTV and updated LTV for internal risk management and reporting purposes (e.g., line management, loss mitigation strategies). In addition to the fact that estimated property values by their nature are estimates, given certain data limitations it is important to note that updated LTVs may be based upon management’s assumptions (e.g., if an updated LTV is not provided by the third-party service provider, home price index (HPI) changes will be incorporated in arriving at management’s estimate of updated LTV).

Updated LTV is estimated using modeled property values. The related estimates and inputs are based upon an approach that uses a combination of third-party automated valuation models (AVMs), broker price opinions (BPOs), HPI indices, property location, internal and external balance information, origination data and management assumptions. We generally utilize origination lien balances provided by a third-party, where applicable, which do not include an amortization assumption when calculating updated LTV. Accordingly, the results of the calculations do not represent actual appraised loan level collateral or updated LTV based upon lien balances held by others, and as such, are necessarily imprecise and subject to change as we refine our methodology.

The following table presents certain asset quality indicators for the home equity and residential real estate loan classes.

Table 40: Asset Quality Indicators for Home Equity and Residential Real Estate Loans



	December 31, 2018				December 31, 2017
	Home equity		Residential real estate		Home equity		Residential real estate
In millions
Current estimated LTV ratios
Greater than or equal to 125%	$	461	$	116	$	583	$	150
Greater than or equal to 100% to less than 125%	1,020		255		1,342		303
Greater than or equal to 90% to less than 100%	1,174		335		1,421		382
Less than 90%	22,644		15,922		24,105		14,033
No LTV ratio available	145		6		32		23
Government insured or guaranteed loans			685				806
Purchased impaired loans	679		1,338		881		1,515
Total loans	$	26,123	$	18,657	$	28,364	$	17,212
Updated FICO Scores
Greater than 660	$	22,996	$	15,956	$	24,876	$	14,148
Less than or equal to 660	2,210		585		2,451		630
No FICO score available	238		93		156		113
Government insured or guaranteed loans			685				806
Purchased impaired loans	679		1,338		881		1,515
Total loans	$	26,123	$	18,657	$	28,364	$	17,212

Automobile, Credit Card, Education and Other Consumer Loan Classes

We monitor a variety of asset quality information in the management of these consumer loan classes. For all loan types, we generally use a combination of internal loan parameters as well as an updated FICO score. We use FICO scores as a primary asset quality indicator for automobile and credit card loans, as well as non-government guaranteed or non-insured education loans and other secured and unsecured lines and loans. Internal credit metrics, such as delinquency status, are relied upon heavily as asset quality indicators for government guaranteed or insured education loans and consumer loans to high net worth individuals, as internal credit metrics tend to be more relevant than FICO scores for these types of loans.

Along with the monitoring of delinquency trends and losses for each class, FICO credit score updates are obtained at least quarterly along with a variety of credit bureau attributes. Loans with high FICO scores tend to have a lower likelihood of loss. Conversely, loans with low FICO scores tend to have a higher likelihood of loss.

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

Table 41: Asset Quality Indicators for Automobile, Credit Card, Education and Other Consumer Loans



Dollars in millions	Automobile		Credit Card		Education		Other Consumer
December 31, 2018
FICO score greater than 719	$	7,740	$	3,809	$	1,240	$	1,280
650 to 719	4,365		1,759		194		641
620 to 649	1,007		280		26		106
Less than 620	1,027		332		24		105
No FICO score available or required (a)	280		177		57		25
Total loans using FICO credit metric	14,419		6,357		1,541		2,157
Consumer loans using other internal credit metrics					2,281		2,428
Total loans	$	14,419	$	6,357	$	3,822	$	4,585
Weighted-average updated FICO score (b)	726		733		774		732
December 31, 2017
FICO score greater than 719	$	7,825	$	3,457	$	1,315	$	1,226
650 to 719	3,636		1,596		209		507
620 to 649	543		250		31		85
Less than 620	587		272		30		98
No FICO score available or required (a)	242		124		49		23
Total loans using FICO credit metric	12,833		5,699		1,634		1,939
Consumer loans using other internal credit metrics	47				2,820		2,471
Total loans	$	12,880	$	5,699	$	4,454	$	4,410
Weighted-average updated FICO score (b)	738		735		773		737

(a)

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 category and, when necessary, takes actions to mitigate the credit risk.


(b)	Weighted-average updated FICO score excludes accounts with no FICO score available or required.

Troubled Debt Restructurings (TDRs)

A TDR is a loan whose terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. TDRs result from our loss mitigation activities, and include rate reductions, principal forgiveness, postponement/reduction of scheduled amortization, and extensions, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Additionally, TDRs also result from borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us. In those situations where principal is forgiven, the amount of such principal forgiveness is immediately charged off.

Some TDRs may not ultimately result in the full collection of principal and interest, as restructured, and result in potential incremental losses. These potential incremental losses have been factored into our overall ALLL estimate. The level of any subsequent defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is ultimately repaid in full, the collateral is foreclosed upon, or it is fully charged off. We held specific reserves in the ALLL of $.2 billion at both December 31, 2018 and 2017, for the total TDR portfolio.

Table 42 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 2018, 2017 and 2016. Additionally, the table provides information about the types of TDR concessions. The Principal Forgiveness TDR category includes principal forgiveness and accrued interest forgiveness. The Rate Reduction TDR category includes reduced interest rate and interest deferral. The Other TDR category primarily includes consumer borrowers that have been discharged from personal liability through Chapter 7 bankruptcy and have not formally reaffirmed their loan obligations to us, as well as postponement/reduction of scheduled amortization and contractual extensions for both consumer and commercial borrowers.

In some cases, there have been multiple concessions granted on one loan. This is most common within the commercial loan portfolio. When there have been multiple concessions granted in the commercial loan portfolio, the principal forgiveness concession was prioritized for purposes of determining the inclusion in Table 42. Second in priority would be rate reduction. In the event that multiple concessions are granted on a consumer loan, concessions resulting from discharge from personal liability through Chapter 7 bankruptcy without formal affirmation of the loan obligations to us would be prioritized and included in the Other type of concession in Table 42. After that, consumer loan concessions would follow the previously discussed priority of concessions for the commercial loan portfolio.

Table 42: Financial Impact and TDRs by Concession Type (a)



	Number of Loans	Pre-TDR Recorded Investment (b)		Post-TDR Recorded Investment (c)
During the year ended December 31, 2018 Dollars in millions	Number of Loans	Pre-TDR Recorded Investment (b)		Principal Forgiveness		Rate Reduction		Other		Total
Total commercial lending	85	$	272	$	2	$	67	$	179	$	248
Total consumer lending	12,096	163		1		86		63		150
Total TDRs	12,181	$	435	$	3	$	153	$	242	$	398
During the year ended December 31, 2017 Dollars in millions
Total commercial lending	120	$	293	$	18	$	7	$	227	$	252
Total consumer lending	11,993	248				146		97		243
Total TDRs	12,113	$	541	$	18	$	153	$	324	$	495
During the year ended December 31, 2016 Dollars in millions
Total commercial lending	143	$	524			$	57	$	413	$	470
Total consumer lending	11,262	245				157		76		233
Total TDRs	11,405	$	769			$	214	$	489	$	703


(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, 2017 and 2016, and (ii) subsequently defaulted during the 12-month period following each of January 1, 2018, 2017 and 2016, totaled $.1 billion, $.1 billion and $.2 billion, 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 year ended December 31, 2018 and December 31, 2017. Table 43 provides further detail on impaired loans individually evaluated for impairment and the associated allowance for loan and lease losses. Certain commercial and consumer impaired loans do not have a related ALLL as the valuation of these impaired loans exceeded the recorded investment.

Table 43: Impaired Loans



In millions	Unpaid Principal Balance		Recorded Investment		Associated Allowance		Average Recorded Investment (a)
December 31, 2018
Impaired loans with an associated allowance
Total commercial lending	$	440	$	315	$	73	$	349
Total consumer lending	863		817		136		904
Total impaired loans with an associated allowance	1,303		1,132		209		1,253
Impaired loans without an associated allowance
Total commercial lending	413		326				294
Total consumer lending	1,042		625				645
Total impaired loans without an associated allowance	1,455		951				939
Total impaired loans	$	2,758	$	2,083	$	209	$	2,192
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 years ended December 31, 2018 and 2017.