ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING ASSETS, AND CONCENTRATIONS OF CREDIT RISK

The ALLL is increased through a provision for credit losses that is charged to earnings, based on the Company’s quarterly evaluation of the loan portfolio, and is reduced by net charge-offs and the ALLL associated with sold loans. See Note 1 “Significant Accounting Policies” of the Company’s audited Consolidated Financial Statements, for a detailed discussion of ALLL methodologies and estimation techniques.

On a quarterly basis, the Company reviews and refines its estimate of the allowance for credit losses, taking into consideration changes in portfolio size and composition, historical loss experience, internal risk ratings, current economic conditions, industry performance trends and other pertinent information. Changes in these factors since September 30, 2013, led to an increase in the allowance for credit losses as of September 30, 2014. ALLL decreased over the same period reflecting asset quality improvements and lower charge-offs.

During 2013, the Company modified the way that it establishes the ALLL. The ALLL is reviewed separately for commercial and retail loan portfolios, and the ALLL for each includes an adjustment for qualitative reserves that includes certain risks, factors and events that might not be measured in the statistical analysis. As a result of this change, the unallocated reserve was absorbed into the separately measured commercial and retail qualitative reserves.

There were no other material changes in assumptions or estimation techniques compared with prior periods that impacted the determination of the current period’s ALLL and the reserve for unfunded lending commitments.

The following is a summary of changes in the allowance for credit losses:



	Nine Months Ended September 30, 2014
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses as of January 1, 2014		$498			$723			$1,221
Charge-offs	(30		)	(344		)	(374		)
Recoveries	47			84			131
Net recoveries (charge-offs)	17			(260		)	(243		)
Provision charged to income	27			196			223
Allowance for loan and lease losses as of September 30, 2014	542			659			1,201
Reserve for unfunded lending commitments as of January 1, 2014	39			—			39
Provision for unfunded lending commitments	24			—			24
Reserve for unfunded lending commitments as of September 30, 2014	63			—			63
Total allowance for credit losses as of September 30, 2014		$605			$659			$1,264



	Nine Months Ended September 30, 2013
(in millions)	Commercial			Retail			Unallocated		Total
Allowance for loan and lease losses as of January 1, 2013		$509			$657			$89		$1,255
Charge-offs	(72		)	(470		)	—		(542		)
Recoveries	69			87			—		156
Net charge-offs	(3		)	(383		)	—		(386		)
Provision charged to income	(51		)	329			72		350
Allowance for loan and lease losses as of September 30, 2013	455			603			161		1,219
Reserve for unfunded lending commitments as of January 1, 2013	40			—			—		40
Provision for unfunded lending commitments	(3		)	—			—		(3		)
Reserve for unfunded lending commitments as of September 30, 2013	37			—			—		37
Total allowance for credit losses as of September 30, 2013		$492			$603			$161		$1,256

The recorded investment in loans and leases based on the Company’s evaluation methodology is as follows:



	September 30, 2014						December 31, 2013
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$191		$1,214		$1,405		$239		$1,200		$1,439
Formula-based evaluation	41,279		48,065		89,344		39,156		45,264		84,420
Total		$41,470		$49,279		$90,749		$39,395		$46,464		$85,859

The following is a summary of the allowance for credit losses by evaluation method:



	September 30, 2014						December 31, 2013
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$14		$116		$130		$23		$108		$131
Formula-based evaluation	591		543		1,134		514		615		1,129
Allowance for credit losses		$605		$659		$1,264		$537		$723		$1,260

For commercial loans and leases, the Company utilizes regulatory classification ratings to monitor credit quality. Loans with a “pass” rating are those that the Company believes will be fully repaid in accordance with the contractual loan terms. Commercial loans and leases that are “criticized” are those that have some weakness that indicates an increased probability of future loss. For retail loans, the Company primarily uses the loan’s payment and delinquency status to monitor credit quality. The further a loan is past due, the greater the likelihood of future credit loss. These credit quality indicators for both commercial and retail loans are continually updated and monitored.

The recorded investment in classes of commercial loans and leases based on regulatory classification ratings is as follows:



	September 30, 2014
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$28,857		$861		$517		$121		$30,356
Commercial real estate	6,869		207		97		66		7,239
Leases	3,814		15		46		—		3,875
Total		$39,540		$1,083		$660		$187		$41,470



	December 31, 2013
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$27,433		$588		$541		$105		$28,667
Commercial real estate	6,366		339		116		127		6,948
Leases	3,679		40		61		—		3,780
Total		$37,478		$967		$718		$232		$39,395

The recorded investment in classes of retail loans, categorized by delinquency status is as follows:



	September 30, 2014
(in millions)	Current		1-29 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total
Residential, including originated home equity products		$28,852		$811		$227		$568		$30,458
Home equity products serviced by others	1,638		138		42		52		1,870
Other secured retail	12,438		673		79		16		13,206
Unsecured retail	3,548		118		49		30		3,745
Total		$46,476		$1,740		$397		$666		$49,279



	December 31, 2013
(in millions)	Current		1-29 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total
Residential, including originated home equity products		$27,912		$861		$259		$662		$29,694
Home equity products serviced by others	1,901		167		43		60		2,171
Other secured retail	10,068		550		66		16		10,700
Unsecured retail	3,593		185		67		54		3,899
Total		$43,474		$1,763		$435		$792		$46,464

Nonperforming Assets

A summary of nonperforming loans and leases by class is as follows:



	September 30, 2014						December 31, 2013
(in millions)	Nonaccruing		Accruing and 90 Days or More Delinquent		Total Nonperforming Loans and Leases		Nonaccruing		Accruing and 90 Days or More Delinquent		Total Nonperforming Loans and Leases
Commercial		$93		$—		$93		$96		$—		$96
Commercial real estate	82		1		83		169		—		169
Leases	—		—		—		—		—		—
Total commercial	175		1		176		265		—		265
Residential, including originated home equity products	770		—		770		981		—		981
Home equity products serviced by others	81		—		81		89		—		89
Other secured retail	22		—		22		26		—		26
Unsecured retail	23		7		30		22		33		55
Total retail	896		7		903		1,118		33		1,151
Total		$1,071		$8		$1,079		$1,383		$33		$1,416

A summary of other nonperforming assets is as follows:



(in millions)	September 30, 2014		December 31, 2013
Nonperforming assets, net of valuation allowance:
Commercial		$3		$10
Retail	39		40
Nonperforming assets, net of valuation allowance		$42		$50

Nonperforming assets consists primarily of other real estate owned and is presented in other assets on the Consolidated Balance Sheets.

A summary of key performance indicators is as follows:



	September 30, 2014		December 31, 2013
Nonperforming commercial loans and leases as a percentage of total loans and leases	0.19	%	0.31	%
Nonperforming retail loans as a percentage of total loans and leases	1.00		1.34
Total nonperforming loans and leases as a percentage of total loans and leases	1.19		1.65

Nonperforming commercial assets as a percentage of total assets	0.13		0.23
Nonperforming retail assets as a percentage of total assets	0.72		0.97
Total nonperforming assets as a percentage of total assets	0.85	%	1.20	%

The following is an analysis of the age of the past due amounts (accruing and nonaccruing):



	September 30, 2014						December 31, 2013
(in millions)	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		30-89 Days Past Due		90 Days or More Past Due		Total Past Due
Commercial		$30		$93		$123		$61		$96		$157
Commercial real estate	42		83		125		34		169		203
Leases	2		—		2		24		—		24
Total commercial	74		176		250		119		265		384
Residential, including originated home equity products	227		568		795		259		662		921
Home equity products serviced by others	42		52		94		43		60		103
Other secured retail	79		16		95		66		16		82
Unsecured retail	49		30		79		67		54		121
Total retail	397		666		1,063		435		792		1,227
Total		$471		$842		$1,313		$554		$1,057		$1,611

Impaired loans include: (1) nonaccruing larger balance commercial loans (greater than $3 million carrying value); and (2) commercial and retail TDRs. The following is a summary of impaired loan information by class:



	September 30, 2014
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$116		$14		$53		$195		$169
Commercial real estate	—		—		34		72		34
Total commercial	116		14		87		267		203
Residential, including originated home equity products	361		57		518		1,131		879
Home equity products serviced by others	83		14		23		120		106
Other secured retail	21		4		10		39		31
Unsecured retail	198		41		—		198		198
Total retail	663		116		551		1,488		1,214
Total		$779		$130		$638		$1,755		$1,417



	December 31, 2013
(in millions)	Impaired Loans With a Related Allowance		Allowance on Impaired Loans		Impaired Loans Without a Related Allowance		Unpaid Contractual Balance		Total Recorded Investment in Impaired Loans
Commercial		$86		$15		$33		$214		$119
Commercial real estate	76		8		44		221		120
Total commercial	162		23		77		435		239
Residential, including originated home equity products	355		59		497		1,081		852
Home equity products serviced by others	91		11		21		125		112
Other secured retail	23		3		12		43		35
Unsecured retail	201		35		—		201		201
Total retail	670		108		530		1,450		1,200
Total		$832		$131		$607		$1,885		$1,439

Additional information on impaired loans is as follows:



	For the Three Months Ended September 30,
	2014				2013
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment
Commercial		$2		$138		$1			$154
Commercial real estate	—		62		—			154
Total commercial	2		200		1			308
Residential, including originated home equity products	6		865		6			762
Home equity products serviced by others	1		106		1			118
Other secured retail	1		30		(4		)	36
Unsecured retail	3		195		6			197
Total retail	11		1,196		9			1,113
Total		$13		$1,396		$10			$1,421



	For the Nine Months Ended September 30,
	2014				2013
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$2		$141		$2		$169
Commercial real estate	1		70		1		172
Total commercial	3		211		3		341
Residential, including originated home equity products	19		835		9		727
Home equity products serviced by others	4		105		4		119
Other secured retail	1		29		—		35
Unsecured retail	8		188		8		185
Total retail	32		1,157		21		1,066
Total		$35		$1,368		$24		$1,407

Troubled Debt Restructurings

A loan modification is identified as a TDR when the Company or a bankruptcy court grants the borrower a concession the Company would not otherwise make in response to the borrower’s financial difficulties. TDRs typically result from the Company's loss mitigation efforts and are undertaken in order to improve the likelihood of recovery and continuity of the relationship. The Company's loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower's financial needs. Concessions granted in TDRs for all classes of loans may include lowering the interest rate, forgiving a portion of principal, extending the loan term, lowering scheduled payments for a specified period of time, principal forbearance, or capitalizing past due amounts. A rate increase can be a concession if the increased rate is lower than a market rate for debt with risk similar to that of the restructured loan. TDRs for commercial loans and leases may also involve creating a multiple note structure, accepting non-cash assets, accepting an equity interest, or receiving a performance-based fee. In some cases a TDR may involve multiple concessions. The financial effects of TDRs for all loan classes may include lower income (either due to a lower interest rate or a delay in the timing of cash flows), larger loan loss provisions, and accelerated charge-offs if the modification renders the loan collateral-dependent. In some cases interest income throughout the term of the loan may increase if, for example, the loan is extended or the interest rate is increased as a result of the restructuring.

Because TDRs are impaired loans, the Company measures impairment by comparing the present value of expected future cash flows, or, when appropriate, to the fair value of collateral, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is recognized by creating a valuation allowance or increasing an existing valuation allowance. Any portion of the loan’s recorded investment the Company does not expect to collect as a result of the modification is charged off at the time of modification.

Commercial TDRs were $140 million and $167 million on September 30, 2014 and December 31, 2013, respectively. Retail TDRs totaled $1.2 billion on September 30, 2014 and December 31, 2013. Commitments to lend additional funds to debtors owing receivables which were TDRs were $48 million and $52 million on September 30, 2014 and December 31, 2013, respectively.

The following table summarizes how loans were modified during the three months ended September 30, 2014, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2014, and were paid off in full, charged off, or sold prior to September 30, 2014.



	Primary Modification Types
	Interest Rate Reduction⁽¹⁾					Maturity Extension⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	5		$—		$—	10		$2		$2
Commercial real estate	1	—		—		3	1		1
Total commercial	6	—		—		13	3		3
Residential, including originated home equity products	57	6		7		87	6		6
Home equity products serviced by others	8	—		—		—	—		—
Other secured retail	7	—		—		4	—		—
Unsecured retail	513	3		3		—	—		—
Total retail	585	9		10		91	6		6
Total	591		$9		$10	104		$9		$9



	Primary Modification Types
	Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	3		$—		$—		$—			$—
Commercial real estate	—	—		—		—			—
Total commercial	3	—		—		—			—
Residential, including originated home equity products	466	34		32		(1		)	2
Home equity products serviced by others	35	2		2		(1		)	—
Other secured retail	262	5		3		—			2
Unsecured retail	346	6		6		1			—
Total retail	1,109	47		43		(1		)	4
Total	1,112		$47		$43		($1	)		$4

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

⁽³⁾ Includes modifications other than interest rate reductions or maturity extensions, such as lowering scheduled payments for a specified period of time, principal forbearance, capitalizing arrearages, and principal forgiveness. Also included are the following: deferrals, trial modifications, certain bankruptcies, loans in forbearance and prepayment plans. Modifications can include the deferral of accrued interest resulting in post modification balances being higher than pre-modification.

The following table summarizes how loans were modified during the three months ended September 30, 2013, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2013, and were paid off in full, charged off, or sold prior to September 30, 2013.



	Primary Modification Types
	Interest Rate Reduction⁽¹⁾					Maturity Extension⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	29		$1		$1	22		$1		$1
Commercial real estate	6	4		4		—	—		—
Total commercial	35	5		5		22	1		1
Residential, including originated home equity products	102	11		12		11	1		1
Home equity products serviced by others	4	1		1		—	—		—
Other secured retail	29	—		—		—	—		—
Unsecured retail	712	4		4		—	—		—
Total retail	847	16		17		11	1		1
Total	882		$21		$22	33		$2		$2



	Primary Modification Types
	Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	3		$1		$1		$1			$—
Commercial real estate	1	—		—		(2		)	—
Total commercial	4	1		1		(1		)	—
Residential, including originated home equity products	598	44		42		1			1
Home equity products serviced by others	105	5		4		1			1
Other secured retail	370	5		3		—			2
Unsecured retail	541	10		10		—			—
Total retail	1,614	64		59		2			4
Total	1,618		$65		$60		$1			$4

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

The following table summarizes how loans were modified during the nine months ended September 30, 2014, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2014, and were paid off in full, charged off, or sold prior to September 30, 2014.



	Primary Modification Types
	Interest Rate Reduction⁽¹⁾					Maturity Extension⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	20		$7		$7	38		$4		$4
Commercial real estate	3	—		—		5	1		1
Total commercial	23	7		7		43	5		5
Residential, including originated home equity products	193	20		21		353	24		22
Home equity products serviced by others	29	1		1		1	—		—
Other secured retail	65	1		1		11	—		—
Unsecured retail	1,698	9		9		—	—		—
Total retail	1,985	31		32		365	24		22
Total	2,008		$38		$39	408		$29		$27



	Primary Modification Types
	Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	5		$—		$—		($8	)		$—
Commercial real estate	—	—		—		—			—
Total commercial	5	—		—		(8		)	—
Residential, including originated home equity products	1,387	107		101		(4		)	7
Home equity products serviced by others	144	6		6		(1		)	—
Other secured retail	708	12		8		—			4
Unsecured retail	1,199	22		22		2			—
Total retail	3,438	147		137		(3		)	11
Total	3,443		$147		$137		($11	)		$11

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

The following table summarizes how loans were modified during the nine months ended September 30, 2013, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances include loans that became TDRs during 2013, and were paid off in full, charged off, or sold prior to September 30, 2013.



	Primary Modification Types
	Interest Rate Reduction⁽¹⁾					Maturity Extension⁽²⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	100		$5		$5	106		$5		$5
Commercial real estate	10	7		7		1	—		—
Total commercial	110	12		12		107	5		5
Residential, including originated home equity products	340	38		41		91	8		8
Home equity products serviced by others	23	2		2		1	—		—
Other secured retail	224	2		2		2	—		—
Unsecured retail	2,054	11		11		—	—		—
Total retail	2,641	53		56		94	8		8
Total	2,751		$65		$68	201		$13		$13



	Primary Modification Types
	Other⁽³⁾
(dollars in millions)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Net Change to ALLL Resulting from Modification			Charge-offs Resulting from Modification
Commercial	6		$1		$1		$1			$—
Commercial real estate	1	—		—		(3		)	—
Total commercial	7	1		1		(2		)	—
Residential, including originated home equity products	1,648	129		122		6			7
Home equity products serviced by others	250	12		9		1			3
Other secured retail	1,217	13		10		—			3
Unsecured retail	2,077	38		38		(1		)	—
Total retail	5,192	192		179		6			13
Total	5,199		$193		$180		$4			$13

⁽¹⁾ Includes modifications that consist of multiple concessions, one of which is an interest rate reduction.

⁽²⁾ Includes modifications that consist of multiple concessions, one of which is a maturity extension (unless one of the other concessions was an interest rate reduction).

The table below summarizes TDRs that defaulted during the three months ended September 30, 2014 and 2013 within 12 months of their modification date.



	September 30, 2014			September 30, 2013
(dollars in millions)	Number of Contracts	Balance Defaulted		Number of Contracts	Balance Defaulted
Commercial	5		$4	7		$1
Commercial real estate	1	—		—	—
Total commercial	6	4		7	1
Residential, including originated home equity products	247	22		289	19
Home equity products serviced by others	23	—		51	—
Other secured retail	32	—		84	1
Unsecured retail	224	3		414	6
Total retail	526	25		838	26
Total	532		$29	845		$27

The table below summarizes TDRs that defaulted during the nine months ended September 30, 2014 and 2013 within 12 months of their modification date.



	September 30, 2014			September 30, 2013
(dollars in millions)	Number of Contracts	Balance Defaulted		Number of Contracts	Balance Defaulted
Commercial	22		$7	8		$1
Commercial real estate	2	1		1	—
Total commercial	24	8		9	1
Residential, including originated home equity products	676	55		1,413	104
Home equity products serviced by others	69	1		201	4
Other secured retail	99	1		214	2
Unsecured retail	728	8		1,006	14
Total retail	1,572	65		2,834	124
Total	1,596		$73	2,843		$125

For purposes of the tables above, a payment default is defined as being past due 90 days or more under the modified terms. Amounts represent the loan's recorded investment at the time of payment default. Loan data includes loans meeting the criteria that were paid off in full, charged off, or sold prior to September 30, 2014 and 2013. If a TDR of any loan type becomes 90 days past due after being modified, the loan is written down to the fair value of collateral less cost to sell. The amount written off is charged to the ALLL.

Concentrations of Credit Risk

Most of the Company's business activity is with customers located in the New England, Mid-Atlantic and Mid-West regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of September 30, 2014 and December 31, 2013, the Company had a significant amount of loans collateralized by residential and commercial real estate. There are no significant concentrations in particular industries within the commercial loan portfolio. Exposure to credit losses arising from lending transactions may fluctuate with fair values of collateral supporting loans, which may not perform according to contractual agreements. The Company's policy is to collateralize loans to the extent necessary; however, unsecured loans are also granted on the basis of the financial strength of the applicant and the facts surrounding the transaction.

Certain loan products, including residential mortgages, home equity loans and lines of credit, and credit cards, have contractual features that may increase credit exposure to the Company in the event of an increase in interest rates or a decline in housing values. These products include loans that exceed 90% of the value of the underlying collateral (high LTV loans), interest-only and negative amortization residential mortgages, and loans with low introductory rates. Certain loans have more than one of these characteristics.

The following table presents balances of loans with these characteristics:



	September 30, 2014
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products serviced by others		Credit Cards		Total
High loan-to-value		$847		$2,183		$1,291		$—		$4,321
Interest only/negative amortization	863		—		—		—		863
Low introductory rate	—		—		—		100		100
Multiple characteristics and other	56		—		—		—		56
Total		$1,766		$2,183		$1,291		$100		$5,340



	December 31, 2013
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products serviced by others		Credit Cards		Total
High loan-to-value		$1,054		$2,798		$1,581		$—		$5,433
Interest only/negative amortization	882		—		—		—		882
Low introductory rate	—		—		—		119		119
Multiple characteristics and other	96		—		—		—		96
Total		$2,032		$2,798		$1,581		$119		$6,530