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

The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. It 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” to the Company’s audited Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016, for a detailed discussion of ALLL reserve 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.

There were no 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.

A summary of changes in the allowance for credit losses is presented below:



	Three Months Ended March 31, 2017
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$663			$573			$1,236
Charge-offs	(24		)	(109		)	(133		)
Recoveries	5			41			46
Net charge-offs	(19		)	(68		)	(87		)
Provision charged to income	9			66			75
Allowance for loan and lease losses, end of period	653			571			1,224
Reserve for unfunded lending commitments, beginning of period	72			—			72
Provision for unfunded lending commitments	21			—			21
Reserve for unfunded lending commitments as of period end	93			—			93
Total allowance for credit losses as of period end		$746			$571			$1,317



	Three Months Ended March 31, 2016
(in millions)	Commercial			Retail			Total
Allowance for loan and lease losses, beginning of period		$596			$620			$1,216
Charge-offs	(13		)	(113		)	(126		)
Recoveries	4			39			43
Net charge-offs	(9		)	(74		)	(83		)
Provision charged to income	46			45			91
Allowance for loan and lease losses, end of period	633			591			1,224
Reserve for unfunded lending commitments, beginning of period	58			—			58
Provision for unfunded lending commitments	—			—			—
Reserve for unfunded lending commitments as of period end	58			—			58
Total allowance for credit losses as of period end		$691			$591			$1,282

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



	March 31, 2017						December 31, 2016
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$513		$805		$1,318		$424		$799		$1,223
Formula-based evaluation	51,379		55,414		106,793		51,227		55,219		106,446
Total		$51,892		$56,219		$108,111		$51,651		$56,018		$107,669

A summary of the allowance for credit losses by evaluation method is presented below:



	March 31, 2017						December 31, 2016
(in millions)	Commercial		Retail		Total		Commercial		Retail		Total
Individually evaluated		$64		$45		$109		$63		$43		$106
Formula-based evaluation	682		526		1,208		672		530		1,202
Allowance for credit losses		$746		$571		$1,317		$735		$573		$1,308

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 or potential weakness that indicate an increased probability of future loss. “Criticized” loans are grouped into three categories, “special mention,” “substandard” and “doubtful.” Special mention loans have potential weaknesses that, if left uncorrected, may result in deterioration of the Company’s credit position at some future date. Substandard loans are inadequately protected loans; these loans have well-defined weaknesses that could hinder normal repayment or collection of the debt. Doubtful loans have the same weaknesses as substandard, with the added characteristics that the possibility of loss is high and collection of the full amount of the loan is improbable. 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 commercial loans and leases based on regulatory classification ratings is presented below:



	March 31, 2017
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$35,125		$1,129		$807		$308		$37,369
Commercial real estate	10,483		330		56		46		10,915
Leases	3,447		55		106		—		3,608
Total		$49,055		$1,514		$969		$354		$51,892



	December 31, 2016
			Criticized
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial		$35,010		$1,015		$1,027		$222		$37,274
Commercial real estate	10,146		370		58		50		10,624
Leases	3,583		52		103		15		3,753
Total		$48,739		$1,437		$1,188		$287		$51,651

The recorded investment in classes of retail loans, categorized by delinquency status is presented below:



	March 31, 2017
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$15,129		$87		$36		$9		$128		$15,389
Home equity loans	1,534		104		20		6		66		1,730
Home equity lines of credit	13,197		353		57		16		189		13,812
Home equity loans serviced by others	632		34		14		2		16		698
Home equity lines of credit serviced by others	150		20		4		1		26		201
Automobile	12,534		889		140		29		44		13,636
Education	7,083		93		14		10		42		7,242
Credit cards	1,581		36		10		7		16		1,650
Other retail	1,785		49		13		7		7		1,861
Total		$53,625		$1,665		$308		$87		$534		$56,219



	December 31, 2016
			Days Past Due
(in millions)	Current		1-29		30-59		60-89		90 or More		Total
Residential mortgages		$14,807		$108		$53		$12		$135		$15,115
Home equity loans	1,628		127		23		7		73		1,858
Home equity lines of credit	13,432		396		57		20		195		14,100
Home equity loans serviced by others	673		41		14		5		17		750
Home equity lines of credit serviced by others	158		25		3		2		31		219
Automobile	12,509		1,177		172		38		42		13,938
Education	6,379		151		24		13		43		6,610
Credit cards	1,611		43		12		9		16		1,691
Other retail	1,676		45		8		4		4		1,737
Total		$52,873		$2,113		$366		$110		$556		$56,018

Nonperforming Assets

The following table presents nonperforming loans and leases and loans accruing and 90 days or more past due:



	Nonperforming				Accruing and 90 days or more past due
(in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Commercial		$367		$322		$5		$2
Commercial real estate	46		50		—		—
Leases	—		15		—		—
Total commercial	413		387		5		2
Residential mortgages^{(1) (2)}	142		144		13		18
Home equity loans	89		98		—		—
Home equity lines of credit	238		243		—		—
Home equity loans serviced by others	29		32		—		—
Home equity lines of credit serviced by others	30		33		—		—
Automobile	52		50		—		—
Education	38		38		4		5
Credit card	16		16		—		—
Other retail	3		4		4		1
Total retail	637		658		21		24
Total		$1,050		$1,045		$26		$26

⁽¹⁾ Nonperforming balances exclude first lien residential mortgage loans that are 100% guaranteed by the Federal Housing Administration. These loans, which are accruing and 90 days or more past due, totaled $13 million and $18 million as of March 31, 2017 and December 31, 2016, respectively.

⁽²⁾Nonperforming balances exclude guaranteed residential mortgage loans sold to GNMA for which the Company has the right, but not the obligation, to repurchase. These loans totaled $31 million and $32 million as of March 31, 2017 and December 31, 2016, respectively. These loans are consolidated on the Company’s Consolidated Balance Sheets.

Other nonperforming assets consist primarily of other real estate owned and are presented in other assets on the Consolidated Balance Sheets. A summary of other nonperforming assets is presented below:



(in millions)	March 31, 2017		December 31, 2016
Nonperforming assets, net of valuation allowance:
Commercial		$—		$—
Retail	45		49
Nonperforming assets, net of valuation allowance		$45		$49

A summary of key performance indicators is presented below:



	March 31, 2017		December 31, 2016
Nonperforming commercial loans and leases as a percentage of total loans and leases	0.38	%	0.36	%
Nonperforming retail loans as a percentage of total loans and leases	0.59		0.61
Total nonperforming loans and leases as a percentage of total loans and leases	0.97	%	0.97	%

Nonperforming commercial assets as a percentage of total assets	0.27	%	0.26	%
Nonperforming retail assets as a percentage of total assets	0.46		0.47
Total nonperforming assets as a percentage of total assets	0.73	%	0.73	%

The recorded investment in mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings are in process was $173 million and $177 million as of March 31, 2017 and December 31, 2016, respectively.

An analysis of the age of both accruing and nonaccruing loan and lease past due amounts is presented below:



	March 31, 2017								December 31, 2016
	Days Past Due								Days Past Due
(in millions)	30-59		60-89		90 or More		Total		30-59		60-89		90 or More		Total
Commercial		$40		$2		$372		$414		$36		$4		$324		$364
Commercial real estate	4		—		46		50		1		2		50		53
Leases	4		1		—		5		1		—		15		16
Total commercial	48		3		418		469		38		6		389		433
Residential mortgages	36		9		128		173		53		12		135		200
Home equity loans	20		6		66		92		23		7		73		103
Home equity lines of credit	57		16		189		262		57		20		195		272
Home equity loans serviced by others	14		2		16		32		14		5		17		36
Home equity lines of credit serviced by others	4		1		26		31		3		2		31		36
Automobile	140		29		44		213		172		38		42		252
Education	14		10		42		66		24		13		43		80
Credit cards	10		7		16		33		12		9		16		37
Other retail	13		7		7		27		8		4		4		16
Total retail	308		87		534		929		366		110		556		1,032
Total		$356		$90		$952		$1,398		$404		$116		$945		$1,465

Impaired loans include nonaccruing larger balance commercial loans (greater than $3 million carrying value) and commercial and retail TDRs (excluding loans held for sale). A summary of impaired loans by class is presented below:



	March 31, 2017
(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		$259		$54		$212		$539		$471
Commercial real estate	35		10		7		44		42
Total commercial	294		64		219		583		513
Residential mortgages	42		3		139		237		181
Home equity loans	50		3		97		196		147
Home equity lines of credit	21		1		183		253		204
Home equity loans serviced by others	39		3		18		68		57
Home equity lines of credit serviced by others	4		—		6		13		10
Automobile	4		—		16		25		20
Education	149		28		1		151		150
Credit cards	26		6		—		26		26
Other retail	9		1		1		12		10
Total retail	344		45		461		981		805
Total		$638		$109		$680		$1,564		$1,318



	December 31, 2016
(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		$247		$55		$134		$431		$381
Commercial real estate	39		8		4		44		43
Total commercial	286		63		138		475		424
Residential mortgages	37		2		141		235		178
Home equity loans	51		3		94		191		145
Home equity lines of credit	23		1		173		240		196
Home equity loans serviced by others	41		4		19		70		60
Home equity lines of credit serviced by others	2		—		7		13		9
Automobile	4		—		15		25		19
Education	154		25		1		155		155
Credit cards	26		6		—		26		26
Other retail	10		2		1		13		11
Total retail	348		43		451		968		799
Total		$634		$106		$589		$1,443		$1,223

Additional information on impaired loans is presented below:



	Three Months Ended March 31,
	2017				2016
(in millions)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Commercial		$1		$396		$1		$201
Commercial real estate	—		45		—		66
Total commercial	1		441		1		267
Residential mortgages	1		176		1		142
Home equity loans	2		146		2		134
Home equity lines of credit	2		198		1		187
Home equity loans serviced by others	1		57		1		71
Home equity lines of credit serviced by others	—		9		—		10
Automobile	—		19		—		13
Education	2		152		2		163
Credit cards	—		25		—		27
Other retail	—		11		—		14
Total retail	8		793		7		761
Total		$9		$1,234		$8		$1,028

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession for other than an insignificant time period to the borrower that it would not otherwise consider, the related loan is classified as a TDR. 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 forgiveness, 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, the fair value of collateral less costs to sell, to the loan’s recorded investment. Any excess of recorded investment over the present value of expected future cash flows or collateral value is included in the ALLL. 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. For Retail TDR accounts where the expected value of cash flows is utilized, any recorded investment in excess of the present value of expected cash flows is recognized by creating or increasing the ALLL. For Retail TDR accounts assessed based on the fair value of collateral, any portion of the loan’s recorded investment in excess of the collateral value is charged off at the time of modification or at the time of subsequent and regularly recurring valuations.

Commercial TDRs were $118 million and $120 million at March 31, 2017 and December 31, 2016, respectively. Retail TDRs totaled $805 million and $799 million at March 31, 2017 and December 31, 2016, respectively. Unfunded commitments tied to TDRs were $36 million and $42 million at March 31, 2017 and December 31, 2016, respectively.

The table below summarizes how loans were modified during the three months ended March 31, 2017, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2017 and were paid off in full, charged off, or sold prior to March 31, 2017.



	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	2		$1		$1	7		$1		$1
Commercial real estate	—	—		—		—	—		—
Leases	—	—		—		—	—		—
Total commercial	2	1		1		7	1		1
Residential mortgages	18	1		2		11	3		3
Home equity loans	21	1		1		1	—		—
Home equity lines of credit	16	1		1		51	6		6
Home equity loans serviced by others	6	1		1		—	—		—
Home equity lines of credit serviced by others	1	—		—		2	—		—
Automobile	40	1		1		8	—		—
Education	—	—		—		—	—		—
Credit cards	565	3		3		—	—		—
Other retail	1	—		—		—	—		—
Total retail	668	8		9		73	9		9
Total	670		$9		$10	80		$10		$10



	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	—		$—		$—		$—		$—
Commercial real estate	—	—		—		—		—
Leases	1	1		1		—		—
Total commercial	1	1		1		—		—
Residential mortgages	48	4		4		—		—
Home equity loans	102	6		6		—		—
Home equity lines of credit	75	6		6		—		—
Home equity loans serviced by others	14	1		1		—		—
Home equity lines of credit serviced by others	11	1		1		—		—
Automobile	276	5		4		—		1
Education	15	1		1		—		—
Credit cards	—	—		—		1		—
Other retail	1	—		—		—		—
Total retail	542	24		23		1		1
Total	543		$25		$24		$1		$1

⁽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 forgiveness, 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 table below summarizes how loans were modified during the three months ended March 31, 2016, the charge-offs related to the modifications, and the impact on the ALLL. The reported balances can include loans that became TDRs during 2016 and were paid off in full, charged off, or sold prior to March 31, 2016.



	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		$1		$1	26		$4		$4
Commercial real estate	—	—		—		—	—		—
Leases	—	—		—		—	—		—
Total commercial	5	1		1		26	4		4
Residential mortgages	22	3		3		6	1		1
Home equity loans	14	1		1		16	2		2
Home equity lines of credit	7	1		1		19	2		2
Home equity loans serviced by others	3	—		—		—	—		—
Home equity lines of credit serviced by others	—	—		—		1	—		—
Automobile	21	1		1		5	—		—
Education	—	—		—		—	—		—
Credit cards	529	3		3		—	—		—
Other retail	—	—		—		—	—		—
Total retail	596	9		9		47	5		5
Total	601		$10		$10	73		$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	5		$21		$20		($1	)		$18
Commercial real estate	—	—		—		—			—
Leases	—	—		—		—			—
Total commercial	5	21		20		(1		)	18
Residential mortgages	64	8		8		—			—
Home equity loans	87	6		6		—			—
Home equity lines of credit	32	2		2		—			—
Home equity loans serviced by others	18	1		1		—			—
Home equity lines of credit serviced by others	8	—		—		—			—
Automobile	191	3		3		—			—
Education	186	4		4		1			—
Credit cards	—	—		—		—			—
Other retail	3	—		—		—			—
Total retail	589	24		24		1			—
Total	594		$45		$44		$—			$18

⁽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 March 31, 2017 and 2016, respectively, within 12 months of their modification date. For purposes of this table, a payment default refers to a loan that becomes 90 days or more past due 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 March 31, 2017 and 2016, respectively. 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.



	Three Months Ended March 31,
	2017			2016
(dollars in millions)	Number of Contracts	Balance Defaulted		Number of Contracts	Balance Defaulted
Commercial	1		$—	3		$—
Commercial real estate	1	4		—	—
Total commercial	2	4		3	—
Residential mortgages	45	6		54	8
Home equity loans	9	—		49	3
Home equity lines of credit	35	3		25	3
Home equity loans serviced by others	1	—		10	1
Home equity lines of credit serviced by others	3	—		5	—
Automobile	34	—		15	—
Education	7	—		13	—
Credit cards	126	1		121	1
Other retail	2	—		—	—
Total retail	262	10		292	16
Total	264		$14	295		$16

Concentrations of Credit Risk

Most of the Company’s lending activity is with customers located in the New England, Mid-Atlantic and Midwest regions. Generally, loans are collateralized by assets including real estate, inventory, accounts receivable, other personal property and investment securities. As of March 31, 2017 and December 31, 2016, the Company had a significant amount of loans collateralized by residential and commercial real estate. There were no significant concentration risks within the commercial loan or retail loan portfolios. 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 tables present balances of loans with these characteristics:



	March 31, 2017
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total
High loan-to-value		$526		$492		$446		$—		$—		$1,464
Interest only/negative amortization	1,649		—		—		—		1		1,650
Low introductory rate	—		—		—		129		—		129
Multiple characteristics and other	3		—		—		—		—		3
Total		$2,178		$492		$446		$129		$1		$3,246



	December 31, 2016
(in millions)	Residential Mortgages		Home Equity Loans and Lines of Credit		Home Equity Products Serviced by Others		Credit Cards		Education		Total
High loan-to-value		$566		$550		$476		$—		$—		$1,592
Interest only/negative amortization	1,582		—		—		—		1		1,583
Low introductory rate	—		—		—		112		—		112
Multiple characteristics and other	3		—		—		—		—		3
Total		$2,151		$550		$476		$112		$1		$3,290