| Loans and Allowance for Credit Losses | Note 5 Loans and Allowance for Credit Losses The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:
March 31, 2022 December 31, 2021
(Dollars in Millions) Amount Percent Amount Percent
Commercial
Commercial $ 112,479 35.3 % $ 106,912 34.3 %
Lease financing 4,991 1.6 5,111 1.6
Total commercial 117,470 36.9 112,023 35.9
Commercial Real Estate
Commercial mortgages 29,501 9.3 28,757 9.2
Construction and development 9,690 3.0 10,296 3.3
Total commercial real estate 39,191 12.3 39,053 12.5
Residential Mortgages
Residential mortgages 69,680 21.8 67,546 21.6
Home equity loans, first liens 8,807 2.8 8,947 2.9
Total residential mortgages 78,487 24.6 76,493 24.5
Credit Card 22,163 6.9 22,500 7.2
Other Retail
Retail leasing 6,941 2.2 7,256 2.3
Home equity and second mortgages 10,457 3.3 10,446 3.4
Revolving credit 2,652 .8 2,750 .9
Installment 16,732 5.2 16,514 5.3
Automobile 24,724 7.8 24,866 8.0
Student 117 -- 127 --
Total other retail 61,623 19.3 61,959 19.9
Total loans $ 318,934 100.0 % $ 312,028 100.0 % The Company had loans of $91.8 billion at March 31, 2022, and $92.1 billion at December 31, 2021, pledged at the Federal Home Loan Bank, and loans of $79.7 billion at March 31, 2022, and $76.9 billion at December 31, 2021, pledged at the Federal Reserve Bank. Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs, and any partial charge-offs recorded. Net unearned interest and deferred fees and costs amounted to $394 million at March 31, 2022 and $475 million at December 31, 2021. All purchased loans are recorded at fair value at the date of purchase. The Company evaluates purchased loans for more-than-insignificant deterioration at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans that have experienced more-than-insignificant deterioration from origination are considered purchased credit deteriorated loans. All other purchased loans are considered non-purchased Allowance for Credit Losses The allowance for credit losses is established for current expected credit losses on the Company’s loan and lease portfolio, including unfunded credit commitments. The allowance considers expected losses for the remaining lives of the applicable assets, inclusive of expected recoveries. The allowance for credit losses is increased through provisions charged to earnings and reduced by net charge-offs. Management evaluates the appropriateness of the allowance for credit losses on a quarterly basis. Multiple economic scenarios are considered over a three-year reasonable and supportable forecast period, which includes increasing consideration of historical loss experience over years two and three. These economic scenarios are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. After the forecast period, the Company fully reverts to long-term historical loss experience, adjusted for prepayments and characteristics of the current loan and lease portfolio, to estimate losses over the remaining life of the portfolio. The economic scenarios are updated at least quarterly and are designed to provide a range of reasonable estimates, from better to worse than current expectations. Scenarios are weighted based on the Company’s expectation of economic conditions for the foreseeable future and reflect significant judgment and consideration of economic forecast uncertainty. Final loss estimates also consider factors affecting credit losses not reflected in the scenarios, due to the unique aspects of current conditions and expectations. These factors may include, but are not limited to, loan servicing practices, regulatory guidance, and/or fiscal and monetary policy actions. The allowance recorded for credit losses utilizes forward-looking expected loss models to consider a variety of factors affecting lifetime credit losses. These factors include, but are not limited to, macroeconomic variables such as unemployment rates, real estate prices, gross domestic product levels and corporate bonds spreads, as well as loan and borrower characteristics, such as internal risk ratings on commercial loans and consumer credit scores, delinquency status, collateral type and available valuation information, consideration of end-of-term charged-off The allowance recorded for Troubled Debt Restructuring (“TDR”) loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool. The expected cash flows on TDR loans consider subsequent payment defaults since modification, the borrower’s ability to pay under the restructured terms, and the timing and amount of payments. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. For smaller commercial loans collectively evaluated for impairment, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. The Company’s methodology for determining the appropriate allowance for credit losses also considers the imprecision inherent in the methodologies used and allocated to the various loan portfolios. As a result, amounts determined under the methodologies described above, are adjusted by management to consider the potential impact of other qualitative factors not captured in the quantitative model adjustments which include, but are not limited to the following: model imprecision, imprecision in economic scenario assumptions, and emerging risks related to either changes in the environment that are affecting specific portfolios, or changes in portfolio concentrations over time that may affect model performance. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio. The Company also assesses the credit risk associated with off-balance off-balance The results of the analysis are evaluated quarterly to confirm the estimates are appropriate for each specific loan portfolio, as well as the entire loan portfolio, as the entire allowance for credit losses is available for the entire loan portfolio. Activity in the allowance for credit losses by portfolio class was as follows:
(Dollars in Millions) Commercial Commercial Residential Credit Other Total
Balance at December 31, 2021 $1,849 $1,123 $565 $1,673 $ 945 $6,155
Add
Provision for credit losses 19 (54 ) 29 78 40 112
Deduct
Loans charged-off 55 1 5 158 61 280
Less recoveries of loans charged-off (23 ) (6 ) (11 ) (46 ) (32 ) (118 )
Net loan charge-offs (recoveries) 32 (5 ) (6 ) 112 29 162
Balance at March 31, 2022 $1,836 $1,074 $600 $1,639 $956 $6,105
Balance at December 31, 2020 $2,423 $1,544 $573 $2,355 $1,115 $8,010
Add
Provision for credit losses (435 ) (19 ) (39 ) (259 ) (75 ) (827 )
Deduct
Loans charged-off 86 10 5 190 83 374
Less recoveries of loans charged-off (30 ) (17 ) (10 ) (46 ) (48 ) (151 )
Net loan charge-offs (recoveries) 56 (7 ) (5 ) 144 35 223
Balance at March 31, 2021 $1,932 $1,532 $539 $1,952 $1,005 $6,960 The decrease in the allowance for credit losses from December 31, 2021 to March 31, 2022 reflected continued strong credit quality, partially offset by loan growth and increasing economic uncertainty. Credit Quality The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company. For all loan portfolio classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period. Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully charged down if unsecured by collateral or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual. Consumer lending segment loans are generally charged-off 1-4 charge-off 1-4 charged-off. charged-off 1-4 charged-off charged-off charge-off. For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off charged-off) The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:
Accruing
(Dollars in Millions) Current 30-89 Days 90 Days or Nonperforming (b) Total
March 31, 2022
Commercial $ 116,986 $ 234 $ 76 $ 174 $117,470
Commercial real estate 38,888 86 1 216 39,191
Residential mortgages (a) 78,028 105 140 214 78,487
Credit card 21,804 194 165 — 22,163
Other retail 61,157 237 68 161 61,623
Total loans $ 316,863 $ 856 $450 $ 765 $318,934
December 31, 2021
Commercial $ 111,270 $530 $49 $ 174 $112,023
Commercial real estate 38,678 80 11 284 39,053
Residential mortgages (a) 75,962 124 181 226 76,493
Credit card 22,142 193 165 — 22,500
Other retail 61,468 275 66 150 61,959
Total loans $ 309,520 $1,202 $472 $ 834 $312,028
(a) At March 31, 2022, $662 million of loans 30–89 days past due and $1.3 billion of loans 90 days or more past due purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs, were classified as current, compared with $791 million and $1.5 billion at December 31, 2021, respectively.
(b) Substantially all nonperforming loans at March 31, 2022 and December 31, 2021, had an associated allowance for credit losses. The Company recognized interest income on nonperforming loans of $3 million for the three months ended March 31, 2022 and 2021. At March 31, 2022, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $23 million, compared with $22 million at December 31, 2021. These amounts excluded $27 million and $22 million at March 31, 2022 and December 31, 2021, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at March 31, 2022 and December 31, 2021, was $1.1 billion and $696 million, respectively, of which $876 million and $555 million, respectively, related to loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs. The Company classifies its loan portfolio classes using internal credit quality ratings on a quarterly basis. These ratings include pass, special mention and classified, and are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those loans not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those loans that have a potential weakness deserving management’s close attention. Classified loans are those loans where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans. The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:
March 31, 2022 December 31, 2021
Criticized Criticized
(Dollars in Millions) Pass Special Mention Classified (a) Total Criticized Total Pass Special Mention Classified (a) Total Criticized Total
Commercial
Originated in 2022 $ 13,554 $ 8 $ 45 $ 53 $ 13,607 $ – $ – $ – $ – $ –
Originated in 2021 47,131 378 283 661 47,792 51,155 387 287 674 51,829
Originated in 2020 11,779 38 312 350 12,129 14,091 304 133 437 14,528
Originated in 2019 8,761 24 99 123 8,884 10,159 151 54 205 10,364
Originated in 2018 4,475 11 44 55 4,530 5,122 3 36 39 5,161
Originated prior to 2018 4,251 17 49 66 4,317 4,923 30 81 111 5,034
Revolving 25,756 261 194 455 26,211 24,722 268 117 385 25,107
Total commercial 115,707 737 1,026 1,763 117,470 110,172 1,143 708 1,851 112,023
Commercial real estate
Originated in 2022 3,170 110 185 295 3,465 – – – – –
Originated in 2021 12,419 17 705 722 13,141 13,364 6 990 996 14,360
Originated in 2020 6,907 78 241 319 7,226 7,459 198 263 461 7,920
Originated in 2019 5,750 310 556 866 6,616 6,368 251 610 861 7,229
Originated in 2018 2,847 42 213 255 3,102 2,996 29 229 258 3,254
Originated prior to 2018 3,898 19 152 171 4,069 4,473 55 224 279 4,752
Revolving 1,530 – 42 42 1,572 1,494 1 43 44 1,538
Total commercial real estate 36,521 576 2,094 2,670 39,191 36,154 540 2,359 2,899 39,053
Residential mortgages (b)
Originated in 2022 6,431 – – – 6,431 – – – – –
Originated in 2021 29,721 – 4 4 29,725 29,882 – 3 3 29,885
Originated in 2020 14,850 – 10 10 14,860 15,948 1 8 9 15,957
Originated in 2019 6,154 – 23 23 6,177 6,938 – 36 36 6,974
Originated in 2018 2,553 – 20 20 2,573 2,889 – 30 30 2,919
Originated prior to 2018 18,407 – 313 313 18,720 20,415 – 342 342 20,757
Revolving 1 – – – 1 1 – – – 1
Total residential mortgages 78,117 – 370 370 78,487 76,073 1 419 420 76,493
Credit card (c) 21,998 – 165 165 22,163 22,335 – 165 165 22,500
Other retail
Originated in 2022 4,644 – – – 4,644 – – – – –
Originated in 2021 20,495 – 7 7 20,502 22,455 – 6 6 22,461
Originated in 2020 10,972 – 9 9 10,981 12,071 – 9 9 12,080
Originated in 2019 6,327 – 14 14 6,341 7,223 – 17 17 7,240
Originated in 2018 2,675 – 12 12 2,687 3,285 – 14 14 3,299
Originated prior to 2018 3,174 – 20 20 3,194 3,699 – 24 24 3,723
Revolving 12,644 – 127 127 12,771 12,532 – 112 112 12,644
Revolving converted to term 460 – 43 43 503 472 – 40 40 512
Total other retail 61,391 – 232 232 61,623 61,737 – 222 222 61,959
Total loans $313,734 $1,313 $3,887 $ 5,200 $318,934 $306,471 $1,684 $3,873 $ 5,557 $312,028
Total outstanding commitments $678,366 $2,372 $5,684 $8,056 $686,422 $662,363 $3,372 $5,684 $ 9,056 $671,419
Note: Year of origination is based on the origination date of a loan, or for existing loans the date when the maturity date, pricing or commitment amount is amended.
(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At March 31, 2022, $1.3 billion of GNMA loans 90 days or more past due and $978 million of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $1.5 billion and $1.1 billion at December 31, 2021, respectively.
(c) All credit card loans are considered revolving loans. Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR. The following table provides a summary of loans modified as TDRs for the periods presented by portfolio class:
2022 2021
Three Months Ended March 31 (Dollars in Millions) Number Pre-Modification Post-Modification Number Pre-Modification Post-Modification
Commercial 509 $ 38 $ 32 704 $ 75 $ 60
Commercial real estate 9 11 10 56 86 71
Residential mortgages 840 228 226 336 104 104
Credit card 9,339 50 50 5,786 33 34
Other retail 728 37 37 1,325 37 32
Total loans, excluding loans purchased from GNMA mortgage pools 11,425 364 355 8,207 335 301
Loans purchased from GNMA mortgage pools 390 55 55 559 87 89
Total loans 11,815 $ 419 $410 8,766 $ 422 $ 390 Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. At March 31, 2022, 6 residential mortgages, 1 home equity and second mortgage loan and 99 loans purchased from GNMA mortgage pools with outstanding balances of less than $1 million, less than $1 million and $14 million, respectively, were in a trial period and have estimated post-modification balances of less than $1 million, less than $1 million and $15 million, respectively, assuming permanent modification occurs at the end of the trial period. The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a case-by-case For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement, and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period. Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates. In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs. The following table provides a summary of TDR loans that defaulted (fully or partially charged-off
Three Months Ended March 31 (Dollars in Millions) 2022 2021
Number Amount Number Amount
Commercial 214 $ 3 285 $ 16
Commercial real estate 3 1 7 5
Residential mortgages 34 3 15 2
Credit card 1,634 9 1,764 9
Other retail 83 1 280 5
Total loans, excluding loans purchased from GNMA mortgage pools 1,968 17 2,351 37
Loans purchased from GNMA mortgage pools 49 8 30 4
Total loans 2,017 $25 2,381 $ 41 In addition to the defaults in the table above, the Company had a total of 16 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months ended March 31, 2022, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $2 million for the three months ended March 31, 2022. As of March 31, 2022, the Company had $105 million of commitments to lend additional funds to borrowers whose terms of their outstanding owed balances have been modified in TDRs. |
