Outstanding Loans and Leases and Allowance for Credit Losses |
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Outstanding Loans and Leases and Allowance for Credit Losses | Outstanding Loans and Leases and Allowance for Credit Losses The following tables present total outstanding loans and leases and an aging analysis for the Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at March 31, 2023 and December 31, 2022.
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $172 million and nonperforming loans of $157 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $69 million and nonperforming loans of $103 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $338 million and nonperforming loans of $745 million. Consumer real estate loans current or less than 30 days past due includes $1.6 billion, and direct/indirect consumer includes $29 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $52.7 billion, U.S. securities-based lending loans of $48.1 billion and non-U.S. consumer loans of $2.8 billion.
(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $72 million and home equity loans of $262 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.2 billion and non-U.S. commercial loans of $1.9 billion. For more information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $67.2 billion and non-U.S. commercial real estate loans of $5.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $43.5 billion. The Corporation also pledged $243.8 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
(1)Consumer real estate loans 30-59 days past due includes fully-insured loans of $184 million and nonperforming loans of $155 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $75 million and nonperforming loans of $88 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $368 million and nonperforming loans of $788 million. Consumer real estate loans current or less than 30 days past due includes $1.6 billion, and direct/indirect consumer includes $27 million of nonperforming loans.
(2)Total outstandings primarily includes auto and specialty lending loans and leases of $51.8 billion, U.S. securities-based lending loans of $50.4 billion and non-U.S. consumer loans of $3.0 billion.
(3)Consumer loans accounted for under the fair value option includes residential mortgage loans of $71 million and home equity loans of $268 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $2.9 billion and non-U.S. commercial loans of $2.5 billion. For more information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(4)Total outstandings includes U.S. commercial real estate loans of $64.9 billion and non-U.S. commercial real estate loans of $4.8 billion.
(5)Includes Paycheck Protection Program loans.
(6)Total outstandings includes loans and leases pledged as collateral of $18.5 billion. The Corporation also pledged $163.6 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $9.3 billion and $9.5 billion at March 31, 2023 and December 31, 2022, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured, and therefore the Corporation does not record an allowance for credit losses related to these loans.
Nonperforming Loans and Leases
Commercial nonperforming loans increased to $1.2 billion at March 31, 2023 from $1.1 billion at December 31, 2022, driven by the commercial real estate office property type. Consumer nonperforming loans decreased to $2.7 billion at March 31, 2023 from $2.8 billion at December 31, 2022
primarily due to decreases from consumer real estate loans as returns to performing status and paydowns more than offset new additions.
The following table presents the Corporation’s nonperforming loans and leases and loans accruing past due 90 days or more at March 31, 2023 and December 31, 2022. Nonperforming LHFS are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2022 Annual Report on Form 10-K.
(1)Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At March 31, 2023 and December 31, 2022 residential mortgage included $232 million and $260 million of loans on which interest had been curtailed by the Federal Housing Administration (FHA), and therefore were no longer accruing interest, although principal was still insured, and $106 million and $108 million of loans on which interest was still accruing.
(2)Primarily relates to loans for which the estimated fair value of the underlying collateral less any costs to sell is greater than the amortized cost of the loans as of the reporting date.
n/a = not applicableCredit Quality Indicators
The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2022 Annual Report on Form 10-K. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed loan-to-value (LTV) and refreshed Fair Isaac Corporation (FICO) score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV), which measures the carrying value of the Corporation’s loan and available line of credit combined with any outstanding senior liens against the property as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. FICO scores are typically refreshed quarterly or more frequently. Certain borrowers (e.g., borrowers that have had debts discharged in a
bankruptcy proceeding) may not have their FICO scores updated. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
The following tables present certain credit quality indicators and gross charge-offs for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments by year of origination, except for revolving loans and revolving loans that were modified into term loans, which are shown on an aggregate basis at March 31, 2023.
(1)Includes reverse mortgages of $893 million and home equity loans of $402 million, which are no longer originated.
(1)Represents loans that were modified into term loans.
(2)Other internal credit metrics may include delinquency status, geography or other factors.
(3)Direct/indirect consumer includes $50.9 billion of securities-based lending, which is typically supported by highly liquid collateral with market value greater than or equal to the outstanding loan balance and therefore has minimal credit risk at March 31, 2023.
(1) Excludes $4.1 billion of loans accounted for under the fair value option at March 31, 2023.
(2) Excludes U.S. Small Business Card loans of $9.2 billion. Refreshed FICO scores for this portfolio are $360 million for less than 620; $931 million for greater than or equal to 620 and less than 680; $2.5 billion for greater than or equal to 680 and less than 740; and $5.4 billion greater than or equal to 740. Excludes U.S. Small Business Card loans gross charge-offs of $62 million.
The following tables present certain credit quality indicators for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments by year of origination, except for revolving loans and revolving loans that were modified into term loans, which are shown on an aggregate basis at December 31, 2022.
(1)Includes reverse mortgages of $937 million and home equity loans of $424 million, which are no longer originated.
(1)Represents TDRs that were modified into term loans.
(2)Other internal credit metrics may include delinquency status, geography or other factors.
(3)Direct/indirect consumer includes $53.4 billion of securities-based lending, which is typically supported by highly liquid collateral with market value greater than or equal to the outstanding loan balance and therefore has minimal credit risk at December 31, 2022.
(1) Excludes $5.4 billion of loans accounted for under the fair value option at December 31, 2022.
(2) Excludes U.S. Small Business Card loans of $8.5 billion. Refreshed FICO scores for this portfolio are $297 million for less than 620; $859 million for greater than or equal to 620 and less than 680; $2.4 billion for greater than or equal to 680 and less than 740; and $5.0 billion greater than or equal to 740. Excludes U.S. Small Business Card loans gross charge-offs of $172 million.
During the three months ended March 31, 2023, commercial reservable criticized utilized exposure increased to $19.8 billion at March 31, 2023 from $19.3 billion (to 3.17 percent from 3.12 percent of total commercial reservable utilized exposure) at December 31, 2022, primarily driven by our U.S. commercial and industrial portfolio as well as commercial real estate.Loan Modifications to Borrowers in Financial Difficulty
As part of its credit risk management, the Corporation may modify a loan agreement with a borrower experiencing financial difficulties through a refinancing or restructuring of the borrower’s loan agreement (modification programs).
Consumer Real Estate
The following modification programs are offered for consumer real estate loans to borrowers experiencing financial difficulties. These modifications represented 0.09 percent and 0.15 percent of outstanding residential mortgage and home equity loans at March 31, 2023.
Forbearance and Other Payment Plans: Forbearance plans generally consist of the Corporation suspending the borrower’s payments for a defined period with those payments then due at the conclusion of the forbearance period. The aging status of a loan is generally frozen when it enters into a forbearance plan. Alternatively, the Corporation may offer the borrower a payment plan, which allows the borrower to repay past due amounts through payments over a defined period. At March 31, 2023, the amortized cost of residential mortgage and home equity loans that were modified through these plans during the three months ended March 31, 2023 was $158 million and $30 million. The weighted-average duration of these modifications was 8.2 months and 8.9 months. The total forborne payments for these modifications was $7 million and $3 million for residential mortgage and home equity loans. If a borrower is unable to fulfill their obligations under the forbearance plans, they may be offered a trial or permanent modification.
Trial Modifications: Trial modification plans generally consist of the Corporation offering a borrower modified loan terms that reduce their contractual payments temporarily over a
-to-four-month trial period. If the customer successfully makes the modified payments during the trial period and formally accepts the modified terms, the modified loan terms become permanent. At March 31, 2023, the amortized cost of residential mortgage and home equity loans entering trial modifications during the three months ended March 31, 2023 was $21 million and $9 million.
Permanent Modifications: Permanent modifications include borrowers that have completed a trial modification and have had their contractual payment terms permanently modified, as well as borrowers that proceed directly to a permanent modification without a trial period. In a permanent modification, the borrower’s payment terms are typically modified in more than one manner but generally include a term extension and an interest rate reduction. At times, the permanent modification may also include principal forgiveness and/or a deferral of past due principal and interest amounts to the end of the loan term. The combinations utilized are based on modifying the terms that give the borrower an improved ability to meet the contractual obligations. At March 31, 2023, the amortized cost of residential mortgage and home equity loans that were granted a permanent modification during the three months ended March 31, 2023 was $47 million and $10 million. The term extensions granted for residential mortgage and home equity permanent modifications vary widely and can be up to 30 years, but are mostly in the range of 1 to 10 years and 1 to 15 years. The weighted-average term extension of permanent modifications for residential mortgage and home equity loans was 7.7 years and 12.1 years, while the weighted-average interest rate reduction was 1.50 percent and 2.37 percent. Principal forgiveness and payment deferrals were insignificant for the three months ended March 31, 2023.
For consumer real estate borrowers in financial difficulty that received a forbearance, trial or permanent modification, there were no commitments to lend additional funds at March 31, 2023. Borrowers with a home equity line of credit that received a forbearance plan could have all or a portion of their lines reinstated in the future if they cure their payment default and meet certain Bank conditions.
Chapter 7 Discharges: If a borrower’s consumer real estate obligation is discharged in a Chapter 7 bankruptcy proceeding, the contractual payment terms of the loan are not modified, although they can no longer be enforced against the individual borrower. The Corporation’s ability to collect amounts due on the loan is limited to enforcement against the property through the foreclosure and sale of the collateral. The Corporation will only pursue foreclosure upon default by the borrower, and otherwise will recover pursuant to the loan terms or at the time of a sale. Residential mortgage and home equity loans that were granted a Chapter 7 discharge were insignificant for the three months ended March 31, 2023.
The Corporation tracks the performance of modified loans to assess effectiveness of modification programs. Defaults of modified consumer real estate loans since January 1, 2023 were insignificant during the three months ended March 31, 2023. The table below provides aging information as of March 31, 2023 for consumer real estate loans modified since January 1, 2023.
(1)Excludes trial modifications and Chapter 7 discharges.
Consumer real estate foreclosed properties totaled $117 million and $121 million at March 31, 2023 and December 31, 2022. The carrying value of consumer real estate loans, including fully-insured loans, for which formal foreclosure proceedings were in process at March 31, 2023 and December 31, 2022 was $819 million and $871 million. During the three months ended March 31, 2023 and 2022, the Corporation reclassified $37 million and $56 million of consumer real estate loans to foreclosed properties or, for properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans), to other assets. The reclassifications represent non-cash investing activities and, accordingly, are not reflected in the Consolidated Statement of Cash Flows.
Credit Card and Other Consumer
Credit card and other consumer loans are primarily modified by placing the customer on a fixed payment plan with a fixed interest rate. As of March 31, 2023, substantially all payment plans provided to customers had a 60-month term. In certain circumstances, the Corporation will forgive a portion of the outstanding balance if the borrower makes payments up to a set amount. The Corporation makes modifications directly with borrowers for loans held by the Corporation (internal programs) as well as through third-party renegotiation agencies that provide solutions to customers’ entire unsecured debt structures (external programs). The March 31, 2023 amortized cost of credit card and other consumer loans that were modified through these programs during the three months ended March 31, 2023 was $157 million. The financial effect of modifications resulted in a weighted-average interest rate reduction of 18.65 percent and principal forgiveness of $11 million.
The Corporation tracks the performance of modified loans to assess the effectiveness of modification programs. Defaults of modified credit card and other consumer loans since January 1, 2023 were insignificant during the three months ended March 31, 2023. Of the $157 million in modified credit card and other consumer loans to borrowers experiencing financial difficulty as of March 31, 2023, $109 million were current, $24 million were 30-89 days past due, and $24 million were greater than 90 days past due. These modifications represented 0.08 percent of outstanding credit card and other consumer loans at March 31, 2023.
Commercial Loans
Modifications of loans to commercial borrowers experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing borrowers with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique, reflects the borrower’s individual circumstances and is designed to benefit the borrower while mitigating the Corporation’s risk exposure. Commercial modifications are primarily term extensions and payment forbearances. Payment forbearances involve the Bank forbearing its contractual right to collect certain payments or payment in
full (maturity forbearance) for a defined period of time. Reductions in interest rates and principal forgiveness occur infrequently for commercial borrowers. Principal forgiveness may occur in connection with foreclosure, short sales or other settlement agreements, leading to termination or sale of the loan.
As of March 31, 2023, the amortized cost basis of modified commercial loans that were entered into during the three months ended March 31, 2023 was $822 million, including term extensions of $700 million, forbearances of $102 million and other miscellaneous modifications of $20 million. Term extensions granted during the three months ended March 31, 2023 increased the weighted-average life of the impacted loans by 1.3 years. The weighted-average duration of loan payments deferred under the Corporation’s commercial loan forbearance program was 15 months, substantially all of which were deferred over a range of 12 to 24 months. Of the $822 million in modified Commercial loans to borrowers experiencing financial difficulty as of March 31, 2023, $775 million were current, $5 million were 30-89 days past due, and $42 million were greater than 90 days past due. These modifications represented 0.14 percent of outstanding commercial loans at March 31, 2023. Defaults of modified commercial loans since January 1, 2023 were insignificant during the three months ended March 31, 2023. For the three months ended March 31, 2023, the Corporation had commitments to lend $534 million to commercial borrowers experiencing financial difficulty whose loans were modified during the period.
Prior-period Troubled Debt Restructuring Disclosures
Prior to adopting the new accounting standard on loan modifications, the Corporation accounted for modifications of loans to borrowers experiencing financial difficulty as TDRs, when the modification resulted in a concession. The following discussion reflects loans that were considered TDRs prior to January 1, 2023. For more information on TDR accounting policies, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2022 Annual Report on Form 10-K.
Consumer Real Estate
The following table presents the March 31, 2022 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of consumer real estate loans that were modified in TDRs during the three months ended March 31, 2022. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.
At December 31, 2022, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were not significant.
(1)The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
The table below presents the March 31, 2022 carrying value for consumer real estate loans that were modified in a TDR during the three months ended March 31, 2022, by type of modification.
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