Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases and Allowance for Credit Losses

v3.20.2
Outstanding Loans and Leases and Allowance for Credit Losses
6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
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 June 30, 2020 and December 31, 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days Past Due (1)
 
60-89 Days Past Due (1)
 
90 Days or
More
Past Due (1)
 
Total Past
Due 30 Days
or More
 
Total Current or Less Than 30 Days Past Due (1)
 
Loans Accounted for Under the Fair Value Option
 
Total
Outstandings
(Dollars in millions)
June 30, 2020
Consumer real estate
 

 
 
 
 

 
 

 
 

 
 

 
 

Core portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
833

 
$
144

 
$
637

 
$
1,614

 
$
228,526

 
 
 
$
230,140

Home equity
103

 
66

 
228

 
397

 
33,538

 
 
 
33,935

Non-core portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
252

 
110

 
1,001

 
1,363

 
7,997

 
 
 
9,360

Home equity
23

 
15

 
68

 
106

 
4,355

 
 
 
4,461

Credit card and other consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit card
352

 
286

 
782

 
1,420

 
82,824

 
 
 
84,244

Direct/Indirect consumer (2)
193

 
63

 
30

 
286

 
88,342

 
 
 
88,628

Other consumer

 

 

 

 
120

 
 
 
120

Total consumer
1,756

 
684

 
2,746

 
5,186

 
445,702

 
 
 
450,888

Consumer loans accounted for under the fair value option (3)
 

 
 

 
 

 
 

 
 

 
$
684

 
684

Total consumer loans and leases
1,756

 
684

 
2,746

 
5,186

 
445,702

 
684

 
451,572

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
504

 
303

 
596

 
1,403

 
312,535

 
 
 
313,938

Non-U.S. commercial
17

 
43

 
16

 
76

 
103,608

 
 
 
103,684

Commercial real estate (4)
(4)
38

 
2

 
201

 
241

 
63,854

 
 
 
64,095

Commercial lease financing
64

 
92

 
60

 
216

 
17,984

 
 
 
18,200

U.S. small business commercial (5)
73

 
66

 
122

 
261

 
38,702

 
 
 
38,963

Total commercial
696

 
506

 
995

 
2,197

 
536,683

 
 
 
538,880

Commercial loans accounted for under the fair value option (3)
 

 
 

 
 

 
 

 
 

 
8,492

 
8,492

Total commercial loans and leases
696

 
506

 
995

 
2,197

 
536,683

 
8,492

 
547,372

Total loans and leases (6)
$
2,452

 
$
1,190

 
$
3,741

 
$
7,383

 
$
982,385

 
$
9,176

 
$
998,944

Percentage of outstandings
0.25
%
 
0.12
%
 
0.37
%
 
0.74
%
 
98.34
%
 
0.92
%
 
100.00
%
(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $208 million and nonperforming loans of $95 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $92 million and nonperforming loans of $78 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $1.0 billion. Consumer real estate loans current or less than 30 days past due includes $894 million and direct/indirect consumer includes $40 million of nonperforming loans. For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the COVID-19 pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2) 
Total outstandings primarily includes auto and specialty lending loans and leases of $48.4 billion, U.S. securities-based lending loans of $36.6 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 $330 million and home equity loans of $354 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $5.1 billion and non-U.S. commercial loans of $3.4 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 $60.6 billion and non-U.S. commercial real estate loans of $3.5 billion.
(5) 
Includes PPP loans.
(6) 
Total outstandings includes loans and leases pledged as collateral of $15.7 billion. The Corporation also pledged $194.3 billion of loans with no related outstanding borrowings to secure potential borrowing capacity with the Federal Reserve Bank and Federal Home Loan Bank.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30-59 Days
Past Due
(1)
 
60-89 Days Past Due (1)
 
90 Days or
More
Past Due
(1)
 
Total Past
Due 30 Days
or More
 
Total
Current or
Less Than
30 Days
Past Due (1)
 
Loans
Accounted
for Under
the Fair
Value Option
 
Total Outstandings
(Dollars in millions)
December 31, 2019
Consumer real estate
 

 
 
 
 

 
 

 
 

 
 

 
 

Core portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
1,378

 
$
261

 
$
565

 
$
2,204

 
$
223,566

 
 

 
$
225,770

Home equity
135

 
70

 
198

 
403

 
34,823

 
 

 
35,226

Non-core portfolio
 
 
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
458

 
209

 
1,263

 
1,930

 
8,469

 
 

 
10,399

Home equity
34

 
16

 
72

 
122

 
4,860

 
 

 
4,982

Credit card and other consumer
 
 
 

 
 

 
 

 
 

 
 

 
 

Credit card
564

 
429

 
1,042

 
2,035

 
95,573

 
 

 
97,608

Direct/Indirect consumer (2)
297

 
85

 
35

 
417

 
90,581

 
 

 
90,998

Other consumer 

 

 

 

 
192

 
 

 
192

Total consumer
2,866

 
1,070

 
3,175

 
7,111

 
458,064

 
 

465,175

Consumer loans accounted for under the fair value option (3)
 
 
 
 
 
 
 
 
 
 
$
594


594

Total consumer loans and leases
2,866

 
1,070

 
3,175

 
7,111

 
458,064

 
594

 
465,769

Commercial
 
 
 

 
 

 
 

 
 

 
 

 
 

U.S. commercial
788

 
279

 
371

 
1,438

 
305,610

 
 

 
307,048

Non-U.S. commercial
35

 
23

 
8

 
66

 
104,900

 
 

 
104,966

Commercial real estate (4)
144

 
19

 
119

 
282

 
62,407

 
 

 
62,689

Commercial lease financing
100

 
56

 
39

 
195

 
19,685

 
 

 
19,880

U.S. small business commercial
119

 
56

 
107

 
282

 
15,051

 
 

 
15,333

Total commercial
1,186

 
433

 
644

 
2,263

 
507,653

 
 

 
509,916

Commercial loans accounted for under the fair value option (3)
 
 
 
 
 
 
 
 
 
 
7,741

 
7,741

Total commercial loans and leases
1,186

 
433

 
644

 
2,263

 
507,653

 
7,741

 
517,657

Total loans and leases (5)
$
4,052

 
$
1,503

 
$
3,819

 
$
9,374

 
$
965,717

 
$
8,335

 
$
983,426

Percentage of outstandings
0.41
%
 
0.15
%
 
0.39
%
 
0.95
%
 
98.20
%
 
0.85
%
 
100.00
%

(1) 
Consumer real estate loans 30-59 days past due includes fully-insured loans of $517 million and nonperforming loans of $139 million. Consumer real estate loans 60-89 days past due includes fully-insured loans of $206 million and nonperforming loans of $114 million. Consumer real estate loans 90 days or more past due includes fully-insured loans of $1.1 billion. Consumer real estate loans current or less than 30 days past due includes $856 million and direct/indirect consumer includes $45 million of nonperforming loans.
(2) 
Total outstandings primarily includes auto and specialty lending loans and leases of $50.4 billion, U.S. securities-based lending loans of $36.7 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 $257 million and home equity loans of $337 million. Commercial loans accounted for under the fair value option includes U.S. commercial loans of $4.7 billion and non-U.S. commercial loans of $3.1 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 $59.0 billion and non-U.S. commercial real estate loans of $3.7 billion.
(5) 
Total outstandings includes loans and leases pledged as collateral of $25.9 billion. The Corporation also pledged $168.2 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 categorizes consumer real estate loans as core and non-core based on loan and customer characteristics such as origination date, product type, LTV, Fair Isaac Corporation (FICO) score and delinquency status consistent with its current consumer and mortgage servicing strategy. Generally, loans that were originated after January 1, 2010, qualified under government-sponsored enterprise (GSE) underwriting guidelines, or otherwise met the Corporation’s underwriting guidelines in place in 2015 are characterized as core loans. All other loans are generally characterized as non-core loans and represent runoff portfolios.
The Corporation has entered into long-term credit protection agreements with Fannie Mae and Freddie Mac on loans totaling $8.6 billion and $7.5 billion at June 30, 2020 and December 31, 2019, 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 $2.2 billion at June 30, 2020 from $1.5 billion at December 31, 2019 with broad-based increases across multiple industries. The Corporation did not see meaningful impacts to consumer portfolio delinquencies and nonperforming loans during the six months ended June 30, 2020 due to payment deferrals and government stimulus benefits.
The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at June 30, 2020 and December 31, 2019. Nonperforming loans held-for-sale (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 information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the COVID-19 pandemic, see Note 1 – Summary of Significant Accounting Principles. 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 2019 Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
Credit Quality
 
 
 
 
 
 
 
 
 
 
 
Nonperforming Loans
and Leases
 
Accruing Past Due
90 Days or More (1)
(Dollars in millions)
June 30
2020
 
December 31
2019
 
June 30
2020
 
December 31
2019
Residential mortgage (2)
$
1,552

 
$
1,470

 
$
854

 
$
1,088

With negative allowance (3)
469

 

 
 
 
 
Home equity (2)
594

 
536

 

 

With negative allowance (3)
117

 

 
 
 
 
Credit Card
n/a

 
n/a

 
782

 
1,042

Direct/indirect consumer
45

 
47

 
27

 
33

Total consumer
2,191

 
2,053

 
1,663

 
2,163

U.S. commercial
1,247

 
1,094

 
342

 
106

Non-U.S. commercial
387

 
43

 
9

 
8

Commercial real estate
474

 
280

 
44

 
19

Commercial lease financing
17

 
32

 
46

 
20

U.S. small business commercial
77

 
50

 
111

 
97

Total commercial
2,202

 
1,499

 
552

 
250

Total nonperforming loans
$
4,393

 
$
3,552

 
$
2,215

 
$
2,413

Percentage of outstanding loans and leases
0.44
%
 
0.36
%
 
0.22
%
 
0.25
%
(1) 
For information on the Corporation's interest accrual policies and delinquency status for loan modifications related to the COVID-19 pandemic, see Note 1 – Summary of Significant Accounting Principles.
(2) 
Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At June 30, 2020 and December 31, 2019 residential mortgage includes $590 million and $740 million of loans on which interest had been curtailed by the FHA, and therefore were no longer accruing interest, although principal was still insured, and $264 million and $348 million of loans on which interest was still accruing.
(3) 
At June 30, 2020, Residential Mortgage and Home Equity include negative allowance on nonperforming loans of $155 million and $106 million.
n/a = not applicable
Included in the June 30, 2020 nonperforming loans are $119 million and $16 million of residential mortgage and home equity loans that prior to the January 1, 2020 adoption of the new credit loss standard were not included in nonperforming loans as they were previously classified as purchased credit-impaired loans and accounted for under a pool basis.
Credit 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. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed 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 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 for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables and year of origination for term loan balances at June 30, 2020, including revolving loans that converted to term loans without an additional credit decision after origination or through a TDR.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage – Credit Quality Indicators By Vintage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Total as of June 30, 2020
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
Total Residential Mortgage
 
 
 
 
 
 
 
 
 
 
 
 
 
Refreshed LTV 
 
 
 
 
 

 
 

 
 

 
 
 
 
Less than or equal to 90 percent
$
222,670

 
$
36,651

 
$
56,859

 
$
21,030

 
$
29,491

 
$
30,393

 
$
48,246

Greater than 90 percent but less than or equal to 100 percent
3,721

 
1,075

 
1,517

 
420

 
172

 
132

 
405

Greater than 100 percent
1,362

 
356

 
376

 
119

 
68

 
51

 
392

Fully-insured loans
11,747

 
1,788

 
2,635

 
522

 
425

 
2,453

 
3,924

Total Residential Mortgage
$
239,500

 
$
39,870


$
61,387

 
$
22,091

 
$
30,156

 
$
33,029

 
$
52,967

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Residential Mortgage
 
 
 
 
 
 
 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 620
$
3,029

 
$
109

 
$
277

 
$
227

 
$
245

 
$
257

 
$
1,914

Greater than or equal to 620 and less than 680
5,756

 
403

 
997

 
644

 
616

 
525

 
2,571

Greater than or equal to 680 and less than 740
26,826

 
3,162

 
6,570

 
2,926

 
3,314

 
2,937

 
7,917

Greater than or equal to 740
192,142

 
34,408

 
50,908

 
17,772

 
25,556

 
26,857

 
36,641

Fully-insured loans
11,747

 
1,788

 
2,635

 
522

 
425

 
2,453

 
3,924

Total Residential Mortgage
$
239,500

 
$
39,870


$
61,387

 
$
22,091

 
$
30,156

 
$
33,029

 
$
52,967

 
 
 
 
 
 
 
 
Home Equity - Credit Quality Indicators
 
 
 
 
 
 
 
 
 
Total
 
Home Equity Loans and Reverse Mortgages (1)
 
Revolving Loans
 
Revolving Loans Converted to Term Loans
(Dollars in millions)
June 30, 2020
Total Home Equity
 
 
 
 
 
 
 
Refreshed LTV 
 
 
 

 
 

 
 

Less than or equal to 90 percent
$
37,252

 
$
2,091

 
$
25,071

 
$
10,090

Greater than 90 percent but less than or equal to 100 percent
497

 
141

 
145

 
211

Greater than 100 percent
647

 
211

 
127

 
309

Total Home Equity
$
38,396

 
$
2,443

 
$
25,343

 
$
10,610

 
 
 
 
 
 
 
 
Total Home Equity
 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
1,212

 
$
256

 
$
261

 
$
695

Greater than or equal to 620 and less than 680
2,082

 
298

 
629

 
1,155

Greater than or equal to 680 and less than 740
6,606

 
600

 
3,336

 
2,670

Greater than or equal to 740
28,496

 
1,289

 
21,117

 
6,090

Total Home Equity
$
38,396

 
$
2,443

 
$
25,343

 
$
10,610

(1) 
Includes reverse mortgages of $1.4 billion and home equity loans of $1.1 billion which are no longer originated.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Card and Direct/Indirect Consumer – Credit Quality Indicators By Vintage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect
 
 
 
 
 
 
 
Term Loans by Origination Year
 
Credit Card
(Dollars in millions)
Total Direct/Indirect as of June 30, 2020
 
Revolving Loans
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Total Credit Card as of June 30, 2020
 
Revolving Loans
 
Revolving Loans Converted to Term Loans (3)
Refreshed FICO score
 
 
 
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Less than 620
$
1,197

 
$
22

 
$
55

 
$
220

 
$
223

 
$
338

 
$
234

 
$
105

 
$
4,300

 
$
4,075

 
$
225

Greater than or equal to 620 and less than 680
2,409

 
25

 
352

 
735

 
447

 
433

 
268

 
149

 
10,511

 
10,304

 
207

Greater than or equal to 680 and less than 740
7,719

 
90

 
1,519

 
2,602

 
1,375

 
1,078

 
616

 
439

 
30,679

 
30,505

 
174

Greater than or equal to 740
37,307

 
129

 
6,690

 
12,879

 
7,590

 
5,039

 
2,668

 
2,312

 
38,754

 
38,713

 
41

Other internal credit
   metrics (1, 2)
39,996

 
39,351

 
41

 
120

 
119

 
83

 
56

 
226

 

 

 

Total credit card and other consumer
$
88,628

 
$
39,617

 
$
8,657

 
$
16,556

 
$
9,754

 
$
6,971

 
$
3,842

 
$
3,231

 
$
84,244

 
$
83,597

 
$
647

(1) 
Other internal credit metrics may include delinquency status, geography or other factors.
(2) 
Direct/indirect consumer includes $39.4 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 June 30, 2020.
(3) 
Represents troubled debt restructurings that were modified into term loans.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial – Credit Quality Indicators By Vintage (1, 2)
 
 
 
 
 
 
 
 
 
Term Loans
 
 
 
 
 
Amortized Cost Basis by Origination Year
 
 
(Dollars in millions)
Total as of June 30, 2020
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving Loans
U.S. Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk ratings
 
 
 
 
 

 
 

 
 

 
 

 
 
 
 
Pass rated
$
296,434

 
$
25,884

 
$
42,179

 
$
22,334

 
$
17,409

 
$
9,549

 
$
22,068

 
$
157,011

Reservable criticized
17,504

 
531

 
1,822

 
1,455

 
789

 
547

 
1,333

 
11,027

Total U.S. Commercial
$
313,938

 
$
26,415


$
44,001

 
$
23,789

 
$
18,198

 
$
10,096

 
$
23,401

 
$
168,038

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass rated
$
100,749

 
$
10,880

 
$
16,038

 
$
9,521

 
$
6,733

 
$
1,717

 
$
6,986

 
$
48,874

Reservable criticized
2,935

 
182

 
423

 
345

 
122

 
60

 
73

 
1,730

Total Non-U.S. Commercial
$
103,684

 
$
11,062


$
16,461

 
$
9,866

 
$
6,855

 
$
1,777

 
$
7,059

 
$
50,604

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass rated
$
61,690

 
$
5,654

 
$
17,096

 
$
11,800

 
$
7,005

 
$
4,090

 
$
8,750

 
$
7,295

Reservable criticized
2,405

 
1

 
485

 
510

 
539

 
267

 
414

 
189

Total Commercial Real Estate
$
64,095

 
$
5,655


$
17,581

 
$
12,310

 
$
7,544

 
$
4,357

 
$
9,164

 
$
7,484

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Lease Financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass rated
$
17,603

 
$
1,860

 
$
3,552

 
$
3,509

 
$
2,996

 
$
2,035

 
$
3,651

 
$

Reservable criticized
597

 
58

 
92

 
148

 
64

 
44

 
191

 

Total Commercial Lease Financing
$
18,200

 
$
1,918


$
3,644

 
$
3,657

 
$
3,060

 
$
2,079

 
$
3,842

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Small Business Commercial (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass rated
$
31,169

 
$
25,656

 
$
1,320

 
$
1,001

 
$
843

 
$
605

 
$
1,538

 
$
206

Reservable criticized
938

 
15

 
87

 
141

 
164

 
120

 
402

 
9

Total U.S. Small Business Commercial
$
32,107

 
$
25,671


$
1,407

 
$
1,142

 
$
1,007

 
$
725

 
$
1,940

 
$
215

 Total (1, 2)
$
532,024

 
$
70,721


$
83,094

 
$
50,764

 
$
36,664

 
$
19,034

 
$
45,406

 
$
226,341

(1) Excludes $8.5 billion and $7.7 billion of loans accounted for under the fair value option at June 30, 2020 and December 31, 2019.
(2)
Includes $69 million of loans that converted from revolving to term loans.
(3)
Excludes U.S. Small Business Card loans of $6.9 billion. Refreshed FICO scores for this portfolio are $294 million for less than 620; $674 million for greater than or equal to 620 and less than 680; $1.9 billion for greater than or equal to 680 and less than 740; and $4.0 billion greater than or equal to 740.
As a result of the economic impact of COVID-19, commercial asset quality weakened during the three months ended June 30, 2020. Commercial reservable criticized utilized exposure increased to $26.0 billion at June 30, 2020 from $11.5 billion (to 4.51 percent from 2.09 percent of total commercial reservable utilized exposure) at December 31, 2019 with increases spread across multiple industries.
Troubled Debt Restructurings
The Corporation began entering into loan modifications with borrowers in response to the COVID-19 pandemic, which have not been classified as TDRs, and therefore are not included in the discussion below. For more information on the criteria for classifying loans as TDRs, see Note 1 – Summary of Significant Accounting Principles
Consumer Real Estate
Modifications of consumer real estate loans are classified as TDRs when the borrower is experiencing financial difficulties and a concession has been granted. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof. Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment
terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. 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.
Consumer real estate loans of $396 million that have been discharged in Chapter 7 bankruptcy with no change in repayment terms and not reaffirmed by the borrower were included in TDRs at June 30, 2020, of which $98 million were classified as nonperforming and $75 million were loans fully insured.
Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan’s original effective interest rate. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reach 180 days past due prior to modification are charged off to their net realizable value, less costs to sell, before they are modified as TDRs in accordance with established policy. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance
for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.
At June 30, 2020 and December 31, 2019, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were not significant. Consumer real estate foreclosed properties totaled $169 million and $229 million at June 30, 2020 and December 31, 2019. The carrying value of consumer real estate loans, including fully-insured loans, for which formal foreclosure proceedings were in process at June 30, 2020 was $1.4 billion. Although the Corporation has paused formal loan foreclosure proceedings and foreclosure sales, during the six months ended June 30, 2020, the Corporation reclassified $154 million of consumer real estate loans completed or which were in process
prior to the pause in foreclosures, 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.
The table below presents the June 30, 2020 and 2019 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 and six months ended June 30, 2020 and 2019. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Real Estate – TDRs Entered into During The Three and Six Months Ended June 30, 2020 and 2019 (1)
 
 
 
Unpaid Principal Balance
 
Carrying
Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate (2)
 
Unpaid Principal Balance
 
Carrying
Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate (2)
(Dollars in millions)
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
Residential mortgage
$
120

 
$
103

 
4.22
%
 
4.19
%
 
$
219

 
$
185

 
4.10
%
 
4.01
%
Home equity
22

 
18

 
3.68

 
3.65

 
45

 
38

 
3.99

 
3.92

Total
$
142

 
$
121

 
4.14

 
4.11

 
$
264

 
$
223

 
4.08

 
3.99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Residential mortgage
$
154

 
$
125

 
4.28
%
 
4.39
%
 
$
277

 
$
224

 
4.27
%
 
4.30
%
Home equity
101

 
71

 
5.17

 
5.16

 
159

 
113

 
5.21

 
4.88

Total
$
255

 
$
196

 
4.63

 
4.69

 
$
436

 
$
337

 
4.61

 
4.51

(1) 
For more information on the Corporation's loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2) 
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 June 30, 2020 and 2019 carrying value for consumer real estate loans that were modified in a TDR during the three and six months ended June 30, 2020 and 2019, by type of modification.
 
 
 
 
 
 
 
 
Consumer Real Estate – Modification Programs (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TDRs Entered into During the
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2020
 
2019
 
2020
 
2019
Modifications under government programs
$

 
$
10

 
$
3

 
$
18

Modifications under proprietary programs
20

 
22

 
59

 
75

Loans discharged in Chapter 7 bankruptcy (2)
21

 
30

 
32

569

52

Trial modifications
80

 
134

 
129

211

192

Total modifications
$
121

 
$
196

 
$
223


$
337


(1) 
For more information on the Corporation's loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
The table below presents the carrying value of consumer real estate loans that entered into payment default during the three and six months ended June 30, 2020 and 2019 that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification.
 
 
 
 
 
 
 
 
Consumer Real Estate – TDRs Entering Payment Default that were Modified During the Preceding 12 Months (1)
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2020
 
2019
 
2020
 
2019
Modifications under government programs
$
2

 
$
6

 
$
8

 
$
13

Modifications under proprietary programs
5

 
20

 
19

 
49

Loans discharged in Chapter 7 bankruptcy (2)
4

 
9

 
11

 
18

Trial modifications (3)
12

 
11

 
30

 
27

Total modifications
$
23

 
$
46

 
$
68

 
$
107

(1) 
For more information on the Corporation's loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
(3) 
Includes trial modification offers to which the customer did not respond.
Credit Card and Other Consumer
The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal and local laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account, placing the customer on a fixed payment plan not exceeding 60 months and canceling the customer’s available line of credit, all of which are considered TDRs. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that
provide solutions to customers’ entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are written down to collateral value and placed on nonaccrual status no later than the time of discharge.
The table below provides information on the Corporation’s Credit Card and Other Consumer TDR portfolio including the June 30, 2020 and 2019 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of loans that were modified in TDRs during the three and six months ended June 30, 2020 and 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – TDRs Entered into During the Three and Six Months Ended June 30, 2020
and 2019 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid Principal Balance
 
Carrying
Value
(2)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Unpaid Principal Balance
 
Carrying
Value
(2)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
(Dollars in millions)
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
Credit card
$
57

 
$
61

 
18.08
%
 
5.15
%
 
$
144

 
$
152

 
18.02
%
 
5.24
%
Direct/Indirect consumer
14

 
8

 
5.26

 
5.26

 
23

 
12

 
5.31

 
5.31

Total
$
71

 
$
69

 
16.61

 
5.16

 
$
167

 
$
164

 
17.07

 
5.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Credit card
$
95

 
$
102

 
19.84
%
 
5.38
%
 
$
184

 
$
195

 
19.82
%
 
5.32
%
Direct/Indirect consumer
19

 
11

 
5.19

 
5.16

 
27

 
15

 
5.18

 
5.16

Total
$
114

 
$
113

 
18.45

 
5.36

 
$
211

 
$
210

 
18.80

 
5.30

(1) 
For more information on the Corporation's loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
(2) 
Includes accrued interest and fees.
The table below presents the June 30, 2020 and 2019 carrying value for Credit Card and Other Consumer loans that were modified in a TDR during the three and six months ended June 30, 2020 and 2019, by program type.
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – TDRs by Program Type (1)
 
 
 
 
 
 
 
TDRs Entered into During the Three Months Ended June 30
 
TDRs Entered into During the Six Months Ended June 30
(Dollars in millions)
2020
 
2019
 
2020
 
2019
Internal programs
$
43

 
$
71

 
$
109

 
$
136

External programs
18

 
31

 
43

 
59

Other
8

 
11

 
12

 
15

Total
$
69

 
$
113

 
$
164

 
$
210

(1) 
Includes accrued interest and fees. For more information on the Corporation's loan modification programs offered in response to the COVID-19 pandemic, which are not TDRs, see Note 1 – Summary of Significant Accounting Principles.
Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for credit card and other consumer. Based on historical experience, the Corporation estimates that 14 percent of new credit card TDRs and 22 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification.
Commercial Loans
Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation’s loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of interest, payment forbearances or other actions designed to benefit the borrower while mitigating the Corporation’s risk exposure. Reductions in
interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.
At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.
At June 30, 2020 and December 31, 2019, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were $500 million and $445 million. The balance of commercial TDRs in payment default was not significant at June 30, 2020 and December 31, 2019.
Loans Held-for-sale
The Corporation had LHFS of $7.4 billion and $9.2 billion at June 30, 2020 and December 31, 2019. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $11.1 billion and $14.4 billion for the six months ended June 30, 2020 and 2019. Cash used for originations and purchases of LHFS totaled approximately $9.2 billion for both the six months ended June 30, 2020 and 2019.
Accrued Interest Receivable
Accrued interest receivable for loans and leases and loans held-for-sale at June 30, 2020 and December 31, 2019 was $2.4 billion and $2.6 billion and is reported in customer and other receivables on the Consolidated Balance Sheet.
Outstanding credit card loan balances include unpaid principal, interest and fees. Credit card loans are not classified as nonperforming but are charged-off no later than the end of the month in which the account becomes 180 days past due, within 60 days after receipt of notification of death or bankruptcy, or upon confirmation of fraud. During the three and six months ended June 30, 2020, the Corporation reversed $141 million and $306 million of interest and fee income against the income statement line item in which it was originally recorded upon charge-off of the principal balance of the loan.
For the outstanding residential mortgage, home equity, direct/indirect consumer and commercial loan balances classified as nonperforming during the three and six months ended June 30, 2020, the Corporation reversed $8 million and $18 million of interest and fee income at the time the loans were classified as nonperforming against the income statement line item in which it was originally recorded. For more information on the Corporation's nonperforming loan policies, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2019 Annual Report on Form 10-K.
Allowance for Credit Losses
On January 1, 2020, the Corporation adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime ECL inherent in the Corporation’s relevant financial assets. Upon adoption of the new accounting standard, the Corporation recorded a $3.3 billion, or 32 percent, increase in the allowance for credit losses, which was comprised of a net increase of $2.9 billion in the allowance for loan and lease losses and a $310 million increase in the reserve for unfunded lending commitments. The net increase in the allowance for loan and lease losses was primarily driven by a $3.1 billion increase in credit card as the Corporation now reserves for the life of these receivables. The increase in the reserve for unfunded lending commitments included $119 million in the consumer portfolio for the undrawn portion of HELOCs and $191 million in the commercial portfolio. For more information on the Corporation's credit loss accounting policies including the allowance for credit losses see Note 1 – Summary of Significant Accounting Principles.
The allowance for loan and lease losses at June 30, 2020 was $19.4 billion, an increase of $7.0 billion compared to January 1, 2020. The increase in the allowance for loan and lease losses was primarily driven by deterioration in the economic outlook resulting from the impact of COVID-19. The increase in the allowance for loan and lease losses was $393 million in the consumer real estate portfolio, $2.7 billion in the credit card and other consumer portfolio, and $3.9 billion in the commercial portfolio. The reserve for unfunded lending commitments increased $579 million from January 1, 2020 to $1.7 billion at June 30, 2020.
The allowance for credit losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. Also included in the allowance for loan and lease losses are qualitative reserves to cover losses that are expected but, in the Corporation's assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, the Corporation incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. For more information on the Corporation's credit loss accounting policies, including the allowance for credit losses, see Note 1 – Summary of Significant Accounting Principles.
The lifetime estimate considers several recessionary scenarios that include deterioration in key macroeconomic variables such as gross domestic product, unemployment rate and home price index over the life of the portfolio. As of January 1, 2020, the Corporation's economic outlook was weighted to include the potential of a recession with some expectation of tail risk similar to the severely adverse scenario used in stress testing. During the three and six months ended June 30, 2020, there was significant deterioration in the macroeconomic conditions in the U.S. and globally related to impact of COVID-19. This has resulted in changes to key macroeconomic variables, including, but not limited to, increases in the unemployment rate and decreases to the forecasted gross domestic product compared to the Corporation's January 1, 2020 outlook. The weakened economic outlook was the primary driver of the Corporation’s increase in the allowance for credit losses. In establishing the allowance for credit losses at June 30, 2020, the Corporation used an economic outlook derived from weighting consensus estimates, a downside scenario that assumed a significantly slower recovery in order to reflect the uncertainty around the pace of recovery in the current crisis, and a tail risk scenario similar to the severely adverse scenario used in stress testing.  The unemployment rate under this economic outlook remained above 10 percent as of the fourth quarter of 2020 with a gradual decline to above seven percent in the fourth quarter of 2021.  Additionally, in this economic outlook, gross domestic product did not return to pre-pandemic levels until the beginning of 2023.  The Corporation factored into its allowance for credit loss estimate the impact to borrowers from additional unemployment benefits that were provided as part of the CARES Act, including a probability-weighted likelihood of an extension of benefits into the fourth quarter of 2020.
In addition, the allowance for credit losses at June 30, 2020 included qualitative reserves for certain segments that the Corporation views as higher risk that may not be fully recognized through its quantitative models. These high risk segments include leveraged loans and higher risk industries such as hospitality and energy. The Corporation also holds additional reserves for borrowers who requested deferrals that take into account their credit characteristics and payment behavior subsequent to deferral.  There are still many unknowns including the duration of the impact of COVID-19 on the economy and the results of the current government fiscal and monetary actions including payment deferral programs as well as future government actions. The Corporation will continue to evaluate the allowance for credit losses and the related economic outlook each quarter.
Outstanding loans and leases excluding loans accounted for under the fair value option increased $14.7 billion in the six months ended June 30, 2020. Outstanding commercial loans and leases excluding loans accounted for under the fair value option increased $29.0 billion primarily due to $25.1 billion of funded PPP loans and growth in the commercial and industrial portfolio. Outstanding consumer loans and leases excluding loans accounted for under the fair value option decreased $14.3 billion in the six months ended June 30, 2020 primarily driven by a decline in credit card
due to reduced consumer spending. The funding of PPP loans did not impact the allowance for credit losses as they are fully guaranteed by the SBA. The decline in consumer loans and leases somewhat offset the increase in the allowance for credit driven by the weaker economic outlook.
The table below summarizes the changes in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2020 and 2019.
 
 
 
 
 
 
 
 
 
Consumer
Real Estate
 
Credit Card and Other Consumer
 
Commercial
 
Total
(Dollars in millions)
Three Months Ended June 30, 2020
Allowance for loan and lease losses, April 1
$
808

 
$
8,258

 
$
6,700

 
$
15,766

Loans and leases charged off
(27
)
 
(985
)
 
(447
)
 
(1,459
)
Recoveries of loans and leases previously charged off
61

 
217

 
35

 
313

Net charge-offs
34

 
(768
)
 
(412
)
 
(1,146
)
Provision for loan and lease losses
(9
)
 
2,632

 
2,152

 
4,775

Other (1)

 

 
(6
)
 
(6
)
Allowance for loan and lease losses, June 30
833

 
10,122

 
8,434

 
19,389

Reserve for unfunded lending commitments, April 1
149

 

 
1,211

 
1,360

Provision for unfunded lending commitments
(8
)
 

 
350

 
342

Reserve for unfunded lending commitments, June 30
141




1,561


1,702

Allowance for credit losses, June 30
$