Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2011

Loans and Allowance for Credit Losses [Abstract]

Loans and Allowance for Credit Losses

  NOTE 6   Loans and Allowance for Credit Losses

The composition of the loan portfolio at December 31, disaggregated by class and underlying specific portfolio type, was as follows:

(Dollars in Millions)	2011		2010
Commercial
Commercial	$	50,734	$	42,272
Lease financing		5,914		6,126
Total commercial		56,648		48,398
Commercial real estate
Commercial mortgages		29,664		27,254
Construction and development		6,187		7,441
Total commercial real estate		35,851		34,695
Residential mortgages
Residential mortgages		28,669		24,315
Home equity loans, first liens		8,413		6,417
Total residential mortgages		37,082		30,732
Credit card		17,360		16,803
Other retail
Retail leasing		5,118		4,569
Home equity and second mortgages		18,131		18,940
Revolving credit		3,344		3,472
Installment		5,348		5,459
Automobile		11,508		10,897
Student		4,658		5,054
Total other retail		48,107		48,391
Total loans, excluding covered loans		195,048		179,019
Covered loans		14,787		18,042
Total loans	$	209,835	$	197,061

The Company had loans of $67.0 billion at December 31, 2011, and $62.8 billion at December 31, 2010, pledged at the Federal Home Loan Bank (“FHLB”), and loans of $47.2 billion at December 31, 2011, and $44.6 billion at December 31, 2010, pledged at the Federal Reserve Bank.

The Company primarily lends to borrowers in the states in which it has Consumer and Small Business Banking offices. Collateral for commercial loans may include marketable securities, accounts receivable, inventory and equipment. For details of the Company’s commercial portfolio by industry group and geography as of December 31, 2011 and 2010, see Table 7 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

For detail of the Company’s commercial real estate portfolio by property type and geography as of December 31, 2011 and 2010, see Table 8 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements. Such loans are collateralized by the related property.

Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs. Net unearned interest and deferred fees and costs amounted to $1.1 billion at December 31, 2011, and $1.3 billion at December 31, 2010. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. The Company evaluates purchased loans for impairment at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are considered “purchased impaired loans”. All other purchased loans are considered “purchased nonimpaired loans”.

On the acquisition date, the estimate of the contractually required payments receivable for all purchased impaired loans acquired in the FCB transaction were $502 million, the cash flows expected to be collected were $338 million including interest, and the estimated fair values of the loans were $238 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments. For the purchased nonimpaired loans acquired in the FCB transaction, the estimate as of the acquisition date of the contractually required payments receivable were $1.2 billion, the contractual cash flows not expected to be collected were $184 million, and the estimated fair value of the loans was $828 million.

Changes in the accretable balance for all purchased impaired loans, including those acquired in the FCB transaction, for the years ended December 31, were as follows:

(Dollars in Millions)	2011			2010			2009
Balance at beginning of period	$	2,890		$	2,845		$	2,719
Purchases		100			–			356
Accretion		(451	)		(421	)		(358	)
Disposals		(67	)		(27	)		(56	)
Reclassifications (to)/from nonaccretable difference (a)		184			536			384
Other		(37	)		(43	)		(200	)
Balance at end of period	$	2,619		$	2,890		$	2,845

(a) Primarily relates to changes in expected credit performance and changes in variable rates.

Allowance for Credit Losses The allowance for credit losses reserves for probable and estimable losses incurred in the Company’s loan and lease portfolio and includes certain amounts that do not represent loss exposure to the Company because those losses are recoverable under loss sharing agreements with the FDIC.

Activity in the allowance for credit losses by portfolio class was as follows:

(Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
Balance at December 31, 2009	$	1,208		$	1,001		$	672		$	1,495		$	871		$	5,247		$	17		$	5,264
Add
Provision for credit losses		723			1,135			694			1,100			681			4,333			23			4,356
Deduct
Loans charged off		918			871			554			1,270			863			4,476			20			4,496
Less recoveries of loans charged off		(91	)		(26	)		(8	)		(70	)		(118	)		(313	)		(2	)		(315	)
Net loans charged off		827			845			546			1,200			745			4,163			18			4,181
Net change for credit losses to be reimbursed by the FDIC		–			–			–			–			–			–			92			92
Balance at December 31, 2010	$	1,104		$	1,291		$	820		$	1,395		$	807		$	5,417		$	114		$	5,531
Add
Provision for credit losses		312			361			596			431			628			2,328			15			2,343
Deduct
Loans charged off		516			543			502			922			733			3,216			13			3,229
Less recoveries of loans charged off		(110	)		(45	)		(13	)		(88	)		(129	)		(385	)		(1	)		(386	)
Net loans charged off		406			498			489			834			604			2,831			12			2,843
Net change for credit losses to be reimbursed by the FDIC		–			–			–			–			–			–			(17	)		(17	)
Balance at December 31, 2011	$	1,010		$	1,154		$	927		$	992		$	831		$	4,914		$	100		$	5,014

Additional detail of the allowance for credit losses by portfolio class was as follows:

(Dollars in Millions)	Commercial		Commercial Real Estate		Residential Mortgages		Credit Card		Other Retail		Total Loans, Excluding Covered Loans		Covered Loans		Total Loans
Allowance balance at December 31, 2011 related to
Loans individually evaluated for impairment (a)	$	16	$	61	$	1	$	–	$	–	$	78	$	2	$	80
TDRs collectively evaluated for impairment		40		33		490		219		57		839		–		839
Other loans collectively evaluated for impairment		954		1,057		436		773		774		3,994		22		4,016
Loans acquired with deteriorated credit quality		–		3		–		–		–		3		76		79
Total allowance for credit losses	$	1,010	$	1,154	$	927	$	992	$	831	$	4,914	$	100	$	5,014
Allowance balance at December 31, 2010 related to
Loans individually evaluated for impairment (a)	$	38	$	55	$	–	$	–	$	–	$	93	$	–	$	93
TDRs collectively evaluated for impairment		–		–		320		223		30		573		–		573
Other loans collectively evaluated for impairment		1,066		1,235		500		1,172		777		4,750		28		4,778
Loans acquired with deteriorated credit quality		–		1		–		–		–		1		86		87
Total allowance for credit losses	$	1,104	$	1,291	$	820	$	1,395	$	807	$	5,417	$	114	$	5,531

(a) Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.

Additional detail of loan balances by portfolio class was as follows:

(Dollars in Millions)	Commercial		Commercial Real Estate		Residential Mortgages		Credit Card		Other Retail		Total Loans, Excluding Covered Loans		Covered Loans(b)		Total Loans
December 31, 2011
Loans individually evaluated for impairment (a)	$	222	$	812	$	6	$	–	$	–	$	1,040	$	204	$	1,244
TDRs collectively evaluated for impairment		277		331		3,430		584		148		4,770		113		4,883
Other loans collectively evaluated for impairment		56,138		34,574		33,642		16,776		47,959		189,089		8,616		197,705
Loans acquired with deteriorated credit quality		11		134		4		–		–		149		5,854		6,003
Total loans	$	56,648	$	35,851	$	37,082	$	17,360	$	48,107	$	195,048	$	14,787	$	209,835
December 31, 2010
Loans individually evaluated for impairment (a)	$	295	$	801	$	–	$	–	$	–	$	1,096	$	–	$	1,096
TDRs collectively evaluated for impairment		–		–		1,957		452		114		2,523		–		2,523
Other loans collectively evaluated for impairment		48,103		33,834		28,775		16,351		48,277		175,340		11,899		187,239
Loans acquired with deteriorated credit quality		–		60		–		–		–		60		6,143		6,203
Total loans	$	48,398	$	34,695	$	30,732	$	16,803	$	48,391	$	179,019	$	18,042	$	197,061

(a) Represents loans greater than $5 million classified as nonperforming or TDRs.

(b) Includes expected reimbursements from the FDIC under loss sharing agreements.

Credit Quality The 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. These credit quality ratings are an important part of the Company’s overall credit risk management process and evaluation of its allowance for credit losses.

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 Past Due		90 Days or More Past Due		Nonperforming		Total
December 31, 2011
Commercial	$	55,991	$	300	$	45	$	312	$	56,648
Commercial real estate		34,800		138		14		899		35,851
Residential mortgages (a)		35,664		404		364		650		37,082
Credit card		16,662		238		236		224		17,360
Other retail		47,516		340		184		67		48,107
Total loans, excluding covered loans		190,633		1,420		843		2,152		195,048
Covered loans		12,589		362		910		926		14,787
Total loans	$	203,222	$	1,782	$	1,753	$	3,078	$	209,835
December 31, 2010
Commercial	$	47,412	$	325	$	64	$	597	$	48,398
Commercial real estate		32,986		415		1		1,293		34,695
Residential mortgages (a)		29,140		456		500		636		30,732
Credit card		15,993		269		313		228		16,803
Other retail		47,706		404		216		65		48,391
Total loans, excluding covered loans		173,237		1,869		1,094		2,819		179,019
Covered loans		14,951		757		1,090		1,244		18,042
Total loans	$	188,188	$	2,626	$	2,184	$	4,063	$	197,061

(a) At December 31, 2011, $545 million of loans 30 – 89 days past due and $2.6 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 Department of Veterans Affairs, were classified as current, compared with $439 million and $2.6 billion at December 31, 2010, respectively.

Total nonperforming assets include nonaccrual loans, restructured loans not performing in accordance with modified terms, other real estate and other nonperforming assets owned by the Company. For details of the Company’s nonperforming assets as of December 31, 2011 and 2010, see Table 16 included in Management’s Discussion and Analysis which is incorporated by reference into these Notes to Consolidated Financial Statements.

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:

			Criticized
(Dollars in Millions)	Pass		Special Mention		Classified (a)		Total Criticized		Total
December 31, 2011
Commercial	$	54,003	$	1,047	$	1,598	$	2,645	$	56,648
Commercial real estate		30,733		793		4,325		5,118		35,851
Residential mortgages (b)		35,814		19		1,249		1,268		37,082
Credit card		16,910		–		450		450		17,360
Other retail		47,665		24		418		442		48,107
Total loans, excluding covered loans		185,125		1,883		8,040		9,923		195,048
Covered loans		13,966		187		634		821		14,787
Total loans	$	199,091	$	2,070	$	8,674	$	10,744	$	209,835
Total outstanding commitments	$	410,457	$	3,418	$	9,690	$	13,108	$	423,565
December 31, 2010
Commercial	$	44,595	$	1,545	$	2,258	$	3,803	$	48,398
Commercial real estate		28,155		1,540		5,000		6,540		34,695
Residential mortgages (b)		29,355		29		1,348		1,377		30,732
Credit card		16,262		–		541		541		16,803
Other retail		47,906		70		415		485		48,391
Total loans, excluding covered loans		166,273		3,184		9,562		12,746		179,019
Covered loans		17,073		283		686		969		18,042
Total loans	$	183,346	$	3,467	$	10,248	$	13,715	$	197,061
Total outstanding commitments	$	370,031	$	4,923	$	11,576	$	16,499	$	386,530

(a) Classified rating on consumer loans primarily based on delinquency status.

(b) At December 31, 2011, $2.6 billion of GNMA loans 90 days or more past due and $2.0 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs were classified with a pass rating, compared with $2.6 billion and $1.1 billion at December 31, 2010, respectively.

For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company will be unable to collect all amounts due per the contractual terms of the loan agreement. A summary of impaired loans, which include all nonaccrual and TDR loans, by portfolio class was as follows:

(Dollars in Millions)	Period-end Recorded Investment (a)		Unpaid Principal Balance		Valuation Allowance		Commitments to Lend Additional Funds
December 31, 2011
Commercial	$	657	$	1,437	$	62	$	68
Commercial real estate		1,436		2,503		124		25
Residential mortgages		2,652		3,193		482		2
Credit card		584		584		219		–
Other retail		188		197		57		–
Total impaired loans, excluding GNMA and covered loans		5,517		7,914		944		95
Loans purchased from GNMA mortgage pools		1,265		1,265		18		–
Covered loans		1,170		1,642		43		49
Total	$	7,952	$	10,821	$	1,005	$	144
December 31, 2010
Commercial	$	596	$	1,631	$	59	$	80
Commercial real estate		1,308		2,659		118		17
Residential mortgages		2,440		2,877		334		–
Credit card		452		452		218		–
Other retail		152		189		32		–
Total	$	4,948	$	7,808	$	761	$	97

(a) Substantially all loans classified as impaired at December 31, 2011 and 2010, had an associated allowance for credit losses. The total amount of interest income recognized during 2011 on loans classified as impaired at December 31, 2011, excluding those acquired with deteriorated credit quality, was $358 million, compared to what would have been recognized at the original contractual terms of the loans of $523 million.

Additional information on impaired loans for the years ended December 31 follows:

(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized
2011
Commercial	$	534	$	12
Commercial real estate		1,537		18
Residential mortgages		2,557		100
Credit card		485		15
Other retail		164		5
Total impaired loans, excluding GNMA and covered loans		5,277		150
Loans purchased from GNMA mortgage pools		710		25
Covered loans		780		11
Total	$	6,767	$	186
2010
Commercial	$	693	$	8
Commercial real estate		1,601		2
Residential mortgages		2,297		72
Credit card		418		11
Other retail		150		6
Total	$	5,159	$	99

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. The following table provides a summary of loans modified as TDRs for the year ended December 31, 2011, by portfolio class:

(Dollars in Millions)	Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance
Commercial		5,285	$	456	$	427
Commercial real estate		506		1,078		1,060
Residential mortgages		3,611		708		704	(a)
Credit card		55,951		322		321
Other retail		4,028		73		72	(b)
Total loans, excluding GNMA and covered loans		69,381		2,637		2,584
Loans purchased from GNMA mortgage pools		9,569		1,277		1,356	(c)(d)
Covered loans		283		604		575
Total loans		79,233	$	4,518	$	4,515

(a) Residential mortgage and home equity and second mortgage TDRs include trial period arrangements offered to customers during the period and the post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. At December 31, 2011, 451 loans with outstanding balances of $75 million were in a trial period and have an estimated post-modification balance of $88 million assuming permanent modification occurs at the end of the trial period.

(b) At December 31, 2011, 53 home equity and second mortgage loans with outstanding balances of $3 million were in a trial period and have an estimated post-modification balance of $5 million assuming permanent modification occurs at the end of the trial period.

(c) At December 31, 2011, 1,591 loans with outstanding balances of $207 million were in a trial period and have an estimated post-modification balance of $232 million assuming permanent modification occurs at the end of the trial period.

(d) Post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs.

The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) during 2011 that were modified as TDRs within 12 months previous to default:

(Dollars in Millions)	Number of Loans		Amount Defaulted
Commercial		665	$	26
Commercial real estate		64		67
Residential mortgages		623		127
Credit card		8,046		43
Other retail		529		8
Total loans, excluding GNMA and covered loans		9,927		271
Loans purchased from GNMA mortgage pools		857		124
Covered loans		11		26
Total loans		10,795	$	421

Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include expected reimbursements from the FDIC. The carrying amount of the covered assets at December 31, consisted of purchased impaired loans, purchased nonimpaired loans, and other assets as shown in the following table:

	2011								2010
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total
Commercial loans	$	68	$	137	$	–	$	205	$	70	$	260	$	–	$	330
Commercial real estate loans		1,956		4,037		–		5,993		2,254		5,952		–		8,206
Residential mortgage loans		3,830		1,360		–		5,190		3,819		1,620		–		5,439
Credit card loans		–		6		–		6		–		5		–		5
Other retail loans		–		867		–		867		–		925		–		925
Losses reimbursable by the FDIC		–		–		2,526		2,526		–		–		3,137		3,137
Covered loans		5,854		6,407		2,526		14,787		6,143		8,762		3,137		18,042
Foreclosed real estate		–		–		274		274		–		–		453		453
Total covered assets	$	5,854	$	6,407	$	2,800	$	15,061	$	6,143	$	8,762	$	3,590	$	18,495

At December 31, 2011, $.2 billion of the purchased impaired loans included in covered loans were classified as nonperforming assets, compared with $.5 billion at December 31, 2010, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. Interest income is recognized on other purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses.

The Company has an equity interest in a joint venture that is accounted for utilizing the equity method. The principal activities of this entity are to lend to entities that develop land, and construct and sell residential homes. The Company provides a warehousing line to this joint venture. Warehousing advances to this joint venture are repaid when the sale of loans is completed or the real estate is permanently refinanced by others. At December 31, 2011 and 2010, the Company had $716 million and $825 million, respectively, of outstanding advances to this joint venture. These advances are included in commercial real estate loans.

Net gains on the sale of loans of $546 million, $574 million and $710 million for the years ended December 31, 2011, 2010 and 2009, respectively, were included in noninterest income, primarily in mortgage banking revenue.