Note 3

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, 2013					December 31, 2012
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	60,988		27.3	%	$	60,742		27.2	%
Lease financing		5,335		2.4			5,481		2.5
Total commercial		66,323		29.7			66,223		29.7
Commercial Real Estate
Commercial mortgages		31,155		13.9			31,005		13.9
Construction and development		6,245		2.8			5,948		2.6
Total commercial real estate		37,400		16.7			36,953		16.5
Residential Mortgages
Residential mortgages		33,779		15.1			32,648		14.6
Home equity loans, first liens		12,205		5.5			11,370		5.1
Total residential mortgages		45,984		20.6			44,018		19.7
Credit Card		16,229		7.3			17,115		7.7
Other Retail
Retail leasing		5,526		2.5			5,419		2.4
Home equity and second mortgages		16,131		7.2			16,726		7.5
Revolving credit		3,206		1.4			3,332		1.5
Installment		5,450		2.4			5,463		2.4
Automobile		12,474		5.6			12,593		5.6
Student		3,893		1.8			4,179		1.9
Total other retail		46,680		20.9			47,712		21.3
Total loans, excluding covered loans		212,616		95.2			212,021		94.9
Covered Loans		10,735		4.8			11,308		5.1
Total loans	$	223,351		100.0	%	$	223,329		100.0	%

The Company had loans of $75.1 billion at March 31, 2013, and $74.1 billion at December 31, 2012, pledged at the Federal Home Loan Bank (“FHLB”), and loans of $49.5 billion at March 31, 2013, and $48.6 billion at December 31, 2012, pledged at the Federal Reserve Bank.

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 $667 million at March 31, 2013, and $753 million at December 31, 2012. 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.”

Changes in the accretable balance for purchased impaired loans were as follows:


Three Months Ended March 31 (Dollars in Millions)	2013			2012
Balance at beginning of period	$	1,709		$	2,619
Purchases		—			13
Accretion		(136	)		(115	)
Disposals		(38	)		(42	)
Reclassifications (to)/from nonaccretable difference (a)		10			132
Other (b)		376			(2	)

Balance at end of period	$	1,921		$	2,605

(a)

Primarily relates to changes in expected credit performance.

(b)

The amount in first quarter 2013 primarily represents the reclassification of unamortized decreases in the FDIC asset (which are now presented as a separate component within the covered assets table on page 49), partially offset by the impact of changes in expectations about retaining covered single-family loans beyond the term of the indemnification agreements.

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. The allowance for credit losses is increased through provisions charged to operating earnings and reduced by net charge-offs. Management evaluates the allowance each quarter to ensure it appropriately reserves for incurred losses.

The allowance recorded for loans in the commercial lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience. The Company currently uses a 12-year period of historical losses in considering actual loss experience, because it believes that period best reflects the losses incurred in the portfolio. This timeframe and the results of the analysis are evaluated quarterly to determine if they are appropriate. The allowance recorded for impaired loans greater than $5 million in the commercial lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral for collateral-dependent loans. The allowance recorded for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, and historical losses, adjusted for current trends. The Company also considers the impacts of any loan modifications made to commercial lending segment loans and any subsequent payment defaults to its expectations of cash flows, principal balance, and current expectations about the borrower’s ability to pay in determining the allowance for credit losses.

The allowance recorded for Troubled Debt Restructuring (“TDR”) loans and purchased impaired 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, or the prior quarter effective rate, respectively. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status, refreshed loan-to-value ratios when possible, portfolio growth and historical losses, adjusted for current trends. The Company also considers any modifications made to consumer lending segment loans including the impacts of any subsequent payment defaults since modification in determining the allowance for credit losses, such as the borrower’s ability to pay under the restructured terms, and the timing and amount of payments.

The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for non-covered loans and represents any decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

In addition, subsequent payment defaults on loan modifications considered TDRs are considered in the underlying factors used in the determination of the appropriateness of the allowance for credit losses. For each loan segment, the Company estimates future loan charge-offs through a variety of analysis, trends and underlying assumptions. With respect to the commercial lending segment, TDRs may be collectively evaluated for impairment where observed performance history, including defaults, is a primary driver of the loss allocation. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. However, incorporation of loss history is factored into the allowance methodology applied to this category of loans. With respect to the consumer lending segment, performance of the portfolio, including defaults on TDRs, is considered when estimating future cash flows.

The Company’s methodology for determining the appropriate allowance for credit losses for all the loan segments also considers the imprecision inherent in the methodologies used. As a result, in addition to the amounts determined under the methodologies described above, management also considers the potential impact of other qualitative factors which include, but are not limited to, economic factors; geographic and other concentration risks; delinquency and nonaccrual trends; current business conditions; changes in lending policy, underwriting standards, internal review and other relevant business practices; and the regulatory environment. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each of the above loan segments.

The Company also assesses the credit risk associated with off-balance sheet loan commitments, letters of credit, and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.

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, 2011	$	1,010		$	1,154		$	927		$	992		$	831		$	4,914		$	100		$	5,014
Add
Provision for credit losses		105			(46	)		112			178			124			473			8			481
Deduct
Loans charged off		113			83			116			201			167			680			1			681
Less recoveries of loans charged off		(27	)		(12	)		(4	)		(32	)		(35	)		(110	)		–			(110	)

Net loans charged off		86			71			112			169			132			570			1			571
Net change for credit losses to be reimbursed by the FDIC		–			–			–			–			–			–			(5	)		(5	)

Balance at March 31, 2012	$	1,029		$	1,037		$	927		$	1,001		$	823		$	4,817		$	102		$	4,919


Balance at December 31, 2012	$	1,051		$	857		$	935		$	863		$	848		$	4,554		$	179		$	4,733
Add
Provision for credit losses		(4	)		(40	)		83			192			132			363			40			403
Deduct
Loans charged off		56			43			100			193			156			548			1			549
Less recoveries of loans charged off		(21	)		(24	)		(8	)		(33	)		(30	)		(116	)		–			(116	)

Net loans charged off		35			19			92			160			126			432			1			433
Net change for credit losses to be reimbursed by the FDIC		–			–			–			–			–			–			5			5

Balance at March 31, 2013	$	1,012		$	798		$	926		$	895		$	854		$	4,485		$	223		$	4,708

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 March 31, 2013 Related to
Loans individually evaluated for impairment (a)	$	5	$	21	$	–	$	–	$	–	$	26	$	–	$	26
TDRs collectively evaluated for impairment		25		25		407		132		110		699		4		703
Other loans collectively evaluated for impairment		982		741		519		763		744		3,749		22		3,771
Loans acquired with deteriorated credit quality		–		11		–		–		–		11		197		208

Total allowance for credit losses	$	1,012	$	798	$	926	$	895	$	854	$	4,485	$	223	$	4,708

Allowance Balance at December 31, 2012 Related to
Loans individually evaluated for impairment (a)	$	10	$	30	$	–	$	–	$	–	$	40	$	–	$	40
TDRs collectively evaluated for impairment		28		29		446		153		97		753		1		754
Other loans collectively evaluated for impairment		1,013		791		489		710		751		3,754		17		3,771
Loans acquired with deteriorated credit quality		–		7		–		–		–		7		161		168

Total allowance for credit losses	$	1,051	$	857	$	935	$	863	$	848	$	4,554	$	179	$	4,733

(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
March 31, 2013
Loans individually evaluated for impairment (a)	$	145	$	484	$	–	$	–	$	–	$	629	$	62	$	691
TDRs collectively evaluated for impairment		184		400		4,282		393		310		5,569		102		5,671
Other loans collectively evaluated for impairment		65,991		36,427		41,696		15,836		46,370		206,320		6,119		212,439
Loans acquired with deteriorated credit quality		3		89		6		–		–		98		4,452		4,550

Total loans	$	66,323	$	37,400	$	45,984	$	16,229	$	46,680	$	212,616	$	10,735	$	223,351

December 31, 2012
Loans individually evaluated for impairment (a)	$	171	$	510	$	–	$	–	$	–	$	681	$	48	$	729
TDRs collectively evaluated for impairment		185		391		4,199		442		313		5,530		145		5,675
Other loans collectively evaluated for impairment		65,863		35,952		39,813		16,673		47,399		205,700		5,814		211,514
Loans acquired with deteriorated credit quality		4		100		6		–		–		110		5,301		5,411

Total loans	$	66,223	$	36,953	$	44,018	$	17,115	$	47,712	$	212,021	$	11,308	$	223,329

(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.

For all loan 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).

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. When a loan is placed on nonaccrual status, unpaid accrued interest is reversed. Commercial lending segment loans are generally fully or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is considered uncollectible.

Consumer lending segment loans are generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due, and placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Loans and lines in a junior lien position secured by 1-4 family properties are placed on nonaccrual status at 120 days past due or when behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is charged off. Credit cards are charged off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged off at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.

For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to the loan carrying amount. Interest payments are generally recorded as reductions to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. 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 the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.

Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status and charge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows for some loans is not reasonably estimable. Those loans are classified as nonaccrual loans and interest income is not recognized until the timing and amount of the future cash flows can be reasonably estimated.

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
March 31, 2013
Commercial	$	65,995	$	164	$	63	$	101	$	66,323
Commercial real estate		36,801		84		8		507		37,400
Residential mortgages (a)		44,740		322		249		673		45,984
Credit card		15,696		202		204		127		16,229
Other retail		46,128		239		85		228		46,680

Total loans, excluding covered loans		209,360		1,011		609		1,636		212,616
Covered loans		9,776		194		556		209		10,735

Total loans	$	219,136	$	1,205	$	1,165	$	1,845	$	223,351

December 31, 2012
Commercial	$	65,701	$	341	$	58	$	123	$	66,223
Commercial real estate		36,241		158		8		546		36,953
Residential mortgages (a)		42,728		348		281		661		44,018
Credit card		16,525		227		217		146		17,115
Other retail		47,109		290		96		217		47,712

Total loans, excluding covered loans		208,304		1,364		660		1,693		212,021
Covered loans		9,900		359		663		386		11,308

Total loans	$	218,204	$	1,723	$	1,323	$	2,079	$	223,329

(a)

At March 31, 2013, $398 million of loans 30 – 89 days past due and $3.4 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 $441 million and $3.2 billion at December 31, 2012, respectively.

The Company classifies its loan portfolios 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 not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those that have a potential weakness deserving management’s close attention. Classified loans are those 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:


			Criticized
(Dollars in Millions)	Pass		Special Mention		Classified (a)		Total Criticized		Total
March 31, 2013
Commercial	$	64,167	$	1,005	$	1,151	$	2,156	$	66,323
Commercial real estate		34,832		626		1,942		2,568		37,400
Residential mortgages (b)		44,887		12		1,085		1,097		45,984
Credit card		15,898		–		331		331		16,229
Other retail		46,257		35		388		423		46,680

Total loans, excluding covered loans		206,041		1,678		4,897		6,575		212,616
Covered loans		10,320		61		354		415		10,735

Total loans	$	216,361	$	1,739	$	5,251	$	6,990	$	223,351

Total outstanding commitments	$	442,045	$	3,181	$	6,133	$	9,314	$	451,359

December 31, 2012
Commercial	$	63,906	$	1,114	$	1,203	$	2,317	$	66,223
Commercial real estate		34,096		621		2,236		2,857		36,953
Residential mortgages (b)		42,897		18		1,103		1,121		44,018
Credit card		16,752		–		363		363		17,115
Other retail		47,294		36		382		418		47,712

Total loans, excluding covered loans		204,945		1,789		5,287		7,076		212,021
Covered loans		10,786		61		461		522		11,308

Total loans	$	215,731	$	1,850	$	5,748	$	7,598	$	223,329

Total outstanding commitments	$	442,047	$	3,231	$	6,563	$	9,794	$	451,841

(a)

Classified rating on consumer loans primarily based on delinquency status.

(b)

At March 31, 2013, $3.4 billion of GNMA loans 90 days or more past due and $2.4 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 $3.2 billion and $2.4 billion at December 31, 2012, 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. Impaired loans include all nonaccrual and TDR loans. For all loan classes, interest income on TDR loans is recognized under the modified terms and conditions if the borrower has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Interest income is generally not recognized on other impaired loans until the loan is paid off. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

Factors used by the Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and therefore whether those loans are impaired include, but are not limited to, the financial condition of the borrower, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on industry, geographic location and certain financial ratios. The evaluation of impairment on residential mortgages, credit card loans and other retail loans is primarily driven by delinquency status of individual loans or whether a loan has been modified. Individual covered loans, whose future losses are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing coverage not been in place.

A summary of impaired 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
March 31, 2013
Commercial	$	377	$	1,108	$	32	$	34
Commercial real estate		1,033		2,015		56		11
Residential mortgages		2,708		3,344		385		–
Credit card		393		393		132		–
Other retail		443		512		114		3

Total impaired loans, excluding GNMA and covered loans		4,954		7,372		719		48
Loans purchased from GNMA mortgage pools		1,909		1,909		32		–
Covered loans		594		1,447		23		9

Total	$	7,457	$	10,728	$	774	$	57

December 31, 2012
Commercial	$	404	$	1,200	$	40	$	39
Commercial real estate		1,077		2,251		70		4
Residential mortgages		2,748		3,341		415		–
Credit card		442		442		153		–
Other retail		443		486		101		3

Total impaired loans, excluding GNMA and covered loans		5,114		7,720		779		46
Loans purchased from GNMA mortgage pools		1,778		1,778		39		–
Covered loans		767		1,584		20		12

Total	$	7,659	$	11,082	$	838	$	58

(a)

Substantially all loans classified as impaired at March 31, 2013 and December 31, 2012, had an associated allowance for credit losses.

Additional information on impaired loans follows:


	2013				2012
Three Months Ended March 31 (Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	391	$	10	$	569	$	3
Commercial real estate		1,055		11		1,524		7
Residential mortgages		2,728		34		2,638		26
Credit card		418		4		548		8
Other retail		443		6		180		2

Total impaired loans, excluding GNMA and covered loans		5,035		65		5,459		46
Loans purchased from GNMA mortgage pools		1,844		23		1,277		15
Covered loans		681		7		1,178		2

Total	$	7,560	$	95	$	7,914	$	63

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. 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. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

The following table provides a summary of loans modified as TDRs during the periods presented, by portfolio class:


	2013						2012
Three Months Ended March 31 (Dollars in Millions)	Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance		Number of Loans		Pre-Modification Outstanding Loan Balance		Post-Modification Outstanding Loan Balance
Commercial		815	$	34	$	33		1,279	$	91	$	72
Commercial real estate		63		80		78		111		204		197
Residential mortgages		807		110		105		621		111		107
Credit card		7,818		48		48		14,218		80		80
Other retail		1,865		49		49		988		15		15

Total loans, excluding GNMA and covered loans		11,368		321		313		17,217		501		471
Loans purchased from GNMA mortgage pools		1,256		177		182		1,400		179		187
Covered loans		50		53		41		43		140		137

Total loans		12,674	$	551	$	536		18,660	$	820	$	795

Residential mortgages, home equity and second mortgages, and loans purchased from Government National Mortgage Association (“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, 2013, 94 residential mortgages, 18 home equity and second mortgage loans and 338 loans purchased from GNMA mortgage pools with outstanding balances of $15 million, $2 million and $51 million, respectively, were in a trial period and have estimated post-modification balances of $15 million, $2 million and $51 million, respectively, assuming permanent modification occurs at the end of the trial period.

Many of the Company’s TDRs are determined on a case-by-case basis in connection with ongoing loan collection processes. However, the Company has also implemented certain restructuring programs that may result in TDRs.

For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market rate of interest. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies these concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.

Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company participates in the U.S. Department of Treasury Home Affordable Modification Program (“HAMP”). HAMP gives qualifying homeowners an opportunity to permanently modify residential mortgage loans and achieve more affordable monthly payments, with the U.S. Department of Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. The Company also modifies residential mortgage loans under Federal Housing Administration, Department of Veterans Affairs, or other internal programs. Under these programs, the Company provides concessions to qualifying borrowers experiencing financial difficulties. The 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.

Credit card and other retail loan modifications are generally part of two distinct restructuring programs. The Company offers workout 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. The Company also provides modification programs to qualifying customers experiencing a temporary financial hardship in which reductions are made to monthly required minimum payments for up to 12 months. Balances related to these programs are generally frozen, however, accounts may be reopened upon successful exit of the program, in which account privileges may be restored.

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.

Modifications to loans in the covered segment are similar in nature to that described above for non-covered loans, and the evaluation and determination of TDR status is similar, except that acquired loans restructured after acquisition are not considered TDRs for purposes of the Company’s accounting and disclosure if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under loss sharing agreements with the FDIC.

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 the periods presented that were modified as TDRs within 12 months previous to default:


	2013				2012
Three Months Ended March 31 (Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Commercial		168	$	2		241	$	21
Commercial real estate		19		28		54		92
Residential mortgages		183		31		64		12
Credit card		1,986		11		2,526		15
Other retail		517		28		184		3

Total loans, excluding GNMA and covered loans		2,873		100		3,069		143
Loans purchased from GNMA mortgage pools		3,822		478		221		33
Covered loans		10		3		34		60

Total loans		6,705	$	581		3,324	$	236

In addition to the defaults in the table above, during the three months ended March 31, 2013, the Company had 97 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools with aggregate outstanding balances of $16 million 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.

Covered Assets 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 consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:


	March 31, 2013								December 31, 2012
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total
Commercial loans	$	–	$	126	$	–	$	126	$	–	$	143	$	–	$	143
Commercial real estate loans		1,214		2,206		–		3,420		1,323		2,695		–		4,018
Residential mortgage loans		3,238		1,055		–		4,293		3,978		1,109		–		5,087
Credit card loans		–		5		–		5		–		5		–		5
Other retail loans		–		744		–		744		–		775		–		775
Losses reimbursable by the FDIC (a)		–		–		1,298		1,298		–		–		1,280		1,280
Unamortized changes in FDIC asset (b)		–		–		849		849		–		–		–		–

Covered loans		4,452		4,136		2,147		10,735		5,301		4,727		1,280		11,308
Foreclosed real estate		–		–		168		168		–		–		197		197

Total covered assets	$	4,452	$	4,136	$	2,315	$	10,903	$	5,301	$	4,727	$	1,477	$	11,505

(a)

Relates to loss sharing agreements with remaining terms from 2 to 7 years.

(b)

Represents decreases in losses expected to be reimbursed by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements. These amounts were presented within the separate loan categories prior to January 1, 2013.

The Company adopted recently issued indemnification asset accounting guidance effective January 1, 2013 applicable to FDIC loss-sharing agreements. The guidance requires any reduction in expected cash flows from the FDIC resulting from increases in expected cash flows from the covered assets (when there are no previous valuation allowances to reverse) to be amortized over the shorter of the remaining contractual term of the indemnification agreements or the remaining life of the covered assets. Prior to adoption of this guidance, such increases in expected cash flows of purchased loans and decreases in expected cash flows of the FDIC indemnification assets were considered together and recognized over the remaining life of the loans. The adoption of this guidance did not materially affect the Company’s financial statements.

At March 31, 2013, $22 million of the purchased impaired loans included in covered loans were classified as nonperforming assets, compared with $82 million at December 31, 2012, 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.