Note 5

Loans and Allowance for Credit Losses

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


	June 30, 2014					December 31, 2013
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	72,286		29.7	%	$	64,762		27.5	%
Lease financing		5,168		2.1			5,271		2.3
Total commercial		77,454		31.8			70,033		29.8
Commercial Real Estate
Commercial mortgages		32,125		13.2			32,183		13.7
Construction and development		8,672		3.5			7,702		3.3
Total commercial real estate		40,797		16.7			39,885		17.0
Residential Mortgages
Residential mortgages		38,747		15.9			37,545		15.9
Home equity loans, first liens		13,218		5.4			13,611		5.8
Total residential mortgages		51,965		21.3			51,156		21.7
Credit Card		17,642		7.2			18,021		7.7
Other Retail
Retail leasing		6,001		2.5			5,929		2.5
Home equity and second mortgages		15,668		6.4			15,442		6.6
Revolving credit		3,216		1.3			3,276		1.4
Installment		5,978		2.4			5,709		2.4
Automobile		14,353		5.9			13,743		5.8
Student		3,352		1.4			3,579		1.5
Total other retail		48,568		19.9			47,678		20.2
Total loans, excluding covered loans		236,426		96.9			226,773		96.4
Covered Loans		7,448		3.1			8,462		3.6
Total loans	$	243,874		100.0	%	$	235,235		100.0	%

The Company had loans of $78.0 billion at June 30, 2014, and $77.2 billion at December 31, 2013, pledged at the Federal Home Loan Bank (“FHLB”), and loans of $60.5 billion at June 30, 2014, and $53.0 billion at December 31, 2013, 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 $574 million at June 30, 2014, and $556 million at December 31, 2013. 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 nonimpaired loans acquired in the Charter One acquisition were $1.5 billion. The contractual cash flows not expected to be collected on these loans of $247 million and the estimated fair value of the loans of $969 million were determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments. The contractual cash flows not expected to be collected primarily reflect a reduction in contractual interest payments resulting from these estimated prepayments. There were no purchased impaired loans acquired in the Charter One acquisition.

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


	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in Millions)	2014			2013			2014			2013
Balance at beginning of period	$	1,584		$	1,921		$	1,655		$	1,709
Accretion		(120	)		(125	)		(231	)		(261	)
Disposals		(29	)		(31	)		(69	)		(69	)
Reclassifications from nonaccretable difference (a)		53			48			134			58
Other (b)		(1	)		(11	)		(2	)		365
Balance at end of period	$	1,487		$	1,802		$	1,487		$	1,802

(a)

Primarily relates to changes in expected credit performance.

(b)

The amount for the six months ended June 30, 2013, primarily represents the reclassification of unamortized decreases in the FDIC asset (which are presented as a separate component within the covered assets table on page 55 beginning in 2013), 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, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure to the Company because those losses are recoverable under loss sharing agreements with the Federal Deposit Insurance Corporation (“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. In the migration analysis applied to risk rated loan portfolios, the Company currently examines up to a 13-year period of loss experience. For each loan type, this historical loss experience is adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic conditions. The results of the analysis are evaluated quarterly to confirm an appropriate historical time frame is selected for each commercial loan type. 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, rather than the migration analysis. 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, portfolio growth 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 less costs to sell. 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 reflects 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, historical loss experience is also incorporated 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:


Three Months Ended June 30 (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2014
Balance at beginning of period	$	1,091		$	742		$	862		$	884		$	785		$	4,364		$	133		$	4,497
Add
Provision for credit losses		75			(21	)		43			163			63			323			1			324
Deduct
Loans charged off		76			9			62			188			95			430			2			432
Less recoveries of loans charged off		(21	)		(13	)		(5	)		(18	)		(26	)		(83	)		–			(83	)
Net loans charged off		55			(4	)		57			170			69			347			2			349
Other changes (a)		–			–			–			(3	)		–			(3	)		(20	)		(23	)
Balance at end of period	$	1,111		$	725		$	848		$	874		$	779		$	4,337		$	112		$	4,449
2013
Balance at beginning of period	$	1,012		$	798		$	926		$	895		$	854		$	4,485		$	223		$	4,708
Add
Provision for credit losses		49			(38	)		69			152			89			321			41			362
Deduct
Loans charged off		63			16			81			191			134			485			21			506
Less recoveries of loans charged off		(25	)		(33	)		(7	)		(18	)		(29	)		(112	)		(2	)		(114	)
Net loans charged off		38			(17	)		74			173			105			373			19			392
Other changes (a)		–			–			–			–			–			–			(66	)		(66	)
Balance at end of period	$	1,023		$	777		$	921		$	874		$	838		$	4,433		$	179		$	4,612

(a)

Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.


Six Months Ended June 30 (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2014
Balance at beginning of period	$	1,075		$	776		$	875		$	884		$	781		$	4,391		$	146		$	4,537
Add
Provision for credit losses		127			(58	)		87			333			143			632			(2	)		630
Deduct
Loans charged off		139			17			123			372			195			846			8			854
Less recoveries of loans charged off		(48	)		(24	)		(9	)		(32	)		(50	)		(163	)		(1	)		(164	)
Net loans charged off		91			(7	)		114			340			145			683			7			690
Other changes (a)		–			–			–			(3	)		–			(3	)		(25	)		(28	)
Balance at end of period	$	1,111		$	725		$	848		$	874		$	779		$	4,337		$	112		$	4,449
2013
Balance at beginning of period	$	1,051		$	857		$	935		$	863		$	848		$	4,554		$	179		$	4,733
Add
Provision for credit losses		45			(78	)		152			344			221			684			81			765
Deduct
Loans charged off		119			59			181			384			290			1,033			22			1,055
Less recoveries of loans charged off		(46	)		(57	)		(15	)		(51	)		(59	)		(228	)		(2	)		(230	)
Net loans charged off		73			2			166			333			231			805			20			825
Other changes (a)		–			–			–			–			–			–			(61	)		(61	)
Balance at end of period	$	1,023		$	777		$	921		$	874		$	838		$	4,433		$	179		$	4,612

(a)

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 June 30, 2014 Related to
Loans individually evaluated for impairment (a)	$	19	$	7	$	–	$	–	$	–	$	26	$	–	$	26
TDRs collectively evaluated for impairment		15		17		326		69		52		479		3		482
Other loans collectively evaluated for impairment		1,077		669		522		805		727		3,800		4		3,804
Loans acquired with deteriorated credit quality		–		32		–		–		–		32		105		137
Total allowance for credit losses	$	1,111	$	725	$	848	$	874	$	779	$	4,337	$	112	$	4,449
Allowance Balance at December 31, 2013 Related to
Loans individually evaluated for impairment (a)	$	15	$	17	$	–	$	–	$	–	$	32	$	–	$	32
TDRs collectively evaluated for impairment		19		26		329		87		55		516		4		520
Other loans collectively evaluated for impairment		1,041		700		546		797		726		3,810		5		3,815
Loans acquired with deteriorated credit quality		–		33		–		–		–		33		137		170
Total allowance for credit losses	$	1,075	$	776	$	875	$	884	$	781	$	4,391	$	146	$	4,537

(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
June 30, 2014
Loans individually evaluated for impairment (a)	$	273	$	159	$	–	$	–	$	–	$	432	$	70	$	502
TDRs collectively evaluated for impairment		133		301		5,260		272		252		6,218		82		6,300
Other loans collectively evaluated for impairment		77,047		40,206		46,704		17,370		48,316		229,643		3,833		233,476
Loans acquired with deteriorated credit quality		1		131		1		–		–		133		3,463		3,596
Total loans	$	77,454	$	40,797	$	51,965	$	17,642	$	48,568	$	236,426	$	7,448	$	243,874
December 31, 2013
Loans individually evaluated for impairment (a)	$	197	$	237	$	–	$	–	$	–	$	434	$	62	$	496
TDRs collectively evaluated for impairment		155		358		5,064		310		269		6,156		87		6,243
Other loans collectively evaluated for impairment		69,680		39,129		46,090		17,711		47,409		220,019		4,538		224,557
Loans acquired with deteriorated credit quality		1		161		2		–		–		164		3,775		3,939
Total loans	$	70,033	$	39,885	$	51,156	$	18,021	$	47,678	$	226,773	$	8,462	$	235,235

(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). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed.

Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully 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
June 30, 2014
Commercial	$	77,018	$	202	$	44	$	190	$	77,454
Commercial real estate		40,489		56		26		226		40,797
Residential mortgages (a)		50,643		251		253		818		51,965
Credit card		17,204		199		187		52		17,642
Other retail		48,093		213		71		191		48,568
Total loans, excluding covered loans		233,447		921		581		1,477		236,426
Covered loans		6,781		91		457		119		7,448
Total loans	$	240,228	$	1,012	$	1,038	$	1,596	$	243,874
December 31, 2013
Commercial	$	69,587	$	257	$	55	$	134	$	70,033
Commercial real estate		39,459		94		29		303		39,885
Residential mortgages (a)		49,695		358		333		770		51,156
Credit card		17,507		226		210		78		18,021
Other retail		47,156		245		86		191		47,678
Total loans, excluding covered loans		223,404		1,180		713		1,476		226,773
Covered loans		7,693		166		476		127		8,462
Total loans	$	231,097	$	1,346	$	1,189	$	1,603	$	235,235

(a)

At June 30, 2014, $407 million of loans 30–89 days past due and $3.1 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 $440 million and $3.7 billion at December 31, 2013, respectively.

At June 30, 2014, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned, was $265 million ($235 million excluding covered assets). This excludes $583 million of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at June 30, 2014, was $3.4 billion, of which $2.2 billion related to loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

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
June 30, 2014
Commercial	$	75,426	$	1,044	$	984	$	2,028	$	77,454
Commercial real estate		39,313		547		937		1,484		40,797
Residential mortgages (b)		50,801		7		1,157		1,164		51,965
Credit card		17,403		–		239		239		17,642
Other retail		48,210		18		340		358		48,568
Total loans, excluding covered loans		231,153		1,616		3,657		5,273		236,426
Covered loans		7,210		3		235		238		7,448
Total loans	$	238,363	$	1,619	$	3,892	$	5,511	$	243,874
Total outstanding commitments	$	488,159	$	2,949	$	4,606	$	7,555	$	495,714
December 31, 2013
Commercial	$	68,075	$	1,013	$	945	$	1,958	$	70,033
Commercial real estate		38,113		616		1,156		1,772		39,885
Residential mortgages (b)		50,152		5		999		1,004		51,156
Credit card		17,733		–		288		288		18,021
Other retail		47,313		27		338		365		47,678
Total loans, excluding covered loans		221,386		1,661		3,726		5,387		226,773
Covered loans		8,160		18		284		302		8,462
Total loans	$	229,546	$	1,679	$	4,010	$	5,689	$	235,235
Total outstanding commitments	$	470,046	$	2,939	$	4,812	$	7,751	$	477,797

(a)

Classified rating on consumer loans primarily based on delinquency status.

(b)

At June 30, 2014, $3.1 billion of GNMA loans 90 days or more past due and $2.8 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 $3.7 billion and $2.6 billion at December 31, 2013, 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, and considers any government guarantee where applicable. 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
June 30, 2014
Commercial	$	442	$	883	$	36	$	102
Commercial real estate		556		1,113		30		24
Residential mortgages		2,740		3,670		276		–
Credit card		272		272		69		–
Other retail		378		410		56		4
Total impaired loans, excluding GNMA and covered loans		4,388		6,348		467		130
Loans purchased from GNMA mortgage pools		2,816		2,816		54		–
Covered loans		375		810		20		1
Total	$	7,579	$	9,974	$	541	$	131
December 31, 2013
Commercial	$	382	$	804	$	36	$	54
Commercial real estate		693		1,322		51		40
Residential mortgages		2,767		3,492		308		–
Credit card		310		310		87		–
Other retail		391		593		59		14
Total impaired loans, excluding GNMA and covered loans		4,543		6,521		541		108
Loans purchased from GNMA mortgage pools		2,607		2,607		28		–
Covered loans		452		1,008		30		4
Total	$	7,602	$	10,136	$	599	$	112

(a)

Substantially all loans classified as impaired at June 30, 2014 and December 31, 2013, had an associated allowance for credit losses.

Additional information on impaired loans follows:


	2014				2013
(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three Months Ended June 30
Commercial	$	447	$	2	$	381	$	9
Commercial real estate		592		4		975		10
Residential mortgages		2,739		37		2,738		33
Credit card		281		3		376		5
Other retail		381		4		435		6
Total impaired loans, excluding GNMA and covered loans		4,440		50		4,905		63
Loans purchased from GNMA mortgage pools		2,766		33		1,880		23
Covered loans		397		5		564		8
Total	$	7,603	$	88	$	7,349	$	94
Six Months Ended June 30
Commercial	$	432	$	4	$	386	$	19
Commercial real estate		626		13		1,015		21
Residential mortgages		2,746		72		2,733		67
Credit card		290		6		397		9
Other retail		385		8		439		12
Total impaired loans, excluding GNMA and covered loans		4,479		103		4,970		128
Loans purchased from GNMA mortgage pools		2,714		66		1,862		46
Covered loans		416		10		623		15
Total	$	7,609	$	179	$	7,455	$	189

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:


	2014						2013
(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
Three Months Ended June 30
Commercial		566	$	74	$	66		596	$	54	$	47
Commercial real estate		12		8		7		36		37		35
Residential mortgages		679		91		91		430		62		63
Credit card		6,516		36		36		5,882		35		36
Other retail		649		13		14		807		16		15
Total loans, excluding GNMA and covered loans		8,422		222		214		7,751		204		196
Loans purchased from GNMA mortgage pools		2,362		281		279		2,879		345		316
Covered loans		7		2		2		21		13		12
Total loans		10,791	$	505	$	495		10,651	$	562	$	524
Six Months Ended June 30
Commercial		1,185	$	153	$	143		1,411	$	88	$	80
Commercial real estate		27		19		15		99		117		113
Residential mortgages		1,207		161		161		1,237		172		168
Credit card		13,332		76		76		13,700		83		84
Other retail		1,436		34		34		2,672		65		64
Total loans, excluding GNMA and covered loans		17,187		443		429		19,119		525		509
Loans purchased from GNMA mortgage pools		4,925		538		525		4,135		522		498
Covered loans		20		11		10		71		66		53
Total loans		22,132	$	992	$	964		23,325	$	1,113	$	1,060

Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the second quarter of 2014, at June 30, 2014, 211 residential mortgages, 30 home equity and second mortgage loans and 1,531 loans purchased from GNMA mortgage pools with outstanding balances of $29 million, $1 million and $187 million, respectively, were in a trial period and have estimated post-modification balances of $33 million, $1 million and $185 million, respectively, assuming permanent modification occurs at the end of the trial period.

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

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 its own 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 distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.

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:


	2014				2013
(Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Three Months Ended June 30
Commercial		150	$	3		172	$	3
Commercial real estate		6		3		23		44
Residential mortgages		129		17		187		28
Credit card		1,460		8		1,638		10
Other retail		158		4		369		15
Total loans, excluding GNMA and covered loans		1,903		35		2,389		100
Loans purchased from GNMA mortgage pools		105		12		481		68
Covered loans		2		1		15		9
Total loans		2,010	$	48		2,885	$	177
Six Months Ended June 30
Commercial		295	$	8		340	$	5
Commercial real estate		12		10		42		72
Residential mortgages		277		39		370		59
Credit card		2,921		16		3,624		21
Other retail		343		10		886		43
Total loans, excluding GNMA and covered loans		3,848		83		5,262		200
Loans purchased from GNMA mortgage pools		176		22		4,303		546
Covered loans		10		4		25		12
Total loans		4,034	$	109		9,590	$	758

In addition to the defaults in the table above, for the three and six months ended June 30, 2014, the Company had a total of 702 and 878 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools with aggregate outstanding balances of $79 million and $102 million, respectively, 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. Effective December 31, 2014, the loss sharing coverage provided by the FDIC expires on all covered assets, except for single family residential mortgages that remain covered under loss sharing agreements with remaining terms up to five years. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:


	June 30, 2014								December 31, 2013
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total
Commercial loans	$	–	$	27	$	–	$	27	$	–	$	32	$	–	$	32
Commercial real estate loans		533		1,206		–		1,739		738		1,494		–		2,232
Residential mortgage loans		2,930		811		–		3,741		3,037		890		–		3,927
Credit card loans		–		5		–		5		–		5		–		5
Other retail loans		–		627		–		627		–		666		–		666
Losses reimbursable by the FDIC (a)		–		–		731		731		–		–		798		798
Unamortized changes in FDIC asset (b)		–		–		578		578		–		–		802		802
Covered loans		3,463		2,676		1,309		7,448		3,775		3,087		1,600		8,462
Foreclosed real estate		–		–		58		58		–		–		97		97
Total covered assets	$	3,463	$	2,676	$	1,367	$	7,506	$	3,775	$	3,087	$	1,697	$	8,559

(a)

Relates to loss sharing agreements with remaining terms up to five years.

(b)

Represents decreases in expected reimbursements 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.

At June 30, 2014 and December 31, 2013, $5 million of the purchased impaired loans included in covered loans were classified as nonperforming assets, 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.