Note 4

Loans and Allowance for Credit Losses

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


	September 30, 2015					December 31, 2014
(Dollars in Millions)	Amount		Percent of Total			Amount		Percent of Total
Commercial
Commercial	$	80,313		31.5	%	$	74,996		30.2	%
Lease financing		5,226		2.1			5,381		2.2
Total commercial		85,539		33.6			80,377		32.4
Commercial Real Estate
Commercial mortgages		32,089		12.6			33,360		13.5
Construction and development		10,389		4.1			9,435		3.8
Total commercial real estate		42,478		16.7			42,795		17.3
Residential Mortgages
Residential mortgages		39,341		15.4			38,598		15.6
Home equity loans, first liens		13,008		5.1			13,021		5.2
Total residential mortgages		52,349		20.5			51,619		20.8
Credit Card		18,583		7.3			18,515		7.5
Other Retail
Retail leasing		5,387		2.1			5,871		2.4
Home equity and second mortgages		16,188		6.3			15,916		6.4
Revolving credit		3,334		1.3			3,309		1.3
Installment		6,949		2.7			6,242		2.5
Automobile		16,484		6.5			14,822		6.0
Student		2,709		1.1			3,104		1.3
Total other retail		51,051		20.0			49,264		19.9
Total loans, excluding covered loans		250,000		98.1			242,570		97.9
Covered Loans		4,791		1.9			5,281		2.1
Total loans	$	254,791		100.0	%	$	247,851		100.0	%

The Company had loans of $78.5 billion at September 30, 2015, and $79.8 billion at December 31, 2014, pledged at the Federal Home Loan Bank, and loans of $62.8 billion at September 30, 2015, and $61.8 billion at December 31, 2014, 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 $559 million at September 30, 2015, and $574 million at December 31, 2014. 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 September 30,						Nine Months Ended September 30,
(Dollars in Millions)	2015			2014			2015			2014
Balance at beginning of period	$	1,076		$	1,487		$	1,309		$	1,655
Accretion		(91	)		(105	)		(289	)		(336	)
Disposals		(32	)		(34	)		(102	)		(103	)
Reclassifications from nonaccretable difference (a)		120			38			157			172
Other		1			–			(1	)		(2	)
Balance at end of period	$	1,074		$	1,386		$	1,074		$	1,386

(a)

Primarily relates to changes in expected credit performance.

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 14-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 September 30, (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2015
Balance at beginning of period	$	1,180		$	735		$	737		$	873		$	752		$	4,277		$	49		$	4,326
Add
Provision for credit losses		114			(10	)		(24	)		156			46			282			–			282
Deduct
Loans charged off		91			2			31			171			77			372			–			372
Less recoveries of loans charged off		(20	)		(13	)		(6	)		(18	)		(23	)		(80	)		–			(80	)
Net loans charged off		71			(11	)		25			153			54			292			–			292
Other changes (a)		–			–			–			–			–			–			(10	)		(10	)
Balance at end of period	$	1,223		$	736		$	688		$	876		$	744		$	4,267		$	39		$	4,306
2014
Balance at beginning of period	$	1,111		$	725		$	848		$	874		$	779		$	4,337		$	112		$	4,449
Add
Provision for credit losses		83			(6	)		(13	)		162			84			310			1			311
Deduct
Loans charged off		80			10			48			174			96			408			2			410
Less recoveries of loans charged off		(22	)		(6	)		(6	)		(16	)		(23	)		(73	)		(1	)		(74	)
Net loans charged off		58			4			42			158			73			335			1			336
Other changes (a)		–			–			–			–			–			–			(10	)		(10	)
Balance at end of period	$	1,136		$	715		$	793		$	878		$	790		$	4,312		$	102		$	4,414

(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.


Nine Months Ended September 30, (Dollars in Millions)	Commercial			Commercial Real Estate			Residential Mortgages			Credit Card			Other Retail			Total Loans, Excluding Covered Loans			Covered Loans			Total Loans
2015
Balance at beginning of period	$	1,146		$	726		$	787		$	880		$	771		$	4,310		$	65		$	4,375
Add
Provision for credit losses		234			(18	)		(6	)		481			134			825			2			827
Deduct
Loans charged off		230			16			113			543			233			1,135			–			1,135
Less recoveries of loans charged off		(74	)		(44	)		(20	)		(58	)		(72	)		(268	)		–			(268	)
Net loans charged off		156			(28	)		93			485			161			867			–			867
Other changes (a)		(1	)		–			–			–			–			(1	)		(28	)		(29	)
Balance at end of period	$	1,223		$	736		$	688		$	876		$	744		$	4,267		$	39		$	4,306
2014
Balance at beginning of period	$	1,075		$	776		$	875		$	884		$	781		$	4,391		$	146		$	4,537
Add
Provision for credit losses		210			(64	)		74			495			227			942			(1	)		941
Deduct
Loans charged off		219			27			171			546			291			1,254			10			1,264
Less recoveries of loans charged off		(70	)		(30	)		(15	)		(48	)		(73	)		(236	)		(2	)		(238	)
Net loans charged off		149			(3	)		156			498			218			1,018			8			1,026
Other changes (a)		–			–			–			(3	)		–			(3	)		(35	)		(38	)
Balance at end of period	$	1,136		$	715		$	793		$	878		$	790		$	4,312		$	102		$	4,414

(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 September 30, 2015 Related to
Loans individually evaluated for impairment (a)	$	8	$	1	$	–	$	–	$	–	$	9	$	–	$	9
TDRs collectively evaluated for impairment		8		11		280		56		36		391		2		393
Other loans collectively evaluated for impairment		1,207		710		408		820		708		3,853		1		3,854
Loans acquired with deteriorated credit quality		–		14		–		–		–		14		36		50
Total allowance for credit losses	$	1,223	$	736	$	688	$	876	$	744	$	4,267	$	39	$	4,306
Allowance Balance at December 31, 2014 Related to
Loans individually evaluated for impairment (a)	$	5	$	4	$	–	$	–	$	–	$	9	$	–	$	9
TDRs collectively evaluated for impairment		12		12		319		61		41		445		4		449
Other loans collectively evaluated for impairment		1,129		678		468		819		730		3,824		1		3,825
Loans acquired with deteriorated credit quality		–		32		–		–		–		32		60		92
Total allowance for credit losses	$	1,146	$	726	$	787	$	880	$	771	$	4,310	$	65	$	4,375

(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
September 30, 2015
Loans individually evaluated for impairment (a)	$	267	$	42	$	13	$	–	$	–	$	322	$	–	$	322
TDRs collectively evaluated for impairment		136		250		4,387		214		219		5,206		35		5,241
Other loans collectively evaluated for impairment		85,135		41,873		47,948		18,369		50,832		244,157		2,176		246,333
Loans acquired with deteriorated credit quality		1		313		1		–		–		315		2,580		2,895
Total loans	$	85,539	$	42,478	$	52,349	$	18,583	$	51,051	$	250,000	$	4,791	$	254,791
December 31, 2014
Loans individually evaluated for impairment (a)	$	159	$	128	$	12	$	–	$	–	$	299	$	–	$	299
TDRs collectively evaluated for impairment		124		393		4,653		240		237		5,647		34		5,681
Other loans collectively evaluated for impairment		80,093		41,744		46,953		18,275		49,027		236,092		2,463		238,555
Loans acquired with deteriorated credit quality		1		530		1		–		–		532		2,784		3,316
Total loans	$	80,377	$	42,795	$	51,619	$	18,515	$	49,264	$	242,570	$	5,281	$	247,851

(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 a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, 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 when 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, and those loans are classified as nonaccrual loans with interest income 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
September 30, 2015
Commercial	$	85,119	$	207	$	44	$	169	$	85,539
Commercial real estate		42,252		62		20		144		42,478
Residential mortgages (a)		51,262		181		171		735		52,349
Credit card		18,132		235		204		12		18,583
Other retail		50,607		202		71		171		51,051
Total loans, excluding covered loans		247,372		887		510		1,231		250,000
Covered loans		4,404		61		315		11		4,791
Total loans	$	251,776	$	948	$	825	$	1,242	$	254,791
December 31, 2014
Commercial	$	79,977	$	247	$	41	$	112	$	80,377
Commercial real estate		42,406		110		20		259		42,795
Residential mortgages (a)		50,330		221		204		864		51,619
Credit card		18,046		229		210		30		18,515
Other retail		48,764		238		75		187		49,264
Total loans, excluding covered loans		239,523		1,045		550		1,452		242,570
Covered loans		4,804		68		395		14		5,281
Total loans	$	244,327	$	1,113	$	945	$	1,466	$	247,851

(a)

At September 30, 2015, $337 million of loans 30–89 days past due and $2.9 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 $431 million and $3.1 billion at December 31, 2014, respectively.

At September 30, 2015, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned, was $271 million ($240 million excluding covered assets), compared with $270 million ($233 million excluding covered assets) at December 31, 2014. This excludes $648 million and $641 million at September 30, 2015 and December 31, 2014, respectively, 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 September 30, 2015 and December 31, 2014, was $2.8 billion and $2.9 billion, respectively, of which $2.0 billion and $2.1 billion, respectively, 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
September 30, 2015
Commercial (b)	$	82,468	$	1,803	$	1,268	$	3,071	$	85,539
Commercial real estate		41,411		324		743		1,067		42,478
Residential mortgages (c)		51,375		7		967		974		52,349
Credit card		18,367		–		216		216		18,583
Other retail		50,749		5		297		302		51,051
Total loans, excluding covered loans		244,370		2,139		3,491		5,630		250,000
Covered loans		4,696		–		95		95		4,791
Total loans	$	249,066	$	2,139	$	3,586	$	5,725	$	254,791
Total outstanding commitments	$	523,370	$	3,820	$	4,229	$	8,049	$	531,419
December 31, 2014
Commercial (b)	$	78,409	$	1,204	$	764	$	1,968	$	80,377
Commercial real estate		41,322		451		1,022		1,473		42,795
Residential mortgages (c)		50,479		5		1,135		1,140		51,619
Credit card		18,275		–		240		240		18,515
Other retail		48,932		20		312		332		49,264
Total loans, excluding covered loans		237,417		1,680		3,473		5,153		242,570
Covered loans		5,164		–		117		117		5,281
Total loans	$	242,581	$	1,680	$	3,590	$	5,270	$	247,851
Total outstanding commitments	$	501,535	$	2,964	$	4,179	$	7,143	$	508,678

(a)

Classified rating on consumer loans primarily based on delinquency status.

(b)

At September 30, 2015, $917 million of loans to customers in energy-related businesses had a special mention or classified rating, compared with $122 million at December 31, 2014.

(c)

At September 30, 2015, $2.9 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 $3.1 billion and $2.2 billion at December 31, 2014, 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, 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
September 30, 2015
Commercial	$	439	$	1,002	$	19	$	100
Commercial real estate		362		921		16		2
Residential mortgages		2,638		3,345		239		–
Credit card		214		214		56		–
Other retail		324		523		39		4
Total impaired loans, excluding GNMA and covered loans		3,977		6,005		369		106
Loans purchased from GNMA mortgage pools		2,000		2,000		44		–
Covered loans		42		46		2		1
Total	$	6,019	$	8,051	$	415	$	107
December 31, 2014
Commercial	$	329	$	769	$	21	$	51
Commercial real estate		624		1,250		23		18
Residential mortgages		2,730		3,495		273		–
Credit card		240		240		61		–
Other retail		361		570		44		4
Total impaired loans, excluding GNMA and covered loans		4,284		6,324		422		73
Loans purchased from GNMA mortgage pools		2,244		2,244		50		–
Covered loans		43		55		4		1
Total	$	6,571	$	8,623	$	476	$	74

(a)

Substantially all loans classified as impaired at September 30, 2015 and December 31, 2014, had an associated allowance for credit losses.

Additional information on impaired loans follows:


	2015				2014
(Dollars in Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three Months Ended September 30
Commercial	$	408	$	3	$	425	$	4
Commercial real estate		388		3		541		4
Residential mortgages		2,669		31		2,740		33
Credit card		216		1		264		1
Other retail		329		3		373		5
Total impaired loans, excluding GNMA and covered loans		4,010		41		4,343		47
Loans purchased from GNMA mortgage pools		2,040		24		2,647		29
Covered loans		42		–		335		5
Total	$	6,092	$	65	$	7,325	$	81
Nine Months Ended September 30
Commercial	$	351	$	9	$	430	$	8
Commercial real estate		461		13		598		17
Residential mortgages		2,687		97		2,744		105
Credit card		224		4		281		7
Other retail		342		10		381		13
Total impaired loans, excluding GNMA and covered loans		4,065		133		4,434		150
Loans purchased from GNMA mortgage pools		2,120		74		2,691		95
Covered loans		42		–		389		15
Total	$	6,227	$	207	$	7,514	$	260

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, which is generally six months or greater. 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:


	2015						2014
(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 September 30
Commercial		381	$	111	$	102		448	$	28	$	26
Commercial real estate		35		24		23		27		14		13
Residential mortgages		381		48		47		525		71		70
Credit card		7,289		35		36		6,708		35		36
Other retail		690		19		19		810		18		18
Total loans, excluding GNMA and covered loans		8,776		237		227		8,518		166		163
Loans purchased from GNMA mortgage pools		1,986		244		245		2,273		278		278
Covered loans		4		1		1		18		3		3
Total loans		10,766	$	482	$	473		10,809	$	447	$	444
Nine Months Ended September 30
Commercial		1,170	$	227	$	223		1,633	$	181	$	169
Commercial real estate		89		64		62		54		33		28
Residential mortgages		1,820		234		232		1,732		232		231
Credit card		19,978		100		101		20,040		111		112
Other retail		1,974		42		42		2,246		52		52
Total loans, excluding GNMA and covered loans		25,031		667		660		25,705		609		592
Loans purchased from GNMA mortgage pools		5,960		732		731		7,198		816		803
Covered loans		13		4		4		38		14		13
Total loans		31,004	$	1,403	$	1,395		32,941	$	1,439	$	1,408

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 third quarter of 2015, at September 30, 2015, 205 residential mortgages, 102 home equity and second mortgage loans and 1,726 loans purchased from GNMA mortgage pools with outstanding balances of $25 million, $9 million and $226 million, respectively, were in a trial period and have estimated post-modification balances of $31 million, $10 million and $230 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 all of the above 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 and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs 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 accounting and disclosure purposes 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:


	2015				2014
(Dollars in Millions)	Number of Loans		Amount Defaulted		Number of Loans		Amount Defaulted
Three Months Ended September 30
Commercial		95	$	1		161	$	34
Commercial real estate		5		5		4		–
Residential mortgages		42		5		147		22
Credit card		1,576		7		1,665		9
Other retail		123		2		146		5
Total loans, excluding GNMA and covered loans		1,841		20		2,123		70
Loans purchased from GNMA mortgage pools		143		16		366		41
Covered loans		4		1		4		1
Total loans		1,988	$	37		2,493	$	112
Nine Months Ended September 30
Commercial		408	$	20		456	$	42
Commercial real estate		13		8		16		10
Residential mortgages		228		30		424		61
Credit card		4,597		22		4,586		25
Other retail		491		9		489		15
Total loans, excluding GNMA and covered loans		5,737		89		5,971		153
Loans purchased from GNMA mortgage pools		511		64		542		63
Covered loans		4		1		14		5
Total loans		6,252	$	154		6,527	$	221

In addition to the defaults in the table above, for the three and nine months ended September 30, 2015, the Company had a total of 402 and 1,556 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools with aggregate outstanding balances of $55 million and $207 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. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:


	September 30, 2015								December 31, 2014
(Dollars in Millions)	Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total		Purchased Impaired Loans		Purchased Nonimpaired Loans		Other Assets		Total
Residential mortgage loans	$	2,580	$	644	$	–	$	3,224	$	2,784	$	738	$	–	$	3,522
Other retail loans		–		486		–		486		–		584		–		584
Losses reimbursable by the FDIC (a)		–		–		696		696		–		–		717		717
Unamortized changes in FDIC asset (b)		–		–		385		385		–		–		458		458
Covered loans		2,580		1,130		1,081		4,791		2,784		1,322		1,175		5,281
Foreclosed real estate		–		–		31		31		–		–		37		37
Total covered assets	$	2,580	$	1,130	$	1,112	$	4,822	$	2,784	$	1,322	$	1,212	$	5,318

(a)

Relates to loss sharing agreements with remaining terms up to four 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.

Interest income is recognized on 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.