NOTE 3 - LOANS

Composition of Loan Portfolio

The composition of the Company's loan portfolio is shown in the following table:



(Dollars in millions)	March 31, 2012		December 31, 2011
Commercial loans:
Commercial & industrial		$50,189		$49,538
Commercial real estate	4,910		5,094
Commercial construction	1,086		1,240
Total commercial loans	56,185		55,872
Residential loans:
Residential mortgages - guaranteed	6,447		6,672
Residential mortgages - nonguaranteed¹	23,653		23,243
Home equity products	15,472		15,765
Residential construction	924		980
Total residential loans	46,496		46,660
Consumer loans:
Guaranteed student loans	7,186		7,199
Other direct	2,152		2,059
Indirect	10,145		10,165
Credit cards	527		540
Total consumer loans	20,010		19,963
LHFI		$122,691		$122,495
LHFS		$2,749		$2,353

¹Includes $411 million and $431 million of loans carried at fair value at March 31, 2012 and December 31, 2011, respectively.

During the three months ended March 31, 2012 and 2011, the Company transferred $429 million and $122 million in LHFI to LHFS, and $11 million and $5 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2012 and 2011, the Company sold $239 million and $141 million in loans and leases that had been held for investment at December 31, 2011 and December 31, 2010 for gains of $13 million and $2 million, respectively. There were no other material purchases or sales of LHFI during the period.

Credit Quality Evaluation

The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.

For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low expectations of default. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Criticized assets have a higher PD. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Non-Performing (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.

Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.

For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the FICO scoring method, is a relevant credit quality indicator. FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. To enhance the Company's ability to manage risk, the Company changed its FICO scoring model to a more updated version in the first quarter of 2012 for the Home Equity, Indirect, and Other Direct portfolios. This change was the primary reason for an increase in the percentage of balances with FICO scores equal to or greater than 700 and conversely contributed to the decrease in the percentage of balances with FICO scores lower than 620. However, there was no impact to the Company's financial position or results of operations as a result of updating the FICO scoring model.

For government guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. As of March 31, 2012 and December 31, 2011, 78% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments; however, the loss exposure to the Company was mitigated by the government guarantee.

LHFI by credit quality indicator are shown in the tables below:



	Commercial & industrial				Commercial real estate				Commercial construction
(Dollars in millions)	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Credit rating:
Pass		$48,213		$47,683		$3,754		$3,845		$568		$581
Criticized accruing	1,639		1,507		876		961		320		369
Criticized nonaccruing	337		348		280		288		198		290
Total		$50,189		$49,538		$4,910		$5,094		$1,086		$1,240



	Residential mortgages - nonguaranteed ²				Home equity products				Residential construction
(Dollars in millions)	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Current FICO score range:
700 and above		$16,533		$16,139		$11,630		$11,084		$616		$661
620 - 699	4,212		4,132		2,443		2,903		198		202
Below 620¹	2,908		2,972		1,399		1,778		110		117
Total		$23,653		$23,243		$15,472		$15,765		$924		$980



	Consumer - other direct ³				Consumer - indirect				Consumer - credit cards
(Dollars in millions)	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Current FICO score range:
700 and above		$1,383		$1,251		$7,634		$7,397		$337		$347
620 - 699	228		273		1,826		1,990		138		142
Below 620¹	77		86		685		778		52		51
Total		$1,688		$1,610		$10,145		$10,165		$527		$540

¹For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.

²Excludes $6.4 billion and $6.7 billion at March 31, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both March 31, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

³Excludes $464 million and $449 million as of March 31, 2012 and December 31, 2011, respectively, of private-label student loans with third party insurance. At March 31, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

The payment status for the LHFI portfolio is shown in the tables below:



	As of March 31, 2012
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing²		Total
Commercial loans:
Commercial & industrial		$49,771		$69		$12		$337		$50,189
Commercial real estate	4,617		13		—		280		4,910
Commercial construction	885		3		—		198		1,086
Total commercial loans	55,273		85		12		815		56,185
Residential loans:
Residential mortgages - guaranteed	5,187		133		1,127		—		6,447
Residential mortgages - nonguaranteed¹	22,025		303		34		1,291		23,653
Home equity products	14,984		170		1		317		15,472
Residential construction	697		22		1		204		924
Total residential loans	42,893		628		1,163		1,812		46,496
Consumer loans:
Guaranteed student loans	5,638		587		961		—		7,186
Other direct	2,125		16		5		6		2,152
Indirect	10,088		37		4		16		10,145
Credit cards	514		6		7		—		527
Total consumer loans	18,365		646		977		22		20,010
Total LHFI		$116,531		$1,359		$2,152		$2,649		$122,691

¹Includes $411 million of loans carried at fair value.

²Total nonaccruing loans past due 90 days or more totaled $2.2 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.



	As of December 31, 2011
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing²		Total
Commercial loans:
Commercial & industrial		$49,098		$80		$12		$348		$49,538
Commercial real estate	4,797		9		—		288		5,094
Commercial construction	943		7		—		290		1,240
Total commercial loans	54,838		96		12		926		55,872
Residential loans:
Residential mortgages - guaranteed	5,394		176		1,102		—		6,672
Residential mortgages - nonguaranteed¹	21,501		324		26		1,392		23,243
Home equity products	15,223		204		—		338		15,765
Residential construction	737		22		1		220		980
Total residential loans	42,855		726		1,129		1,950		46,660
Consumer loans:
Guaranteed student loans	5,690		640		869		—		7,199
Other direct	2,032		14		6		7		2,059
Indirect	10,074		66		5		20		10,165
Credit cards	526		7		7		—		540
Total consumer loans	18,322		727		887		27		19,963
Total LHFI		$116,015		$1,549		$2,028		$2,903		$122,495

¹Includes $431 million of loans carried at fair value.

²Total nonaccruing loans past due 90 days or more totaled $2.3 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

Impaired Loans

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Commercial nonaccrual loans greater than $4 million and certain consumer, residential, and commercial loans whose terms have been modified in a TDR are individually evaluated for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the tables below exclude guaranteed student loans and guaranteed residential mortgages for which there was nominal risk of principal loss.



	As of March 31, 2012						Three Months Ended March 31, 2012
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost¹		Related Allowance		Average Amortized Cost		Interest Income Recognized²
Impaired loans with no related allowance recorded:
Commercial loans:
Commercial & industrial		$30		$26		$—		$28		$—
Commercial real estate	59		41		—		42		—
Commercial construction	21		16		—		17		—
Total commercial loans	110		83		—		87		—
Impaired loans with an allowance recorded:
Commercial loans:
Commercial & industrial	83		75		7		75		—
Commercial real estate	102		83		6		90		—
Commercial construction	92		80		3		84		1
Total commercial loans	277		238		16		249		1
Residential loans:
Residential mortgages - nonguaranteed	2,707		2,313		261		2,319		22
Home equity products	561		518		90		521		6
Residential construction	259		221		25		224		2
Total residential loans	3,527		3,052		376		3,064		30
Consumer loans:
Other direct	12		12		1		12		—
Credit cards	26		26		7		27		1
Total consumer loans	38		38		8		39		1
Total impaired loans		$3,952		$3,411		$400		$3,439		$32

¹Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce the net book balance.

²Of the interest income recognized for the three months ended March 31, 2012, cash basis interest income was $4 million.



	As of December 31, 2011						Year Ended December 31, 2011
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost¹		Related Allowance		Average Amortized Cost		Interest Income Recognized²
Impaired loans with no related allowance recorded:
Commercial loans:
Commercial & industrial		$93		$73		$—		$109		$3
Commercial real estate	58		50		—		56		1
Commercial construction	45		40		—		47		1
Total commercial loans	196		163		—		212		5
Impaired loans with an allowance recorded:
Commercial loans:
Commercial & industrial	76		67		9		68		1
Commercial real estate	111		82		15		103		2
Commercial construction	132		100		10		121		2
Total commercial loans	319		249		34		292		5
Residential loans:
Residential mortgages - nonguaranteed	2,797		2,405		293		2,451		88
Home equity products	553		515		86		528		23
Residential construction	246		221		26		229		8
Total residential loans	3,596		3,141		405		3,208		119
Consumer loans:
Other direct	12		12		1		13		1
Credit cards	27		27		8		26		2
Total consumer loans	39		39		9		39		3
Total impaired loans		$4,150		$3,592		$448		$3,751		$132

¹Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

²Of the interest income recognized for the year ended December 31, 2011, cash basis interest income was $25 million.

Included in the impaired loan balances above were $2.6 billion of accruing TDRs at both March 31, 2012 and December 31, 2011, of which 94% and 93% were current, respectively. For further information regarding the Company’s loan impairment policy, see Note 1, “Significant Accounting Policies,” to the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Nonperforming assets are shown in the following table:



(Dollars in millions)	March 31, 2012		December 31, 2011
Nonaccrual/NPLs:
Commercial loans:
Commercial & industrial		$337		$348
Commercial real estate	280		288
Commercial construction	198		290
Residential loans:
Residential mortgages - nonguaranteed	1,291		1,392
Home equity products	317		338
Residential construction	204		220
Consumer loans:
Other direct	6		7
Indirect	16		20
Total nonaccrual/NPLs	2,649		2,903
OREO¹	411		479
Other repossessed assets	14		10
Nonperforming LHFS	60		—
Total nonperforming assets		$3,134		$3,392

¹Does not include foreclosed real estate related to loans insured by the FHA or the VA. Proceeds due from the FHA and the VA are recorded as a receivable in other assets until the funds are received and the property is conveyed. The receivable amount related to proceeds due from the FHA or the VA totaled $152 million and $132 million at March 31, 2012 and December 31, 2011, respectively.

Restructured Loans

TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower that it would not otherwise consider. When loans are modified under the terms of a TDR, the Company typically offers the borrower an extension of the loan maturity date and/or a reduction in the original contractual interest rate. In certain limited situations, the Company may offer to restructure a loan in a manner that ultimately results in the forgiveness of contractually specified principal balances.

As a result of adopting newly issued accounting guidance during 2011 that clarifies a creditor's determination of whether a restructuring is a TDR, the Company reassessed all loan restructurings that occurred between January 1, 2011 and June 30, 2011 for identification as TDRs. The reassessment resulted in the identification of $93 million of additional TDRs as of the adoption date of July 1, 2011.

At both March 31, 2012 and December 31, 2011, the Company had $5 million in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

The number and amortized cost of loans modified under the terms of a TDR during the three months ended March 31, 2012 and 2011, by type of modification, are shown in the following tables:



	Three Months Ended March 31, 2012
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness¹		Rate Modification²		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	103		$—		$1		$12		$13
Commercial real estate	10	6		1		2		9
Commercial construction	7	1		—		1		2
Residential loans:
Residential mortgages - nonguaranteed	225	—		20		1		21
Home equity products	384	—		31		1		32
Residential construction	35	—		—		9		9
Consumer loans:
Other direct	12	—		—		—		—
Credit cards	502	—		3		—		3
Total TDRs	1,278		$7		$56		$26		$89

¹Restructured loans which had forgiveness of amounts contractually due under the terms of the loan typically have had multiple concessions including rate modifications and/or term extensions. The total amount of charge-offs associated with principal forgiveness for the Commercial segment during the three months ended March 31, 2012 was less than $1 million. There was no principal forgiveness for Residential or Consumer loans during the three months ended March 31, 2012.

²Restructured loans which had a modification of the loan's contractual interest rate may also have had an extension of the loan's contractual maturity date and/or other concessions. The financial effect of modifying the interest rate on the loans modified as a TDR was immaterial to the financial statements during the three months ended March 31, 2012.



	Three Months Ended March 31, 2011
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness¹		Rate Modification²		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	22		$8		$—		$5		$13
Commercial real estate	16	18		16		12		46
Commercial construction	74	24		2		10		36
Residential loans:
Residential mortgages - nonguaranteed	270	—		81		3		84
Home equity products	345	—		31		—		31
Residential construction	23	—		5		—		5
Consumer loans:
Other direct	40	—		—		1		1
Total TDRs	790		$50		$135		$31		$216

¹Restructured loans which had forgiveness of amounts contractually due under the terms of the loan typically have had multiple concessions including rate modifications and/or term extensions. The total amount of charge-offs associated with principal forgiveness for the Commercial segment during the three months ended March 31, 2011 was $1 million. There was no principal forgiveness for Residential or Consumer loans during the three months ended March 31, 2011.

The preceding tables represent loans modified under the terms of a TDR during the three months ended March 31, 2012 and 2011, whereas the following tables represent loans modified as a TDR over longer time periods; between January 1, 2010 and March 31, 2011 that became 90 days or more delinquent during the three months ended March 31, 2011, and between January 1, 2011 and March 31, 2012 that became 90 days or more delinquent during the three months ended March 31, 2012.



	Three Months Ended March 31, 2012
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	11		$2
Commercial real estate	4	4
Commercial construction	3	2
Residential loans:
Residential mortgages	28	5
Home equity products	43	3
Residential construction	11	2
Consumer loans:
Other direct	2	—
Credit cards	78	1
Total TDRs	180		$19



	Three Months Ended March 31, 2011
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	10		$2
Commercial real estate	4	—
Commercial construction	6	9
Residential loans:
Residential mortgages	240	52
Home equity products	64	7
Residential construction	15	4
Consumer loans:
Other direct	2	—
Total TDRs	341		$74

The majority of loans that were modified and subsequently became 90 days or more delinquent have remained on nonaccrual status since the time of modification.

Concentrations of Credit Risk

The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the U.S. The Company engages in limited international banking activities. The Company’s total cross-border outstanding loans were $660 million and $630 million at March 31, 2012 and December 31, 2011, respectively.

The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At March 31, 2012, the Company owned $46.5 billion in residential loans, representing 38% of total LHFI, and had $12.5 billion in commitments to extend credit on home equity lines and $9.0 billion in mortgage loan commitments. Of the residential loans owned at March 31, 2012, 14% were guaranteed by a federal agency or a GSE. At December 31, 2011, the Company owned $46.7 billion in residential real estate loans, representing 38% of total LHFI, and had $12.7 billion in commitments to extend credit on home equity lines and $7.8 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2011, 14% were guaranteed by a federal agency or a GSE.

Included in the residential mortgage portfolio were $14.3 billion and $14.7 billion of mortgage loans at March 31, 2012 and December 31, 2011, respectively, that included terms such as an interest only feature, a high LTV ratio, or a junior lien position that may increase the Company’s exposure to credit risk and result in a concentration of credit risk. Of these mortgage loans, $9.0 billion and $9.4 billion were interest only loans, primarily with a ten year interest only period. Approximately $1.8 billion of those interest only loans as of March 31, 2012 and $1.9 billion as of December 31, 2011, were loans with no mortgage insurance and were either first liens with combined original LTV ratios in excess of 80% or were junior liens. Additionally, the Company owned approximately $5.3 billion of amortizing loans with no mortgage insurance at both March 31, 2012 and December 31, 2011, comprised of first liens with combined original LTV ratios in excess of 80% and junior liens. Despite changes in underwriting guidelines that have curtailed the origination of high LTV loans, the balances of such loans with no mortgage insurance have increased as the benefits of mortgage insurance covering certain junior lien mortgage loans have been exhausted, resulting in the loans effectively no longer being insured.