NOTE 3 - LOANS

Composition of Loan Portfolio

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



(Dollars in millions)	September 30, 2012		December 31, 2011
Commercial loans:
Commercial & industrial		$52,407		$49,538
Commercial real estate	4,491		5,094
Commercial construction	808		1,240
Total commercial loans	57,706		55,872
Residential loans:
Residential mortgages - guaranteed	4,823		6,672
Residential mortgages - nonguaranteed¹	23,925		23,243
Home equity products	15,019		15,765
Residential construction	805		980
Total residential loans	44,572		46,660
Consumer loans:
Guaranteed student loans	5,823		7,199
Other direct	2,341		2,059
Indirect	10,781		10,165
Credit cards	594		540
Total consumer loans	19,539		19,963
LHFI		$121,817		$122,495
LHFS		$5,205		$2,353

¹Includes $390 million and $431 million of loans carried at fair value at September 30, 2012 and December 31, 2011, respectively.

During the three months ended September 30, 2012 and 2011, the Company transferred $2.0 billion and $459 million in LHFI to LHFS, and $3 million and $7 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2012 and 2011, the Company sold $649 million and $202 million in loans and leases for gains of $9 million and $10 million, respectively.

During the nine months ended September 30, 2012 and 2011, the Company transferred $3.1 billion and $657 million in LHFI to LHFS, and $34 million and $53 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2012 and 2011, the Company sold $2.0 billion and $479 million in loans and leases for gains of $62 million and $20 million, respectively. There were no other material sales of LHFI during the three and nine months ended September 30, 2012 and 2011.

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 Nonaccruing Criticized (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively 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 industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific 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. In response to updates in the industry-wide FICO scoring model and to enhance the Company's ability to manage credit risk, the Company updated its FICO scoring model to this updated version for the Home Equity, Indirect, and Other Direct portfolios in the first quarter of 2012. This change was the primary reason for the changes in the percentage of balances across the FICO score ranges noted below. 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. At September 30, 2012 and December 31, 2011, 86% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.

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



	Commercial Loans
	Commercial & industrial				Commercial real estate				Commercial construction
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Credit rating:
Pass		$50,496		$47,683		$3,788		$3,845		$524		$581
Criticized accruing	1,623		1,507		584		961		209		369
Criticized nonaccruing	288		348		119		288		75		290
Total		$52,407		$49,538		$4,491		$5,094		$808		$1,240



	Residential Loans ²
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$17,550		$16,139		$11,454		$11,084		$594		$661
620 - 699	4,071		4,132		2,339		2,903		137		202
Below 620¹	2,304		2,972		1,226		1,778		74		117
Total		$23,925		$23,243		$15,019		$15,765		$805		$980



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$1,930		$1,614		$8,156		$7,397		$404		$347
620 - 699	343		359		1,992		1,990		145		142
Below 620¹	68		86		633		778		45		51
Total		$2,341		$2,059		$10,781		$10,165		$594		$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 $4.8 billion and $6.7 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both September 30, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

³Excludes $5.8 billion and $7.2 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed student loans.

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



	As of September 30, 2012
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
Commercial & industrial		$52,009		$82		$28		$288		$52,407
Commercial real estate	4,351		20		1		119		4,491
Commercial construction	733		—		—		75		808
Total commercial loans	57,093		102		29		482		57,706
Residential loans:
Residential mortgages - guaranteed	3,934		151		738		—		4,823
Residential mortgages - nonguaranteed¹	22,866		251		22		786		23,925
Home equity products	14,566		143		—		310		15,019
Residential construction	664		12		—		129		805
Total residential loans	42,030		557		760		1,225		44,572
Consumer loans:
Guaranteed student loans	5,001		520		302		—		5,823
Other direct	2,313		17		5		6		2,341
Indirect	10,704		57		2		18		10,781
Credit cards	582		6		6		—		594
Total consumer loans	18,600		600		315		24		19,539
Total LHFI		$117,723		$1,259		$1,104		$1,731		$121,817

¹Includes $390 million of loans carried at fair value, the majority of which were accruing current.

²Total nonaccruing loans past due 90 days or more totaled $1.3 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		Nonaccruing ²		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, the majority of which were accruing current.

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 $3 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 September 30, 2012						Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost¹		Related Allowance		Average Amortized Cost		Interest Income Recognized²		Average Amortized Cost		Interest Income Recognized²
Impaired loans with no related allowance recorded:
Commercial loans:
Commercial & industrial		$102		$66		$—		$97		$—		$107		$1
Commercial real estate	47		28		—		52		2		62		3
Commercial construction	59		55		—		64		—		71		1
Total commercial loans	208		149		—		213		2		240		5
Impaired loans with an allowance recorded:
Commercial loans:
Commercial & industrial	46		44		6		44		—		42		1
Commercial real estate	26		19		—		21		—		22		—
Commercial construction	8		6		2		6		—		6		—
Total commercial loans	80		69		8		71		—		70		1
Residential loans:
Residential mortgages - nonguaranteed	2,326		2,050		215		2,053		20		2,059		62
Home equity products	574		534		88		536		7		541		20
Residential construction	272		226		25		227		3		234		8
Total residential loans	3,172		2,810		328		2,816		30		2,834		90
Consumer loans:
Other direct	13		13		1		13		—		13		—
Indirect	30		30		1		31		1		32		2
Credit cards	23		23		6		23		—		25		1
Total consumer loans	66		66		8		67		1		70		3
Total impaired loans		$3,526		$3,094		$344		$3,167		$33		$3,214		$99

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 and nine months ended September 30, 2012, cash basis interest income was $6 million and $15 million, respectively.



	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 September 30, 2012 and December 31, 2011, of which 95% 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)	September 30, 2012		December 31, 2011
Nonaccrual/NPLs:
Commercial loans:
Commercial & industrial		$288		$348
Commercial real estate	119		288
Commercial construction	75		290
Residential loans:
Residential mortgages - nonguaranteed	786		1,392
Home equity products	310		338
Residential construction	129		220
Consumer loans:
Other direct	6		7
Indirect	18		20
Total nonaccrual/NPLs	1,731		2,903
OREO¹	304		479
Other repossessed assets	10		10
Nonperforming LHFS	40		—
Total nonperforming assets		$2,085		$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 $143 million and $132 million at September 30, 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, in an attempt to protect as much of its investment as possible, 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.

At September 30, 2012 and December 31, 2011, the Company had $3 million and $5 million, respectively, 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 and nine months ended September 30, 2012 and 2011, by type of modification, are shown in the following tables:



	Three Months Ended September 30, 2012¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	87		$4		$1		$6		$11
Commercial real estate	4	5		—		—		5
Commercial construction	3	1		—		2		3
Residential loans:
Residential mortgages - nonguaranteed	279	—		20		1		21
Home equity products	431	—		26		4		30
Residential construction	165	—		—		25		25
Consumer loans:
Other direct	42	—		—		1		1
Indirect	1,000	—		—		17		17
Credit cards	281	—		2		—		2
Total TDRs	2,292		$10		$49		$56		$115

	Nine Months Ended September 30, 2012¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	270		$4		$3		$21		$28
Commercial real estate	27	17		7		2		26
Commercial construction	15	3		—		13		16
Residential loans:
Residential mortgages - nonguaranteed	703	—		61		2		63
Home equity products	1,272	—		90		7		97
Residential construction	340	—		1		54		55
Consumer loans:
Other direct	81	—		—		2		2
Indirect	1,795	—		—		31		31
Credit cards	1,144	—		7		—		7
Total TDRs	5,647		$24		$169		$132		$325

¹Includes loans modified under the terms of a TDR that were charged-off during the period.

²Restructured 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 was during the three and nine months ended September 30, 2012 was $1 million and $2 million, respectively.

³Restructured 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 and nine months ended September 30, 2012.



	Three Months Ended September 30, 2011¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	208		$—		$21		$30		$51
Commercial real estate	9	2		8		6		16
Commercial construction	11	9		6		50		65
Residential loans:
Residential mortgages - nonguaranteed	304	—		57		4		61
Home equity products	569	—		38		4		42
Residential construction	266	—		5		29		34
Consumer loans:
Other direct	7	—		—		1		1
Credit cards	716	—		4		—		4
Total TDRs	2,090		$11		$139		$124		$274

	Nine Months Ended September 30, 2011¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
Commercial & industrial	391		$27		$43		$39		$109
Commercial real estate	34	24		24		21		69
Commercial construction	93	36		8		91		135
Residential loans:
Residential mortgages - nonguaranteed	832	—		199		12		211
Home equity products	1,312	—		100		4		104
Residential construction	316	—		15		30		45
Consumer loans:
Other direct	58	—		—		3		3
Credit cards	1,941	—		11		—		11
Total TDRs	4,977		$87		$400		$200		$687

¹Includes loans modified under the terms of a TDR that were charged-off during the period.

²Restructured 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 during the three and nine months ended September 30, 2011 was $3 million and $12 million, respectively.

The preceding tables represent loans modified under the terms of a TDR during the three and nine months ended September 30, 2012 and 2011, whereas the following tables represent loans modified as a TDR over longer time periods; as specified in the tables below, that became 90 days or more delinquent during the three and nine months ended September 30, 2012 and 2011, respectively.



	Three Months Ended September 30, 2012 ¹			Nine Months Ended September 30, 2012 ¹
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	38		$1	63		$4
Commercial real estate	—	—		4	4
Commercial construction	2	—		9	6
Residential loans:
Residential mortgages	31	2		87	16
Home equity products	32	2		113	9
Residential construction	6	1		23	3
Consumer loans:
Other direct	2	—		4	—
Indirect	15	—		15	—
Credit cards	33	—		168	1
Total TDRs	159		$6	486		$43

¹For the three and nine months ended September 30, 2012, this represents defaults on loans that were first modified between the periods July 1, 2011 and September 30, 2012, and January 1, 2011 and September 30, 2012, respectively, including loans modified under the terms of a TDR that were charged-off during the periods.



	Three Months Ended September 30, 2011 ¹			Nine Months Ended September 30, 2011 ¹
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	23		$6	43		$8
Commercial real estate	5	21		11	21
Commercial construction	1	—		15	24
Residential loans:
Residential mortgages	60	19		394	95
Home equity products	60	6		171	17
Residential construction	6	1		29	6
Consumer loans:
Other direct	2	—		9	—
Credit cards	166	1		321	2
Total TDRs	323		$54	993		$173

¹For the three and nine months ended September 30, 2011, this represents defaults on loans that were first modified between the periods July 1, 2010 and September 30, 2011, and January 1, 2010 and September 30, 2011, respectively, including loans modified under the terms of a TDR that were charged-off during the periods.

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 $647 million and $630 million at September 30, 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 September 30, 2012, the Company owned $44.6 billion in residential loans, representing 37% of total LHFI, and had $12.0 billion in commitments to extend credit on home equity lines and $9.6 billion in mortgage loan commitments. Of the residential loans owned at September 30, 2012, 11% were guaranteed by a federal agency or a GSE. At December 31, 2011, the Company owned $46.7 billion in residential 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 $13.7 billion and $14.7 billion of mortgage loans at September 30, 2012 and December 31, 2011, respectively, that included terms such as an interest only feature, a high LTV ratio, or a second lien position that may increase the Company’s exposure to credit risk and result in a concentration of credit risk. Of these mortgage loans, $8.1 billion and $9.4 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $1.6 billion of those interest only loans as of September 30, 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 second liens. Additionally, the Company owned approximately $5.7 billion and $5.3 billion of amortizing loans with no mortgage insurance at September 30, 2012 and December 31, 2011, respectively, comprised of first liens with combined original LTV ratios in excess of 80% and second 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 second lien mortgage loans have been exhausted, resulting in the loans effectively no longer being insured.