NOTE 6 - LOANS

Composition of Loan Portfolio

The composition of the Company's loan portfolio as of December 31 is shown in the following table:



(Dollars in millions)	2012		2011
Commercial loans:
Commercial & industrial		$54,048		$49,538
Commercial real estate	4,127		5,094
Commercial construction	713		1,240
Total commercial loans	58,888		55,872
Residential loans:
Residential mortgages - guaranteed	4,252		6,672
Residential mortgages - nonguaranteed¹	23,389		23,243
Home equity products	14,805		15,765
Residential construction	753		980
Total residential loans	43,199		46,660
Consumer loans:
Guaranteed student loans	5,357		7,199
Other direct	2,396		2,059
Indirect	10,998		10,165
Credit cards	632		540
Total consumer loans	19,383		19,963
LHFI ²		$121,470		$122,495
LHFS		$3,399		$2,353

¹Includes $379 million and $431 million of loans carried at fair value at December 31, 2012 and 2011, respectively.

²Loans are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $639 million and $716 million at December 31, 2012 and 2011, respectively.

During the years ended December 31, 2012 and 2011, the Company transferred $3.7 billion and $754 million in LHFI to LHFS, and $71 million and $63 million in LHFS to LHFI, respectively. Additionally, during the years ended December 31, 2012 and 2011, the Company sold $4.8 billion and $725 million in loans and leases for a loss of $3 million and a gain of $22 million, respectively.

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 PDs; whereas, criticized assets have a higher PD. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. 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 an updated version for the Home Equity, Indirect, and Other Direct portfolios in 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 December 31, 2012 and 2011, 89% 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)	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Credit rating:
Pass		$52,292		$47,683		$3,564		$3,845		$506		$581
Criticized accruing	1,562		1,507		497		961		173		369
Criticized nonaccruing	194		348		66		288		34		290
Total		$54,048		$49,538		$4,127		$5,094		$713		$1,240



	Residential Loans ¹
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Current FICO score range:
700 and above		$17,410		$16,139		$11,339		$11,084		$561		$661
620 - 699	3,850		4,132		2,297		2,903		123		202
Below 620²	2,129		2,972		1,169		1,778		69		117
Total		$23,389		$23,243		$14,805		$15,765		$753		$980



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Current FICO score range:
700 and above		$1,980		$1,614		$8,300		$7,397		$435		$347
620 - 699	350		359		2,038		1,990		152		142
Below 620²	66		86		660		778		45		51
Total		$2,396		$2,059		$10,998		$10,165		$632		$540

¹Excludes $4.3 billion and $6.7 billion at December 31, 2012 and 2011, respectively, of guaranteed residential loans. At both December 31, 2012 and 2011, the majority of these loans had FICO scores of 700 and above.

²For 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.

³Excludes $5.4 billion and $7.2 billion at December 31, 2012 and 2011, respectively, of guaranteed student loans.

The payment status for the LHFI portfolio as of December 31 is shown in the tables below:



	2012
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
Commercial & industrial		$53,747		$81		$26		$194		$54,048
Commercial real estate	4,050		11		—		66		4,127
Commercial construction	679		—		—		34		713
Total commercial loans	58,476		92		26		294		58,888
Residential loans:
Residential mortgages - guaranteed	3,523		39		690		—		4,252
Residential mortgages - nonguaranteed¹	22,401		192		21		775		23,389
Home equity products	14,314		149		1		341		14,805
Residential construction	625		15		1		112		753
Total residential loans	40,863		395		713		1,228		43,199
Consumer loans:
Guaranteed student loans	4,769		556		32		—		5,357
Other direct	2,372		15		3		6		2,396
Indirect	10,909		68		2		19		10,998
Credit cards	619		7		6		—		632
Total consumer loans	18,669		646		43		25		19,383
Total LHFI		$118,008		$1,133		$782		$1,547		$121,470

¹Includes $379 million of loans carried at fair value, the majority of which were accruing current.

²Total nonaccruing loans past due 90 days or more totaled $975 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.



	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 December 31, 2012						Year Ended December 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		$59		$40		$—		$48		$1
Commercial real estate	6		5		—		9		—
Commercial construction	45		45		—		45		1
Total commercial loans	110		90		—		102		2
Impaired loans with an allowance recorded:
Commercial loans:
Commercial & industrial	46		38		6		51		1
Commercial real estate	15		7		1		9		—
Commercial construction	5		3		—		4		—
Total commercial loans	66		48		7		64		1
Residential loans:
Residential mortgages - nonguaranteed	2,346		2,046		234		2,063		83
Home equity products	661		612		88		627		26
Residential construction	259		201		26		209		10
Total residential loans	3,266		2,859		348		2,899		119
Consumer loans:
Other direct	14		14		2		15		1
Indirect	46		46		2		50		2
Credit cards	21		21		5		24		2
Total consumer loans	81		81		9		89		5
Total impaired loans		$3,523		$3,078		$364		$3,154		$127

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 year ended December 31, 2012, cash basis interest income was $18 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 $2.4 billion and $2.6 billion of accruing TDRs, at amortized cost, at December 31, 2012 and 2011, respectively, of which 95% and 93% were current, respectively. See Note 1, “Significant Accounting Policies,” for further information regarding the Company’s loan impairment policy.

Nonperforming assets as of December 31 are shown in the following table:



(Dollars in millions)	2012		2011
Nonaccrual/NPLs:
Commercial loans:
Commercial & industrial		$194		$348
Commercial real estate	66		288
Commercial construction	34		290
Residential loans:
Residential mortgages - nonguaranteed	775		1,392
Home equity products	341		338
Residential construction	112		220
Consumer loans:
Other direct	6		7
Indirect	19		20
Total nonaccrual/NPLs	1,547		2,903
OREO¹	264		479
Other repossessed assets	9		10
Nonperforming LHFS	37		—
Total nonperforming assets		$1,857		$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 $140 million and $132 million at December 31, 2012 and 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.

During 2012, the Company changed its policy with respect to residential loans discharged in Chapter 7 bankruptcy that have not been reaffirmed by the borrower. As a result of the policy change, the Company identified and reclassified an incremental $232 million of residential real estate loans to nonaccrual, of which $177 million were newly designated as TDRs, regardless of the loans' actual payment history and expected performance. Additionally, $24 million in existing nonaccrual Chapter 7 loans were newly designated as TDRs. Prior to December 31, 2012, the Company's policy was to classify loans to borrowers who had filed for bankruptcy as nonaccrual when such loans became 60 days past due. However, the Company did not previously report these Chapter 7 loans as TDRs unless otherwise modified under one of the Company's loss mitigation programs. See additional discussion in "Loans" and "Allowance for Credit Losses" sections of Note 1, "Significant Accounting Policies," for further information regarding Chapter 7 bankruptcy loans.

At December 31, 2012 and 2011, the Company had $1 million and $5 million, respectively, in commitments to lend additional funds to debtors whose terms have been modified in a TDR.

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



	2012¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions ⁴		Total
Commercial loans:
Commercial & industrial	358		$5		$4		$23		$32
Commercial real estate	33	20		7		6		33
Commercial construction	16	4		—		14		18
Residential loans:
Residential mortgages - nonguaranteed	2,804	—		72		125		197
Home equity products	3,790	—		110		91		201
Residential construction	564	—		1		73		74
Consumer loans:
Other direct	127	—		—		4		4
Indirect	2,803	—		—		49		49
Credit cards	1,421	—		8		—		8
Total TDRs	11,916		$29		$202		$385		$616

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 year ended December 31, 2012 was $9 million.

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 year ended December 31, 2012.

⁴Approximately 4,231 of the residential loans, with an amortized cost of $201 million as of December 31, 2012, relate to loans discharged in Chapter 7 bankruptcy that were reclassified as TDRs during 2012.



	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	510		$28		$45		$55		$128
Commercial real estate	43	40		26		22		88
Commercial construction	102	38		8		97		143
Residential loans:
Residential mortgages - nonguaranteed	967	—		233		16		249
Home equity products	1,737	—		134		6		140
Residential construction	367	—		17		36		53
Consumer loans:
Other direct	78	—		1		3		4
Credit cards	2,468	—		14		—		14
Total TDRs	6,272		$106		$478		$235		$819

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

The preceding tables represent loans modified under the terms of a TDR during the years ended December 31, 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 years ended December 31, 2012 and 2011, respectively.



	Year Ended December 31, 2012 ¹
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	84		$5
Commercial real estate	9	5
Commercial construction	10	7
Residential loans:
Residential mortgages	141	20
Home equity products	164	11
Residential construction	24	3
Consumer loans:
Other direct	4	—
Indirect	43	—
Credit cards	204	1
Total TDRs	683		$52

¹For the year ended December 31, 2012, this represents defaults on loans that were first modified between the periods January 1, 2011 and December 31, 2012, including loans modified under the terms of a TDR that were charged-off during the periods.



	Year Ended December 31, 2011 ¹
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
Commercial & industrial	71		$14
Commercial real estate	14	22
Commercial construction	32	28
Residential loans:
Residential mortgages	455	108
Home equity products	220	22
Residential construction	33	7
Consumer loans:
Other direct	10	—
Credit cards	403	3
Total TDRs	1,238		$204

¹For the year ended December 31, 2011, this represents defaults on loans that were first modified between the periods January 1, 2010 and December 31, 2011, 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 $562 million and $630 million at December 31, 2012 and 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 December 31, 2012, the Company owned $43.2 billion in residential loans, representing 36% of total LHFI, and had $11.7 billion in commitments to extend credit on home equity lines and $9.2 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2012, 10% 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 $13.3 billion and $14.7 billion of mortgage loans at December 31, 2012 and 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, $7.6 billion and $9.4 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $1.5 billion of those interest only loans as of December 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 second liens. Additionally, the Company owned approximately $5.7 billion and $5.3 billion of amortizing loans with no mortgage insurance at December 31, 2012 and 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.