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, 2013		December 31, 2012
Commercial loans:
C&I		$54,343		$54,048
Commercial real estate	4,261		4,127
Commercial construction	634		713
Total commercial loans	59,238		58,888
Residential loans:
Residential mortgages - guaranteed	3,930		4,252
Residential mortgages - nonguaranteed¹	23,051		23,389
Home equity products	14,617		14,805
Residential construction	683		753
Total residential loans	42,281		43,199
Consumer loans:
Guaranteed student loans	5,275		5,357
Other direct	2,387		2,396
Indirect	11,009		10,998
Credit cards	614		632
Total consumer loans	19,285		19,383
LHFI		$120,804		$121,470
LHFS		$3,193		$3,399

¹Includes $360 million and $379 million of loans carried at fair value at March 31, 2013 and December 31, 2012, respectively.

During the three months ended March 31, 2013 and 2012, the Company transferred $57 million and $429 million in LHFI to LHFS, and $12 million and $11 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2013 and 2012, the Company sold $503 million and $239 million in loans and leases for a gain of $4 million and $13 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.

For government-guaranteed 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 March 31, 2013 and December 31, 2012, 90% and 89%, respectively, of the guaranteed student loan portfolio was current with respect to payments. At March 31, 2013 and December 31, 2012, 82% and 83%, respectively, of the guaranteed residential 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
	C&I				Commercial real estate				Commercial construction
(Dollars in millions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Credit rating:
Pass		$52,506		$52,292		$3,767		$3,564		$440		$506
Criticized accruing	1,632		1,562		435		497		169		173
Criticized nonaccruing	205		194		59		66		25		34
Total		$54,343		$54,048		$4,261		$4,127		$634		$713



	Residential Loans ¹
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Current FICO score range:
700 and above		$17,168		$17,410		$11,202		$11,339		$515		$561
620 - 699	3,848		3,850		2,291		2,297		113		123
Below 620²	2,035		2,129		1,124		1,169		55		69
Total		$23,051		$23,389		$14,617		$14,805		$683		$753



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Current FICO score range:
700 and above		$1,952		$1,980		$8,270		$8,300		$418		$435
620 - 699	368		350		2,084		2,038		153		152
Below 620²	67		66		655		660		43		45
Total		$2,387		$2,396		$11,009		$10,998		$614		$632

¹Excludes $3.9 billion and $4.3 billion at March 31, 2013 and December 31, 2012, respectively, of guaranteed residential loans. At March 31, 2013 and December 31, 2012, 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 $5.3 billion and $5.4 billion at March 31, 2013 and December 31, 2012, respectively, of guaranteed student loans.

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



	March 31, 2013
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
C&I		$54,026		$93		$19		$205		$54,343
Commercial real estate	4,193		8		1		59		4,261
Commercial construction	609		—		—		25		634
Total commercial loans	58,828		101		20		289		59,238
Residential loans:
Residential mortgages - guaranteed	3,218		39		673		—		3,930
Residential mortgages - nonguaranteed¹	22,131		175		24		721		23,051
Home equity products	14,167		116		—		334		14,617
Residential construction	572		7		2		102		683
Total residential loans	40,088		337		699		1,157		42,281
Consumer loans:
Guaranteed student loans	4,738		442		95		—		5,275
Other direct	2,366		13		2		6		2,387
Indirect	10,951		42		1		15		11,009
Credit cards	602		6		6		—		614
Total consumer loans	18,657		503		104		21		19,285
Total LHFI		$117,573		$941		$823		$1,467		$120,804

¹Includes $360 million of loans carried at fair value, the majority of which were accruing current.

²Nonaccruing loans past due 90 days or more totaled $883 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs and performing second lien loans which are classified as nonaccrual when the first lien loan is nonperforming.



	December 31, 2012
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
C&I		$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.

²Nonaccruing 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 and performing second lien loans which are classified as nonaccrual when the first lien loan is nonperforming.

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.



	March 31, 2013						December 31, 2012
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost¹		Related Allowance		Unpaid Principal Balance		Amortized Cost¹		Related Allowance
Impaired loans with no related allowance recorded:
Commercial loans:
C&I		$80		$37		$—		$59		$40		$—
Commercial real estate	9		9		—		6		5		—
Commercial construction	45		45		—		45		45		—
Total commercial loans	134		91		—		110		90		—
Impaired loans with an allowance recorded:
Commercial loans:
C&I	30		28		3		46		38		6
Commercial real estate	14		9		—		15		7		1
Commercial construction	6		5		—		5		3		—
Total commercial loans	50		42		3		66		48		7
Residential loans:
Residential mortgages - nonguaranteed	2,305		2,013		229		2,346		2,046		234
Home equity products	705		626		93		661		612		88
Residential construction	269		206		27		259		201		26
Total residential loans	3,279		2,845		349		3,266		2,859		348
Consumer loans:
Other direct	15		15		2		14		14		2
Indirect	59		59		3		46		46		2
Credit cards	19		19		4		21		21		5
Total consumer loans	93		93		9		81		81		9
Total impaired loans		$3,556		$3,071		$361		$3,523		$3,078		$364

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

Included in the impaired loan balances above were $2.4 billion of accruing TDRs, at amortized cost, at March 31, 2013 and December 31, 2012 of which 96% and 95% were current, respectively. See Note 1, “Significant Accounting Policies,” to the Company's Annual Report on Form 10−K for the year ended December 31, 2012, for further information regarding the Company’s loan impairment policy.



	Three Months Ended March 31
	2013				2012
(Dollars in millions)	Average Amortized Cost		Interest Income Recognized¹		Average Amortized Cost		Interest Income Recognized¹
Impaired loans with no related allowance recorded:
Commercial loans:
C&I		$49		$—		$28		$—
Commercial real estate	9		—		42		—
Commercial construction	45		1		17		—
Total commercial loans	103		1		87		—
Impaired loans with an allowance recorded:
Commercial loans:
C&I	29		—		75		—
Commercial real estate	10		—		90		—
Commercial construction	5		—		84		1
Total commercial loans	44		—		249		1
Residential loans:
Residential mortgages - nonguaranteed	2,020		22		2,319		22
Home equity products	629		5		521		4
Residential construction	206		2		224		2
Total residential loans	2,855		29		3,064		28
Consumer loans:
Other direct	15		—		12		—
Indirect	60		1		—		—
Credit cards	20		—		27		1
Total consumer loans	95		1		39		1
Total impaired loans		$3,097		$31		$3,439		$30

¹Of the interest income recognized during the three months ended March 31, 2013 and 2012, cash basis interest income was $4 million and $2 million, respectively.

Nonperforming assets are shown in the following table:



(Dollars in millions)	March 31, 2013		December 31, 2012
Nonaccrual/NPLs:
Commercial loans:
C&I		$205		$194
Commercial real estate	59		66
Commercial construction	25		34
Residential loans:
Residential mortgages - nonguaranteed	721		775
Home equity products	334		341
Residential construction	102		112
Consumer loans:
Other direct	6		6
Indirect	15		19
Total nonaccrual/NPLs	1,467		1,547
OREO¹	224		264
Other repossessed assets	8		9
Nonperforming LHFS	41		37
Total nonperforming assets		$1,740		$1,857

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 $159 million and $140 million at March 31, 2013 and December 31, 2012, 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.

At March 31, 2013 and December 31, 2012, the Company had $2 million and $1 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 three months ended March 31, 2013 and 2012, by type of modification, are shown in the following tables:



	Three Months Ended March 31, 2013¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	67		$—		$2		$35		$37
Commercial real estate	4	—		3		—		3
Residential loans:
Residential mortgages - nonguaranteed	276	—		25		17		42
Home equity products	683	—		19		18		37
Residential construction	113	—		12		1		13
Consumer loans:
Other direct	48	—		—		1		1
Indirect	903	—		—		17		17
Credit cards	231	—		1		—		1
Total TDRs	2,325		$—		$62		$89		$151

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

²There was no principal forgiveness for Commercial, Residential, or Consumer loans during the three months ended March 31, 2013.

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 months ended March 31, 2013.



	Three Months Ended March 31, 2012¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	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

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 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.

The preceding tables represent loans modified under the terms of a TDR during the three months ended March 31, 2013 and 2012; 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 months ended March 31, 2013 and 2012, respectively.

For the three months ended March 31, 2013, the table below represents defaults on loans that were first modified between the periods January 1, 2012 and March 31, 2013, including loans modified under the terms of a TDR that were charged-off during the period.



	Three Months Ended March 31, 2013
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
C&I	23		$—
Commercial real estate	1	3
Commercial construction	1	—
Residential loans:
Residential mortgages	76	4
Home equity products	49	3
Residential construction	6	1
Consumer loans:
Other direct	7	—
Indirect	39	1
Credit cards	44	1
Total TDRs	246		$13

For the three months ended March 31, 2012, the table below represents defaults on loans that were first modified between the periods January 1, 2011 and March 31, 2012, including loans modified under the terms of a TDR that were charged-off during the period.



	Three Months Ended March 31, 2012
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
C&I	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

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 $748 million and $562 million at March 31, 2013 and December 31, 2012, 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, 2013, the Company owned $42.3 billion in residential loans, representing 35% of total LHFI, and had $11.6 billion in commitments to extend credit on home equity lines and $8.7 billion in mortgage loan commitments. Of the residential loans owned at March 31, 2013, 9% were guaranteed by a federal agency or a GSE. 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.

Included in the residential mortgage portfolio were $12.9 billion and $13.3 billion of mortgage loans at March 31, 2013 and December 31, 2012, 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, $7.2 billion and $7.6 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $1.4 billion of those interest only loans at March 31, 2013, and $1.5 billion at December 31, 2012, 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 of amortizing loans with no mortgage insurance at March 31, 2013 and December 31, 2012, comprised of first liens with combined original LTV ratios in excess of 80% and second liens.