NOTE 6 - LOANS

Composition of Loan Portfolio

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



(Dollars in millions)	2013		2012
Commercial loans:
C&I		$57,974		$54,048
CRE	5,481		4,127
Commercial construction	855		713
Total commercial loans	64,310		58,888
Residential loans:
Residential mortgages - guaranteed	3,416		4,252
Residential mortgages - nonguaranteed ¹	24,412		23,389
Home equity products	14,809		14,805
Residential construction	553		753
Total residential loans	43,190		43,199
Consumer loans:
Guaranteed student loans	5,545		5,357
Other direct	2,829		2,396
Indirect	11,272		10,998
Credit cards	731		632
Total consumer loans	20,377		19,383
LHFI ²		$127,877		$121,470
LHFS		$1,699		$3,399

¹Includes $302 million and $379 million of loans carried at fair value at December 31, 2013 and 2012, respectively.

² Loans are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $739 million and $805 million at December 31, 2013 and 2012, respectively.

During the years ended December 31, 2013 and 2012, the Company transferred $280 million and $3.7 billion in LHFI to LHFS, and $43 million and $71 million in LHFS to LHFI, respectively. Additionally, during the years ended December 31, 2013 and 2012, the Company sold $807 million and $4.8 billion in loans and leases for a gain of $1 million and a loss of $3 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 an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of 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 and 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 December 31, 2013 and 2012, 81% and 89%, respectively, of the guaranteed student loan portfolio was current with respect to payments. At December 31, 2013 and 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 at December 31:



	Commercial Loans
	C&I				CRE				Commercial construction
(Dollars in millions)	2013		2012		2013		2012		2013		2012
Credit rating:
Pass		$56,443		$52,292		$5,245		$3,564		$798		$506
Criticized accruing	1,335		1,562		197		497		45		173
Criticized nonaccruing	196		194		39		66		12		34
Total		$57,974		$54,048		$5,481		$4,127		$855		$713



	Residential Loans ¹
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	2013		2012		2013		2012		2013		2012
Current FICO score range:
700 and above		$19,100		$17,410		$11,661		$11,339		$423		$561
620 - 699	3,652		3,850		2,186		2,297		90		123
Below 620²	1,660		2,129		962		1,169		40		69
Total		$24,412		$23,389		$14,809		$14,805		$553		$753



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	2013		2012		2013		2012		2013		2012
Current FICO score range:
700 and above		$2,370		$1,980		$8,420		$8,300		$512		$435
620 - 699	397		350		2,228		2,038		176		152
Below 620²	62		66		624		660		43		45
Total		$2,829		$2,396		$11,272		$10,998		$731		$632

¹Excludes $3.4 billion and $4.3 billion at December 31, 2013 and 2012, respectively, of guaranteed residential loans. At December 31, 2013 and 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 $5.5 billion and $5.4 billion at December 31, 2013 and 2012, respectively, of guaranteed student loans.

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



	December 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		$57,713		$47		$18		$196		$57,974
CRE	5,430		5		7		39		5,481
Commercial construction	842		1		—		12		855
Total commercial loans	63,985		53		25		247		64,310
Residential loans:
Residential mortgages - guaranteed	2,787		58		571		—		3,416
Residential mortgages - nonguaranteed¹	23,808		150		13		441		24,412
Home equity products	14,480		119		—		210		14,809
Residential construction	488		4		—		61		553
Total residential loans	41,563		331		584		712		43,190
Consumer loans:
Guaranteed student loans	4,475		461		609		—		5,545
Other direct	2,803		18		3		5		2,829
Indirect	11,189		75		1		7		11,272
Credit cards	718		7		6		—		731
Total consumer loans	19,185		561		619		12		20,377
Total LHFI		$124,733		$945		$1,228		$971		$127,877

¹Includes $302 million of loans carried at fair value, the majority of which were accruing current.

²Nonaccruing loans past due 90 days or more totaled $653 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
CRE	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.



	December 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		$81		$56		$—		$59		$40		$—
CRE	61		60		—		6		5		—
Commercial construction	—		—		—		45		45		—
Total commercial loans	142		116		—		110		90		—
Impaired loans with an allowance recorded:
Commercial loans:
C&I	51		49		10		46		38		6
CRE	8		3		—		15		7		1
Commercial construction	6		3		—		5		3		—
Total commercial loans	65		55		10		66		48		7
Residential loans:
Residential mortgages - nonguaranteed	2,357		2,051		226		2,346		2,046		234
Home equity products	710		638		96		661		612		88
Residential construction	241		189		23		259		201		26
Total residential loans	3,308		2,878		345		3,266		2,859		348
Consumer loans:
Other direct	14		14		—		14		14		2
Indirect	83		83		5		46		46		2
Credit cards	13		13		3		21		21		5
Total consumer loans	110		110		8		81		81		9
Total impaired loans		$3,625		$3,159		$363		$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 $2.7 billion and $2.4 billion of accruing TDRs, at amortized cost, at December 31, 2013 and 2012, respectively, of which 96% and 95% were current, respectively. See Note 1, “Significant Accounting Policies,” for further information regarding the Company’s loan impairment policy.



	Year Ended December 31
	2013				2012				2011
(Dollars in millions)	Average Amortized Cost		Interest Income Recognized¹		Average Amortized Cost		Interest Income Recognized¹		Average Amortized Cost		Interest Income Recognized¹
Impaired loans with no related allowance recorded:
Commercial loans:
C&I		$75		$1		$48		$1		$109		$3
CRE	60		2		9		—		56		1
Commercial construction	—		—		45		1		47		1
Total commercial loans	135		3		102		2		212		5
Impaired loans with an allowance recorded:
Commercial loans:
C&I	45		1		51		1		68		1
CRE	3		—		9		—		103		2
Commercial construction	5		—		4		—		121		2
Total commercial loans	53		1		64		1		292		5
Residential loans:
Residential mortgages - nonguaranteed	2,025		94		2,063		83		2,451		88
Home equity products	649		23		627		26		528		23
Residential construction	193		11		209		10		229		8
Total residential loans	2,867		128		2,899		119		3,208		119
Consumer loans:
Other direct	15		1		15		1		13		1
Indirect	89		4		50		2		—		—
Credit cards	16		1		24		2		26		2
Total consumer loans	120		6		89		5		39		3
Total impaired loans		$3,175		$138		$3,154		$127		$3,751		$132

¹Of the interest income recognized during the year ended December 31, 2013, 2012, and 2011, cash basis interest income was $10 million, $18 million, and $25 million, respectively.

NPAs are shown in the following table at December 31:



(Dollars in millions)	2013		2012
Nonaccrual/NPLs:
Commercial loans:
C&I		$196		$194
CRE	39		66
Commercial construction	12		34
Residential loans:
Residential mortgages - nonguaranteed	441		775
Home equity products	210		341
Residential construction	61		112
Consumer loans:
Other direct	5		6
Indirect	7		19
Total nonaccrual/NPLs²	971		1,547
OREO¹	170		264
Other repossessed assets	7		9
Nonperforming LHFS	17		37
Total NPAs		$1,165		$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 in the Consolidated Balance Sheets until the funds are received and the property is conveyed. The receivable amount related to proceeds due from the FHA or the VA totaled $88 million and $140 million at December 31, 2013 and 2012, respectively.

² Nonaccruing restructured loans are included in total nonaccrual/NPLs.

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 situations, the Company may offer to restructure a loan in a manner that ultimately results in the forgiveness of contractually specified principal balances.

At December 31, 2013 and 2012, the Company had $8 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 years ended December 31, 2013, 2012, and 2011, by type of modification, are shown in the following tables:



	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	152		$18		$2		$105		$125
CRE	6	—		3		1		4
Commercial construction	1	—		—		—		—
Residential loans:
Residential mortgages - nonguaranteed	1,584	1		166		94		261
Home equity products	2,630	—		71		75		146
Residential construction	259	—		24		3		27
Consumer loans:
Other direct	140	—		1		3		4
Indirect	3,409	—		—		65		65
Credit cards	593	—		3		—		3
Total TDRs	8,774		$19		$270		$346		$635

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, 2013 was $2 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, 2013.



	2012¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions ⁴		Total
Commercial loans:
C&I	358		$5		$4		$23		$32
CRE	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.

⁴4,231 of the residential loans, with an amortized cost of $201 million at 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:
C&I	510		$28		$45		$55		$128
CRE	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.

For the year ended December 31, 2013, the table below represents defaults on loans that were first modified between the periods January 1, 2012 and December 31, 2013, that became 90 days or more delinquent or were charged-off during 2013.



	Year Ended December 31, 2013
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
C&I	55		$5
CRE	5	3
Commercial construction	1	—
Residential loans:
Residential mortgages	287	23
Home equity products	188	10
Residential construction	48	3
Consumer loans:
Other direct	15	1
Indirect	207	2
Credit cards	169	1
Total TDRs	975		$48

For the year ended December 31, 2012, the table below represents defaults on loans that were first modified between the periods January 1, 2011 and December 31, 2012, that became 90 days or more delinquent or were charged-off during 2012.



	Year Ended December 31, 2012
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
C&I	84		$5
CRE	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

For the year ended December 31, 2011, the table below represents defaults on loans that were first modified between the periods January 1, 2010 and December 31, 2011, that became 90 days or more delinquent or were charged-off during 2011.



	Year Ended December 31, 2011
(Dollars in millions)	Number of Loans	Amortized Cost
Commercial loans:
C&I	71		$14
CRE	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

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 $956 million and $562 million at December 31, 2013 and 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 December 31, 2013, the Company owned $43.2 billion in residential loans, representing 34% of total LHFI, and had $11.2 billion in commitments to extend credit on home equity lines and $2.7 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2013, 8% 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 $12.4 billion and $13.7 billion of mortgage loans at December 31, 2013 and 2012, respectively, that included terms such as an interest only feature, a high original 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, $5.5 billion and $7.6 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $1.1 billion of those interest only loans at December 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 $6.9 billion and $6.1 billion of amortizing loans with no mortgage insurance at December 31, 2013 and 2012, 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 have increased due to lending to high credit quality clients.