NOTE 5 - LOANS

Composition of Loan Portfolio

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



(Dollars in millions)	June 30, 2014		December 31, 2013
Commercial loans:
C&I		$61,337		$57,974
CRE	6,105		5,481
Commercial construction	1,096		855
Total commercial loans	68,538		64,310
Residential loans:
Residential mortgages - guaranteed	661		3,416
Residential mortgages - nonguaranteed ¹	24,173		24,412
Home equity products	14,519		14,809
Residential construction	508		553
Total residential loans	39,861		43,190
Consumer loans:
Guaranteed student loans	5,420		5,545
Other direct	3,675		2,829
Indirect	11,501		11,272
Credit cards	749		731
Total consumer loans	21,345		20,377
LHFI		$129,744		$127,877
LHFS ²		$4,046		$1,699

¹Includes $292 million and $302 million of loans carried at fair value at June 30, 2014 and December 31, 2013, respectively.

²Includes $1.4 billion of LHFS carried at fair value at both June 30, 2014 and December 31, 2013.

At June 30, 2014 and December 31, 2013, the Company had $57.9 billion and $56.4 billion, respectively, of net eligible loan collateral pledged to the Federal Reserve Discount Window or the FHLB of Atlanta to support available borrowing capacity.

During the three months ended June 30, 2014 and 2013, the Company transferred $2.7 billion and $87 million in LHFI to LHFS, and $3 million and $5 million in LHFS to LHFI, respectively. Specifically, $2.1 billion of guaranteed residential mortgages were transferred to LHFS during the three months ended June 30, 2014, in anticipation of the sale of these loans on a servicing retained basis in the third quarter. Additionally, during the three months ended June 30, 2014 and 2013, the Company sold $534 million and $159 million in loans and leases for gains of $22 million and $3 million, respectively.

During the six months ended June 30, 2014 and 2013, the Company transferred $2.8 billion and $144 million in LHFI to LHFS, and $20 million and $17 million in LHFS to LHFI, respectively. Additionally, during the six months ended June 30, 2014 and 2013, the Company sold $619 million and $662 million in loans and leases for gains of $31 million and $7 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 June 30, 2014 and December 31, 2013, 27% and 82%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. The decline in the percentage of current loans in LHFI is solely due to approximately $2.1 billion in accruing current guaranteed residential loan which were transferred to LHFS in June, 2014. At June 30, 2014 and December 31, 2013, 82% and 81%, 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
	C&I				CRE				Commercial construction
(Dollars in millions)	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Credit rating:
Pass		$59,854		$56,443		$5,902		$5,245		$1,059		$798
Criticized accruing	1,284		1,335		165		197		27		45
Criticized nonaccruing	199		196		38		39		10		12
Total		$61,337		$57,974		$6,105		$5,481		$1,096		$855



	Residential Loans ¹
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Current FICO score range:
700 and above		$19,038		$19,100		$11,558		$11,661		$385		$423
620 - 699	3,603		3,652		2,087		2,186		89		90
Below 620 ²	1,532		1,660		874		962		34		40
Total		$24,173		$24,412		$14,519		$14,809		$508		$553



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Current FICO score range:
700 and above		$3,161		$2,370		$8,554		$8,420		$528		$512
620 - 699	453		397		2,316		2,228		178		176
Below 620 ²	61		62		631		624		43		43
Total		$3,675		$2,829		$11,501		$11,272		$749		$731

¹Excludes $661 million and $3.4 billion at June 30, 2014 and December 31, 2013, respectively, of guaranteed residential loans. At June 30, 2014 and December 31, 2013, 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 $5.5 billion of guaranteed student loans at June 30, 2014 and December 31, 2013, respectively.

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



	June 30, 2014
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
C&I		$61,085		$42		$11		$199		$61,337
CRE	6,063		4		—		38		6,105
Commercial construction	1,086		—		—		10		1,096
Total commercial loans	68,234		46		11		247		68,538
Residential loans:
Residential mortgages - guaranteed	181		35		445		—		661
Residential mortgages - nonguaranteed¹	23,642		112		14		405		24,173
Home equity products	14,224		104		—		191		14,519
Residential construction	457		4		1		46		508
Total residential loans	38,504		255		460		642		39,861
Consumer loans:
Guaranteed student loans	4,430		424		566		—		5,420
Other direct	3,648		21		2		4		3,675
Indirect	11,432		62		1		6		11,501
Credit cards	738		6		5		—		749
Total consumer loans	20,248		513		574		10		21,345
Total LHFI		$126,986		$814		$1,045		$899		$129,744

¹Includes $292 million of loans carried at fair value, the majority of which were accruing current.

²Nonaccruing loans past due 90 days or more totaled $567 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, 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.

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.



	June 30, 2014						December 31, 2013
(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		$87		$66		$—		$81		$56		$—
CRE	16		14		—		61		60		—
Total commercial loans	103		80		—		142		116		—
Residential mortgages - nonguaranteed	723		452		—		740		442		—
Impaired loans with an allowance recorded:
Commercial loans:
C&I	57		49		4		51		49		10
CRE	14		8		—		8		3		—
Commercial construction	6		2		—		6		3		—
Total commercial loans	77		59		4		65		55		10
Residential loans:
Residential mortgages - nonguaranteed	1,486		1,467		238		1,617		1,609		226
Home equity products	702		632		88		710		638		96
Residential construction	211		172		23		241		189		23
Total residential loans	2,399		2,271		349		2,568		2,436		345
Consumer loans:
Other direct	14		14		1		14		14		—
Indirect	97		97		5		83		83		5
Credit cards	10		10		2		13		13		3
Total consumer loans	121		121		8		110		110		8
Total impaired loans		$3,423		$2,983		$361		$3,625		$3,159		$363

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 $2.6 billion and $2.7 billion of accruing TDRs at amortized cost, at June 30, 2014 and December 31, 2013, respectively, of which 96% were current. See Note 1, “Significant Accounting Policies,” to the Company's 2013 Annual Report on Form 10-K for further information regarding the Company’s loan impairment policy.



	Three Months Ended June 30								Six Months Ended June 30
	2014				2013				2014				2013
(Dollars in millions)	Average Amortized Cost		Interest Income Recognized¹		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		$72		$—		$70		$1		$76		$1		$63		$1
CRE	15		—		9		—		15		—		8		—
Commercial construction	—		—		47		—		—		—		36		1
Total commercial loans	87		—		126		1		91		1		107		2
Residential mortgages - nonguaranteed	463		5		448		4		470		9		461		8
Impaired loans with an allowance recorded:
Commercial loans:
C&I	52		—		80		1		54		—		75		1
CRE	11		—		3		—		11		—		2		—
Commercial construction	3		—		8		—		3		—		7		—
Total commercial loans	66		—		91		1		68		—		84		1
Residential loans:
Residential mortgages - nonguaranteed	1,456		20		1,554		23		1,444		41		1,547		41
Home equity products	651		7		648		5		648		13		652		10
Residential construction	179		2		205		3		178		4		206		5
Total residential loans	2,286		29		2,407		31		2,270		58		2,405		56
Consumer loans:
Other direct	14		—		15		—		14		—		15		—
Indirect	105		1		72		1		103		3		74		2
Credit cards	11		—		17		1		11		—		19		1
Total consumer loans	130		1		104		2		128		3		108		3
Total impaired loans		$3,032		$35		$3,176		$39		$3,027		$71		$3,165		$70

¹Of the interest income recognized during the three and six months ended June 30, 2014, cash basis interest income was less than $1 million and $2 million, respectively.

Of the interest income recognized during the three and six months ended June 30, 2013, cash basis interest income was $1 million and $6 million, respectively.

NPAs are shown in the following table:



(Dollars in millions)	June 30, 2014		December 31, 2013
Nonaccrual/NPLs:
Commercial loans:
C&I		$199		$196
CRE	38		39
Commercial construction	10		12
Residential loans:
Residential mortgages - nonguaranteed	405		441
Home equity products	191		210
Residential construction	46		61
Consumer loans:
Other direct	4		5
Indirect	6		7
Total nonaccrual/NPLs¹	899		971
OREO²	136		170
Other repossessed assets	6		7
Nonperforming LHFS	—		17
Total NPAs		$1,041		$1,165

¹ Nonaccruing restructured loans are included in total nonaccrual/NPLs.

²Does 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 $79 million and $88 million at June 30, 2014 and December 31, 2013, 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 the Company 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 both June 30, 2014 and December 31, 2013, the Company had $8 million 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 by type of modification are shown in the following tables:



	Three Months Ended June 30, 2014 ¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	27		$—		$—		$12		$12
CRE	2	3		—		—		3
Residential loans:
Residential mortgages - nonguaranteed	365	1		43		11		55
Home equity products	471	—		2		20		22
Residential construction	4	—		1		—		1
Consumer loans:
Other direct	21	—		—		—		—
Indirect	712	—		—		14		14
Credit cards	130	—		—		—		—
Total TDRs	1,732		$4		$46		$57		$107



	Six Months Ended June 30, 2014 ¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	43		$—		$—		$14		$14
CRE	4	3		—		3		6
Residential loans:
Residential mortgages - nonguaranteed	678	1		86		28		115
Home equity products	904	—		5		38		43
Residential construction	10	—		1		—		1
Consumer loans:
Other direct	38	—		—		1		1
Indirect	1,551	—		—		30		30
Credit cards	227	—		1		—		1
Total TDRs	3,455		$4		$93		$114		$211

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

² Restructured 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 both the three and six months ended June 30, 2014 was immaterial.

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 six months ended June 30, 2014.



	Three Months Ended June 30, 2013 ¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	29		$18		$—		$15		$33
CRE	1	—		—		—		—
Residential loans:
Residential mortgages - nonguaranteed	637	—		36		53		89
Home equity products	755	—		17		31		48
Residential construction	104	—		7		2		9
Consumer loans:
Other direct	32	—		—		1		1
Indirect	831	—		—		16		16
Credit cards	155	—		1		—		1
Total TDRs	2,544		$18		$61		$118		$197



	Six Months Ended June 30, 2013 ¹
(Dollars in millions)	Number of Loans Modified	Principal Forgiveness ²		Rate Modification ³		Term Extension and/or Other Concessions		Total
Commercial loans:
C&I	96		$18		$2		$49		$69
CRE	5	—		4		1		5
Residential loans:
Residential mortgages - nonguaranteed	913	—		61		70		131
Home equity products	1,438	—		36		48		84
Residential construction	217	—		18		4		22
Consumer loans:
Other direct	80	—		—		3		3
Indirect	1,734	—		—		33		33
Credit cards	386	—		2		—		2
Total TDRs	4,869		$18		$123		$208		$349

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

For the three and six months ended June 30, 2014, the table below represents defaults on loans that were first modified between the periods January 1, 2013 and June 30, 2014 that became 90 days or more delinquent or were charged-off during the period.



	Three Months Ended June 30, 2014			Six Months Ended June 30, 2014
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
C&I	22		$4	47		$5
Residential loans:
Residential mortgages	40	6		89	10
Home equity products	24	2		47	3
Residential construction	2	—		6	—
Consumer loans:
Other direct	—	—		5	—
Indirect	46	—		89	1
Credit cards	63	1		83	1
Total TDRs	197		$13	366		$20

For the three and six months ended June 30, 2013, the table below represents defaults on loans that were first modified between the periods January 1, 2012 and June 30, 2013 that became 90 days or more delinquent or were charged-off during the period.



	Three Months Ended June 30, 2013			Six Months Ended June 30, 2013
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
C&I	19		$—	42		$—
CRE	3	—		4	3
Commercial construction	—	—		1	—
Residential loans:
Residential mortgages	80	6		156	10
Home equity products	52	3		101	6
Residential construction	10	—		16	2
Consumer loans:
Other direct	2	—		9	—
Indirect	49	1		88	1
Credit cards	35	—		79	1
Total TDRs	250		$10	496		$23

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 $1.2 billion and $1.0 billion at June 30, 2014 and December 31, 2013, 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 June 30, 2014, the Company owned $39.9 billion in residential loans, representing 31% of total LHFI, and had $10.9 billion in commitments to extend credit on home equity lines and $3.4 billion in mortgage loan commitments. 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 June 30, 2014 and December 31, 2013, 2% and 8%, respectively, were guaranteed by a federal agency or a GSE.

Included in the residential mortgage portfolio were $11.9 billion and $12.4 billion of mortgage loans at June 30, 2014 and December 31, 2013, 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, $4.7 billion and $5.5 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $1.0 billion and $1.1 billion of those interest only loans at June 30, 2014 and December 31, 2013, respectively, were loans with no MI and were either first liens with combined original LTV ratios in excess of 80% or were second liens. Additionally, the Company owned approximately $7.3 billion and $6.9 billion of amortizing loans with no MI at June 30, 2014 and December 31, 2013, 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.