NOTE 5 - LOANS

Composition of Loan Portfolio

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



(Dollars in millions)	September 30, 2014		December 31, 2013
Commercial loans:
C&I		$63,140		$57,974
CRE	6,704		5,481
Commercial construction	1,250		855
Total commercial loans	71,094		64,310
Residential loans:
Residential mortgages - guaranteed	651		3,416
Residential mortgages - nonguaranteed ¹	23,718		24,412
Home equity products	14,389		14,809
Residential construction	464		553
Total residential loans	39,222		43,190
Consumer loans:
Guaranteed student loans	5,314		5,545
Other direct	4,110		2,829
Indirect	11,594		11,272
Credit cards	817		731
Total consumer loans	21,835		20,377
LHFI		$132,151		$127,877
LHFS ²		$1,739		$1,699

¹Includes $284 million and $302 million of loans carried at fair value at September 30, 2014 and December 31, 2013, respectively.

²Includes $1.6 billion and $1.4 billion of LHFS carried at fair value at September 30, 2014 and December 31, 2013, respectively.

At September 30, 2014 and December 31, 2013, the Company had $57.1 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 September 30, 2014 and 2013, the Company transferred $362 million and $56 million in LHFI to LHFS, and $19 million and $11 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2014 and 2013, the Company sold $2.3 billion and $99 million in loans and leases for gains of $40 million and less than $1 million, respectively.

During the nine months ended September 30, 2014 and 2013, the Company transferred $3.2 billion and $200 million in LHFI to LHFS, and $39 million and $28 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2014 and 2013, the Company sold $3.0 billion and $761 million in loans and leases for gains of $71 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/analyses, and/or 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 higher PDs. 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.

Commercial risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, borrower 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 September 30, 2014 and December 31, 2013, 30% 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 $2.0 billion in accruing current guaranteed residential loans which were sold in the third quarter of 2014. At September 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)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Risk rating:
Pass		$61,748		$56,443		$6,513		$5,245		$1,220		$798
Criticized accruing	1,214		1,335		159		197		21		45
Criticized nonaccruing	178		196		32		39		9		12
Total		$63,140		$57,974		$6,704		$5,481		$1,250		$855



	Residential Loans ¹
	Residential mortgages - nonguaranteed				Home equity products				Residential construction
(Dollars in millions)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Current FICO score range:
700 and above		$18,828		$19,100		$11,495		$11,661		$366		$423
620 - 699	3,501		3,652		2,049		2,186		75		90
Below 620 ²	1,389		1,660		845		962		23		40
Total		$23,718		$24,412		$14,389		$14,809		$464		$553



	Consumer Loans ³
	Other direct				Indirect				Credit cards
(Dollars in millions)	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Current FICO score range:
700 and above		$3,563		$2,370		$8,526		$8,420		$575		$512
620 - 699	477		397		2,409		2,228		194		176
Below 620 ²	70		62		659		624		48		43
Total		$4,110		$2,829		$11,594		$11,272		$817		$731

¹Excludes $651 million and $3.4 billion at September 30, 2014 and December 31, 2013, respectively, of guaranteed residential loans. At September 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 $5.3 billion and $5.5 billion of guaranteed student loans at September 30, 2014 and December 31, 2013, respectively.

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



	September 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		$62,903		$47		$12		$178		$63,140
CRE	6,666		5		1		32		6,704
Commercial construction	1,238		3		—		9		1,250
Total commercial loans	70,807		55		13		219		71,094
Residential loans:
Residential mortgages - guaranteed	197		34		420		—		651
Residential mortgages - nonguaranteed¹	23,274		105		12		327		23,718
Home equity products	14,109		101		1		178		14,389
Residential construction	429		5		—		30		464
Total residential loans	38,009		245		433		535		39,222
Consumer loans:
Guaranteed student loans	4,338		365		611		—		5,314
Other direct	4,078		25		2		5		4,110
Indirect	11,504		86		1		3		11,594
Credit cards	804		7		6		—		817
Total consumer loans	20,724		483		620		8		21,835
Total LHFI		$129,540		$783		$1,066		$762		$132,151

¹Includes $284 million of loans carried at fair value, the majority of which were accruing current.

²Nonaccruing loans past due 90 days or more totaled $468 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.



	September 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		$84		$62		$—		$81		$56		$—
CRE	18		14		—		61		60		—
Total commercial loans	102		76		—		142		116		—
Residential loans:
Residential mortgages - nonguaranteed	676		447		—		672		425		—
Residential construction	41		12		—		68		17		—
Total residential loans	717		459		—		740		442		—
Impaired loans with an allowance recorded:
Commercial loans:
C&I	48		43		7		51		49		10
CRE	11		10		1		8		3		—
Commercial construction	—		—		—		6		3		—
Total commercial loans	59		53		8		65		55		10
Residential loans:
Residential mortgages - nonguaranteed	1,381		1,378		223		1,685		1,626		226
Home equity products	702		629		70		710		638		96
Residential construction	150		150		20		173		172		23
Total residential loans	2,233		2,157		313		2,568		2,436		345
Consumer loans:
Other direct	13		13		—		14		14		—
Indirect	100		100		5		83		83		5
Credit cards	10		10		2		13		13		3
Total consumer loans	123		123		7		110		110		8
Total impaired loans		$3,234		$2,868		$328		$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 $2.5 billion and $2.7 billion of accruing TDRs at amortized cost, at September 30, 2014 and December 31, 2013, respectively, of which 97% and 96%, respectively, 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 September 30								Nine Months Ended September 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		$65		$—		$84		$—		$68		$1		$58		$1
CRE	15		—		5		—		16		—		6		—
Commercial construction	—		—		1		—		—		—		1		—
Total commercial loans	80		—		90		—		84		1		65		1
Residential loans:
Residential mortgages - nonguaranteed	454		5		420		4		467		14		434		13
Residential construction	14		—		18		—		15		—		22		—
Total residential loans	468		5		438		4		482		14		456		13
Impaired loans with an allowance recorded:
Commercial loans:
C&I	45		—		35		—		46		1		25		1
CRE	10		—		3		—		9		—		3		—
Commercial construction	—		—		4		—		—		—		2		—
Total commercial loans	55		—		42		—		55		1		30		1
Residential loans:
Residential mortgages - nonguaranteed	1,467		18		1,582		19		1,443		59		1,579		58
Home equity products	668		7		634		7		662		20		640		17
Residential construction	164		2		181		3		162		6		178		8
Total residential loans	2,299		27		2,397		29		2,267		85		2,397		83
Consumer loans:
Other direct	14		—		15		—		14		—		16		—
Indirect	116		1		84		1		110		4		87		3
Credit cards	10		—		15		—		11		1		17		1
Total consumer loans	140		1		114		1		135		5		120		4
Total impaired loans		$3,042		$33		$3,081		$34		$3,023		$106		$3,068		$102

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

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

NPAs are shown in the following table:



(Dollars in millions)	September 30, 2014		December 31, 2013
Nonaccrual/NPLs:
Commercial loans:
C&I		$178		$196
CRE	32		39
Commercial construction	9		12
Residential loans:
Residential mortgages - nonguaranteed	327		441
Home equity products	178		210
Residential construction	30		61
Consumer loans:
Other direct	5		5
Indirect	3		7
Total nonaccrual/NPLs¹	762		971
OREO²	112		170
Other repossessed assets	7		7
Nonperforming LHFS	53		17
Total NPAs		$934		$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 $50 million and $88 million at September 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 September 30, 2014 and December 31, 2013, the Company had $6 million and $8 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 by type of modification are shown in the following tables:



	Three Months Ended September 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	23		$—		$—		$8		$8
Residential loans:
Residential mortgages - nonguaranteed	266	—		27		9		36
Home equity products	503	—		1		22		23
Residential construction	1	—		—		—		—
Consumer loans:
Other direct	21	—		—		—		—
Indirect	638	—		—		12		12
Credit cards	123	—		1		—		1
Total TDRs	1,575		$—		$29		$51		$80



	Nine Months Ended September 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	66		$—		$—		$22		$22
CRE	4	3		—		3		6
Residential loans:
Residential mortgages - nonguaranteed	944	1		113		37		151
Home equity products	1,407	—		6		59		65
Residential construction	11	—		1		—		1
Consumer loans:
Other direct	59	—		—		1		1
Indirect	2,189	—		—		43		43
Credit cards	350	—		2		—		2
Total TDRs	5,030		$4		$122		$165		$291

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 nine months ended September 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 nine months ended September 30, 2014.



	Three Months Ended September 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	28		$—		$—		$39		$39
Commercial construction	1	—		—		—		—
Residential loans:
Residential mortgages - nonguaranteed	332	—		61		14		75
Home equity products	715	—		19		12		31
Residential construction	25	—		4		—		4
Consumer loans:
Other direct	30	—		—		1		1
Indirect	883	—		—		18		18
Credit cards	97	—		—		—		—
Total TDRs	2,111		$—		$84		$84		$168



	Nine Months Ended September 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	124		$18		$2		$89		$109
CRE	5	—		4		1		5
Commercial construction	1	—		—		—		—
Residential loans:
Residential mortgages - nonguaranteed	1,245	—		122		84		206
Home equity products	2,153	—		56		60		116
Residential construction	242	—		22		3		25
Consumer loans:
Other direct	110	—		—		3		3
Indirect	2,617	—		—		50		50
Credit cards	483	—		2		—		2
Total TDRs	6,980		$18		$208		$290		$516

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. There were no charge-offs associated with principal forgiveness during the three months ended September 30, 2013. The total amount of charge-offs associated with principal forgiveness during the nine months ended September 30, 2013 was $2 million.

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



	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
C&I	30		$3	77		$8
Residential loans:
Residential mortgages	46	6		135	16
Home equity products	28	1		75	4
Residential construction	—	—		6	—
Consumer loans:
Other direct	3	—		8	—
Indirect	45	—		134	1
Credit cards	60	—		143	1
Total TDRs	212		$10	578		$30

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



	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
(Dollars in millions)	Number of Loans	Amortized Cost		Number of Loans	Amortized Cost
Commercial loans:
C&I	3		$—	45		$—
CRE	—	—		4	3
Commercial construction	—	—		1	—
Residential loans:
Residential mortgages	63	9		219	19
Home equity products	37	2		138	8
Residential construction	26	1		42	2
Consumer loans:
Other direct	5	—		14	—
Indirect	55	1		143	2
Credit cards	53	—		132	1
Total TDRs	242		$13	738		$35

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 $1.3 billion and $956 million at September 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 September 30, 2014, the Company owned $39.2 billion in residential loans, representing 30% 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 September 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 $11.7 billion and $12.4 billion of mortgage loans at September 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, $4.4 billion and $5.5 billion, respectively, were interest only loans, primarily with a ten year interest only period. Approximately $919 million and $1.1 billion of those interest only loans at September 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 September 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.