NOTE 8 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES

Certain Transfers of Financial Assets and Related Variable

Interest Entities

The Company has transferred loans and securities in sale or securitization transactions in which the Company has, or had, continuing involvement such as owning certain beneficial interests and servicing rights. Cash receipts on interests held related to these transfers were $4 million and $8 million for the three and six months ended June 30, 2015, and $7 million and $10 million for the three and six months ended June 30, 2014, respectively. The servicing and management fees related to these asset transfers (excluding servicing fees for residential mortgage loan transfers to GSEs, which are discussed in Note 7, “Goodwill and Other Intangible Assets”) were immaterial for the three and six months ended June 30, 2015 and 2014. Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide.

When a transfer or other transaction occurs with a VIE, the Company first determines if it has a VI in the VIE. A VI is typically in the form of securities representing retained interests in transferred assets and, at times, servicing rights and collateral manager fees. If the Company has a VI in an entity, it then evaluates whether or not it has both (1) the power to direct the activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE to determine if the Company should consolidate the VIE. If the entity is not consolidated, then an evaluation of whether the transfer is a sale or a secured borrowing is necessary.

To determine whether a transfer should be accounted for as a sale, the Company evaluates whether: (i) the transferred assets are legally isolated, (ii) the transferee has the right to pledge or exchange the transferred assets, and (iii) the Company has relinquished effective control of the transferred assets. If these three conditions are met, then the transfer is accounted for as a sale.

No events occurred during the six months ended June 30, 2015 that changed the Company’s previous conclusions regarding whether it is the primary beneficiary of the VIEs described herein. Likewise, no events occurred during the six months ended June 30, 2015 that changed the Company’s sale accounting conclusion in regards to previously transferred residential mortgage loans, student loans, or commercial and corporate loans.

Below is a summary of transfers of financial assets to VIEs for which the Company has retained some level of continuing involvement, which supplements Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Consolidated Financial Statements in the Company's 2014 Annual Report on Form 10-K.

Residential Mortgage Loans

The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and Freddie Mac securitization transactions, whereby the loans are exchanged for cash or securities that are readily redeemable for cash and servicing rights are retained.

The Company sold residential mortgage loans to the GSEs noted above, which resulted in pre-tax net gains of $46 million and $61 million for the three months ended June 30, 2015 and 2014, respectively, and $123 million and $105 million for the six months ended June 30, 2015 and 2014, respectively. Net gains on the sale of residential mortgage loans are recorded at inception of the associated IRLCs within mortgage production related income in the Consolidated Statements of Income. The net gains reflect the change in value of the loans resulting from changes in interest rates from the time the Company enters into the related IRLCs with borrowers, but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 13, “Derivative Financial Instruments,” for further discussion of the Company’s hedging activities. As the seller, the Company has made certain representations and warranties with respect to the originally transferred loans, including those transferred under Ginnie Mae, Fannie Mae, and Freddie Mac programs; these representations and warranties are discussed in Note 12, “Guarantees.”

In a limited number of securitizations, the Company has received securities in addition to cash (while also retaining servicing rights) in exchange for the transferred loans. The securities received are measured at fair value and classified as securities AFS. At June 30, 2015 and December 31, 2014, the fair value of securities received totaled $48 million and $55 million, respectively, and were valued using a third party pricing service.

The Company evaluated its securitization entities, which were deemed VIEs, for potential consolidation. Notwithstanding the Company's role as servicer, the Company typically does not have power over the securitization entities as a result of rights held by the master servicer. However, in certain transactions, the Company does have power as the servicer, but does not have an obligation to absorb losses or the right to receive benefits that could potentially be significant. In all such cases, the Company does not consolidate the securitization entity. Total assets at June 30, 2015 and December 31, 2014, of the unconsolidated trusts in which the Company has a VI were $266 million and $288 million, respectively.

The Company’s maximum exposure to loss related to the unconsolidated residential mortgage loan VIEs in which it holds a VI is comprised of the loss of value of any interests it retains, and any repurchase obligations it incurs as a result of a breach of representations and warranties, discussed further in Note 12, “Guarantees.”

Commercial and Corporate Loans

The Company holds securities issued by CLO entities that own commercial leveraged loans and bonds, certain of which were transferred to the entities by the Company. These entities had estimated assets of $633 million and $704 million and estimated liabilities of $590 million and $654 million at June 30, 2015 and December 31, 2014, respectively. The Company's holdings include a preference share exposure valued at $2 million and $3 million at June 30, 2015 and December 31, 2014, respectively, and a senior interest exposure valued at $13 million and $18 million at June 30, 2015 and December 31, 2014, respectively. The Company has determined that the CLO entities are VIEs and that it is not the primary beneficiary of these entities because it does not possess the power to direct the activities that most significantly impact the economic performance of the entities.

Consumer Loans

Guaranteed Student Loans

During 2006, the Company transferred government-guaranteed student loans through a transfer of loans to a securitization entity and retained the residual interest in the entity. The Company concluded that this entity should be consolidated since it has the power to direct the activities that most significantly impact the economic performance of the VIE, and has the obligation to absorb losses and the right to receive benefits that could potentially be significant. At June 30, 2015 and December 31, 2014, the Company’s Consolidated Balance Sheets reflected $284 million and $306 million, respectively, of assets held by the securitization entity and $281 million and $302 million, respectively, of debt issued by the entity.

To the extent that the securitization entity incurs losses on its assets, the securitization entity has recourse to the guarantor of the underlying loan, which is backed by the Department of Education up to a maximum guarantee of 100%. Losses in excess of the government guarantee reduce the amount of available cash payable to the Company as the owner of the residual interest. To the extent that losses result from a breach of servicing responsibilities, the securitization entity has recourse to the Company, which functions as the master servicer; the Company may be required to repurchase the defaulting loan(s) from the securitization entity at par value. If the breach was caused by the subservicer, the Company would seek reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related to the securitization entity would arise from a breach of its servicing responsibilities. To date, all loss claims filed with the guarantor that have been denied due to servicing errors have either been, or are in the process of being, cured or reimbursement has been provided to the Company by the subservicer, or in very limited cases, absorbed by the Company.

Indirect Auto Loans

In June 2015, the Company transferred indirect auto loans to a securitization entity and accounted for the transfer as a sale after the Company determined that the transfer met the aforementioned conditions to be accounted for as a sale. The Company retained servicing rights for the transferred loans, but did not retain any debt or equity interest in the securitization entity, which was determined to be a VIE. Although the Company has the power to direct the activities that most significantly impact the economic performance of the VIE through its servicing rights, it was determined that this entity should not be consolidated since the Company does not have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

At the time of the transfer, the UPB of the transferred loans was $1.0 billion and the consideration received was $1.0 billion, resulting in an immaterial pre-tax loss for both the three and six months ended June 30, 2015, recorded within other noninterest income in the Consolidated Statements of Income. Further details regarding the servicing asset recognized in this transaction can be found in Note 7, "Goodwill and Other Intangible Assets."

To the extent that losses on the transferred loans are the result of a breach of representations and warranties related to either the initial transfer or the Company's ongoing servicing responsibilities, the securitization entity has recourse to the Company. In the event a breach occurs, the Company may be obligated to either cure the breach or repurchase the affected loans. The Company’s maximum exposure to loss related to the securitization entity would arise from a breach of representations and warranties and any resulting potential losses, the amount of which cannot be determined at this time.

The Company's managed loans, including portfolio loans as well as securitized loans, are presented in the following table by portfolio balance and delinquency (accruing loans 90 days or more past due and all nonaccrual loans) at June 30, 2015 and December 31, 2014, as well as related net charge-offs for the three and six months ended June 30, 2015 and 2014.



	Portfolio Balance ¹				Past Due and Nonaccrual ²						Net Charge-offs
	June 30, 2015		December 31, 2014		June 30, 2015			December 31, 2014			Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions)	June 30, 2015		December 31, 2014		June 30, 2015			December 31, 2014			2015		2014		2015		2014
Portfolio LHFI by type:
Commercial		$73,301		$73,392		$178			$181			$16		$26		$33		$45
Residential	38,736		38,775		728			891			51		67		110		135
Consumer	20,501		20,945		485			619			20		20		44		43
Total portfolio LHFI	132,538		133,112		1,391			1,691			87		113		187		223
Managed securitized loans by type:
Residential	113,930		110,591		157		³	183		³	3		3		6		7
Consumer	976		—		—			—			—		—		—		—
Total managed securitized loans	114,906		110,591		157			183			3		3		6		7

Total managed loans		$247,444		$243,703		$1,548			$1,874			$90		$116		$193		$230

¹Excludes $2.5 billion and $3.2 billion of LHFS at June 30, 2015 and December 31, 2014, respectively.

²Excludes $99 million and $39 million of past due LHFS at June 30, 2015 and December 31, 2014, respectively.

³Excludes loans that have completed the foreclosure or short sale process (i.e., involuntary prepayments).

Other Variable Interest Entities

In addition to exposure to VIEs arising from transfers of financial assets, the Company also has involvement with VIEs from other business activities.

Total Return Swaps

At both June 30, 2015 and December 31, 2014, the Company had $2.3 billion in senior financing outstanding to VIEs that entered into TRS contracts with the Company. These financings were classified within trading assets and derivative instruments on the Consolidated Balance Sheets and were measured at fair value.

The TRS contracts with the Company had outstanding notional amounts of $2.3 billion at both June 30, 2015 and December 31, 2014. The Company entered into TRS contracts with third parties with the same outstanding notional amounts. At June 30, 2015, the fair values of these TRS assets and liabilities were $17 million and $13 million, respectively, and at December 31, 2014, the fair values of these TRS assets and liabilities were $19 million and $14 million, respectively, reflecting the pass-through nature of these structures. The notional amounts of the TRS contracts with the VIEs represent the Company’s maximum exposure to loss, although such exposure to loss has been mitigated via the TRS contracts with third parties. For additional information on the Company’s involvement with these VIEs, see Note 13, “Derivative Financial Instruments,” as well as Note 10, “Certain Transfers of Financial Assets and Variable Interest Entities,” to the Company's 2014 Annual Report on Form 10-K.

Community Development Investments

As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing developments and other community development entities as a limited and/or general partner and/or a debt provider. The Company receives tax credits for its limited partner investments. The Company has determined that the vast majority of the related partnerships are VIEs.

In limited circumstances, the Company owns both the limited partner and general partner interests, in which case the related partnerships are not considered VIEs and are consolidated by the Company. Properties with a carrying value of $9 million and $72 million were sold for gains of $1 million and $19 million during the three and six months ended June 30, 2015, respectively. The remaining properties held for sale at June 30, 2015 were immaterial. No such properties were sold during the three and six months ended June 30, 2014.

The Company has concluded that it is not the primary beneficiary of affordable housing partnerships when it invests as a limited partner and there is a third party general partner. The investments are accounted for in accordance with the accounting requirements for investments in affordable housing projects. The general partner or an affiliate of the general partner often provides guarantees to the limited partner, which protects the Company from losses attributable to operating deficits, construction deficits, and tax credit allocation deficits. Assets of $1.8 billion and $1.6 billion in these partnerships were not included in the Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, respectively. The Company's limited partner interests had carrying values of $477 million and $363 million at June 30, 2015 and December 31, 2014, respectively, and are recorded in other assets in the Company’s Consolidated Balance Sheets. The Company’s maximum exposure to loss for these investments totaled $959 million and $910 million at June 30, 2015 and December 31, 2014, respectively. The Company’s maximum exposure to loss would result from the loss of its limited partner investments along with $389 million and $412 million of loans, interest-rate swap fair value exposures, or letters of credit issued by the Company to the entities at June 30, 2015 and December 31, 2014, respectively. The difference between the maximum exposure to loss and the investment and loan balances is primarily attributable to the unfunded equity commitments. Unfunded equity commitments are amounts that the Company has committed to the entities upon the entities meeting certain conditions. If these conditions are met, the Company will invest these additional amounts in the entities.

The Company also owns noncontrolling interests in funds whose purpose is to invest in community developments. At June 30, 2015 and December 31, 2014, the Company's investment in these funds totaled $127 million and $113 million, respectively, and the Company's maximum exposure to loss on its equity investments, which is comprised of its investments in the funds plus any additional unfunded equity commitments, was $247 million and $236 million, respectively.

During both the three months ended June 30, 2015 and 2014, the Company recognized $15 million of tax credits for qualified affordable housing projects, and $14 million of amortization on qualified affordable housing projects in the provision for income taxes. During the six months ended June 30, 2015 and 2014, the Company recognized $29 million and $30 million of tax credits for qualified affordable housing projects, and $28 million and $27 million of amortization on qualified affordable housing projects in the provision for income taxes, respectively. During the three and six months ended June 30, 2015, the Company recorded $5 million and $10 million, respectively, of amortization expense (a component of noninterest expense) related to community development investments not within the scope of the accounting guidance for investments in qualified affordable housing projects. During the three and six months ended June 30, 2014, the Company recorded $3 million and $5 million, respectively, of amortization related to these non-qualified investments within other noninterest expense.