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

The Company has transferred loans and securities in sale or securitization transactions in which the Company retains certain beneficial interests or servicing rights. These transfers of financial assets include certain residential mortgage loans, commercial and corporate loans, and consumer loans, as discussed in the following section, "Transfers of Financial Assets." Cash receipts on beneficial interests held related to these transfers were $3 million and $5 million for the three and six months ended June 30, 2016, and $4 million and $8 million for the three and six months ended June 30, 2015, respectively. The servicing 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 both the three and six months ended June 30, 2016 and 2015.

When a transfer or other transaction occurs with a VIE, the Company first determines whether 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 management fees. When determining whether to consolidate the VIE, the Company evaluates whether it is a primary beneficiary which has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.

To determine whether a transfer should be accounted for as a sale or a secured borrowing, 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 all three conditions are met, then the transfer is accounted for as a sale.

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. No events occurred during the six months ended June 30, 2016 that changed the Company’s previous conclusions regarding whether it is the primary beneficiary of the VIEs described herein. Furthermore, no events occurred during the six months ended June 30, 2016 that changed the Company’s sale conclusion with regards to previously transferred residential mortgage loans, indirect auto loans, student loans, or commercial and corporate loans.

Transfers of Financial Assets

The following discussion summarizes transfers of financial assets to VIEs for which the Company has retained some level of continuing involvement.

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 Ginnie Mae, Fannie Mae, and Freddie Mac, which resulted in pre-tax net gains of $90 million and $158 million for the three and six months ended June 30, 2016, and $46 million and $61 million for the three and six months ended June 30, 2015, respectively. The Company has made certain representations and warranties with respect to the transfer of these loans. See Note 12, “Guarantees,” for additional information regarding representations and warranties.

In a limited number of securitizations, the Company has received securities in addition to cash in exchange for the transferred loans, while also retaining servicing rights. The securities received are measured at fair value and classified as securities AFS. At June 30, 2016 and December 31, 2015, the fair value of securities received totaled $34 million and $38 million, respectively.

The Company evaluates securitization entities in which it has a VI for potential consolidation under the VIE consolidation model. 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. 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 of the unconsolidated entities in which the Company has a VI were $226 million and $241 million at June 30, 2016 and December 31, 2015, respectively.

The Company’s maximum exposure to loss related to these unconsolidated residential mortgage loan securitizations is comprised of the loss of value of any interests it retains, which was immaterial at both June 30, 2016 and December 31, 2015, and any repurchase obligations or other losses it incurs as a result of any guarantees related to these securitizations, which is discussed further in Note 12, “Guarantees.”

Commercial and Corporate Loans

The Company holds CLOs issued by securitization entities that own commercial leveraged loans and bonds, certain of which were transferred to the entities by the Company. The Company has determined that these 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. Total assets at June 30, 2016 and December 31, 2015, of unconsolidated entities in which the Company has a VI were $445 million and $525 million, respectively. Total liabilities at June 30, 2016 and December 31, 2015, of unconsolidated entities in which the Company has a VI were $404 million and $482 million, respectively. At June 30, 2016 and December 31, 2015, the Company's holdings included a preference share exposure valued at $3 million and $2 million, and a senior debt exposure valued at $4 million and $8 million, respectively.

Consumer Loans

Guaranteed Student Loans

The Company has securitized 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 because the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses, and the right to receive benefits, that could potentially be significant. At June 30, 2016 and December 31, 2015, the Company’s Consolidated Balance Sheets reflected $243 million and $262 million of assets held by the securitization entity and $240 million and $259 million of debt issued by the entity, respectively.

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%. When not fully guaranteed, losses 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 Company, which functions as the master servicer, may be required to repurchase the defaulting loan(s) 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, 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 limited cases, absorbed by the Company.

Indirect Auto Loans

In June 2015, the Company transferred indirect auto loans to a securitization entity, which was determined to be a VIE, and accounted for the transfer 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. The fees received for servicing do not represent a VI and, therefore, the Company does not consolidate the securitization entity.

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 the year ended December 31, 2015, which was recorded in other noninterest income in the Consolidated Statements of Income. See Note 7, "Goodwill and Other Intangible Assets," for additional information regarding the servicing asset recognized in this transaction.

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 Company may be obligated to either cure the breach or repurchase the affected loans. The Company’s maximum exposure to loss related to the loans transferred to the securitization entity would arise from a breach of representations and warranties and/or a breach of the Company's servicing obligations. Potential losses suffered by the securitization entity that the Company may be liable for are limited to approximately $652 million, which is the total remaining UPB of transferred loans and the carrying value of the servicing asset.

The Company's total managed loans, including the LHFI portfolio and other securitized and unsecuritized loans, are presented in the following table by portfolio balance and delinquency status (accruing loans 90 days or more past due and all nonaccrual loans) at June 30, 2016 and December 31, 2015, as well as the related net charge-offs for the three and six months ended June 30, 2016 and 2015.



	Portfolio Balance ¹				Past Due and Nonaccrual ²						Net Charge-offs
	June 30, 2016		December 31, 2015		June 30, 2016			December 31, 2015			Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	June 30, 2016		December 31, 2015		June 30, 2016			December 31, 2015			2016			2015			2016			2015
LHFI portfolio:
Commercial		$77,448		$75,252		$524			$344			$90			$16			$112			$33
Residential	39,449		38,928		768			729			24			51			58			110
Consumer	24,759		22,262		693			580			23			20			51			44
Total LHFI portfolio	141,656		136,442		1,985			1,653			137			87			221			187
Managed securitized loans ³:
Residential	121,994		116,990		192		³	126		³	2		⁴	3		⁴	4		⁴	6		⁴
Consumer	652		807		—			1			—			—			2			—
Total managed securitized loans	122,646		117,797		192			127			2			3			6			6
Managed unsecuritized loans ⁵	3,414		3,973		493			597			—			—			—			—
Total managed loans		$267,716		$258,212		$2,670			$2,377			$139			$90			$227			$193

¹ Excludes $2.5 billion and $1.8 billion of LHFS at June 30, 2016 and December 31, 2015, respectively.

² Excludes $1 million of past due LHFS at both June 30, 2016 and December 31, 2015.

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

⁴ Net charge-offs are associated with $452 million and $501 million of managed securitized residential loans at June 30, 2016 and December 31, 2015, respectively. Net charge-off data is not reported to the Company for the remaining balance of $121.5 billion and $116.5 billion of managed securitized residential loans at June 30, 2016 and December 31, 2015, respectively.

⁵ Comprised of unsecuritized residential loans the Company originated and sold to private investors with servicing rights retained. Net charge-offs on these loans are not presented in the table as the data is not reported to the Company by the private investors that own these related loans.

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, 2016 and December 31, 2015, outstanding notional amounts of the Company's VIE-facing TRS contracts totaled $2.2 billion. The Company's related senior financing outstanding to VIEs was $2.2 billion at both June 30, 2016 and December 31, 2015. These financings were classified within trading assets and derivative instruments on the Consolidated Balance Sheets and were measured at fair value. The Company entered into client-facing TRS contracts of the same outstanding notional amounts. The notional amounts of the TRS contracts with VIEs represent the Company’s maximum exposure to loss, although this exposure has been mitigated via the TRS contracts with third party clients. For additional information on the Company’s TRS contracts and its involvement with these VIEs, see Note 13, “Derivative Financial Instruments,” in this Form 10-Q, as well as Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Company's 2015 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. These properties were held for sale at June 30, 2016 and were immaterial. There were no properties sold during the six months ended June 30, 2016, and 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 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 guidance 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 construction and operating losses and tax credit allocation deficits. Assets of $1.7 billion and $1.6 billion in these and other community development partnerships were not included in the Consolidated Balance Sheets at June 30, 2016 and December 31, 2015, respectively. The Company's limited partner interests had carrying values of $815 million and $672 million at June 30, 2016 and December 31, 2015, respectively, and are recorded in other assets on the Company’s Consolidated Balance Sheets. The Company’s maximum exposure to loss for these investments totaled $1.2 billion and $1.1 billion at June 30, 2016 and December 31, 2015, respectively. The Company’s maximum exposure to loss would result from the loss of its limited partner investments along with $290 million and $268 million of loans, interest-rate swap fair value exposures, or letters of credit issued by the Company to the entities at June 30, 2016 and December 31, 2015, respectively. The remaining exposure to loss is primarily attributable to unfunded equity commitments that the Company is required to fund if certain conditions are met.

The Company also owns noncontrolling interests in funds whose purpose is to invest in community developments. At June 30, 2016 and December 31, 2015, the Company's investment in these funds totaled $136 million and $132 million, and the Company's maximum exposure to loss on its equity investments, which is comprised of its investments in the funds, loans issued, and any additional unfunded equity commitments, was $402 million and $321 million, respectively.

During the three and six months ended June 30, 2016, the Company recognized $19 million and $38 million of tax credits for qualified affordable housing projects, and $19 million and $38 million of amortization on these qualified affordable housing projects in the provision for income taxes, respectively. During the three and six months ended June 30, 2015, the Company recognized $15 million and $29 million of tax credits for qualified affordable housing projects, and $14 million and $28 million of amortization on these qualified affordable housing projects in the provision for income taxes, respectively.

The Company recognized tax credits for community development investments that do not qualify as affordable housing projects for accounting purposes of $15 million and $29 million, and $9 million and $18 million, during the three and six months ended June 30, 2016 and 2015, respectively, in the provision for income taxes. Amortization recognized on these investments totaled $11 million and $20 million, and $5 million and $10 million, during the three and six months ended June 30, 2016 and 2015, respectively. The amortization is classified within Amortization in the Company's Consolidated Statements of Income .