Loans

6 Months Ended

Jun. 30, 2011

Loans [Abstract]

Loans

5.  Loans

Loans consisted of the following:

	June 30,		December 31,
	2011		2010
	(in millions)
Commercial loans:
Construction and other real estate	$	7,891	$	8,228
Business banking and middle markets enterprises		8,242		7,945
Large corporate(1)		10,603		10,745
Other commercial		3,381		3,356
Total commercial		30,117		30,274
Consumer loans:
Home equity mortgages		3,607		3,820
Other residential mortgages		14,100		13,697
Private label cards		11,665		13,296
Credit cards		9,840		10,811
Other consumer		1,008		1,171
Total consumer		40,220		42,795
Total loans	$	70,337	$	73,069

⁽¹⁾ Includes $1.2 billion of commercial loans at December 31, 2010 related to a VIE which was consolidated.

Net deferred origination costs, excluding credit card annual fees net of direct lending costs, totaled $84 million and $90 million at June 30, 2011 and December 31, 2010, respectively. Credit card annual fees are netted with direct lending costs, deferred and amortized on a straight-line basis over one year. Deferred credit card annual fees, net of direct lending costs totaled $25 million and $24 million at June 30, 2011 and December 31, 2010, respectively.

At June 30, 2011 and December 31, 2010, we had net unamortized premium on our loans of $438 million and $436 million, respectively. We amortized $142 million and $285 million of net premiums on our loans for the three and six months ended June 30, 2011, respectively compared to $102 million and $187 million for the three and six months ended June 30, 2010, respectively.

Collateralized Funding Transactions Involving Securitization There were no financings secured by private label cards or credit card receivables at June 30, 2011. Secured financings of $30 million and $120 million at December 31, 2010 were secured by $44 million and $189 million of private label cards and credit cards, respectively.

Purchased Loan Portfolios In January 2009, we purchased the General Motors MasterCard receivable portfolio (“GM Portfolio”) and the AFL-CIO Union Plus MasterCard/Visa receivable portfolio (“UP Portfolio”) with an aggregate outstanding principal balance of $6.3 billion and $6.1 billion, respectively from HSBC Finance Corporation (“HSBC Finance”). The aggregate purchase price for the GM and UP Portfolios was $12.2 billion, which included the transfer of approximately $6.1 billion of indebtedness, resulting in a cash consideration of $6.1 billion.

Purchased loans for which at the time of acquisition there was evidence of deterioration in credit quality since origination and for which it was probable that all contractually required payments would not be collected and that the associated line of credit has been closed were recorded upon acquisition at an amount based upon the cash flows expected to be collected (“Purchased Credit-Impaired Loans”). The carrying amount of the Purchased Credit-Impaired Loans, net of credit loss reserves at June 30, 2011 totaled $14 million for the UP Portfolio, and is included in credit card loans. The outstanding contractual balances at June 30, 2011 for the Purchased Credit-Impaired Loans of the UP Portfolio were $23 million. The carrying amount of the Purchased Credit-Impaired Loans, net of credit loss reserves at December 31, 2010 totaled $23 million for the UP Portfolio and is included in credit card loans. The outstanding contractual balances at December 31, 2010 for the Purchased Credit-Impaired Loans of the UP Portfolio were $36 million. Credit loss reserves of $2 million and $3 million as of June 30, 2011 and December 31, 2010, respectively, were held for the Purchased Credit-Impaired Loans due to a decrease in the expected future cash flows since the acquisition. The following summarizes the change in accretable yield associated with the Purchased Credit-Impaired Loans:

	Three Months
	Ended
	June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
				(in millions)
Accretable yield at beginning of period	$	(6	)	$	(22	)	$	(8	)	$	(29	)
Accretable yield amortized to interest income during the period		-			4			2			11
Reclassification to non-accretable difference		-			6			-			6
Accretable yield at end of period(1)	$	(6	)	$	(12	)	$	(6	)	$	(12	)

⁽¹⁾ At June 30, 2011, the entire remaining accretable yield is related to the UP portfolio. As we no longer have any receivables from the purchased GM Portfolio subject to the Purchased Credit-Impaired Loans accounting requirement. The accretable yield related to the GM Portfolio was fully amortized to interest income during the second quarter of 2010.

Age Analysis of Past Due Loans The following table summarizes the past due status of our loans at June 30, 2011 and December 31, 2010. The aging of past due amounts is determined based on the contractual delinquency status of payments under the loan. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification.

	Days Past Due
At June 30, 2011	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
					(in millions)
Commercial loans:
Construction and other real estate	$	67	$	77	$	279	$	423	$	7,468	$	7,891
Business banking and middle market enterprises		374		79		72		525		7,717		8,242
Large corporate		317		49		74		440		10,163		10,603
Other commercial		74		48		54		176		3,205		3,381
Total commercial		832		253		479		1,564		28,553		30,117
Consumer loans:
HELOC and home equity mortgages		194		59		93		346		3,261		3,607
Other residential mortgages		117		471		855		1,443		12,657		14,100
Credit card receivables:
Private label cards		555		231		196		982		10,683		11,665
Credit cards		257		153		154		564		9,276		9,840
Other consumer		11		9		33		53		955		1,008
Total consumer		1,134		923		1,331		3,388		36,832		40,220
Total loans	$	1,966	$	1,176	$	1,810	$	4,952	$	65,385	$	70,337

	Days Past Due
At December 31, 2010	1 - 29 days		30 - 89 days		90+ days		Total Past Due		Current		Total Loans
					(in millions)
Commercial loans:
Construction and other real estate	$	72	$	200	$	433	$	705	$	7,523	$	8,228
Business banking and middle market enterprises		367		84		66		517		7,428		7,945
Large corporate		902		90		74		1,066		9,679		10,745
Other commercial		80		86		24		190		3,166		3,356
Total commercial		1,421		460		597		2,478		27,796		30,274
Consumer loans:
HELOC and home equity mortgages		327		83		93		503		3,317		3,820
Other residential mortgages		123		525		900		1,548		12,149		13,697
Credit card receivables:
Private label cards		475		260		295		1,030		12,266		13,296
Credit cards		312		212		250		774		10,037		10,811
Other consumer		12		14		34		60		1,111		1,171
Total consumer		1,249		1,094		1,572		3,915		38,880		42,795
Total loans	$	2,670	$	1,554	$	2,169	$	6,393	$	66,676	$	73,069

Nonaccrual Loans Nonaccrual loans totaled $1.8 billion and $2.0 billion at June 30, 2011 and December 31, 2010, respectively. Interest income that would have been recorded if such nonaccrual loans had been current and in accordance with contractual terms was approximately $32 million and $59 million for the three and six months ended June 30, 2011, respectively, compared to $34 million and $84 million for the three and six months ended June 30, 2010, respectively. Interest income that was included in interest income on these loans was approximately $8 million and $9 million for the three and six months ended June 30, 2011 compared to approximately $11 million and $14 million for the three and six months ended June 30, 2010, respectively. For an analysis of reserves for credit losses, see Note 6, “Allowance for Credit Losses.”

Nonaccrual loans and accruing receivables 90 days or more delinquent are summarized in the following table:

	June 30,		December 31,
	2011		2010
	(in millions)
Nonaccrual loans:
Commercial:
Real Estate:
Construction and land loans	$	163	$	70
Other real estate		410		529
Business banking and middle markets enterprises		84		116
Large corporate		74		74
Other commercial		11		12
Total commercial		742		801
Consumer:
Residential mortgages, excluding home equity mortgages		855		900
Home equity mortgages		93		93
Total residential mortgages		948		993
Credit card receivables		-		-
Other consumer loans		8		9
Total consumer loans		956		1,002
Nonaccrual loans held for sale		112		186
Total nonaccruing loans		1,810		1,989
Accruing loans contractually past due 90 days or more:
Total commercial:
Real Estate:
Construction and land loans		-		-
Other real estate		53		137
Business banking and middle market enterprises		30		47
Large corporate		-		-
Other commercial		14		12
Total commercial		97		196
Consumer:
Private label card receivables		196		295
Credit card receivables		154		250
Other consumer		25		25
Total consumer loans		375		570
Total accruing loans contractually past due 90 days or more		472		766
Total nonperforming loans	$	2,282	$	2,755

Impaired Loans A loan is considered to be impaired when it is deemed probable that not all principal and interest amounts due according to the contractual terms of the loan agreement will be collected. Probable losses from impaired loans are quantified and recorded as a component of the overall allowance for credit losses. Commercial and consumer loans for which we have modified the loan terms as part of a troubled debt restructuring are considered to be impaired loans. Additionally, commercial loans in nonaccrual status, or that have been partially charged-off or assigned a specific allowance for credit losses are also considered impaired loans.

Troubled debt restructurings The following tables present information about our TDR Loans and the related credit loss reserves for TDR Loans:

	June 30,		December 31,
	2011		2010
	(in millions)
TDR Loans(1)(2):
Commercial loans:
Construction and other real estate	$	243	$	308
Business banking and middle market enterprises		55		64
Large corporate		-		-
Other commercial		56		57
Total commercial		354		429
Consumer loans:
Residential mortgages		491		402
Private label cards		190		230
Credit cards		220		250
Total consumer		901		882
Total TDR Loans(3):	$	1,255	$	1,311

	June 30,		December 31,
	2011		2010
	(in millions)
Allowance for credit losses for TDR Loans(4):
Commercial loans:
Construction and other real estate	$	11	$	44
Business banking and middle market enterprises		4		8
Large corporate		-		-
Other commercial		-		1
Total commercial		15		53
Consumer loans:
Residential mortgages		67		53
Private label cards		66		78
Credit cards		75		88
Total consumer		208		219
Total Allowance for credit losses for TDR Loans	$	223	$	272

(1)	TDR Loans are considered to be impaired loans. For consumer loans, all such loans are considered impaired loans regardless of accrual status. For commercial loans, impaired loans include other loans in addition to TDRs which totaled $675 million and $698 million at June 30, 2011 and December 31, 2010, respectively.
(2)	The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. The following table reflects the unpaid principal balance of TDR Loans:

	June 30,		December 31,
	2011		2010
	(in millions)
Commercial loans:
Construction and other real estate	$	278	$	335
Business banking and middle market enterprises		99		96
Large corporate		-		-
Other commercial		59		60
Total commercial		436		491
Consumer loans:
Residential mortgages		545		431
Private label cards		187		227
Credit cards		243		276
Total consumer		975		934
Total	$	1,411	$	1,425

(3)	Includes balances of $221 million and $255 million at June 30, 2011 and December 31, 2010, respectively, which are classified as nonaccrual loans.
(4)	Included in the allowance for credit losses.

Additional information relating to TDR Loans is presented in the table below.

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2011		2010		2011		2010
			(In millions)
Average balance of TDR Loans
Commercial loans:
Construction and other real estate	$	268	$	188	$	285	$	159
Business banking and middle market enterprises		56		61		58		42
Large corporate		-		-		-		-
Other commercial		57		61		57		61
Total commercial		381		310		400		262
Consumer loans:
Residential mortgages		477		270		455		232
Private label cards		199		233		209		228
Credit cards		230		153		234		134
Auto finance(1)		-		46		-		49
Total consumer		906		702		898		643
Total average balance of TDR Loans	$	1,287	$	1,012	$	1,298	$	905
Interest income recognized on TDR Loans
Commercial loans:
Construction and other real estate	$	1	$	-	$	3	$	1
Business banking and middle market enterprises		-		-		-		-
Large corporate		-		-		-		-
Other commercial		2		1		3		2
Total commercial		3		1		6		3
Consumer loans:
Residential mortgages		5		3		8		5
Private label cards		5		8		11		14
Credit cards		3		4		7		7
Auto finance(1)		-		1		-		2
Total consumer		13		16		26		28
Total interest income recognized on TDR Loans	$	16	$	17	$	32	$	31

⁽¹⁾ In August 2010, we sold auto finance loans with an outstanding principal balance of $1.2 billion at date of sale, and other related assets to Santander Consumer USA (“SC USA”).

Impaired commercial loans Impaired commercial loan statistics are summarized in the following table:

			Amount
	Amount with		without		Total Impaired
	Impairment		Impairment		Commercial		Impairment
	Reserves		Reserves		Loans(1)(2)		Reserve
	(in millions)
At June 30, 2011
Construction and other real estate	$	333	$	365	$	698	$	109
Business banking and middle market enterprises		83		73		156		17
Large corporate		74		-		74		71
Other commercial		19		82		101		4
Total	$	509	$	520	$	1,029	$	201
At December 31, 2010
Construction and other real estate	$	378	$	377	$	755	$	84
Business banking and middle market enterprises		113		39		152		26
Large corporate		103		2		105		72
Other commercial		26		89		115		6
Total	$	620	$	507	$	1,127	$	188

⁽¹⁾ Includes impaired commercial loans which are also considered TDR Loans as follows:

	June 30,		December 31,
	2011		2010
	(in millions)
Construction and other real estate	$	243	$	308
Business banking and middle market enterprises		55		64
Large corporate		-		-
Other commercial		56		57
Total	$	354	$	429

⁽²⁾ The impaired commercial loan balances included in the table above reflect the current carrying amount of the loan and includes all basis adjustments, such as unamortized deferred fees and costs on originated loans and any premiums or discounts. The unpaid principal balance of impaired commercial loans included in the table above are as follows:

	June 30,		December 31,
	2011		2010
	(in millions)
Construction and other real estate	$	733	$	782
Business banking and middle market enterprises		200		184
Large corporate		74		105
Other commercial		104		118
Total	$	1,111	$	1,189

The following table presents information about average impaired commercial loan balances and interest income recognized on the impaired commercial loans:

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2011		2010		2011		2010
			(in millions)
Average balance of impaired commercial loans:
Construction and other real estate	$	759	$	683	$	757	$	687
Business banking and middle market enterprises		161		154		158		151
Large corporate		74		165		84		258
Other commercial		103		150		107		182
Total average balance of impaired commercial loans	$	1,097	$	1,152	$	1,106	$	1,278
Interest income recognized on impaired commercial loans:
Construction and other real estate	$	2	$	1	$	4	$	2
Business banking and middle market enterprises		1		1		2		3
Large corporate		-		3		-		6
Other commercial		1		-		1		1
Total interest income recognized on impaired commercial loans	$	4	$	5	$	7	$	12

Commercial Loan Credit Quality Indicators The following credit quality indicators are monitored for our commercial loan portfolio:

Criticized asset classifications These classifications are based on the risk rating standards of our primary regulator. Problem loans are assigned various criticized facility grades. We also assign obligor grades which are used under our allowance for credit losses methodology. Criticized assets for commercial loans are summarized in the following table:

	Special Mention		Substandard		Doubtful		Total
			(in millions)
At June 30, 2011
Construction and other real estate	$	1,301	$	1,156	$	171	$	2,628
Business banking and middle market enterprises		371		367		-		738
Large corporate		127		353		74		554
Other commercial		58		131		4		193
Total	$	1,857	$	2,007	$	249	$	4,113
At December 31, 2010
Construction and other real estate	$	1,324	$	1,230	$	115	$	2,669
Business banking and middle market enterprises		465		504		5		974
Large corporate		260		386		74		720
Other commercial		235		140		8		383
Total	$	2,284	$	2,260	$	202	$	4,746

Nonperforming The status of our commercial loan portfolio is summarized in the following table:

					Accruing Loans
	Performing		Nonaccrual		Contractually Past
	Loans		Loans		Due 90 days or More		Total
			(in millions)
At June 30, 2011
Commercial:
Construction and other real estate	$	7,265	$	573	$	53	$	7,891
Business banking and middle market enterprise		8,128		84		30		8,242
Large corporate		10,529		74		-		10,603
Other commercial		3,356		11		14		3,381
Total commercial	$	29,278	$	742	$	97	$	30,117
At December 31, 2010
Commercial:
Construction and other real estate	$	7,492	$	599	$	137	$	8,228
Business banking and middle market enterprise		7,782		116		47		7,945
Large corporate		10,671		74		-		10,745
Other commercial		3,332		12		12		3,356
Total commercial	$	29,277	$	801	$	196	$	30,274

Credit risk profile The following table shows the credit risk profile of our commercial loan portfolio:

	Investment Grade(1)		Non-Investment Grade		Total
	(in millions)
At June 30, 2011
Construction and other real estate	$	2,456	$	5,435	$	7,891
Business banking and middle market enterprises		3,425		4,817		8,242
Large corporate		7,594		3,009		10,603
Other commercial		999		2,382		3,381
Total commercial	$	14,474	$	15,643	$	30,117
At December 31, 2010
Construction and other real estate	$	1,900	$	6,328	$	8,228
Business banking and middle market enterprises		2,866		5,079		7,945
Large corporate		6,808		3,937		10,745
Other commercial		855		2,501		3,356
Total commercial	$	12,429	$	17,845	$	30,274

⁽¹⁾ Investment grade includes commercial loans with credit ratings of at least BBB- or above or the equivalent based on our internal credit rating system.

Consumer Loan Credit Quality Indicators The following credit quality indicators are monitored for our consumer loan portfolio:

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total loans and loans held for sale (“delinquency ratio”) for our consumer loan portfolio:

	June 30, 2011					December 31, 2010
	Dollars of		Delinquency			Dollars of		Delinquency
	Delinquency		Ratio			Delinquency		Ratio
			(dollars are in millions)
Consumer:
Residential mortgage, excluding home equity mortgages(1)	$	1,182		8.08	%	$	1,248		8.52	%
Home equity mortgages		168		4.66			182		4.76
Total residential mortgages		1,350		7.40			1,430		7.74
Private label card receivables		285		2.44			403		3.03
Credit card receivables		217		2.21			339		3.13
Other consumer		33		3.05			36		2.88
Total consumer	$	1,885		4.62	%	$	2,208		5.04	%

⁽¹⁾ At June 30, 2011 and December 31, 2010, residential mortgage loan delinquency includes $748 million and $852 million, respectively, of loans that are carried at the lower of cost or net realizable value less cost to sell.

Nonperforming The status of our consumer loan portfolio is summarized in the following table:

					Accruing Loans
	Performing		Nonaccrual		Contractually Past
	Loans		Loans		Due 90 days or More		Total
			(in millions)
At June 30, 2011
Consumer:
Residential mortgage, excluding home equity mortgages	$	13,245	$	855	$	-	$	14,100
Home equity mortgages		3,514		93		-		3,607
Total residential mortgages		16,759		948		-		17,707
Private label card receivables		11,469		-		196		11,665
Credit card receivables		9,686		-		154		9,840
Other consumer		975		8		25		1,008
Total consumer	$	38,889	$	956	$	375	$	40,220
At December 31, 2010
Consumer:
Residential mortgage, excluding home equity mortgages	$	12,797	$	900	$	-	$	13,697
Home equity mortgages		3,727		93		-		3,820
Total residential mortgages		16,524		993		-		17,517
Private label card receivables		13,001		-		295		13,296
Credit card receivables		10,561		-		250		10,811
Other consumer		1,137		9		25		1,171
Total consumer	$	41,223	$	1,002	$	570	$	42,795

Troubled debt restructurings See discussion of impaired loans above for further details on this credit quality indicator.

Concentrations of Credit Risk Our loan portfolio includes the following types of loans:

•  High loan-to-value (“LTV”) loans – Certain residential mortgages on primary residences with LTV ratios equal to or exceeding 90 percent at the time of origination and no mortgage insurance, which could result in the potential inability to recover the entire investment in loans involving foreclosed or damaged properties.

•  Interest-only loans – A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer’s financial position could affect the ability of customers to repay the loan in the future when the principal payments are required.

•  Adjustable rate mortgage (“ARM”) loans – A loan which allows us to adjust pricing on the loan in line with market movements. A customer’s financial situation and the general interest rate environment at the time of the interest rate reset could affect the customer’s ability to repay or refinance the loan after the adjustment.

The following table summarizes the balances of high LTV, interest-only and ARM loans in our loan portfolios, including certain loans held for sale, at June 30, 2011 and December 31, 2010, respectively.

	June 30,		December 31,
	2011		2010
	(in billions)
Residential mortgage loans with high LTV and no mortgage insurance(1)	$	1.1	$	1.2
Interest-only residential mortgage loans		3.7		3.6
ARM loans(2)		8.2		8.0

(1)	Residential mortgage loans with high LTV and no mortgage insurance includes both fixed rate and adjustable rate mortgages. Excludes $90 million and $125 million of sub-prime residential mortgage loans held for sale at June 30, 2011 and December 31, 2010, respectively.
(2)	ARM loan balances above exclude $37 million and $99 million of sub-prime residential mortgage loans held for sale at June 30, 2011 and December 31, 2010, respectively. During the remainder of 2011 and during 2012, approximately $212 million and $368 million, respectively, of these ARM loans will experience their first interest rate reset.

Concentrations of first and second liens within the outstanding residential mortgage loan portfolio are summarized in the following table. Amounts in the table exclude closed end first lien loans held for sale of $529 million and $1.0 billion at June 30, 2011 and December 31, 2010, respectively.

	June 30,		December 31,
	2011		2010
	(in millions)
Closed end:
First lien	$	14,100	$	13,697
Second lien		385		437
Revolving:
Second lien		3,222		3,383
Total	$	17,707	$	17,517