Purchased Impaired Loans

9 Months Ended

Sep. 30, 2011

Purchased Impaired Loans Disclosure

Purchased Impaired Loans

Note 6Purchased Impaired Loans

As further described in Note 6 of the 2010 Form 10-K, at December 31, 2008, we identified certain loans related to the National City acquisition, for which there was evidence of credit quality deterioration since origination and it was probable that we would be unable to collect all contractually required principal and interest payments. GAAP requires these loans to be recorded at fair value at acquisition date and prohibits the “carrying over” or the creation of valuation allowances in the initial accounting for such loans acquired in a transfer.

Purchased Impaired Loans
	September 30, 2011					December 31, 2010
		Recorded		Outstanding		Recorded		Outstanding
In millions		Investment		Balance		Investment		Balance
Commercial		$	162	$	282	$	249	$	408
Commercial real estate			795		869		1,153		1,391
Consumer			2,810		3,568		3,024		4,121
Residential real estate			3,160		3,228		3,354		3,803
Total		$	6,927	$	7,947	$	7,780	$	9,723

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the constant effective yield method. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. Changes in the expected cash flows of individual or pooled purchased impaired loans from the date of acquisition will either impact the accretable yield or result in an impairment charge to the provision for credit losses in the period in which the changes become probable.

Subsequent decreases to the net present value of expected cash flows will generally result in an impairment charge to the provision for credit losses, resulting in an increase to the allowance for loan and lease losses, and a reclassification from accretable yield to nonaccretable difference. Subsequent increases to the net present value of expected cash flows will generally result in a recapture of any previously recorded allowance for loan and lease losses, to the extent applicable, and/or a reclassification from nonaccretable difference to accretable yield, which is recognized prospectively. Other items affecting the accretable yield may include adjustments to the expected cash flows to be collected from contractual interest rate changes on variable rate notes, and changes in prepayment assumptions. Disposals of loans, which may include sales of loans or foreclosures, result in removal of the loan from the purchased impaired loan portfolio at its carrying amount.

During the firstnine months of 2011, $216 million of provision and $127 million of charge-offs were recorded on purchased impaired loans. As of September 30, 2011, decreases in the net present value of expected cash flows from the date of acquisition of purchased impaired loans resulted in an allowance for loan and lease losses of $986 million on $6.6 billion of the impaired loans while the remaining $.3 billion of impaired loans required no allowance as net present value of expected cash flows improved or remained the same.

Activity for the accretable yield for the first nine months of 2011 follows.

Accretable Yield
In millions	2011
January 1	$	2,185
Accretion (including excess cash recoveries)		(705)
Net reclassifications to accretable from non-accretable		849
Disposals		(54)
September 30	$	2,275