NOTE 4—LOANS

Loan Portfolio Composition

Our loan portfolio consists of loans held for investment, including restricted loans underlying our consolidated securitization trusts, and loans held for sale, and is divided into three portfolio segments: credit card, consumer banking and commercial banking loans. Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto, home and retail banking loans. Commercial banking loans consist of commercial and multifamily real estate, commercial and industrial and small-ticket commercial real estate loans.

Loans Acquired in Business Acquisitions

Acquired Loans Accounted for Based on Expected Cash Flows

Our portfolio of loans held for investment includes loans acquired in the Chevy Chase Bank (“CCB”), ING Direct and 2012 U.S. card acquisitions. These loans were recorded at fair value at the date of each acquisition.

Acquired Loans accounted for based on expected cash flows to be collected was $24.7 billion as of September 30, 2014, compared with $28.6 billion as of December 31, 2013.

We regularly update our estimate of expected principal and interest to be collected from these loans and evaluate the results for each accounting pool that was established at acquisition based on loans with common risk characteristics. Probable decreases in expected cash flows would trigger the recognition of a loan loss through our provision for credit losses. Probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan and lease losses established subsequent to acquisition, with any remaining increase in expected cash flows recognized prospectively in interest income over the remaining estimated life of the underlying loans.

Loans Purchased and Accounted for Based on Contractual Cash Flows

The substantial majority of the loans purchased in the 2012 U.S. card acquisition had existing revolving privileges, therefore they were excluded from the Acquired Loans above and accounted for based on contractual cash flows at acquisition. After the acquisition date, these loans were accounted for using the same methodology utilized for our existing credit card portfolio prior to the 2012 U.S. card acquisition. See “Note 1—Summary of Significant Accounting Policies” in our 2013 Form 10-K for additional information on accounting guidance for these loans.

Credit Quality

We closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. Trends in delinquency ratios are an indicator, among other considerations, of credit risk within our loan portfolio. The level of nonperforming loans represents another indicator of the potential for future credit losses. Accordingly, key metrics we track and use in evaluating the credit quality of our loan portfolio include delinquency and nonperforming loan rates, as well as net charge-off rates and our internal risk ratings of larger balance commercial loans.

Table 4.1 below presents the composition and an aging analysis of our loans held for investment portfolio, which includes restricted loans for securitization investors, as of September 30, 2014 and December 31, 2013. The delinquency aging includes all past due loans, both performing and nonperforming.

Table 4.1: Loan Portfolio Composition and Aging Analysis



	September 30, 2014
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			Acquired Loans			Total Loans
Credit Card:
Domestic credit card⁽¹⁾	$	70,768		$	781		$	533		$	1,033		$	2,347		$	28		$	73,143
International credit card	7,182			118			74			114			306			0			7,488
Total credit card	77,950			899			607			1,147			2,653			28			80,631
Consumer Banking:
Auto	33,849			1,557			670			177			2,404			1			36,254
Home loan	6,527			48			25			204			277			24,399			31,203
Retail banking	3,526			15			7			9			31			47			3,604
Total consumer banking	43,902			1,620			702			390			2,712			24,447			71,061
Commercial Banking:⁽²⁾
Commercial and multifamily real estate	22,769			11			12			40			63			63			22,895
Commercial and industrial	25,818			44			12			50			106			147			26,071
Total commercial lending	48,587			55			24			90			169			210			48,966
Small-ticket commercial real estate	814			5			2			1			8			0			822
Total commercial banking	49,401			60			26			91			177			210			49,788
Other:
Other loans	98			3			2			9			14			0			112
Total loans	$	171,351		$	2,582		$	1,337		$	1,637		$	5,556		$	24,685		$	201,592
% of Total loans	85.00		%	1.28		%	0.67		%	0.81		%	2.76		%	12.24		%	100.00		%



	December 31, 2013
(Dollars in millions)	Current			30-59 Days			60-89 Days			> 90 Days			Total Delinquent Loans			Acquired Loans			Total Loans
Credit Card:
Domestic credit card⁽¹⁾	$	70,678		$	778		$	549		$	1,187		$	2,514		$	63		$	73,255
International credit card	7,683			141			85			141			367			0			8,050
Total credit card	78,361			919			634			1,328			2,881			63			81,305
Consumer Banking:
Auto	29,477			1,519			662			194			2,375			5			31,857
Home loan	6,775			60			24			239			323			28,184			35,282
Retail banking	3,535			21			8			23			52			36			3,623
Total consumer banking	39,787			1,600			694			456			2,750			28,225			70,762
Commercial Banking:⁽²⁾
Commercial and multifamily real estate	20,602			17			11			36			64			84			20,750
Commercial and industrial	23,023			69			1			38			108			178			23,309
Total commercial lending	43,625			86			12			74			172			262			44,059
Small-ticket commercial real estate	941			8			2			1			11			0			952
Total commercial banking	44,566			94			14			75			183			262			45,011
Other:
Other loans	102			4			2			13			19			0			121
Total loans	$	162,816		$	2,617		$	1,344		$	1,872		$	5,833		$	28,550		$	197,199
% of Total loans	82.56		%	1.33		%	0.68		%	0.95		%	2.96		%	14.48		%	100.00		%

__________


⁽¹⁾	Includes installment loans of $171 million and $323 million as of September 30, 2014 and December 31, 2013, respectively.


⁽²⁾	Includes construction loans and land development loans totaling $2.2 billion and $2.0 billion as of September 30, 2014 and December 31, 2013, respectively.

We had total loans held for sale of $427 million and $218 million as of September 30, 2014 and December 31, 2013, respectively.

Table 4.2 presents loans 90 days or more past due that continue to accrue interest and loans classified as nonperforming as of September 30, 2014 and December 31, 2013.

Table 4.2: 90+ Day Delinquent Loans Accruing Interest and Nonperforming Loans⁽¹⁾



	September 30, 2014						December 31, 2013
(Dollars in millions)	> 90 Days and Accruing			Nonperforming Loans			> 90 Days and Accruing			Nonperforming Loans
Credit Card:
Domestic credit card	$	1,033		$	0		$	1,187		$	0
International credit card	76			74			96			88
Total credit card	1,109			74			1,283			88
Consumer Banking:
Auto	0			177			0			194
Home loan	0			325			0			376
Retail banking	1			19			2			41
Total consumer banking	1			521			2			611
Commercial Banking:
Commercial and multifamily real estate	4			60			2			52
Commercial and industrial	2			97			4			93
Total commercial lending	6			157			6			145
Small-ticket commercial real estate	0			4			0			4
Total commercial banking	6			161			6			149
Other:
Other loans	0			16			0			19
Total	$	1,116		$	772		$	1,291		$	867
% of Total loans	0.55		%	0.38		%	0.65		%	0.44		%

__________


⁽¹⁾	Nonperforming loans generally include loans that have been placed on nonaccrual status. Acquired Loans are excluded from loans reported as 90 days and accruing interest as well as nonperforming loans.

Credit Card

Our credit card loan portfolio is generally highly diversified across millions of accounts and numerous geographies without significant individual exposure. We therefore generally manage credit risk on a portfolio basis. The risk in our credit card portfolio correlates to broad economic trends, such as unemployment rates, gross domestic product (“GDP”), and home values, as well as customer liquidity, which can have a material effect on credit performance. The primary factors we assess in monitoring the credit quality and risk of our credit card portfolio are delinquency and charge-off trends, including an analysis of the migration of loans between delinquency categories over time.

The table below displays the geographic profile of our credit card loan portfolio and delinquency statistics as of September 30, 2014 and December 31, 2013. We also present the delinquency rates of our credit card loan portfolio and comparative net charge-offs for the three and nine months ended September 30, 2014 and 2013.

Table 4.3: Credit Card: Risk Profile by Geographic Region and Delinquency Status



	September 30, 2014
(Dollars in millions)	Loans		% of Total⁽¹⁾		Acquired Loans		% of Total⁽¹⁾		Total		% of Total⁽¹⁾
Domestic credit card:
California	$	8,039	10.0	%	$	3	0.0	%	$	8,042	10.0	%
New York	5,292		6.6		3		0.0		5,295		6.6
Texas	5,059		6.3		2		0.0		5,061		6.3
Florida	4,443		5.5		2		0.0		4,445		5.5
Illinois	3,536		4.4		1		0.0		3,537		4.4
Pennsylvania	3,338		4.1		2		0.0		3,340		4.1
Ohio	2,879		3.6		1		0.0		2,880		3.6
New Jersey	2,696		3.3		1		0.0		2,697		3.3
Michigan	2,538		3.1		1		0.0		2,539		3.1
Other	35,295		43.8		12		0.0		35,307		43.8
Total domestic credit card	73,115		90.7		28		0.0		73,143		90.7
International credit card:
Canada	4,039		5.0		0		0.0		4,039		5.0
United Kingdom	3,449		4.3		0		0.0		3,449		4.3
Total international credit card	7,488		9.3		0		0.0		7,488		9.3
Total credit card	$	80,603	100.0	%	$	28	0.0	%	$	80,631	100.0	%



	December 31, 2013
(Dollars in millions)	Loans		% of Total⁽¹⁾		Acquired Loans		% of Total⁽¹⁾		Total		% of Total⁽¹⁾
Domestic credit card:
California	$	7,934	9.8	%	$	6	0.0	%	$	7,940	9.8	%
New York	5,271		6.5		6		0.0		5,277		6.5
Texas	4,989		6.1		4		0.0		4,993		6.1
Florida	4,321		5.3		4		0.0		4,325		5.3
Illinois	3,600		4.4		3		0.0		3,603		4.4
Pennsylvania	3,439		4.2		3		0.0		3,442		4.2
Ohio	2,963		3.6		2		0.0		2,965		3.6
New Jersey	2,734		3.4		2		0.0		2,736		3.4
Michigan	2,593		3.2		2		0.0		2,595		3.2
Other	35,348		43.5		31		0.1		35,379		43.6
Total domestic credit card	73,192		90.0		63		0.1		73,255		90.1
International credit card:
Canada	4,503		5.5		0		0.0		4,503		5.5
United Kingdom	3,547		4.4		0		0.0		3,547		4.4
Total international credit card	8,050		9.9		0		0.0		8,050		9.9
Total credit card	$	81,242	99.9	%	$	63	0.1	%	$	81,305	100.0	%



	September 30, 2014				December 31, 2013
(Dollars in millions)	Total		% of Total⁽²⁾		Total		% of Total⁽²⁾
Selected credit metrics:
30+ day delinquencies	$	2,653	3.29	%	$	2,881	3.54	%
90+ day delinquencies	1,147		1.42		1,328		1.63

__________


⁽¹⁾	Percentages by geographic region within the domestic and international credit card portfolios are calculated based on the total held for investment credit card loans as of the end of the reported period.


⁽²⁾	Calculated by dividing delinquent credit card loans by the total balance of credit card loans held for investment as of the end of the reported period.

Table 4.4: Credit Card: Net Charge-offs



	Three Months Ended September 30,								Nine Months Ended September 30,
	2014				2013				2014				2013
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Net charge-offs:
Domestic credit card	$	508	2.83	%	$	642	3.67	%	$	1,818	3.45	%	$	2,218	4.14	%
International credit card	64		3.32		92		4.71		219		3.81		288		4.79
Total credit card	$	572	2.88		$	734	3.78		$	2,037	3.48		$	2,506	4.20

__________


⁽¹⁾	Calculated for each loan category by dividing annualized net charge-offs for the period by average loans held for investment during the period.

Consumer Banking

Our consumer banking loan portfolio consists of auto, home loan and retail banking loans. Similar to our credit card loan portfolio, the risk in our consumer banking loan portfolio correlates to broad economic trends, such as unemployment rates, GDP, and home values, as well as customer liquidity, all of which can have a material effect on credit performance. Delinquency, nonperforming loans and charge-off trends are key factors we assess in monitoring the credit quality and risk of our consumer banking loan portfolio.

The table below displays the geographic profile of our consumer banking loan portfolio. We also present the delinquency and nonperforming loan rates of our consumer banking loan portfolio, excluding Acquired Loans’ impact, as of September 30, 2014 and December 31, 2013, and net charge-offs for the three and nine months ended September 30, 2014 and 2013.

Table 4.5: Consumer Banking: Risk Profile by Geographic Region, Delinquency Status and Performing Status



	September 30, 2014
	Loans				Acquired Loans				Total
(Dollars in millions)	Loans		% of Total⁽¹⁾		Loans		% of Total⁽¹⁾		Loans		% of Total⁽¹⁾
Auto:
Texas	$	5,119	7.2	%	$	0	0.0	%	$	5,119	7.2	%
California	3,902		5.5		0		0.0		3,902		5.5
Florida	2,532		3.6		0		0.0		2,532		3.6
Georgia	1,977		2.8		0		0.0		1,977		2.8
Louisiana	1,735		2.4		0		0.0		1,735		2.4
Illinois	1,574		2.2		0		0.0		1,574		2.2
Ohio	1,505		2.1		0		0.0		1,505		2.1
Other	17,909		25.2		1		0.0		17,910		25.2
Total auto	36,253		51.0		1		0.0		36,254		51.0
Home loan:
California	945		1.4		6,270		8.8		7,215		10.2
New York	1,389		1.9		1,117		1.6		2,506		3.5
Illinois	89		0.2		1,873		2.6		1,962		2.8
Maryland	438		0.6		1,324		1.9		1,762		2.5
New Jersey	344		0.5		1,250		1.7		1,594		2.2
Virginia	373		0.5		1,205		1.7		1,578		2.2
Florida	165		0.2		1,276		1.8		1,441		2.0
Other	3,061		4.3		10,084		14.2		13,145		18.5
Total home loan	6,804		9.6		24,399		34.3		31,203		43.9
Retail banking:
Louisiana	1,161		1.6		0		0.0		1,161		1.6
New York	868		1.2		0		0.0		868		1.2
Texas	761		1.1		0		0.0		761		1.1
New Jersey	252		0.4		0		0.0		252		0.4
Maryland	142		0.2		22		0.0		164		0.2
Virginia	114		0.2		19		0.0		133		0.2
California	50		0.1		0		0.0		50		0.1
Other	209		0.3		6		0.0		215		0.3
Total retail banking	3,557		5.1		47		0.0		3,604		5.1
Total consumer banking	$	46,614	65.7	%	$	24,447	34.3	%	$	71,061	100.0	%



	September 30, 2014
	Auto				Home Loan				Retail Banking				Total Consumer Banking
(Dollars in millions)	Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾
Credit performance:
30+ day delinquencies	$	2,404	6.63	%	$	277	4.07	%	$	31	0.86	%	$	2,712	5.82	%
90+ day delinquencies	177		0.49		204		3.01		9		0.24		390		0.84
Nonperforming loans	177		0.49		325		4.77		19		0.55		521		1.12



	December 31, 2013
	Loans				Acquired Loans				Total
(Dollars in millions)	Loans		% of Total⁽¹⁾		Loans		% of Total⁽¹⁾		Loans		% of Total⁽¹⁾
Auto:
Texas	$	4,736	6.7	%	$	0	0.0	%	$	4,736	6.7	%
California	3,297		4.7		0		0.0		3,297		4.7
Florida	2,076		2.9		0		0.0		2,076		2.9
Georgia	1,709		2.4		0		0.0		1,709		2.4
Louisiana	1,677		2.4		0		0.0		1,677		2.4
Illinois	1,291		1.8		0		0.0		1,291		1.8
Ohio	1,267		1.8		0		0.0		1,267		1.8
Other	15,799		22.3		5		0.0		15,804		22.3
Total auto	31,852		45.0		5		0.0		31,857		45.0
Home loan:
California	1,010		1.5		7,153		10.1		8,163		11.6
New York	1,502		2.1		1,265		1.8		2,767		3.9
Illinois	88		0.1		2,183		3.1		2,271		3.2
Maryland	418		0.6		1,495		2.1		1,913		2.7
New Jersey	362		0.5		1,409		2.0		1,771		2.5
Virginia	351		0.5		1,367		1.9		1,718		2.4
Florida	177		0.3		1,477		2.1		1,654		2.4
Other	3,190		4.5		11,835		16.7		15,025		21.2
Total home loan	7,098		10.1		28,184		39.8		35,282		49.9
Retail banking:
Louisiana	1,234		1.7		0		0.0		1,234		1.7
New York	859		1.2		0		0.0		859		1.2
Texas	772		1.1		0		0.0		772		1.1
New Jersey	280		0.4		0		0.0		280		0.4
Maryland	125		0.1		17		0.1		142		0.2
Virginia	96		0.1		12		0.0		108		0.1
California	37		0.1		0		0.0		37		0.1
Other	184		0.3		7		0.0		191		0.3
Total retail banking	3,587		5.0		36		0.1		3,623		5.1
Total consumer banking	$	42,537	60.1	%	$	28,225	39.9	%	$	70,762	100.0	%



	December 31, 2013
	Auto				Home Loan				Retail Banking				Total Consumer Banking
(Dollars in millions)	Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾		Amount		Adjusted Rate⁽²⁾
Credit performance:
30+ day delinquencies	$	2,375	7.46	%	$	323	4.55	%	$	52	1.46	%	$	2,750	6.47	%
90+ day delinquencies	194		0.61		239		3.37		23		0.66		456		1.07
Nonperforming loans	194		0.61		376		5.29		41		1.15		611		1.44

__________


⁽¹⁾	Percentages by geographic region are calculated based on the total held-for-investment consumer banking loans as of the end of the reported period.


⁽²⁾	Credit performance statistics exclude Acquired Loans, which were recorded at fair value at acquisition.

Table 4.6: Consumer Banking: Net Charge-offs



	Three Months Ended September 30,								Nine Months Ended September 30,
	2014				2013				2014				2013
(Dollars in millions)	Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾		Amount		Rate⁽¹⁾
Net charge-offs:
Auto	$	176	1.98	%	$	152	2.01	%	$	421	1.65	%	$	366	1.69	%
Home loan	2		0.02		5		0.06		12		0.05		13		0.04
Retail banking	12		1.36		13		1.38		27		1.00		44		1.58
Total consumer banking	$	190	1.07		$	170	0.95		$	460	0.87		$	423	0.77

__________

(1)Calculated for each loan category by dividing annualized net charge-offs for the period by average loans held for investment during the period.

Home Loan

Our home loan portfolio consists of both first-lien and second-lien residential mortgage loans. In evaluating the credit quality and risk of our home loan portfolio, we continually monitor a variety of mortgage loan characteristics that may affect the default experience on our overall home loan portfolio, such as vintage, geographic concentrations, lien priority and product type. Certain loan concentrations have experienced higher delinquency rates as a result of the significant decline in home prices since the peak in 2006 and the rise in unemployment. These loan concentrations include loans originated between 2006 and 2008 in an environment of decreasing home sales, broadly declining home prices and more relaxed underwriting standards.

The following table presents the distribution of our home loan portfolio as of September 30, 2014 and December 31, 2013, based on selected key risk characteristics.

Table 4.7: Home Loan: Risk Profile by Vintage, Geography, Lien Priority and Interest Rate Type



	September 30, 2014
	Loans				Acquired Loans				Total Home Loans
(Dollars in millions)	Amount		% of Total⁽¹⁾		Amount		% of Total⁽¹⁾		Amount		% of Total⁽¹⁾
Origination year:⁽²⁾
< = 2005	$	2,475	7.9	%	$	3,615	11.6	%	$	6,090	19.5	%
2006	465		1.5		2,317		7.4		2,782		8.9
2007	329		1.1		4,889		15.6		5,218		16.7
2008	191		0.6		3,655		11.7		3,846		12.3
2009	109		0.3		2,139		6.9		2,248		7.2
2010	123		0.4		3,355		10.8		3,478		11.2
2011	230		0.7		3,745		12.0		3,975		12.7
2012	1,689		5.4		570		1.8		2,259		7.2
2013	676		2.2		87		0.3		763		2.5
2014	517		1.7		27		0.1		544		1.8
Total	$	6,804	21.8	%	$	24,399	78.2	%	$	31,203	100.0	%
Geographic concentration:⁽³⁾
California	$	945	3.0	%	$	6,270	20.1	%	$	7,215	23.1	%
New York	1,389		4.5		1,117		3.6		2,506		8.1
Illinois	89		0.3		1,873		6.0		1,962		6.3
Maryland	438		1.4		1,324		4.2		1,762		5.6
New Jersey	344		1.1		1,250		4.0		1,594		5.1
Virginia	373		1.2		1,205		3.9		1,578		5.1
Florida	165		0.5		1,276		4.1		1,441		4.6
Arizona	90		0.3		1,265		4.1		1,355		4.4
Louisiana	1,203		3.8		40		0.1		1,243		3.9
Washington	101		0.4		1,102		3.5		1,203		3.9
Other	1,667		5.3		7,677		24.6		9,344		29.9
Total	$	6,804	21.8	%	$	24,399	78.2	%	$	31,203	100.0	%
Lien type:
1^st lien	$	5,762	18.5	%	$	24,026	77.0	%	$	29,788	95.5	%
2^nd lien	1,042		3.3		373		1.2		1,415		4.5
Total	$	6,804	21.8	%	$	24,399	78.2	%	$	31,203	100.0	%
Interest rate type:
Fixed rate	$	2,440	7.8	%	$	2,994	9.6	%	$	5,434	17.4	%
Adjustable rate	4,364		14.0		21,405		68.6		25,769		82.6
Total	$	6,804	21.8	%	$	24,399	78.2	%	$	31,203	100.0	%



	December 31, 2013
	Loans				Acquired Loans				Total Home Loans
(Dollars in millions)	Amount		% of Total⁽¹⁾		Amount		% of Total⁽¹⁾		Amount		% of Total⁽¹⁾
Origination year:⁽²⁾
< = 2005	$	2,868	8.1	%	$	4,025	11.4	%	$	6,893	19.5	%
2006	521		1.5		2,465		7.0		2,986		8.5
2007	363		1.0		5,276		14.9		5,639		15.9
2008	212		0.6		4,084		11.6		4,296		12.2
2009	129		0.4		2,531		7.2		2,660		7.6
2010	142		0.4		4,251		12.1		4,393		12.5
2011	259		0.7		4,655		13.2		4,914		13.9
2012	1,918		5.4		805		2.3		2,723		7.7
2013	686		2.0		92		0.2		778		2.2
Total	$	7,098	20.1	%	$	28,184	79.9	%	$	35,282	100.0	%
Geographic concentration:⁽³⁾
California	$	1,010	2.9	%	$	7,153	20.3	%	$	8,163	23.2	%
New York	1,502		4.2		1,265		3.6		2,767		7.8
Illinois	88		0.2		2,183		6.2		2,271		6.4
Maryland	418		1.2		1,495		4.2		1,913		5.4
New Jersey	362		1.0		1,409		4.0		1,771		5.0
Virginia	351		1.0		1,367		3.9		1,718		4.9
Florida	177		0.5		1,477		4.2		1,654		4.7
Arizona	91		0.3		1,439		4.1		1,530		4.4
Washington	100		0.3		1,302		3.7		1,402		4.0
Louisiana	1,282		3.6		47		0.1		1,329		3.7
Other	1,717		4.9		9,047		25.6		10,764		30.5
Total	$	7,098	20.1	%	$	28,184	79.9	%	$	35,282	100.0	%
Lien type:
1^st lien	$	6,020	17.1	%	$	27,768	78.7	%	$	33,788	95.8	%
2^nd lien	1,078		3.0		416		1.2		1,494		4.2
Total	$	7,098	20.1	%	$	28,184	79.9	%	$	35,282	100.0	%
Interest rate type:
Fixed rate	$	2,478	7.0	%	$	3,434	9.7	%	$	5,912	16.7	%
Adjustable rate	4,620		13.1		24,750		70.2		29,370		83.3
Total	$	7,098	20.1	%	$	28,184	79.9	%	$	35,282	100.0	%

__________


⁽¹⁾	Percentages within each risk category are calculated based on total home loans held for investment.


⁽²⁾	The Acquired Loans origination balances in the years subsequent to 2012 are related to refinancing of previously acquired home loans.


⁽³⁾	Represents the ten states in which we have the highest concentration of home loans.

Commercial Banking

We evaluate the credit risk of commercial loans individually and use a risk-rating system to determine the credit quality of our commercial loans. We assign internal risk ratings to loans based on relevant information about the ability of borrowers to service their debt. In determining the risk rating of a particular loan, among the factors considered are the borrower’s current financial condition, historical credit performance, projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends. The ratings scale based on our internal risk-rating system is as follows:


•	Noncriticized: Loans that have not been designated as criticized, frequently referred to as “pass” loans.


•	Criticized performing: Loans in which the financial condition of the obligor is stressed, affecting earnings, cash flows or collateral values. The borrower currently has adequate capacity to meet near-term obligations; however, the stress, left unabated, may result in deterioration of the repayment prospects at some future date.

•

Criticized nonperforming: Loans that are not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as criticized nonperforming have a well-defined weakness, or weaknesses, which jeopardize the repayment of the debt. These loans are characterized by the distinct possibility that we will sustain a credit loss if the deficiencies are not corrected and are generally placed on nonaccrual status.

We use our internal risk-rating system for regulatory reporting, determining the frequency of credit exposure reviews, and evaluating and determining the allowance for loan and lease losses for commercial loans. Loans of $1 million or more designated as criticized performing and criticized nonperforming are reviewed quarterly by management for further deterioration or improvement to determine if they are appropriately classified/graded and whether impairment exists. Noncriticized loans greater than $1 million are specifically reviewed, at least annually, to determine the appropriate loan grading. In addition, we evaluate the risk rating during the renewal process of any loan or if a loan becomes past due.

The following table presents the geographic distribution and internal risk ratings of our commercial loan portfolio as of September 30, 2014 and December 31, 2013.

Table 4.8: Commercial Banking: Risk Profile by Geographic Region and Internal Risk Rating



	September 30, 2014
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total⁽¹⁾		Commercial and Industrial		% of Total⁽¹⁾		Small-ticket Commercial Real Estate		% of Total⁽¹⁾		Total Commercial Banking		% of Total⁽¹⁾
Geographic concentration:⁽²⁾
Loans:
Northeast	$	15,188	66.3	%	$	6,458	24.8	%	$	506	61.5	%	$	22,152	44.5	%
Mid-Atlantic	2,356		10.3		1,793		6.9		30		3.6		4,179		8.4
South	3,266		14.3		11,855		45.4		50		6.1		15,171		30.5
Other	2,022		8.8		5,818		22.3		236		28.8		8,076		16.2
Total loans excluding Acquired Loans	22,832		99.7		25,924		99.4		822		100.0		49,578		99.6
Acquired Loans	63		0.3		147		0.6		0		0.0		210		0.4
Total	$	22,895	100.0	%	$	26,071	100.0	%	$	822	100.0	%	$	49,788	100.0	%
Internal risk rating:⁽³⁾
Loans:
Noncriticized	$	22,442	98.0	%	$	24,963	95.8	%	$	814	99.0	%	$	48,219	96.9	%
Criticized performing	330		1.4		864		3.3		4		0.6		1,198		2.4
Criticized nonperforming	60		0.3		97		0.3		4		0.4		161		0.3
Total loans excluding acquired loans	22,832		99.7		25,924		99.4		822		100.0		49,578		99.6
Acquired Loans:
Noncriticized	60		0.3		129		0.5		0		0.0		189		0.4
Criticized performing	3		0.0		18		0.1		0		0.0		21		0.0
Acquired Loans	63		0.3		147		0.6		0		0.0		210		0.4
Total	$	22,895	100.0	%	$	26,071	100.0	%	$	822	100.0	%	$	49,788	100.0	%



	December 31, 2013
(Dollars in millions)	Commercial and Multifamily Real Estate		% of Total⁽¹⁾		Commercial and Industrial		% of Total⁽¹⁾		Small-ticket Commercial Real Estate		% of Total⁽¹⁾		Total Commercial Banking		% of Total⁽¹⁾
Geographic concentration:⁽²⁾
Loans:
Northeast	$	14,543	70.1	%	$	5,800	24.9	%	$	582	61.3	%	$	20,925	46.4	%
Mid-Atlantic	2,130		10.3		1,432		6.1		33		3.4		3,595		8.0
South	2,539		12.2		10,940		46.9		58		6.0		13,537		30.1
Other	1,454		7.0		4,959		21.3		279		29.3		6,692		14.9
Total loans excluding Acquired Loans	20,666		99.6		23,131		99.2		952		100.0		44,749		99.4
Acquired Loans	84		0.4		178		0.8		0		0.0		262		0.6
Total	$	20,750	100.0	%	$	23,309	100.0	%	$	952	100.0	%	$	45,011	100.0	%
Internal risk rating:⁽³⁾
Loans:
Noncriticized	$	20,204	97.4	%	$	22,448	96.3	%	$	941	98.9	%	$	43,593	96.9	%
Criticized performing	409		2.0		590		2.5		8		0.8		1,007		2.2
Criticized nonperforming	53		0.2		93		0.4		3		0.3		149		0.3
Total loans excluding acquired loans	20,666		99.6		23,131		99.2		952		100.0		44,749		99.4
Acquired Loans:
Noncriticized	72		0.3		158		0.7		0		0.0		230		0.5
Criticized performing	12		0.1		20		0.1		0		0.0		32		0.1
Acquired Loans	84		0.4		178		0.8		0		0.0		262		0.6
Total	$	20,750	100.0	%	$	23,309	100.0	%	$	952	100.0	%	$	45,011	100.0	%

__________


⁽¹⁾	Percentages calculated based on total held-for-investment commercial loans in each respective loan category as of the end of the reported period.


⁽²⁾	Northeast consists of CT, ME, MA, NH, NJ, NY, PA and VT. Mid-Atlantic consists of DE, DC, MD, VA and WV. South consists of AL, AR, FL, GA, KY, LA, MS, MO, NC, SC, TN and TX.


⁽³⁾	Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by banking regulatory authorities.

Impaired Loans

The following table presents information about our impaired loans, excluding the impact of Acquired Loans, which is reported separately as of September 30, 2014 and December 31, 2013, and for the three and nine months ended September 30, 2014 and 2013:

Table 4.9: Impaired Loans⁽¹⁾



	September 30, 2014
(Dollars in millions)	With an Allowance		Without an Allowance		Total Recorded Investment		Related Allowance		Net Recorded Investment		Unpaid Principal Balance
Credit Card:
Domestic credit card	$	553	$	0	$	553	$	142	$	411	$	538
International credit card	153		0		153		80		73		147
Total credit card⁽²⁾	706		0		706		222		484		685
Consumer Banking:
Auto⁽³⁾	204		195		399		18		381		648
Home loan	220		140		360		16		344		469
Retail banking	46		5		51		6		45		54
Total consumer banking	470		340		810		40		770		1,171
Commercial Banking:
Commercial and multifamily real estate	166		25		191		21		170		211
Commercial and industrial	119		50		169		11		158		190
Total commercial lending	285		75		360		32		328		401
Small-ticket commercial real estate	1		4		5		0		5		5
Total commercial banking	286		79		365		32		333		406
Total	$	1,462	$	419	$	1,881	$	294	$	1,587	$	2,262



	Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Credit Card:
Domestic credit card	$	558	$	14	$	577	$	44
International credit card	159		3		164		9
Total credit card⁽²⁾	717		17		741		53
Consumer Banking:
Auto⁽³⁾	387		18		375		52
Home loan	382		1		392		4
Retail banking	60		1		74		2
Total consumer banking	829		20		841		58
Commercial Banking:
Commercial and multifamily real estate	196		2		183		5
Commercial and industrial	175		1		177		3
Total commercial lending	371		3		360		8
Small-ticket commercial real estate	9		0		8		0
Total commercial banking	380		3		368		8
Total	$	1,926	$	40	$	1,950	$	119



	December 31, 2013
(Dollars in millions)	With an Allowance		Without an Allowance		Total Recorded Investment		Related Allowance		Net Recorded Investment		Unpaid Principal Balance
Credit Card:
Domestic credit card	$	609	$	0	$	609	$	154	$	455	$	593
International credit card	171		0		171		107		64		164
Total credit card⁽²⁾	780		0		780		261		519		757
Consumer Banking:
Auto⁽³⁾	169		186		355		16		339		590
Home loan	244		150		394		18		376		561
Retail banking	46		40		86		10		76		105
Total consumer banking	459		376		835		44		791		1,256
Commercial Banking:
Commercial and multifamily real estate	89		49		138		13		125		162
Commercial and industrial	94		91		185		12		173		220
Total commercial lending	183		140		323		25		298		382
Small-ticket commercial real estate	2		4		6		0		6		7
Total commercial banking	185		144		329		25		304		389
Total	$	1,424	$	520	$	1,944	$	330	$	1,614	$	2,402



	Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Credit Card:
Domestic credit card	$	627	$	16	$	656	$	50
International credit card	168		3		169		8
Total credit card⁽²⁾	795		19		825		58
Consumer Banking:
Auto⁽³⁾	332		16		330		46
Home loan	211		2		184		5
Retail banking	92		1		94		2
Total consumer banking	635		19		608		53
Commercial Banking:
Commercial and multifamily real estate	195		0		237		0
Commercial and industrial	216		1		227		1
Total commercial lending	411		1		464		1
Small-ticket commercial real estate	14		0		19		0
Total commercial banking	425		1		483		1
Total	$	1,855	$	39	$	1,916	$	112

__________


⁽¹⁾	Impaired loans include troubled debt restructurings (“TDRs”), all commercial NPLs, and home loans NPLs with a specific impairment.


⁽²⁾	Credit card loans include finance charges and fees.


⁽³⁾	Although auto loans from loan recovery inventory are not reported in our loans held for investment, they are included as impaired loans above since they are reported as TDRs.

TDRs accounted for $1.6 billion and $1.7 billion of impaired loans as of September 30, 2014 and December 31, 2013, respectively. Consumer TDRs classified as performing totaled $995 million and $1.1 billion as of September 30, 2014 and December 31, 2013, respectively. Commercial TDRs classified as performing totaled $204 million and $180 million as of September 30, 2014 and December 31, 2013, respectively.

As part of our loan modifications to borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. The following tables present the types, amounts and financial effects of loans modified and accounted for as TDRs during the period:

Table 4.10: Troubled Debt Restructurings



	Total Loans Modified⁽¹⁾		Three Months Ended September 30, 2014
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾⁽³⁾		Average Rate Reduction⁽⁴⁾		% of TDR Activity⁽³⁾⁽⁵⁾		Average Term Extension (Months)⁽⁶⁾	% of TDR Activity⁽³⁾⁽⁷⁾		Gross Balance Reduction⁽⁸⁾
Credit Card:
Domestic credit card	$	68	100	%	11.52	%	0	%	0	0	%	$	0
International credit card	35		100		25.41		0		0	0		0
Total credit card	103		100		16.12		0		0	0		0
Consumer Banking:
Auto	88		40		1.70		64		9	35		28
Home loan	10		41		3.33		52		150	2		0
Retail banking	1		17		6.42		88		3	0		0
Total consumer banking	99		40		1.88		63		21	31		28
Commercial Banking:
Commercial and multifamily real estate	1		0		0.00		0		0	0		0
Commercial and industrial	3		96		0.85		100		7	11		0
Total commercial lending	4		71		0.85		74		7	8		0
Small-ticket commercial real estate	0		0		0.00		0		0	0		0
Total commercial banking	4		71		0.85		74		7	8		0
Total	$	206	70		11.94		32		20	15		$	28



	Total Loans Modified⁽¹⁾		Nine Months Ended September 30, 2014
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾⁽³⁾		Average Rate Reduction⁽⁴⁾		% of TDR Activity⁽³⁾⁽⁵⁾		Average Term Extension (Months)⁽⁶⁾	% of TDR Activity⁽³⁾⁽⁷⁾		Gross Balance Reduction⁽⁸⁾
Credit Card:
Domestic credit card	$	199	100	%	11.52	%	0	%	0	0	%	$	0
International credit card	116		100		25.35		0		0	0		0
Total credit card	315		100		16.60		0		0	0		0
Consumer Banking:
Auto	234		37		1.24		63		9	36		75
Home loan	29		34		2.64		39		154	6		1
Retail banking	9		8		5.17		72		7	0		0
Total consumer banking	272		36		1.41		61		19	31		76
Commercial Banking:
Commercial and multifamily real estate	67		31		1.26		92		7	6		2
Commercial and industrial	16		20		0.18		67		10	2		0
Total commercial lending	83		29		1.11		87		8	5		2
Small-ticket commercial real estate	1		0		0.00		0		0	0		0
Total commercial banking	84		28		1.11		86		8	5		2
Total	$	671	65		12.34		36		16	13		$	78



	Total Loans Modified⁽¹⁾		Three Months Ended September 30, 2013
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾⁽³⁾		Average Rate Reduction⁽⁴⁾		% of TDR Activity⁽³⁾⁽⁵⁾		Average Term Extension (Months)⁽⁶⁾	% of TDR Activity⁽³⁾⁽⁷⁾		Gross Balance Reduction⁽⁸⁾
Credit Card:
Domestic credit card	$	80	100	%	11.24	%	0	%	0	0	%	$	0
International credit card	46		100		25.26		0		0	0		0
Total credit card	126		100		16.34		0		0	0		0
Consumer Banking:
Auto	73		32		1.04		54		9	45		30
Home loan	10		45		3.33		58		25	13		0
Retail banking	6		9		3.89		60		6	0		0
Total consumer banking	89		31		1.45		55		11	38		30
Commercial Banking:
Commercial and multifamily real estate	18		67		1.74		54		43	0		0
Commercial and industrial	15		0		0.00		100		7	0		0
Total commercial lending	33		36		1.74		75		21	0		0
Small-ticket commercial real estate	4		0		0.00		0		0	0		0
Total commercial banking	37		32		1.74		67		21	0		0
Total	$	252	66		12.79		29		14	14		$	30



	Total Loans Modified⁽¹⁾		Nine Months Ended September 30, 2013
			Reduced Interest Rate				Term Extension			Balance Reduction
(Dollars in millions)			% of TDR Activity⁽²⁾⁽³⁾		Average Rate Reduction⁽⁴⁾		% of TDR Activity⁽³⁾⁽⁵⁾		Average Term Extension (Months)⁽⁶⁾	% of TDR Activity⁽³⁾⁽⁷⁾		Gross Balance Reduction⁽⁸⁾
Credit Card:
Domestic credit card	$	234	100	%	11.90	%	0	%	0	0	%	$	0
International credit card	144		100		24.89		0		0	0		0
Total credit card	378		100		16.85		0		0	0		0
Consumer Banking:
Auto	196		31		1.53		54		9	45		79
Home loan	78		23		2.95		18		99	22		3
Retail banking	25		6		3.61		61		8	0		0
Total consumer banking	299		27		1.89		45		18	35		82
Commercial Banking:
Commercial and multifamily real estate	50		24		1.74		76		16	0		0
Commercial and industrial	31		0		0.00		68		7	1		0
Total commercial lending	81		15		1.74		73		13	0		0
Small-ticket commercial real estate	5		0		0.00		0		0	0		0
Total commercial banking	86		14		1.74		69		13	0		0
Total	$	763	62		13.93		25		16	14		$	82

__________


⁽¹⁾	Represents total loans modified and accounted for as TDRs during the period. Paydowns, net charge-offs and any other changes in the loan carrying value subsequent to the loan entering TDR status are not reflected.


⁽²⁾	Represents percentage of loans modified and accounted for as TDRs during the period that were granted a reduced interest rate.


⁽³⁾	Due to multiple concessions granted to some troubled borrowers, percentages may total more than 100% for certain loan types.


⁽⁴⁾	Represents weighted average interest rate reduction for those loans that received an interest rate concession.


⁽⁵⁾	Represents percentage of loans modified and accounted for as TDRs during the period that were granted a maturity date extension.


⁽⁶⁾	Represents weighted average change in maturity date for those loans that received a maturity date extension.


⁽⁷⁾	Represents percentage of loans modified and accounted for as TDRs during the period that were granted forgiveness or forbearance of a portion of their balance.


⁽⁸⁾	Total amount represents the gross balance forgiven. For loans modified in bankruptcy, the gross balance reduction represents collateral value write downs associated with the discharge of the borrower’s obligations.

TDR—Subsequent Defaults of Completed TDR Modifications

The following table presents the type, number and amount of loans accounted for as TDRs that experienced a default during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is either 90 days or more delinquent, has been charged-off as of the end of the period presented, or has been reclassified from accrual to nonaccrual status.

Table 4.11: TDR - Subsequent Defaults



	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
(Dollars in millions)	Number of Contracts	Total Loans		Number of Contracts	Total Loans
Credit Card:
Domestic credit card	9,882	$	16	30,502	$	47
International credit card⁽¹⁾	9,109	24		29,513	84
Total credit card	18,991	40		60,015	131
Consumer Banking:
Auto	1,674	18		4,672	49
Home loan	2	1		12	3
Retail banking	13	0		53	9
Total consumer banking	1,689	19		4,737	61
Commercial Banking:
Commercial and multifamily real estate	0	0		4	6
Commercial and industrial	0	0		2	1
Total commercial lending	0	0		6	7
Small-ticket commercial real estate	18	0		26	3
Total commercial banking	18	0		32	10
Total	20,698	$	59	64,784	$	202



	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
(Dollars in millions)	Number of Contracts	Total Loans		Number of Contracts	Total Loans
Credit Card:
Domestic credit card	10,114	$	16	28,957	$	53
International credit card⁽¹⁾	12,641	36		35,769	104
Total credit card	22,755	52		64,726	157
Consumer Banking:
Auto	2,321	17		7,178	49
Home loan	7	1		25	2
Retail banking	41	3		99	5
Total consumer banking	2,369	21		7,302	56
Commercial Banking:
Commercial and multifamily real estate	3	4		10	15
Commercial and industrial	13	11		20	19
Total commercial lending	16	15		30	34
Small-ticket commercial real estate	0	0		1	0
Total commercial banking	16	15		31	34
Total	25,140	$	88	72,059	$	247

__________


⁽¹⁾	The regulatory regime in the U.K. requires U.K. credit card businesses to accept payment plan proposals even when the proposed payments are less than the contractual minimum amount. As a result, loans entering long-term TDR payment programs in the U.K. typically continue to age and ultimately charge-off even when fully in compliance with the TDR program terms.

Acquired Loans Accounted for Based on Expected Cash Flows

Outstanding Balance and Carrying Value of Acquired Loans

The table below presents the outstanding contractual balance and the carrying value of loans from the CCB, ING Direct and 2012 U.S. card acquisitions accounted for based on expected cash flows as of September 30, 2014 and December 31, 2013. The table separately displays loans considered credit-impaired at acquisition and loans not considered credit-impaired at acquisition.

Table 4.12: Acquired Loans Accounted for Based on Expected Cash Flows



	September 30, 2014						December 31, 2013
(Dollars in millions)	Total		Impaired Loans		Non-Impaired Loans		Total		Impaired Loans		Non-Impaired Loans
Contractual balance	$	26,472	$	4,434	$	22,038	$	30,565	$	5,016	$	25,549
Carrying value⁽¹⁾	24,712		2,961		21,751		28,580		3,285		25,295

__________


⁽¹⁾	Includes $23 million and $38 million of allowance for loan and lease losses for these loans as of September 30, 2014 and December 31, 2013, respectively.

Changes in Accretable Yield

The following table presents changes in the accretable yield on loans related to the CCB, ING Direct, and 2012 U.S. card acquisitions:

Table 4.13: Changes in Accretable Yield on Acquired Loans



(Dollars in millions)	Total Loans			Impaired Loans			Non-Impaired Loans
Accretable yield as of December 31, 2012	$	6,208		$	1,899		$	4,309
Accretion recognized in earnings	(1,182		)	(427		)	(755		)
Reclassifications from nonaccretable difference for loans with improving cash flows⁽¹⁾	1,005			629			376
Increases in accretable yield for non-credit related changes in expected cash flows⁽²⁾	389			13			376
Accretable yield as of December 31, 2013	$	6,420		$	2,114		$	4,306
Accretion recognized in earnings	(799		)	(295		)	(504		)
Reclassifications from nonaccretable difference for loans with improving cash flows⁽¹⁾	105			89			16
(Reductions) increases in accretable yield for non-credit related changes in expected cash flows⁽²⁾	(192		)	(299		)	107
Accretable yield as of September 30, 2014	$	5,534		$	1,609		$	3,925

__________


⁽¹⁾	Represents increases in accretable yields for those pools that are driven primarily by improved credit performance.


⁽²⁾	Represents changes in accretable yields for those pools that are driven primarily by changes in actual and estimated prepayments.

Unfunded Lending Commitments

We manage the potential risk in credit commitments by limiting the total amount of arrangements, both by individual customer and in total, by monitoring the size and maturity structure of these portfolios and by applying the same credit standards for all of our credit activities. Unused credit card lines available to our customers totaled $289.1 billion and $276.7 billion as of September 30, 2014 and December 31, 2013, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time.

In addition to available unused credit card lines, we enter into commitments to extend credit that are legally binding conditional agreements having fixed expirations or termination dates and specified interest rates and purposes. These commitments generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. These commitments may expire without being drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements. The outstanding unfunded commitments to extend credit, other than credit card lines, were approximately $23.5 billion and $20.9 billion as of September 30, 2014 and December 31, 2013, respectively.