SUNTRUST BANKS INC, 10-K filed on 2/24/2012
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Feb. 13, 2012
Jun. 30, 2011
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
SUNTRUST BANKS INC 
 
 
Entity Central Index Key
0000750556 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
536,378,272 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 13.9 
Consolidated Statements of Income/Loss (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Interest Income
 
 
 
Interest and fees on loans
$ 5,219 
$ 5,300 
$ 5,530 
Interest and fees on loans held for sale
93 
137 
233 
Interest and dividends on securities available for sale:
 
 
 
Taxable interest
688 
709 
717 
Tax-exempt interest
21 
31 
40 
Dividends
82 1
76 1
73 1
Trading account interest and other
78 
90 
117 
Total interest income
6,181 
6,343 
6,710 
Interest Expense
 
 
 
Interest on deposits
624 
860 
1,440 
Interest on long-term debt
449 
580 
761 
Interest on other borrowings
43 
49 
43 
Total interest expense
1,116 
1,489 
2,244 
Net interest income
5,065 
4,854 
4,466 
Provision for credit losses
1,513 
2,651 
4,064 
Net interest income after provision for credit losses
3,552 
2,203 
402 
Noninterest Income
 
 
 
Service charges on deposit accounts
685 
760 
848 
Trust and investment management income
531 
503 
486 
Other charges and fees
507 
534 
523 
Card fees
371 
376 
324 
Investment banking income
317 
313 
272 
Trading income/(loss)
248 
173 
(41)
Retail investment services
230 
205 
218 
Mortgage production related (loss)/income
(5)
127 
376 
Mortgage servicing related income
224 
358 
330 
Net securities gains
117 2
191 2
98 2
Gain from ownership in Visa
112 
Other noninterest income
196 
189 
164 
Total noninterest income
3,421 
3,729 
3,710 
Noninterest Expense
 
 
 
Employee compensation
2,494 
2,364 
2,258 
Employee benefits
382 
457 
542 
Outside processing and software
653 
638 
579 
Net occupancy expense
356 
361 
357 
Regulatory assessments
300 
265 
302 
Credit and collection services
275 
279 
259 
Other real estate expense
264 
300 
244 
Operating losses
257 
83 
99 
Marketing and customer development
184 
177 
152 
Equipment expense
178 
174 
172 
Potential mortgage servising settlement and claims expense
120 
Amortization/impairment of goodwill/intangible assets
43 
51 
807 
Net (gain)/loss on extinguishment of debt
(3)
70 
39 
Other noninterest expense
731 
692 
752 
Total noninterest expense
6,234 
5,911 
6,562 
Income/(loss) before provision/(benefit) for income taxes
739 
21 
(2,450)
Provision/(benefit) for income taxes
79 
(185)
(898)
Net income/(loss) including income attributable to noncontrolling interest
660 
206 
(1,552)
Net income attributable to noncontrolling interest
13 
17 
12 
Net income/(loss)
647 
189 
(1,564)
Net income/(loss) available to common shareholders
$ 495 
$ (87)
$ (1,733)
Net income/(loss) per average common share
 
 
 
Diluted
$ 0.94 
$ (0.18)
$ (3.98)
Basic
$ 0.94 
$ (0.18)
$ (3.98)
Dividends declared per common share
$ 0.12 
$ 0.04 
$ 0.22 
Average common shares - diluted
528 
499 
437 
Average common shares - basic
524 
495 
435 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Dividends on common stock of The Coca-Cola Company
$ 56 
$ 53 
$ 49 
Net impairment losses recognized in earnings
20 
Total unrealized losses
113 
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 1 
$ 0 
$ 93 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Assets
 
 
Cash and due from banks
$ 3,696 
$ 4,296 
Securities purchased under agreements to resell
792 
1,058 
Interest-bearing deposits in other banks
21 
24 
Cash and cash equivalents
4,509 
5,378 
Trading assets
6,279 
6,175 
Securities available for sale
28,117 
26,895 
Loans held for sale (loans at fair value: $2,141 and $3,168 as of December 31, 2011 and 2010, respectively)
2,353 1
3,501 1
Loans (loans at fair value: $433 and $492 as of December 31, 2011 and 2010, respectively)
122,495 2
115,975 2
Allowance for loan and lease losses
(2,457)
(2,974)
Net loans
120,038 
113,001 
Premises and equipment
1,564 
1,620 
Goodwill
6,344 
6,323 
Other intangible assets (MSRs at fair value: $921 and $1,439 as of December 31, 2011 and 2010, respectively)
1,017 
1,571 
Other real estate owned
479 
596 
Other assets
6,159 
7,814 
Total assets
176,859 
172,874 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
34,359 
27,290 
Interest-bearing consumer and commercial deposits
91,252 
92,735 
Total consumer and commercial deposits
125,611 
120,025 
Brokered time deposits (CDs at fair value: $1,018 and $1,213 of December 31, 2011 and 2010, respectively)
2,281 
2,365 
Foreign deposits
30 
654 
Total deposits
127,922 
123,044 
Funds purchased
839 
951 
Securities sold under agreements to repurchase
1,644 
2,180 
Other short-term borrowings
8,983 
2,690 
Long-term debt (debt at fair value: $1,997 and $2,837 as of December 31, 2011 and 2010, respectively)
10,908 3
13,648 3
Trading liabilities
1,806 
2,678 
Other liabilities
4,691 
4,553 
Total liabilities
156,793 
149,744 
Preferred stock, no par value
275 
4,942 
Common stock, $1.00 par value
550 
515 
Additional paid in capital
9,306 
8,403 
Retained earnings
8,978 
8,542 
Treasury stock, at cost, and other
(792)4
(888)4
AOCI, net of tax
1,749 
1,616 
Total shareholders' equity
20,066 
23,130 
Total liabilities and shareholders' equity
$ 176,859 
$ 172,874 
Common shares outstanding
536,967 
500,436 
Common shares authorized
750,000 
750,000 
Preferred shares outstanding
50 
Preferred shares authorized
50,000 
50,000 
Treasury shares of common stock
12,954 
14,231 
Consolidated Balance Sheets (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Variable Interest Entity, Primary Beneficiary
Dec. 31, 2010
Variable Interest Entity, Primary Beneficiary
Loans held for sale
$ 2,141,000,000 1
$ 3,168,000,000 1
 
 
Loans held for sale (loans at fair value: $2,141 and $3,168 as of December 31, 2011 and 2010, respectively)
2,353,000,000 1
3,501,000,000 1
315,000,000 
316,000,000 
Loans carried at fair value
433,000,000 2
492,000,000 2
 
 
Loans (loans at fair value: $433 and $492 as of December 31, 2011 and 2010, respectively)
122,495,000,000 2
115,975,000,000 2
3,322,000,000 
2,869,000,000 
Other intangible assets, MSRs at fair value
921,000,000 
1,439,000,000 
 
 
Long-term debt (debt at fair value: $1,997 and $2,837 as of December 31, 2011 and 2010, respectively)
10,908,000,000 3
13,648,000,000 3
722,000,000 
764,000,000 
Brokered deposits
1,018,000,000 
1,213,000,000 
 
 
Long-term debt, fair value
1,997,000,000 3
2,837,000,000 3
289,000,000 
290,000,000 
Common stock, par value
$ 1.00 
$ 1.00 
 
 
Treasury Stock, Value
(792,000,000)4
(888,000,000)4
 
 
Noncontrolling Interest, Increase from Equity Issuance or Sale of Parent Equity Interest
$ 107,000,000 
$ 129,000,000 
 
 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions, unless otherwise specified
Total
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock and Other
Accumulated Other Comprehensive Income
Common Stock
Common Stock
Common Stock
Additional Paid in Capital
Preferred Stock
Preferred Stock
Beginning Balance at Dec. 31, 2008
$ 22,501 
$ 5,222 
$ 373 
$ 6,904 
$ 10,389 
$ (1,368)1
$ 981 
 
 
 
 
 
Beginning Balance (in shares) at Dec. 31, 2008
 
 
354 
 
 
 
 
 
 
 
 
 
Net income (loss)
(1,564)
 
 
 
(1,564)
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
281 
 
 
 
 
 
281 
 
 
 
 
 
Change in unrealized gains (losses) on derivatives, net of taxes
(435)
 
 
 
 
 
(435)
 
 
 
 
 
Change related to employee benefit plans
251 
 
 
 
 
 
251 
 
 
 
 
 
Total comprehensive income
(1,467)
 
 
 
 
 
 
 
 
 
 
 
Change in noncontrolling interest
(5)
 
 
 
 
(5)1
 
 
 
 
 
 
Common stock dividends, $0.12 in 2011, $.04 in 2010 and $0.22 in 2009 per share
(83)
 
 
 
(83)
 
 
 
 
 
 
 
Series A preferred dividends, $3,044 in 2011, 2010 and 2009 per share
(14)
 
 
 
(14)
 
 
 
 
 
 
 
U.S. Treasury preferred stock dividends, $1,236 in 2011, $5,000 in 2010 and $5,004 in 2009 per share
(243)
 
 
 
(243)
 
 
 
 
 
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
23 
 
 
(23)
 
 
 
 
 
 
 
Repurchase of preferred stock
(228)
(328)
 
95 
 
 
 
 
 
 
 
Purchase of outstanding warrants
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock (in shares)
 
 
142 
 
 
 
 
 
 
 
 
 
Issuance of common stock
1,830 
 
142 
1,688 
 
 
 
 
 
 
 
 
Extinguishment of forward stock purchase contract
174 
 
 
174 
 
 
 
 
 
 
 
 
Stock compensation expense
11 
 
 
11 
 
 
 
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
 
 
 
 
 
Restricted stock activity
(29)
 
 
(206)
 
177 1
 
 
 
 
 
 
Amortization of restricted stock compensation
66 
 
 
 
 
66 1
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other, Shares
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other
18 
 
 
(55)
(2)
75 1
 
 
 
 
 
 
Adoption of VIE consolidation guidance
 
 
 
 
 
(8)
 
 
 
 
 
Ending Balance at Dec. 31, 2009
22,531 
4,917 
515 
8,521 
8,563 
(1,055)
1,070 
 
 
 
 
 
Ending Balance (in shares) at Dec. 31, 2009
 
 
499 
 
 
 
 
 
 
 
 
 
Net income (loss)
189 
 
 
 
189 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
366 
 
 
 
 
 
366 
 
 
 
 
 
Change in unrealized gains (losses) on derivatives, net of taxes
120 
 
 
 
 
 
120 
 
 
 
 
 
Change related to employee benefit plans
60 
 
 
 
 
 
60 
 
 
 
 
 
Total comprehensive income
735 
 
 
 
 
 
 
 
 
 
 
 
Change in noncontrolling interest
 
 
 
 
1
 
 
 
 
 
 
Common stock dividends, $0.12 in 2011, $.04 in 2010 and $0.22 in 2009 per share
(20)
 
 
 
(20)
 
 
 
 
 
 
 
Series A preferred dividends, $3,044 in 2011, 2010 and 2009 per share
(7)
 
 
 
(7)
 
 
 
 
 
 
 
U.S. Treasury preferred stock dividends, $1,236 in 2011, $5,000 in 2010 and $5,004 in 2009 per share
(242)
 
 
 
(242)
 
 
 
 
 
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
25 
 
 
(25)
 
 
 
 
 
 
 
Purchase of outstanding warrants
 
 
 
 
 
 
 
 
 
 
 
Extinguishment of forward stock purchase contract
 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
24 
 
 
24 
 
 
 
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
 
 
 
 
 
Restricted stock activity
(31)
 
 
(97)
 
66 1
 
 
 
 
 
 
Amortization of restricted stock compensation
42 
 
 
 
 
42 1
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other
12 
 
 
(45)
55 1
 
 
 
 
 
 
Fair value election of MSRs
89 
 
 
 
89 
 
 
 
 
 
 
 
Adoption of VIE consolidation guidance
(7)
 
 
 
(7)
 
 
 
 
 
 
 
Ending Balance at Dec. 31, 2010
23,130 
4,942 
515 
8,403 
8,542 
(888)1
1,616 
 
 
 
 
 
Ending Balance (in shares) at Dec. 31, 2010
 
 
500 
 
 
 
 
 
 
 
 
 
Net income (loss)
647 
 
 
 
647 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
337 
 
 
 
 
 
337 
 
 
 
 
 
Change in unrealized gains (losses) on derivatives, net of taxes
37 
 
 
 
 
 
37 
 
 
 
 
 
Change related to employee benefit plans
(241)
 
 
 
 
 
(241)
 
 
 
 
 
Total comprehensive income
780 
 
 
 
 
 
 
 
 
 
 
 
Change in noncontrolling interest
(22)
 
 
 
 
(22)1
 
 
 
 
 
 
Common stock dividends, $0.12 in 2011, $.04 in 2010 and $0.22 in 2009 per share
(64)
 
 
 
(64)
 
 
 
 
 
 
 
Series A preferred dividends, $3,044 in 2011, 2010 and 2009 per share
 
 
 
 
(7)
 
 
 
 
 
 
 
U.S. Treasury preferred stock dividends, $1,236 in 2011, $5,000 in 2010 and $5,004 in 2009 per share
(60)
 
 
 
(60)
 
 
 
 
 
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
 
 
(6)
 
 
 
 
 
 
 
Repurchase of preferred stock
(4,850)
(4,776)
 
 
(74)
 
 
 
 
 
 
 
Purchase of outstanding warrants
(11)
 
 
(11)
 
 
 
 
 
 
 
 
Issuance of common stock (in shares)
 
 
 
 
 
 
 
 
35 
 
 
 
Issuance of common stock
 
 
 
 
 
 
 
1,017 
35 
982 
103 
103 
Extinguishment of forward stock purchase contract
 
 
 
 
 
 
 
 
 
 
 
Stock compensation expense
12 
 
 
11 
 
1
 
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
 
 
 
 
 
Restricted stock activity
(8)
 
 
(58)
 
50 1
 
 
 
 
 
 
Amortization of restricted stock compensation
32 
 
 
 
 
32 1
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other, Shares
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other
14 
 
 
(21)
 
35 1
 
 
 
 
 
 
Ending Balance at Dec. 31, 2011
$ 20,066 
$ 275 
$ 550 
$ 9,306 
$ 8,978 
$ (792)1
$ 1,749 
 
 
 
 
 
Ending Balance (in shares) at Dec. 31, 2011
 
 
537 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Common stock dividends, per share
$ 0.12 
$ 0.04 
$ 0.22 
Series A preferred stock dividends, per share
$ 4,056 
$ 4,056 
$ 4,056 
U.S. Treasury preferred stock dividends, per share
$ 1,236 
$ 5,000 
$ 5,004 
Ending Balance, noncontrolling interest
$ 107,000,000 
$ 129,000,000 
 
Treasury Stock and Other
 
 
 
Ending Balance, treasury stock
(851,000,000)
(974,000,000)
1,104 
Ending Balance, compensation element of restricted stock
(48,000,000)
(43,000,000)
59 
Ending Balance, noncontrolling interest
$ 107,000,000 
$ 129,000,000 
$ 108 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash Flows from Operating Activities:
 
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 660 
$ 206 
$ (1,552)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Gain from ownership in Visa
(112)
Depreciation, amortization, and accretion
760 
803 
966 
Goodwill impairment
751 
Mortgage servicing rights impairment recovery
(199)
Origination of mortgage servicing rights
(224)
(289)
(682)
Provisions for credit losses and foreclosed property
1,664 
2,831 
4,270 
Mortgage repurchase provision
502 
456 
444 
Potential mortgage servising settlement and claims expense
120 
Deferred income tax expense/(benefit)
83 
(171)
(894)
Stock option compensation and amortization of restricted stock compensation
44 
66 
77 
Net (gain)/loss on extinguishment of debt
(3)
70 
39 
Net securities gains
(117)1
(191)1
(98)1
Net gain on sale of assets
(408)
(597)
(772)
Gain on pension curtailment
(88)
Net decrease/(increase) in loans held for sale
2,234 
1,003 
(258)
Net (increase)/decrease in other assets
(497)
(341)
1,523 
Net increase/(decrease) in other liabilities
(102)
372 
(461)
Net cash provided by operating activities
4,628 
4,218 
3,042 
Cash Flows from Investing Activities:
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
5,557 
5,597 
3,407 
Proceeds from sales of securities available for sale
12,557 
17,465 
19,488 
Purchases of securities available for sale
(18,872)
(20,920)
(33,793)
Proceeds from maturities, calls, and paydowns of trading securities
139 
99 
148 
Proceeds from sales of trading securities
102 
132 
2,113 
Purchases of trading securities
(86)
Net (increase)/decrease in loans including purchases of loans
(11,034)
(4,566)
8,609 
Proceeds from sales of loans
747 
936 
756 
Capital expenditures
(131)
(252)
(212)
Proceeds from sale/redemption of Visa shares
112 
Contingent consideration and other payments related to acquisitions
(24)
(10)
(25)
Proceeds from the sale of other assets
628 
800 
567 
Net cash (used in)/provided by investing activities
(10,331)
(719)
1,084 
Cash Flows from Financing Activities:
 
 
 
Net increase in total deposits
4,878 
1,182 
8,085 
Assumption of deposits, net
449 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
6,650 
(1,295)
(4,114)
Proceeds from the issuance of long-term debt
1,749 
500 
575 
Repayment of long-term debt
(4,571)
(5,246)
(10,034)
Proceeds from the issuance of common stock
1,017 
1,830 
Proceeds from the issuance of preferred stock
103 
Repurchase of preferred stock
(4,850)
(228)
Purchase of outstanding warrants
(11)
Common and preferred dividends paid
(131)
(259)
(329)
Net cash provided by/(used in) financing activities
4,834 
(5,118)
(3,766)
Net (decrease)/increase in cash and cash equivalents
(869)
(1,619)
360 
Cash and cash equivalents at beginning of period
5,378 
6,997 
6,637 
Cash and cash equivalents at end of period
4,509 
5,378 
6,997 
Supplemental Disclosures:
 
 
 
Interest paid
1,138 
1,537 
2,367 
Income taxes paid
68 
33 
45 
Income taxes refunded
(1)
(435)
(106)
Loans transferred from loans held for sale to loans
63 
213 
307 
Loans transferred from loans to loans held for sale
754 
346 
125 
Loans transferred from loans and loans held for sale to other real estate owned
725 
1,063 
812 
Amortization of deferred gain on sale/leaseback of premises
59 
59 
59 
Accretion of discount for preferred stock issued to the U.S. Treasury
80 
25 
23 
Extinguishment of forward stock purchase contract
174 
Gain on repurchase of Series A preferred stock
94 
Total assets of newly consolidated VIEs during 2010
$ 0 
$ 2,541 
$ 0 
Significant Accounting Policies
Significant Accounting Policies
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
General
SunTrust, one of the nation's largest commercial banking organizations, is a financial services holding company with its headquarters in Atlanta, Georgia. Through its principal subsidiary, SunTrust Bank, the Company offers a full line of financial services for consumers and businesses including deposit, credit, and trust and investment services. Additional subsidiaries provide mortgage banking, asset management, securities brokerage, capital market services, and credit-related insurance. SunTrust operates primarily within Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. SunTrust provides clients with a selection of technology-based banking channels, including the internet, ATMs, and twenty-four hour telebanking. SunTrust’s client base encompasses a broad range of individuals and families, businesses, institutions, and governmental agencies. Within its geographic footprint, SunTrust operated under the following business segments during 2011 and 2010: Retail Banking, Diversified Commercial Banking, CRE, CIB, Mortgage, and W&IM, with the remainder in Corporate Other and Treasury.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions.
The Company holds VIs, which are contractual ownership or other interests that change with changes in the fair value of a VIE's net assets. The Company consolidates a VIE if it is the primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the financial performance of the VIE and the obligation to absorb losses or rights to receive benefits through its VIs that could potentially be significant to the VIE. To determine whether or not a VI held by the Company could potentially be significant to the VIE, both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE are considered. The assessment of whether or not the Company is the primary beneficiary of a VIE is performed on an on-going basis. The Company consolidates VOEs, which are entities that are not VIEs that are controlled through the Company's equity interests.
Investments in companies which are not VIEs, or where SunTrust is not the primary beneficiary of a VIE, that the Company has the ability to exercise significant influence over operating and financing decisions, are accounted for using the equity method of accounting. These investments are included in other assets at cost, adjusted to reflect the Company's portion of income, loss or dividends of the investee. Unconsolidated equity investments that do not meet the criteria to be accounted for under the equity method are accounted for under the cost method. Cost method investments are included in other assets in the Consolidated Balance Sheets and dividends received or receivable from these investments are included as a component of other noninterest income in the Consolidated Statements of Income/(Loss).
Results of operations of companies purchased are included from the date of acquisition. Results of operations associated with companies or net assets sold are included through the date of disposition. The Company reports any noncontrolling interests in its subsidiaries in the equity section of the Consolidated Balance Sheets and separately presents the income or loss attributable to the noncontrolling interest of a consolidated subsidiary in its Consolidated Statements of Income/(Loss). Assets and liabilities of purchased companies are initially recorded at estimated fair values at the date of acquisition.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
The Company evaluated subsequent events through the date its financial statements were issued. For additional information on the Company's subsequent events, see Note 25, "Subsequent Event."
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, Fed funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.
Securities and Trading Activities
Securities are classified at trade date as trading or securities AFS. Trading account assets and liabilities are carried at fair value with changes in fair value recognized within noninterest income. Realized and unrealized gains and losses are recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss). Securities AFS are used as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle. Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to yield over the estimated life of the security. Securities AFS are carried at fair value with unrealized gains and losses, net of any tax effect, included in AOCI as a component of shareholders’ equity. Realized gains and losses, including OTTI, are determined using the specific identification method and are recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss).

On a quarterly basis, securities AFS are reviewed for possible OTTI. In determining whether OTTI exists for securities in an unrealized loss position, the Company assesses whether it has the intent to sell the security or, for debt securities, the Company assesses the likelihood of selling the security prior to the recovery of its amortized cost basis. If the Company intends to sell the debt security or it is more-likely-than-not that the Company will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss). If the Company does not intend to sell the debt security and it is more-likely-than-not that the Company will not be required to sell the debt security prior to recovery of its amortized cost basis, only the credit component of any impairment of a debt security is recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss), with the remaining impairment recorded in OCI.

The OTTI review for equity securities includes an analysis of the facts and circumstances of each individual investment and focuses on the severity of loss, the length of time the fair value has been below cost, the expectation for that security's performance, the financial condition and near-term prospects of the issuer, and management's intent and ability to hold the security to recovery. A decline in value of an equity security that is considered to be other-than-temporary is recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss).
On a quarterly basis, the Company reviews nonmarketable equity securities, which include venture capital equity and certain mezzanine securities that are not publicly traded as well as equity investments acquired for various purposes. These securities are accounted for under the cost or equity method and are included in other assets. The Company reviews nonmarketable securities accounted for under the cost method on a quarterly basis and reduces the asset value when declines in value are considered to be other-than-temporary. Equity method investments are recorded at cost, adjusted to reflect the Company’s portion of income, loss or dividends of the investee. Realized income, realized losses and estimated other-than-temporary unrealized losses on cost and equity method investments are recognized in noninterest income in the Consolidated Statements of Income/(Loss).
For additional information on the Company’s securities activities, see Note 5, “Securities Available for Sale.”
Securities Sold Under Repurchase Agreements
Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold, plus accrued interest. The fair value of collateral pledged is continually monitored and additional collateral is pledged or requested to be returned to the Company as deemed appropriate. For additional information on the collateral pledged to secure repurchase agreements, see Note 4, "Trading Assets and Liabilities," and Note 5, "Securities Available for Sale."
Loans Held for Sale
The Company’s LHFS generally includes certain residential mortgage loans, commercial loans, and student loans. Loans are initially classified as LHFS when they are identified as being available for immediate sale and a formal plan exists to sell them. LHFS are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for LHFS recorded at LOCOM are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for LHFS that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as noninterest income in the Consolidated Statements of Income/(Loss).
The Company may transfer certain residential mortgage loans, commercial loans, and student loans to a held-for-sale classification at LOCOM. At the time of transfer, any credit losses are recorded as a reduction in the ALLL. Subsequent credit losses, as well as incremental interest rate or liquidity related valuation adjustments are recorded as a component of noninterest income in the Consolidated Statements of Income/(Loss). The Company may also transfer loans from held for sale to held for investment. At the time of transfer, any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield using the interest method, unless the loan was elected upon origination to be accounted for at fair value. If a held for sale loan is transferred to held for investment for which fair value accounting was elected, it will continue to be accounted for at fair value in the held for investment portfolio. For additional information on the Company’s LHFS activities, see Note 6, “Loans.”
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered LHFI. The Company’s loan balance is comprised of loans held in portfolio, including commercial loans, consumer loans, and residential loans. Interest income on all types of loans, except those classified as nonaccrual, is accrued based upon the outstanding principal amounts using the effective yield method.
Commercial loans (commercial & industrial, commercial real estate, and commercial construction) are considered to be past due when payment is not received from the borrower by the contractually specified due date. The Company typically classifies commercial loans as nonaccrual when one of the following events occurs: (i) interest or principal has been past due 90 days or more, unless the loan is both well secured and in the process of collection; (ii) collection of recorded interest or principal is not anticipated; or (iii) income for the loan is recognized on a cash basis due to the deterioration in the financial condition of the debtor. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized after the principal has been reduced to zero. If and when commercial borrowers demonstrate the ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan may be returned to accrual status upon meeting all regulatory, accounting, and internal policy requirements.
Consumer loans (guaranteed and private student loans, other direct, indirect, and credit card) are considered to be past due when payment is not received from the borrower by the contractually specified due date. Guaranteed student loans continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. Other direct and indirect loans are typically placed on nonaccrual when payments have been past due for 90 days or more except when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. Credit card loans are never placed on nonaccrual status but rather are charged off once they are 180 days past due. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized on a cash basis. Nonaccrual consumer loans are typically returned to accrual status once they are no longer past due.
Residential loans (guaranteed and nonguaranteed residential mortgages, home equity products, and residential construction) are considered to be past due when a monthly payment is due and unpaid for one month. Guaranteed residential mortgages continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. Nonguaranteed residential mortgages and residential construction loans are generally placed on nonaccrual when three payments are past due. Home equity products are generally placed on nonaccrual when payments are 90 days past due. The exception for nonguaranteed residential mortgages, residential construction loans, and home equity products is when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized on a cash basis. Nonaccrual residential loans are typically returned to accrual status once they no longer meet the delinquency threshold that resulted in them initially being moved to nonaccrual status.
TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructure, and the Company has granted an economic concession to the borrower. To date, the Company’s TDRs have been predominantly first and second lien residential mortgages and home equity lines of credit. Prior to modifying a borrower’s loan terms, the Company performs an evaluation of the borrower’s financial condition and ability to service under the potential modified loan terms. The types of concessions generally granted are extensions of the loan maturity date and/or reductions in the original contractual interest rate. If a loan is accruing at the time of modification, the loan remains on accrual status and is subject to the Company’s charge-off and nonaccrual policies. See the “Allowance for Credit Losses” section within this Note for further information regarding these policies. If a loan is on nonaccrual before it is determined to be a TDR then the loan remains on nonaccrual. TDRs may be returned to accrual status if there has been at least a six month sustained period of repayment performance by the borrower. Generally, once a residential loan becomes a TDR, the Company expects that the loan will likely continue to be reported as a TDR for its remaining life even after returning to accruing status as the modified rates and terms at the time of modification were typically more favorable than those generally available in the market. Interest income recognition on impaired loans is dependent upon nonaccrual status, TDR designation, and loan type as discussed above.
For loans accounted for at amortized cost, fees and incremental direct costs associated with the loan origination and pricing process, as well as premiums and discounts, are deferred and amortized as level yield adjustments over the respective loan terms. Premiums for purchased credit cards are amortized on a straight-line basis over one year. Fees received for providing loan commitments that result in funded loans are recognized over the term of the loan as an adjustment of the yield. If a loan is never funded, the commitment fee is recognized into noninterest income at the expiration of the commitment period. Origination fees and costs are recognized in noninterest income and expense at the time of origination for newly-originated loans that are accounted for at fair value. For additional information on the Company's loans activities, see Note 6, “Loans.”
Allowance for Credit Losses
The Allowance for Credit Losses is composed of the ALLL and the reserve for unfunded commitments. The Company’s ALLL is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. In addition to the review of credit quality through ongoing credit review processes, the Company employs a variety of modeling and estimation techniques to measure credit risk and construct an appropriate and adequate ALLL. Numerous asset quality measures, both quantitative and qualitative, are considered in estimating the ALLL. Such evaluation considers numerous factors for each of the loan portfolio segments, including, but not limited to net charge-off trends, internal risk ratings, changes in internal risk ratings, loss forecasts, collateral values, geographic location, delinquency rates, nonperforming and restructured loan status, origination channel, product mix, underwriting practices, industry conditions, and economic trends. Additionally, refreshed FICO scores are considered for consumer and residential loans and single name borrower concentration is considered for commercial loans. These credit quality factors are incorporated into various loss estimation models and analytical tools utilized in the ALLL process and/or are qualitatively considered in evaluating the overall reasonableness of the ALLL.
Large commercial (all loan classes) nonaccrual loans and certain consumer (other direct and credit card), residential (nonguaranteed residential mortgages, home equity products, and residential construction), and commercial (all classes) loans whose terms have been modified in a TDR are individually identified for evaluation of impairment. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. If necessary, a specific allowance is established for individually evaluated impaired loans. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment. Any change in the present value attributable to the passage of time is recognized through the provision for credit losses.
General allowances are established for loans and leases grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional and national economic conditions, and expected LGD derived from the Company’s internal risk rating process. Other adjustments may be made to the ALLL after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or other risk rating data. These influences may include elements such as changes in credit underwriting, concentration risk, macroeconomic conditions, and/or recent observable asset quality trends.
The Company’s charge-off policy meets regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past due compared to the regulatory loss criteria of 120 days past due. Losses, as appropriate, on secured consumer loans, including residential real estate, are typically recognized between 120 and 180 days past due, depending on the collateral type, in compliance with the FFIEC guidelines. Loans that have been partially charged-off remain on nonperforming status, regardless of collateral value, until specific borrower performance criteria are met.
The Company uses numerous sources of information in order to make an appropriate evaluation of a property’s value. Estimated collateral valuations are based on appraisals, broker price opinions, recent sales of foreclosed properties, automated valuation models, other property-specific information, and relevant market information, supplemented by the Company’s internal property valuation professionals. The value estimate is based on an orderly disposition and marketing period of the property. In limited instances, the Company adjusts externally provided appraisals for justifiable and well-supported reasons, such as an appraiser not being aware of certain property-specific factors or recent sales information. Appraisals generally represent the “as is” value of the property but may be adjusted based on the intended disposition strategy of the property.
For commercial real estate loans secured by property, an acceptable third-party appraisal or other form of evaluation, as permitted by regulation, is obtained prior to the origination of the loan and upon a subsequent transaction involving a material change in terms. In addition, updated valuations may be obtained during the life of a transaction, as appropriate, such as when a loan's performance materially deteriorates. In situations where an updated appraisal has not been received or a formal evaluation performed, the Company monitors factors that can positively or negatively impact property value, such as the date of the last valuation, the volatility of property values in specific markets, changes in the value of similar properties, and changes in the characteristics of individual properties. Changes in collateral value affect the ALLL through the risk rating or impaired loan evaluation process. Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. The charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable value of the loan, net of estimated selling costs. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.
For mortgage loans secured by residential property where the Company is proceeding with a foreclosure action, a new valuation is obtained prior to the loan becoming 180 days past due and, if required, the loan is written down to net realizable value, net of estimated selling costs. In the event the Company decides not to proceed with a foreclosure action, the full balance of the loan is charged-off. If a loan remains in the foreclosure process for 12 months past the original charge-off, typically at 180 days past due, the Company obtains a new valuation annually. Any additional loss based on the new valuation is either charged-off or provided for through the ALLL. At foreclosure, a new valuation is obtained and the loan is transferred to OREO at the new valuation less estimated selling costs; any loan balance in excess of the transfer value is charged-off. Estimated declines in value of the residential collateral between these formal evaluation events are captured in the ALLL based on changes in the house price index in the applicable MSA or other market information.
In addition to the ALLL, the Company also estimates probable losses related to unfunded lending commitments, such as letters of credit and binding unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by risk similar to funded loans based on the Company’s internal risk rating scale. These risk classifications, in combination with an analysis of historical loss experience, probability of commitment usage, existing economic conditions, and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments. The reserve for unfunded lending commitments is reported on the Consolidated Balance Sheets in other liabilities and through the third quarter of 2009, the provision associated with changes in the unfunded lending commitment reserve was reported in the Consolidated Statements of Income/(Loss) in noninterest expense. Beginning in the fourth quarter of 2009, the Company began recording changes in the unfunded lending commitment reserve in the provision for credit losses. For additional information on the Company's Allowance for Credit Loss activities, see Note 7, “Allowance for Credit Losses.”
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated predominantly using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the improvements’ estimated useful lives or the lease term, depending on whether the lease meets the transfer of ownership or bargain-purchase option criterion. Certain leases are capitalized as assets for financial reporting purposes and are amortized using the straight-line method of amortization over the assets’ estimated useful lives or the lease terms, depending on the criteria that gave rise to the capitalization of the assets. Construction and software in process includes in process branch expansion, branch renovation, and software development projects. Upon completion, branch related projects are maintained in premises and equipment while completed software projects are reclassified to other assets. Maintenance and repairs are charged to expense, and improvements that extend the useful life of an asset are capitalized and depreciated over the remaining useful life. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For additional information on the Company’s premises and equipment activities, see Note 8, “Premises and Equipment.”
Goodwill and Other Intangible Assets
Goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired companies. Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are expected to benefit from the synergies of the business combination.
Goodwill is not amortized and instead is tested for impairment, at least annually, at the reporting unit level. The goodwill impairment test is performed in two steps. The first step is used to identify potential impairment and the second step, if required, measures the amount of impairment by comparing the carrying amount of goodwill to its implied fair value. If the implied fair value of the goodwill exceeds the carrying amount, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.
Identified intangible assets that have a designated finite life are amortized over their useful lives and are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. For additional information on the Company’s activities related to goodwill and other intangibles, see Note 9, “Goodwill and Other Intangible Assets.”
MSRs
The Company recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSRs when loans are sold and the associated servicing rights are retained. Effective January 1, 2009, MSRs related to loans originated and sold after January 1, 2008 were accounted for at fair value. Effective January 1, 2010, the Company elected to record MSRs related to loans originated and sold before January 1, 2008, at fair value. These MSRs were previously carried at LOCOM. The Company now records all MSRs at fair value. Fair value is determined by projecting net servicing cash flows, which are then discounted to estimate the fair value. The Company actively hedges its MSRs.The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from independent third parties. The carrying value of MSRs is reported on the Consolidated Balance Sheets in other intangible assets. Servicing fees are recognized as they are received and changes in fair value are also reported in mortgage servicing related income in the Consolidated Statements of Income/(Loss). For additional information on the Company’s servicing fees, see Note 9, “Goodwill and Other Intangible Assets.”
Other Real Estate Owned
Assets acquired through, or in lieu of loan foreclosure are held for sale and are initially recorded at the lower of the loan’s cost basis or the asset’s fair value at the date of foreclosure, less estimated selling costs. To the extent fair value, less cost to sell, is less than the loan’s cost basis, the difference is charged to the ALLL at the date of transfer into OREO. The Company estimates market values primarily based on appraisals and other market information. Subsequent changes in value of the assets are reported as adjustments to the asset’s carrying amount. Subsequent to foreclosure, changes in value along with gains or losses from the disposition on these assets are reported in noninterest expense in the Consolidated Statements of Income/(Loss). For additional information on the Company's activities related to OREO, see Note 19, “Fair Value Election and Measurement.”
Loan Sales and Securitizations
The Company sells and at times may securitize loans and other financial assets. When the Company securitizes assets, it may hold a portion of the securities issued, including senior interests, subordinated and other residual interests, interest-only strips, and principal-only strips, all of which are considered retained interests in the transferred assets. Previously when the Company retained securitized interests, the cost basis of the securitized financial assets were allocated between the sold and retained portions based on their relative fair values. The gain or loss on sale was then calculated based on the difference between proceeds received, which includes cash proceeds and the fair value of MSRs, if any, and the cost basis allocated to the sold interests. The retained interests were subsequently carried at fair value. Since January 1, 2010, retained securitized interests are recognized and initially measured at fair value. The interests in securitized assets held by the Company are typically classified as either securities AFS or trading assets and carried at fair value, which is based on independent, third-party market prices, market prices for similar assets, or discounted cash flow analyses. If market prices are not available, fair value is calculated using management’s best estimates of key assumptions, including credit losses, loan repayment speeds and discount rates commensurate with the risks involved. For additional information on the Company’s securitization activities, see Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities.”

Income Taxes
The provision/(benefit) for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as interest income from lending to tax-exempt entities and tax credits from community reinvestment activities. Deferred income tax assets and liabilities result from differences between the timing of the recognition of assets and liabilities for financial reporting purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that are currently in effect. Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in the provision/(benefit) for income taxes for the period in which the change is enacted. A valuation allowance is recognized for a DTA if, based on the weight of available evidence, it is more likely than not that some portion or all of the DTA will not be realized. In computing the income tax provision/(benefit), the Company evaluates the technical merits of its income tax positions based on current legislative, judicial and regulatory guidance. Interest and penalties related to the Company’s tax positions are recognized as a component of income tax provision/(benefit). For additional information on the Company’s activities related to income taxes, see Note 15, “Income Taxes.”
Earnings Per Share
Basic EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each period, plus common share equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In periods of a net loss, diluted EPS is calculated in the same manner as basic EPS.
The Company has issued certain restricted stock awards, which are unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities. Accordingly, the Company calculated net income available to common shareholders pursuant to the two-class method, whereby net income is allocated between common shareholders and participating securities. In periods of a net loss, no allocation is made to participating securities as they are not contractually required to fund net losses.
Net income available to common shareholders represents net income/(loss) after preferred stock dividends, accretion of the discount on preferred stock issuances, gains or losses from any repurchases of preferred stock, and dividends and allocation of undistributed earnings to the participating securities. For additional information on the Company’s EPS, see Note 13, “Net Income/(Loss) Per Share.”
Guarantees
The Company recognizes a liability at the inception of a guarantee, at an amount equal to the estimated fair value of the obligation. A guarantee is defined as a contract that contingently requires a company to make payment to a guaranteed party based upon changes in an underlying asset, liability or equity security of the guaranteed party, or upon failure of a third-party to perform under a specified agreement. The Company considers the following arrangements to be guarantees: certain asset purchase/sale agreements, standby letters of credit and financial guarantees, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts. For additional information on the Company’s guarantor obligations, see Note 18, “Reinsurance Arrangements and Guarantees.”
Derivative Financial Instruments and Hedging Activities
The Company records all contracts that satisfy the definition of a derivative at fair value in the Consolidated Balance Sheets. Accounting for changes in the fair value of a derivative is dependent upon its classification as either a freestanding derivative or a derivative that has been designated as a hedging instrument. The Company offsets cash collateral paid to and received from derivatives counterparties when the derivative contracts are subject to ISDA master netting arrangements and meet derivatives accounting guidance.
Changes in the fair value of freestanding derivatives are recorded in noninterest income. Freestanding derivatives include derivatives that the Company enters into in a dealer capacity to facilitate client transactions and as a risk management tool to economically hedge certain identified market risks, along with certain IRLCs on residential mortgage loans that are a normal part of the Company’s operations. The Company also evaluates contracts, such as brokered deposits and short-term debt, to determine whether any embedded derivatives are required to be bifurcated and separately accounted for as freestanding derivatives. For certain contracts containing embedded derivatives, the Company has elected not to bifurcate the embedded derivative and instead carry the entire contract at fair value.
Certain derivatives are also used as risk management tools and designated as accounting hedges of the Company’s exposure to changes in interest rates or other identified market risks. The Company prepares written hedge documentation for all derivatives which are designated as hedges of (1) changes in the fair value of a recognized asset or liability (fair value hedge) attributable to a specified risk or (2) a forecasted transaction, such as the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written hedge documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective. Methodologies related to hedge effectiveness and ineffectiveness are consistent between similar types of hedge transactions and have included (i) statistical regression analysis of changes in the cash flows of the actual derivative and a perfectly effective hypothetical derivative, and (ii) statistical regression analysis of changes in the fair values of the actual derivative and the hedged item.
For designated hedging relationships, the Company performs retrospective and prospective effectiveness testing using quantitative methods and does not assume perfect effectiveness through the matching of critical terms. Assessments of hedge effectiveness and measurements of hedge ineffectiveness are performed at least quarterly for ongoing effectiveness. Changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a fair value hedge are recorded in current period earnings, along with the changes in the fair value of the hedged item that are attributable to the hedged risk. The effective portion of the changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a cash flow hedge are initially recorded in AOCI and reclassified to earnings in the same period that the hedged item impacts earnings; any ineffective portion is recorded in current period earnings.
Hedge accounting ceases on transactions that are no longer deemed effective, or for which the derivative has been terminated or de-designated. For discontinued fair value hedges where the hedged item remains outstanding, the hedged item would cease to be remeasured at fair value attributable to changes in the hedged risk and any existing basis adjustment would be recognized as an adjustment to earnings over the remaining life of the hedged item. For discontinued cash flow hedges, the unrealized gains and losses recorded in AOCI would be reclassified to earnings in the period when the previously designated hedged cash flows occur unless it was determined that transaction was probable to not occur, whereby any unrealized gains and losses in AOCI would be immediately reclassified to earnings. For additional information on the Company’s derivative activities, see Note 17, “Derivative Financial Instruments,” and Note 19, “Fair Value Election and Measurement.”
Stock-Based Compensation
The Company sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures. For additional information on the Company’s stock-based employee compensation plans, see Note 16, “Employee Benefit Plans.”
Employee Benefits
Employee benefits expense includes the net periodic benefit costs associated with the pension, supplemental retirement, and other postretirement benefit plans, as well as contributions under the defined contribution plan, the amortization of restricted stock, stock option awards, and costs of other employee benefits. For additional information on the Company's employee benefit plans, see Note 16, “Employee Benefit Plans.”
Foreign Currency Transactions
Foreign denominated assets and liabilities resulting from foreign currency transactions are valued using period end foreign exchange rates and the associated interest income or expense is determined using approximate weighted average exchange rates for the period. The Company may elect to enter into foreign currency derivatives to mitigate its exposure to changes in foreign exchange rates. The derivative contracts are accounted for at fair value. Gains and losses resulting from such valuations are included in noninterest income in the Consolidated Statements of Income/(Loss).
Fair Value
Certain assets and liabilities are measured at fair value on a recurring basis. Examples of these include derivative instruments, AFS and trading securities, certain LHFI and LHFS, certain issuances of long-term debt, brokered deposits, and MSR assets. Fair value is used on a non-recurring basis as a measurement basis either when assets are evaluated for impairment, the basis of accounting is LOCOM or for disclosure purposes. Examples of these non-recurring uses of fair value include certain LHFS and LHFI, OREO, goodwill, intangible assets, nonmarketable equity securities, certain partnership investments and long-lived assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value.
The Company applied the following fair value hierarchy:
Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.
Level 2 – Assets and liabilities valued based on observable market data for similar instruments.
Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
To determine the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. If available, the Company looks to active and observable markets to price identical assets or liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Nevertheless, the Company uses alternative valuation techniques to derive a fair value measurement for those assets and liabilities that are either not actively traded in observable markets or for which market observable inputs are
not available. For additional information on the Company’s valuation of its assets and liabilities held at fair value, see Note 19, “Fair Value Election and Measurement.”
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The ASU provides additional guidance to assist creditors in determining whether a modification of a receivable meets the criteria to be considered a TDR, both for purposes of recognizing loan losses and additional disclosures regarding TDRs. A modification of a credit arrangement constitutes a TDR if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it would not otherwise consider. The clarifications for classification apply to all restructurings occurring on or after January 1, 2011. The measurement of impairment for those newly identified TDRs was applied prospectively beginning on July 1, 2011. The related disclosures, which were previously deferred by ASU 2011-01, were required for the interim reporting period ending September 30, 2011 and subsequent reporting periods. The required disclosures and impact as a result of adoption are included in Note 6, “Loans.” The adoption of the ASU did not have a significant impact on the Company’s financial position, results of operations, or EPS.
In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” A repurchase agreement is a transaction in which a company sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The determination of whether the transaction is accounted for as a sale or a collateralized financing is determined by assessing whether the seller retains effective control of the financial instrument. The ASU changes the assessment of effective control by removing the criterion that requires the seller to have the ability to repurchase or redeem financial assets with substantially the same terms, even in the event of default by the buyer and the collateral maintenance implementation guidance related to that criterion. The Company will apply the new guidance to repurchase agreements entered into or amended after January 1, 2012. The adoption of the ASU did not have a significant impact on the Company’s financial position, results of operations, or EPS.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU is to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarifies how to apply existing fair value measurement and disclosure requirements. Further, the ASU requires additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU is effective for the interim reporting period ending March 31, 2012. The Company has adopted the standard as of January 1, 2012. The adoption did not have a significant impact on the Company’s financial position, results of operations, or EPS.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The ASU requires presentation of the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The update does not change the items presented in OCI and does not affect the calculation or reporting of EPS. In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05," which deferred the effective date for the amendments to the reclassification of items out of AOCI. The guidance, with the exception of reclassification adjustments, is effective on January 1, 2012 and must be applied retrospectively for all periods presented. The Company has adopted the standard as of January 1, 2012. The adoption did not have an impact on the Company’s financial position, results of operations, or EPS.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The ASU amends interim and annual goodwill impairment testing requirements. Under the ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The more likely than not threshold is defined as having a likelihood of more than 50 percent. The guidance is effective for annual and interim goodwill impairment tests beginning January 1, 2012. The Company has adopted the standard as of January 1, 2012 and will apply the new guidance to future goodwill impairment testing, but the Company does not expect the standard to have a substantive impact on its goodwill impairment evaluation.
In December 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." The ASU requires additional disclosures about financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective for the interim reporting period ending March 31, 2013 with retrospective disclosure for all comparative periods presented. The Company is evaluating the impact of the ASU; however, it is not expected to materially impact the Company's financial position, results of operations, or EPS.
Acquisitions/Dispositions
Acquisitions/Dispositions
NOTE 2 - ACQUISITIONS/DISPOSITIONS
During the three year period ended December 31, 2011, the Company consummated the following acquisitions and dispositions:
 
(Dollars in millions)
 
Date
 
Cash or other
consideration
(paid)/ received
 
Goodwill
 
Other Intangibles
 
Gain
 
Comments
2011
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of certain additional assets of CSI Capital Management
 
5/9/2011
 

($19
)
 

$20

 

$7

 

$—

 
Goodwill and intangibles  recorded are tax-deductible.
2010
 
 
 
 
 
 
 
 
 
 
 
 
Disposition of certain money market fund management business
 
various
 
7

 

 
11

 
18

 

2009
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of assets of Martin Kelly Capital Management
 
12/22/2009
 
(2
)
 
1

 
1

 

 
Goodwill and intangibles  recorded are tax-deductible.
Acquisition of certain assets of CSI Capital Management
 
11/30/2009
 
(3
)
 
1

 
2

 

 
Goodwill and intangibles recorded are tax-deductible.
Acquisition of assets of Epic Advisors, Inc.
 
4/1/2009
 
(2
)
 
5

 
1

 

 
Goodwill and intangibles recorded are tax-deductible.


In January 2012, the Company announced the signing of a definitive agreement to acquire substantially all of the assets of an online lender, FirstAgain, LLC. Pending customary regulatory approvals, the Company expects the acquisition to be completed in the second quarter of 2012 and does not expect the impact on the Company’s financial position, results of operations, or EPS to be material.
Securities Purchased Under Agreements to Resell
Funds Sold and Securities Purchased Under Agreements to Resell
NOTE 3 - SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell were $792 million and $1.1 billion at December 31, 2011 and 2010, respectively.
These agreements are collateralized by U.S. government or agency securities, and are carried at the amounts at which securities will be subsequently resold. The Company takes possession of all securities under agreements to resell and performs the appropriate margin evaluation on the acquisition date based on market volatility, as necessary. It is the Company's policy to obtain possession of collateral with a fair value between 95% to 110% of the principal amount loaned under resale agreements. The total market value of the collateral held was $806 million and $1.1 billion at December 31, 2011 and 2010, of which $247 million and $165 million was repledged, respectively.
Trading Assets and Liabilities
Trading Assets and Liabilities [Text Block]
NOTE 4 - TRADING ASSETS AND LIABILITIES
The fair values of the components of trading assets and liabilities at December 31 were as follows:
 
(Dollars in millions)
 
2011
 
2010
Trading Assets
 
 
 
 
U.S. Treasury securities
 

$144

 

$187

Federal agency securities
 
478

 
361

U.S. states and political subdivisions
 
54

 
123

MBS - agency
 
412

 
301

MBS - private
 
1

 
15

CDO securities
 
45

 
55

ABS
 
37

 
59

Corporate and other debt securities
 
344

 
743

CP
 
229

 
14

Equity securities
 
91

 
221

Derivative contracts 1
 
2,414

 
2,743

Trading loans 2
 
2,030

 
1,353

Total trading assets
 

$6,279

 

$6,175

Trading Liabilities
 
 
 
 
U.S. Treasury securities
 

$569

 

$439

Corporate and other debt securities
 
77

 
398

Equity securities
 
37

 

Derivative contracts 1
 
1,123

 
1,841

Total trading liabilities
 

$1,806

 

$2,678


1The current year amount is offset with cash collateral received from or deposited with derivative counterparties when the derivative contracts are subject to ISDA master netting arrangements, due to resolution during the year of certain operational limitations. This presentation is in accordance with applicable accounting standards and applied prospectively.
2Includes loans related to TRS.
See Note 20, “Contingencies,” to the Consolidated Financial Statements for information concerning ARS added to trading assets in 2008 as well as the current position in those assets at December 31, 2011.
Trading instruments are used as part of the Company’s overall balance sheet management strategies and through its broker/dealer subsidiary, to support client requirements. The Company manages the potential market volatility associated with the trading instruments, utilized for balance sheet management, with appropriate duration and/or hedging strategies. The size, volume and nature of the trading instruments can vary based on economic and Company specific asset or liability conditions. Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative and foreign exchange contracts, and similar financial instruments. Other trading activities include acting as a market maker in certain debt and equity securities and related derivatives. The Company has policies and procedures to manage market risk associated with these client trading activities and assumes a limited degree of market risk by managing the size and nature of its exposure. The Company has pledged $770 million and $823 million of certain trading assets and cash equivalents to secure $747 million and $793 million of repurchase agreements as of December 31, 2011 and 2010, respectively.
Securities Available for Sale
Securities Available for Sale
NOTE 5 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition

 
December 31, 2011
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$671

 

$23

 

$—

 

$694

Federal agency securities
1,843

 
89

 

 
1,932

U.S. states and political subdivisions
437

 
21

 
4

 
454

MBS - agency
20,480

 
743

 

 
21,223

MBS - private
252

 

 
31

 
221

CDO/CLO securities
50

 

 

 
50

ABS
460

 
11

 
7

 
464

Corporate and other debt securities
49

 
2

 

 
51

Coke common stock

 
2,099

 

 
2,099

Other equity securities1
928

 
1

 

 
929

Total securities AFS

$25,170

 

$2,989

 

$42

 

$28,117

 
 
 
 
 
 
 
 
 
December 31, 2010
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$5,446

 

$115

 

$45

 

$5,516

Federal agency securities
1,883

 
19

 
7

 
1,895

U.S. states and political subdivisions
565

 
17

 
3

 
579

MBS - agency
14,014

 
372

 
28

 
14,358

MBS - private
378

 
3

 
34

 
347

CDO/CLO securities
50

 

 

 
50

ABS
798

 
15

 
5

 
808

Corporate and other debt securities
464

 
19

 
1

 
482

Coke common stock

 
1,973

 

 
1,973

Other equity securities1
886

 
1

 

 
887

Total securities AFS

$24,484

 

$2,534

 

$123

 

$26,895

1At December 31, 2011, other equity securities included the following securities at cost: $342 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, and $187 million in mutual fund investments. At December 31, 2010, other equity securities included the following securities at cost: $298 million in FHLB of Atlanta stock, $391 million in Federal Reserve Bank stock, and $197 million in mutual fund investments.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $9.1 billion and $6.9 billion as of December 31, 2011 and 2010, respectively. Further, under The Agreements, the Company pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 17, “Derivative Financial Instruments.”
The amortized cost and fair value of investments in debt securities at December 31, 2011 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
Distribution of Maturities
(Dollars in millions)
1 Year
or Less      
 
1-5
Years      
 
5-10
Years      
 
After 10      
Years
 
Total        
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$9

 

$212

 

$450

 

$—

 

$671

Federal agency securities
88

 
1,620

 
80

 
55

 
1,843

U.S. states and political subdivisions
135

 
223

 
22

 
57

 
437

MBS - agency
802

 
15,833

 
1,415

 
2,430

 
20,480

MBS - private

 
196

 
56

 

 
252

CDO/CLO securities

 
50

 

 

 
50

ABS
260

 
200

 

 

 
460

Corporate and other debt securities
7

 
4

 
17

 
21

 
49

Total debt securities

$1,301

 

$18,338

 

$2,040

 

$2,563

 

$24,242

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$9

 

$223

 

$462

 

$—

 

$694

Federal agency securities
89

 
1,697

 
89

 
57

 
1,932

U.S. states and political subdivisions
138

 
239

 
22

 
55

 
454

MBS - agency
840

 
16,434

 
1,478

 
2,471

 
21,223

MBS - private

 
167

 
54

 

 
221

CDO/CLO securities

 
50

 

 

 
50

ABS
266

 
198

 

 

 
464

Corporate and other debt securities
7

 
4

 
19

 
21

 
51

Total debt securities

$1,349

 

$19,012

 

$2,124

 

$2,604

 

$25,089



Securities in an Unrealized Loss Position
The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates. As of December 31, 2011, the Company did not intend to sell these securities nor was it more-likely-than-not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in Note 1, “Significant Accounting Policies.”

 
December 31, 2011
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized  
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$10

 

$—

 

$—

 

$—

 

$10

 

$—

U.S. states and political subdivisions
1

 

 
28

 
4

 
29

 
4

MBS - agency
224

 

 
1

 

 
225

 

CDO/CLO securities
50

 

 

 

 
50

 

ABS

 

 
11

 
5

 
11

 
5

Total temporarily impaired securities

285

 

 
40

 
9

 
325

 
9

Other-than-temporarily impaired securities:1
 
 
 
 
 
 
 
 
 
 
 
MBS - private
15

 
1

 
206

 
30

 
221

 
31

ABS
1

 

 
3

 
2

 
4

 
2

Total other-than-temporarily impaired securities
16

 
1

 
209

 
32

 
225

 
33

Total impaired securities

$301

 

$1

 

$249

 

$41

 

$550

 

$42

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
   Value   
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$2,010

 

$45

 

$—

 

$—