SUNTRUST BANKS INC, 10-Q filed on 11/7/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Oct. 31, 2012
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
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
 
538,828,728 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Statements of Income/Loss (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Interest Income
 
 
 
 
Interest and fees on loans
$ 1,257 
$ 1,296 
$ 3,820 
$ 3,910 
Interest and fees on loans held for sale
29 
21 
84 
71 
Interest and dividends on securities available for sale:
 
 
 
 
Taxable interest
132 
175 
454 
517 
Tax-exempt interest
12 
16 
Dividends
1
20 1
53 1
61 1
Trading account interest and other
15 
21 
48 
63 
Total interest income
1,445 
1,538 
4,471 
4,638 
Interest Expense
 
 
 
 
Interest on deposits
98 
154 
342 
485 
Interest on long-term debt
66 
110 
244 
347 
Interest on other borrowings
10 
11 
29 
35 
Total interest expense
174 
275 
615 
867 
Net interest income
1,271 
1,263 
3,856 
3,771 
Provision for credit losses
450 2
347 2
1,067 2
1,186 2
Net interest income after provision for credit losses
821 
916 
2,789 
2,585 
Noninterest Income
 
 
 
 
Service charges on deposit accounts
172 
176 
504 
509 
Fees and Commissions, Other
116 
130 
361 
386 
Trust and investment management income
127 
134 
387 
404 
Card fees
55 
104 
183 
309 
Investment banking income
83 
68 
230 
231 
Trading income/(loss)
19 
66 
145 
171 
Retail investment services
60 
58 
180 
175 
Mortgage production related (loss)/income
(64)
54 
102 
56 
Mortgage servicing related income
64 
58 
215 
202 
Gain (Loss) on Sale of Securities, Net
1,941 3
3
1,973 3
98 3
Other noninterest income
(31)
53 
78 
157 
Total noninterest income
2,542 
903 
4,358 
2,698 
Noninterest Expense
 
 
 
 
Employee compensation
670 
642 
1,977 
1,898 
Employee benefits
110 
108 
363 
354 
Outside processing and software
171 
164 
527 
484 
Net occupancy expense
92 
90 
267 
268 
Marketing and customer development
75 
41 
134 
125 
Operating losses
71 
72 
200 
161 
Federal Deposit Insurance Corporation Premium Expense
67 
80 
179 
232 
Credit and collection services
65 
71 
181 
182 
Equipment expense
49 
44 
140 
132 
Other Staff Expense
41 
18 
75 
53 
Professional Fees
40 
34 
116 
77 
Other real estate expense
30 
62 
133 
195 
Amortization/impairment of goodwill/intangible assets
 
 
31 
34 
Amortization/impairment of goodwill/intangible assets
17 
11 
39 
34 
Net (gain)/loss on extinguishment of debt
(1)
15 
(3)
Other noninterest expense
226 
124 
467 
375 
Total noninterest expense
1,726 
1,560 
4,813 
4,567 
Income/(loss) before provision/(benefit) for income taxes
1,637 
259 
2,334 
716 
Provision/(benefit) for income taxes
551 
45 
710 
136 
Net income/(loss) including income attributable to noncontrolling interest
1,086 
214 
1,624 
580 
Net income attributable to noncontrolling interest
(1)
22 
Net income/(loss)
1,077 
215 
1,602 
573 
Net income/(loss) available to common shareholders
$ 1,066 
$ 211 
$ 1,581 
$ 424 
Net income/(loss) per average common share
 
 
 
 
Diluted
$ 1.98 
$ 0.39 
$ 2.94 
$ 0.81 
Basic
$ 1.99 
$ 0.40 
$ 2.96 
$ 0.81 
Dividends declared per common share
$ 0.05 
$ 0.05 
$ 0.15 
$ 0.07 
Average common shares - diluted
538,699 
535,395 
537,538 
524,888 
Average common shares - basic
534,506 
531,928 
533,859 
521,248 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dividends on common stock of The Coca-Cola Company
$ 0 
$ 14 
$ 31 
$ 42 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Mortgage-backed Securities, Issued by Private Enterprises [Member]
 
 
 
 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities
1
1
1
1
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 0 
$ 0 
$ 0 
$ 1 
Consolidated Statement of Comprehensive Income/(Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Net income/(loss)
$ 1,077 
$ 215 
$ 1,602 
$ 573 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
(1,448)
173 
(1,256)
294 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
204 
182 
34 
129 
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
(23)
(13)
Other Comprehensive Income (Loss), Net of Tax
(1,239)
359 
(1,245)
410 
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ (162)
$ 574 
$ 357 
$ 983 
Consolidated Statement of Comprehensive Income/(Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ (795)
$ 100 
$ (688)
$ 170 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect
111 
105 
15 
74 
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ 3 
$ 2 
$ (13)
$ (7)
Consolidated Balance Sheets (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Assets
 
 
Securities purchased under agreements to resell
$ 930 
$ 792 
Interest-bearing deposits in other banks
22 
21 
Cash and cash equivalents
5,607 
4,509 
Trading assets
6,381 
6,279 
Available-for-sale Securities
21,467 
28,117 
Loans Held for Sale
5,205 1
2,353 
Loans held for investment
121,817 2
122,495 2
Allowance for loan and lease losses
(2,239)
(2,457)
Net loans
119,578 
120,038 
Premises and equipment
1,578 
1,564 
Goodwill
6,369 
6,344 
Other intangible assets
896 
1,017 
Other real estate owned
304 
479 
Other assets
5,796 
6,159 
Total assets
173,181 
176,859 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
37,592 
34,359 
Interest-bearing consumer and commercial deposits
87,306 
91,252 
Total consumer and commercial deposits
124,898 
125,611 
Brokered time deposits
2,198 
2,281 
Foreign deposits
130 
30 
Total deposits
127,226 
127,922 
Funds purchased
680 
839 
Securities Sold under Agreements to Repurchase
1,630 
1,644 
Other short-term borrowings
6,511 
8,983 
Long-term Debt
10,765 3
10,908 3
Trading liabilities
1,458 
1,806 
Other liabilities
4,512 
4,691 
Total liabilities
152,782 
156,793 
Preferred stock, no par value
275 
275 
Common stock, $1.00 par value
550 
550 
Additional paid in capital
9,195 
9,306 
Retained earnings
10,491 
8,978 
Treasury stock, at cost, and other
(616)4
(792)4
AOCI, net of tax
504 
1,749 
Total shareholders' equity
20,399 
20,066 
Total liabilities and shareholders' equity
173,181 
176,859 
Common Stock, Shares, Outstanding
538,821,000 
536,967,000 
Common shares authorized
750,000,000 
750,000,000 
Preferred shares outstanding
Preferred shares authorized
50,000,000 
50,000,000 
Treasury shares of common stock
11,100,000 
12,954,000 
Cash and Due from Banks
$ 4,655 
$ 3,696 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Loans Held-for-sale, Fair Value Disclosure
$ 3,222 1
$ 2,141 1
Loans carried at fair value
390 2
433 2
Other intangible assets, MSRs at fair value
831 
921 
Trading Securities, Restricted
614 
574 
Brokered deposits
900 
1,018 
Long-term debt, fair value
2,050 3
1,997 3
Common stock, par value
$ 1.00 
$ 1.00 
Loans Receivable Held-for-sale, Net
5,205 1
2,353 
Loans held for investment
121,817 2
122,495 2
Long-term Debt
10,765 3
10,908 3
Stockholders' Equity Attributable to Noncontrolling Interest
114 
107 
Variable Interest Entity, Primary Beneficiary
 
 
Long-term debt, fair value
287 
289 
Loans Receivable Held-for-sale, Net
328 
315 
Loans held for investment
374 
3,322 
Long-term Debt
$ 683 
$ 722 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions, except Share data
Total
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings [Member]
Treasury Stock and Other
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Dec. 31, 2010
$ 23,130 
$ 4,942 
$ 515 
$ 8,403 
$ 8,542 
$ (888)1
$ 1,616 2
Common Stock, Shares, Outstanding
 
 
537,000,000 
 
 
 
 
Net income (loss)
573 
 
 
 
573 
 
 
Other Comprehensive Income (Loss), Net of Tax
410 
 
 
 
 
 
410 2
Change in noncontrolling interest
(8)
 
 
 
 
(8)1
 
Common stock dividends
(37)
 
 
 
(37)
 
 
Preferred dividends
(5)
 
 
 
(5)
 
 
U.S. Treasury preferred stock dividends
(60)
 
 
 
(60)
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
(6)
 
 
(6)
 
 
Repurchase of preferred stock
(4,850)
(4,776)
 
 
(74)
 
 
Adjustments to Additional Paid in Capital, Warrant Issued
(11)
 
 
(11)
 
 
 
Issuance of common stock (in shares)
 
 
35,000,000 
 
 
 
 
Issuance of common stock
1,017 
 
35 
982 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Requisite Service Period Recognition
 
 
 
 
 
Restricted stock activity (in shares)
 
 
2,000,000 
 
 
 
 
Restricted stock activity
(8)
 
 
(57)
 
49 1
 
Restricted Stock or Unit Expense
25 
 
 
 
 
25 1
 
Stock Issued During Period, Value, Employee Benefit Plan
15 
 
 
(12)
 
27 1
 
Ending Balance at Sep. 30, 2011
20,200 
172 
550 
9,314 
8,933 
(795)1
2,026 2
Beginning Balance at Dec. 31, 2011
20,066 
275 
550 
9,306 
8,978 
(792)1
1,749 2
Common Stock, Shares, Outstanding
538,821,000 
 
539,000,000 
 
 
 
 
Net income (loss)
1,602 
 
 
 
1,602 
 
 
Other Comprehensive Income (Loss), Net of Tax
(1,245)
 
 
 
 
 
(1,245)2
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends
(81)
 
 
 
(81)
 
 
Preferred dividends
(8)
 
 
 
(8)
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
 
 
1,000,000 
 
 
 
 
Stock compensation expense
16 
 
 
(35)
 
51 1
 
Restricted stock activity (in shares)
 
 
1,000,000 
 
 
 
 
Restricted stock activity
 
 
(64)
 
69 1
 
Restricted Stock or Unit Expense
22 
 
 
 
 
22 1
 
Stock Issued During Period, Value, Employee Benefit Plan
15 
 
 
(12)
 
27 1
 
Ending Balance at Sep. 30, 2012
$ 20,399 
$ 275 
$ 550 
$ 9,195 
$ 10,491 
$ (616)1
$ 504 2
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Common stock dividends, per share
$ 0.15 
$ 0.07 
Preferred stock dividends, per share
$ 3,056 
$ 3,044 
U.S. Treasury preferred stock dividends, per share
 
$ 1,236 
Treasury Stock, Value
$ 616 1
 
Stockholders' Equity Attributable to Noncontrolling Interest
114 
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
607 
1,820 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
603 
661 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(706)
(455)
Treasury Stock and Other
 
 
Treasury Stock, Value
673 
858 
Deferred Compensation Equity
57 
58 
Stockholders' Equity Attributable to Noncontrolling Interest
$ 114 
$ 121 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 1,624 
$ 580 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization, and accretion
567 
563 
Origination of Mortgage Servicing Rights (MSRs)
(244)
(183)
Provisions for credit losses and foreclosed property
1,191 
1,309 
Mortgage repurchase provision
701 
287 
Net (gain)/loss on extinguishment of debt
(15)
Gain (Loss) on Sale of Securities, Net
(1,973)1
(98)1
Net gain on sale of assets
(865)
(309)
Net decrease/(increase) in loans held for sale
(199)
2,146 
Net (increase)/decrease in other assets
457 
(556)
Net increase/(decrease) in other liabilities
(313)
Net cash provided by operating activities
946 
3,739 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
5,431 
3,903 
Proceeds from sales of securities available for sale
4,195 
11,585 
Purchases of securities available for sale
(3,097)
(15,664)
Proceeds from maturities, calls, and paydowns of trading securities
132 
Proceeds from sales of trading securities
102 
Net (increase)/decrease in loans including purchases of loans
(4,833)
(5,018)
Proceeds from sales of loans
2,041 
499 
Capital expenditures
(168)
(78)
Contingent consideration and other payments related to acquisitions
(13)
(20)
Proceeds from the sale of other assets
363 
481 
Net cash (used in)/provided by investing activities
3,919 
(4,078)
Cash Flows from Financing Activities:
 
 
Net (decrease)/increase in total deposits
(696)
3,207 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(2,645)
1,416 
Proceeds from the issuance of long-term debt
4,000 
1,039 
Repayment of long-term debt
(4,359)
(1,255)
Proceeds from the issuance of common stock
1,017 
Repurchase of preferred stock
(4,850)
Purchase of outstanding warrants
(11)
Common and preferred dividends paid
(89)
(102)
Proceeds from (Payments for) Other Financing Activities
22 
Net cash provided by/(used in) financing activities
(3,767)
461 
Net (decrease)/increase in cash and cash equivalents
1,098 
122 
Cash and cash equivalents at beginning of period
4,509 
5,378 
Cash and cash equivalents at end of period
5,607 
5,500 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
34 
53 
Loans transferred from loans to loans held for sale
3,112 
657 
Loans transferred from loans and loans held for sale to other real estate owned
304 
570 
Accretion of discount for preferred stock issued to the U.S. Treasury
$ 0 
$ 80 
Significant Accounting Policies
Significant Accounting Policies
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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.
These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. During the three months ended September 30, 2012, the Company elected to revise its credit policy related to the nonaccrual status and timing of charge-off recognition of second lien loans. The Company began classifying second lien loans as nonaccrual when the first lien loan is classified as nonaccrual, even if the second lien loan is performing, and as a result, the Company reclassified $81 million of performing second lien loans to nonaccrual. Additionally, the Company previously charged-off second lien loans at 180 days past due, but implemented a change in policy in the third quarter of 2012 to recognize the charge-off at 120 days past due as the analysis indicated that when a second lien loan becomes 120 days past due, the vast majority of these loans ultimately experience a charge-off. The change in credit policy resulted in $65 million of incremental charge-offs during the three and nine months ended September 30, 2012.
Except for accounting policies that have been recently adopted as described below, and the policy change related to second lien loans noted above, there have been no significant changes to the Company’s accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
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 was to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarified how to apply existing fair value measurement and disclosure requirements. Further, the ASU required 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 was effective for the interim reporting period ending March 31, 2012. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption did not impact 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 ASU 2011-05,” which deferred the effective date for the amendments to the reclassification of items out of AOCI. In June 2012, the FASB decided that the presentation requirements deferred in ASU 2011-12 would not be reinstated. The guidance, with the exception of reclassification adjustments, was effective on January 1, 2012, and must be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in the Consolidated Statements of Comprehensive (Loss)/Income. The adoption did not impact 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 such that 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 guidance was effective for annual and interim goodwill impairment tests beginning on or after January 1, 2012. The Company 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 July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company has evaluated this ASU and it is not expected to impact the Company's financial position, results of operations, or EPS when adopted.

In October 2012, the FASB issued ASU 2012-04, “Technical Corrections and Improvements." The ASU prescribes technical corrections and improvements to the Accounting Standards Codification for source literature amendments, guidance clarification and reference corrections, and relocated guidance within the Accounting Standards Codification. The ASU is effective for fiscal periods beginning after December 15, 2012. The Company is evaluating the impact of the ASU; however, it is not expected to have a significant impact on the Company's financial position, results of operations, or EPS.
Securities Available for Sale
Securities Available for Sale
NOTE 2 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition

 
September 30, 2012
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$213

 

$11

 

$—

 

$224

Federal agency securities
1,713

 
89

 

 
1,802

U.S. states and political subdivisions
343

 
18

 
6

 
355

MBS - agency
16,705

 
881

 

 
17,586

MBS - private
213

 
4

 

 
217

ABS
260

 
5

 
4

 
261

Corporate and other debt securities
42

 
4

 

 
46

Other equity securities1
975

 
1

 

 
976

Total securities AFS

$20,464

 

$1,013

 

$10

 

$21,467

 
 
 
 
 
 
 
 
 
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

1At September 30, 2012, other equity securities included the following securities at cost: $432 million in FHLB of Atlanta stock, $401 million in Federal Reserve Bank stock, and $141 million in mutual fund investments. At 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.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $8.1 billion and $9.1 billion as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012 and December 31, 2011, there were no securities AFS pledged under which the transferee may repledge the collateral. The Company has also pledged $939 million and $770 million of certain other marketable securities and cash equivalents to secure $907 million and $747 million of repurchase agreements as of September 30, 2012 and December 31, 2011, respectively.
During the three months ended September 30, 2012, the Company terminated the Agreements that hedged the Coke common stock, and the Company sold, in the market or to the Coke Counterparty, 59 million of its 60 million shares of Coke and contributed the remaining 1 million shares of Coke to the SunTrust Foundation for a net gain of $1.9 billion. The contribution to the SunTrust Foundation increased noninterest expense by $38 million during the three and nine months ended September 30, 2012. Details of the transactions are discussed in Note 10, "Derivative Financial Instruments."
The amortized cost and fair value of investments in debt securities at September 30, 2012, 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 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

$11

 

$202

 

$—

 

$—

 

$213

Federal agency securities
153

 
1,349

 
84

 
127

 
1,713

U.S. states and political subdivisions
103

 
172

 
19

 
49

 
343

MBS - agency
947

 
14,539

 
1,027

 
192

 
16,705

MBS - private

 
129

 
84

 

 
213

ABS
159

 
71

 
2

 
28

 
260

Corporate and other debt securities
4

 
21

 
17

 

 
42

Total debt securities

$1,377

 

$16,483

 

$1,233

 

$396

 

$19,489

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$11

 

$213

 

$—

 

$—

 

$224

Federal agency securities
155

 
1,420

 
95

 
132

 
1,802

U.S. states and political subdivisions
105

 
184

 
19

 
47

 
355

MBS - agency
1,006

 
15,294

 
1,082

 
204

 
17,586

MBS - private

 
130

 
87

 

 
217

ABS
160

 
69

 
2

 
30

 
261

Corporate and other debt securities
4

 
22

 
20

 

 
46

Total debt securities

$1,441

 

$17,332

 

$1,305

 

$413

 

$20,491


 
 
 
 
 
 
 
 
 
 Weighted average yield 1
3.47
%
 
2.95
%
 
3.68
%
 
3.38
%
 
3.03
%
1 Average yields are based on amortized cost and presented on a fully taxable-equivalent basis.


Securities in an Unrealized Loss Position
The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. As of September 30, 2012, 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

 
September 30, 2012
 
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

$30

 

$—

 

$—

 

$—

 

$30

 

$—

U.S. states and political subdivisions

 

 
25

 
6

 
25

 
6

MBS - agency
49

 

 

 

 
49

 

ABS

 

 
12

 
2

 
12

 
2

Total temporarily impaired securities

79

 

 
37

 
8

 
116

 
8

Other-than-temporarily impaired securities1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private

 

 
46

 

 
46

 

ABS

 

 
4

 
2

 
4

 
2

Total other-than-temporarily impaired securities

 

 
50

 
2

 
50

 
2

Total impaired securities

$79

 

$—

 

$87

 

$10

 

$166

 

$10

 
 
 
 
 
 
 
 
 
 
 
 
 
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 securities1:
 
 
 
 
 
 
 
 
 
 
 
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

1Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.
At September 30, 2012 and December 31, 2011, unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months include municipal ARS and one ABS collateralized by 2004 vintage home equity loans. The municipal securities are backed by investment grade rated obligors; however, the fair value of these securities continues to be impacted by the lack of a functioning ARS market and the extension of time for expected refinance and repayment. No credit loss is expected on these securities. The ABS is also highly-rated, continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Cash flow analysis shows that the underlying collateral can withstand highly stressed loss assumptions without incurring a credit loss.

The portion of unrealized losses on securities that have been other-than-temporarily impaired that relates to factors other than credit are recorded in AOCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. The unrealized OTTI loss relating to ABS at September 30, 2012 is related to three securities within the portfolio that are 2003 and 2004 vintage home equity issuances. The expectation of cash flows for the previously impaired ABS securities has improved since the credit-related impairment was recognized, and as a result, the amount of expected credit losses was reduced, and the expected increase in cash flows is being accreted into earnings as a yield adjustment over the remaining life of the securities.



Realized Gains and Losses and Other-than-Temporarily Impaired Securities
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions)
2012
 
2011
 
2012
 
2011
Gross realized gains

$1,944

1 

$4

 

$1,980

1 

$180

Gross realized losses

 
(2
)
 

 
(80
)
OTTI
(3
)
 

 
(7
)
 
(2
)
Net securities gains

$1,941

 

$2

 

$1,973

 

$98


1Included in these amounts are $305 million in losses recognized during the three and nine months ended September 30, 2012 related to the termination of the Agreements that hedge the Coke common stock.

The securities that gave rise to credit impairments recognized during the three and nine months ended September 30, 2012, as shown in the table below, consisted of private MBS with a fair value of $217 million. The securities impacted by credit impairment during the nine months ended September 30, 2011, consisted of private MBS with a fair value of $176 million at September 30, 2011. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled for the collateral underlying each security. As part of that analysis, the model incorporates loan level information such as loan to collateral values, FICO scores, and home price appreciation/depreciation data specific to the geography of the loan. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the three and nine months ended September 30, 2012 and the nine months ended September 30, 2011, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007. There were no OTTI losses recognized during the three months ended September 30, 2011.

The Company has not purchased any new private MBS during the nine months ended September 30, 2012, and continues to reduce existing exposure primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total impairment, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
(Dollars in millions)
MBS - Private
 
MBS - Private
 
MBS - Private
 
MBS - Private
OTTI1

$3

 

$—

 

$7

 

$3

Portion of losses recognized in OCI (before taxes)

 

 

 
(1
)
Net impairment losses recognized in earnings

$3

 

$—

 

$7

 

$2

1 The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount includes additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position, plus any additional credit losses taken through earnings that exceeds the total impairment.

The following is a rollforward of credit losses recognized in earnings for the three and nine months ended September 30, 2012 and 2011, related to securities for which the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows:

 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2012
 
2011
 
2012
 
2011
Balance, beginning of period

$28

 

$21

 

$25

 

$20

Additions:
 
 
 
 
 
 
 
OTTI credit losses on previously impaired securities
3

 

 
7

 
2

Reductions:
 
 
 
 
 
 
 
Increases in expected cash flows recognized over the remaining life of the securities

 

 
(1
)
 
(1
)
Balance, end of period

$31

 

$21

 

$31

 

$21


The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS for the nine months ended September 30:
 
 
2012
 
2011
Default rate
2 - 9%
 
4 - 8%
Prepayment rate
7 - 21%
 
12 - 22%
Loss severity
40 - 56%
 
39 - 44%

Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. During the first nine months of 2012, there was improvement in the default estimates for certain credit impaired bonds; however, slower prepayment speeds and higher severity rates resulted in the recognition of additional impairment.
Loans
Loans
NOTE 3 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio is shown in the following table:
(Dollars in millions)
September 30,
2012
 
December 31,
2011
Commercial loans:
 
 
 
Commercial & industrial

$52,407

 

$49,538

Commercial real estate
4,491

 
5,094

Commercial construction
808

 
1,240

Total commercial loans
57,706

 
55,872

Residential loans:
 
 
 
Residential mortgages - guaranteed
4,823

 
6,672

Residential mortgages - nonguaranteed1
23,925

 
23,243

Home equity products
15,019

 
15,765

Residential construction
805

 
980

Total residential loans
44,572

 
46,660

Consumer loans:
 
 
 
Guaranteed student loans
5,823

 
7,199

Other direct
2,341

 
2,059

Indirect
10,781

 
10,165

Credit cards
594

 
540

Total consumer loans
19,539

 
19,963

LHFI

$121,817

 

$122,495

LHFS

$5,205

 

$2,353

1Includes $390 million and $431 million of loans carried at fair value at September 30, 2012 and December 31, 2011, respectively.

During the three months ended September 30, 2012 and 2011, the Company transferred $2.0 billion and $459 million in LHFI to LHFS, and $3 million and $7 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2012 and 2011, the Company sold $649 million and $202 million in loans and leases for gains of $9 million and $10 million, respectively.
During the nine months ended September 30, 2012 and 2011, the Company transferred $3.1 billion and $657 million in LHFI to LHFS, and $34 million and $53 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2012 and 2011, the Company sold $2.0 billion and $479 million in loans and leases for gains of $62 million and $20 million, respectively. There were no other material sales of LHFI during the three and nine months ended September 30, 2012 and 2011.

Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low expectations of default. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Criticized assets have a higher PD. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.
Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. In response to updates in the industry-wide FICO scoring model and to enhance the Company's ability to manage credit risk, the Company updated its FICO scoring model to this updated version for the Home Equity, Indirect, and Other Direct portfolios in the first quarter of 2012. This change was the primary reason for the changes in the percentage of balances across the FICO score ranges noted below. There was no impact to the Company's financial position or results of operations as a result of updating the FICO scoring model.
For government guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At September 30, 2012 and December 31, 2011, 86% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.

LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
Commercial & industrial
 
Commercial real estate
 
Commercial construction
(Dollars in millions)
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
Credit rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$50,496

 

$47,683

 

$3,788

 

$3,845

 

$524

 

$581

Criticized accruing
1,623

 
1,507

 
584

 
961

 
209

 
369

Criticized nonaccruing
288

 
348

 
119

 
288

 
75

 
290

Total

$52,407

 

$49,538

 

$4,491

 

$5,094

 

$808

 

$1,240

 
Residential Loans 2
 
Residential mortgages -
nonguaranteed
 
Home equity products
 
Residential construction
(Dollars in millions)
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$17,550

 

$16,139

 

$11,454

 

$11,084

 

$594

 

$661

620 - 699
4,071

 
4,132

 
2,339

 
2,903

 
137

 
202

Below 6201
2,304

 
2,972

 
1,226

 
1,778

 
74

 
117

Total

$23,925

 

$23,243

 

$15,019

 

$15,765

 

$805

 

$980

 
Consumer Loans 3
 
Other direct
 
Indirect
 
Credit cards
(Dollars in millions)
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$1,930

 

$1,614

 

$8,156

 

$7,397

 

$404

 

$347

620 - 699
343

 
359

 
1,992

 
1,990

 
145

 
142

Below 6201
68

 
86

 
633

 
778

 
45

 
51

Total

$2,341

 

$2,059

 

$10,781

 

$10,165

 

$594

 

$540

1For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
2Excludes $4.8 billion and $6.7 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both September 30, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.
3Excludes $5.8 billion and $7.2 billion at September 30, 2012 and December 31, 2011, respectively, of guaranteed student loans.
The payment status for the LHFI portfolio is shown in the tables below:
 
As of September 30, 2012
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial

$52,009

 

$82

 

$28

 

$288

 

$52,407

Commercial real estate
4,351

 
20

 
1

 
119

 
4,491

Commercial construction
733

 

 

 
75

 
808

Total commercial loans
57,093

 
102

 
29

 
482

 
57,706

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
3,934

 
151

 
738

 

 
4,823

Residential mortgages - nonguaranteed1
22,866

 
251

 
22

 
786

 
23,925

Home equity products
14,566

 
143

 

 
310

 
15,019

Residential construction
664

 
12

 

 
129

 
805

Total residential loans
42,030

 
557

 
760

 
1,225

 
44,572

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
5,001

 
520

 
302

 

 
5,823

Other direct
2,313

 
17

 
5

 
6

 
2,341

Indirect
10,704

 
57

 
2

 
18

 
10,781

Credit cards
582

 
6

 
6

 

 
594

Total consumer loans
18,600

 
600

 
315

 
24

 
19,539

Total LHFI

$117,723

 

$1,259

 

$1,104

 

$1,731

 

$121,817

1Includes $390 million of loans carried at fair value, the majority of which were accruing current.
2Total nonaccruing loans past due 90 days or more totaled $1.3 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs. 

 
As of December 31, 2011
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial

$49,098

 

$80

 

$12

 

$348

 

$49,538

Commercial real estate
4,797

 
9

 

 
288

 
5,094

Commercial construction
943

 
7

 

 
290

 
1,240

Total commercial loans
54,838

 
96

 
12

 
926

 
55,872

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
5,394

 
176

 
1,102

 

 
6,672

Residential mortgages - nonguaranteed1
21,501

 
324

 
26

 
1,392

 
23,243

Home equity products
15,223

 
204

 

 
338

 
15,765

Residential construction
737

 
22

 
1

 
220

 
980

Total residential loans
42,855

 
726

 
1,129

 
1,950

 
46,660

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
5,690

 
640

 
869

 

 
7,199

Other direct
2,032

 
14

 
6

 
7

 
2,059

Indirect
10,074

 
66

 
5

 
20

 
10,165

Credit cards
526

 
7

 
7

 

 
540

Total consumer loans
18,322

 
727

 
887

 
27

 
19,963

Total LHFI

$116,015

 

$1,549

 

$2,028

 

$2,903

 

$122,495

1Includes $431 million of loans carried at fair value, the majority of which were accruing current.
2Total nonaccruing loans past due 90 days or more totaled $2.3 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

Impaired Loans

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. Commercial nonaccrual loans greater than $3 million and certain consumer, residential, and commercial loans whose terms have been modified in a TDR are individually evaluated for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the tables below exclude guaranteed student loans and guaranteed residential mortgages for which there was nominal risk of principal loss.
 
As of September 30, 2012
 
Three Months Ended
September 30, 2012
 
Nine Months Ended
September 30, 2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Amortized   
Cost1
 
Related
Allowance
 
Average
Amortized
Cost
 
Interest
Income
Recognized2
 
Average
Amortized
Cost
 
Interest
Income
Recognized2
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial & industrial

$102

 

$66

 

$—

 

$97

 

$—

 

$107

 

$1

Commercial real estate