SUNTRUST BANKS INC, 10-K filed on 2/25/2011
Annual Report
Document and Entity Information
Year Ended
Dec. 31, 2010
Feb. 07, 2011
Jun. 30, 2010
Document Type
10-K 
 
 
Amendment Flag
FALSE 
 
 
Document Period End Date
2010-12-31 
 
 
Document Fiscal Year Focus
2010 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
STI 
 
 
Entity Registrant Name
SUNTRUST BANKS INC 
 
 
Entity Central Index Key
0000750556 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
500,491,137 
 
Entity Public Float
 
 
11,600,000,000 
Consolidated Statements of Income/(Loss) (USD $)
In Millions, except Per Share data
Year Ended
Dec. 31,
2010
2009
2008
Interest Income
 
 
 
Interest and fees on loans
$ 5,300 
$ 5,530 
$ 6,934 
Interest and fees on loans held for sale
137 
233 
290 
Interest and dividends on securities available for sale
 
 
 
Taxable interest
709 
717 
628 
Tax-exempt interest
31 
40 
44 
Dividends
76 1
73 1
103 1
Trading account interest
89 
115 
303 
Other interest income
26 
Total income
6,343 
6,710 
8,328 
Interest Expense
 
 
 
Interest on deposits
860 
1,440 
2,378 
Interest on funds purchased and securities sold under agreements to repurchase
131 
Interest on trading liabilities
30 
20 
27 
Interest on other short-term borrowings
13 
15 
55 
Interest on long-term debt
580 
761 
1,117 
Total interest expense
1,489 
2,244 
3,708 
Net interest income
4,854 
4,466 
4,620 
Provision for credit losses
2,651 
4,064 
2,474 
Net interest income after provision for credit losses
2,203 
402 
2,146 
Noninterest Income
 
 
 
Service charges on deposit accounts
760 
848 
904 
Other charges and fees
534 
523 
511 
Trust and investment management income
503 
486 
592 
Card fees
376 
324 
308 
Mortgage production related income
127 
376 
171 
Mortgage servicing related income/(loss)
358 
330 
(212)
Investment banking income
313 
272 
237 
Retail investment services
205 
218 
289 
Net securities gains
191 2
98 2
1,073 2
Trading account profits/(losses) and commissions
173 
(41)
38 
Gain from ownership in Visa
 
112 
86 
Net gain on sale of businesses
 
 
198 
Net gain on sale/leaseback of premises
 
 
37 
Other noninterest income
189 
164 
241 
Total noninterest income
3,729 
3,710 
4,473 
Noninterest Expense
 
 
 
Employee compensation
2,364 
2,258 
2,327 
Employee benefits
457 
542 
434 
Outside processing and software
638 
579 
493 
Net occupancy expense
361 
357 
347 
Other real estate expense
300 
244 
105 
Credit and collection services
279 
259 
156 
Regulatory assessments
265 
302 
55 
Marketing and customer development
177 
152 
372 
Equipment expense
174 
172 
203 
Operating losses
83 
99 
446 
Net loss on debt extinguishment
70 
39 
12 
Amortization/impairment of goodwill/intangible assets
51 
807 
121 
Mortgage reinsurance
27 
115 
180 
Visa litigation
 
(33)
Other noninterest expense
665 
630 
661 
Total noninterest expense
5,911 
6,562 
5,879 
Income/(loss) before income taxes and equity in undistributed income/(loss) of subsidiaries
21 
(2,450)
740 
Provision/(benefit) for income taxes
(185)
(898)
(67)
Net income/(loss) including income attributable to noncontrolling interest
206 
(1,552)
807 
Net income attributable to noncontrolling interest
17 
12 
11 
Net income/(loss)
189 
(1,564)
796 
Net income/(loss) available to common shareholders
(87)
(1,733)
741 
Net income/(loss) per average common share
 
 
 
Diluted
(0.18)3
(3.98)3
2.12 3
Basic
(0.18)
(3.98)
2.12 
Dividends declared per common share
$ 0.04 
$ 0.22 
$ 2.85 
Average common shares - diluted
499 
437 
350 
Average common shares - basic
495 
435 
349 
Consolidated Statements of Income/(Loss) (Parenthetical) (Year, USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
2008
Dividends on common stock of The Coca-Cola Company
$ 53 
$ 49 
$ 56 
Net impairment losses recognized in earnings
20 
84 
Total OTTI losses
113 
 
Portion of losses recognized in OCI (before taxes)
93 
 
Consolidated Balance Sheets (USD $)
In Millions, except Share data
Dec. 31, 2010
Dec. 31, 2009
Assets
 
 
Cash and due from banks
$ 4,296 
$ 6,456 
Interest-bearing deposits in other banks
24 
24 
Funds sold and securities purchased under agreements to resell
1,058 
517 
Cash and cash equivalents
5,378 
6,997 
Trading assets
6,175 
4,980 
Securities available for sale
26,895 
28,477 
Loans held for sale (loans at fair value: $3,168 as of December 31, 2010; $2,923 as of December 31, 2009)
3,501 1
4,670 1
Loans (loans at fair value: $492 as of December 31, 2010; $449 as of December 31, 2009)
115,975 2
113,675 2
Allowance for loan and lease losses
(2,974)
(3,120)
Net loans
113,001 
110,555 
Premises and equipment
1,620 
1,552 
Goodwill
6,323 
6,319 
Other intangible assets (MSRs at fair value: $1,439 as of December 31, 2010; $936 as of December 31, 2009)
1,571 
1,711 
Customers' acceptance liability
Other real estate owned
596 
620 
Other assets
7,806 
8,278 
Total assets
172,874 
174,165 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
27,290 
24,244 
Interest-bearing consumer and commercial deposits
92,735 
92,059 
Total consumer and commercial deposits
120,025 
116,303 
Brokered deposits (CDs at fair value: $1,213 as of December 31, 2010; $1,261 as of December 31, 2009)
2,365 
4,231 
Foreign deposits
654 
1,329 
Total deposits
123,044 
121,863 
Funds purchased
951 
1,433 
Securities sold under agreements to repurchase
2,180 
1,871 
Other short-term borrowings
2,690 
2,062 
Long-term debt (debt at fair value: $2,837 as of December 31, 2010; $3,586 as of December 31, 2009)
13,648 3
17,490 3
Acceptances outstanding
Trading liabilities
2,678 
2,189 
Other liabilities
4,545 
4,720 
Total liabilities
149,744 
151,634 
Preferred stock
4,942 
4,917 
Common stock, $1.00 par value
515 
515 
Additional paid in capital
8,403 
8,521 
Retained earnings
8,542 
8,563 
Treasury stock, at cost, and other
(888)
(1,055)
Accumulated other comprehensive income
1,616 
1,070 
Total shareholders' equity
23,130 
22,531 
Total liabilities and shareholders' equity
$ 172,874 
$ 174,165 
Common shares outstanding
500,436,000 
499,157,000 
Common shares authorized
750,000,000 
750,000,000 
Preferred shares outstanding
50,000 
50,000 
Preferred shares authorized
50,000,000 
50,000,000 
Treasury shares of common stock
14,231,000 
15,510,000 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data
Dec. 31, 2010
Dec. 31, 2009
Loans held for sale, loans at fair value
$ 3,168 
$ 2,923 
Loans, loans at fair value
492 
449 
Other intangible assets, MSRs at fair value
1,439 
936 
Brokered deposits, CDs at fair value
1,213 
1,261 
Long-term debt, fair value
2,837 
3,586 
Common stock, par value
$ 1 
$ 1 
Loans Held for Sale
3,501 1
4,670 1
Loans
115,975 2
113,675 2
Long-term debt
13,648 3
17,490 3
Variable Interest Entity, Primary Beneficiary
 
 
Loans Held for Sale
316 
 1
Loans
2,869 
 2
Long-term debt
764 
 3
Consolidated Statements of Shareholders' Equity (USD $)
In Millions
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income
Total
Beginning Balance at Dec. 31, 2007
$ 500 
$ 371 
$ 6,707 
$ 10,646 
$ (1,662)1
$ 1,607 
$ 18,169 
Beginning Balance (in shares) at Dec. 31, 2007
 
348 
 
 
 
 
 
Net income (loss)
 
 
 
796 
 
 
796 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of tax
 
 
 
 
 
(806)
(806)
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
688 
688 
Change related to employee benefit plans
 
 
 
 
 
(508)
(508)
Total comprehensive income (loss)
 
 
 
 
 
 
170 
Change in noncontrolling interest
 
 
 
 
(5)1
 
(5)
Issuance of common stock for GB&T acquisition (in shares)
 
 
 
 
 
 
Issuance of common stock for GB&T acquisition
 
152 
 
 
 
154 
Common stock dividends, $0.04 in 2010, $0.22 in 2009 and $2.85 in 2008 per share
 
 
 
(1,004)
 
 
(1,004)
Series A preferred dividends
 
 
 
(22)
 
 
(22)
Issuance of U.S. Treasury preferred stock
4,718 
 
132 
 
 
 
4,850 
Accretion of discount associated with U.S. Treasury preferred stock
 
 
(4)
 
 
 
U.S. Treasury preferred stock dividends, $5,000 in 2010, $5,004 in 2009 and $471 in 2008 per share
 
 
 
(23)
 
 
(23)
Exercise of stock options and stock compensation expense
 
 
16 
 
40 1
 
56 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(46)
 
47 1
 
Amortization of restricted stock compensation
 
 
 
 
77 1
 
77 
Issuance of stock for employee benefit plans (in shares)
 
 
 
 
 
 
Issuance of stock for employee benefit plans
 
 
(57)
 
135 1
 
78 
Ending Balance at Dec. 31, 2008
5,222 
373 
6,904 
10,389 
(1,368)1
981 
22,501 
Ending 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 tax
 
 
 
 
 
281 
281 
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
(435)
(435)
Change related to employee benefit plans
 
 
 
 
 
251 
251 
Total comprehensive income (loss)
 
 
 
 
 
 
(1,467)
Change in noncontrolling interest
 
 
 
 
(5)1
 
(5)
Common stock dividends, $0.04 in 2010, $0.22 in 2009 and $2.85 in 2008 per share
 
 
 
(83)
 
 
(83)
Series A preferred dividends
 
 
 
(14)
 
 
(14)
Accretion of discount associated with U.S. Treasury preferred stock
23 
 
 
(23)
 
 
 
U.S. Treasury preferred stock dividends, $5,000 in 2010, $5,004 in 2009 and $471 in 2008 per share
 
 
 
(243)
 
 
(243)
Issuance of common stock in connection with SCAP capital plan (in shares)
 
142 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan
 
142 
1,688 
 
 
 
1,830 
Extinguishment of forward stock purchase contract
 
 
174 
 
 
 
174 
Repurchase of preferred stock
(328)
 
95 
 
 
(228)
Exercise of stock options and stock compensation expense
 
 
11 
 
 
 
11 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(206)
 
177 1
 
(29)
Amortization of restricted stock compensation
 
 
 
 
66 1
 
66 
Issuance of stock for employee benefit plans and other (in shares)
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other
 
 
(55)
(2)
75 1
 
18 
Adoption of OTTI guidance
 
 
 
 
(8)
 
Ending Balance at Dec. 31, 2009
4,917 
515 
8,521 
8,563 
(1,055)1
1,070 
22,531 
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 tax
 
 
 
 
 
366 
366 
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
120 
120 
Change related to employee benefit plans
 
 
 
 
 
60 
60 
Total comprehensive income (loss)
 
 
 
 
 
 
735 
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends, $0.04 in 2010, $0.22 in 2009 and $2.85 in 2008 per share
 
 
 
(20)
 
 
(20)
Series A preferred dividends
 
 
 
(7)
 
 
(7)
Accretion of discount associated with U.S. Treasury preferred stock
25 
 
 
(25)
 
 
 
U.S. Treasury preferred stock dividends, $5,000 in 2010, $5,004 in 2009 and $471 in 2008 per share
 
 
 
(242)
 
 
(242)
Exercise of stock options and stock compensation expense
 
 
24 
 
 
 
24 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(97)
 
66 1
 
(31)
Amortization of restricted stock compensation
 
 
 
 
42 1
 
42 
Issuance of stock for employee benefit plans and other
 
 
(45)
55 1
 
12 
Fair value election of MSRs
 
 
 
89 
 
 
89 
Adoption of OTTI guidance
 
 
 
(7)
 
 
(7)
Ending Balance at Dec. 31, 2010
$ 4,942 
$ 515 
$ 8,403 
$ 8,542 
$ (888)1
$ 1,616 
$ 23,130 
Ending Balance (in shares) at Dec. 31, 2010
 
500 
 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data
Year Ended
Dec. 31,
2010
2009
2008
Common stock dividends, per share
$ 0.04 
$ 0.22 
$ 2.85 
Series A preferred stock dividends, per share
4,056 
4,056 
4,451 
U.S. Treasury preferred stock dividends, per share
5,000 
5,004 
471 
Treasury Stock
 
 
 
Ending Balance, treasury stock
(974)
(1,104)
(1,368)
Ending Balance, compensation element of restricted stock
(43)
(59)
(113)
Ending Balance, noncontrolling interest
$ 129 
$ 108 
$ 113 
Consolidated Statements of Cash Flows (USD $)
In Millions
Year Ended
Dec. 31,
2010
2009
2008
Cash Flows from Operating Activities:
 
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 206 
$ (1,552)
$ 807 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Net gain on sale of businesses
 
 
(198)
Expense recognized on contribution of common stock of Coke
 
 
183 
Gain from ownership in Visa
 
(112)
(86)
Depreciation, amortization and accretion
803 
966 
824 
Goodwill/intangibles impairment
 
751 
415 
MSRs impairment recovery
 
(199)
 
Origination of MSRs
(289)
(682)
(486)
Provisions for credit losses and foreclosed property
2,831 
4,270 
2,552 
Deferred income tax benefit
(171)
(894)
(221)
Amortization of restricted stock compensation
42 
66 
77 
Stock option compensation
24 
11 
20 
Excess tax benefits from stock-based compensation
 
 
(5)
Net loss on debt extinguishment
70 
39 
12 
Net securities gains
(191)1
(98)1
(1,073)1
Net gain on sale/leaseback of premises
 
 
(37)
Net gain on sale of assets
(9)
(66)
(60)
Net decrease/(increase) in loans held for sale
415 
(964)
4,192 
Contributions to retirement plans
(8)
(26)
(387)
Net (increase)/decrease in other assets
(341)
1,523 
(2,695)
Net increase/(decrease) in other liabilities
836 
(218)
Net cash provided by operating activities
4,218 
3,042 
3,616 
Cash Flows from Investing Activities:
 
 
 
Proceeds from maturities, calls and paydowns of securities available for sale
5,597 
3,407 
1,292 
Proceeds from sales of securities available for sale
17,465 
19,488 
5,738 
Purchases of securities available for sale
(20,920)
(33,793)
(8,171)
Proceeds from maturities, calls and paydowns of trading securities
99 
148 
4,329 
Proceeds from sales of trading securities
132 
2,113 
3,046 
Purchases of trading securities
 
(86)
(3,688)
Net (increase)/decrease in loans, including purchases of loans
(4,566)
8,609 
(5,807)
Proceeds from sales of loans
936 
756 
882 
Proceeds from sale of MSRs
23 
 
148 
Capital expenditures
(252)
(212)
(222)
Net cash and cash equivalents received for sale of businesses
 
 
302 
Proceeds from sale/redemption of Visa shares
 
112 
86 
Contingent consideration and other payments related to acquisitions
(10)
(25)
(27)
Proceeds from the sale/leaseback of premises
 
 
289 
Proceeds from the sale of other assets
777 
567 
319 
Net cash (used in)/provided by investing activities
(719)
1,084 
(1,484)
Cash Flows from Financing Activities:
 
 
 
Net increase/(decrease) in total deposits
1,182 
8,085 
(6,150)
Assumption of deposits, net
 
449 
161 
Net decrease in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(1,295)
(4,114)
(2,796)
Proceeds from the issuance of long-term debt
500 
575 
7,834 
Repayment of long-term debt
(5,246)
(10,034)
(4,025)
Proceeds from the issuance of preferred stock
 
 
4,850 
Proceeds from the exercise of stock options
 
 
26 
Excess tax benefits from stock-based compensation
 
 
Proceeds from the issuance of common stock
 
1,830 
 
Repurchase of preferred stock
 
(228)
 
Common and preferred dividends paid
(259)
(329)
(1,042)
Net cash (used in)/provided by financing activities
(5,118)
(3,766)
(1,137)
Net (decrease)/increase in cash and cash equivalents
(1,619)
360 
995 
Cash and cash equivalents at beginning of period
6,997 
6,637 
5,642 
Cash and cash equivalents at end of period
5,378 
6,997 
6,637 
Supplemental Disclosures:
 
 
 
Interest paid
1,537 
2,367 
3,868 
Income taxes paid
33 
45 
341 
Income taxes refunded
(435)
(106)
(4)
Loans transferred from loans to loans held for sale
346 
125 
 
Loans transferred from loans held for sale to loans
213 
307 
656 
Loans transferred from loans and loans held for sale to OREO
1,063 
812 
754 
Issuance of common stock for acquisition of GB&T
 
 
155 
Noncash gain on contribution of Coke common stock
 
 
183 
Unsettled purchases of securities available for sale
 
 
8,898 
Unsettled sales of securities available for sale
 
 
6,387 
Amortization of deferred gain on sale/leaseback of premises
59 
59 
56 
Extinguishment of forward stock purchase contract
 
174 
 
Gain on repurchase of Series A preferred stock
 
94 
 
Total assets of newly consolidated VIEs
2,541 
 
 
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. SunTrust’s principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers and businesses through its branches located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. Within its geographic footprint, the Company operated under six business segments during the last three quarters of 2010. These business segments are: Retail Banking, Diversified Commercial Banking, CRE, CIB, Mortgage, and W&IM. In addition to traditional deposit, credit, and trust and investment services offered by SunTrust Bank, other SunTrust subsidiaries provide mortgage banking, credit-related insurance, asset management, securities brokerage, and capital markets services.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries, and VIEs where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. 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 (i.e. minority interest) 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 stated at estimated fair values at the date of acquisition. Investments in companies which are not VIEs, or where SunTrust is not the primary beneficiary in a VIE, that the Company owns a voting interest of 20% to 50%, and for which it 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, and the Company’s proportionate share of income or loss is included in other noninterest income in the Consolidated Statements of Income/(Loss).

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.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, federal 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 determined using the specific identification method and 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.

 

The Company reviews securities AFS for impairment on a quarterly basis. A security is considered to be impaired if the fair value of a debt security is less than its amortized cost basis at the measurement date and the decline in fair value is determined to be other-than-temporary. Prior to April 1, 2009, debt securities that the Company had the intent and ability to hold to recovery and for which it was probable that the Company would receive all cash flows were considered not to be other-than-temporarily impaired. Debt securities AFS which had OTTI were written down to fair value as a realized loss in the Consolidated Statements of Income/(Loss).

After April 1, 2009, the Company changed its policy based on an update to the guidance for determining OTTI. Based on the updated guidance, the Company determines whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment and write the debt security down to fair value. For all other debt securities for which the Company does not expect to recover the entire amortized cost basis of the security and do not meet either condition, an OTTI loss is considered to have occurred, and the Company records the credit loss portion of impairment in earnings and the temporary impairment related to all other factors in OCI.

Nonmarketable equity securities 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, refer to Note 5, “Securities Available for Sale,” to the Consolidated Financial Statements.

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 received is continually monitored and additional collateral is obtained or requested to be returned to the Company as deemed appropriate.

Loans Held for Sale

The Company’s LHFS 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 will use judgment and estimate 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, refer to Note 6, “Loans,” to the Consolidated Financial Statements.

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. The Company typically classifies commercial loans as nonaccrual when one of the following events occurs: (i) interest or principal has been in default 90 days or more, unless the loan is secured by collateral having realizable value sufficient to discharge the debt in full and the loan is in the legal 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. Consumer and residential loans are typically placed on nonaccrual when payments have been in default for 90 and 120 days or more, respectively.

When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is either recorded using the cash basis method of accounting or recognized at the end of the loan after the principal has been reduced to zero, depending on the type of loan. If and when 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. See the “Allowance for Credit Losses” section of this Note for further discussion of impaired loans.

TDRs are loans in which the borrower is experiencing financial difficulty 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 the modified loan terms. The types of concessions granted are generally interest rate reductions and/or term extensions. 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. Consistent with regulatory guidance, upon sustained performance and classification as a TDR over the Company’s year end, the loan will be removed from TDR status as long as the modified terms were market-based at the time of modification. Generally, once a residential loan becomes a TDR, it is probable that the loan will likely continue to be reported as a TDR until it is ultimately paid in full.

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. See Note 6, “Loans,” to the Consolidated Financial Statements for additional information.

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. In addition to these factors, 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 nonaccrual loans and certain consumer, residential, and smaller commercial 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.

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 loss given default 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 or is more stringent than 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. Secured consumer loans, including residential real estate, are typically charged-off 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 CRE loans secured by property, acceptable third-party appraisal or other form of evaluation is obtained prior to the origination of the loan. Updated evaluations of the collateral’s value are obtained at least annually, or earlier if the credit quality of the loan 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 and, if required, writes the loan down to the new valuation, less estimated selling costs. 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 metropolitan statistical area 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.

See Note 7, “Allowance for Credit Losses,” to the Consolidated Financial Statements for additional information.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated primarily 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 primarily 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, refer to Note 8, “Premises and Equipment,” to the Consolidated Financial Statements.

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, refer to Note 9, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements.

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.

 

The Company previously maintained two classes of MSRs. MSRs related to loans sold before January 1, 2008 were accounted for at amortized cost, net of any allowance for impairment losses. Beginning 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 the MSRs previously carried at LOCOM at fair value. See Note 9, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for further discussion regarding this election. Historically, the Company had not directly hedged its MSRs accounted for at amortized cost, but had managed the economic risk through the Company’s overall asset/liability management process with consideration to the natural counter-cyclicality of servicing value and mortgage production. Effective January 1, 2009, when the Company created the class of MSRs accounted for at fair value, the Company began to actively hedge this class of MSRs.

MSRs, carried at LOCOM, were amortized over the period of the estimated future net servicing cash flows. The projected future cash flows were derived from the same model and assumptions used to estimate the fair value of MSRs. When fair value was less than amortized cost, and the impairment was believed to be temporary, the impairment was recorded to a valuation allowance through mortgage servicing income in the Consolidated Statements of Income/(Loss).

The fair values of MSRs are determined by projecting net servicing cash flows, which are then discounted to estimate the fair value. 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, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

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. We estimate 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).

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. Beginning January 1, 2010, retained securitized interests are recognized and initially measured at fair value in accordance with the updated transfers and servicing accounting guidance. 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. Unrealized gains and losses on retained interests classified as AFS are shown, net of any tax effect, in AOCI as a component of shareholders’ equity. Realized gains and losses on AFS or trading securities and unrealized gains and losses on trading securities are recorded in noninterest income in the Consolidated Statements of Income/(Loss). For additional information on the Company’s securitization activities, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

 

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 tax-exempt income and tax credits. Deferred income tax assets and liabilities result from temporary differences between assets and liabilities measured 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 income from continuing operations for the period in which the change is enacted. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset 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 expense/(benefit). For additional information on the Company’s activities related to income taxes, refer to Note 15, “Income Taxes,” to the Consolidated Financial Statements.

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, refer to Note 13, “Net Income/(Loss) Per Share,” to the Consolidated Financial Statements.

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, refer to Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

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.

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. In addition, the Company 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, (ii) statistical regression analysis of changes in the fair values of the actual derivative and the hedged item and (iii) comparison of the critical terms of the hedged item and the hedging derivative.

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.

The Company has elected not to offset fair value amounts related to collateral arrangements recognized for derivative instruments under master netting arrangements. For additional information on the Company’s derivative activities, refer to Note 17, “Derivative Financial Instruments,” to the Consolidated Financial Statements.

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. The required disclosures related to the Company’s stock-based employee compensation plan are included in Note 16, “Employee Benefit Plans,” to the Consolidated Financial Statements.

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. See Note 16, “Employee Benefit Plans,” to the Consolidated Financial Statements for additional information.

 

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 as 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.

When determining 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. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When 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, refer to Note 20, “Fair Value Election and Measurement,” to the Consolidated Financial Statements.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In June 2009, the FASB issued ASU 2009-16, an update to ASC 860-10, “Transfers and Servicing,” and ASU 2009-17, an update to ASC 810-10, “Consolidation”. These updates were effective for the first interim reporting period of 2010. The update to ASC 860-10 amends the guidance to eliminate the concept of a QSPE and changes some of the requirements for derecognizing financial assets. The amendments to ASC 810-10: (a) eliminate the exemption from consolidation for existing QSPEs, (b) shift the determination of which enterprise should consolidate a VIE to a current control approach, such that an entity that has both the power to make decisions and the right to receive benefits or absorb losses that could potentially be significant to the VIE will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE. The guidance requires an entity to reassess whether it is the primary beneficiary at least quarterly.

The Company has analyzed the impacts of these amendments on all QSPEs and VIE structures with which it is involved. Based on this analysis, the Company consolidated its multi-seller conduit, Three Pillars, a CLO entity, and a student loan securitization vehicle. The Company consolidated these entities because certain subsidiaries of the Company have significant decision-making rights and own VIs that could potentially be significant to these VIEs. The primary balance sheet impacts from consolidating Three Pillars, the CLO, and the student loan securitization vehicle, were increases in loans and leases, the related ALLL, LHFS, long-term debt, and other short-term borrowings. The consolidations of these entities had no impact on the Company’s earnings or cash flows that result from its involvement with these VIEs, but the Company’s Consolidated Statements of Income/(Loss) reflect a reduction in noninterest income and increases in net interest income and noninterest expense due to the consolidations. For additional information on the Company’s VIE structures, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

The combined impacts of consolidating these entities were incremental total assets and total liabilities, at the date of consolidation, of $2.5 billion, respectively, and an immaterial impact on shareholders’ equity. No additional funding requirements with respect to these entities are expected to significantly impact the liquidity position of the Company. The Company consolidated the assets and liabilities of Three Pillars and the student loan securitization vehicle at their unpaid principal amounts and subsequently accounted for these assets and liabilities on an accrual basis. The Company consolidated the assets and liabilities of the CLO based on their estimated fair values and made an irrevocable election to carry all of the financial assets and financial liabilities of the CLO at fair value. The impact on certain of the Company’s regulatory capital ratios as a result of consolidating these entities was not significant.

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This update adds a new requirement to disclose transfers in and out of level 1 and level 2, along with the reasons for the transfers, and requires a gross presentation of purchases and sales of level 3 activities. Additionally, the update clarifies that entities provide fair value measurement disclosures for each class of assets and liabilities and that entities provide enhanced disclosures around level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for level 1 and level 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for level 3 activities will be effective in the interim reporting period ending March 31, 2011. The adoption of the disclosure requirements for level 1 and level 2 transfers and the expanded qualitative disclosures, had no impact on the Company’s financial position, results of operations, and EPS. The adoption of the level 3 disclosure requirements will not have an impact on the Company’s financial position, results of operations, and EPS.

In February 2010, the FASB issued ASU 2010-09, an update to ASC 855-10, “Subsequent Events.” This update amends the guidance to remove the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. SEC filers must continue to evaluate subsequent events through the date the financial statements are issued. The amendment was effective and has been adopted by the Company upon issuance.

In February 2010, the FASB issued ASU 2010-10, an update to ASC 810-10, “Consolidation.” This update defers the amendments to the consolidation requirements of ASC 810-10 for a reporting entity’s interest in entities that have the attributes of investment companies or for which it is acceptable based on industry practice to apply measurement principles that are consistent with those followed by investment companies and was effective January 1, 2010. The deferral also applies to a reporting entity’s interest in an entity that is required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940 for registered MMMFs. Certain of the Company’s wholly-owned subsidiaries provide investment advisor services for various private placement and publicly registered investment funds. The deferral applies to all of these funds.

In March 2010, the FASB issued ASU 2010-11, an update to ASC 815-15, “Derivatives and Hedging–Embedded Derivatives.” This update clarifies that the scope exception for considering certain credit-related features for potential bifurcation and separate accounting in ASC 815-15 applies to contracts containing an embedded credit derivative that is only in the form of subordination of one financial instrument to another. Other contracts containing embedded credit derivatives do not qualify for the scope exception. The adoption of this standard, effective July 1, 2010, did not have an impact on the Company’s financial position, results of operations, and EPS.

In April 2010, the FASB issued ASU 2010-18, an update to ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” This update clarifies that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a TDR. Loans accounted for individually under ASC Subtopic 310-30 continue to be subject to the TDR accounting provisions within ASC 310-40, “Receivables—Troubled Debt Restructurings by Creditors.” This update was effective for the Company on July 1, 2010 and did not have an impact on the Company’s financial position, results of operations, and EPS.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The update requires companies to provide more disclosures about the credit quality of their financing receivables, which include loans, lease receivables, and other long-term receivables, and the credit allowances held against them. The disclosure requirements as of December 31, 2010 are included in Note 6, “Loans,” and Note 7, “Allowance for Credit Losses,” to the Consolidated Financial Statements. Disclosures about activity that occurs during a reporting period will be effective in the interim reporting period ending March 31, 2011. In January 2011, the FASB issued ASU 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20.” The update defers the effective date of reporting TDR credit quality disclosures until after the FASB has clarified the guidance for determining what constitutes a TDR.

In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The update requires companies to perform a step 2 analysis if the carrying value of a reporting unit is zero or negative and if it is more likely than not that goodwill is impaired. The update is effective for goodwill impairment testing performed during 2011 with any resulting impairment charge recorded through a cumulative effect adjustment to beginning retained earnings. The Company has adopted the standard as of January 1, 2011 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.

Acquisitions/Dispositions
Acquisitions/Dispositions

Note 2 - Acquisitions/Dispositions

During the three year period ended December 31, 2010, SunTrust consummated the following acquisitions and dispositions:

 

(Dollars in millions)   Date         Cash or  other
consideration
(paid)/ received
    Goodwill     Other Intangibles     Gain/
(Loss)
   

Comments

2010            

Disposition of certain money market fund management business

    various      $ 7      $ -      $ 11      $ 18     
2009            

Acquisition of assets of Martin Kelly Capital Management

    12/22/09        (2     1        1        -      Goodwill and intangibles recorded are tax-deductible.

Acquisition of certain assets of CSI Capital Management

    11/30/09        (3     1        2        -      Goodwill and intangibles recorded are tax-deductible.

Acquisition of assets of Epic Advisors, Inc. 2

    4/1/09        (2     5        1        -      Goodwill and intangibles recorded are tax-deductible.
2008            

Acquisition of assets of Cymric Family Office Services 2

    12/31/08        (3     1        1        -      Goodwill and intangibles recorded are tax-deductible.

Sale of majority interest in ZCI

    10/1/08        8        (15     1        (3   Goodwill and intangibles recorded are tax-deductible.

Purchase of remaining interest in ZCI

    9/30/08        (23     21        -        -      Goodwill recorded is tax-deductible.

Sale of TransPlatinum Service Corp.

    9/2/08        100        (11     -        82     

Sale of First Mercantile Trust Company

    5/30/08        59        (12     (3     30     

Acquisition of GB&T 1

    5/1/08        (155     144        30        -      Goodwill and intangibles recorded are non tax-deductible.

Sale of 24.9% interest in Lighthouse Investment Partners

    1/2/08        155        -        (6     89      SunTrust will continue to earn a revenue share based
            upon client referrals to the funds.

 

1

On May 1, 2008, SunTrust acquired GB&T, a North Georgia-based financial institution serving commercial and retail customers, for $155 million, including cash paid for fractional shares, via the merger of GB&T with and into SunTrust. In connection therewith, GB&T shareholders received 0.1562 shares of the Company’s common stock for each share of GB&T’s common stock, resulting in the issuance of approximately 2.2 million shares of SunTrust common stock. As a result of the acquisition, SunTrust acquired approximately $1.4 billion of loans, primarily commercial real estate loans, and assumed approximately $1.4 billion of deposit liabilities. SunTrust elected to account for $172 million of the acquired loans at fair value. The remaining loans are accounted for at amortized cost and had a carryover reserve for loan and lease losses of $159 million. The acquisition was accounted for under the purchase method of accounting with the results of operations for GB&T included in SunTrust’s results beginning May 1, 2008.

2

Acquisition by GenSpring Family Offices, LLC a majority owned subsidiary of SunTrust.

Funds Sold and Securities Purchased Under Agreements to Resell
Funds Sold and Securities Purchased Under Agreements to Resell

Note 3 - Funds Sold and Securities Purchased Under Agreements to Resell

Funds sold and securities purchased under agreements to resell at December 31 were as follows:

 

(Dollars in millions)   2010     2009  

Federal funds

    $ -        $55   

Resell agreements

    1,058        462   
               

Total funds sold and securities purchased under agreements to resell

    $1,058        $517   
               

 

Securities purchased under agreements to resell 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. The Company requires collateral between 100% and 110% of the underlying securities. The total market value of the collateral held was $1.1 billion and $464 million at December 31, 2010 and 2009, of which $165 million and $110 million was repledged, respectively.

Trading Assets and Liabilities
Trading Assets and Liabilities

Note 4 - Trading Assets and Liabilities

The fair values of the components of trading assets and liabilities at December 31 were as follows:

 

     As of December 31  
(Dollars in millions)    2010      2009  

Trading Assets

     

U.S. Treasury securities

     $187         $499   

Federal agency securities

     361         474   

U.S. states and political subdivisions

     123         59   

RMBS - agency

     301         94   

MBS - private

     15         6   

CDO securities

     55         175   

ABS

     59         51   

Corporate and other debt securities

     743         466   

CP

     14         1   

Equity securities

     221         256   

Derivative contracts

     2,743         2,610   

Trading loans

     1,353         289   
                 

Total trading assets

     $6,175         $4,980   
                 

Trading Liabilities

     

U.S. Treasury securities

     $439         $190   

Federal agency securities

     -         3   

Corporate and other debt securities

     398         144   

Equity securities

     -         8   

Derivative contracts

     1,841         1,844   
                 

Total trading liabilities

     $2,678         $2,189   
                 

See Note 21, “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, 2010.

Trading instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements through its broker/dealer subsidiary. The Company utilized trading instruments for balance sheet management purposes and manages the potential market volatility of these instruments 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 will assume a limited degree of market risk by managing the size and nature of its exposure. The Company has pledged $823 million of certain trading assets and cash equivalents to secure $793 million of repurchase agreements as of December 31, 2010.

Securities Available for Sale
Securities Available for Sale

Note 5 - Securities Available for Sale

Securities AFS at December 31 were as follows:

 

     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   

RMBS - agency

     14,014         372         28         14,358   

RMBS - private

     378         3         34         347   

CDO 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   
                                   
    

 

December 31, 2009

 
(Dollars in millions)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

U.S. Treasury securities

     $5,206         $1         $30         $5,177   

Federal agency securities

     2,733         13         9         2,737   

U.S. states and political subdivisions

     928         28         11         945   

RMBS - agency

     15,705         273         62         15,916   

RMBS - private

     472         1         95         378   

ABS

     310         10         5         315   

Corporate and other debt securities

     505         10         3         512   

Coke common stock

     -         1,710         -         1,710   

Other equity securities1

     786         1         -         787   
                                   

Total securities AFS

     $26,645         $2,047         $215         $28,477   
                                   

 

1At

December 31, 2010, other equity securities included $298 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $197 million in mutual fund investments (par value). At December 31, 2009, other equity securities included $343 million in FHLB of Cincinnati and FHLB of Atlanta stock (par value), $361 million in Federal Reserve Bank stock (par value), and $82 million in mutual fund investments (par value).

 

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $6.9 billion as of December 31, 2010. Further, under The Agreements, the Company has pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 17, “Derivative Financial Instruments,” to the Consolidated Financial Statements.

The amortized cost and fair value of investments in debt securities at December 31, 2010 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.

 

(Dollars in millions)    1 Year
or Less
     1-5
Years
     5-10
Years
     After 10
Years
     Total  

Distribution of Maturities:

              

  Amortized Cost

              

U.S. Treasury securities

     $1         $3,390         $2,055         $-         $5,446   

Federal agency securities

     62         1,608         184         29         1,883   

U.S. states and political subdivisions

     114         290         63         98         565   

RMBS - agency 1

     459         12,738         781         36         14,014   

RMBS - private

     35         188         155         -         378   

CDO securities

     -         50         -         -         50   

ABS

     290         504         4         -         798   

Corporate and other debt securities

     9         307         123         25         464   
                                            

Total debt securities

     $970         $19,075         $3,365         $188         $23,598   
                                            

  Fair Value

              

U.S. Treasury securities

     $1         $3,505         $2,010         $-         $5,516   

Federal agency securities

     63         1,613         190         29         1,895   

U.S. states and political subdivisions

     116         303         64         96         579   

RMBS - agency 1

     470         13,039         810         39         14,358   

RMBS - private

     32         175         140         -         347   

CDO securities

     -         50         -         -         50   

ABS

     297         508         3         -         808   

Corporate and other debt securities

     9         314         135         24         482   
                                            

Total debt securities

     $988         $19,507         $3,352         $188         $24,035   
                                            

 

1

Distribution of maturities is based on the expected average life of the assets.

Gross realized gains and losses on sales and OTTI on securities AFS during the periods were as follows:

 

     Year Ended December 31  
(Dollars in millions)    2010     2009     2008  

Gross realized gains

     $210        $152        $1,158   

Gross realized losses

     (17     (34     (1

OTTI

     (2     (20     (84
                        

Net securities gains

     $191        $98        $1,073   
                        

Securities in a continuous unrealized loss position at December 31 were as follows:

 

    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        $-        $-        $2,010        $45   

Federal agency securities

    1,426        7        -        -        1,426        7   

U.S. states and political subdivisions

    45        1        35        2        80        3   

RMBS - agency

    3,497        28        -        -        3,497        28   

RMBS - private

    18        -        17        3        35        3   

ABS

    -        -        14        4        14        4   

Corporate and other debt securities

    -        -        3        1        3        1   
                                               

Total temporarily impaired securities

    6,996        81        69        10        7,065        91   

Other-than-temporarily impaired securities1

           

RMBS - private

    -        -        286        31        286        31   

ABS

    4        1        -        -        4        1   
                                               

Total other-than-temporarily impaired securities

    4        1        286        31        290        32   
                                               

Total impaired securities

    $7,000        $82        $355        $41        $7,355        $123   
                                               

 

     December 31, 2009  
     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

     $5,083         $30         $-         $-         $5,083         $30   

Federal agency securities

     1,341         9         -         -         1,341         9   

U.S. states and political subdivisions

     126         6         65         5         191         11   

RMBS - agency

     5,418         62         -         -         5,418         62   

RMBS - private

     14         4         7         -         21         4   

ABS

     11         -         16         5         27         5   

Corporate and other debt securities

     20         -         31         3         51         3   
                                                     

Total temporarily impaired securities

     12,013         111         119         13         12,132         124   

Other-than-temporarily impaired securities1

                 

RMBS - private

     1         1         304         90         305         91   
                                                     

Total impaired securities

     $12,014         $112         $423         $103         $12,437         $215   
                                                     

 

1Includes

OTTI securities for which credit losses have been recorded in earnings in current or prior periods.

The Company adopted the updated accounting guidance for determining OTTI on securities on April 1, 2009 and in conjunction therewith analyzed the securities for which it had previously recognized OTTI and recognized a cumulative effect adjustment representing the non-credit component of OTTI of $8 million, net of tax. The Company had previously recorded the non-credit component as impairment through earnings and therefore this amount was reclassified from retained earnings to AOCI. The beginning balance of $8 million, pre-tax, as of the effective date, represents the credit loss component which remained in retained earnings related to the securities for which a cumulative effect adjustment was recorded.

The Company held certain investment securities having unrealized loss positions. As of December 31, 2010, 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,” to the Consolidated Financial Statements. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates.

The Company records OTTI through earnings based on the credit impairment estimates generally derived from cash flow analyses. The remaining unrealized loss, due to factors other than credit, is recorded in OCI. The unrealized OTTI loss relating to private RMBS as of December 31, 2010 includes purchased and retained interests from securitizations that have been other-than-temporarily impaired in prior periods. The unrealized OTTI loss relating to ABS is related to three securities within the portfolio that are home equity issuances and have also been other-than-temporarily impaired in prior periods. Based on the analysis of the underlying cash flows of these securities, there is no expectation of further credit impairment. In addition, the expectation of cash flows for the previously impaired ABS securities has improved such that the amount of expected credit losses was reduced and the expected increase in cash flows will be accreted into earnings as a yield adjustment over the remaining life of the securities.

The Company recorded OTTI losses on securities AFS as follows:

 

     Year Ended December 31, 2010  
(Dollars in millions)    RMBS - Private      Corporate
Bonds
 

Total OTTI losses

   $ 2       $ -   

Portion of losses recognized in OCI (before taxes)1

     -         -   
                 

Net impairment losses recognized in earnings

   $ 2       $ -   
                 

 

     Year Ended December 31, 2009  
(Dollars in millions)    RMBS - Private      Corporate
Bonds
 

Total OTTI losses

     $112         $1   

Portion of losses recognized in OCI (before taxes)1

     93         -   
                 

Net impairment losses recognized in earnings

     $19         $1   
                 

 

1The

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 represents 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.

 

The following is a rollforward of credit losses recognized in earnings for the year ended December 31, 2010 and the nine months ended December 31, 2009 related to securities for which some portion of the impairment was recorded in OCI:

(Dollars in millions)       

Balance, as of April 1, 2009, effective date

     $8   

Additions:

  

OTTI credit losses on securities not previously impaired

     18   

Reductions:

  

Credit impaired securities sold, matured, or written off

     (4
        

Balance, as of December 31, 2009 1

     $22   
        

(Dollars in millions)

  

Balance, as of January 1, 2010

     $22   

Reductions:

  

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

     (2
        

Balance, as of December 31, 2010 2

     $20   
        

 

1

During the nine month period from the effective date to December 31, 2009, the Company recognized $2 million of OTTI through earnings on debt securities in which no portion of the OTTI loss was included in OCI at any time during the period. OTTI related to these securities are excluded from these amounts.

2

During the year ended December 31, 2010, the Company recognized $2 million of OTTI through earnings on debt securities in which no portion of the OTTI loss was included in OCI at any time during the period. OTTI related to these securities are excluded from these amounts.

All AFS securities are reviewed quarterly for OTTI based on the analysis of underlying cash flows. The securities that gave rise to the credit impairment recognized during the year ended December 31, 2010 consisted of private RMBS with a fair market value of $1 million at December 31, 2010. The securities impacted by credit impairment during the year ended December 31, 2009, were primarily private RMBS with a fair value of approximately $311 million as of December 31, 2009. 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 current default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for OTTI, credit information is available and modeled at the loan level underlying each security and also considers information such as loan to collateral values, FICO scores, and geographic considerations such as home price appreciation/depreciation. 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 year ended December 31, 2010 and 2009, all but an insignificant amount of credit-related OTTI recognized in earnings on private RMBS have underlying collateral of loans originated in 2006 and 2007, the majority of which were originated by the Company and therefore have geographic concentrations in the Company’s primary footprint.

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private RMBS for the years ended December 31, 2010 and 2009:

 

     December 31, 2010     December 31, 2009  

Current default rate

     2 - 7     2 - 17

Prepayment rate

     14 - 22     6 - 21

Loss severity

     37 - 46     35 - 52

As noted in the table, there has generally been an improvement or stabilization in all of the significant assumptions used to evaluate the private RMBS for credit impairment. In addition, the Company has not purchased new private RMBS in securities AFS during the year ended December 31, 2010, and continues to reduce existing exposure primarily through paydowns.

The Company held stock in the FHLB of Atlanta totaling $298 million at December 31, 2010 and $343 million of stock in the FHLB of Atlanta and the FHLB of Cincinnati at December 31, 2009. The Company accounts for the stock based on relevant accounting guidance, which requires the investment be carried at cost and be evaluated for impairment based on the ultimate recoverability of the par value. The Company evaluated its holdings in FHLB stock at December 31, 2010 and believes its holdings in the stock are ultimately recoverable at par. In addition, the Company does not have operational or liquidity needs that would require a redemption of the stock in the foreseeable future and therefore determined that the stock was not other-than-temporarily impaired.

Loans
Loans

Note 6 - Loans

The composition of the Company’s loan portfolio at December 31, 2010 and 2009 is shown in the following table:

 

(Dollars in millions)    December 31,
2010
     December 31,
2009
 

Commercial loans:

     

Commercial & industrial1

     $44,753         $44,008   

Commercial real estate

     6,167         6,694   

Commercial construction

     2,568         4,984   
                 

Total commercial loans

     53,488         55,686   

Residential loans:

     

Residential mortgages - guaranteed

     4,520         949   

Residential mortgages - nonguaranteed2

     23,959         25,847   

Home equity products

     16,751         17,783   

Residential construction

     1,291         1,909   
                 

Total residential loans

     46,521         46,488   

Consumer loans:

     

Guaranteed student loans

     4,260         2,786   

Other direct

     1,722         1,484   

Indirect

     9,499         6,665   

Credit cards

     485         566   
                 

Total consumer loans

     15,966         11,501   
                 

LHFI

     $115,975         $113,675   
                 

LHFS

     $3,501         $4,670   

 

1Includes

$4 million and $12 million of loans previously acquired from GB&T and carried at fair value at

December

31, 2010 and 2009, respectively.

 

2Includes

$488 million and $437 million of loans carried at fair value at December 31, 2010 and 2009,

respectively.

As of December 31, 2010, the Company had pledged $50.2 billion of net eligible loan collateral to support $31.2 billion in available borrowing capacity at either the Federal Reserve discount window or the FHLB of Atlanta. Of the available borrowing capacity, $34 million of FHLB advances were outstanding and $6.1 billion of undrawn FHLB letters of credit were outstanding as of December 31, 2010.

During the years ended December 31, 2010 and 2009, the Company transferred $213 million and $307 million, respectively, in LHFS to LHFI. The loans transferred included $147 million and $272 million, respectively, in loans for which fair value had been elected. Loans for which fair value had been elected will continue to be reported at fair value while classified as LHFI. The remaining $66 million and $35 million, respectively, of transferred loans were valued at LOCOM. The value of these loans had been written down by $31 million and $9 million, respectively, prior to the transfer. The loans were transferred because they were deemed no longer marketable or the Company believed that retention of the loans provided a better risk-adjusted return.

During the years ended December 31, 2010 and 2009, the Company transferred $346 million and $125 million, respectively, in LHFI to LHFS. Included in such transfers for the year ended December 31, 2010 were $160 million of NPLs that were written down by $51 million upon the transfer and sold to third party investors.

The Company evaluates the credit quality of its loan portfolio based on internal credit risk ratings using numerous factors, including consumer credit risk scores, rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. For commercial loans, the Company believes that credit ratings from NRSROs are a relevant credit quality indicator. The Company assigns credit ratings to commercial borrowers in a manner generally consistent with NRSRO guidelines, except that the Company’s credit ratings also consider proprietary loss severity expectations in addition to borrower creditworthiness to derive a dual rating approach to risk of loss. An independent credit rating agency will rate a borrower with an elevated risk of default as noninvestment grade. There will be instances, however, where the Company rates the risk of loss for a loan to this type of borrower as investment grade due to a lower expected loss severity, which is influenced by collateral and other structural factors. Ratings are updated at least annually or more frequently if there is a material change in creditworthiness. For consumer and residential loans, the Company believes that consumer credit risk, as assessed by the FICO scoring method, is a relevant credit quality indicator. 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.

LHFI by credit quality indicator are shown in the tables below:

 

     Commercial & industrial      Commercial real estate      Commercial construction  
(Dollars in millions)    2010      2009      2010      2009      2010      2009  

Credit rating:

                 

Investment grade

   $ 23,163       $ 22,879       $ 1,230       $ 2,017         $144         $199   

Non-investment grade

     21,590         21,129         4,937         4,677         2,424         4,785   
                                                     

Total

   $ 44,753       $ 44,008       $ 6,167       $ 6,694       $ 2,568       $ 4,984   
                                                     

 

     Residential mortgages -
nonguaranteed
     Home equity products      Residential construction  
     2010      2009      2010      2009      2010      2009  

Current FICO score range:

                 

700 and above

   $ 15,920       $ 16,086       $ 11,673       $ 12,342         $828       $ 1,128   

620 - 699

     4,457         4,644         2,897         3,128         258         355   

Below 6201

     3,582         5,117         2,181         2,313         205         426   
                                                     

Total

   $ 23,959       $ 25,847       $ 16,751       $ 17,783       $ 1,291       $ 1,909   
                                                     

 

     Consumer - other direct2      Consumer - indirect      Consumer - credit cards  
     2010      2009      2010      2009      2010      2009  

Current FICO score range:

                 

700 and above

     $973         $799       $ 6,780       $ 4,160       $ 258       $ 277   

620 - 699

     231         219         1,799         1,551         149         182   

Below 6201

     105         111         920         954         78         107   
                                                     

Total

   $ 1,309       $ 1,129       $ 9,499       $ 6,665       $ 485       $ 566   
                                                     

 

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

$413 million and $355 million as of December 31, 2010 and 2009, respectively, of private-label student loans with third-party insurance.

The tables above exclude student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss.

 

The Company tracks loan payment activity for the LHFI portfolio. The payment status for the LHFI portfolio at December 31, 2010 and 2009 is shown in the tables below:

 

     As of December 31, 2010  
(Dollars in millions)    Accruing
Current
     Accruing
30-89 Days
Past Due
     Accruing
90+ Days
Past Due
    

Nonaccruing3

     Total  

Commercial loans:

              

Commercial & industrial1

     $44,046         $111         $12         $584         $44,753   

Commercial real estate

     5,794         27         4         342         6,167   

Commercial construction

     1,595         11         1         961         2,568   
                                            

Total commercial loans

     51,435         149         17         1,887         53,488   

Residential loans:

              

Residential mortgages - guaranteed

     3,469         167         884         -         4,520   

Residential mortgages - nonguaranteed2

     21,916         456         44         1,543         23,959   

Home equity products

     16,162         234         -         355         16,751   

Residential construction

     953         42         6         290         1,291   
                                            

Total residential loans

     42,500         899         934         2,188         46,521   

Consumer loans:

              

Guaranteed student loans

     3,281         383         596         -         4,260   

Other direct

     1,692         15         5         10         1,722   

Indirect

     9,400         74         -         25         9,499   

Credit cards

     460         12         13         -         485   
                                            

Total consumer loans

     14,833         484         614         35         15,966   
                                            

Total LHFI

         $108,768             $1,532             $1,565             $4,110             $115,975   
                                            

 

1

Includes $4 million in loans carried at fair value at December 31, 2010.

2

Includes $488 million in loans carried at fair value at December 31, 2010.

3

Total nonaccruing loans past due 90 days or more totaled $3.3 billion at December 31, 2010. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

 

     As of December 31, 2009  
(Dollars in millions)    Accruing
Current
     Accruing
30-89 Days
Past Due
     Accruing
90+ Days
Past Due
    

Nonaccruing3

     Total  

Commercial loans:

              

Commercial & industrial1

     $43,092         $148         $36         $732         $44,008   

Commercial real estate

     6,423         71         9         191         6,694   

Commercial construction

     3,682         38         17         1,247         4,984   
                                            

Total commercial loans

     53,197         257         62         2,170         55,686   

Residential loans:

              

Residential mortgages - guaranteed

     949         -         -         -         949   

Residential mortgages - nonguaranteed2

     22,933         577         54         2,283         25,847   

Home equity products

     17,134         282         -         367         17,783   

Residential construction

     1,298         66         16         529         1,909   
                                            

Total residential loans

     42,314         925         70         3,179         46,488   

Consumer loans:

              

Guaranteed student loans

     2,185         236         365         -         2,786   

Other direct

     1,453         18         5         8         1,484   

Indirect

     6,522         98         -         45         6,665   

Credit cards

     528         19         19         -         566   
                                            

Total consumer loans

     10,688         371         389         53         11,501   
                                            

Total LHFI

         $106,199             $1,553             $521             $5,402             $113,675   
                                            

 

1Includes

$12 million in loans carried at fair value at December 31, 2009.

2Includes

$437 million in loans carried at fair value at December 31, 2009.

3Total

nonaccruing loans past due 90 days or more totaled $4.3 billion at December 31, 2009. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

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. Large commercial nonaccrual loans 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. Included in the impaired loan balances below were $2.5 billion and $1.6 billion of accruing TDRs, of which 85% were current at both December 31, 2010 and 2009, respectively. See Note 1, “Significant Accounting Policies”, to the Consolidated Financial Statements for further information regarding the Company’s loan impairment policy.

 

     As of December 31, 2010  
(Dollars in millions)    Unpaid
Principal
Balance
     Amortized
Cost1
     Related
Allowance
 

Impaired loans with no related allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     $86         $67         $-   

Commercial real estate

     110         86         -   

Commercial construction

     67         52         -   
                          

Total commercial loans

     263         205         -   

Impaired loans with an allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     123         96         18   

Commercial real estate

     103         81         19   

Commercial construction

     673         524         138   
                          

Total commercial loans

     899         701         175   

Residential loans:

        

Residential mortgages - nonguaranteed

     2,785         2,467         309   

Home equity products

     503         503         93   

Residential construction

     226         196         26   
                          

Total residential loans

     3,514         3,166         428   

Consumer loans:

        

Other direct

     11         11         2   
                          

Total impaired loans

     $4,687         $4,083         $605   
                          

 

1Amortizedcost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

   

 

     As of December 31, 2009  
(Dollars in millions)    Unpaid
Principal
Balance
     Amortized
Cost
1
     Related
Allowance
 

Impaired loans with no related allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     $170         $153         $-   

Commercial real estate

     36         32         -   

Commercial construction

     92         82         -   
                          

Total commercial loans

     298         267         -   

Impaired loans with an allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     214         191         56   

Commercial real estate

     74         67         11   

Commercial construction

     860         770         127   
                          

Total commercial loans

     1,148         1,028         194   

Residential loans:

        

Residential mortgages - nonguaranteed

     2,075         1,991         272   

Home equity products

     287         287         48   

Residential construction

     180         174         23   
                          

Total residential loans

     2,542         2,452         343   

Consumer loans:

        

Other direct

     6         6         1   
                          

Total impaired loans

     $3,994         $3,753         $538   
                          

1Amortizedcost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

   

 

The tables above exclude student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss.

The average recorded investment in loans individually evaluated for impairment and restructured loans for the years ended December 31, 2010, 2009, and 2008 was $4.1 billion, $3.0 billion, and $1.0 billion, respectively.

Nonperforming assets at December 31, 2010 and 2009 are shown in the following table:

 

(Dollars in millions)    December 31,
2010
     December 31,
2009
 

Nonperforming Assets

     

Nonaccrual/NPLs:

     

Commercial loans:

     

Commercial & industrial1

     $584         $732   

Commercial real estate

     342         191   

Commercial construction

     961         1,247   

Residential loans:

     

Residential mortgages - nonguaranteed2

     1,543         2,283   

Home equity products

     355         367   

Residential construction

     290         529   

Consumer loans:

     

Other direct

     10         8   

Indirect

     25         45   
                 

Total nonaccrual/NPLs

     4,110         5,402   

OREO3

     596         620   

Other repossessed assets

     52         79   
                 

Total nonperforming assets

     $4,758