SUNTRUST BANKS INC, 10-Q filed on 5/7/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 22, 2013
Entity Registrant Name
SUNTRUST BANKS INC 
 
Entity Central Index Key
0000750556 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
540,172,381 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Statements of Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Interest Income
 
 
Interest and fees on loans
$ 1,169 
$ 1,300 
Interest and fees on loans held for sale
31 
25 
Interest and Dividend Income, Securities, Available-for-sale
143 1
194 1
Trading account interest and other
16 
15 
Total interest income
1,359 
1,534 
Interest Expense
 
 
Interest on deposits
79 
127 
Interest on long-term debt
51 
88 
Interest on other borrowings
Total interest expense
138 
223 
Net interest income
1,221 
1,311 
Provision for credit losses
212 2
317 2
Net interest income after provision for credit losses
1,009 
994 
Noninterest Income
 
 
Service charges on deposit accounts
160 
164 
Trust and investment management income
124 
130 
Retail investment services
61 
59 
Fees and Commissions, Other
89 
97 
Investment banking income
68 
71 
Trading income/(loss)
42 
57 
Card fees
76 
79 
Mortgage production related (loss)/income
159 
63 
Mortgage servicing related income
38 
81 
Gain (Loss) on Sale of Securities, Net
18 
Noninterest Income, Other Operating Income
44 
57 
Total noninterest income
863 
876 
Noninterest Expense
 
 
Employee compensation
611 
652 
Other Labor-related Expenses
148 
145 
Outside processing and software
178 
176 
Net occupancy expense
89 
88 
Federal Deposit Insurance Corporation Premium Expense
54 
52 
Equipment expense
45 
45 
Operating losses
39 
60 
Credit and collection services
33 
56 
Marketing and customer development
30 
27 
Professional Fees
15 
36 
Amortization/impairment of intangible assets/goodwill
11 
Other real estate expense
50 
Other Noninterest Expense
115 
143 
Total noninterest expense
1,363 
1,541 
Income/(loss) before provision/(benefit) for income taxes
509 
329 
Income Tax Expense (Benefit)
151 
69 
Net income/(loss) including income attributable to noncontrolling interest
358 
260 
Net income attributable to noncontrolling interest
10 
Net income
352 
250 
Net income/(loss) available to common shareholders
$ 340 
$ 245 
Net income/(loss) per average common share
 
 
Diluted
$ 0.63 
$ 0.46 
Basic
$ 0.64 
$ 0.46 
Common Stock, Dividends, Per Share, Declared
$ 0.05 
$ 0.05 
Average common shares - diluted
539,862 
536,407 
Average common shares - basic
535,680 
533,100 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dividends on common stock of The Coca-Cola Company
$ 0 
$ 15 1
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Mortgage-backed Securities, Issued by Private Enterprises [Member]
 
 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
2
2
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 1 
$ 2 2
Consolidated Statement of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Net income
$ 352 
$ 250 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
(73)
50 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(71)
(101)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
20 
(24)
Other Comprehensive Income (Loss), Net of Tax
(124)
(75)
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 228 
$ 175 
Consolidated Statement of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ (42)
$ 27 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect
(42)
(58)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ 12 
$ (14)
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Assets
 
 
Cash and Due from Banks
$ 4,787 
$ 7,134 
Federal Funds Sold and Securities Purchased under Agreements to Resell
1,154 
1,101 
Interest-bearing deposits in other banks
21 
22 
Cash and cash equivalents
5,962 
8,257 
Trading assets
6,250 
6,049 
Available-for-sale Securities
23,823 
21,953 
Loans Held for Sale
3,193 1
3,399 
Loans held for investment
120,804 2
121,470 2
Loans and Leases Receivable, Allowance
2,152 
2,174 
Net loans
118,652 
119,296 
Premises and equipment
1,541 
1,564 
Goodwill
6,369 
6,369 
Intangible Assets, Net (Excluding Goodwill)
1,076 
956 
Other real estate owned
224 
264 
Other assets
5,345 
5,335 
Total assets
172,435 
173,442 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
38,593 
39,481 
Interest-bearing consumer and commercial deposits
89,142 
90,699 
Total consumer and commercial deposits
127,735 
130,180 
Brokered time deposits
2,080 
2,136 
Foreign deposits
100 
Total deposits
129,915 
132,316 
Funds purchased
605 
617 
Securities Sold under Agreements to Repurchase
1,854 3
1,574 4
Other Short-term Borrowings
4,169 
3,303 
Long-term Debt
9,331 5
9,357 5
Trading liabilities
1,348 
1,161 
Other liabilities
4,019 
4,129 
Total liabilities
151,241 
152,457 
Preferred Stock, Value, Outstanding
725 
725 
Common Stock, Value, Outstanding
550 
550 
Additional paid in capital
9,132 
9,174 
Retained earnings
11,133 
10,817 
Treasury stock, at cost, and other
(531)6
(590)6
AOCI, net of tax
185 
309 
Total shareholders' equity
21,194 
20,985 
Total liabilities and shareholders' equity
$ 172,435 
$ 173,442 
Common Stock, Shares, Outstanding
540,187 
538,959 
Common shares authorized
750,000 
750,000 
Preferred Stock, Shares Outstanding
Preferred Stock, Shares Authorized
50,000 
50,000 
Treasury shares of common stock
9,734 
10,962 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Loans Held-for-sale, Fair Value Disclosure
$ 2,672 1
$ 3,243 1
Loans carried at fair value
360 2
379 2
Servicing Asset at Fair Value, Amount
1,025 
899 
Trading Securities Pledged as Collateral
950 
727 
Deposits, Fair Value Disclosure
810 
832 
Long-term debt, fair value
1,632 3
1,622 3
Common stock, par value
$ 1.00 
$ 1.00 
Loans Receivable Held-for-sale, Net
3,193 1
3,399 
Loans held for investment
120,804 2
121,470 2
Long-term Debt
9,331 3
9,357 3
Stockholders' Equity Attributable to Noncontrolling Interest
114 
114 
Variable Interest Entity, Primary Beneficiary
 
 
Long-term debt, fair value
286 
286 
Loans Receivable Held-for-sale, Net
315 
319 
Loans held for investment
355 
365 
Long-term Debt
$ 656 
$ 666 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2012
Dec. 31, 2011
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
$ 21,194 
$ 20,241 
$ 20,985 
$ 20,066 
Common Stock, Shares, Outstanding
540,187,000 
 
538,959,000 
 
Net income
352 
250 
 
 
Other Comprehensive Income (Loss), Net of Tax
(124)
(75)
 
 
Noncontrolling Interest, Period Increase (Decrease)
 
 
 
Dividends, Common Stock, Cash
(27)
(27)
 
 
Dividends, Preferred Stock, Cash
(9)1
(3)
 
 
Stock Issued During Period, Value, Stock Options Exercised
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
 
 
Stock Issued During Period, Value, Employee Benefit Plan
 
 
Preferred Stock [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
725 
275 
725 
275 
Common Stock [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
550 
550 
550 
550 
Common Stock, Shares, Outstanding
540,000,000 
538,000,000 
539,000,000 
537,000,000 
Common Stock [Member] |
Common Stock [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
1,000,000 
1,000,000 
 
 
Stock Issued During Period, Shares, Employee Benefit Plan
 
 
Additional Paid-in Capital [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
9,132 
9,243 
9,174 
9,306 
Stock Issued During Period, Value, Stock Options Exercised
(8)
(6)
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
(33)
(50)
 
 
Stock Issued During Period, Value, Employee Benefit Plan
(1)
(7)
 
 
Retained Earnings [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
11,133 
9,198 
10,817 
8,978 
Net income
352 
250 
 
 
Dividends, Common Stock, Cash
(27)
(27)
 
 
Dividends, Preferred Stock, Cash
(9)1
(3)
 
 
Treasury Stock and Other
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
(531)2
(699)2
(590)2
(792)2
Noncontrolling Interest, Period Increase (Decrease)
 
2
 
 
Stock Issued During Period, Value, Stock Options Exercised
13 2
10 2
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
36 2
58 2
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
2
2
 
 
Stock Issued During Period, Value, Employee Benefit Plan
2
14 2
 
 
Accumulated Other Comprehensive Income (Loss) [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
185 3
1,674 3
309 3
1,749 3
Other Comprehensive Income (Loss), Net of Tax
$ (124)3
$ (75)3
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Common stock dividends, per share
$ 0.05 
$ 0.05 
Treasury Stock, Value
$ (531)1
 
Stockholders' Equity Attributable to Noncontrolling Interest
114 
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
447 
1,913 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
461 
468 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(723)
(707)
Treasury Stock and Other
 
 
Treasury Stock, Value
(569)
(737)
Deferred Compensation Equity
(76)
(73)
Stockholders' Equity Attributable to Noncontrolling Interest
$ 114 
$ 111 
Series A Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 1,000 
$ 1,011 
Series B Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 1,000 
$ 1,011 
Series E Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 1,387 
$ 0 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 358 
$ 260 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization, and accretion
184 
192 
Origination of mortgage servicing rights
(110)
(83)
Provisions for credit losses and foreclosed property
228 
362 
Mortgage repurchase provision
14 
175 
Stock option compensation and amortization of restricted stock compensation
Gain (Loss) on Sale of Securities, Net
18 
Net gain on sale of assets
(198)
(252)
Net decrease/(increase) in loans held for sale
404 
246 
Net (increase)/decrease in other assets
(437)
(251)
Net increase/(decrease) in other liabilities
172 
(537)
Net cash provided by operating activities
621 
102 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
1,614 
1,506 
Proceeds from sales of securities available for sale
33 
670 
Purchases of securities available for sale
(3,678)
(992)
Net (increase)/decrease in loans including purchases of loans
(167)
(1,296)
Proceeds from sales of loans
494 
252 
Capital expenditures
(28)
(48)
Proceeds from the sale of other assets
145 
121 
Net cash (used in)/provided by investing activities
(1,587)
213 
Cash Flows from Financing Activities:
 
 
Net (decrease)/increase in total deposits
(2,401)
2,110 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
1,134 
(1,899)
Proceeds from the issuance of long-term debt
12 
1,000 
Repayment of long-term debt
(44)
(34)
Common and preferred dividends paid
(36)
(30)
Stock option activity
10 
Net cash provided by/(used in) financing activities
(1,329)
1,157 
Net (decrease)/increase in cash and cash equivalents
(2,295)
1,472 
Cash and cash equivalents at beginning of period
8,257 
4,509 
Cash and cash equivalents at end of period
5,962 
5,981 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
12 
11 
Loans transferred from loans to loans held for sale
57 
429 
Transfer to Other Real Estate
$ 66 
$ 96 
Significant Accounting Policies
Significant Accounting Policies [Text Block]
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been
made.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The Company evaluated subsequent events through the date its financial statements were issued.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Except for accounting policies that have been recently adopted as described below, there have been no significant changes to the Company’s accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In December 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." The ASU requires additional disclosures about financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement or similar agreement. In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”, which more narrowly defined the scope of financial instruments to only include derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. The Company adopted these ASUs as of January 1, 2013, and the adoption did not have an impact on the Company's financial position, results of operations, or EPS. See Note 12, "Fair Value Election and Measurement."
In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" which provides disclosure guidance on amounts reclassified out of OCI by component. The Company adopted the ASU as of January 1, 2013, and the adoption did not have an impact on the Company's financial position, results of operations, or EPS. See Note 15, "Accumulated Other Comprehensive Income."
In March 2013, the FASB issued ASU 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires additional disclosures about joint and several liability arrangements and requires the Company to measure obligations resulting from joint and several liability arrangements as the sum of the amount the Company agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the Company expects to pay on behalf of its co-obligors. The ASU is effective for the fiscal years and interim periods within those years beginning after December 15, 2013. The Company is evaluating the impact of the ASU; however, it is not expected to have a significant impact on the Company's financial position, results of operations, or EPS.
Securities Available for Sale
Securities Available for Sale
NOTE 2 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition

 
March 31, 2013
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$805

 

$15

 

$—

 

$820

Federal agency securities
2,211

 
79

 
5

 
2,285

U.S. states and political subdivisions
280

 
12

 
2

 
290

MBS - agency
18,618

 
677

 
40

 
19,255

MBS - private
195

 
7

 

 
202

ABS
153

 
4

 
1

 
156

Corporate and other debt securities
41

 
4

 

 
45

Other equity securities1
769

 
1

 

 
770

Total securities AFS

$23,072

 

$799

 

$48

 

$23,823

 
 
 
 
 
 
 
 
 
December 31, 2012
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$212

 

$10

 

$—

 

$222

Federal agency securities
1,987

 
85

 
3

 
2,069

U.S. states and political subdivisions
310

 
15

 
5

 
320

MBS - agency
17,416

 
756

 
3

 
18,169

MBS - private
205

 
4

 

 
209

ABS
214

 
5

 
3

 
216

Corporate and other debt securities
42

 
4

 

 
46

Other equity securities1
701

 
1

 

 
702

Total securities AFS

$21,087

 

$880

 

$14

 

$21,953

1At March 31, 2013, other equity securities was comprised of the following: $268 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $98 million in mutual fund investments, and $2 million of other. At December 31, 2012, other equity securities was comprised of the following: $229 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $69 million in mutual fund investments, and $2 million of other.

The following table presents interest and dividends on securities AFS:
 
Three Months Ended March 31
(Dollars in millions)
2013
 
2012
Taxable interest

$132

 

$168

Tax-exempt interest
3

 
4

Dividends1
8

 
22

Total interest and dividends

$143

 

$194

1Includes dividends on the Coke common stock of $15 million for the three months ended March 31, 2012.
Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $10.0 billion and $10.6 billion at March 31, 2013 and December 31, 2012, respectively. At March 31, 2013 and December 31, 2012, there were no securities AFS pledged under which the transferee may repledge the collateral. The Company has also pledged $864 million and $727 million of trading assets to secure $813 million and $703 million of repurchase agreements at March 31, 2013 and December 31, 2012, respectively.

The amortized cost and fair value of investments in debt securities at March 31, 2013, by estimated average life, are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

 
Distribution of Maturities
(Dollars in millions)
1 Year
or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$11

 

$201

 

$593

 

$—

 

$805

Federal agency securities
259

 
1,368

 
440

 
144

 
2,211

U.S. states and political subdivisions
80

 
136

 
18

 
46

 
280

MBS - agency
1,056

 
12,103

 
3,825

 
1,634

 
18,618

MBS - private

 
145

 
50

 

 
195

ABS
102

 
50

 
1

 

 
153

Corporate and other debt securities
4

 
17

 
20

 

 
41

Total debt securities

$1,512

 

$14,020

 

$4,947

 

$1,824

 

$22,303

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$11

 

$210

 

$599

 

$—

 

$820

Federal agency securities
260

 
1,430

 
446

 
149

 
2,285

U.S. states and political subdivisions
82

 
144

 
19

 
45

 
290

MBS - agency
1,118

 
12,670

 
3,853

 
1,614

 
19,255

MBS - private

 
150

 
52

 

 
202

ABS
103

 
51

 
2

 

 
156

Corporate and other debt securities
4

 
19

 
22

 

 
45

Total debt securities

$1,578

 

$14,674

 

$4,993

 

$1,808

 

$23,053


 
 
 
 
 
 
 
 
 
 Weighted average yield1
3.35
%
 
2.90
%
 
2.18
%
 
2.63
%
 
2.75
%
1Average yields are based on amortized cost and presented on a FTE basis.

Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair market value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. At March 31, 2013, the Company did not intend to sell these securities nor was it more-likely-than-not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
 
March 31, 2013
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized  
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$421

 

$5

 

$—

 

$—

 

$421

 

$5

U.S. states and political subdivisions
1

 

 
26

 
2

 
27

 
2

MBS - agency
4,472

 
40

 

 

 
4,472

 
40

ABS

 

 
14

 
1

 
14

 
1

Total temporarily impaired securities
4,894

 
45

 
40

 
3

 
4,934

 
48

OTTI securities1:
 
 
 
 
 
 
 
 
 
 
 
ABS

 

 
1

 

 
1

 

Total OTTI securities

 

 
1

 

 
1

 

Total impaired securities

$4,894

 

$45

 

$41

 

$3

 

$4,935

 

$48


 
December 31, 2012
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
   Value   
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$298

 

$3

 

$—

 

$—

 

$298

 

$3

U.S. states and political subdivisions
1

 

 
24

 
5

 
25

 
5

MBS - agency
1,212

 
3

 

 

 
1,212

 
3

ABS

 

 
13

 
2

 
13

 
2

Total temporarily impaired securities
1,511

 
6

 
37

 
7

 
1,548

 
13

OTTI securities1:
 
 
 
 
 
 
 
 
 
 
 
ABS

 

 
3

 
1

 
3

 
1

Total OTTI securities

 

 
3

 
1

 
3

 
1

Total impaired securities

$1,511

 

$6

 

$40

 

$8

 

$1,551

 

$14

1Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.
At March 31, 2013 and December 31, 2012, unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months included municipal ARS and one ABS collateralized by 2004 vintage home equity loans. The municipal securities are backed by investment grade rated obligors; however, the fair value of these securities continues to be impacted by the lack of a functioning ARS market and the extension of time for expected refinance and repayment. No credit loss is expected on these securities. The ABS also continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Cash flow analysis shows that the underlying collateral can withstand highly stressed loss assumptions without incurring a credit loss.

The portion of unrealized losses on securities that have been other-than-temporarily impaired that relates to factors other than credit are recorded in AOCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. Due to improvement in market pricing and continued reduction in securities that have been other-than-temporarily impaired, the unrealized OTTI loss relating to these ABS at March 31, 2013 is immaterial.

Realized Gains and Losses and Other-than-Temporarily Impaired Securities
 
Three Months Ended March 31
(Dollars in millions)
2013
 
2012
Gross realized gains

$3

 

$20

OTTI
(1
)
 
(2
)
Net securities gains

$2

 

$18



Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. If, based on this analysis, the security is in an unrealized loss position and 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.

The Company continues to reduce existing exposure primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total impairment, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.

The securities that gave rise to credit impairments recognized during the three months ended March 31, 2013 and 2012, as shown in the table below, consisted of private MBS and ABS with a combined fair value of $2 million and private MBS with a fair value of $114 million, respectively.

 
 
Three Months Ended March 31
(Dollars in millions)
 
2013
 
2012
OTTI1
 

$—

 

$—

Portion of gains/(losses) recognized in OCI (before taxes)
 
1

 
2

Net impairment losses recognized in earnings
 

$1

 

$2

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 includes additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position.

The following is a rollforward of credit losses recognized in earnings for the three months ended March 31, 2013 and 2012, related to securities for which the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell as of the end of each period presented. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows.
 
Three Months Ended March 31
(Dollars in millions)
2013
 
2012
Balance, beginning of period

$31

 

$25

Additions:
 
 
 
OTTI credit losses on previously impaired securities
1

 
2

Balance, end of period

$32

 

$27


The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS and ABS for the three months ended March 31:
 
2013
 
2012
Default rate
6 - 9%
 
2 - 6%
Prepayment rate
7 - 8%
 
8 - 16%
Loss severity
61 - 74%
 
47 - 52%


Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. Ranges may vary from period to period as the securities for which credit losses are recognized vary. Additionally, severity may vary widely when losses are few and large.
Loans
Loans
NOTE 3 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio is shown in the following table:
(Dollars in millions)
March 31,
2013
 
December 31,
2012
Commercial loans:
 
 
 
C&I

$54,343

 

$54,048

Commercial real estate
4,261

 
4,127

Commercial construction
634

 
713

Total commercial loans
59,238

 
58,888

Residential loans:
 
 
 
Residential mortgages - guaranteed
3,930

 
4,252

Residential mortgages - nonguaranteed1
23,051

 
23,389

Home equity products
14,617

 
14,805

Residential construction
683

 
753

Total residential loans
42,281

 
43,199

Consumer loans:
 
 
 
Guaranteed student loans
5,275

 
5,357

Other direct
2,387

 
2,396

Indirect
11,009

 
10,998

Credit cards
614

 
632

Total consumer loans
19,285

 
19,383

LHFI

$120,804

 

$121,470

LHFS

$3,193

 

$3,399

1Includes $360 million and $379 million of loans carried at fair value at March 31, 2013 and December 31, 2012, respectively.

During the three months ended March 31, 2013 and 2012, the Company transferred $57 million and $429 million in LHFI to LHFS, and $12 million and $11 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2013 and 2012, the Company sold $503 million and $239 million in loans and leases for a gain of $4 million and $13 million, respectively.

Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs; whereas, criticized assets have a higher PD. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.
Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.
For government-guaranteed loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At March 31, 2013 and December 31, 2012, 90% and 89%, respectively, of the guaranteed student loan portfolio was current with respect to payments. At March 31, 2013 and December 31, 2012, 82% and 83%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.
LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
C&I
 
Commercial real estate
 
Commercial construction
(Dollars in millions)
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
Credit rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$52,506

 

$52,292

 

$3,767

 

$3,564

 

$440

 

$506

Criticized accruing
1,632

 
1,562

 
435

 
497

 
169

 
173

Criticized nonaccruing
205

 
194

 
59

 
66

 
25

 
34

Total

$54,343

 

$54,048

 

$4,261

 

$4,127

 

$634

 

$713

 
Residential Loans 1
 
Residential mortgages -
nonguaranteed
 
Home equity products
 
Residential construction
(Dollars in millions)
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$17,168

 

$17,410

 

$11,202

 

$11,339

 

$515

 

$561

620 - 699
3,848

 
3,850

 
2,291

 
2,297

 
113

 
123

Below 6202
2,035

 
2,129

 
1,124

 
1,169

 
55

 
69

Total

$23,051

 

$23,389

 

$14,617

 

$14,805

 

$683

 

$753

 
Consumer Loans 3
 
Other direct
 
Indirect
 
Credit cards
(Dollars in millions)
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
 
March 31,
2013
 
December 31, 2012
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$1,952

 

$1,980

 

$8,270

 

$8,300

 

$418

 

$435

620 - 699
368

 
350

 
2,084

 
2,038

 
153

 
152

Below 6202
67

 
66

 
655

 
660

 
43

 
45

Total

$2,387

 

$2,396

 

$11,009

 

$10,998

 

$614

 

$632


1Excludes $3.9 billion and $4.3 billion at March 31, 2013 and December 31, 2012, respectively, of guaranteed residential loans. At March 31, 2013 and December 31, 2012, the majority of these loans had FICO scores of 700 and above.
2For 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.
3Excludes $5.3 billion and $5.4 billion at March 31, 2013 and December 31, 2012, respectively, of guaranteed student loans.
The payment status for the LHFI portfolio is shown in the tables below:
 
March 31, 2013
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
C&I

$54,026

 

$93

 

$19

 

$205

 

$54,343

Commercial real estate
4,193

 
8

 
1

 
59

 
4,261

Commercial construction
609

 

 

 
25

 
634

Total commercial loans
58,828

 
101

 
20

 
289

 
59,238

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
3,218

 
39

 
673

 

 
3,930

Residential mortgages - nonguaranteed1
22,131

 
175

 
24

 
721

 
23,051

Home equity products
14,167

 
116

 

 
334

 
14,617

Residential construction
572

 
7

 
2

 
102

 
683

Total residential loans
40,088

 
337

 
699

 
1,157

 
42,281

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
4,738

 
442

 
95

 

 
5,275

Other direct
2,366

 
13

 
2

 
6

 
2,387

Indirect
10,951

 
42

 
1

 
15

 
11,009

Credit cards
602

 
6

 
6

 

 
614

Total consumer loans
18,657

 
503

 
104

 
21

 
19,285

Total LHFI

$117,573

 

$941

 

$823

 

$1,467

 

$120,804

1Includes $360 million of loans carried at fair value, the majority of which were accruing current.
2Nonaccruing loans past due 90 days or more totaled $883 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs and performing second lien loans which are classified as nonaccrual when the first lien loan is nonperforming. 

 
December 31, 2012
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
C&I

$53,747

 

$81

 

$26

 

$194

 

$54,048

Commercial real estate
4,050

 
11

 

 
66

 
4,127

Commercial construction
679

 

 

 
34

 
713

Total commercial loans
58,476

 
92

 
26

 
294

 
58,888

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
3,523

 
39

 
690

 

 
4,252

Residential mortgages - nonguaranteed1
22,401

 
192

 
21

 
775

 
23,389

Home equity products
14,314

 
149

 
1

 
341

 
14,805

Residential construction
625

 
15

 
1

 
112

 
753

Total residential loans
40,863

 
395

 
713

 
1,228

 
43,199

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
4,769

 
556

 
32

 

 
5,357

Other direct
2,372

 
15

 
3

 
6

 
2,396

Indirect
10,909

 
68

 
2

 
19

 
10,998

Credit cards
619

 
7

 
6

 

 
632

Total consumer loans
18,669

 
646

 
43

 
25

 
19,383

Total LHFI

$118,008

 

$1,133

 

$782

 

$1,547

 

$121,470

1Includes $379 million of loans carried at fair value, the majority of which were accruing current.
2Nonaccruing loans past due 90 days or more totaled $975 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs and performing second lien loans which are classified as nonaccrual when the first lien loan is nonperforming.



Impaired Loans

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Commercial nonaccrual loans greater than $3 million and certain consumer, residential, and commercial loans whose terms have been modified in a TDR are individually evaluated for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the tables below exclude guaranteed student loans and guaranteed residential mortgages for which there was nominal risk of principal loss.
 
March 31, 2013
 
December 31, 2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Amortized   
Cost1
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Amortized   
Cost1
 
Related
Allowance
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
C&I

$80

 

$37

 

$—

 

$59

 

$40

 

$—

Commercial real estate
9

 
9

 

 
6

 
5

 

Commercial construction
45

 
45

 

 
45

 
45

 

Total commercial loans
134

 
91

 

 
110

 
90

 

Impaired loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
 
 
C&I
30

 
28

 
3

 
46

 
38

 
6

Commercial real estate
14

 
9

 

 
15

 
7

 
1

Commercial construction
6

 
5

 

 
5

 
3

 

Total commercial loans
50

 
42

 
3

 
66

 
48

 
7

Residential loans:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages - nonguaranteed
2,305

 
2,013

 
229

 
2,346

 
2,046

 
234

Home equity products
705

 
626

 
93

 
661

 
612

 
88

Residential construction
269

 
206

 
27

 
259

 
201

 
26

Total residential loans
3,279

 
2,845

 
349

 
3,266

 
2,859

 
348

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
Other direct
15

 
15

 
2

 
14

 
14

 
2

Indirect
59

 
59

 
3

 
46

 
46

 
2

Credit cards
19

 
19

 
4

 
21

 
21

 
5

Total consumer loans
93

 
93

 
9

 
81

 
81

 
9

Total impaired loans

$3,556

 

$3,071

 

$361

 

$3,523

 

$3,078

 

$364


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

Included in the impaired loan balances above were $2.4 billion of accruing TDRs, at amortized cost, at March 31, 2013 and December 31, 2012 of which 96% and 95% were current, respectively. See Note 1, “Significant Accounting Policies,” to the Company's Annual Report on Form 10−K for the year ended December 31, 2012, for further information regarding the Company’s loan impairment policy.

 
Three Months Ended March 31
 
2013
 
2012
(Dollars in millions)
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
C&I

$49

 

$—

 

$28

 

$—

Commercial real estate
9

 

 
42

 

Commercial construction
45

 
1

 
17

 

Total commercial loans
103

 
1

 
87

 

Impaired loans with an allowance recorded:
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
C&I
29

 

 
75

 

Commercial real estate
10

 

 
90

 

Commercial construction
5

 

 
84

 
1