SUNTRUST BANKS INC, 10-Q filed on 8/1/2012
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2012
Jul. 25, 2012
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q2 
 
Entity Registrant Name
SUNTRUST BANKS INC 
 
Entity Central Index Key
0000750556 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
538,484,027 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Statements of Income/Loss (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Interest Income
 
 
 
 
Interest and fees on loans
$ 1,263 
$ 1,299 
$ 2,563 
$ 2,613 
Interest and fees on loans held for sale
31 
22 
55 
50 
Interest and dividends on securities available for sale:
 
 
 
 
Taxable interest
153 
177 
322 
342 
Tax-exempt interest
11 
Dividends
23 1
21 1
45 1
41 1
Trading account interest and other
18 
21 
33 
43 
Total interest income
1,492 
1,546 
3,026 
3,100 
Interest Expense
 
 
 
 
Interest on deposits
118 
162 
245 
331 
Interest on long-term debt
90 
113 
178 
237 
Interest on other borrowings
10 
12 
18 
24 
Total interest expense
218 
287 
441 
592 
Net interest income
1,274 
1,259 
2,585 
2,508 
Provision for credit losses
300 
392 
617 
839 
Net interest income after provision for credit losses
974 
867 
1,968 
1,669 
Noninterest Income
 
 
 
 
Service charges on deposit accounts
167 
170 
332 
333 
Trust and investment management income
130 
135 
260 
270 
Other charges and fees
130 
130 
245 
256 
Card fees
66 
105 
127 
205 
Investment banking income
75 
95 
147 
162 
Trading income/(loss)
70 
53 
127 
105 
Retail investment services
62 
59 
120 
117 
Mortgage production related (loss)/income
103 
166 
Mortgage servicing related income
70 
72 
151 
144 
Net securities gains
14 2
32 2
32 2
96 2
Other noninterest income
53 
57 
109 
104 
Total noninterest income
940 
912 
1,816 
1,795 
Noninterest Expense
 
 
 
 
Employee compensation
654 
638 
1,306 
1,256 
Employee benefits
108 
110 
254 
246 
Outside processing and software
180 
162 
356 
320 
Net occupancy expense
88 
89 
176 
178 
Regulatory assessments
60 
81 
111 
152 
Credit and collection services
61 
60 
116 
111 
Other real estate expense
52 
64 
103 
133 
Operating losses
69 
62 
129 
89 
Marketing and customer development
32 
46 
59 
84 
Equipment expense
46 
44 
91 
88 
Amortization/impairment of goodwill/intangible assets
11 
12 
22 
23 
Net (gain)/loss on extinguishment of debt
13 
(1)
13 
(2)
Other noninterest expense
172 
175 
351 
329 
Total noninterest expense
1,546 
1,542 
3,087 
3,007 
Income/(loss) before provision/(benefit) for income taxes
368 
237 
697 
457 
Provision/(benefit) for income taxes
91 
58 
160 
91 
Net income/(loss) including income attributable to noncontrolling interest
277 
179 
537 
366 
Net income attributable to noncontrolling interest
12 
Net income/(loss)
275 
178 
525 
358 
Net income/(loss) available to common shareholders
$ 270 
$ 174 
$ 515 
$ 212 
Net income/(loss) per average common share
 
 
 
 
Diluted
$ 0.50 
$ 0.33 
$ 0.96 
$ 0.41 
Basic
$ 0.51 
$ 0.33 
$ 0.97 
$ 0.41 
Dividends declared per common share
$ 0.05 
$ 0.01 
$ 0.10 
$ 0.02 
Average common shares - diluted
537,495 
535,416 
536,951 
519,548 
Average common shares - basic
533,964 
531,792 
533,532 
515,819 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Dividends on common stock of The Coca-Cola Company
$ 15 
$ 14 
$ 31 
$ 28 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities
1
1
1
1
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 0 
$ 0 
$ 0 
$ 0 
Consolidated Statement of Comprehensive Income/(Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Net income/(loss)
$ 275 
$ 178 
$ 525 
$ 358 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
142 
190 
192 
121 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(69)
72 
(170)
(53)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
(4)
(19)
(28)
(16)
Other Comprehensive Income (Loss), Net of Tax
69 
243 
(6)
52 
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 344 
$ 421 
$ 519 
$ 410 
Consolidated Statement of Comprehensive Income/(Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ 80 
$ 110 
$ 107 
$ 70 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect
(38)
41 
(96)
(31)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ (2)
$ (12)
$ (16)
$ (10)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Jun. 30, 2012
Dec. 31, 2011
Assets
 
 
Cash and due from banks
$ 5,781 
$ 3,696 
Securities purchased under agreements to resell
937 
792 
Interest-bearing deposits in other banks
21 
21 
Cash and cash equivalents
6,739 
4,509 
Trading assets
6,327 
6,279 
Securities available for sale
24,409 
28,117 
Loans Held for Sale
3,123 1
2,353 1
Loans held for investment
124,560 2
122,495 2
Allowance for loan and lease losses
(2,300)
(2,457)
Net loans
122,260 
120,038 
Premises and equipment
1,578 
1,564 
Goodwill
6,376 
6,344 
Other intangible assets
939 
1,017 
Other real estate owned
331 
479 
Other assets
6,175 
6,159 
Total assets
178,257 
176,859 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
37,394 
34,359 
Interest-bearing consumer and commercial deposits
88,751 
91,252 
Total consumer and commercial deposits
126,145 
125,611 
Brokered time deposits
2,208 
2,281 
Foreign deposits
50 
30 
Total deposits
128,403 
127,922 
Funds purchased
847 
839 
Securities Sold under Agreements to Repurchase
1,583 
1,644 
Other short-term borrowings
7,098 
8,983 
Long-term Debt
13,076 3
10,908 3
Trading liabilities
1,782 
1,806 
Other liabilities
4,900 
4,691 
Total liabilities
157,689 
156,793 
Preferred stock, no par value
275 
275 
Common stock, $1.00 par value
550 
550 
Additional paid in capital
9,218 
9,306 
Retained earnings
9,443 
8,978 
Treasury stock, at cost, and other
(661)4
(792)4
AOCI, net of tax
1,743 
1,749 
Total shareholders' equity
20,568 
20,066 
Total liabilities and shareholders' equity
178,257 
176,859 
Common shares outstanding
538,398 
536,967 
Common shares authorized
750,000 
750,000 
Preferred shares outstanding
Preferred shares authorized
50,000 
50,000 
Treasury shares of common stock
11,522 
12,954 
Treasury Stock and Other
 
 
Liabilities and Shareholders' Equity
 
 
Treasury stock, at cost, and other
$ (707)
 
Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Loans Held-for-sale, Fair Value Disclosure
$ 2,940,000,000 1
$ 2,141,000,000 1
Loans carried at fair value
406,000,000 
433,000,000 
Other intangible assets, MSRs at fair value
865,000,000 
921,000,000 
Trading Securities, Restricted
712,000,000 
574,000,000 
Brokered deposits
914,000,000 
1,018,000,000 
Long-term debt, fair value
2,010,000,000 2
1,997,000,000 2
Common stock, par value
$ 1.00 
$ 1.00 
Loans Receivable Held-for-sale, Net
3,123,000,000 1
2,353,000,000 1
Loans held for investment
124,560,000,000 3
122,495,000,000 3
Long-term Debt
13,076,000,000 2
10,908,000,000 2
Variable Interest Entity, Primary Beneficiary
 
 
Long-term debt, fair value
288,000,000 
289,000,000 
Loans Receivable Held-for-sale, Net
322,000,000 
315,000,000 
Loans held for investment
390,000,000 
3,322,000,000 
Long-term Debt
700,000,000 
722,000,000 
Treasury Stock and Other
 
 
Stockholders' Equity Attributable to Noncontrolling Interest
$ 111,000,000 
$ 107,000,000 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions
Total
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock and Other
Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Dec. 31, 2010
$ 23,130 
$ 4,942 
$ 515 
$ 8,403 
$ 8,542 
$ (888)1
$ 1,616 2
Beginning Balance (in shares) at Dec. 31, 2010
 
 
500 
 
 
 
 
Net income (loss)
358 
 
 
 
358 
 
 
Other Comprehensive Income (Loss), Net of Tax
52 
 
 
 
 
 
(52)2
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends
(11)
 
 
 
(11)
 
 
Preferred dividends
(4)
 
 
 
(4)
 
 
U.S. Treasury preferred stock dividends
(60)
 
 
 
(60)
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
 
 
(6)
 
 
Repurchase of preferred stock
(4,850)
(4,776)
 
 
(74)
 
 
Issuance of common stock (in shares)
 
 
35 
 
 
 
 
Issuance of common stock
1,017 
 
35 
982 
 
 
 
Stock compensation expense
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
(8)
 
 
(54)
 
46 1
 
Amortization of restricted stock compensation
17 
 
 
 
 
17 1
 
Issuance of stock for employee benefit plans and other
11 
 
 
(8)
 
19 1
 
Ending Balance at Jun. 30, 2011
19,660 
172 
550 
9,330 
8,745 
(805)1
1,668 2
Ending Balance (in shares) at Jun. 30, 2011
 
 
537 
 
 
 
 
Beginning Balance at Dec. 31, 2011
20,066 
275 
550 
9,306 
8,978 
(792)1
1,749 2
Beginning Balance (in shares) at Dec. 31, 2011
 
 
537 
 
 
 
 
Net income (loss)
525 
 
 
 
525 
 
 
Other Comprehensive Income (Loss), Net of Tax
(6)
 
 
 
 
 
(6)2
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends
(54)
 
 
 
(54)
 
 
Preferred dividends
(6)
 
 
 
(6)
 
 
Stock compensation expense
 
 
(17)
 
26 1
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(61)
 
65 1
 
Amortization of restricted stock compensation
15 
 
 
 
 
15 1
 
Issuance of stock for employee benefit plans and other
11 
 
 
(10)
 
21 1
 
Ending Balance at Jun. 30, 2012
$ 20,568 
$ 275 
$ 550 
$ 9,218 
$ 9,443 
$ (661)1
$ 1,743 2
Ending Balance (in shares) at Jun. 30, 2012
 
 
538 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Common stock dividends, per share
$ 0.10 
$ 0.02 
Preferred stock dividends, per share
$ 2,033 
$ 2,022 
U.S. Treasury preferred stock dividends, per share
 
$ 1,236 
Treasury Stock, Value
$ 661,000,000 1
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
2,055,000,000 
1,647,000,000 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
399,000,000 
479,000,000 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(711,000,000)
(458,000,000)
Treasury Stock and Other
 
 
Treasury Stock, Value
707,000,000 
869,000,000 
Deferred Compensation Equity
65,000,000 
67,000,000 
Stockholders' Equity Attributable to Noncontrolling Interest
$ 111,000,000 
$ 131,000,000 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 537 
$ 366 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization, and accretion
382 
372 
Origination of Mortgage Servicing Rights (MSRs)
(161)
(136)
Provisions for credit losses and foreclosed property
706 
930 
Mortgage repurchase provision
330 
170 
Stock option compensation and amortization of restricted stock compensation
17 
24 
Net (gain)/loss on extinguishment of debt
13 
(2)
Net securities gains
(32)1
(96)1
Net gain on sale of assets
(518)
(141)
Net decrease/(increase) in loans held for sale
782 
1,718 
Net (increase)/decrease in other assets
(282)
(358)
Net increase/(decrease) in other liabilities
18 
251 
Net cash provided by operating activities
1,792 
3,098 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
3,179 
2,414 
Proceeds from sales of securities available for sale
2,210 
10,763 
Purchases of securities available for sale
(1,451)
(12,603)
Proceeds from maturities, calls, and paydowns of trading securities
124 
Proceeds from sales of trading securities
102 
Net (increase)/decrease in loans including purchases of loans
(4,621)
(1,109)
Proceeds from sales of loans
477 
287 
Capital expenditures
(112)
(9)
Contingent consideration and other payments related to acquisitions
(9)
(18)
Proceeds from the sale of other assets
259 
360 
Net cash (used in)/provided by investing activities
(68)
311 
Cash Flows from Financing Activities:
 
 
Net increase in total deposits
481 
1,877 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(1,938)
162 
Proceeds from the issuance of long-term debt
4,000 
1,039 
Repayment of long-term debt
(1,991)
(1,170)
Proceeds from Stock Options Exercised
Excess tax benefits from stock-based compensation
Proceeds from the issuance of common stock
1,017 
Repurchase of preferred stock
(4,850)
Common and preferred dividends paid
(60)
(75)
Net cash provided by/(used in) financing activities
506 
(2,000)
Net (decrease)/increase in cash and cash equivalents
2,230 
1,409 
Cash and cash equivalents at beginning of period
4,509 
5,378 
Cash and cash equivalents at end of period
6,739 
6,787 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
31 
46 
Loans transferred from loans to loans held for sale
1,116 
198 
Loans transferred from loans and loans held for sale to other real estate owned
200 
367 
Accretion of discount for preferred stock issued to the U.S. Treasury
$ 0 
$ 80 
Significant Accounting Policies
Significant Accounting Policies
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
The Company evaluated subsequent events through the date its financial statements were issued.
These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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, 2011.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU was to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarified how to apply existing fair value measurement and disclosure requirements. Further, the ASU required additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU was effective for the interim reporting period ending March 31, 2012. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption did not impact the Company’s financial position, results of operations, or EPS.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The ASU requires presentation of the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The update does not change the items presented in OCI and does not affect the calculation or reporting of EPS. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income in ASU 2011-05,” which deferred the effective date for the amendments to the reclassification of items out of AOCI. In June 2012, the FASB decided that the presentation requirements deferred in ASU 2011-12 would not be reinstated. The guidance, with the exception of reclassification adjustments, was effective on January 1, 2012 and must be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in the Consolidated Statements of Comprehensive Income. The adoption did not impact the Company’s financial position, results of operations, or EPS.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The ASU amends interim and annual goodwill impairment testing requirements such that an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance was effective for annual and interim goodwill impairment tests beginning on or after January 1, 2012. The Company adopted the standard as of January 1, 2012 and has applied the guidance to interim goodwill impairment testing. The adoption did not have an impact on the Company's financial position, results of operations, or EPS.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment."  The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired.  The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  The Company 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

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

$214

 

$10

 

$—

 

$224

Federal agency securities
1,698

 
85

 

 
1,783

U.S. states and political subdivisions
359

 
19

 
6

 
372

MBS - agency
17,308

 
803

 
1

 
18,110

MBS - private
225

 

 
17

 
208

ABS
344

 
9

 
5

 
348

Corporate and other debt securities
42

 
3

 

 
45

Coke common stock

 
2,346

 

 
2,346

Other equity securities1
972

 
1

 

 
973

Total securities AFS

$21,162

 

$3,276

 

$29

 

$24,409

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

$671

 

$23

 

$—

 

$694

Federal agency securities
1,843

 
89

 

 
1,932

U.S. states and political subdivisions
437

 
21

 
4

 
454

MBS - agency
20,480

 
743

 

 
21,223

MBS - private
252

 

 
31

 
221

CDO/CLO securities
50

 

 

 
50

ABS
460

 
11

 
7

 
464

Corporate and other debt securities
49

 
2

 

 
51

Coke common stock

 
2,099

 

 
2,099

Other equity securities1
928

 
1

 

 
929

Total securities AFS

$25,170

 

$2,989

 

$42

 

$28,117

1At June 30, 2012, other equity securities included the following securities at cost: $455 million in FHLB of Atlanta stock, $401 million in Federal Reserve Bank stock, and $116 million in mutual fund investments. At December 31, 2011, other equity securities included the following securities at cost: $342 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, and $187 million in mutual fund investments.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $7.6 billion and $9.1 billion as of June 30, 2012 and December 31, 2011, respectively. Further, under the Agreements, the Company pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 10, “Derivative Financial Instruments.” As of June 30, 2012 and December 31, 2011, there were no securities AFS pledged under which the transferee may repledge the collateral. The Company has also pledged $978 million and $770 million of certain marketable securities and cash equivalents to secure $930 million and $747 million of repurchase agreements as of June 30, 2012 and December 31, 2011, respectively.


The amortized cost and fair value of investments in debt securities at June 30, 2012 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
 
 
Distribution of Maturities
(Dollars in millions)
1 Year
or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$12

 

$202

 

$—

 

$—

 

$214

Federal agency securities
117

 
1,372

 
95

 
114

 
1,698

U.S. states and political subdivisions
108

 
178

 
21

 
52

 
359

MBS - agency
901

 
14,304

 
1,827

 
276

 
17,308

MBS - private

 
136

 
89

 

 
225

ABS
123

 
152

 
2

 
67

 
344

Corporate and other debt securities
3

 
2

 
37

 

 
42

Total debt securities

$1,264

 

$16,346

 

$2,071

 

$509

 

$20,190

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$12

 

$212

 

$—

 

$—

 

$224

Federal agency securities
118

 
1,441

 
105

 
119

 
1,783

U.S. states and political subdivisions
111

 
191

 
21

 
49

 
372

MBS - agency
951

 
14,957

 
1,916

 
286

 
18,110

MBS - private

 
125

 
83

 

 
208

ABS
123

 
152

 
2

 
71

 
348

Corporate and other debt securities
3

 
2

 
40

 

 
45

Total debt securities

$1,318

 

$17,080

 

$2,167

 

$525

 

$21,090



Securities in an Unrealized Loss Position
The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. As of June 30, 2012, the Company did not intend to sell these securities nor was it more-likely-than-not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

 
June 30, 2012
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized  
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$19

 

$—

 

$—

 

$—

 

$19

 

$—

U.S. states and political subdivisions
1

 

 
24

 
6

 
25

 
6

MBS - agency
12

 
1

 
1

 

 
13

 
1

ABS

 

 
12

 
3

 
12

 
3

Total temporarily impaired securities

32

 
1

 
37

 
9

 
69

 
10

Other-than-temporarily impaired securities1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private

 

 
207

 
17

 
207

 
17

ABS
1

 

 
4

 
2

 
5

 
2

Total other-than-temporarily impaired securities
1

 

 
211

 
19

 
212

 
19

Total impaired securities

$33

 

$1

 

$248

 

$28

 

$281

 

$29

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

$10

 

$—

 

$—

 

$—

 

$10

 

$—

U.S. states and political subdivisions
1

 

 
28

 
4

 
29

 
4

MBS - agency
224

 

 
1

 

 
225

 

CDO/CLO securities
50

 

 

 

 
50

 

ABS

 

 
11

 
5

 
11

 
5

Total temporarily impaired securities
285

 

 
40

 
9

 
325

 
9

Other-than-temporarily impaired securities1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
15

 
1

 
206

 
30

 
221

 
31

ABS
1

 

 
3

 
2

 
4

 
2

Total other-than-temporarily impaired securities
16

 
1

 
209

 
32

 
225

 
33

Total impaired securities

$301

 

$1

 

$249

 

$41

 

$550

 

$42

1Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.

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

The portion of unrealized losses on securities that have been other-than-temporarily impaired that relates to factors other than credit are recorded in AOCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. The unrealized OTTI loss relating to private MBS as of June 30, 2012 includes purchased and retained interests from 2007 vintage securitizations. The unrealized OTTI loss relating to ABS is related to four securities within the portfolio that are 2003 and 2004 vintage home equity issuances. The expectation of cash flows for the previously impaired ABS securities has improved since the credit-related impairment was recognized, and as a result, the amount of expected credit losses was reduced, and the expected increase in cash flows is being accreted into earnings as a yield adjustment over the remaining life of the securities.



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

$16

 

$33

 

$36

 

$176

Gross realized losses

 

 

 
(78
)
OTTI
(2
)
 
(1
)
 
(4
)
 
(2
)
Net securities gains

$14

 

$32

 

$32

 

$96



The securities that gave rise to credit impairments recognized during the three and six months ended June 30, 2012 and 2011, as shown in the table below, consisted of private MBS with a fair value of $140 million and $193 million at June 30, 2012 and 2011, respectively. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled for the collateral underlying each security. As part of that analysis, the model incorporates loan level information such as loan to collateral values, FICO scores, and home price appreciation/depreciation data specific to the geography of the loan. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the three and six months ended June 30, 2012 and 2011, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007. The Company has not purchased new private MBS during the six months ended June 30, 2012, and continues to reduce existing exposure primarily through paydowns. 

 
Three Months Ended June 30
 
Six Months Ended June 30
 
2012
 
2011
 
2012
 
2011
(Dollars in millions)
MBS - Private
 
MBS - Private
 
MBS - Private
 
MBS - Private
OTTI1

$2

 

$1

 

$4

 

$2

Portion of losses recognized in OCI (before taxes)

 

 

 

Net impairment losses recognized in earnings

$2

 

$1

 

$4

 

$2

1 The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount 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 three and six months ended June 30, 2012 and 2011, related to securities for which some portion of the OTTI loss remains in AOCI:

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

$27

 

$21

 

$25

 

$20

Additions:
 
 
 
 
 
 
 
OTTI credit losses on previously impaired securities
2

 
1

 
4

 
2

Reductions:
 
 
 
 
 
 
 
Increases in expected cash flows recognized over the remaining life of the securities
(1
)
 
(1
)
 
(1
)
 
(1
)
Balance, end of period

$28

 

$21

 

$28

 

$21




The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS for the three and six months ended June 30:
 
 
2012
 
2011
Default rate
2 - 6%
 
4 - 8%
Prepayment rate
7 - 21%
 
12 - 22%
Loss severity
47 - 56%
 
39 - 44%

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

$52,030

 

$49,538

Commercial real estate
4,825

 
5,094

Commercial construction
959

 
1,240

Total commercial loans
57,814

 
55,872

Residential loans:
 
 
 
Residential mortgages - guaranteed
5,663

 
6,672

Residential mortgages - nonguaranteed1
24,405

 
23,243

Home equity products
15,281

 
15,765

Residential construction
853

 
980

Total residential loans
46,202

 
46,660

Consumer loans:
 
 
 
Guaranteed student loans
7,248

 
7,199

Other direct
2,225

 
2,059

Indirect
10,506

 
10,165

Credit cards
565

 
540

Total consumer loans
20,544

 
19,963

LHFI

$124,560

 

$122,495

LHFS

$3,123

 

$2,353

1Includes $405 million and $431 million of loans carried at fair value at June 30, 2012 and December 31, 2011, respectively.

During the six months ended June 30, 2012 and 2011, the Company transferred $1.1 billion and $198 million in LHFI to LHFS, and $31 million and $46 million in LHFS to LHFI, respectively. Additionally, during the six months ended June 30, 2012 and 2011, the Company sold $454 million and $277 million in loans and leases that had been held for investment at December 31, 2011 and December 31, 2010 for gains of $23 million and $10 million, respectively. There were no other material sales of LHFI during the period.

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

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

$50,130

 

$47,683

 

$3,836

 

$3,845

 

$581

 

$581

Criticized accruing
1,569

 
1,507

 
756

 
961

 
247

 
369

Criticized nonaccruing
331

 
348

 
233

 
288

 
131

 
290

Total

$52,030

 

$49,538

 

$4,825

 

$5,094

 

$959

 

$1,240

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

$17,567

 

$16,139

 

$11,583

 

$11,084

 

$613

 

$661

620 - 699
4,149

 
4,132

 
2,405

 
2,903

 
158

 
202

Below 6201
2,689

 
2,972

 
1,293

 
1,778

 
82

 
117

Total

$24,405

 

$23,243

 

$15,281

 

$15,765

 

$853

 

$980

 
Consumer - other direct
 
Consumer - indirect
 
Consumer - credit cards
(Dollars in millions)
June 30,
2012
 
December 31,
2011
 
June 30,
2012
 
December 31,
2011
 
June 30,
2012
 
December 31,
2011
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$1,829

 

$1,614

 

$7,965

 

$7,397

 

$379

 

$347

620 - 699
325

 
359

 
1,886

 
1,990

 
142

 
142

Below 6201
71

 
86

 
655

 
778

 
44

 
51

Total

$2,225

 

$2,059

 

$10,506

 

$10,165

 

$565

 

$540

1For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
2Excludes $5.7 billion and $6.7 billion at June 30, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both June 30, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

The payment status for the LHFI portfolio is shown in the tables below:
 
As of June 30, 2012
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial

$51,600

 

$76

 

$23

 

$331

 

$52,030

Commercial real estate
4,582

 
8

 
2

 
233

 
4,825

Commercial construction
826

 
2

 

 
131

 
959

Total commercial loans
57,008

 
86

 
25

 
695

 
57,814

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
4,357

 
144

 
1,162

 

 
5,663

Residential mortgages - nonguaranteed1
22,834

 
255

 
30

 
1,286

 
24,405

Home equity products
14,828

 
151

 

 
302

 
15,281

Residential construction
691

 
7

 
1

 
154

 
853

Total residential loans
42,710

 
557

 
1,193

 
1,742

 
46,202

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
5,746

 
583

 
919

 

 
7,248

Other direct
2,201

 
14

 
6

 
4

 
2,225

Indirect
10,443

 
45

 
1

 
17

 
10,506

Credit cards
553

 
6

 
6

 

 
565

Total consumer loans
18,943

 
648

 
932

 
21

 
20,544

Total LHFI

$118,661

 

$1,291

 

$2,150

 

$2,458

 

$124,560

1Includes $405 million of loans carried at fair value.
2Total nonaccruing loans past due 90 days or more totaled $2.0 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.
 


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

$49,098

 

$80

 

$12

 

$348

 

$49,538

Commercial real estate
4,797

 
9

 

 
288

 
5,094

Commercial construction
943

 
7

 

 
290

 
1,240

Total commercial loans
54,838

 
96

 
12

 
926

 
55,872

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
5,394

 
176

 
1,102

 

 
6,672

Residential mortgages - nonguaranteed1
21,501

 
324

 
26

 
1,392

 
23,243

Home equity products
15,223

 
204

 

 
338

 
15,765

Residential construction
737

 
22

 
1

 
220

 
980

Total residential loans
42,855

 
726

 
1,129

 
1,950

 
46,660

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
5,690

 
640

 
869

 

 
7,199

Other direct
2,032

 
14

 
6

 
7

 
2,059

Indirect
10,074

 
66

 
5

 
20

 
10,165

Credit cards
526

 
7

 
7

 

 
540

Total consumer loans
18,322

 
727

 
887

 
27

 
19,963

Total LHFI

$116,015

 

$1,549

 

$2,028

 

$2,903

 

$122,495

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

Impaired Loans

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms