SUNTRUST BANKS INC, 10-Q filed on 8/9/2011
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2011
Jul. 28, 2011
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Jun. 30, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2 
 
Trading Symbol
STI 
 
Entity Registrant Name
SUNTRUST BANKS INC 
 
Entity Central Index Key
0000750556 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
536,877,003 
Consolidated Statements of Income/(Loss) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Interest Income
 
 
 
 
Interest and fees on loans
$ 1,299 
$ 1,318 
$ 2,613 
$ 2,635 
Interest and fees on loans held for sale
22 
33 
50 
66 
Interest and dividends on securities available for sale:
 
 
 
 
Taxable interest
177 
167 
342 
343 
Tax-exempt interest
11 
18 
Dividends
21 1
19 1
41 1
38 1
Trading account interest
21 
24 
43 
44 
Total interest income
1,546 
1,570 
3,100 
3,144 
Interest Expense
 
 
 
 
Interest on deposits
162 
225 
331 
458 
Interest on funds purchased and securities sold under agreements to repurchase
Interest on trading liabilities
16 
14 
Interest on other short-term borrowings
Interest on long-term debt
113 
154 
237 
313 
Total interest expense
287 
392 
592 
794 
Net interest income
1,259 
1,178 
2,508 
2,350 
Provision for credit losses
392 
662 
839 
1,524 
Net interest income after provision for credit losses
867 
516 
1,669 
826 
Noninterest Income
 
 
 
 
Service charges on deposit accounts
170 
208 
333 
404 
Other charges and fees
130 
133 
256 
262 
Card fees
105 
94 
205 
181 
Trust and investment management income
135 
127 
270 
249 
Retail investment services
59 
48 
117 
95 
Mortgage production related income/(loss)
(16)
(47)
Mortgage servicing related income
72 
88 
144 
158 
Investment banking income
95 
58 
162 
114 
Trading account profits and commissions
53 
109 
105 
102 
Net securities gains
32 2
57 2
96 2
58 2
Other noninterest income
57 
46 
104 
74 
Total noninterest income
912 
952 
1,795 
1,650 
Noninterest Expense
 
 
 
 
Employee compensation
638 
575 
1,256 
1,132 
Employee benefits
110 
107 
246 
242 
Outside processing and software
162 
158 
320 
307 
Net occupancy expense
89 
90 
178 
181 
Regulatory assessments
81 
65 
152 
129 
Other real estate expense
64 
87 
133 
133 
Credit and collection services
60 
66 
111 
140 
Equipment expense
44 
42 
88 
83 
Marketing and customer development
46 
44 
84 
78 
Operating losses
62 
16 
89 
30 
Amortization of intangible assets
12 
13 
23 
26 
Net (gain)/loss on extinguishment of debt
(1)
63 
(2)
54 
Other noninterest expense
175 
177 
329 
329 
Total noninterest expense
1,542 
1,503 
3,007 
2,864 
Income/(loss) before provision/(benefit) for income taxes
237 
(35)
457 
(388)
Provision/(benefit) for income taxes
58 
(50)
91 
(244)
Net income/(loss) including income attributable to noncontrolling interest
179 
15 
366 
(144)
Net income attributable to noncontrolling interest
Net income/(loss)
178 
12 
358 
(149)
Net income/(loss) available to common shareholders
$ 174 
$ (56)
$ 212 
$ (285)
Net income/(loss) per average common share
 
 
 
 
Diluted
$ 0.33 3
$ (0.11)3
$ 0.41 3
$ (0.58)3
Basic
$ 0.33 
$ (0.11)
$ 0.41 
$ (0.58)
Dividends declared per common share
$ 0.01 
$ 0.01 
$ 0.02 
$ 0.02 
Average common shares - diluted
535,416 
498,499 
519,548 
498,369 
Average common shares - basic
531,792 
495,351 
515,819 
495,112 
Consolidated Statements of Income/(Loss) (Parenthetical) (USD $)
In Millions
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dividends on common stock of The Coca-Cola Company
$ 14 
$ 13 
$ 28 
$ 26 
Net impairment losses recognized in earnings
$ 1 
$ 1 
$ 2 
$ 2 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands
Jun. 30, 2011
Dec. 31, 2010
Assets
 
 
Cash and due from banks
$ 5,633 
$ 4,296 
Interest-bearing deposits in other banks
20 
24 
Funds sold and securities purchased under agreements to resell
1,134 
1,058 
Cash and cash equivalents
6,787 
5,378 
Trading assets
6,586 
6,175 
Securities available for sale
27,216 
26,895 
Loans held for sale (loans at fair value: $1,925 as of June 30, 2011 and $3,168 as of December 31, 2010)
2,052 1
3,501 1
Loans (loans at fair value: $449 as of June 30, 2011 and $492 as of December 31, 2010)
114,913 2
115,975 2
Allowance for loan and lease losses
(2,744)
(2,974)
Net loans
112,169 
113,001 
Premises and equipment
1,536 
1,620 
Goodwill
6,343 
6,323 
Other intangible assets (MSRs at fair value: $1,423 as of June 30, 2011 and $1,439 as of December 31, 2010)
1,539 
1,571 
Other real estate owned
483 
596 
Other assets
7,462 
7,814 
Total assets
172,173 
172,874 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
30,591 
27,290 
Interest-bearing consumer and commercial deposits
91,080 
92,735 
Total consumer and commercial deposits
121,671 
120,025 
Brokered deposits (CDs at fair value: $1,140 as of June 30, 2011 and $1,213 of December 31, 2010)
2,345 
2,365 
Foreign deposits
905 
654 
Total deposits
124,921 
123,044 
Funds purchased
939 
951 
Securities sold under agreements to repurchase
2,253 
2,180 
Other short-term borrowings
2,791 
2,690 
Long-term debt(debt at fair value: $2,022 as of June 30, 2011 and $2,837 as of December 31, 2010)
13,693 3
13,648 3
Trading liabilities
3,026 
2,678 
Other liabilities
4,890 
4,553 
Total liabilities
152,513 
149,744 
Preferred stock, no par value
172 
4,942 
Common stock, $1.00 par value
550 
515 
Additional paid in capital
9,330 
8,403 
Retained earnings
8,745 
8,542 
Treasury stock, at cost, and other
(805)
(888)
Accumulated other comprehensive income, net of tax
1,668 
1,616 
Total shareholders' equity
19,660 
23,130 
Total liabilities and shareholders' equity
$ 172,173 
$ 172,874 
Common shares outstanding
536,907 
500,436 
Common shares authorized
750,000 
750,000 
Preferred shares outstanding
50 
Preferred shares authorized
50,000 
50,000 
Treasury shares of common stock
13,014 
14,231 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data
Jun. 30, 2011
Dec. 31, 2010
Loans held for sale, loans at fair value
$ 1,925 
$ 3,168 
Loans Held for Sale
2,052 1
3,501 1
LHFI at fair value
449 
492 
Loans
114,913 2
115,975 2
Other intangible assets, MSRs at fair value
1,423 
1,439 
Long-Term Debt
13,693 3
13,648 3
Brokered deposits, CDs at fair value
1,140 
1,213 
Long-term debt, fair value
2,022 
2,837 
Common stock, par value
$ 1 
$ 1 
Variable Interest Entity, Primary Beneficiary
 
 
Loans Held for Sale
329 
316 
Loans
2,896 
2,869 
Long-Term Debt
743 
764 
Long-term debt, fair value
$ 289 
$ 290 
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
Beginning Balance at Dec. 31, 2009
$ 22,531 
$ 4,917 
$ 515 
$ 8,521 
$ 8,563 
$ (1,055)1
$ 1,070 
Beginning Balance (in shares) at Dec. 31, 2009
 
 
499 
 
 
 
 
Net income (loss)
(149)
 
 
 
(149)
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
215 
 
 
 
 
 
215 
Change in unrealized gains (losses) on derivatives, net of taxes
377 
 
 
 
 
 
377 
Change related to employee benefit plans
83 
 
 
 
 
 
83 
Total comprehensive income
526 
 
 
 
 
 
 
Common stock dividends, $0.02 per share
(10)
 
 
 
(10)
 
 
Series A preferred dividends
(4)
 
 
 
(4)
 
 
U.S. Treasury preferred stock dividends, $1,236 in 2011 and $2,500 in 2010 per share
(120)
 
 
 
(120)
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
12 
 
 
(12)
 
 
Stock compensation expense
11 
 
 
11 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
(27)
 
 
(69)
 
42 1
 
Amortization of restricted stock compensation
22 
 
 
 
 
22 1
 
Issuance of stock for employee benefit plans and other
 
 
(18)
23 1
 
Fair value election of MSRs
89 
 
 
 
89 
 
 
Ending Balance at Jun. 30, 2010
23,024 
4,929 
515 
8,445 
8,358 
(968)1
1,745 
Ending Balance (in shares) at Jun. 30, 2010
 
 
500 
 
 
 
 
Beginning Balance at Dec. 31, 2010
23,130 
4,942 
515 
8,403 
8,542 
(888)1
1,616 
Beginning Balance (in shares) at Dec. 31, 2010
 
 
500 
 
 
 
 
Net income (loss)
358 
 
 
 
358 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
121 
 
 
 
 
 
121 
Change in unrealized gains (losses) on derivatives, net of taxes
(53)
 
 
 
 
 
(53)
Change related to employee benefit plans
(16)
 
 
 
 
 
(16)
Total comprehensive income
410 
 
 
 
 
 
 
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends, $0.02 per share
(11)
 
 
 
(11)
 
 
Series A preferred dividends
(4)
 
 
 
(4)
 
 
U.S. Treasury preferred stock dividends, $1,236 in 2011 and $2,500 in 2010 per share
(60)
 
 
 
(60)
 
 
Accretion of discount for preferred stock issued to U.S. Treasury
 
 
 
(6)
 
 
Repurchase of preferred stock issued to U.S. Treasury
(4,850)
(4,776)
 
 
(74)
 
 
Issuance of common stock (in shares)
35 
 
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 
Ending Balance (in shares) at Jun. 30, 2011
 
 
537 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data
6 Months Ended
Jun. 30,
2011
2010
Common stock dividends, per share
$ 0.02 
$ 0.02 
Series A preferred stock dividends, per share
$ 2,022 
$ 2,022 
U.S. Treasury preferred stock dividends, per share
$ 1,236 
$ 2,500 
Treasury Stock
 
 
Ending Balance, treasury stock
$ (869)
$ (1,021)
Ending Balance, compensation element of restricted stock
(67)
(55)
Ending Balance, noncontrolling interest
$ 131 
$ 108 
Consolidated Statements of Cash Flows (USD $)
In Millions
6 Months Ended
Jun. 30,
2011
2010
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 366 
$ (144)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization, and accretion
372 
404 
Origination of Mortgage Servicing Rights
(136)
(134)
Provisions for credit losses and foreclosed property
930 
1,620 
Amortization of restricted stock compensation
17 
22 
Stock option compensation
11 
Net (gain)/loss on extinguishment of debt
(2)
54 
Net securities gains
(96)1
(58)1
Net (gain)/loss on sale of assets
(141)
(218)
Net decrease in loans held for sale
1,718 
1,045 
Net increase in other assets
(358)
(406)
Net increase in other liabilities
421 
170 
Net cash provided by operating activities
3,098 
2,366 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
2,414 
2,802 
Proceeds from sales of securities available for sale
10,763 
10,526 
Purchases of securities available for sale
(12,603)
(12,677)
Proceeds from maturities, calls, and paydowns of trading securities
124 
78 
Proceeds from sales of trading securities
102 
61 
Net (increase)/decrease in loans including purchases of loans
(1,109)
31 
Proceeds from sales of loans
287 
600 
Capital expenditures
(9)
(89)
Contingent consideration and other payments related to acquisitions
(18)
(4)
Proceeds from the sale of other assets
360 
349 
Net cash provided by investing activities
311 
1,677 
Cash Flows from Financing Activities:
 
 
Net increase/(decrease) in total deposits
1,877 
(3,194)
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
162 
(1,135)
Proceeds from the issuance of long-term debt
1,039 
500 
Repayment of long-term debt
(1,170)
(2,283)
Proceeds from the issuance of common stock
1,017 
 
Repurchase of preferred stock
(4,850)
 
Common and preferred dividends paid
(75)
(135)
Net cash used in financing activities
(2,000)
(6,247)
Net increase/(decrease) in cash and cash equivalents
1,409 
(2,204)
Cash and cash equivalents at beginning of period
5,378 
6,997 
Cash and cash equivalents at end of period
6,787 
4,793 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
46 
17 
Loans transferred from loans to loans held for sale
198 
238 
Loans transferred from loans to other real estate owned
367 
622 
Accretion of discount for preferred stock issued to the U.S. Treasury
80 
12 
Total assets of newly consolidated VIEs at January 1, 2010
 
$ 2,049 
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, 2010. Except for accounting policies that have been modified or 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, 2010.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered LHFI. The Company’s loan balance is comprised of loans held in portfolio, including commercial loans, consumer loans, and residential loans. Interest income on all types of loans, except those classified as nonaccrual, is accrued based upon the outstanding principal amounts using the effective yield method.

Commercial loans (commercial & industrial, commercial real estate, and commercial construction) are considered to be past due when payment is not received from the borrower by the contractually specified due date. The Company typically classifies commercial loans as nonaccrual when one of the following events occurs: (i) interest or principal has been past due 90 days or more, unless the loan is 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. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized after the principal has been reduced to zero. If and when commercial borrowers demonstrate the ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan may be returned to accrual status.

Consumer loans (guaranteed student loans, other direct, indirect, and credit card) are considered to be past due when payment is not received from the borrower by the contractually specified due date. Other direct and indirect loans are typically placed on nonaccrual when payments have been past due for 90 days or more except when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. Credit card loans are never placed on nonaccrual status but rather are charged off once they are 180 days past due. Guaranteed student loans continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized after the principal has been reduced to zero. Nonaccrual loans are typically returned to accrual status once they no longer meet the delinquency threshold that resulted in them initially being moved to nonaccrual status.

Residential loans (guaranteed residential mortgages, nonguaranteed residential mortgages, home equity products, and residential construction) are considered to be past due when a monthly payment is due and unpaid for one month. Nonguaranteed residential mortgages and residential construction loans are generally placed on nonaccrual when payments are 120 days past due. Home equity products are generally placed on nonaccrual when payments are 90 days past due. The exception for nonguaranteed residential mortgages, residential construction loans, and home equity products is when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. Guaranteed residential mortgages continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized on a cash basis. Nonaccrual loans are typically returned to accrual status once they no longer meet the delinquency threshold that resulted in them initially being moved to nonaccrual status.

 

TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower. To date, the Company’s TDRs have been predominantly first and second lien residential mortgages and home equity lines of credit. Prior to modifying a borrower’s loan terms, the Company performs an evaluation of the borrower’s financial condition and ability to service under the potential modified loan terms. The types of concessions 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 through 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 for the life of the loan. Interest income recognition on impaired loans is dependent upon nonaccrual status, TDR designation, and loan type as discussed above.

For loans accounted for at amortized cost, fees and incremental direct costs associated with the loan origination and pricing process, as well as premiums and discounts, are deferred and amortized as level yield adjustments over the respective loan terms. Premiums for purchased credit cards are amortized on a straight-line basis over one year. Fees received for providing loan commitments that result in funded loans are recognized over the term of the loan as an adjustment of the yield. If a loan is never funded, the commitment fee is recognized into noninterest income at the expiration of the commitment period. Origination fees and costs are recognized in noninterest income and expense at the time of origination for newly-originated loans that are accounted for at fair value. See Note 3, “Loans” 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 (all loan classes) nonaccrual loans and certain consumer (other direct), residential (nonguaranteed residential mortgages, home equity products, and residential construction), and commercial (all classes) loans whose terms have been modified in a TDR are individually identified for evaluation of impairment. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. If necessary, a specific allowance is established for individually evaluated impaired loans. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment. Any change in the present value attributable to the passage of time is recognized through the provision for credit losses.

General allowances are established for loans and leases grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional and national economic conditions, and expected 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 commercial real estate 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 4, “Allowance for Credit Losses,” for additional information.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This ASU requires the disclosure of transfers in and out of level 1 and 2 of the fair value hierarchy, along with the reasons for the transfers and a gross presentation of purchases and sales of level 3 instruments. Additionally, the ASU requires fair value measurement disclosures for each class of assets and liabilities and enhanced disclosures around level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for level 1 and 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for level 3 activities were effective for the interim reporting period ending March 31, 2011. The required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption of these disclosure requirements had no impact on the Company’s financial position, results of operations, or 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 ASU requires more disclosures about the credit quality of financing receivables, which include loans, lease receivables, and other long-term receivables, and the credit allowances held against them. The disclosure requirements that were effective as of December 31, 2010 are included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses.” Disclosures about activity that occurs during a reporting period were effective for the interim reporting period ending March 31, 2011 are also included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses,”. The adoption of the ASU did not have an impact on the Company’s financial position, results of operations, or EPS.

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 step 2 of the goodwill impairment analysis if the carrying value of a reporting unit is zero or negative and it is more likely than not that goodwill for that reporting unit is impaired. The adoption of the ASU as of January 1, 2011 did not have an impact on the Company’s financial position, results of operations, or EPS.

In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The ASU provides additional guidance to assist creditors in determining whether a modification of a receivable meets the criteria to be considered a TDR, both for purposes of recognizing loan losses and additional disclosures regarding TDRs. A modification of a credit arrangement constitutes a TDR if it constitutes a concession and the debtor is experiencing financial difficulties. The clarifications for classification apply to all restructurings occurring on or after January 1, 2011. The measurement of impairment for those newly identified TDRs will be applied prospectively beginning on July 1, 2011. The related disclosures, which were previously deferred by ASU 2011-01, will be required for the interim reporting period ending September 30, 2011 and subsequent reporting periods. The adoption of the ASU is not expected to have a significant impact on the Company’s financial position, results of operations, or EPS. The Company’s level of TDRs increased by less than $100 million at the date of adoption.

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” A repurchase agreement is a transaction in which a company sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The determination of whether the transaction is accounted for as a sale or a collateralized financing is determined by assessing whether the seller retains effective control of the financial instrument. The ASU changes the assessment of effective control by removing the criterion that requires the seller to have the ability to repurchase or redeem financial assets with substantially the same terms, even in the event of default by the buyer and the collateral maintenance implementation guidance related to that criterion. The Company will apply the new guidance to repurchase agreements entered into or amended after January 1, 2012. The Company does not expect the ASU to have a significant impact on the Company’s financial position, results of operations, or EPS.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU is to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarifies how to apply existing fair value measurement and disclosure requirements. Further, the ASU requires additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU is effective for the interim reporting period ending March 31, 2012. The Company 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.

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. The guidance is effective on January 1, 2012 and must be applied retrospectively for all periods presented. The Company is in the process of evaluating the presentation options; however, adoption of the ASU will not have an 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

 

000000000000000 000000000000000 000000000000000 000000000000000
     June 30, 2011  
(Dollars in millions)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

U.S. Treasury securities

     $730           $4           $8           $726     

Federal agency securities

     2,519           48           1           2,566     

U.S. states and political subdivisions

     499           19           2           516     

MBS - agency

     18,797           536           2           19,331     

MBS - private

     335           1           25           311     

CDO securities

     337           -           -           337     

ABS

     615           14           4           625     

Corporate and other debt securities

     54           3           1           56     

Coke common stock

     -           2,019           -           2,019     

Other equity securities1

     728           1           -           729     
  

 

 

    

 

 

    

 

 

    

 

 

 

    Total securities AFS

     $24,614           $2,645           $43           $27,216     
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2010  
(Dollars in millions)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

U.S. Treasury securities

     $5,446           $115           $45           $5,516     

Federal agency securities

     1,883           19           7           1,895     

U.S. states and political subdivisions

     565           17           3           579     

MBS - agency

     14,014           372           28           14,358     

MBS - private

     378           3           34           347     

CDO securities

     50           -           -           50     

ABS

     798           15           5           808     

Corporate and other debt securities

     464           19           1           482     

Coke common stock

     -           1,973           -           1,973     

Other equity securities1

     886           1           -           887     
  

 

 

    

 

 

    

 

 

    

 

 

 

    Total securities AFS

     $24,484           $2,534           $123           $26,895     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1At June 30, 2011, other equity securities included $205 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $132 million in mutual fund investments (par value). At 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).

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $4.5 billion and $6.9 billion as of June 30, 2011 and December 31, 2010, respectively. Further, under The Agreements, the Company pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 11, “Derivative Financial Instruments.” The Company has also pledged $1.1 billion of certain trading assets and cash equivalents to secure $1.0 billion of repurchase agreements as of June 30, 2011.

 

The amortized cost and fair value of investments in debt securities at June 30, 2011 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(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

     $8          $214          $508          $-          $730    

Federal agency securities

     60          2,010          414          35          2,519    

U.S. states and political subdivisions

     131          255          44          69          499    

MBS - agency

     778          11,566          1,105          5,348          18,797    

MBS - private

     33          300                          335    

CDO securities

     150          187                          337    

ABS

     386          223                          615    

Corporate and other debt securities

                     17          25          54    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     $1,554          $14,759          $2,096          $5,477          $23,886    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Fair Value

              

U.S. Treasury securities

     $8          $219          $499          $-          $726    

Federal agency securities

     60          2,044          427          35          2,566    

U.S. states and political subdivisions

     135          269          45          67          516    

MBS - agency

     797          11,947          1,146          5,441          19,331    

MBS - private

     30          279                          311    

CDO securities

     150          187                          337    

ABS

     395          225                          625    

Corporate and other debt securities

                     19          25          56    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     $1,583          $15,174          $2,143          $5,568          $24,468    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Securities in an Unrealized Loss Position

The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates. As of June 30, 2011, the Company did not intend to sell these securities nor was it more likely than not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Securities in a continuous unrealized loss position at June 30, 2011 and December 31, 2010 were as follows:

     June 30, 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

                 

  U.S. Treasury securities

     $499          $8         $-          $-          $499         $8    

  Federal agency securities

     85          1                         85           

  U.S. states and political subdivisions

                     34         2         43           

  MBS - agency

     477          2                         477           

  MBS - private

                     23         3         27           

  CDO securities

     162                                  162           

  ABS

                     13         3         13           

  Corporate and other debt securities

                     3         1         3           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

     1,236          11         73         9         1,309         20    

Other-than-temporarily impaired securities1

                 

  MBS - private

     19          1         241         21         260         22    

  ABS

                     3         1         5           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other-than-temporarily impaired securities

     21          1         244         22         265         23    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total impaired securities

     $1,257          $12         $317         $31         $1,574         $43    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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                  -           -           1,426            

  U.S. states and political subdivisions

     45                  35                  80            

  MBS - agency

     3,497          28          -           -           3,497          28    

  MBS - private

     18          -           17                  35            

  ABS

             -           14                  14            

  Corporate and other debt securities

             -                                     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

     6,996         81          69          10          7,065          91    

Other-than-temporarily impaired securities1

                 

  MBS - private

     -           -           286          31          286          31    

  ABS

                     -           -                     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other-than-temporarily impaired securities

                     286          31          290          32    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total impaired securities

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

Unrealized losses on securities that have been other-than-temporarily impaired are the result of factors other than credit and therefore are recorded in OCI. 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, 2011, includes purchased and retained interests from 2007 vintage securitizations. The unrealized OTTI loss relating to ABS is related to three securities within the portfolio that are 2003 vintage home equity issuances. 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.

Realized Gains and Losses and Other than Temporarily Impaired

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

 

    Three Months Ended June 30     Six Months Ended June 30  
(Dollars in millions)           2011                     2010                         2011                              2010               

Gross realized gains

    $33          $62          $176          $77     

Gross realized losses

    -          (4)         (78)         (17)    

OTTI

    (1)         (1)         (2)         (2)    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net securities gains

    $32          $57          $96          $58     
 

 

 

   

 

 

   

 

 

   

 

 

 

The securities that gave rise to the credit impairment recognized during the six months ended June 30, 2011 consisted of private MBS with a fair value of $193 million at June 30, 2011. The securities impacted by credit impairment during the six months ended June 30, 2010, consisted of private MBS with a fair value of $1 million as of June 30, 2010. 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 credit-related OTTI, credit information is available and modeled at the loan level underlying each security, and the Company 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 six months ended June 30, 2011 and 2010, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007. The majority of the OTTI was taken on private MBS which were originated by the Company and, therefore, have geographic concentrations in the Company’s primary footprint. Additionally, the Company has not purchased new private MBS during the six months ended June 30, 2011, and continues to reduce existing exposure primarily through paydowns.

 

     Three Months Ended June 30      Six Months Ended June 30  
     2011      2010      2011      2010  
(Dollars in millions)        MBS - Private              MBS - Private              MBS - Private              MBS - Private      

Total OTTI losses

     $1          $1          $2          $2    

Portion of losses recognized in OCI (before taxes) 1

     -                             
  

 

 

    

 

 

    

 

 

    

 

 

 

Net impairment losses recognized in earnings

     $1           $1          $2          $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 six months ended June 30, 2011 and 2010, related to securities for which some portion of the OTTI loss remains in AOCI:

 

(Dollars in millions)       

Balance, as of January 1, 2010

     $22    

  Additions/reductions1

       
  

 

 

 

Balance, as of June 30, 2010

     $22     
  

 

 

 

Balance, as of January 1, 2011

     $20    

Additions:

  

  OTTI credit losses on previously impaired securities

       

Reductions:

  

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

     (1)    
  

 

 

 

Balance, as of June 30, 2011

                         $21     
  

 

 

 

1 During the six months ended June 30, 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 this amount.

 

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS as of June 30, 2011 and December 31, 2010:

 

               June 30, 2011                    December 31, 2010      

Current default rate

   4 - 8%   2 - 7%

Prepayment rate

   12 - 22%   14 - 22%

Loss severity

   39 - 44%   37 - 46%
Loans
Loans

Note 3 - Loans

Composition of Loan Portfolio

 

(Dollars in millions)          June 30,      
2011
           December 31,      
2010
 

Commercial loans:

     

Commercial & industrial1

     $45,922          $44,753    

Commercial real estate

     5,707          6,167    

Commercial construction

     1,740          2,568    
  

 

 

    

 

 

 

Total commercial loans

     53,369          53,488    

Residential loans:

     

Residential mortgages - guaranteed

     4,513          4,520    

Residential mortgages - nonguaranteed2

     23,224          23,959    

Home equity products

     16,169          16,751    

Residential construction

     1,118          1,291    
  

 

 

    

 

 

 

Total residential loans

     45,024          46,521    

Consumer loans:

     

Guaranteed student loans

     4,620          4,260    

Other direct

     1,863          1,722    

Indirect

     9,630          9,499    

Credit cards

     407          485    
  

 

 

    

 

 

 

Total consumer loans

     16,520          15,966    
  

 

 

    

 

 

 

LHFI

     $114,913          $115,975    
  

 

 

    

 

 

 

LHFS

     $2,052          $3,501    

1Includes $4 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

2Includes $445 million and $488 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

During the six months ended June 30, 2011, the Company transferred $198 million in LHFI to LHFS. Additionally, during the six months ended June 30, 2011, the Company sold $277 million in loans and leases that had been held for investment at December 31, 2010 for a gain of $10 million. There were no other material purchases or sales of LHFI during the period.

Credit Quality Evaluation

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 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. Loans are rated pass or criticized based on the borrower’s willingness and ability to contractually perform along with the estimated net losses the Company would incur in the event of default. Criticized loans have a higher probability of default. As a result, criticized loans are further categorized into accruing and nonaccruing, representing management’s assessment of the collectability of principal and interest. Ratings for loans 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. However, for student loans which are guaranteed by a federal agency, the Company does not utilize FICO scores as the Company does not originate government guaranteed student loans. For guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, which it believes is the most appropriate indicator of credit quality. As of June 30, 2011 and December 31, 2010, 77% of the guaranteed student loan portfolio was current with respect to payments; however, the loss exposure to the Company was 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,
2011
       December 31,  
2010
         June 30,    
2011
       December 31,  
2010
     June 30,
2011
       December 31,  
2010
 

Credit rating:

                 

  Pass

     $43,551           $42,140           $3,941           $4,316           $641           $836     

  Criticized accruing

     1,834           2,029           1,367           1,509           472           771     

  Criticized nonaccruing

     537           584           399           342           627           961     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $45,922           $44,753           $5,707           $6,167           $1,740           $2,568     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Residential mortgages  -
nonguaranteed2
     Home equity products      Residential construction  
     June 30,
2011
       December 31,  
2010
         June 30,    
2011
       December 31,  
2010
     June 30,
2011
       December 31,  
2010
 

Current FICO score range:

                 

  700 and above

     $15,752           $15,920           $11,471           $11,673           $752           $828     

  620 - 699

     4,226           4,457           2,862           2,897           219           258     

  Below 6201

     3,246           3,582           1,836           2,181           147           205     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $23,224           $23,959           $16,169           $16,751           $1,118           $1,291     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Consumer  - other direct3      Consumer - indirect      Consumer - credit cards  
     June 30,
2011
       December 31,  
2010
         June 30,    
2011
       December 31,  
2010
     June 30,
2011
     December 31,
2010
 

Current FICO score range:

                 

  700 and above

     $1,111           $973           $7,023           $6,780           $219           $258     

  620 - 699

     237           231           1,822           1,799           123           149     

  Below 6201

     90           105           785           920           65           78     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $1,438           $1,309           $9,630           $9,499           $407           $485     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 For 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.

2 Excludes $4.5 billion at both June 30, 2011 and December 31, 2010 of federally guaranteed residential loans. At both June 30, 2011 and December 31, 2010, the vast majority of these loans had FICO scores of 700 and above.

3 Excludes $425 million and $413 million as of June 30, 2011 and December 31, 2010, respectively, of private-label student loans with third party insurance. At both June 30, 2011 and December 31, 2010, the vast majority of these loans had FICO scores of 700 and above.

The payment status for the LHFI portfolio at June 30, 2011 and December 31, 2010 is shown in the tables below:

 

Nonaccruing3 Nonaccruing3 Nonaccruing3 Nonaccruing3 Nonaccruing3
     As of June 30, 2011  
(Dollars in millions)    Accruing
Current
     Accruing
30-89 Days
Past Due
     Accruing
90+ Days
Past Due
       Nonaccruing3         Total  

Commercial loans:

              

  Commercial & industrial1

     $45,271           $93           $21           $537           $45,922     

  Commercial real estate

     5,291           15           2           399           5,707     

  Commercial construction

     1,102           11           -           627           1,740     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

    Total commercial loans

     51,664           119           23           1,563           53,369     

Residential loans:

              

  Residential mortgages - guaranteed

     3,408           163           942           -           4,513     

  Residential mortgages - nonguaranteed2

     21,448           336           28           1,412           23,224     

  Home equity products

     15,601           233           -           335           16,169     

  Residential construction

     825           25           2           266           1,118     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

    Total residential loans

     41,282           757           972           2,013           45,024     

Consumer loans:

              

  Guaranteed student loans

     3,578           417           625           -           4,620     

  Other direct

     1,834           15           5           9           1,863     

  Indirect

     9,547           55           3           25           9,630     

  Credit cards

     391           8           8           -           407     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

    Total consumer loans

     15,350           495           641           34           16,520     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total LHFI

     $108,296           $1,371           $1,636           $3,610           $114,913     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1 Includes $4 million in loans carried at fair value.

2 Includes $445 million in loans carried at fair value.

3 Total nonaccruing loans past due 90 days or more totaled $2.8 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

 

Nonaccruing3 Nonaccruing3 Nonaccruing3 Nonaccruing3 Nonaccruing3
     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.

2 Includes $488 million in loans carried at fair value.

3 Total nonaccruing loans past due 90 days or more totaled $3.3 billion. 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. Commercial nonaccrual loans greater than $4 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 student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss.

 

     As of June 30, 2011      For the Three Months Ended
June 30, 2011
     For the Six Months Ended
June 30, 2011
 
(Dollars in millions)    Unpaid
  Principal  
Balance
       Amortized  
Cost1
     Related
  Allowance  
     Average
  Amortized  
Cost
     Interest
Income
  Recognized2  
     Average
  Amortized  
Cost
     Interest
Income
  Recognized2  
 

Impaired loans with no related allowance recorded:

                    

  Commercial loans:

                    

    Commercial & industrial

     $109          $100          $-          $102          $-          $103          $-   

    Commercial real estate

     87          62                  68          1           63            

    Commercial construction

     62          51                  94          1           102            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

      Total commercial loans

     258          213                  264          2           268            

Impaired loans with an allowance recorded:

                    

  Commercial loans:

                    

    Commercial & industrial

     97          86          26          88          -           130            

    Commercial real estate

     169          138          35          154          1           136            

    Commercial construction

     394          300          104          321          -           356            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

      Total commercial loans

     660          524          165          563          1           622            

  Residential loans:

                    

    Residential mortgages - nonguaranteed

     2,860          2,488          283          2,445          22           2,455          44    

    Home equity products

     521          488          92          487          5           447          10    

    Residential construction

     228          188          22          191          1           195            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

      Total residential loans

     3,609          3,164          397          3,123          28           3,097          57    

  Consumer loans:

                    

    Other direct

     13          13                  13          -           11            
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

     $4,540          $3,914          $564          $3,963          $31           $3,998          $62    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

2 Of the interest income recognized for the three and six months ended June 30, 2011, cash basis interest income was $7 million and $13 million, respectively.

 

     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     
  

 

 

    

 

 

    

 

 

 

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

 

Included in the impaired loan balances above were $2.6 billion and $2.5 billion of accruing TDRs at June 30, 2011 and December 31, 2010, respectively, of which 86% and 85% were current, respectively. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for further information regarding the Company’s loan impairment policy.

At June 30, 2011 and December 31, 2010, the Company had $21 million and $15 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

Nonperforming assets at June 30, 2011 and December 31, 2010 are shown in the following table:

 

(Dollars in millions)      June 30,  
2011
       December 31,  
2010
 

Nonperforming Assets

     

  Nonaccrual/NPLs:

     

    Commercial loans:

     

      Commercial & industrial1

     $537           $584     

      Commercial real estate

     399           342     

      Commercial construction

     627           961     

    Residential loans:

     

      Residential mortgages - nonguaranteed2

     1,412           1,543     

      Home equity products

     335           355     

      Residential construction

     266           290     

    Consumer loans:

     

      Other direct

     9           10     

      Indirect

     25           25     
  

 

 

    

 

 

 

  Total nonaccrual/NPLs

     3,610           4,110     

    OREO3

     483           596     

    Other repossessed assets

     11           52     
  

 

 

    

 

 

 

          Total nonperforming assets

     $4,104           $4,758     
  

 

 

    

 

 

 

1Includes $4 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

2Includes $23 million and $24 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

3Does not include foreclosed real estate related to loans insured by the FHA or the VA. Proceeds due from the FHA and the VA are recorded as a receivable in other assets until the funds are received and the property is conveyed. The receivable amount related to proceeds due from FHA or the VA totaled $175 million and $195 million at June 30, 2011 and December 31, 2010, respectively.

Concentrations of Credit Risk

The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the U.S. SunTrust engages in limited international banking activities. The Company’s total cross-border outstanding loans were $383 million and $446 million at June 30, 2011 and December 31, 2010, respectively.

The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At June 30, 2011, the Company owned $45.0 billion in residential loans, representing 39% of total LHFI, and had $13.2 billion in commitments to extend credit on home equity lines and $7.2 billion in mortgage loan commitments. Of the residential loans owned at June 30, 2011, 10% were guaranteed by a federal agency or a GSE. At December 31, 2010, the Company owned $46.5 billion in residential real estate loans, representing 40% of total LHFI, and had $13.6 billion in commitments to extend credit on home equity lines and $9.2 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2010, 10% were guaranteed by a federal agency or a GSE.

Included in the residential mortgage portfolio were $16.7 billion and $17.6 billion of mortgage loans at June 30, 2011 and December 31, 2010, respectively, that were not covered by mortgage insurance and whose terms, such as an interest only feature, a high LTV ratio, or a junior lien position, may increase the Company’s exposure to credit risk and result in a concentration of credit risk. Of these mortgage loans, $12.1 billion and $13.2 billion were interest only loans at origination, primarily with a ten year interest only period, including $1.9 billion and $2.0 billion, respectively, of loans that have since been modified into fully amortizing products.

Allowance for Credit Losses
Allowance for Credit Losses

Note 4 - Allowance for Credit Losses

The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. Activity in the allowance for credit losses is summarized in the table below:

 

2011 2011 2011 2011
             Three Months Ended         
June 30
             Six Months Ended         
June 30
 
(Dollars in millions)    2011      2010      2011      2010  

Balance at beginning of period

     $2,908           $3,276           $3,032           $3,235     

  Provision for loan losses

     395           702           846           1,579     

  Benefit for unfunded commitments

     (3)          (40)          (7)          (55)    

  Loan charge-offs

     (563)          (768)          (1,178)          (1,630)    

  Loan recoveries

     58           46           102           87     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $2,795           $3,216           $2,795           $3,216     
  

 

 

    

 

 

    

 

 

    

 

 

 

Components:

           

  ALLL

       $2,744               $3,156           

  Unfunded commitments reserve1

     51           60           
  

 

 

    

 

 

       

Allowance for credit losses

     $2,795           $3,216           
  

 

 

    

 

 

       

1The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

Activity in the ALLL by segment is presented in the tables below:

 

     Three Months Ended June 30, 2011  
(Dollars in millions)      Commercial          Residential          Consumer          Total    

Balance at beginning of period

     $1,255           $1,440           $159           $2,854     

  Provision for loan losses

     124           252           19           395     

  Loan charge-offs

     (220)          (303)          (40)          (563)    

  Loan recoveries

     41           6           11           58     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $1,200           $1,395           $149           $2,744     
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended June 30, 2010  
(Dollars in millions)      Commercial          Residential          Consumer          Total    

Balance at beginning of period

     $1,399           $1,590           $187           $3,176     

  Provision for loan losses

     270           413           19           702     

  Loan charge-offs

     (251)          (470)          (47)          (768)    

  Loan recoveries

     29           5           12           46     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $1,447           $1,538           $171           $3,156     
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30, 2011  
(Dollars in millions)        Commercial              Residential              Consumer                  Total          

Balance at beginning of period

     $1,303           $1,498           $173           $2,974     

  Provision for loan losses

     232           574           40           846     

  Loan charge-offs

     (405)          (688)          (85)          (1,178)    

  Loan recoveries

     70           11           21           102     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $1,200           $1,395           $149           $2,744     
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30, 2010  
(Dollars in millions)    Commercial      Residential      Consumer              Total          

Balance at beginning of period

     $1,353           $1,592           $175           $3,120     

  Provision for loan losses

     485           1,014           80           1,579     

  Loan charge-offs

     (443)          (1,078)          (109)          (1,630)    

  Loan recoveries

     52           10           25           87     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $1,447           $1,538           $171           $3,156     
  

 

 

    

 

 

    

 

 

    

 

 

 

As further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the ALLL is composed of specific allowances for certain nonaccrual loans and TDRs and general allowances grouped into loan pools based on similar characteristics. No allowance is required for loans carried at fair value. Additionally, the Company does not record an allowance for loan products that are guaranteed by government agencies, as there is nominal risk of principal loss. The Company’s LHFI portfolio and related ALLL at June 30, 2011 and December 31, 2010, respectively, is shown in the tables below:

 

00000000 00000000 00000000 00000000 00000000 00000000 00000000 00000000
     As of June 30, 2011  
     Commercial      Residential      Consumer      Total  
(Dollars in millions)    Carrying
        Value         
     Associated
        ALLL         
     Carrying
      Value      
     Associated
      ALLL      
     Carrying
      Value      
     Associated
      ALLL      
     Carrying
      Value      
     Associated
      ALLL      
 

Individually evaluated

     $737           $165           $3,164           $397           $13           $2           $3,914           $564     

Collectively evaluated

     52,628           1,035           41,415           998           16,507           147           110,550           2,180     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total evaluated

     53,365           1,200           44,579           1,395           16,520           149           114,464           2,744     

LHFI at fair value

     4           -           445           -           -           -           449           -     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total LHFI

     $53,369           $1,200           $45,024           $1,395           $16,520           $149           $114,913           $2,744     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2010  
     Commercial      Residential      Consumer      Total  
(Dollars in millions)    Carrying
    Value     
     Associated
    ALLL    
     Carrying
    Value    
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
 

Individually evaluated

     $906           $175           $3,166           $428           $11           $2           $4,083           $605     

Collectively evaluated

     52,578           1,128           42,867           1,070           15,955           171           111,400           2,369     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total evaluated

     53,484           1,303           46,033           1,498           15,966           173           115,483           2,974     

LHFI at fair value

     4           -           488           -           -           -           492           -     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

  Total LHFI

     $53,488           $1,303           $46,521           $1,498           $15,966           $173           $115,975           $2,974     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 5 – Goodwill and Other Intangible Assets

Goodwill

Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or indicate that it is more likely than not that a goodwill impairment exists when the carrying amount of a reporting unit is zero or negative. No events have occurred or circumstances changed since the annual testing of the Company’s goodwill as of September 30, 2010 that caused interim testing of goodwill during the first six months of 2011.

The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30 are as follows:

 

(Dollars in millions)    Retail &
    Commercial    
     Retail
    Banking    
     Diversified
    Commercial    
Banking