SUNTRUST BANKS INC, 10-Q filed on 5/4/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 30, 2012
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
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
 
538,168,627 
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
Mar. 31, 2012
Mar. 31, 2011
Interest Income
 
 
Interest and fees on loans
$ 1,300 
$ 1,314 
Interest and fees on loans held for sale
25 
28 
Interest and dividends on securities available for sale:
 
 
Taxable interest
168 
165 
Tax-exempt interest
Dividends
22 1
20 1
Trading account interest and other
15 
22 
Total interest income
1,534 
1,554 
Interest Expense
 
 
Interest on deposits
127 
169 
Interest on long-term debt
88 
124 
Interest on other borrowings
12 
Total interest expense
223 
305 
Net interest income
1,311 
1,249 
Provision for credit losses
317 
447 
Net interest income after provision for credit losses
994 
802 
Noninterest Income
 
 
Service charges on deposit accounts
164 
163 
Trust and investment management income
130 
135 
Other charges and fees
115 
126 
Card fees
61 
100 
Investment banking income
71 
67 
Trading income/(loss)
57 
52 
Retail investment services
59 
58 
Mortgage production related (loss)/income
63 
(1)
Mortgage servicing related income
81 
72 
Net securities gains
18 2
64 2
Other noninterest income
57 
47 
Total noninterest income
876 
883 
Noninterest Expense
 
 
Employee compensation
652 
618 
Employee benefits
145 
136 
Outside processing and software
176 
158 
Net occupancy expense
88 
89 
Regulatory assessments
52 
71 
Credit and collection services
56 
51 
Other real estate expense
50 
69 
Operating losses
60 
27 
Marketing and customer development
27 
38 
Equipment expense
45 
44 
Amortization/impairment of goodwill/intangible assets
11 
11 
Other noninterest expense
179 
153 
Total noninterest expense
1,541 
1,465 
Income/(loss) before provision/(benefit) for income taxes
329 
220 
Provision/(benefit) for income taxes
69 
33 
Net income/(loss) including income attributable to noncontrolling interest
260 
187 
Net income attributable to noncontrolling interest
10 
Net income/(loss)
250 
180 
Net income/(loss) available to common shareholders
$ 245 
$ 38 
Net income/(loss) per average common share
 
 
Diluted
$ 0.46 
$ 0.08 
Basic
$ 0.46 
$ 0.08 
Dividends declared per common share
$ 0.05 
$ 0.01 
Average common shares - diluted
536,407 
503,503 
Average common shares - basic
533,100 
499,669 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Dividends on common stock of The Coca-Cola Company
$ 15 
$ 14 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
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 
Consolidated Statement of Comprehensive Income/(Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Net income/(loss)
$ 250 
$ 180 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
50 
(69)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(101)
(125)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
(24)
Other Comprehensive Income (Loss), Net of Tax
(75)
(191)
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 175 
$ (11)
Consolidated Statement of Comprehensive Income/(Loss) (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ (27)
$ 40 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect
58 
72 
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ 14 
$ (2)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Assets
 
 
Cash and due from banks
$ 5,019 
$ 3,696 
Securities purchased under agreements to resell
941 
792 
Interest-bearing deposits in other banks
21 
21 
Cash and cash equivalents
5,981 
4,509 
Trading assets
6,316 
6,279 
Securities available for sale
27,323 
28,117 
Loans Held for Sale
2,749 1
2,353 1
Loans held for investment
122,691 2
122,495 2
Allowance for loan and lease losses
(2,348)
(2,457)
Net loans
120,343 
120,038 
Premises and equipment
1,561 
1,564 
Goodwill
6,344 
6,344 
Other intangible assets
1,155 
1,017 
Other real estate owned
411 
479 
Other assets
6,043 
6,159 
Total assets
178,226 
176,859 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
36,771 
34,359 
Interest-bearing consumer and commercial deposits
90,947 
91,252 
Total consumer and commercial deposits
127,718 
125,611 
Brokered time deposits
2,284 
2,281 
Foreign deposits
30 
30 
Total deposits
130,032 
127,922 
Funds purchased
908 
839 
Securities sold under agreements to repurchase
1,781 
1,644 
Other short-term borrowings
6,878 
8,983 
Long-term Debt
11,894 3
10,908 3
Trading liabilities
1,554 
1,806 
Other liabilities
4,938 
4,691 
Total liabilities
157,985 
156,793 
Preferred stock, no par value
275 
275 
Common stock, $1.00 par value
550 
550 
Additional paid in capital
9,243 
9,306 
Retained earnings
9,198 
8,978 
Treasury stock, at cost, and other
(699)4
(792)4
AOCI, net of tax
1,674 
1,749 
Total shareholders' equity
20,241 
20,066 
Total liabilities and shareholders' equity
$ 178,226 
$ 176,859 
Common shares outstanding
538,056 
536,967 
Common shares authorized
750,000 
750,000 
Preferred shares outstanding
Preferred shares authorized
50,000 
50,000 
Treasury shares of common stock
11,865 
12,954 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Mar. 31, 2012
Variable Interest Entity, Primary Beneficiary
Dec. 31, 2011
Variable Interest Entity, Primary Beneficiary
Trading Securities, Restricted
$ 520 
$ 574 
 
 
Loans Held for Sale
2,749 1
2,353 1
326 
315 
Loans Held-for-sale, Fair Value Disclosure
2,207 1
2,141 1
 
 
Loans held for investment
122,691 2
122,495 2
1,378 
3,322 
Loans carried at fair value
413 
433 
 
 
Other intangible assets, MSRs at fair value
1,070 
921 
 
 
Brokered deposits
1,005 
1,018 
 
 
Long-term Debt
11,894 3
10,908 3
713 
722 
Long-term debt, fair value
2,000 3
1,997 3
289 
289 
Redeemable Noncontrolling Interest, Equity, Carrying Amount
$ 111 
$ 107 
 
 
Common stock, par value
$ 1.00 
$ 1.00 
 
 
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)
180 
 
 
 
180 
 
 
Other Comprehensive Income (Loss), Net of Tax
(191)
 
 
 
 
 
(191)2
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends
(5)
 
 
 
(5)
 
 
Preferred dividends
(2)
 
 
 
(2)
 
 
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
1,016 
 
35 
981 
 
 
 
Stock compensation expense
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
(15)
 
 
(58)
 
43 1
 
Amortization of restricted stock compensation
 
 
 
 
1
 
Issuance of stock for employee benefit plans and other
 
 
(5)
 
11 1
 
Ending Balance at Mar. 31, 2011
19,223 
172 
550 
9,324 
8,575 
(823)1
1,425 2
Ending Balance (in shares) at Mar. 31, 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)
250 
 
 
 
250 
 
 
Other Comprehensive Income (Loss), Net of Tax
(75)
 
 
 
 
 
(75)2
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends
(27)
 
 
 
(27)
 
 
Preferred dividends
(3)
 
 
 
(3)
 
 
Stock compensation expense
 
 
(6)
 
10 1
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(50)
 
58 1
 
Amortization of restricted stock compensation
 
 
 
 
1
 
Issuance of stock for employee benefit plans and other
 
 
(7)
 
14 1
 
Ending Balance at Mar. 31, 2012
$ 20,241 
$ 275 
$ 550 
$ 9,243 
$ 9,198 
$ (699)1
$ 1,674 2
Ending Balance (in shares) at Mar. 31, 2012
 
 
538 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Common stock dividends, per share
$ 0.05 
$ 0.01 
Preferred stock dividends, per share
$ 1,011 
$ 1,000 
U.S. Treasury preferred stock dividends, per share
 
$ 1,236 
Treasury Stock, Value
$ 699 1
 
Redeemable Noncontrolling Interest, Equity, Carrying Amount
111 
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
1,913 
1,457 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
468 
407 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(707)
(439)
Treasury Stock and Other
 
 
Treasury Stock, Value
737 
881 
Deferred Compensation Equity
73 
73 
Redeemable Noncontrolling Interest, Equity, Carrying Amount
$ 111 
$ 131 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 260 
$ 187 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization, and accretion
192 
186 
Origination of mortgage servicing rights
(83)
(88)
Provisions for credit losses and foreclosed property
362 
490 
Mortgage repurchase provision
175 
80 
Stock option compensation and amortization of restricted stock compensation
12 
Net securities gains
(18)1
(64)1
Net gain on sale of assets
(252)
(17)
Net decrease/(increase) in loans held for sale
246 
1,465 
Net (increase)/decrease in other assets
(251)
(125)
Net increase/(decrease) in other liabilities
(537)
(221)
Net cash provided by operating activities
102 
1,905 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
1,506 
1,158 
Proceeds from sales of securities available for sale
670 
9,413 
Purchases of securities available for sale
(992)
(10,100)
Proceeds from maturities, calls, and paydowns of trading securities
77 
Proceeds from sales of trading securities
102 
Net (increase)/decrease in loans including purchases of loans
(1,296)
(304)
Proceeds from sales of loans
252 
143 
Capital expenditures
(48)
(1)
Proceeds from the sale of other assets
121 
198 
Net cash (used in)/provided by investing activities
213 
686 
Cash Flows from Financing Activities:
 
 
Net increase in total deposits
2,110 
941 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(1,899)
301 
Proceeds from the issuance of long-term debt
1,000 
1,039 
Repayment of long-term debt
(34)
(132)
Proceeds from Stock Options Exercised
Excess tax benefits from stock-based compensation
Proceeds from the issuance of common stock
1,016 
Repurchase of preferred stock
(4,850)
Common and preferred dividends paid
(30)
(67)
Net cash provided by/(used in) financing activities
1,157 
(1,752)
Net (decrease)/increase in cash and cash equivalents
1,472 
839 
Cash and cash equivalents at beginning of period
4,509 
5,378 
Cash and cash equivalents at end of period
5,981 
6,217 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
11 
Loans transferred from loans to loans held for sale
429 
122 
Loans transferred from loans and loans held for sale to other real estate owned
96 
201 
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 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 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 Accounting Standards update No. 2011-05,” which deferred the effective date for the amendments to the reclassification of items out of AOCI. 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/(Loss). 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 more likely than not threshold is defined as having a likelihood of more than 50 percent. The guidance is effective for annual and interim goodwill impairment tests beginning 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.
Securities Available for Sale
Securities Available for Sale
NOTE 2 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition

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

$221

 

$10

 

$—

 

$231

Federal agency securities
1,671

 
77

 
1

 
1,747

U.S. states and political subdivisions
406

 
19

 
6

 
419

MBS - agency
20,251

 
718

 
2

 
20,967

MBS - private
237

 

 
21

 
216

CDO/CLO securities
43

 

 

 
43

ABS
394

 
13

 
6

 
401

Corporate and other debt securities
43

 
3

 

 
46

Coke common stock

 
2,220

 

 
2,220

Other equity securities1
1,032

 
1

 

 
1,033

Total securities AFS

$24,298

 

$3,061

 

$36

 

$27,323

 
 
 
 
 
 
 
 
 
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 March 31, 2012, other equity securities included the following securities at cost: $432 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, and $202 million in mutual fund investments. At December 31, 2011, other equity securities included the following securities at cost: $342 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, and $187 million in mutual fund investments.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $8.0 billion and $9.1 billion as of March 31, 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 March 31, 2012 and December 31, 2011, there were no securities AFS pledged under which the transferee may repledge the collateral. The Company has also pledged $944 million and $770 million of certain marketable securities and cash equivalents to secure $923 million and $747 million of repurchase agreements as of March 31, 2012 and December 31, 2011, respectively.

The amortized cost and fair value of investments in debt securities at March 31, 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

$8

 

$213

 

$—

 

$—

 

$221

Federal agency securities
99

 
1,391

 
91

 
90

 
1,671

U.S. states and political subdivisions
126

 
203

 
23

 
54

 
406

MBS - agency
797

 
15,376

 
1,750

 
2,328

 
20,251

MBS - private

 
185

 
52

 

 
237

CDO/CLO securities

 
43

 

 

 
43

ABS
172

 
155

 

 
67

 
394

Corporate and other debt securities
2

 
4

 
37

 

 
43

Total debt securities

$1,204

 

$17,570

 

$1,953

 

$2,539

 

$23,266

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$8

 

$223

 

$—

 

$—

 

$231

Federal agency securities
100

 
1,456

 
99

 
92

 
1,747

U.S. states and political subdivisions
129

 
217

 
23

 
50

 
419

MBS - agency
841

 
15,972

 
1,802

 
2,352

 
20,967

MBS - private

 
168

 
48

 

 
216

CDO/CLO securities

 
43

 

 

 
43

ABS
173

 
155

 

 
73

 
401

Corporate and other debt securities
2

 
4

 
40

 

 
46

Total debt securities

$1,253

 

$18,238

 

$2,012

 

$2,567

 

$24,070





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 March 31, 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.

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

$48

 

$1

 

$—

 

$—

 

$48

 

$1

U.S. states and political subdivisions
1

 

 
24

 
6

 
25

 
6

MBS - agency
472

 
2

 
1

 

 
473

 
2

ABS

 

 
11

 
4

 
11

 
4

Total temporarily impaired securities

521

 
3

 
36

 
10

 
557

 
13

Other-than-temporarily impaired securities:1
 
 
 
 
 
 
 
 
 
 
 
MBS - private
1

 

 
215

 
21

 
216

 
21

ABS
1

 

 
4

 
2

 
5

 
2

Total other-than-temporarily impaired securities
2

 

 
219

 
23

 
221

 
23

Total impaired securities

$523

 

$3

 

$255

 

$33

 

$778

 

$36

 
 
 
 
 
 
 
 
 
 
 
 
 
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 securities:1
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 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 March 31, 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 time credit-related impairment was recognized, and as a result, 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 Securities
 
Three Months Ended March 31
(Dollars in millions)
2012
 
2011
Gross realized gains

$20

 

$143

Gross realized losses

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

$18

 

$64



The securities that gave rise to the $2 million and $1 million credit impairments recognized during the three months ended March 31, 2012 and 2011, respectively, consisted of private MBS with a fair value of $114 million at both March 31, 2012 and 2011. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled for the collateral underlying each security. As part of that analysis, the model incorporates loan level information such as loan to collateral values, FICO scores, and home price appreciation/depreciation data specific to the geography of the loan. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the three months ended March 31, 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 three months ended March 31, 2012, and continues to reduce existing exposure primarily through paydowns. 

 
Three Months Ended March 31
 
2012
 
2011
(Dollars in millions)
MBS - Private
 
MBS - Private
OTTI1

$2

 

$1

Portion of losses recognized in OCI (before taxes)

 

Net impairment losses recognized in earnings

$2

 

$1

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 months ended March 31, 2012 and 2011 related to securities for which some portion of the OTTI loss remains in AOCI: 
(Dollars in millions)
 
Balance, January 1, 2012

$25

Additions:
 
OTTI credit losses on previously impaired securities
2

Balance, March 31, 2012

$27

 
 
Balance, January 1, 2011

$20

Additions:
 
OTTI credit losses on previously impaired securities
1

Balance, March 31, 2011

$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 months ended March 31, 2012 and 2011:
 
 
March 31, 2012
 
March 31, 2011
Default rate
2 - 6%
 
5 - 7%
Prepayment rate
8 - 16%
 
13 - 19%
Loss severity
47 - 52%
 
39 - 43%

Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. During the first quarter 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)
March 31,
2012
 
December 31,
2011
Commercial loans:
 
 
 
 Commercial & industrial

$50,189

 

$49,538

Commercial real estate
4,910

 
5,094

Commercial construction
1,086

 
1,240

Total commercial loans
56,185

 
55,872

Residential loans:
 
 
 
Residential mortgages - guaranteed
6,447

 
6,672

 Residential mortgages - nonguaranteed1
23,653

 
23,243

Home equity products
15,472

 
15,765

Residential construction
924

 
980

Total residential loans
46,496

 
46,660

Consumer loans:
 
 
 
Guaranteed student loans
7,186

 
7,199

Other direct
2,152

 
2,059

Indirect
10,145

 
10,165

Credit cards
527

 
540

Total consumer loans
20,010

 
19,963

LHFI

$122,691

 

$122,495

LHFS

$2,749

 

$2,353

1Includes $411 million and $431 million of loans carried at fair value at March 31, 2012 and December 31, 2011, respectively.

During the three months ended March 31, 2012 and 2011, the Company transferred $429 million and $122 million in LHFI to LHFS, and $11 million and $5 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2012 and 2011, the Company sold $239 million and $141 million in loans and leases that had been held for investment at December 31, 2011 and December 31, 2010 for gains of $13 million and $2 million, respectively. 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 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 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 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. To enhance the Company's ability to manage risk, the Company changed its FICO scoring model to a more updated version in the first quarter of 2012 for the Home Equity, Indirect, and Other Direct portfolios. This change was the primary reason for an increase in the percentage of balances with FICO scores equal to or greater than 700 and conversely contributed to the decrease in the percentage of balances with FICO scores lower than 620. However, 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. As of March 31, 2012 and December 31, 2011, 78% and 79%, respectively, 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)
March 31, 2012
 
December 31,
2011
 
March 31, 2012
 
December 31,
2011
 
March 31, 2012
 
December 31,
2011
Credit rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$48,213

 

$47,683

 

$3,754

 

$3,845

 

$568

 

$581

Criticized accruing
1,639

 
1,507

 
876

 
961

 
320

 
369

Criticized nonaccruing
337

 
348

 
280

 
288

 
198

 
290

Total

$50,189

 

$49,538

 

$4,910

 

$5,094

 

$1,086

 

$1,240

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

$16,533

 

$16,139

 

$11,630

 

$11,084

 

$616

 

$661

620 - 699
4,212

 
4,132

 
2,443

 
2,903

 
198

 
202

Below 6201
2,908

 
2,972

 
1,399

 
1,778

 
110

 
117

Total

$23,653

 

$23,243

 

$15,472

 

$15,765

 

$924

 

$980

 
Consumer  - other direct 3
 
Consumer - indirect
 
Consumer - credit cards
(Dollars in millions)
March 31, 2012
 
December 31,
2011
 
March 31, 2012
 
December 31,
2011
 
March 31, 2012
 
December 31,
2011
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
700 and above

$1,383

 

$1,251

 

$7,634

 

$7,397

 

$337

 

$347

620 - 699
228

 
273

 
1,826

 
1,990

 
138

 
142

Below 6201
77

 
86

 
685

 
778

 
52

 
51

Total

$1,688

 

$1,610

 

$10,145

 

$10,165

 

$527

 

$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 $6.4 billion and $6.7 billion at March 31, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both March 31, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.
3Excludes $464 million and $449 million as of March 31, 2012 and December 31, 2011, respectively, of private-label student loans with third party insurance. At March 31, 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 March 31, 2012
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
  Nonaccruing2   
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial

$49,771

 

$69

 

$12

 

$337

 

$50,189

Commercial real estate
4,617

 
13

 

 
280

 
4,910

Commercial construction
885

 
3

 

 
198

 
1,086

Total commercial loans
55,273

 
85

 
12

 
815

 
56,185

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
5,187

 
133

 
1,127

 

 
6,447

Residential mortgages - nonguaranteed1
22,025

 
303

 
34

 
1,291

 
23,653

Home equity products
14,984

 
170

 
1

 
317

 
15,472

Residential construction
697

 
22

 
1

 
204

 
924

Total residential loans
42,893

 
628

 
1,163

 
1,812

 
46,496

Consumer loans:
 
 
 
 
 
 
 
 
 
Guaranteed student loans
5,638

 
587

 
961

 

 
7,186

Other direct
2,125

 
16

 
5

 
6

 
2,152

Indirect
10,088

 
37

 
4

 
16

 
10,145

Credit cards
514

 
6

 
7

 

 
527

Total consumer loans
18,365

 
646

 
977

 
22

 
20,010

Total LHFI

$116,531

 

$1,359

 

$2,152

 

$2,649

 

$122,691

1Includes $411 million of loans carried at fair value.
2Total nonaccruing loans past due 90 days or more totaled $2.2 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
 
  Nonaccruing2   
 
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 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 guaranteed student loans and guaranteed residential mortgages for which there was nominal risk of principal loss.
 
As of March 31, 2012
 
Three Months Ended
March 31, 2012
(Dollars in millions)
Unpaid
Principal  
Balance
 
Amortized  
Cost1
 
Related
Allowance  
 
Average
Amortized  
Cost
 
Interest
Income
Recognized2  
Impaired loans with no related allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial

$30

 

$26

 

$—

 

$28

 

$—

Commercial real estate
59

 
41

 

 
42

 

Commercial construction
21

 
16

 

 
17

 

Total commercial loans
110

 
83

 

 
87

 

Impaired loans with an allowance recorded:
 
 
 
 
 
 
 
 
 
Commercial loans:
 
 
 
 
 
 
 
 
 
Commercial & industrial
83

 
75

 
7

 
75

 

Commercial real estate
102

 
83

 
6

 
90

 

Commercial construction
92

 
80

 
3

 
84

 
1

Total commercial loans
277

 
238

 
16

 
249

 
1

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - nonguaranteed
2,707

 
2,313

 
261

 
2,319

 
22

Home equity products
561

 
518

 
90

 
521

 
6

Residential construction
259