SUNTRUST BANKS INC, 10-K filed on 2/27/2013
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Feb. 11, 2013
Jun. 29, 2012
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
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
 
538,941,296 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 13.0 
Consolidated Statements of Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Interest Income
 
 
 
Interest and fees on loans
$ 5,035 
$ 5,219 
$ 5,300 
Interest and fees on loans held for sale
112 
93 
137 
Interest and Dividend Income, Securities, Available-for-sale
655 1
791 1
816 1
Trading account interest and other
65 
78 
90 
Total interest income
5,867 
6,181 
6,343 
Interest Expense
 
 
 
Interest on deposits
429 
624 
860 
Interest on long-term debt
299 
449 
580 
Interest on other borrowings
37 
43 
49 
Total interest expense
765 
1,116 
1,489 
Net interest income
5,102 
5,065 
4,854 
Provision for credit losses
1,395 2
1,513 2
2,651 2
Net interest income after provision for credit losses
3,707 
3,552 
2,203 
Noninterest Income
 
 
 
Service charges on deposit accounts
676 
685 
760 
Fees and Commissions, Other
478 
507 
534 
Card fees
240 
371 
376 
Trust and investment management income
512 
531 
503 
Retail investment services
241 
230 
205 
Investment banking income
342 
317 
313 
Trading income/(loss)
211 
248 
173 
Mortgage production related (loss)/income
343 
(5)
127 
Mortgage servicing related income
260 
224 
358 
Gain (Loss) on Sale of Securities, Net
1,974 3
117 3
191 3 4
Other noninterest income
96 
196 
189 
Total noninterest income
5,373 
3,421 
3,729 
Noninterest Expense
 
 
 
Employee compensation
2,603 
2,494 
2,364 
Other Labor-related Expenses
474 
382 
457 
Outside processing and software
710 
653 
638 
Net occupancy expense
359 
356 
361 
Operating losses
277 
377 
83 
Credit and collection services
239 
275 
279 
Federal Deposit Insurance Corporation Premium Expense
233 
300 
265 
Equipment expense
188 
178 
174 
Marketing and customer development
184 
184 
177 
Professional Fees
165 
120 
84 
Other real estate expense
140 
264 
300 
Amortization/impairment of intangible assets/goodwill
46 
43 
51 
Net (gain)/loss on extinguishment of debt
16 
(3)
70 
Other Noninterest Expense
689 
611 
608 
Total noninterest expense
6,323 
6,234 
5,911 
Income/(loss) before provision/(benefit) for income taxes
2,757 
739 
21 
Income Tax Expense (Benefit)
773 
79 
(185)
Net income/(loss) including income attributable to noncontrolling interest
1,984 
660 
206 
Net income attributable to noncontrolling interest
26 
13 
17 
Net income
1,958 
647 
189 
Net income/(loss) available to common shareholders
$ 1,931 
$ 495 
$ (87)
Net income/(loss) per average common share
 
 
 
Diluted
$ 3.59 
$ 0.94 
$ (0.18)
Basic
$ 3.62 
$ 0.94 
$ (0.18)
Common Stock, Dividends, Per Share, Declared
$ 0.20 
$ 0.12 
$ 0.04 
Average common shares - diluted
538,061 
527,618 
498,744 
Average common shares - basic
534,149 
523,995 
495,361 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dividends on common stock of The Coca-Cola Company
$ 31 1
$ 56 1
$ 53 1
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Mortgage-backed Securities, Issued by Private Enterprises [Member]
 
 
 
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 6 
$ 4 
$ 0 
Consolidated Statement of Comprehensive Income (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income
$ 1,958 
$ 647 
$ 189 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
(1,343)
337 
366 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(37)
37 
120 
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
(60)
(241)
60 
Other Comprehensive Income (Loss), Net of Tax
(1,440)
133 
546 
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 518 
$ 780 
$ 735 
Consolidated Statement of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ (738)
$ 199 
$ 213 
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect
(25)
22 
65 
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ (35)
$ (141)
$ 46 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Assets
 
 
Cash and Due from Banks
$ 7,134 
$ 3,696 
Federal Funds Sold and Securities Purchased under Agreements to Resell
1,101 
792 
Interest-bearing deposits in other banks
22 
21 
Cash and cash equivalents
8,257 
4,509 
Trading assets
6,049 
6,279 
Available-for-sale Securities
21,953 
28,117 
Loans Held for Sale
3,399 1
2,353 
Loans held for investment
121,470 2
122,495 2
Allowance for loan and lease losses
(2,174)
(2,457)
Net loans
119,296 
120,038 
Premises and equipment
1,564 
1,564 
Goodwill
6,369 
6,344 
Intangible Assets, Net (Excluding Goodwill)
956 
1,017 
Other real estate owned
264 
479 
Other assets
5,335 
6,159 
Total assets
173,442 
176,859 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
39,481 
34,359 
Interest-bearing consumer and commercial deposits
90,699 
91,252 
Total consumer and commercial deposits
130,180 
125,611 
Brokered time deposits
2,136 
2,281 
Foreign deposits
30 
Total deposits
132,316 
127,922 
Funds purchased
617 
839 
Securities Sold under Agreements to Repurchase
1,574 
1,644 
Other Short-term Borrowings
3,303 
8,983 
Long-term Debt
9,357 3
10,908 3
Trading liabilities
1,161 
1,806 
Other liabilities
4,129 
4,691 
Total liabilities
152,457 
156,793 
Preferred Stock, Value, Outstanding
725 
275 
Common Stock, Value, Outstanding
550 
550 
Additional paid in capital
9,174 
9,306 
Retained earnings
10,817 
8,978 
Treasury stock, at cost, and other
(590)4
(792)4
AOCI, net of tax
309 
1,749 
Total shareholders' equity
20,985 
20,066 
Total liabilities and shareholders' equity
$ 173,442 
$ 176,859 
Common Stock, Shares, Outstanding
538,959 
536,967 
Common shares authorized
750,000 
750,000 
Preferred Stock, Shares Outstanding
Preferred Stock, Shares Authorized
50,000 
50,000 
Treasury shares of common stock
10,962 
12,954 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Trading Securities, Restricted
$ 727 
$ 770 
Loans Held-for-sale, Fair Value Disclosure
3,243 1
2,141 1
Loans carried at fair value
379 2
433 2
Other intangible assets, MSRs at fair value
899 
921 
Brokered deposits
832 
1,018 
Long-term debt, fair value
1,622 3
1,997 3
Common stock, par value
$ 1.00 
$ 1.00 
Loans Receivable Held-for-sale, Net
3,399 1
2,353 
Loans held for investment
121,470 2
122,495 2
Long-term Debt
9,357 3
10,908 3
Stockholders' Equity Attributable to Noncontrolling Interest
114 
107 
Variable Interest Entity, Primary Beneficiary
 
 
Long-term debt, fair value
286 
289 
Loans Receivable Held-for-sale, Net
319 
315 
Loans held for investment
365 
3,322 
Long-term Debt
$ 666 
$ 722 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
$ 20,985 
$ 20,066 
$ 23,130 
$ 22,531 
Common Stock, Shares, Outstanding
538,959,000 
536,967,000 
 
 
Net income
1,958 
647 
189 
 
Other Comprehensive Income (Loss), Net of Tax
(1,440)
133 
546 
 
Noncontrolling Interest, Period Increase (Decrease)
(22)
 
Dividends, Common Stock, Cash
(107)
(64)
(20)
 
Dividends, Preferred Stock, Cash
(12)
(7)
(7)
 
Dividends Us Treasury Preferred Stock Dividends
 
(60)
(242)
 
Preferred Stock, Accretion of Redemption Discount
 
 
Adjustments to Additional Paid in Capital, Other
 
(11)
 
 
Stock Issued During Period, Value, New Issues
 
1,000 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Requisite Service Period Recognition
 
 
24 
 
Stock Issued During Period, Value, Stock Options Exercised
21 
12 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
(8)
(31)
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
30 
32 
42 
 
Stock Issued During Period, Value, Employee Benefit Plan
18 
14 
12 
 
FAS 159 [Member]
 
 
 
 
Cumulative Effect of Prospective Application of New Accounting Principle
 
 
89 
 
Cumulative-Effect Adjustment, Consolidation of Variable Interest Entity [Member]
 
 
 
 
Cumulative Effect of Prospective Application of New Accounting Principle
 
 
(7)
 
Preferred Stock [Member]
 
 
 
 
Stock Issued During Period, Value, New Issues
438 
103 
 
 
Series C and Series D Preferred Stock [Member]
 
 
 
 
Preferred Stock, Accretion of Redemption Discount
 
(74)
 
 
Stock Redeemed or Called During Period, Value
 
(4,850)
 
 
Common Stock [Member]
 
 
 
 
Stock Issued During Period, Value, New Issues
 
1,017 
 
 
Preferred Stock [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
725 
275 
4,942 
4,917 
Preferred Stock [Member] |
Preferred Stock [Member]
 
 
 
 
Stock Issued During Period, Value, New Issues
450 
103 
 
 
Preferred Stock [Member] |
Series C and Series D Preferred Stock [Member]
 
 
 
 
Preferred Stock, Accretion of Redemption Discount
 
25 
 
Stock Redeemed or Called During Period, Value
 
(4,776)
 
 
Common Stock [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
550 
550 
515 
515 
Common Stock, Shares, Outstanding
539,000,000 
537,000,000 
500,000,000 
499,000,000 
Common Stock [Member] |
Common Stock [Member]
 
 
 
 
Stock Issued During Period, Shares, New Issues
 
35,000,000 
 
 
Stock Issued During Period, Value, New Issues
 
35 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
1,000,000 
 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
1,000,000 
1,000,000 
1,000,000 
 
Stock Issued During Period, Shares, Employee Benefit Plan
 
1,000,000 
 
 
Additional Paid-in Capital [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
9,174 
9,306 
8,403 
8,521 
Adjustments to Additional Paid in Capital, Other
 
(11)
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Stock Options, Requisite Service Period Recognition
 
 
24 
 
Stock Issued During Period, Value, Stock Options Exercised
(44)
11 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
(63)
(58)
(97)
 
Stock Issued During Period, Value, Employee Benefit Plan
(13)
(21)
(45)
 
Additional Paid-in Capital [Member] |
Preferred Stock [Member]
 
 
 
 
Stock Issued During Period, Value, New Issues
(12)
 
 
 
Additional Paid-in Capital [Member] |
Common Stock [Member]
 
 
 
 
Stock Issued During Period, Value, New Issues
 
982 
 
 
Retained Earnings [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
10,817 
8,978 
8,542 
8,563 
Net income
1,958 
647 
189 
 
Dividends, Common Stock, Cash
(107)
(64)
(20)
 
Dividends, Preferred Stock, Cash
(12)
(7)
(7)
 
Dividends Us Treasury Preferred Stock Dividends
 
(60)
(242)
 
Stock Issued During Period, Value, Employee Benefit Plan
 
 
 
Retained Earnings [Member] |
FAS 159 [Member]
 
 
 
 
Cumulative Effect of Prospective Application of New Accounting Principle
 
 
89 
 
Retained Earnings [Member] |
Cumulative-Effect Adjustment, Consolidation of Variable Interest Entity [Member]
 
 
 
 
Cumulative Effect of Prospective Application of New Accounting Principle
 
 
(7)
 
Retained Earnings [Member] |
Series C and Series D Preferred Stock [Member]
 
 
 
 
Preferred Stock, Accretion of Redemption Discount
 
(6)
(25)
 
Stock Redeemed or Called During Period, Value
(74)
 
Treasury Stock and Other
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
(590)1
(792)1
(888)1
(1,055)1
Noncontrolling Interest, Period Increase (Decrease)
1
(22)1
1
 
Stock Issued During Period, Value, Stock Options Exercised
65 1
1
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
69 1
50 1
66 1
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
30 1
32 1
42 1
 
Stock Issued During Period, Value, Employee Benefit Plan
31 1
35 1
55 1
 
Accumulated Other Comprehensive Income (Loss) [Member]
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest
309 2
1,749 2
1,616 2
1,070 2
Other Comprehensive Income (Loss), Net of Tax
$ (1,440)2
$ 133 2
$ 546 2
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Common stock dividends, per share
$ 0.20 
$ 0.12 
$ 0.04 
U.S. Treasury preferred stock dividends, per share
$ 0 
$ 1,236 
$ 5,000 
Treasury Stock, Value
$ (590)1
$ (792)1
 
Stockholders' Equity Attributable to Noncontrolling Interest
114 
107 
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
520 
1,863 
1,526 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
532 
569 
532 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(743)
(683)
(442)
Treasury Stock and Other
 
 
 
Treasury Stock, Value
(656)
(851)
(974)
Deferred Compensation Equity
(48)
(48)
(43)
Stockholders' Equity Attributable to Noncontrolling Interest
$ 114 
$ 107 
$ 129 
Series A Preferred Stock [Member]
 
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 4,067 
$ 4,056 
$ 4,056 
Series B Preferred Stock [Member]
 
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 4,027 
 
 
Preferred Stock [Member]
 
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 4,052 
 
 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash Flows from Operating Activities:
 
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 1,984 
$ 660 
$ 206 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
757 
760 
803 
Goodwill, Impairment Loss
Origination of mortgage servicing rights
(336)
(224)
(289)
Provisions for credit losses and foreclosed property
1,535 
1,664 
2,831 
Mortgage repurchase provision
713 
502 
456 
Deferred Income Tax Expense (Benefit)
194 
83 
(171)
Stock option compensation and amortization of restricted stock compensation
35 
44 
66 
Gains (Losses) on Extinguishment of Debt
16 
(3)
70 
Gain (Loss) on Sale of Securities, Net
(1,974)1
(117)1
(191)1 2
Net gain on sale of assets
(1,063)
(408)
(597)
Defined Benefit Plan, Recognized Net Gain (Loss) Due to Curtailments
(88)
Net decrease/(increase) in loans held for sale
194 
2,234 
1,003 
Net (increase)/decrease in other assets
974 
(497)
(341)
Net increase/(decrease) in other liabilities
(1,026)
18 
372 
Net cash provided by operating activities
2,010 
4,628 
4,218 
Cash Flows from Investing Activities:
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
7,371 
5,557 
5,597 
Proceeds from sales of securities available for sale
4,300 
12,557 
17,465 
Purchases of securities available for sale
(5,814)
(18,872)
(20,920)
Proceeds from maturities, calls, and paydowns of trading securities
139 
99 
Proceeds from sales of trading securities
102 
132 
Net (increase)/decrease in loans including purchases of loans
(6,400)
(11,034)
(4,566)
Proceeds from sales of loans
4,916 
747 
936 
Capital expenditures
(206)
(131)
(252)
Contingent consideration and other payments related to acquisitions
(12)
(24)
(10)
Proceeds from the sale of other assets
585 
628 
800 
Net cash (used in)/provided by investing activities
4,743 
(10,331)
(719)
Cash Flows from Financing Activities:
 
 
 
Net (decrease)/increase in total deposits
4,394 
4,878 
1,182 
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(5,972)
6,650 
(1,295)
Proceeds from the issuance of long-term debt
4,000 
1,749 
500 
Repayment of long-term debt
(5,772)
(4,571)
(5,246)
Proceeds from the issuance of common stock
1,017 
Proceeds from the issuance of preferred stock
438 
103 
Repurchase of preferred stock
(4,850)
Purchase of outstanding warrants
(11)
Common and preferred dividends paid
(119)
(131)
(259)
Stock option activity
26 
Net cash provided by/(used in) financing activities
(3,005)
4,834 
(5,118)
Net (decrease)/increase in cash and cash equivalents
3,748 
(869)
(1,619)
Cash and cash equivalents at beginning of period
4,509 
5,378 
6,997 
Cash and cash equivalents at end of period
8,257 
4,509 
5,378 
Supplemental Disclosures:
 
 
 
Interest paid
774 
1,138 
1,537 
Income Taxes Paid
607 
68 
33 
Income taxes refunded
(1)
(1)
(435)
Loans transferred from loans held for sale to loans
71 
63 
213 
Loans transferred from loans to loans held for sale
3,695 
754 
346 
Transfer to Other Real Estate
399 
725 
1,063 
Amortization Of Deferred Gain On Sale Lease Back Of Premises
67 
59 
59 
Accretion of discount for preferred stock issued to the U.S. Treasury
80 
25 
Supplemental Consolidation Of Variable Interest Entity
$ 0 
$ 0 
$ 2,541 
Significant Accounting Policies
Significant Accounting Policies [Text Block]
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
General

SunTrust, one of the nation's largest commercial banking organizations, is a financial services holding company with its headquarters in Atlanta, Georgia. Through its principal subsidiary, SunTrust Bank, the Company offers a full line of financial services for consumers and businesses including deposit, credit, and trust and investment services. Additional subsidiaries provide mortgage banking, asset management, securities brokerage, and capital market services. SunTrust operates primarily within Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. SunTrust provides clients with a selection of technology-based banking channels, including the internet, ATMs, and twenty-four hour telebanking. SunTrust’s client base encompasses a broad range of individuals and families, businesses, institutions, and governmental agencies. Within its geographic footprint, SunTrust operated under the following business segments during 2012: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking, with the remainder in Corporate Other. SunTrust operated under the following business segments during 2011: Retail Banking, Diversified Commercial Banking, CRE, CIB, Mortgage, and W&IM, with the remainder in Corporate Other. For additional information on the Company’s business segments, see Note 20, “Business Segment Reporting.”

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions.

The Company holds VIs, which are contractual ownership or other interests that change with changes in the fair value of a VIE's net assets. The Company consolidates a VIE if it is the primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the financial performance of the VIE and the obligation to absorb losses or rights to receive benefits through its VIs that could potentially be significant to the VIE. To determine whether or not a VI held by the Company could potentially be significant to the VIE, both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE are considered. The assessment of whether or not the Company is the primary beneficiary of a VIE is performed on an on-going basis. The Company consolidates VOEs, which are entities that are not VIEs, that are controlled through the Company's equity interests.

Investments in companies which are not VIEs, or where SunTrust is not the primary beneficiary of a VIE, that the Company has the ability to exercise significant influence over operating and financing decisions, are accounted for using the equity method of accounting. These investments are included in other assets at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. Unconsolidated equity investments that do not meet the criteria to be accounted for under the equity method are accounted for under the cost method. Cost method investments are included in other assets in the Consolidated Balance Sheets and dividends received or receivable from these investments are included as a component of other noninterest income in the Consolidated Statements of Income.

Results of operations of companies purchased are included from the date of acquisition. Results of operations associated with companies or net assets sold are included through the date of disposition. The Company reports any noncontrolling interests in its subsidiaries in the equity section of the Consolidated Balance Sheets and separately presents the income or loss attributable to the noncontrolling interest of a consolidated subsidiary in its Consolidated Statements of Income. Assets and liabilities of purchased companies are initially recorded at estimated fair values at the date of acquisition.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, Fed funds sold, securities borrowed, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Securities and Trading Activities

Securities are classified at trade date as trading or securities AFS. Trading account assets and liabilities are carried at fair value with changes in fair value recognized within noninterest income. Securities AFS are used as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle. Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to yield over the estimated life of the security. Securities AFS are carried at fair value with unrealized gains and losses, net of any tax effect, included in AOCI as a component of shareholders’ equity. Realized gains and losses, including OTTI, are determined using the specific identification method and are recognized as a component of noninterest income in the Consolidated Statements of Income.

On a quarterly basis, securities AFS are reviewed for possible OTTI. In determining whether OTTI exists for securities in an unrealized loss position, the Company assesses whether it has the intent to sell the security or, for debt securities, the Company assesses the likelihood of selling the security prior to the recovery of its amortized cost basis. If the Company intends to sell the debt security or it is more-likely-than-not that the Company will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recognized as a component of noninterest income in the Consolidated Statements of Income. If the Company does not intend to sell the debt security and it is more-likely-than-not that the Company will not be required to sell the debt security prior to recovery of its amortized cost basis, only the credit component of any impairment of a debt security is recognized as a component of noninterest income in the Consolidated Statements of Income, with the remaining impairment recorded in OCI.

The OTTI review for equity securities includes an analysis of the facts and circumstances of each individual investment and focuses on the severity of loss, the length of time the fair value has been below cost, the expectation for that security's performance, the financial condition and near-term prospects of the issuer, and management's intent and ability to hold the security to recovery. A decline in value of an equity security that is considered to be other-than-temporary is recognized as a component of noninterest income in the Consolidated Statements of Income.

On a quarterly basis, the Company reviews nonmarketable equity securities, which include venture capital equity and certain mezzanine securities that are not publicly traded as well as equity investments acquired for various purposes. These securities are accounted for under the cost or equity method and are included in other assets. The Company reviews nonmarketable securities accounted for under the cost method on a quarterly basis and reduces the asset value when declines in value are considered to be other-than-temporary. Equity method investments are recorded at cost, adjusted to reflect the Company’s portion of income, loss or dividends of the investee. Realized income, realized losses and estimated other-than-temporary unrealized losses on cost and equity method investments are recognized in noninterest income in the Consolidated Statements of Income.

For additional information on the Company’s securities activities, see Note 4, “Trading Assets and Liabilities,” and Note 5, “Securities Available for Sale.”

Loans Held for Sale

The Company’s LHFS generally includes certain residential mortgage loans, commercial loans, and student loans. Loans are initially classified as LHFS when they are identified as being available for immediate sale and a formal plan exists to sell them. LHFS are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for LHFS recorded at LOCOM are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for LHFS that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as noninterest income in the Consolidated Statements of Income.

The Company may transfer certain residential mortgage loans, commercial loans, and student loans to a held for sale classification at LOCOM. At the time of transfer, any credit losses are recorded as a reduction in the ALLL. Subsequent credit losses, as well as incremental interest rate or liquidity related valuation adjustments are recorded as a component of noninterest income in the Consolidated Statements of Income. The Company may also transfer loans from held for sale to held for investment. At the time of transfer, any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield using the interest method, unless the loan was elected upon origination to be accounted for at fair value. If a held for sale loan is transferred to held for investment for which fair value accounting was elected, it will continue to be accounted for at fair value in the held for investment portfolio. For additional information on the Company’s LHFS activities, see Note 6, “Loans.”

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 both well secured and in the 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 upon meeting all regulatory, accounting, and internal policy requirements.

Consumer loans (guaranteed and private 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. Guaranteed student loans continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. 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. 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 consumer loans are typically returned to accrual status once they are no longer past due.

Residential loans (guaranteed and 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. Guaranteed residential mortgages continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. Nonguaranteed residential mortgages and residential construction loans are generally placed on nonaccrual when three payments are past due. Home equity products are generally placed on nonaccrual when payments are 90 days past due. The exceptions for nonguaranteed residential mortgages, residential construction loans, and home equity products are: (i) when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due; (ii) loans discharged in Chapter 7 bankruptcy that have not been reaffirmed by the borrower, in which case, they are moved to nonaccrual status immediately; and (iii) second lien loans which are classified as nonaccrual when the first lien loan is classified as nonaccrual even if the second lien loan is performing. 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. Generally, nonaccrual residential 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, with the exception of the aforementioned Chapter 7 bankruptcy loans, which remain on nonaccrual, regardless of payment status.

TDRs are loans in which the borrower is experiencing financial difficulty at the time of restructure and the borrower received an economic concession either from the Company or as the product of a bankruptcy court order. To date, the Company’s TDRs have been predominantly first and second lien residential mortgages and home equity lines of credit. Prior to granting a modification of 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 generally granted are extensions of the loan maturity date and/or reductions in the original contractual interest rate. Typically, if a loan is accruing interest 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. Typically, TDRs may be returned to accrual status if there has been at least a six month sustained period of repayment performance by the borrower. Generally, once a residential loan becomes a TDR, the Company expects that the loan will likely continue to be reported as a TDR for its remaining life even after returning to accruing status as the modified rates and terms at the time of modification were typically more favorable than those generally available in the market. 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. For additional information on the Company's loans activities, see Note 6, “Loans.”

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 current inherent 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. Additionally, 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 and credit card), 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 LGD 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 regulatory minimums. Commercial loans are charged-off when they are considered uncollectible. Generally, losses on unsecured consumer loans are recognized at 90 days past due compared to the regulatory loss criteria of 120 days past due. However, if the borrower is in bankruptcy, the loan is charged-off in the month the loan becomes 60 days past due. Losses, as appropriate, on secured consumer loans, including residential real estate, are typically recognized at 120 or 180 days past due, depending on the loan and collateral type, in compliance with the FFIEC guidelines. However, if the borrower is in bankruptcy, the secured asset is evaluated once the loan becomes 60 days past due. The loan value in excess of the secured asset value is written down or charged-off after the valuation occurs. Additionally, if a mortgage loan is discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower, the Company's policy is to immediately charge-off the excess of the carrying amount over the fair value of the collateral. 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 inclusive of marketing 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, an acceptable third party appraisal or other form of evaluation, as permitted by regulation, is obtained prior to the origination of the loan and upon a subsequent transaction involving a material change in terms. In addition, updated valuations may be obtained during the life of a transaction, as appropriate, such as when a loan's performance materially 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, the Company obtains a new valuation annually. Any additional loss based on the new valuation is either charged-off or provided for through the ALLL. 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 MSA 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 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 the provision associated with changes in the unfunded lending commitment reserve is reported in the Consolidated Statements of Income in provision for credit losses. For additional information on the Company's Allowance for Credit Loss activities, see Note 7, “Allowance for Credit Losses.”

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated predominantly using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the improvements’ estimated useful lives or the lease term, depending on whether the lease meets the transfer of ownership or bargain-purchase option criterion. Certain leases are capitalized as assets for financial reporting purposes and are amortized using the straight-line method of amortization over the assets’ estimated useful lives or the lease terms, depending on the criteria that gave rise to the capitalization of the assets. Construction and software in process includes in process branch expansion, branch renovation, and software development projects. Upon completion, branch related projects are maintained in premises and equipment while completed software projects are reclassified to other assets. Maintenance and repairs are charged to expense, and improvements that extend the useful life of an asset are capitalized and depreciated over the remaining useful life. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For additional information on the Company’s premises and equipment activities, see Note 8, “Premises and Equipment.”

Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired companies. Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are expected to benefit from the synergies of the business combination.

Goodwill is not amortized and instead is tested by reporting unit for impairment, at least annually, or as events and 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. If, after considering all relevant events and circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two step impairment test is not necessary. If the Company determines via qualitative analysis that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a two step goodwill impairment test is performed. The first step is used to identify potential impairment and the second step, if required, measures the amount of impairment by comparing the carrying amount of goodwill to its implied fair value. If the implied fair value of the goodwill exceeds the carrying amount, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. Identified intangible assets that have a designated finite life are amortized over their useful lives and are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. For additional information on the Company’s activities related to goodwill and other intangibles, see Note 9, “Goodwill and Other Intangible Assets.”

MSRs

The Company recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSRs when loans are sold and the associated servicing rights are retained. The Company has elected to record all MSRs at fair value. Fair value is determined by projecting net servicing cash flows, which are then discounted to estimate the fair value. The Company actively hedges its MSRs. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from independent third parties. The carrying value of MSRs is reported on the Consolidated Balance Sheets in other intangible assets. Servicing fees are recognized as they are received and changes in fair value are also reported in mortgage servicing related income in the Consolidated Statements of Income. For additional information on the Company’s servicing fees, see Note 9, “Goodwill and Other Intangible Assets.”

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the loan’s cost basis or the asset’s fair value at the date of foreclosure, less estimated selling costs. To the extent fair value, less cost to sell, is less than the loan’s cost basis, the difference is charged to the ALLL at the date of transfer into OREO. The Company estimates market values primarily based on appraisals and other market information. Subsequent changes in value of the assets are reported as adjustments to the asset’s carrying amount. Subsequent to foreclosure, changes in value along with gains or losses from the disposition on these assets are reported in noninterest expense in the Consolidated Statements of Income. For additional information on the Company's activities related to OREO, see Note 18, “Fair Value Election and Measurement.”

Loan Sales and Securitizations

The Company sells and at times may securitize loans and other financial assets. When the Company securitizes assets, it may hold a portion of the securities issued, including senior interests, subordinated and other residual interests, interest-only strips, and principal-only strips, all of which are considered retained interests in the transferred assets. Retained securitized interests are recognized and initially measured at fair value. The interests in securitized assets held by the Company are typically classified as either securities AFS or trading assets and carried at fair value, which is based on independent, third party market prices, market prices for similar assets, or discounted cash flow analyses. If market prices are not available, fair value is calculated using management’s best estimates of key assumptions, including credit losses, loan repayment speeds and discount rates commensurate with the risks involved. For additional information on the Company’s securitization activities, see Note 10, “Certain Transfers of Financial Assets and Variable Interest Entities.”

Income Taxes

The provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as interest income from lending to tax-exempt entities and tax credits from community reinvestment activities. Deferred income tax assets and liabilities result from differences between the timing of the recognition of assets and liabilities for financial reporting purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that are currently in effect. Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in the provision for income taxes for the period in which the change is enacted. A valuation allowance is recognized for a DTA if, based on the weight of available evidence, it is more likely than not that some portion or all of the DTA will not be realized. In computing the income tax provision, the Company evaluates the technical merits of its income tax positions based on current legislative, judicial and regulatory guidance. Interest and penalties related to the Company’s tax positions are recognized as a component of income tax provision. For additional information on the Company’s activities related to income taxes, see Note 14, “Income Taxes.”

Earnings Per Share

Basic EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period, plus common share equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In periods of a net loss, diluted EPS is calculated in the same manner as basic EPS.

The Company has issued certain restricted stock awards, which are unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities. Accordingly, the Company calculated net income/(loss) available to common shareholders pursuant to the two-class method, whereby net income is allocated between common shareholders and participating securities. In periods of a net loss, no allocation is made to participating securities as they are not contractually required to fund net losses.

Net income/(loss) available to common shareholders represents net income after preferred stock dividends, accretion of the discount on preferred stock issuances, gains or losses from any repurchases of preferred stock, and dividends and allocation of undistributed earnings to the participating securities. For additional information on the Company’s EPS, see Note 12, “Net Income/(Loss) Per Common Share.”

Securities Sold Under Repurchase Agreements

Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold, plus accrued interest. The fair value of collateral pledged is continually monitored and additional collateral is pledged or requested to be returned to the Company as deemed appropriate. For additional information on the collateral pledged to secure repurchase agreements, see Note 4, "Trading Assets and Liabilities," and Note 5, "Securities Available for Sale."

Guarantees

The Company recognizes a liability at the inception of a guarantee, at an amount equal to the estimated fair value of the obligation. A guarantee is defined as a contract that contingently requires a company to make payment to a guaranteed party based upon changes in an underlying asset, liability or equity security of the guaranteed party, or upon failure of a third party to perform under a specified agreement. The Company considers the following arrangements to be guarantees: certain asset purchase/sale agreements, standby letters of credit and financial guarantees, certain indemnification agreements included within third party contractual arrangements and certain derivative contracts. For additional information on the Company’s guarantor obligations, see Note 17, “Reinsurance Arrangements and Guarantees.”

Derivative Financial Instruments and Hedging Activities

The Company records all contracts that satisfy the definition of a derivative at fair value in the Consolidated Balance Sheets. Accounting for changes in the fair value of a derivative is dependent upon whether or not it has been designated in a formal, qualifying hedging relationship. The Company offsets all outstanding derivative transactions with a single counterparty as well as any cash collateral paid to and received from that counterparty for derivative contracts that are subject to ISDA or other legally enforceable master netting arrangements and meet accounting guidance for offsetting treatment. In many situations, trading derivatives will be offset with derivatives used for risk management purposes that are recorded in other assets or other liabilities.  As a result, the Company may reclass balances between trading assets or liabilities and other assets or other liabilities based on the predominant account to ensure total assets and total liabilities are properly stated.

Changes in the fair value of derivatives not designated in a hedging relationship are recorded in noninterest income. This includes derivatives that the Company enters into in a dealer capacity to facilitate client transactions and as a risk management tool to economically hedge certain identified market risks, along with certain IRLCs on residential mortgage loans that are a normal part of the Company’s operations. The Company also evaluates contracts, such as brokered deposits and short-term debt, to determine whether any embedded derivatives are required to be bifurcated and separately accounted for as freestanding derivatives. For certain contracts containing embedded derivatives, the Company has elected not to bifurcate the embedded derivative and instead carry the entire contract at fair value.

Certain derivatives used as risk management tools are also designated as accounting hedges of the Company’s exposure to changes in interest rates or other identified market risks. The Company prepares written hedge documentation for all derivatives which are designated as hedges of (1) changes in the fair value of a recognized asset or liability (fair value hedge) attributable to a specified risk or (2) a forecasted transaction, such as the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written hedge documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective. Methodologies related to hedge effectiveness and ineffectiveness are consistent between similar types of hedge transactions and have included (i) statistical regression analysis of changes in the cash flows of the actual derivative and a perfectly effective hypothetical derivative, and (ii) statistical regression analysis of changes in the fair values of the actual derivative and the hedged item.

For designated hedging relationships, the Company performs retrospective and prospective effectiveness testing using quantitative methods and does not assume perfect effectiveness through the matching of critical terms. Assessments of hedge effectiveness and measurements of hedge ineffectiveness are performed at least quarterly for ongoing effectiveness. Changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a fair value hedge are recorded in current period earnings, along with the changes in the fair value of the hedged item that are attributable to the hedged risk. The effective portion of the changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a cash flow hedge are initially recorded in AOCI and reclassified to earnings in the same period that the hedged item impacts earnings; any ineffective portion is recorded in current period earnings.

Hedge accounting ceases on transactions that are no longer deemed effective, or for which the derivative has been terminated or de-designated. For discontinued fair value hedges where the hedged item remains outstanding, the hedged item would cease to be remeasured at fair value attributable to changes in the hedged risk and any existing basis adjustment would be recognized as an adjustment to earnings over the remaining life of the hedged item. For discontinued cash flow hedges, the unrealized gains and losses recorded in AOCI would be reclassified to earnings in the period when the previously designated hedged cash flows occur unless it was determined that transaction was probable to not occur, whereby any unrealized gains and losses in AOCI would be immediately reclassified to earnings. For additional information on the Company’s derivative activities, see Note 16, “Derivative Financial Instruments,” and Note 18, “Fair Value Election and Measurement.”

Stock-Based Compensation

The Company sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures. For additional information on the Company’s stock-based employee compensation plans, see Note 15, “Employee Benefit Plans.”

Employee Benefits

Employee benefits expense includes the net periodic benefit costs associated with the pension, supplemental retirement, and other postretirement benefit plans, as well as contributions under the defined contribution plan, the amortization of restricted stock, stock option awards, and costs of other employee benefits. For additional information on the Company's employee benefit plans, see Note 15, “Employee Benefit Plans.”

Foreign Currency Transactions

Foreign denominated assets and liabilities resulting from foreign currency transactions are valued using period end foreign exchange rates and the associated interest income or expense is determined using approximate weighted average exchange rates for the period. The Company may elect to enter into foreign currency derivatives to mitigate its exposure to changes in foreign exchange rates. The derivative contracts are accounted for at fair value. Gains and losses resulting from such valuations are included in noninterest income in the Consolidated Statements of Income.

Fair Value

Certain assets and liabilities are measured at fair value on a recurring basis. Examples of these include derivative instruments, AFS and trading securities, certain LHFI and LHFS, certain issuances of long-term debt, brokered deposits, and MSR assets. Fair value is used on a non-recurring basis as a measurement basis either when assets are evaluated for impairment, the basis of accounting is LOCOM or for disclosure purposes. Examples of these non-recurring uses of fair value include certain LHFS and LHFI, OREO, goodwill, intangible assets, nonmarketable equity securities, certain partnership investments and long-lived assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value.

The Company applies the following fair value hierarchy:

Level 1 – Assets or liabilities valued using unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date, such as publicly-traded instruments or futures contracts.

Level 2 – Assets and liabilities valued based on observable market data for similar instruments.

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

To determine the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. If available, the Company looks to active and observable markets to price identical assets or liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Nevertheless, the Company uses alternative valuation techniques to derive a fair value measurement for those assets and liabilities that are either not actively traded in observable markets or for which market observable inputs are not available. For additional information on the Company’s valuation of its assets and liabilities held at fair value, see Note 18, “Fair Value Election and Measurement.”
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
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 applied the new guidance to repurchase agreements entered into or amended after January 1, 2012. The adoption of the ASU did not 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 was to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarified how to apply existing fair value measurement and disclosure requirements. Further, the ASU required additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU was effective for the interim reporting period ending March 31, 2012. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in Note 18, “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. The guidance, with the exception of reclassification adjustments, was effective on January 1, 2012, and must be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in the Consolidated Statements of Comprehensive Income. The adoption did not impact the Company’s financial position, results of operations, or EPS.
In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" which provides disclosure guidance on amounts reclassified out of OCI by component. The ASU is effective for fiscal periods beginning after December 15, 2012. Since the ASU only impacts financial statement disclosures, its adoption will not impact the Company's financial position, results of operations, or EPS.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The ASU amends interim and annual goodwill impairment testing requirements such that an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance was effective for annual and interim goodwill impairment tests beginning on or after January 1, 2012. The Company adopted the standard as of January 1, 2012. The adoption did not have an impact on the Company's financial position, results of operations, or EPS.

In December 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." The ASU requires additional disclosures about financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement or similar agreement. In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” which more narrowly defined the scope of financial instruments to only include derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. The ASUs are effective for the interim reporting period ending March 31, 2013 with retrospective disclosure for all comparative periods presented. Since the ASUs only impact financial statement disclosures, its adoption will not impact the Company's financial position, results of operations, or EPS.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." The ASU permits entities to perform an optional qualitative assessment for determining whether it is more likely than not that an indefinite-lived intangible asset is impaired. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. As early adoption is permitted, the Company adopted the ASU as of October 1, 2012 and the adoption did not have an impact on the Company's financial position, results of operations, or EPS when adopted.

In October 2012, the FASB issued ASU 2012-04, “Technical Corrections and Improvements." The ASU prescribes technical corrections and improvements to the Accounting Standards Codification for source literature amendments, guidance clarification and reference corrections, and relocated guidance within the Accounting Standards Codification. The ASU is effective for fiscal periods beginning after December 15, 2012. The Company has adopted the ASU as of January 1, 2013 and the adoption did not have an impact on the Company's financial position, results of operations, or EPS.
Acquisitions/Dispositions
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
NOTE 2 - ACQUISITIONS/DISPOSITIONS
During the three year period ended December 31, 2012, the Company consummated the following acquisitions and dispositions:
 
(Dollars in millions)
 
Date
 
Cash or other
consideration
(paid)/ received
 
Goodwill
 
Other Intangibles
 
Gain
 
Comments
2012
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of assets of FirstAgain, LLC
 
6/22/2012
 

($12
)
 

$32

 

$—

 

$—

 
Goodwill recorded is tax-deductible.
2011
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition of certain additional assets of CSI Capital Management
 
5/9/2011
 
(19
)
 
20

 
7

 

 
Goodwill and intangibles  recorded are tax-deductible.
2010
 
 
 
 
 
 
 
 
 
 
 
 
Disposition of certain money market fund management business
 
various
 
7

 

 
11

 
18

 
 
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]
NOTE 3 - FEDERAL FUNDS SOLD AND SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL

Federal funds sold and securities borrowed or purchased under agreements to resell were as follows as of December 31:

(Dollars in millions)
2012
 
2011
Federal funds

$29

 

$—

Securities borrowed
155

 

Resell agreements
917

 
792

   Total federal funds sold and securities borrowed or purchased under agreements to resell

$1,101

 

$792


Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which securities will be subsequently resold. Securities borrowed are primarily collateralized by corporate securities. The Company takes possession of all securities under agreements to resell and securities borrowed and performs the appropriate margin evaluation on the acquisition date based on market volatility, as necessary. It is the Company's policy to obtain possession of collateral with a fair value between 95% to 110% of the principal amount loaned under resale and securities borrowing agreements. The total market value of the collateral held was $1.1 billion and $806 million at December 31, 2012 and 2011, of which $246 million and $247 million was repledged, respectively.
Trading Assets and Liabilities
Trading Assets and Liabilities [Text Block]
NOTE 4 - TRADING ASSETS AND LIABILITIES
The fair values of the components of trading assets and liabilities as of December 31 were as follows: 
(Dollars in millions)
2012
 
2011
Trading Assets:
 
 
 
U.S. Treasury securities

$111

 

$144

Federal agency securities
462

 
478

U.S. states and political subdivisions
34

 
54

MBS - agency
432

 
412

CDO/CLO securities
55

 
45

ABS
36

 
37

Corporate and other debt securities
567

 
345

CP
28

 
229

Equity securities
100

 
91

Derivatives 1
1,905

 
2,414

Trading loans 2
2,319

 
2,030

Total trading assets

$6,049

 

$6,279

Trading Liabilities:
 
 
 
U.S. Treasury securities

$582

 

$569

Corporate and other debt securities
173

 
77

Equity securities
9

 
37

Derivatives 1
397

 
1,123

Total trading liabilities

$1,161

 

$1,806

1 Amounts are offset with cash collateral received from or deposited with counterparties when the contracts are subject to ISDA master netting arrangements.
2 Includes loans related to TRS.
Various trading products and instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements executed through the Bank and/or its broker/dealer subsidiary. The Company manages the potential market volatility associated with the trading instruments that are utilized for balance sheet management with appropriate risk management strategies. The size, volume and nature of the trading products and instruments can vary based on economic, client specific, and Company specific asset or liability conditions. Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative and foreign exchange contracts, and similar financial instruments. Other trading-related activities include acting as a market maker in certain debt and equity securities and related derivatives. The Company has policies and procedures to manage market risk associated with client trading activities and assumes a limited degree of market risk by managing the size and nature of its exposure. The Company has pledged $727 million and $770 million of certain trading assets and cash equivalents to secure $703 million and $747 million of repurchase agreements as of December 31, 2012 and 2011, respectively.
Securities Available for Sale
Securities Available for Sale
NOTE 5 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition

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

$212

 

$10

 

$—

 

$222

Federal agency securities
1,987

 
85

 
3

 
2,069

U.S. states and political subdivisions
310

 
15

 
5

 
320

MBS - agency
17,416

 
756

 
3

 
18,169

MBS - private
205

 
4

 

 
209

ABS
214

 
5

 
3

 
216

Corporate and other debt securities
42

 
4

 

 
46

Other equity securities1
701

 
1

 

 
702

Total securities AFS

$21,087

 

$880

 

$14

 

$21,953

 
 
 
 
 
 
 
 
 
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 December 31, 2012, other equity securities was comprised of the following: $229 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $69 million in mutual fund investments, and $2 million of other. At December 31, 2011, other equity securities was comprised of the following: $342 million in FHLB of Atlanta stock, $398 million in Federal Reserve Bank stock, $187 million in mutual fund investments, and $2 million of other.

The following table presents interest and dividends on securities AFS:
 
Year Ended December 31
(Dollars in millions)
2012
 
2011
 
2010
Taxable interest

$579

 

$688

 

$709

Tax-exempt interest
15

 
21

 
31

Dividends1
61

 
82

 
76

Total interest and dividends

$655

 

$791

 

$816

1Includes dividends on the Coke common stock of $31 million, $56 million, and $53 million, for the years ended December 31, 2012, 2011, and 2010, respectively.
Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $10.6 billion and $9.1 billion as of December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011, there were no securities AFS pledged under which the transferee may repledge the collateral.

During the year ended December 31, 2012, the Company accelerated the termination of the Agreements that hedged the Coke common stock, and the Company sold, in the market or to the Coke Counterparty, 59 million of its 60 million shares of Coke and contributed the remaining 1 million shares of Coke to the SunTrust Foundation for a net gain of $1.9 billion. The $38 million contribution to the SunTrust Foundation was recognized in noninterest expense. Details of the transactions are discussed in Note 16, "Derivative Financial Instruments."

The amortized cost and fair value of investments in debt securities at December 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

$11

 

$201

 

$—

 

$—

 

$212

Federal agency securities
130

 
1,381

 
340

 
136

 
1,987

U.S. states and political subdivisions
91

 
152

 
19

 
48

 
310

MBS - agency
980

 
12,875

 
3,006

 
555

 
17,416

MBS - private

 
127

 
78

 

 
205

ABS
112

 
72

 
2

 
28

 
214

Corporate and other debt securities
4

 
16

 
22

 

 
42

Total debt securities

$1,328

 

$14,824

 

$3,467

 

$767

 

$20,386

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$11

 

$211

 

$—

 

$—

 

$222

Federal agency securities
131

 
1,449

 
348

 
141

 
2,069

U.S. states and political subdivisions
93

 
161

 
20

 
46

 
320

MBS - agency
1,035

 
13,520

 
3,051

 
563

 
18,169

MBS - private

 
130

 
79

 

 
209

ABS
113

 
71

 
2

 
30

 
216

Corporate and other debt securities
4

 
19

 
23

 

 
46

Total debt securities

$1,387

 

$15,561

 

$3,523

 

$780

 

$21,251


 
 
 
 
 
 
 
 
 
 Weighted average yield1
3.15
%
 
2.98
%
 
2.33
%
 
2.83
%
 
2.87
%
1Average yields are based on amortized cost and presented on a fully taxable-equivalent basis.

Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair market value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. As of December 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 Note 1, "Significant Accounting Policies."
 
December 31, 2012
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized  
Losses
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$298

 

$3

 

$—

 

$—

 

$298

 

$3

U.S. states and political subdivisions
1

 

 
24

 
5

 
25

 
5

MBS - agency
1,212

 
3

 

 

 
1,212

 
3

ABS

 

 
13

 
2

 
13

 
2

Total temporarily impaired securities
1,511

 
6

 
37

 
7

 
1,548

 
13

OTTI securities1:
 
 
 
 
 
 
 
 
 
 
 
ABS

 

 
3

 
1

 
3

 
1

Total OTTI securities

 

 
3

 
1

 
3

 
1

Total impaired securities

$1,511

 

$6

 

$40

 

$8

 

$1,551

 

$14


 
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

OTTI securities1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
15

 
1

 
206

 
30

 
221

 
31

ABS
1

 

 
3

 
2

 
4

 
2

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

The portion of unrealized losses on securities that have been other-than-temporarily impaired that relates to factors other than credit are recorded in AOCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. The unrealized OTTI loss relating to ABS at December 31, 2012 is related to two securities within the portfolios that are 2004 vintage home equity issuances. The expectation of cash flows for the previously impaired ABS securities has improved since the credit-related impairment was recognized, and as a result, the amount of expected credit losses was reduced, and the expected increase in cash flows is being accreted into earnings as a yield adjustment over the remaining life of the securities.

Realized Gains and Losses and Other-than-Temporarily Impaired Securities
 
Year Ended December 31
(Dollars in millions)
2012
 
2011
 
2010
Gross realized gains

$1,981

1 

$210

 

$210

Gross realized losses

 
(87
)
 
(17
)
OTTI
(7
)
 
(6
)
 
(2
)
Net securities gains

$1,974

 

$117

 

$191


1Included in these amounts are $305 million in losses recognized during 2012 related to the accelerated termination of the Agreements that hedge the Coke common stock.

The securities that gave rise to credit impairments recognized during the years ended December 31, 2012, 2011, and 2010, as shown in the table below, consisted of private MBS with a fair value of $209 million, $167 million, and $1 million, respectively. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled for the collateral underlying each security. As part of that analysis, the model incorporates loan level information such as loan to collateral values, FICO scores, and home price appreciation/depreciation data specific to the geography of the loan. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the years ended December 31, 2012, 2011, and 2010, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007.

The Company has not purchased any new private MBS during the year ended December 31, 2012, and continues to reduce existing exposure primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total impairment, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.
 
 
Year Ended December 31
(Dollars in millions)
 
2012
 
2011
 
2010
OTTI1
 

$1

 

$2

 

$2

Portion of gains/(losses) recognized in OCI (before taxes)
 
6

 
4

 

Net impairment losses recognized in earnings
 

$7

 

$6

 

$2

1The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount includes additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position, plus any additional credit losses taken through earnings that exceeds the total impairment.

The Company held stock in the FHLB of Atlanta totaling $229 million and $342 million at December 31, 2012 and December 31, 2011, respectively. The Company accounts for the stock based on relevant accounting guidance, which requires the investment be carried at cost and be evaluated for impairment based on the ultimate recoverability of the par value. The Company evaluated its holdings in FHLB stock at December 31, 2012 and believes its holdings in the stock are ultimately recoverable at par. Additionally, the Company does not have operational or liquidity needs that would require a redemption of the stock in the foreseeable future and therefore, determined that the stock was not other-than-temporarily impaired.

The following is a rollforward of credit losses recognized in earnings for the years ended December 31, 2012, 2011, and 2010, related to securities for which the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell as of the end of each year presented. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows.
 
Year Ended December 31
(Dollars in millions)
2012
 
2011
 
2010
 
Balance, beginning of period

$25

 

$20

 

$22

 
Additions:
 
 
 
 
 
 
OTTI credit losses on previously impaired securities
7

 
6

 

1 
Reductions:
 
 
 
 
 
 
Increases in expected cash flows recognized over the remaining life of the securities
(1
)
 
(1
)
 
(2
)
 
Balance, end of period

$31

 

$25

 

$20

 
1During the year ended December 31, 2010, the Company recognized $2 million of OTTI through earnings on debt securities in which no portion of the OTTI loss was included in OCI at any time during the period. OTTI related to these securities are excluded from 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 for the years ended December 31:

 
2012
 
2011
 
2010
Default rate
2 - 9%
 
4 - 8%
 
2 - 7%
Prepayment rate
7 - 21%
 
12 - 22%
 
14 - 22%
Loss severity
40 - 56%
 
39 - 46%
 
37 - 46%


Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. During 2012, certain bonds experienced a deterioration in the significant inputs used to estimate expected credit losses, which resulted in the recognition of additional impairment.
Loans
Loans
NOTE 6 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio as of December 31 is shown in the following table:
(Dollars in millions)
2012
 
2011
Commercial loans:
 
 
 
Commercial & industrial

$54,048

 

$49,538

Commercial real estate
4,127

 
5,094

Commercial construction
713

 
1,240

Total commercial loans
58,888

 
55,872

Residential loans:
 
 
 
Residential mortgages - guaranteed
4,252

 
6,672

Residential mortgages - nonguaranteed1
23,389

 
23,243

Home equity products
14,805

 
15,765

Residential construction
753

 
980

Total residential loans
43,199

 
46,660

Consumer loans:
 
 
 
Guaranteed student loans
5,357

 
7,199

Other direct
2,396

 
2,059

Indirect
10,998

 
10,165

Credit cards
632

 
540

Total consumer loans
19,383

 
19,963

LHFI 2

$121,470

 

$122,495

LHFS

$3,399

 

$2,353

1Includes $379 million and $431 million of loans carried at fair value at December 31, 2012 and 2011, respectively.
2Loans are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $639 million and $716 million at December 31, 2012 and 2011, respectively.
During the years ended December 31, 2012 and 2011, the Company transferred $3.7 billion and $754 million in LHFI to LHFS, and $71 million and $63 million in LHFS to LHFI, respectively. Additionally, during the years ended December 31, 2012 and 2011, the Company sold $4.8 billion and $725 million in loans and leases for a loss of $3 million and a gain of $22 million, respectively.

Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs; whereas, criticized assets have a higher PD. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.
Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. In response to updates in the industry-wide FICO scoring model and to enhance the Company's ability to manage credit risk, the Company updated its FICO scoring model to an updated version for the Home Equity, Indirect, and Other Direct portfolios in 2012. This change was the primary reason for the changes in the percentage of balances across the FICO score ranges noted below. There was no impact to the Company's financial position or results of operations as a result of updating the FICO scoring model.
For government-guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At December 31, 2012 and 2011, 89% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.
LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
Commercial & industrial
 
Commercial real estate
 
Commercial construction
(Dollars in millions)
December 31,
2012
 
December 31, 2011
 
December 31,
2012
 
December 31, 2011
 
December 31,
2012
 
December 31, 2011
Credit rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$52,292

 

$47,683

 

$3,564

 

$3,845

 

$506

 

$581

Criticized accruing
1,562

 
1,507

 
497

 
961

 
173

 
369

Criticized nonaccruing
194

 
348

 
66

 
288

 
34

 
290

Total

$54,048

 

$49,538

 

$4,127

 

$5,094

 

$713

 

$1,240

 
Residential Loans 1
 
Residential mortgages -
nonguaranteed
 
Home equity products
 
Residential construction
(Dollars in millions)
December 31,
2012
 
December 31, 2011
 
December 31,
2012
 
December 31, 2011
 
December 31,
2012
 
December 31, 2011
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$17,410

 

$16,139

 

$11,339

 

$11,084