Edgar Filing: SUNTRUST BANKS INC

STI-6.30.12-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-08918

SUNTRUST BANKS, INC.

(Exact name of registrant as specified in its charter)



Georgia		58-1575035
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

303 Peachtree Street, N.E., Atlanta, Georgia 30308

(Address of principal executive offices) (Zip Code)

(404) 588-7711

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



	Large accelerated filer x	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý

At July 25, 2012, 538,484,027 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS



		Page
Glossary of Defined Terms		i - iii

PART I FINANCIAL INFORMATION		iii

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Shareholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	63
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	102
Item 4.	Controls and Procedures	102

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	102
Item 1A.	Risk Factors	102
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102
Item 3.	Defaults Upon Senior Securities	103
Item 4.	Mine Safety Disclosures	103
Item 5.	Other Information	103
Item 6.	Exhibits	103

SIGNATURE		104

GLOSSARY OF DEFINED TERMS

ABS — Asset-backed securities.

ACH — Automated clearing house.

AFS — Available for sale.

Agreements — Equity forward agreements.

AIP — Annual Incentive Plan.

ALCO — Asset/Liability Management Committee.

ALM — Asset/Liability Management.

ALLL — Allowance for loan and lease losses.

AOCI — Accumulated other comprehensive income.

ARS — Auction rate securities.

ASU — Accounting standards update.

ATE — Additional termination event.

ATM — Automated teller machine.

Bank — SunTrust Bank.

BCBS — Basel Committee on Banking Supervision.

Board — The Company’s Board of Directors.

CCAR — Comprehensive Capital Analysis and Review.

CDO — Collateralized debt obligation.

CD — Certificate of deposit.

CDS — Credit default swaps.

CIB — Corporate and Investment Banking.

Class A shares — Visa Inc. Class A common stock.

Class B shares —Visa Inc. Class B common stock.

CLO — Collateralized loan obligation.

Coke — The Coca-Cola Company.

Company — SunTrust Banks, Inc.

CP — Commercial paper.

CPP — Capital Purchase Program.

CSA — Credit support annex.

DBRS — Dun and Bradstreet, Inc.

DDA — Demand deposit account.

Dodd-Frank Act — The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

EPS — Earnings per share.

ERISA — Employee Retirement Income Security Act of 1974.

Exchange Act — Securities Exchange Act of 1934.

FASB — Financial Accounting Standards Board.

FDIC — The Federal Deposit Insurance Corporation.

Federal Reserve — The Board of Governors of the Federal Reserve System.

Fed funds — Federal funds.

FFELP — Federal Family Education Loan Program.

FHA — Federal Housing Administration.

FHLB — Federal Home Loan Bank.

FICO — Fair Isaac Corporation.

FINRA — Financial Industry Regulatory Authority.

Fitch — Fitch Ratings Ltd.

FRB — Federal Reserve Board.

FTE — Fully taxable-equivalent.

FVO — Fair value option.

GSE — Government-sponsored enterprise.

HARP — Home Affordable Refinance Program.

HUD — U.S. Department of Housing and Urban Development.

IFRS — International Financial Reporting Standards.

IIS — Institutional Investment Solutions.

IPO — Initial public offering.

IRLC — Interest rate lock commitment.

IRS — Internal Revenue Service.

ISDA — International Swaps and Derivatives Association.

LGD — Loss given default.

LHFI — Loans held for investment.

LHFI-FV — Loans held for investment carried at fair value.

LHFS — Loans held for sale.

LIBOR —London InterBank Offered Rate.

LOCOM – Lower of cost or market.

LTI — Long-term incentive.

LTV— Loan to value.

MBS — Mortgage-backed securities.

MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MIP — Management Incentive Plan.

Moody’s — Moody’s Investors Service.

MSR — Mortgage servicing right.

MVE — Market value of equity.

NEO — Named executive officers.

NII — Net interest income.

NOW — Negotiable order of withdrawal account.

NPL — Nonperforming loan.

NPR — Notice of Proposed Rulemaking.

OCC — Office of the Comptroller of the Currency.

OCI — Other comprehensive income.

OREO — Other real estate owned.

OTC — Over-the-counter.

OTTI — Other-than-temporary impairment.

Parent Company — SunTrust Banks, Inc., the parent Company of SunTrust Bank and other subsidiaries of SunTrust Banks, Inc.

PD — Probability of default.

PPG — Playbook for profitable growth.

QSPE — Qualifying special-purpose entity.

RidgeWorth — RidgeWorth Capital Management, Inc.

ROA — Return on average total assets.

ROE — Return on average common shareholders’ equity.

RSU — Restricted stock unit.

RWA — Risk-weighted assets.

S&P — Standard and Poor’s.

SBA — Small Business Administration.

SEC — U.S. Securities and Exchange Commission.

SERP — Supplemental Executive Retirement Plan.

SPE — Special purpose entity.

STIS — SunTrust Investment Services, Inc.

STM — SunTrust Mortgage, Inc.

STRH — SunTrust Robinson Humphrey, Inc.

SunTrust — SunTrust Banks, Inc.

TARP — Troubled Asset Relief Program.

TDR — Troubled debt restructuring.

Three Pillars —Three Pillars Funding, LLC.

TRS — Total return swaps.

U.S. — United States.

U.S. GAAP — Generally Accepted Accounting Principles in the United States.

U.S. Treasury — The United States Department of the Treasury.

UTB — Unrecognized tax benefits.

VA —Veterans Administration.

VAR —Value at risk.

VI — Variable interest.

VIE — Variable interest entity.

Visa —The Visa, U.S.A. Inc. card association or its affiliates, collectively.

W&IM — Wealth and Investment Management.

PART I – FINANCIAL INFORMATION

The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

iii



Item 1.	FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income



	For the Three Months Ended June 30					For the Six Months Ended June 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)	2012		2011			2012		2011
Interest Income
Interest and fees on loans		$1,263		$1,299			$2,563		$2,613
Interest and fees on loans held for sale	31		22			55		50
Interest and dividends on securities available for sale:
Taxable interest	153		177			322		342
Tax-exempt interest	4		6			8		11
Dividends¹	23		21			45		41
Trading account interest and other	18		21			33		43
Total interest income	1,492		1,546			3,026		3,100
Interest Expense
Interest on deposits	118		162			245		331
Interest on long-term debt	90		113			178		237
Interest on other borrowings	10		12			18		24
Total interest expense	218		287			441		592
Net interest income	1,274		1,259			2,585		2,508
Provision for credit losses	300		392			617		839
Net interest income after provision for credit losses	974		867			1,968		1,669
Noninterest Income
Service charges on deposit accounts	167		170			332		333
Trust and investment management income	130		135			260		270
Other charges and fees	130		130			245		256
Mortgage production related income	103		4			166		3
Mortgage servicing related income	70		72			151		144
Investment banking income	75		95			147		162
Trading income	70		53			127		105
Card fees	66		105			127		205
Retail investment services	62		59			120		117
Net securities gains²	14		32			32		96
Other noninterest income	53		57			109		104
Total noninterest income	940		912			1,816		1,795
Noninterest Expense
Employee compensation	654		638			1,306		1,256
Employee benefits	108		110			254		246
Outside processing and software	180		162			356		320
Net occupancy expense	88		89			176		178
Operating losses	69		62			129		89
Credit and collection services	61		60			116		111
Regulatory assessments	60		81			111		152
Other real estate expense	52		64			103		133
Equipment expense	46		44			91		88
Marketing and customer development	32		46			59		84
Net loss/(gain) on debt extinguishment	13		(1		)	13		(2		)
Amortization of intangible assets	11		12			22		23
Other noninterest expense	172		175			351		329
Total noninterest expense	1,546		1,542			3,087		3,007
Income before provision for income taxes	368		237			697		457
Provision for income taxes	91		58			160		91
Net income including income attributable to noncontrolling interest	277		179			537		366
Net income attributable to noncontrolling interest	2		1			12		8
Net income		$275		$178			$525		$358
Net income available to common shareholders		$270		$174			$515		$212
Net income per average common share:
Diluted		$0.50		$0.33			$0.96		$0.41
Basic	0.51		0.33			0.97		0.41
Dividends declared per common share	0.05		0.01			0.10		0.02
Average common shares - diluted	537,495		535,416			536,951		519,548
Average common shares - basic	533,964		531,792			533,532		515,819

¹Includes dividends on common stock of The Coca-Cola Company of $15 million and $14 million during the three months ended June 30, 2012 and 2011, and $31 million and $28 million during the six months ended June 30, 2012 and 2011, respectively.

²Includes credit-related OTTI losses of $2 million and $1 million for the three months ended June 30, 2012 and 2011, respectively, and $4 million and $2 million for the six months ended June 30, 2012 and 2011, respectively. There were no non-credit related unrealized OTTI losses recorded in OCI, before taxes, for the three and six months ended June 30, 2012 and 2011.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Comprehensive Income



	For the Three Months Ended June 30						For the Six Months Ended June 30
(Dollars in millions) (Unaudited)	2012			2011			2012			2011
Net Income		$275			$178			$525			$358
Components of Other Comprehensive Income/(Loss):
Change in unrealized gains on securities, net of tax of $80, $110, $107 and $70, respectively	142			190			192			121
Change in unrealized gains on derivatives, net of tax of ($38), $41, ($96), and ($31), respectively	(69		)	72			(170		)	(53		)
Change related to employee benefit plans, net of tax of ($2), ($12), ($16) and ($10), respectively	(4		)	(19		)	(28		)	(16		)
Total Other Comprehensive Income/(Loss)	69			243			(6		)	52

Total Comprehensive Income		$344			$421			$519			$410

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets



	As of
(Dollars in millions and shares in thousands) (Unaudited)	June 30, 2012			December 31, 2011
Assets
Cash and due from banks		$5,781			$3,696
Securities purchased under agreements to resell	937			792
Interest-bearing deposits in other banks	21			21
Cash and cash equivalents	6,739			4,509
Trading assets (including encumbered securities of $712 and $574 as of June 30, 2012 and December 31, 2011, respectively)	6,327			6,279
Securities available for sale	24,409			28,117
Loans held for sale¹ (loans at fair value: $2,940 and $2,141 as of June 30, 2012 and December 31, 2011, respectively)	3,123			2,353
Loans² (loans at fair value: $406 and $433 as of June 30, 2012 and December 31, 2011, respectively)	124,560			122,495
Allowance for loan and lease losses	(2,300		)	(2,457		)
Net loans	122,260			120,038
Premises and equipment	1,578			1,564
Goodwill	6,376			6,344
Other intangible assets (MSRs at fair value: $865 and $921 as of June 30, 2012 and December 31, 2011, respectively)	939			1,017
Other real estate owned	331			479
Other assets	6,175			6,159
Total assets		$178,257			$176,859
Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits		$37,394			$34,359
Interest-bearing consumer and commercial deposits	88,751			91,252
Total consumer and commercial deposits	126,145			125,611
Brokered time deposits (CDs at fair value: $914 and $1,018 as of June 30, 2012 and December 31, 2011, respectively)	2,208			2,281
Foreign deposits	50			30
Total deposits	128,403			127,922
Funds purchased	847			839
Securities sold under agreements to repurchase	1,583			1,644
Other short-term borrowings	7,098			8,983
Long-term debt ³ (debt at fair value: $2,010 and $1,997 as of June 30, 2012 and December 31, 2011, respectively)	13,076			10,908
Trading liabilities	1,782			1,806
Other liabilities	4,900			4,691
Total liabilities	157,689			156,793
Preferred stock, no par value	275			275
Common stock, $1.00 par value	550			550
Additional paid in capital	9,218			9,306
Retained earnings	9,443			8,978
Treasury stock, at cost, and other⁴	(661		)	(792		)
Accumulated other comprehensive income, net of tax	1,743			1,749
Total shareholders’ equity	20,568			20,066
Total liabilities and shareholders’ equity		$178,257			$176,859

Common shares outstanding	538,398			536,967
Common shares authorized	750,000			750,000
Preferred shares outstanding	3			3
Preferred shares authorized	50,000			50,000
Treasury shares of common stock	11,522			12,954
¹ Includes loans held for sale, at fair value, of consolidated VIEs		$322			$315
² Includes loans of consolidated VIEs	390			3,322
³ Includes debt of consolidated VIEs ($288 and $289 at fair value as of June 30, 2012 and December 31, 2011, respectively)	700			722
⁴ Includes noncontrolling interest held	111			107

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity



(Dollars and shares in millions, except per share data) (Unaudited)	Preferred Stock			Common Shares Outstanding	Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock and Other ¹			Accumulated Other Comprehensive Income ²			Total
Balance, January 1, 2011		$4,942		500		$515		$8,403			$8,542			($888	)		$1,616			$23,130
Net income	—			—	—		—			358			—			—			358
Other comprehensive income	—			—	—		—			—			—			52			52
Change in noncontrolling interest	—			—	—		—			—			1			—			1
Common stock dividends, $0.02 per share	—			—	—		—			(11		)	—			—			(11		)
Preferred stock dividends, $2,022 per share	—			—	—		—			(4		)	—			—			(4		)
U.S. Treasury preferred stock dividends, $1,236 per share	—			—	—		—			(60		)	—			—			(60		)
Accretion of discount for preferred stock issued to U.S. Treasury	6			—	—		—			(6		)	—			—			—
Repurchase of preferred stock issued to U.S. Treasury	(4,776		)	—	—		—			(74		)	—			—			(4,850		)
Issuance of common stock	—			35	35		982			—			—			—			1,017
Stock compensation expense	—			—	—		7			—			—			—			7
Restricted stock activity	—			2	—		(54		)	—			46			—			(8		)
Amortization of restricted stock compensation	—			—	—		—			—			17			—			17
Issuance of stock for employee benefit plans and other	—			—	—		(8		)	—			19			—			11
Balance, June 30, 2011		$172		537		$550		$9,330			$8,745			($805	)		$1,668			$19,660
Balance, January 1, 2012		$275		537		$550		$9,306			$8,978			($792	)		$1,749			$20,066
Net income	—			—	—		—			525			—			—			525
Other comprehensive loss	—			—	—		—			—			—			(6		)	(6		)
Change in noncontrolling interest	—			—	—		—			—			4			—			4
Common stock dividends, $0.10 per share	—			—	—		—			(54		)	—			—			(54		)
Preferred stock dividends, $2,033 per share	—			—	—		—			(6		)	—			—			(6		)
Exercise of stock options and stock compensation expense	—			—	—		(17		)	—			26			—			9
Restricted stock activity	—			1	—		(61		)	—			65			—			4
Amortization of restricted stock compensation	—			—	—		—			—			15			—			15
Issuance of stock for employee benefit plans and other	—			—	—		(10		)	—			21			—			11
Balance, June 30, 2012		$275		538		$550		$9,218			$9,443			($661	)		$1,743			$20,568

¹At June 30, 2012 includes ($707) million for treasury stock, ($65) million for compensation element of restricted stock, and $111 million for noncontrolling interest.

At June 30, 2011 includes ($869) million for treasury stock, ($67) million for compensation element of restricted stock, and $131 million for noncontrolling interest.

²Components of AOCI at June 30, 2012 included $2,055 million in unrealized net gains on AFS securities, $399 million in unrealized net gains on derivative financial instruments, and ($711) million related to employee benefit plans. At June 30, 2011 components included $1,647 million in unrealized net gains on AFS securities, $479 million in unrealized net gains on derivative financial instruments, and ($458) million related to employee benefit plans.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows



	Six Months Ended June 30
(Dollars in millions) (Unaudited)	2012			2011
Cash Flows from Operating Activities
Net income including income attributable to noncontrolling interest		$537			$366
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	382			372
Origination of mortgage servicing rights	(161		)	(136		)
Provisions for credit losses and foreclosed property	706			930
Mortgage repurchase provision	330			170
Stock option compensation and amortization of restricted stock compensation	17			24
Net loss/(gain) on extinguishment of debt	13			(2		)
Net securities gains	(32		)	(96		)
Net gain on sale of assets	(518		)	(141		)
Net decrease in loans held for sale	782			1,718
Net increase in other assets	(282		)	(358		)
Net increase in other liabilities	18			251
Net cash provided by operating activities	1,792			3,098
Cash Flows from Investing Activities
Proceeds from maturities, calls, and paydowns of securities available for sale	3,179			2,414
Proceeds from sales of securities available for sale	2,210			10,763
Purchases of securities available for sale	(1,451		)	(12,603		)
Proceeds from maturities, calls, and paydowns of trading securities	—			124
Proceeds from sales of trading securities	—			102
Net increase in loans, including purchases of loans	(4,621		)	(1,109		)
Proceeds from sales of loans	477			287
Capital expenditures	(112		)	(9		)
Contingent consideration and other payments related to acquisitions	(9		)	(18		)
Proceeds from the sale of other assets	259			360
Net cash (used in)/provided by investing activities	(68		)	311
Cash Flows from Financing Activities
Net increase in total deposits	481			1,877
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings	(1,938		)	162
Proceeds from the issuance of long-term debt	4,000			1,039
Repayment of long-term debt	(1,991		)	(1,170		)
Proceeds from the exercise of stock options	5			—
Excess tax benefits from stock-based compensation	9			—
Proceeds from the issuance of common stock	—			1,017
Repurchase of preferred stock	—			(4,850		)
Common and preferred dividends paid	(60		)	(75		)
Net cash provided by/(used in) financing activities	506			(2,000		)
Net increase in cash and cash equivalents	2,230			1,409
Cash and cash equivalents at beginning of period	4,509			5,378
Cash and cash equivalents at end of period		$6,739			$6,787
Supplemental Disclosures:
Loans transferred from loans held for sale to loans		$31			$46
Loans transferred from loans to loans held for sale	1,116			198
Loans transferred from loans to other real estate owned	200			367
Accretion of discount for preferred stock issued to the U.S. Treasury	—			80

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

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

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Except for accounting policies that have been recently adopted as described below, there have been no significant changes to the Company’s accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU was to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarified how to apply existing fair value measurement and disclosure requirements. Further, the ASU required additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU was effective for the interim reporting period ending March 31, 2012. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption did not impact the Company’s financial position, results of operations, or EPS.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The ASU requires presentation of the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The update does not change the items presented in OCI and does not affect the calculation or reporting of EPS. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income in ASU 2011-05,” which deferred the effective date for the amendments to the reclassification of items out of AOCI. In June 2012, the FASB decided that the presentation requirements deferred in ASU 2011-12 would not be reinstated. The guidance, with the exception of reclassification adjustments, was effective on January 1, 2012 and must be applied retrospectively for all periods presented. The Company adopted the standard as of January 1, 2012, and the required disclosures are included in the Consolidated Statements of Comprehensive Income. The adoption did not impact the Company’s financial position, results of operations, or EPS.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The ASU amends interim and annual goodwill impairment testing requirements such that an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The guidance was effective for annual and interim goodwill impairment tests beginning on or after January 1, 2012. The Company adopted the standard as of January 1, 2012 and has applied the guidance to interim goodwill impairment testing. The adoption did not have an impact on the Company's financial position, results of operations, or EPS.

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

NOTE 2 – SECURITIES AVAILABLE FOR SALE

Securities Portfolio Composition



	June 30, 2012
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$214		$10		$—		$224
Federal agency securities	1,698		85		—		1,783
U.S. states and political subdivisions	359		19		6		372
MBS - agency	17,308		803		1		18,110
MBS - private	225		—		17		208
ABS	344		9		5		348
Corporate and other debt securities	42		3		—		45
Coke common stock	—		2,346		—		2,346
Other equity securities¹	972		1		—		973
Total securities AFS		$21,162		$3,276		$29		$24,409

	December 31, 2011
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$671		$23		$—		$694
Federal agency securities	1,843		89		—		1,932
U.S. states and political subdivisions	437		21		4		454
MBS - agency	20,480		743		—		21,223
MBS - private	252		—		31		221
CDO/CLO securities	50		—		—		50
ABS	460		11		7		464
Corporate and other debt securities	49		2		—		51
Coke common stock	—		2,099		—		2,099
Other equity securities¹	928		1		—		929
Total securities AFS		$25,170		$2,989		$42		$28,117

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

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

Notes to Consolidated Financial Statements (Unaudited), continued

The amortized cost and fair value of investments in debt securities at June 30, 2012 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.



	Distribution of Maturities
(Dollars in millions)	1 Year or Less		1-5 Years		5-10 Years		After 10 Years		Total
Amortized Cost:
U.S. Treasury securities		$12		$202		$—		$—		$214
Federal agency securities	117		1,372		95		114		1,698
U.S. states and political subdivisions	108		178		21		52		359
MBS - agency	901		14,304		1,827		276		17,308
MBS - private	—		136		89		—		225
ABS	123		152		2		67		344
Corporate and other debt securities	3		2		37		—		42
Total debt securities		$1,264		$16,346		$2,071		$509		$20,190
Fair Value:
U.S. Treasury securities		$12		$212		$—		$—		$224
Federal agency securities	118		1,441		105		119		1,783
U.S. states and political subdivisions	111		191		21		49		372
MBS - agency	951		14,957		1,916		286		18,110
MBS - private	—		125		83		—		208
ABS	123		152		2		71		348
Corporate and other debt securities	3		2		40		—		45
Total debt securities		$1,318		$17,080		$2,167		$525		$21,090

Securities in an Unrealized Loss Position

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

Notes to Consolidated Financial Statements (Unaudited), continued



	June 30, 2012
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities:
Federal agency securities		$19		$—		$—		$—		$19		$—
U.S. states and political subdivisions	1		—		24		6		25		6
MBS - agency	12		1		1		—		13		1
ABS	—		—		12		3		12		3
Total temporarily impaired securities	32		1		37		9		69		10
Other-than-temporarily impaired securities¹:
MBS - private	—		—		207		17		207		17
ABS	1		—		4		2		5		2
Total other-than-temporarily impaired securities	1		—		211		19		212		19
Total impaired securities		$33		$1		$248		$28		$281		$29

	December 31, 2011
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities:
Federal agency securities		$10		$—		$—		$—		$10		$—
U.S. states and political subdivisions	1		—		28		4		29		4
MBS - agency	224		—		1		—		225		—
CDO/CLO securities	50		—		—		—		50		—
ABS	—		—		11		5		11		5
Total temporarily impaired securities	285		—		40		9		325		9
Other-than-temporarily impaired securities¹:
MBS - private	15		1		206		30		221		31
ABS	1		—		3		2		4		2
Total other-than-temporarily impaired securities	16		1		209		32		225		33
Total impaired securities		$301		$1		$249		$41		$550		$42

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

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

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

Notes to Consolidated Financial Statements (Unaudited), continued

Realized Gains and Losses and Other-than-Temporarily Impaired Securities



	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	2012			2011			2012			2011
Gross realized gains		$16			$33			$36			$176
Gross realized losses	—			—			—			(78		)
OTTI	(2		)	(1		)	(4		)	(2		)
Net securities gains		$14			$32			$32			$96

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



	Three Months Ended June 30				Six Months Ended June 30
	2012		2011		2012		2011
(Dollars in millions)	MBS - Private		MBS - Private		MBS - Private		MBS - Private
OTTI¹		$2		$1		$4		$2
Portion of losses recognized in OCI (before taxes)	—		—		—		—
Net impairment losses recognized in earnings		$2		$1		$4		$2

¹ The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount represents additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position.

Notes to Consolidated Financial Statements (Unaudited), continued

The following is a rollforward of credit losses recognized in earnings for the three and six months ended June 30, 2012 and 2011, related to securities for which some portion of the OTTI loss remains in AOCI:



	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	2012			2011			2012			2011
Balance, beginning of period		$27			$21			$25			$20
Additions:
OTTI credit losses on previously impaired securities	2			1			4			2
Reductions:
Increases in expected cash flows recognized over the remaining life of the securities	(1		)	(1		)	(1		)	(1		)
Balance, end of period		$28			$21			$28			$21

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS for the three and six months ended June 30:



	2012	2011
Default rate	2 - 6%	4 - 8%
Prepayment rate	7 - 21%	12 - 22%
Loss severity	47 - 56%	39 - 44%

Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. During the first six months of 2012, there was improvement in the default estimates for certain credit impaired bonds; however, the slower prepayment speeds and higher severity rates resulted in the recognition of additional impairment.

Notes to Consolidated Financial Statements (Unaudited), continued

NOTE 3 - LOANS

Composition of Loan Portfolio

The composition of the Company's loan portfolio is shown in the following table:



(Dollars in millions)	June 30, 2012		December 31, 2011
Commercial loans:
Commercial & industrial		$52,030		$49,538
Commercial real estate	4,825		5,094
Commercial construction	959		1,240
Total commercial loans	57,814		55,872
Residential loans:
Residential mortgages - guaranteed	5,663		6,672
Residential mortgages - nonguaranteed¹	24,405		23,243
Home equity products	15,281		15,765
Residential construction	853		980
Total residential loans	46,202		46,660
Consumer loans:
Guaranteed student loans	7,248		7,199
Other direct	2,225		2,059
Indirect	10,506		10,165
Credit cards	565		540
Total consumer loans	20,544		19,963
LHFI		$124,560		$122,495
LHFS		$3,123		$2,353

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

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

Credit Quality Evaluation

The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analysis, and qualitative assessments.

For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low expectations of default. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Criticized assets have a higher PD. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Non-Performing (which includes a portion of Adversely Classified, Doubtful, and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.

Notes to Consolidated Financial Statements (Unaudited), continued

Risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, loan characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.

For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. In response to updates in the industry-wide FICO scoring model and to enhance the Company's ability to manage risk, the Company updated its FICO scoring model to this updated version for the Home Equity, Indirect, and Other Direct portfolios in the first quarter of 2012. This change was the primary reason for the changes in the percentage of balances across the FICO score ranges noted below. There was no impact to the Company's financial position or results of operations as a result of updating the FICO scoring model.

For government guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At both June 30, 2012 and December 31, 2011, 79% of the guaranteed student loan portfolio was current with respect to payments; however, the loss exposure to the Company is mitigated by the government guarantee.

LHFI by credit quality indicator are shown in the tables below:



	Commercial & industrial				Commercial real estate				Commercial construction
(Dollars in millions)	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Credit rating:
Pass		$50,130		$47,683		$3,836		$3,845		$581		$581
Criticized accruing	1,569		1,507		756		961		247		369
Criticized nonaccruing	331		348		233		288		131		290
Total		$52,030		$49,538		$4,825		$5,094		$959		$1,240



	Residential mortgages - nonguaranteed ²				Home equity products				Residential construction
(Dollars in millions)	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$17,567		$16,139		$11,583		$11,084		$613		$661
620 - 699	4,149		4,132		2,405		2,903		158		202
Below 620¹	2,689		2,972		1,293		1,778		82		117
Total		$24,405		$23,243		$15,281		$15,765		$853		$980



	Consumer - other direct				Consumer - indirect				Consumer - credit cards
(Dollars in millions)	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Current FICO score range:
700 and above		$1,829		$1,614		$7,965		$7,397		$379		$347
620 - 699	325		359		1,886		1,990		142		142
Below 620¹	71		86		655		778		44		51
Total		$2,225		$2,059		$10,506		$10,165		$565		$540

¹For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.

²Excludes $5.7 billion and $6.7 billion at June 30, 2012 and December 31, 2011, respectively, of guaranteed residential loans. At both June 30, 2012 and December 31, 2011, the majority of these loans had FICO scores of 700 and above.

Notes to Consolidated Financial Statements (Unaudited), continued

The payment status for the LHFI portfolio is shown in the tables below:



	As of June 30, 2012
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing ²		Total
Commercial loans:
Commercial & industrial		$51,600		$76		$23		$331		$52,030
Commercial real estate	4,582		8		2		233		4,825
Commercial construction	826		2		—		131		959
Total commercial loans	57,008		86		25		695		57,814
Residential loans:
Residential mortgages - guaranteed	4,357		144		1,162		—		5,663
Residential mortgages - nonguaranteed¹	22,834