STI-03.31.14 10-Q
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 March 31, 2014
or
¨ 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.
|
| | | |
| Large accelerated filer x | | Accelerated filer o |
| Non-accelerated filer o (Do not check if a smaller reporting company) | | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý
At April 30, 2014, 532,843,111 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.
TABLE OF CONTENTS
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.
ASU — Accounting standards update.
ATE — Additional termination event.
ATM — Automated teller machine.
Bank — SunTrust Bank.
Basel III — The third Basel Accord developed by the BCBS to strengthen existing regulatory capital requirements.
BCBS — Basel Committee on Banking Supervision.
Board — The Company’s Board of Directors.
BPS — Basis points.
BRC — Board Risk Committee.
CCAR — Comprehensive Capital Analysis and Review.
CDO — Collateralized debt obligation.
CD — Certificate of deposit.
CDR — Conditional default rate.
CDS — Credit default swaps.
CET 1 — Common Equity Tier 1 Capital.
CEO — Chief Executive Officer.
CFO — Chief Financial Officer.
CIB — Corporate and Investment Banking.
C&I — Commercial and Industrial.
Class A shares — Visa Inc. Class A common stock.
Class B shares —Visa Inc. Class B common stock.
CLO — Collateralized loan obligation.
Company — SunTrust Banks, Inc.
CP — Commercial paper.
CPR — Conditional prepayment rate.
CRE — Commercial real estate.
CSA — Credit support annex.
DDA — Demand deposit account.
Dodd-Frank Act — The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DOJ — Department of Justice.
DTA — Deferred tax asset.
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.
FHA — Federal Housing Administration.
FHLB — Federal Home Loan Bank.
FICO — Fair Isaac Corporation.
Fitch — Fitch Ratings Ltd.
FRB — Federal Reserve Board.
FTE — Fully taxable-equivalent.
FVO — Fair value option.
GenSpring — GenSpring Family Offices, LLC.
GSE — Government-sponsored enterprise.
HAMP — Home Affordable Modification Program.
HUD — U.S. Department of Housing and Urban Development.
IIS — Institutional Investment Solutions.
IPO — Initial public offering.
IRLC — Interest rate lock commitment.
IRS — Internal Revenue Service.
ISDA — International Swaps and Derivatives Association.
LCR — Liquidity coverage ratio.
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.
MI — Mortgage insurance.
Moody’s — Moody’s Investors Service.
MRA — Master Repurchase Agreement.
MRM — Market Risk Management.
MRMG — Model Risk Management Group.
MSR — Mortgage servicing right.
MVE — Market value of equity.
NCF — National Commerce Financial Corporation.
NOW — Negotiable order of withdrawal account.
NPA — Nonperforming asset.
NPL — Nonperforming loan.
OCC — Office of the Comptroller of the Currency.
OCI — Other comprehensive income.
OIG — Office of Inspector General.
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.
QSPE — Qualifying special-purpose entity.
REIT — Real estate investment trust.
RidgeWorth — RidgeWorth Capital Management, Inc.
ROA — Return on average total assets.
ROE — Return on average common shareholders’ equity.
ROTCE — Return on average tangible common shareholders' equity.
RSU — Restricted stock unit.
RWA — Risk-weighted assets.
S&P — Standard and Poor’s.
SBA — Small Business Administration.
SCAP — Supervisory Capital Assessment Program.
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.
SunTrust Community Capital — SunTrust Community Capital, LLC.
TDR — Troubled debt restructuring.
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.
UPB — Unpaid principal balance.
UTB — Unrecognized tax benefit.
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.
Visa Counterparty — A financial institution which purchased the Company's Visa Class B shares.
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 months ended March 31, 2014, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014.
|
| |
Item 1. | FINANCIAL STATEMENTS (UNAUDITED) |
SunTrust Banks, Inc.
Consolidated Statements of Income
|
| | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions and shares in thousands, except per share data) (Unaudited) | 2014 | | 2013 |
Interest Income | | | |
Interest and fees on loans |
| $1,151 |
| |
| $1,169 |
|
Interest and fees on loans held for sale | 15 |
| | 31 |
|
Interest and dividends on securities available for sale | 153 |
| | 143 |
|
Trading account interest and other | 17 |
| | 16 |
|
Total interest income | 1,336 |
| | 1,359 |
|
Interest Expense | | | |
Interest on deposits | 65 |
| | 79 |
|
Interest on long-term debt | 58 |
| | 51 |
|
Interest on other borrowings | 9 |
| | 8 |
|
Total interest expense | 132 |
| | 138 |
|
Net interest income | 1,204 |
| | 1,221 |
|
Provision for credit losses | 102 |
| | 212 |
|
Net interest income after provision for credit losses | 1,102 |
| | 1,009 |
|
Noninterest Income | | | |
Service charges on deposit accounts | 155 |
|
| 160 |
|
Other charges and fees | 88 |
|
| 89 |
|
Card fees | 76 |
| | 76 |
|
Trust and investment management income | 130 |
|
| 124 |
|
Retail investment services | 71 |
|
| 61 |
|
Investment banking income | 88 |
|
| 68 |
|
Trading income | 49 |
| | 42 |
|
Mortgage servicing related income | 54 |
| | 38 |
|
Mortgage production related income | 43 |
| | 159 |
|
Net securities (losses)/gains 1 | (1 | ) |
| 2 |
|
Other noninterest income | 38 |
|
| 44 |
|
Total noninterest income | 791 |
| | 863 |
|
Noninterest Expense | | | |
Employee compensation | 659 |
| | 611 |
|
Employee benefits | 141 |
| | 148 |
|
Outside processing and software | 170 |
| | 178 |
|
Net occupancy expense | 86 |
| | 89 |
|
Equipment expense | 44 |
| | 45 |
|
Regulatory assessments | 40 |
| | 54 |
|
Marketing and customer development | 25 |
| | 30 |
|
Credit and collection services | 22 |
| | 33 |
|
Operating losses | 21 |
| | 39 |
|
Consulting and legal fees | 9 |
| | 15 |
|
Amortization of intangible assets | 3 |
| | 6 |
|
Other noninterest expense 2 | 137 |
| | 105 |
|
Total noninterest expense | 1,357 |
| | 1,353 |
|
Income before provision for income taxes | 536 |
| | 519 |
|
Provision for income taxes 2 | 125 |
| | 161 |
|
Net income including income attributable to noncontrolling interest | 411 |
| | 358 |
|
Net income attributable to noncontrolling interest | 6 |
| | 6 |
|
Net income |
| $405 |
| |
| $352 |
|
Net income available to common shareholders |
| $393 |
| |
| $340 |
|
Net income per average common share: | | | |
Diluted |
| $0.73 |
| |
| $0.63 |
|
Basic | 0.74 |
| | 0.64 |
|
Dividends declared per common share | 0.10 |
| | 0.05 |
|
Average common shares - diluted | 536,992 |
| | 539,862 |
|
Average common shares - basic | 531,162 |
| | 535,680 |
|
1 Total OTTI was $0 for the three months ended March 31, 2014 and 2013. Of total OTTI, losses of $0 and $1 million were recognized in earnings, and gains of $0 and $1 million were recognized as non-credit-related OTTI in OCI for the three months ended March 31, 2014 and 2013, respectively.
2 Amortization expense related to qualified affordable housing investment costs is recognized in provision for income taxes for each of the periods presented as allowed by a recently adopted accounting standard. Prior to the first quarter of 2014, these amounts were recognized in other noninterest expense.
See Notes to Consolidated Financial Statements (unaudited).
SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income
|
| | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions) (Unaudited) | 2014 | | 2013 |
Net income |
| $405 |
| |
| $352 |
|
Components of other comprehensive income/(loss): | | | |
Change in net unrealized gains/(losses) on securities, net of tax of $63 and ($42), respectively | 108 |
| | (73 | ) |
Change in net unrealized losses on derivatives, net of tax of ($29) and ($42), respectively | (50 | ) | | (71 | ) |
Change related to employee benefit plans, net of tax of $18 and $12, respectively | 31 |
| | 20 |
|
Total other comprehensive income/(loss) | 89 |
| | (124 | ) |
Total comprehensive income |
| $494 |
| |
| $228 |
|
See Notes to Consolidated Financial Statements (unaudited).
SunTrust Banks, Inc.
Consolidated Balance Sheets
|
| | | | | | | |
| March 31 | | December 31 |
(Dollars in millions and shares in thousands) (Unaudited) | 2014 | | 2013 |
Assets | | | |
Cash and due from banks |
| $6,978 |
| |
| $4,258 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell | 907 |
| | 983 |
|
Interest-bearing deposits in other banks | 22 |
| | 22 |
|
Cash and cash equivalents | 7,907 |
| | 5,263 |
|
Trading assets and derivatives (includes encumbered securities pledged against repurchase agreements of $585 and $731 at March 31, 2014 and December 31, 2013, respectively) | 4,848 |
| | 5,040 |
|
Securities available for sale | 23,302 |
| | 22,542 |
|
Loans held for sale 1 ($1,233 and $1,378 at fair value at March 31, 2014 and December 31, 2013, respectively) | 1,488 |
| | 1,699 |
|
Loans 2 ($299 and $302 at fair value at March 31, 2014 and December 31, 2013, respectively) | 129,196 |
| | 127,877 |
|
Allowance for loan and lease losses | (2,040 | ) | | (2,044 | ) |
Net loans | 127,156 |
| | 125,833 |
|
Premises and equipment | 1,550 |
| | 1,565 |
|
Goodwill | 6,377 |
| | 6,369 |
|
Other intangible assets (MSRs at fair value: $1,251 and $1,300 at March 31, 2014 and December 31, 2013, respectively) | 1,282 |
| | 1,334 |
|
Other real estate owned | 151 |
| | 170 |
|
Other assets | 5,481 |
| | 5,520 |
|
Total assets |
| $179,542 |
| |
| $175,335 |
|
Liabilities and Shareholders’ Equity | | | |
Noninterest-bearing deposits |
| $39,792 |
| |
| $38,800 |
|
Interest-bearing deposits (CDs at fair value: $759 and $764 at March 31, 2014 and December 31, 2013, respectively) | 93,164 |
| | 90,959 |
|
Total deposits | 132,956 |
| | 129,759 |
|
Funds purchased | 1,269 |
| | 1,192 |
|
Securities sold under agreements to repurchase | 2,133 |
| | 1,759 |
|
Other short-term borrowings | 5,277 |
| | 5,788 |
|
Long-term debt 3 ($1,545 and $1,556 at fair value at March 31, 2014 and December 31, 2013, respectively) | 11,565 |
| | 10,700 |
|
Trading liabilities and derivatives | 1,041 |
| | 1,181 |
|
Other liabilities | 3,484 |
| | 3,534 |
|
Total liabilities | 157,725 |
| | 153,913 |
|
Preferred stock, no par value | 725 |
| | 725 |
|
Common stock, $1.00 par value | 550 |
| | 550 |
|
Additional paid in capital | 9,107 |
| | 9,115 |
|
Retained earnings | 12,278 |
| | 11,936 |
|
Treasury stock, at cost, and other 4 | (643 | ) | | (615 | ) |
Accumulated other comprehensive loss, net of tax | (200 | ) | | (289 | ) |
Total shareholders’ equity | 21,817 |
| | 21,422 |
|
Total liabilities and shareholders’ equity |
| $179,542 |
| |
| $175,335 |
|
| | | |
Common shares outstanding | 534,780 |
| | 536,097 |
|
Common shares authorized | 750,000 |
| | 750,000 |
|
Preferred shares outstanding | 7 |
| | 7 |
|
Preferred shares authorized | 50,000 |
| | 50,000 |
|
Treasury shares of common stock | 15,141 |
| | 13,824 |
|
1 Includes loans held for sale, at fair value, of consolidated VIEs |
| $224 |
| |
| $261 |
|
2 Includes loans of consolidated VIEs | 318 |
| | 327 |
|
3 Includes debt of consolidated VIEs ($238 and $256 at fair value at March 31, 2014 and December 31, 2013, respectively) | 570 |
| | 597 |
|
4 Includes noncontrolling interest | 126 |
| | 119 |
|
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 (Loss)/Income 2 | | Total |
Balance, January 1, 2013 |
| $725 |
| | 539 |
| |
| $550 |
| |
| $9,174 |
| |
| $10,817 |
| |
| ($590 | ) | |
| $309 |
| |
| $20,985 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 352 |
| | — |
| | — |
| | 352 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (124 | ) | | (124 | ) |
Common stock dividends, $0.05 per share | — |
| | — |
| | — |
| | — |
| | (27 | ) | | — |
| | — |
| | (27 | ) |
Preferred stock dividends 3 | — |
| | — |
| | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Exercise of stock options and stock compensation expense | — |
| | — |
| | — |
| | (8 | ) | | — |
| | 13 |
| | — |
| | 5 |
|
Restricted stock activity | — |
| | 1 |
| | — |
| | (33 | ) | | — |
| | 36 |
| | — |
| | 3 |
|
Amortization of restricted stock compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Issuance of stock for employee benefit plans and other | — |
| | — |
| | — |
| | (1 | ) | | — |
| | 3 |
| | — |
| | 2 |
|
Balance, March 31, 2013 |
| $725 |
| | 540 |
| |
| $550 |
| |
| $9,132 |
| |
| $11,133 |
| |
| ($531 | ) | |
| $185 |
| |
| $21,194 |
|
Balance, January 1, 2014 |
| $725 |
| | 536 |
| |
| $550 |
| |
| $9,115 |
| |
| $11,936 |
| |
| ($615 | ) | |
| ($289 | ) | |
| $21,422 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 405 |
| | — |
| | — |
| | 405 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 89 |
| | 89 |
|
Change in noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Common stock dividends, $0.10 per share | — |
| | — |
| | — |
| | — |
| | (54 | ) | | — |
| | — |
| | (54 | ) |
Preferred stock dividends 3 | — |
| | — |
| | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Acquisition of treasury stock | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (50 | ) | | — |
| | (50 | ) |
Exercise of stock options and stock compensation expense | — |
| | — |
| | — |
| | (9 | ) | | — |
| | 8 |
| | — |
| | (1 | ) |
Restricted stock activity | — |
| | — |
| | — |
| | 7 |
| | — |
| | (3 | ) | | — |
| | 4 |
|
Amortization of restricted stock compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Issuance of stock for employee benefit plans and other | — |
| | — |
| | — |
| | (6 | ) | | — |
| | 2 |
| | — |
| | (4 | ) |
Balance, March 31, 2014 |
| $725 |
| | 535 |
| |
| $550 |
| |
| $9,107 |
| |
| $12,278 |
| |
| ($643 | ) | |
| ($200 | ) | |
| $21,817 |
|
1 At March 31, 2014, includes ($727) million for treasury stock, ($42) million for compensation element of restricted stock, and $126 million for noncontrolling interest.
At March 31, 2013, includes ($569) million for treasury stock, ($76) million for compensation element of restricted stock, and $114 million for noncontrolling interest.
2 At March 31, 2014, includes $31 million in unrealized net gains on AFS securities, $229 million in unrealized net gains on derivative financial instruments, and ($460) million related to employee benefit plans.
At March 31, 2013, includes $447 million in unrealized net gains on AFS securities, $461 million in unrealized net gains on derivative financial instruments, and ($723) million related to employee benefit plans.
3 For the three months ended March 31, 2014, dividends were $1,000 per share for both Perpetual Preferred Stock Series A and B and $1,469 per share for Perpetual Preferred Stock Series E.
For the three months ended March 31, 2013, dividends were $1,000 per share for both Perpetual Preferred Stock Series A and B and $1,387 per share for Perpetual Preferred Stock Series E.
See Notes to Consolidated Financial Statements (unaudited).
SunTrust Banks, Inc. Consolidated Statements of Cash Flows |
| | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions) (Unaudited) | 2014 | | 2013 |
Cash Flows from Operating Activities | | | |
Net income including income attributable to noncontrolling interest |
| $411 |
| |
| $358 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization, and accretion | 163 |
| | 184 |
|
Origination of mortgage servicing rights | (32 | ) | | (110 | ) |
Provisions for credit losses and foreclosed property | 104 |
| | 228 |
|
Mortgage repurchase provision | 5 |
| | 14 |
|
Stock option compensation and amortization of restricted stock compensation | 3 |
| | 8 |
|
Excess tax benefits from stock-based compensation | (3 | ) | | — |
|
Net securities losses/(gains) | 1 |
| | (2 | ) |
Net gain on sale of loans held for sale, loans, and other assets | (70 | ) | | (198 | ) |
Net decrease in loans held for sale | 353 |
| | 404 |
|
Net decrease/(increase) in other assets | 117 |
| | (437 | ) |
Net (decrease)/increase in other liabilities | (222 | ) | | 172 |
|
Net cash provided by operating activities | 830 |
| | 621 |
|
Cash Flows from Investing Activities | | | |
Proceeds from maturities, calls, and paydowns of securities available for sale | 762 |
| | 1,614 |
|
Proceeds from sales of securities available for sale | 69 |
| | 33 |
|
Purchases of securities available for sale | (1,436 | ) | | (3,678 | ) |
Proceeds from sales of trading securities | 59 |
| | — |
|
Net increase in loans, including purchases of loans | (1,667 | ) | | (167 | ) |
Proceeds from sales of loans | 94 |
| | 494 |
|
Capital expenditures | (34 | ) | | (28 | ) |
Payments related to acquisitions, including contingent consideration | (8 | ) | | — |
|
Proceeds from the sale of other real estate owned and other assets | 96 |
| | 145 |
|
Net cash used in investing activities | (2,065 | ) | | (1,587 | ) |
Cash Flows from Financing Activities | | | |
Net increase/(decrease) in total deposits | 3,197 |
| | (2,401 | ) |
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings | (60 | ) | | 1,134 |
|
Proceeds from the issuance of long-term debt | 876 |
| | 12 |
|
Repayment of long-term debt | (28 | ) | | (44 | ) |
Repurchase of common stock | (50 | ) | | — |
|
Common and preferred dividends paid | (63 | ) | | (36 | ) |
Stock option activity | 7 |
| | 6 |
|
Net cash provided by/(used in) financing activities | 3,879 |
| | (1,329 | ) |
Net increase/(decrease) in cash and cash equivalents | 2,644 |
| | (2,295 | ) |
Cash and cash equivalents at beginning of period | 5,263 |
| | 8,257 |
|
Cash and cash equivalents at end of period |
| $7,907 |
| |
| $5,962 |
|
Supplemental Disclosures: | | | |
Loans transferred from loans held for sale to loans |
| $17 |
| |
| $12 |
|
Loans transferred from loans to loans held for sale | 115 |
| | 57 |
|
Loans transferred from loans and loans held for sale to other real estate owned | 42 |
| | 66 |
|
See Notes to Consolidated Financial Statements (unaudited).
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and 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 2013 Annual Report on Form 10-K. There have been no significant changes to the Company’s accounting policies as disclosed in the Company’s 2013 Annual Report on Form 10-K.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In March 2013, the FASB issued ASU 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)." The ASU requires additional disclosures about joint and several liability arrangements and requires the Company to measure obligations resulting from joint and several liability arrangements as the sum of the amount the Company agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the Company expects to pay on behalf of its co-obligors. The ASU is effective for the fiscal years and interim periods beginning after December 15, 2013. The Company adopted the ASU at January 1, 2014 and the adoption did not have an impact on the Company's financial position, results of operations, or EPS.
In June 2013, the FASB issued ASU 2013-08, "Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements." The ASU clarifies the characteristics of an investment company and requires an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. The ASU is effective for fiscal years and interim periods beginning after December 15, 2013. The Company adopted the ASU at January 1, 2014 and the adoption did not have an impact on the Company's financial position, results of operations, or EPS.
In January 2014, the FASB issued ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)." The ASU allows for use of the proportional amortization method for investments in qualified affordable housing projects if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the net investment performance is recognized in the income statement as a component of income tax expense. The ASU provides for a practical expedient, which allows for amortization of the investment in proportion to only the tax credits if it produces a measurement that is substantially similar to the measurement that would result from using both tax credits and other tax benefits. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. As early adoption is permitted, the Company adopted this ASU effective January 1, 2014, utilizing the practical expedient method. During the three months ended March 31, 2014, $13 million of investment amortization expense has been recognized on a net basis with tax credits received as a component of income tax expense. The standard is required to be applied retrospectively; therefore prior period amounts included in noninterest expense prior to adoption have been reclassified. During the three months ended March 31, 2013, $10 million of investment amortization expense was included in other noninterest expense in the Consolidated Statements of Income which was reclassified to income tax expense upon adoption. No other impact is expected on the Company's financial position, results of operations, or EPS.
Notes to Consolidated Financial Statements (Unaudited), continued
In January 2014, the FASB issued ASU 2014-04, "Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)." The update clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. The adoption of this ASU is not expected to have a significant impact on the Company's financial position, results of operations, or EPS.
In April 2014, the FASB issued ASU 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The update changes the requirements for reporting discontinued operations in Subtopic 205-20. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. Early adoption is permitted only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. The Company adopted the ASU upon issuance for prospective transactions not previously reported. The adoption is not expected to have an impact on the Company's financial position, results of operations, or EPS.
NOTE 2 - FEDERAL FUNDS SOLD AND SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Fed funds sold and securities borrowed or purchased under agreements to resell were as follows:
|
| | | | | | | |
(Dollars in millions) | March 31, 2014 | | December 31, 2013 |
Fed funds sold |
| $— |
| |
| $75 |
|
Securities borrowed | 308 |
| | 184 |
|
Resell agreements | 599 |
| | 724 |
|
Total fed funds sold and securities borrowed or purchased under agreements to resell |
| $907 |
| |
| $983 |
|
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 purchased 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 $909 million and $913 million at March 31, 2014 and December 31, 2013, respectively, of which $251 million and $234 million was repledged, respectively.
The Company has pledged $585 million and $731 million of trading assets to secure $605 million and $717 million of repurchase agreements at March 31, 2014 and December 31, 2013, respectively.
Netting of Securities - Repurchase and Resell Agreements
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar agreements are discussed in Note 11, "Derivative Financial Instruments." Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by a MRA. Under the terms of the MRA, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted. These amounts are limited to the contract asset/liability balance, and accordingly, do not include excess collateral received/pledged.
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents the Company's eligible securities borrowed or purchased under agreements to resell and securities sold under agreements to repurchase at March 31, 2014 and December 31, 2013:
|
| | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | Gross Amount | | Amount Offset | | Net Amount Presented in Consolidated Balance Sheets | | Held/Pledged Financial Instruments | | Net Amount |
March 31, 2014 | | | | | | | | | |
Financial assets: | | | | | | | | | |
Securities borrowed or purchased under agreements to resell |
| $907 |
| |
| $— |
| |
| $907 |
| 1 |
| $896 |
| |
| $11 |
|
Financial liabilities: | | | | | | | | | |
Securities sold under agreements to repurchase | 2,133 |
| | — |
| | 2,133 |
| 1 | 2,133 |
| | — |
|
| | | | | | | | | |
December 31, 2013 | | | | | | | | | |
Financial assets: | | | | | | | | | |
Securities borrowed or purchased under agreements to resell |
| $908 |
| |
| $— |
| |
| $908 |
| 1,2 |
| $899 |
| |
| $9 |
|
Financial liabilities: | | | | | | | | | |
Securities sold under agreements to repurchase | 1,759 |
| | — |
| | 1,759 |
| 1 | 1,759 |
| | — |
|
1 None of the Company's repurchase and reverse repurchase transactions met the right of setoff criteria for net balance sheet presentation at March 31, 2014 and December 31, 2013.
2 Excludes $75 million of Fed funds sold which are not subject to a master netting agreement at December 31, 2013.
NOTE 3 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition |
| | | | | | | | | | | | | | | |
| March 31, 2014 |
(Dollars in millions) | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value |
U.S. Treasury securities |
| $1,582 |
| |
| $7 |
| |
| $32 |
| |
| $1,557 |
|
Federal agency securities | 1,015 |
| | 15 |
| | 43 |
| | 987 |
|
U.S. states and political subdivisions | 281 |
| | 6 |
| | — |
| | 287 |
|
MBS - agency | 19,317 |
| | 447 |
| | 317 |
| | 19,447 |
|
MBS - private | 147 |
| | 2 |
| | — |
| | 149 |
|
ABS | 65 |
| | 3 |
| | 1 |
| | 67 |
|
Corporate and other debt securities | 39 |
| | 3 |
| | — |
| | 42 |
|
Other equity securities 1 | 765 |
| | 1 |
| | — |
| | 766 |
|
Total securities AFS |
| $23,211 |
| |
| $484 |
| |
| $393 |
| |
| $23,302 |
|
| | | | | | | |
| December 31, 2013 |
(Dollars in millions) | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value |
U.S. Treasury securities |
| $1,334 |
| |
| $6 |
| |
| $47 |
| |
| $1,293 |
|
Federal agency securities | 1,028 |
| | 13 |
| | 57 |
| | 984 |
|
U.S. states and political subdivisions | 232 |
| | 7 |
| | 2 |
| | 237 |
|
MBS - agency | 18,915 |
| | 421 |
| | 425 |
| | 18,911 |
|
MBS - private | 155 |
| | 1 |
| | 2 |
| | 154 |
|
ABS | 78 |
| | 2 |
| | 1 |
| | 79 |
|
Corporate and other debt securities | 39 |
| | 3 |
| | — |
| | 42 |
|
Other equity securities 1 | 841 |
| | 1 |
| | — |
| | 842 |
|
Total securities AFS |
| $22,622 |
| |
| $454 |
| |
| $534 |
| |
| $22,542 |
|
1 At March 31, 2014, other equity securities was comprised of the following: $308 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $54 million in mutual fund investments, and $2 million of other. At December 31, 2013, other equity securities was comprised of the following: $336 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $103 million in mutual fund investments, and $1 million of other.
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents interest and dividends on securities AFS:
|
| | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions) | 2014 | | 2013 |
Taxable interest |
| $141 |
| |
| $132 |
|
Tax-exempt interest | 3 |
| | 3 |
|
Dividends | 9 |
| | 8 |
|
Total interest and dividends |
| $153 |
| |
| $143 |
|
Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $10.8 billion and $11.0 billion at March 31, 2014 and December 31, 2013, respectively. At March 31, 2014, there was $625 million of securities AFS pledged against repurchase arrangements under which the secured party has possession of the collateral and has the right to sell or repledge that collateral. At December 31, 2013, no securities AFS were pledged under such secured borrowing arrangements.
The amortized cost and fair value of investments in debt securities at March 31, 2014, 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 |
| $1 |
| |
| $893 |
| |
| $688 |
| |
| $— |
| |
| $1,582 |
|
Federal agency securities | 71 |
| | 253 |
| | 544 |
| | 147 |
| | 1,015 |
|
U.S. states and political subdivisions | 97 |
| | 57 |
| | 94 |
| | 33 |
| | 281 |
|
MBS - agency | 1,722 |
| | 6,093 |
| | 7,415 |
| | 4,087 |
| | 19,317 |
|
MBS - private | — |
| | 147 |
| | — |
| | — |
| | 147 |
|
ABS | 44 |
| | 19 |
| | 2 |
| | — |
| | 65 |
|
Corporate and other debt securities | — |
| | 22 |
| | 17 |
| | — |
| | 39 |
|
Total debt securities |
| $1,935 |
| |
| $7,484 |
| |
| $8,760 |
| |
| $4,267 |
| |
| $22,446 |
|
Fair Value: | | | | | | | | | |
U.S. Treasury securities |
| $1 |
| |
| $896 |
| |
| $660 |
| |
| $— |
| |
| $1,557 |
|
Federal agency securities | 71 |
| | 264 |
| | 509 |
| | 143 |
| | 987 |
|
U.S. states and political subdivisions | 98 |
| | 60 |
| | 95 |
| | 34 |
| | 287 |
|
MBS - agency | 1,825 |
| | 6,252 |
| | 7,456 |
| | 3,914 |
| | 19,447 |
|
MBS - private | — |
| | 149 |
| | — |
| | — |
| | 149 |
|
ABS | 44 |
| | 21 |
| | 2 |
| | — |
| | 67 |
|
Corporate and other debt securities | — |
| | 25 |
| | 17 |
| | — |
| | 42 |
|
Total debt securities |
| $2,039 |
| |
| $7,667 |
| |
| $8,739 |
| |
| $4,091 |
| |
| $22,536 |
|
Weighted average yield 1 | 2.93 | % | | 2.51 | % | | 2.88 | % | | 2.92 | % | | 2.77 | % |
1Average yields are based on amortized cost and presented on a FTE 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. At March 31, 2014, 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 described in the Company's 2013 Annual Report on Form 10-K.
Notes to Consolidated Financial Statements (Unaudited), continued
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2014 |
| Less than twelve months | | Twelve months or longer | | Total |
(Dollars in millions) | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
Temporarily impaired securities: | | | | | | | | | | | |
U.S. Treasury securities |
| $1,252 |
| |
| $32 |
| |
| $— |
| |
| $— |
| |
| $1,252 |
| |
| $32 |
|
Federal agency securities | 352 |
| | 21 |
| | 269 |
| | 22 |
| | 621 |
| | 43 |
|
U.S. states and political subdivisions | 11 |
| | — |
| | — |
| | — |
| | 11 |
| | — |
|
MBS - agency | 8,269 |
| | 262 |
| | 633 |
| | 55 |
| | 8,902 |
| | 317 |
|
ABS | — |
| | — |
| | 13 |
| | 1 |
| | 13 |
| | 1 |
|
Total temporarily impaired securities | 9,884 |
| | 315 |
| | 915 |
| | 78 |
| | 10,799 |
| | 393 |
|
OTTI securities 1: | | | | | | | | | | | |
MBS - private | 51 |
| | — |
| | — |
| | — |
| | 51 |
| | — |
|
Total OTTI securities | 51 |
| | — |
| | — |
| | — |
| | 51 |
| | — |
|
Total impaired securities |
| $9,935 |
| |
| $315 |
| |
| $915 |
| |
| $78 |
| |
| $10,850 |
| |
| $393 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 |
| Less than twelve months | | Twelve months or longer | | Total |
(Dollars in millions) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
Temporarily impaired securities: | | | | | | | | | | | |
U.S. Treasury securities |
| $1,036 |
| |
| $47 |
| |
| $— |
| |
| $— |
| |
| $1,036 |
| |
| $47 |
|
Federal agency securities | 398 |
| | 29 |
| | 264 |
| | 28 |
| | 662 |
| | 57 |
|
U.S. states and political subdivisions | 12 |
| | — |
| | 20 |
| | 2 |
| | 32 |
| | 2 |
|
MBS - agency | 9,173 |
| | 358 |
| | 618 |
| | 67 |
| | 9,791 |
| | 425 |
|
ABS | — |
| | — |
| | 13 |
| | 1 |
| | 13 |
| | 1 |
|
Total temporarily impaired securities | 10,619 |
| | 434 |
| | 915 |
| | 98 |
| | 11,534 |
| | 532 |
|
OTTI securities 1: | | | | | | | | | | | |
MBS - private | 105 |
| | 2 |
| | — |
| | — |
| | 105 |
| | 2 |
|
Total OTTI securities | 105 |
| | 2 |
| | — |
| | — |
| | 105 |
| | 2 |
|
Total impaired securities |
| $10,724 |
| |
| $436 |
| |
| $915 |
| |
| $98 |
| |
| $11,639 |
| |
| $534 |
|
1Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.
Unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months at March 31, 2014, included federal agency securities, agency MBS, and one ABS collateralized by 2004 vintage home equity loans. The fair value of federal agency and agency MBS securities has declined due to the increase in market interest rates. The ABS 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 OTTI that relates to factors other than credit is recorded in AOCI. Losses related to credit impairment on these securities are determined through estimated cash flow analyses and have been recorded in earnings in prior periods.
Realized Gains and Losses and Other-than-Temporarily Impaired Securities
|
| | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions) | 2014 | | 2013 |
Gross realized gains |
| $— |
|
|
| $3 |
|
Gross realized losses | (1 | ) | | — |
|
OTTI | — |
| | (1 | ) |
Net securities (losses)/gains |
| ($1 | ) | |
| $2 |
|
Notes to Consolidated Financial Statements (Unaudited), continued
Credit impairment that is determined through the use of 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. If, based on this analysis, the security is in an unrealized loss position and the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the three months ended March 31, 2013, all OTTI recognized in earnings related to private MBS that have underlying collateral of residential mortgage loans securitized in 2007 or ABS collateralized by 2004 vintage home equity loans.
The Company 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 unrealized losses, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.
The securities that gave rise to credit impairments recognized during the three months ended March 31, 2013, as shown in the table below, consisted of private MBS and ABS with a combined fair value of approximately $2 million at March 31, 2013.
|
| | | | | | | |
(Dollars in millions) | 2014 | | 2013 |
OTTI 1 |
| $— |
| |
| $— |
|
Portion of gains recognized in OCI (before taxes) | — |
| | 1 |
|
Net impairment losses recognized in earnings |
| $— |
| |
| $1 |
|
1 The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount 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.
The following is a rollforward of credit losses recognized in earnings for the three months ended March 31, 2014 and 2013, 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 period 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.
|
| | | | | | | |
(Dollars in millions) | 2014 | | 2013 |
Balance, beginning of period |
| $25 |
| |
| $31 |
|
Additions: | | | |
OTTI credit losses on previously impaired securities | — |
| | 1 |
|
Balance, end of period |
| $25 |
| |
| $32 |
|
The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS and ABS for the three months ended March 31:
|
| | | |
| 2014 1 | | 2013 |
Default rate | N/A | | 6 - 9% |
Prepayment rate | N/A | | 7 - 8% |
Loss severity | N/A | | 61 - 74% |
1 "N/A" - Not applicable
Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. Ranges may vary from period to period as the securities for which credit losses are recognized vary. Additionally, severity may vary widely when losses are few and large.
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 4 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio is shown in the following table: |
| | | | | | | |
(Dollars in millions) | March 31,
2014 | | December 31, 2013 |
Commercial loans: | | | |
C&I |
| $58,828 |
| |
| $57,974 |
|
CRE | 5,961 |
| | 5,481 |
|
Commercial construction | 920 |
| | 855 |
|
Total commercial loans | 65,709 |
| | 64,310 |
|
Residential loans: | | | |
Residential mortgages - guaranteed | 3,295 |
| | 3,416 |
|
Residential mortgages - nonguaranteed 1 | 24,331 |
| | 24,412 |
|
Home equity products | 14,637 |
| | 14,809 |
|
Residential construction | 532 |
| | 553 |
|
Total residential loans | 42,795 |
| | 43,190 |
|
Consumer loans: | | | |
Guaranteed student loans | 5,533 |
| | 5,545 |
|
Other direct | 3,109 |
| | 2,829 |
|
Indirect | 11,339 |
| | 11,272 |
|
Credit cards | 711 |
| | 731 |
|
Total consumer loans | 20,692 |
| | 20,377 |
|
LHFI |
| $129,196 |
| |
| $127,877 |
|
LHFS |
| $1,488 |
| |
| $1,699 |
|
1 Includes $299 million and $302 million of loans carried at fair value at March 31, 2014 and December 31, 2013, respectively.
At March 31, 2014 and December 31, 2013, the Company had $57.1 billion and $56.4 billion, respectively, of net eligible loan collateral pledged to the Federal Reserve Discount Window or the FHLB of Atlanta to support available borrowing capacity.
During the three months ended March 31, 2014 and 2013, the Company transferred $115 million and $57 million in LHFI to LHFS, and $17 million and $12 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2014 and 2013, the Company sold $85 million and $503 million in loans and leases for a gain of $9 million and a gain of $4 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 an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of 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 and 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.
For government-guaranteed 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 March 31, 2014 and December 31, 2013, 83% and 82%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. At March 31, 2014 and December 31, 2013, 82% and 81%, 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 |
| C&I | | CRE | | Commercial construction |
(Dollars in millions) | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 |
Credit rating: | | | | | | | | | | | |
Pass |
| $57,182 |
| |
| $56,443 |
| |
| $5,742 |
| |
| $5,245 |
| |
| $879 |
| |
| $798 |
|
Criticized accruing | 1,469 |
| | 1,335 |
| | 178 |
| | 197 |
| | 30 |
| | 45 |
|
Criticized nonaccruing | 177 |
| | 196 |
| | 41 |
| | 39 |
| | 11 |
| | 12 |
|
Total |
| $58,828 |
| |
| $57,974 |
| |
| $5,961 |
| |
| $5,481 |
| |
| $920 |
| |
| $855 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Residential Loans 1 |
| Residential mortgages - nonguaranteed | | Home equity products | | Residential construction |
(Dollars in millions) | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 |
Current FICO score range: | | | | | | | | | | | |
700 and above |
| $18,983 |
| |
| $19,100 |
| |
| $11,537 |
| |
| $11,661 |
| |
| $413 |
| |
| $423 |
|
620 - 699 | 3,740 |
| | 3,652 |
| | 2,159 |
| | 2,186 |
| | 82 |
| | 90 |
|
Below 620 2 | 1,608 |
| | 1,660 |
| | 941 |
| | 962 |
| | 37 |
| | 40 |
|
Total |
| $24,331 |
| |
| $24,412 |
| |
| $14,637 |
| |
| $14,809 |
| |
| $532 |
| |
| $553 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Consumer Loans 3 |
| Other direct | | Indirect | | Credit cards |
(Dollars in millions) | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 | | March 31,
2014 | | December 31, 2013 |
Current FICO score range: | | | | | | | | | | | |
700 and above |
| $2,648 |
| |
| $2,370 |
| |
| $8,390 |
| |
| $8,420 |
| |
| $489 |
| |
| $512 |
|
620 - 699 | 401 |
| | 397 |
| | 2,286 |
| | 2,228 |
| | 178 |
| | 176 |
|
Below 620 2 | 60 |
| | 62 |
| | 663 |
| | 624 |
| | 44 |
| | 43 |
|
Total |
| $3,109 |
| |
| $2,829 |
| |
| $11,339 |
| |
| $11,272 |
| |
| $711 |
| |
| $731 |
|
1 Excludes $3.3 billion and $3.4 billion at March 31, 2014 and December 31, 2013, respectively, of guaranteed residential loans. At March 31, 2014 and December 31, 2013, the majority of these loans had FICO scores of 700 and above.
2 For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
3 Excludes $5.5 billion of guaranteed student loans at March 31, 2014 and December 31, 2013.
Notes to Consolidated Financial Statements (Unaudited), continued
The payment status for the LHFI portfolio is shown in the tables below: |
| | | | | | | | | | | | | | | | | | | |
| March 31, 2014 |
(Dollars in millions) | Accruing Current | | Accruing 30-89 Days Past Due | | Accruing 90+ Days Past Due | | Nonaccruing 2 | | Total |
Commercial loans: | | | | | | | | | |
C&I |
| $58,576 |
| |
| $56 |
| |
| $19 |
| |
| $177 |
| |
| $58,828 |
|
CRE | 5,914 |
| | 6 |
| | — |
| | 41 |
| | 5,961 |
|
Commercial construction | 907 |
| | 2 |
| | — |
| | 11 |
| | 920 |
|
Total commercial loans | 65,397 |
| | 64 |
| | 19 |
| | 229 |
| | 65,709 |
|
Residential loans: | | | | | | | | | |
Residential mortgages - guaranteed | 2,731 |
| | 38 |
| | 526 |
| | — |
| | 3,295 |
|
Residential mortgages - nonguaranteed1 | 23,770 |
| | 121 |
| | 14 |
| | 426 |
| | 24,331 |
|
Home equity products | 14,323 |
| | 107 |
| | — |
| | 207 |
| | 14,637 |
|
Residential construction | 472 |
| | 9 |
| | — |
| | 51 |
| | 532 |
|
Total residential loans | 41,296 |
| | 275 |
| | 540 |
| | 684 |
| | 42,795 |
|
Consumer loans: | | | | | | | | | |
Guaranteed student loans | 4,520 |
| | 444 |
| | 569 |
| | — |
| | 5,533 |
|
Other direct | 3,086 |
| | 15 |
| | 2 |
| | 6 |
| | 3,109 |
|
Indirect | 11,268 |
| | 64 |
| | 1 |
| | 6 |
| | 11,339 |
|
Credit cards | 699 |
| | 6 |
| | 6 |
| | — |
| | 711 |
|
Total consumer loans | 19,573 |
| | 529 |
| | 578 |
| | 12 |
| | 20,692 |
|
Total LHFI |
| $126,266 |
| |
| $868 |
| |
| $1,137 |
| |
| $925 |
| |
| $129,196 |
|
1 Includes $299 million of loans carried at fair value, the majority of which were accruing current.
2 Nonaccruing loans past due 90 days or more totaled $635 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs and performing second lien loans which are classified as nonaccrual when the first lien loan is nonperforming.
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2013 |
(Dollars in millions) | Accruing Current | | Accruing 30-89 Days Past Due | | Accruing 90+ Days Past Due | | Nonaccruing 2 | | Total |
Commercial loans: | | | | | | | | | |
C&I |
| $57,713 |
| |
| $47 |
| |
| $18 |
| |
| $196 |
| |
| $57,974 |
|
CRE | 5,430 |
| | 5 |
| | 7 |
| | 39 |
| | 5,481 |
|
Commercial construction | 842 |
| | 1 |
| | — |
| | 12 |
| | 855 |
|
Total commercial loans | 63,985 |
| | 53 |
| | 25 |
| | 247 |
| | 64,310 |
|
Residential loans: | | | | | | | | | |
Residential mortgages - guaranteed | 2,787 |
| | 58 |
| | 571 |
| | — |
| | 3,416 |
|
Residential mortgages - nonguaranteed1 | 23,808 |
| | 150 |
| | 13 |
| | 441 |
| | 24,412 |
|
Home equity products | 14,480 |
| | 119 |
| | — |
| | 210 |
| | 14,809 |
|
Residential construction | 488 |
| | 4 |
| | — |
| | 61 |
| | 553 |
|
Total residential loans | 41,563 |
| | 331 |
| | 584 |
| | 712 |
| | 43,190 |
|
Consumer loans: | | | | | | | | | |
Guaranteed student loans | 4,475 |
| | 461 |
| | 609 |
| | — |
| |