SunTrust 2011 Annual Report Download - page 66
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within the nonperforming assets portfolio. Overall, NPL declines in recent quarters have been driven by commercial loans,
as the higher-risk commercial construction portfolio has been reduced, while the commercial and industrial loans have generally
performed well. As we look to the first quarter of 2012, we expect the recent quarterly trends to continue, with a continued
decline in NPLs.
Nonperforming Loans
Nonperforming commercial loans decreased $961 million, down 51% during the year ended December 31, 2011, driven by
a $671 million decrease in commercial construction NPLs and a $236 million decrease in commercial and industrial NPLs.
We expect NPLs to continue to decline in the first quarter of 2012; however, we continue to expect some variability in inflows
of commercial real estate NPLs as we move through the current commercial real estate cycle.
Nonperforming residential loans declined $238 million, down 11% during the year ended December 31, 2011, largely due to
a $151 million decrease in nonguaranteed residential mortgage NPLs, along with a $70 million decline in residential
construction NPLs. The $151 million decrease was partially attributable to the reclassification of certain nonperforming
residential mortgages as held for sale to reflect our intention to sell these mortgages. We recorded an incremental charge-off
of $10 million in the first quarter in connection with the decision to transfer and sell these mortgages. Approximately $34
million of these reclassified NPLs were sold during the second quarter; the remaining $13 million were transferred back to
LHFI as they were no longer deemed marketable for sale. The remaining decrease was attributable to lower net charge-offs
and inflows of NPLs. We expect some variability in inflows of nonperforming residential loans during 2012 related to mortgage
loan repurchases from investors. See additional discussion of mortgage loan repurchases in Note 18, "Reinsurance
Arrangements and Guarantees," to the Consolidated Financial Statements in this Form 10-K.
Nonperforming consumer loans decreased $8 million, down 23% during the year ended December 31, 2011, largely as a result
of a $5 million decrease in indirect consumer NPLs. The decrease was driven by net charge-offs of existing nonperforming
consumer loans during the year, largely offset by the migration of delinquent consumer loans to nonaccrual status.
Interest income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis. Interest income
on commercial nonaccrual loans is not recognized until after the principal has been reduced to zero. We recognized $34 million
and $39 million of interest income related to nonaccrual loans for the years ended December 31, 2011 and 2010, respectively.
If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $246
million and $340 million for the years ended December 31, 2011 and 2010, respectively, would have been recognized.
Other Nonperforming Assets
OREO decreased $117 million, down 20% during the year ended December 31, 2011. The decline consisted of net decreases
of $124 million in residential homes and $24 million in residential construction related properties, partially offset by a $31
million increase in commercial properties. During the years ended December 31, 2011 and 2010, sales of OREO resulted in
proceeds of $619 million and $769 million, respectively, and net losses on sales of OREO of $4 million and $25 million,
respectively, inclusive of valuation reserves, primarily attributed to lots and land evaluated under the pooled approach. Sales
of OREO and the related gains or losses are highly dependent on our disposition strategy and buyer opportunities. See Note
19, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-K for more information.
Gains and losses on sale of OREO are recorded in other real estate expense in the Consolidated Statements of Income/(Loss).
Geographically, most of our OREO properties are located in Georgia, Florida, and North Carolina. Residential properties and
land comprised 38% and 40%, respectively, of OREO; the remainder is related to commercial and other properties. Upon
foreclosure, the values of these properties were reevaluated and, if necessary, written down to their then-current estimated
value, less costs to sell. Further declines in home prices could result in additional losses on these properties. We are actively
managing and disposing of these foreclosed assets to minimize future losses.
Other repossessed assets decreased by $42 million, down 81% during the year ended December 31, 2011. The decrease was
largely attributable to the sale of repossessed assets during the year.
The majority of our past due accruing loans are residential mortgages and student loans that are fully guaranteed by a federal
agency. Accruing loans past due ninety days or more increased by $463 million, up 30% during the year ended December 31,
2011, essentially all of which was attributable to guaranteed residential mortgages and student loans. At December 31, 2011
and 2010, $57 million and $84 million, respectively, of past due accruing loans were not guaranteed.
At the end of 2010, we completed an internal review of STM’s residential foreclosure processes. In 2011, we continued to
improve upon our processes as a result of our review. In addition, following the Federal Reserve's horizontal review of the
nation’s largest mortgage loan servicers, SunTrust and other servicers entered into Consent Orders with the FRB. We describe
the Consent Order in Note 20, “Contingencies,” to the Consolidated Financial Statements in this Form 10-K and a copy of it