SunTrust 2013 Annual Report Download - page 66

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Loans Held for Sale
LHFS decreased $1.7 billion, or 50%, during 2013 from December 31, 2012, due to the decline in mortgage production as
a result of the higher interest rate environment.
Asset Quality
Our asset quality continued to trend favorably during 2013, driven by improvement in asset quality metrics, resolution of
existing NPAs, and lower inflows of NPLs. This was driven by positive trends in our residential portfolios due to lower
delinquencies and loss severities, and higher prices upon disposition of foreclosed assets.
NPLs decreased $576 million, or 37%, compared to December 31, 2012, largely the result of a decline in residential mortgage
NPLs. Contributing to the decline was the reclassification of approximately $219 million of loans previously discharged in
Chapter 7 bankruptcy to accruing TDR status after they exhibited a six month period of payment performance since being
discharged. Our NPLs have decreased significantly since their peak in 2009, down by $4.4 billion, or 82%. At December 31,
2013, the percentage of NPLs to total loans was 0.76%, down 51 basis points compared to December 31, 2012. We expect
further, but moderating, declines in NPLs during 2014, led by continuing improvements in residential portfolios.
Net charge-offs were $678 million during 2013, compared to $1.7 billion during 2012. Partially driving the $1.0 billion, or
60%, decline in net charge-offs compared to 2012 were $226 million of charge-offs in 2012 associated with the sale of mortgage
and commercial real estate NPLs, and $79 million and $65 million of charge-offs in 2012 related to the changes in policy
related to reclassification to nonaccrual for loans discharged in Chapter 7 bankruptcy and our junior lien credit policy impacting
the timing and recognition of charge-offs, respectively. During 2013, the net charge-off ratio fell to 0.55%, the lowest level
in six years, compared to 1.37% during 2012. We expect net charge-offs to remain relatively stable to slightly lower in the
coming quarters.
Total early stage delinquencies decreased to 0.74% of total loans at December 31, 2013, the lowest year-end level since 2006,
and a decline of 19 basis points compared to December 31, 2012. Early stage delinquencies, excluding government-guaranteed
loans, improved to 0.36% of total loans at December 31, 2013, compared to 0.48% at December 31, 2012. At December 31,
2013, the majority of commercial and residential loans showed improvement in early stage delinquencies compared to
December 31, 2012. Further improvement in early stage delinquencies will be driven by residential loans.
Overall, 2013 resulted in a further improvement in our risk profile and positive trends in our asset quality. Looking forward,
a recovering economy and improving housing market should continue to drive positive, albeit moderating, asset quality trends,
particularly in our residential portfolios; commercial and consumer portfolios are generally at or near normalized credit quality
levels.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of both the ALLL and the reserve for unfunded commitments. Reflecting the favorable
trends in credit quality, the ALLL declined to $2.0 billion at December 31, 2013, down $130 million, or 6%, compared to
December 31, 2012. The ALLL represented 1.60% of total loans at December 31, 2013, down 20 basis points compared to
December 31, 2012. See Note 1, "Significant Accounting Policies," and Note 7, "Allowance for Credit Losses," to the
Consolidated Financial Statements in this Form 10-K, as well as the "Allowance for Credit Losses" section within "Critical
Accounting Policies" in this MD&A for further information regarding our ALLL accounting policy, determination, and
allocation.