STI 2018 Annual Report

Notes to Consolidated Financial Statements, continued 107 NOTE 7 - LOANS Composition of Loan Portfolio (Dollars in millions) December 31, 2018 December 31, 2017 Commercial loans: C&I 1 $71,137 $66,356 CRE 7,265 5,317 Commercial construction 2,538 3,804 Total commercial LHFI 80,940 75,477 Consumer loans: Residential mortgages - guaranteed 459 560 Residential mortgages - nonguaranteed 2 28,836 27,136 Residential home equity products 9,468 10,626 Residential construction 184 298 Guaranteed student 7,229 6,633 Other direct 10,615 8,729 Indirect 12,419 12,140 Credit cards 1,689 1,582 Total consumer LHFI 70,899 67,704 LHFI $151,839 $143,181 LHFS 3 $1,468 $2,290 1 Includes $4.1 billion and $3.7 billion of lease financing, and $796 million and $778 million of installment loans at December 31, 2018 and 2017, respectively. 2 Includes $163 million and $196 million of LHFI measured at fair value at December 31, 2018 and 2017, respectively. 3 Includes $1.2 billion and $1.6 billion of LHFS measured at fair value at December 31, 2018 and 2017, respectively. Loan Purchases, Sales, and Transfers Year Ended December 31 (Dollars in millions) 2018 2017 Non-routine purchases of LHFI: 1 Consumer loans $101 $233 Routine purchases of LHFI: 2 Consumer loans 2,122 1,729 Loan sales: 3, 4 Commercial loans 170 703 Consumer loans 99 2 Transfers of loans from: LHFI to LHFS 532 288 LHFS to LHFI 28 19 LHFI to OREO 62 57 1 Purchases are episodic in nature and are conducted based on specific business strategies. 2 Purchases are routine in nature and are conducted in the normal course of business. 3 Excludes sales of residential and commercial mortgage LHFS conducted in the normal course of business. 4 Net gain on loan sales were immaterial during the years ended December 31, 2018 and 2017. At December 31, 2018 and 2017, the Company had $28.1 billion and $24.3 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $21.3 billion and $18.2 billion of available, unused borrowing capacity, respectively. At December 31, 2018 and 2017, the Company had $39.2 billion and $38.0 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $31.0 billion and $30.5 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at December 31, 2018 was used to support $5.0 billion of long-term debt and $5.8 billion of letters of credit issued on the Company's behalf.At December 31, 2017, the available FHLB borrowing capacity was used to support $4 million of long-term debt and $6.7 billion of letters of credit issued on the Company's behalf. 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 these 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/analyses, and/or 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 conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Substandard, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Criticized accruing (which includes Special Mention and a portion of Substandard) and Criticized nonaccruing (which includes a portion of Substandard as well as Doubtful and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will not collect all amounts due under those loan agreements. The Company's risk rating system is more granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs; whereas, Criticized assets have higher PDs. The granularity in Pass ratings assists in establishing pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Commercial risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, borrower characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities. As reflected in the following risk rating table, the increases in Pass and Criticized accruing C&I loans at December 31, 2018 compared to December 31, 2017, were due to loan growth and normal variability in the portfolio. Criticized nonaccruing C&I loans remained low compared to December 31, 2017. For consumer loans, theCompanymonitors 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