STI 2018 Annual Report

46 recognized on nonaccrual loans (which includes out-of-period interest for certain commercial nonaccrual loans) totaled $19 million and $32 million for 2018 and 2017, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $45 million and $43 million would have been recognized during 2018 and 2017, respectively. Other Nonperforming Assets OREO decreased $3 million, or 5%, during 2018 to $54 million at December 31, 2018. Sales of OREO resulted in proceeds of $63 million and $60 million during 2018 and 2017, resulting in net gains of $9 million and $10 million, respectively, inclusive of valuation reserves. Most of our OREO properties are located in Florida, Maryland, Georgia, and South Carolina. Residential and commercial real estate properties comprised 92% and 4%, respectively, of total OREO at December 31, 2018, with the remainder related to land. Upon foreclosure, the values of these properties were re-evaluated and, if necessary, written down to their then-current estimated fair value less estimated costs to sell. Any further decreases in property values could result in additional losses as they are regularly revalued. See the "Non- recurring Fair Value Measurements" section within Note 20, "Fair Value Election and Measurement," to the Consolidated Financial Statements in this Form 10-K for additional information. Gains and losses on the sale of OREO are recorded in Other noninterest expense in the Consolidated Statements of Income. Sales of OREO and the related gains or losses are highly dependent on our disposition strategy. We are actively managing and disposing of these assets to minimize future losses and to maintain compliance with regulatory requirements. Accruing loans past due 90 days or more are included in LHFI and LHFS, and totaled $1.7 billion and $1.4 billion at December 31, 2018 and 2017, respectively. Of these, 97% and 98% were government-guaranteed at December 31, 2018 and 2017, respectively. Accruing LHFI past due 90 days or more increased $247 million, or 18%, during 2018, driven by a $280 million, or 27%, increase in guaranteed student loans, offset partially by a $51 million, or 15%, decrease in guaranteed residential mortgages. Restructured Loans To maximize the collection of loan balances, we evaluate troubled loans on a case-by-case basis to determine if a loan modification is appropriate. We pursue loan modifications when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. For loans secured by residential real estate, if the client demonstrates a loss of income such that the client cannot reasonably support a modified loan, we may pursue short sales and/or deed-in-lieu arrangements. For loans secured by income producing commercial properties, we perform an in-depth and ongoing programmatic review of a number of factors, including cash flows, loan structures, collateral values, and guarantees to identify loans within our income producing commercial loan portfolio that are most likely to experience distress. Based on our review of the aforementioned factors and our assessment of overall risk, we evaluate the benefits of proactively initiating discussions with our clients to improve a loan’s risk profile. In some cases, we may renegotiate terms of their loans so that they have a higher likelihood of continuing to perform. To date, we have restructured loans in a variety of ways to help our clients service their debt and to mitigate the potential for additional losses. The restructuring methods offered to our clients primarily include an extension of the loan's contractual term and/or a reduction in the loan's original contractual interest rate. In limited circumstances, loan modifications that forgive contractually specified unpaid principal balances may also be offered. For residential home equity lines nearing the end of their draw period and for commercial loans, the primary restructuring method is an extension of the loan's contractual term. Loans with modifications deemed to be economic concessions resulting from borrower financial difficulties are reported as TDRs. Accruing loans may retain accruing status at the time of restructure and the status is determined by, among other things, the nature of the restructure, the borrower's repayment history, and the borrower's repayment capacity. Nonaccruing loans that are modified and demonstrate a sustainable history of repayment performance in accordance with their modified terms, typically six months, are usually reclassified to accruing TDR status. Generally, once a loan becomes a TDR, we expect that the loan will continue to be reported as a TDR for its remaining life, even after returning to accruing status (unless the modified rates and terms at the time of modification were available in the market at the time of the modification, or if the loan is subsequently remodified at market rates). Some restructurings may not ultimately result in the complete collection of principal and interest (as modified by the terms of the restructuring), culminating in default, which could result in additional incremental losses. These potential incremental losses are factored into ourALLLestimate. The level of re-defaults will likely be affected by future economic conditions. At December 31, 2018, our total TDR portfolio totaled $2.6 billion and was comprised of $2.5 billion, or 95%, of consumer loans (predominantly first and second lien residential mortgages and home equity lines of credit) and $133 million, or 5%, of commercial loans. Total TDRs decreased $124 million, or 5%, from December 31, 2017, as a $129 million, or 5%, decrease in accruing TDRs was offset partially by a $5 million, or 2%, increase in nonaccruing TDRs. Generally, interest income on restructured loans that have met sustained performance criteria and returned to accruing status is recognized according to the terms of the restructuring. Such recognized interest income totaled $108 million for both 2018 and 2017. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $127 million and $130 million for 2018 and 2017, respectively, would have been recognized. For additional information regarding our restructured loans and associated accounting policies, see Note 1, “Significant Accounting Policies,” and Note 7, “Loans,” to the Consolidated Financial Statements in this Form 10-K as well as the “Nonperforming Assets” section of this MD&A.