Financing Receivables

9 Months Ended

Sep. 30, 2011

Financing Receivables

Financing Receivables

5.  Financing Receivables

The Company’s financing receivables include commercial mortgage loans, syndicated loans, consumer bank loans, policy loans and margin loans. The Company does not hold any loans acquired with deteriorated credit quality. Commercial mortgage loans, syndicated loans and policy loans are reflected in investments. Consumer bank loans and margin loans are reflected in receivables. Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.

Allowance for Loan Losses

The following tables present a rollforward of the allowance for loan losses for the nine months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:

	September 30, 2011
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	38		$	10		$	16		$	64
Charge-offs	(2		)	—			(8		)	(10		)
Provisions	(1		)	(1		)	8			6
Ending balance	$	35		$	9		$	16		$	60
Individually evaluated for impairment	$	10		$	1		$	2		$	13
Collectively evaluated for impairment	25			8			14			47

	September 30, 2010
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	32		$	26		$	13		$	71
Charge-offs	(1		)	(2		)	(8		)	(11		)
Provisions	8			(10		)	11			9
Ending balance	$	39		$	14		$	16		$	69
Individually evaluated for impairment	$	7		$	1		$	2		$	10
Collectively evaluated for impairment	32			13			14			59

The recorded investment in financing receivables by impairment method and type of loan was as follows:

	September 30, 2011
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Individually evaluated for impairment	$	77	$	5	$	11	$	93
Collectively evaluated for impairment	2,478		370		1,310		4,158
Total	$	2,555	$	375	$	1,321	$	4,251

	December 31, 2010
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Individually evaluated for impairment	$	75	$	8	$	12	$	95
Collectively evaluated for impairment	2,540		303		1,054		3,897
Total	$	2,615	$	311	$	1,066	$	3,992

As of September 30, 2011 and December 31, 2010, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $18 million and $24 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance.

Purchases and sales of loans were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(in millions)
Purchases
Consumer bank loans	$	85	$	68	$	306	$	217
Syndicated loans	82		16		185		22
Total loans purchased	$	167	$	84	$	491	$	239
Sales
Consumer bank loans	$	51	$	110	$	191	$	295
Syndicated loans	—		17		2		39
Total loans sold	$	51	$	127	$	193	$	334

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $9 million and $15 million as of September 30, 2011 and December 31, 2010, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 3% of total commercial mortgage loans as of both September 30, 2011 and December 31, 2010. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:

	Loans				Percentage
	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
	(in millions)
East North Central	$	251	$	242	10	%	9	%
East South Central	65		66		2		3
Middle Atlantic	220		215		9		8
Mountain	279		301		11		11
New England	144		156		6		6
Pacific	573		541		22		21
South Atlantic	610		625		24		24
West North Central	250		271		10		10
West South Central	163		198		6		8
	2,555		2,615		100	%	100	%
Less: allowance for loan losses	35		38
Total	$	2,520	$	2,577

Concentrations of credit risk of commercial mortgage loans by property type were as follows:

	Loans				Percentage
	September 30, 2011		December 31, 2010		September 30, 2011		December 31, 2010
	(in millions)
Apartments	$	378	$	351	15	%	13	%
Hotel	52		57		2		2
Industrial	471		475		18		18
Mixed Use	40		43		2		2
Office	698		747		27		29
Retail	808		843		32		32
Other	108		99		4		4
	2,555		2,615		100	%	100	%
Less: allowance for loan losses	35		38
Total	$	2,520	$	2,577

Syndicated Loans

The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at September 30, 2011 and December 31, 2010 were $2 million and $3 million, respectively.

Consumer Bank Loans

The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration in determining the allowance for loan losses for residential mortgage loans, credit cards and other consumer bank loans. At a minimum, management updates FICO scores and LTV ratios semiannually.

As of September 30, 2011 and December 31, 2010, approximately 5% and 7%, respectively, of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At September 30, 2011 and December 31, 2010, approximately 2% and 3%, respectively, of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for the consumer bank loans is in California representing 37% and 33% of the portfolio as of September 30, 2011 and December 31, 2010, respectively. No other state represents more than 10% of the total consumer bank loan portfolio.

Troubled Debt Restructurings

A loan is classified as a restructured loan when the Company makes certain concessionary modifications to contractual terms for borrowers experiencing financial difficulty. When the interest rate, minimum payments, and/or due dates have been modified in an attempt to make the loan more affordable to the borrower, the modification is considered a troubled debt restructuring. Generally, performance prior to the restructuring or significant events that coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result in the loan being returned to accrual status at the time of the restructure or after a performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. There are no commitments to lend additional funds to borrowers whose loans have been restructured. The Company restructured 22 loans with a recorded investment of $6 million and 87 loans with a recorded investment of $37 million for the three months and nine months ended September 30, 2011, respectively. The recorded investment in restructured loans primarily consists of commercial mortgage loans. The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for both the three months and nine months ended September 30, 2011.