Financing Receivables

6 Months Ended

Jun. 30, 2012

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. 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 six months ended and the ending balance of the allowance for loan losses by impairment method and type of loan: 

	June 30, 2012
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	35		$	9		$	16		$	60
Charge-offs	(2		)	(2		)	(5		)	(9		)
Recoveries	—			—			1			1
Provisions	—			—			3			3
Ending balance	$	33		$	7		$	15		$	55
Individually evaluated for impairment	$	10		$	1		$	2		$	13
Collectively evaluated for impairment	23			6			13			42

	June 30, 2011
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	38		$	10		$	16		$	64
Charge-offs	(2		)	—			(6		)	(8		)
Provisions	—			(1		)	7			6
Ending balance	$	36		$	9		$	17		$	62
Individually evaluated for impairment	$	10		$	1		$	2		$	13
Collectively evaluated for impairment	26			8			15			49

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

	June 30, 2012
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Individually evaluated for impairment	$	58	$	3	$	10	$	71
Collectively evaluated for impairment	2,526		348		1,357		4,231
Total	$	2,584	$	351	$	1,367	$	4,302

	December 31, 2011
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Individually evaluated for impairment	$	68	$	5	$	11	$	84
Collectively evaluated for impairment	2,556		359		1,369		4,284
Total	$	2,624	$	364	$	1,380	$	4,368

As of June 30, 2012 and December 31, 2011, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $23 million and $13 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 June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(in millions)
Purchases
Consumer bank loans	$	—	$	108	$	51	$	221
Syndicated loans	24		40		53		103
Total loans purchased	$	24	$	148	$	104	$	324
Sales
Consumer bank loans	$	58	$	45	$	121	$	140
Syndicated loans	—		1		—		2
Total loans sold	$	58	$	46	$	121	$	142

The Company has not acquired any loans with deteriorated credit quality as of the acquisition date.

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $17 million and $20 million as of June 30, 2012 and December 31, 2011, 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 2% and 3% of total commercial mortgage loans at June 30, 2012 and December 31, 2011, respectively. 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 within 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
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
	(in millions)
East North Central	$	253	$	252	10	%	10	%
East South Central	64		65		2		2
Middle Atlantic	214		223		8		9
Mountain	290		284		11		11
New England	143		141		6		5
Pacific	571		584		22		22
South Atlantic	660		648		26		25
West North Central	227		244		9		9
West South Central	162		183		6		7
	2,584		2,624		100	%	100	%
Less: allowance for loan losses	33		35
Total	$	2,551	$	2,589

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

	Loans				Percentage
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
	(in millions)
Apartments	$	410	$	392	16	%	15	%
Hotel	50		51		2		2
Industrial	483		480		19		18
Mixed use	42		42		1		2
Office	640		694		25		26
Retail	830		845		32		32
Other	129		120		5		5
	2,584		2,624		100	%	100	%
Less: allowance for loan losses	33		35
Total	$	2,551	$	2,589

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 June 30, 2012 and December 31, 2011 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 June 30, 2012 and December 31, 2011, approximately 6% and 7%, respectively, of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At both June 30, 2012 and December 31, 2011, approximately 2% of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for consumer bank loans is in California representing 38% of the portfolio as of both June 30, 2012 and December 31, 2011. No other state represents more than 10% of the total consumer bank loan portfolio.

Troubled Debt Restructurings

The following table presents the number of loans restructured by the Company during the period and the recorded investment in restructured loans at the end of the period:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	Number	Recorded		Number	Recorded		Number	Recorded		Number	Recorded
	of Loans	Investment		of Loans	Investment		of Loans	Investment		of Loans	Investment
	(in millions, except number of loans)
Commercial mortgage loans	1	$	1	5	$	23	1	$	1	6	$	29
Syndicated loans	—	—		—	—		2	2		2	—
Consumer bank loans	13	—		26	1		39	—		58	1
Total	14	$	1	31	$	24	42	$	3	66	$	30

The troubled debt restructurings did not have a material impact to the Company’s allowance for loan losses or income recognized for the three months and six months ended June 30, 2012 and 2011. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.