Financing Receivables

9 Months Ended

Sep. 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, certificate loans and margin loans. Commercial mortgage loans, syndicated loans, policy loans and certificate loans are reflected in investments. Consumer bank loans and margin loans are reflected in receivables. Policy and certificate loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to policy and certificate loans, the Company does not record an allowance for loan losses. 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, 2012
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	35		$	9		$	16		$	60
Charge-offs	(6		)	(2		)	(7		)	(15		)
Recoveries	—			—			1			1
Provisions	—			—			4			4
Ending balance	$	29		$	7		$	14		$	50
Individually evaluated for impairment	$	6		$	1		$	1		$	8
Collectively evaluated for impairment	23			6			13			42

	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

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

	September 30, 2012
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Individually evaluated for impairment	$	43	$	3	$	9	$	55
Collectively evaluated for impairment	2,527		345		1,314		4,186
Total	$	2,570	$	348	$	1,323	$	4,241

	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 September 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 $17 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 September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in millions)
Purchases
Consumer bank loans	$	—	$	85	$	51	$	306
Syndicated loans	21		82		74		185
Total loans purchased	$	21	$	167	$	125	$	491
Sales
Consumer bank loans	$	78	$	51	$	199	$	191
Syndicated loans	5		—		5		2
Total loans sold	$	83	$	51	$	204	$	193

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 $11 million and $20 million as of September 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 September 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
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
	(in millions)
East North Central	$	254	$	252	10	%	10	%
East South Central	65		65		2		2
Middle Atlantic	209		223		8		9
Mountain	275		284		11		11
New England	143		141		5		5
Pacific	585		584		23		22
South Atlantic	645		648		25		25
West North Central	224		244		9		9
West South Central	170		183		7		7
	2,570		2,624		100	%	100	%
Less: allowance for loan losses	29		35
Total	$	2,541	$	2,589

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

	Loans				Percentage
	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
	(in millions)
Apartments	$	414	$	392	16	%	15	%
Hotel	37		51		1		2
Industrial	483		480		19		18
Mixed use	42		42		2		2
Office	617		694		24		26
Retail	846		845		33		32
Other	131		120		5		5
	2,570		2,624		100	%	100	%
Less: allowance for loan losses	29		35
Total	$	2,541	$	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 September 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 September 30, 2012 and December 31, 2011, approximately 5% and 7%, respectively, of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At both September 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 September 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 their recorded investment at the end of the period:

	Three Months Ended September 30,						Nine Months Ended September 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	3	$	12	2	$	6	4	$	13	8	$	36
Syndicated loans	—	—		—	—		2	2		2	—
Consumer bank loans	17	—		20	—		56	1		77	1
Total	20	$	12	22	$	6	62	$	16	87	$	37

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 nine months ended September 30, 2012 and 2011. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.