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Commercial Segment Rules SunTrust’s Loan Portfolio

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SunTrust’s loan portfolio

The loan portfolio of SunTrust Bank (STI) has three segments: commercial, residential, and consumer. Commercial loans account for 55% of all STI loans. By comparison, the commercial loans of BB&T (BBT) and Regions Financial (RF) make up 44% and 62% of all loans, respectively.

The graph above shows breakup of SunTrust’s loan portfolio by loan type. Commercial loans primarily include commercial and industrial (or C&I) and commercial real estate (or CRE) loans. C&I loans fund business operations and secure owner-occupied properties, corporate credit cards, and other wholesale loans. For CRE and commercial construction loans, repayment is largely dependent upon the operation, refinance, or sale of the underlying real estate.

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Diversification and lower risk

STI believes that its loan portfolio is well-diversified by industry, product, client, and geographic location. Diversification across industries reduces the bank’s exposure to a particular industry. It helps in controlling losses when the industry is not performing well.

JPMorgan Chase (JPM) and Bank of America (BAC) have well-diversified loan portfolios. Together, these two banks form about 13% of the Financial Select Sector SPDR ETF (XLF) and roughly 18% of the iShares Dow Jones US Financial Services ETF (IYG).

Residential loans

Primarily, residential loans include mortgages and home equity loans. Mortgages consist mostly of prime first-lien loans that are both government-guaranteed and nonguaranteed. Home equity products are lines of credit and closed-end loans.

Residential loans account for 29% of all SunTrust loans.

Consumer loans

Together, the following consumer loans make up 16% of SunTrust’s total loan portfolio:

  • government-guaranteed loans
  • private student loans
  • direct auto loans
  • secured and unsecured loans
  • consumer credit cards
  • indirect loans secured by automobiles, boats, and recreational vehicles

In the next part of this series, we’ll look at the growth of SunTrust’s loan portfolio.

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