STI-3.31.15 10-Q
 
 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-08918
SUNTRUST BANKS, INC.
(Exact name of registrant as specified in its charter)

Georgia
 
58-1575035
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia 30308
(Address of principal executive offices) (Zip Code)
(404) 588-7711
(Registrant’s telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ        Accelerated filer  ¨        Non-accelerated filer  ¨        Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

At April 30, 2015, 516,219,400 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.


 
 




TABLE OF CONTENTS


 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



GLOSSARY OF DEFINED TERMS

ABS — Asset-backed securities.
ACH — Automated clearing house.
AFS — Available for sale.
ALCO — Asset/Liability Committee.
ALM — Asset/Liability Management.
ALLL — Allowance for loan and lease losses.
AOCI — Accumulated other comprehensive income.
ASU — Accounting Standards Update.
ATE — Additional termination event.
ATM — Automated teller machine.
Bank — SunTrust Bank.
Basel III — the Third Basel Accord, a comprehensive set of reform measures developed by the BCBS.
BCBS — Basel Committee on Banking Supervision.
Board — The Company’s Board of Directors.
bps — Basis points.
BRC — Board Risk Committee.
CCAR — Comprehensive Capital Analysis and Review.
CCB — Capital conservation buffer.
CDO — Collateralized debt obligation.
CD — Certificate of deposit.
CDR — Conditional default rate.
CDS — Credit default swaps.
CET1 — Common Equity Tier 1 Capital.
CEO — Chief Executive Officer.
CFO — Chief Financial Officer.
CIB — Corporate and investment banking.
C&I — Commercial and industrial.
Class A shares — Visa Inc. Class A common stock.
Class B shares — Visa Inc. Class B common stock.
CLO — Collateralized loan obligation.
Company — SunTrust Banks, Inc.
CP — Commercial paper.
CPR — Conditional prepayment rate.
CRE — Commercial real estate.
CSA — Credit support annex.
CVA — Credit valuation adjustment.
DDA — Demand deposit account.
Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DOJ — Department of Justice.
DTA — Deferred tax asset.
DVA — Debit valuation adjustment.
ERISA — Employee Retirement Income Security Act of 1974.
Exchange Act — Securities Exchange Act of 1934.
Fannie Mae — Federal National Mortgage Association.
Freddie Mac — Federal Home Loan Mortgage Corporation.
FDIC — Federal Deposit Insurance Corporation.
Federal Reserve — Federal Reserve System.
Fed funds — Federal funds.
FHA — Federal Housing Administration.
FHLB — Federal Home Loan Bank.
FICO — Fair Isaac Corporation.
Fitch — Fitch Ratings Ltd.
FRB — Federal Reserve Board.
FTE — Fully taxable-equivalent.
FVO — Fair value option.
 
GenSpring — GenSpring Family Offices, LLC.
Ginnie Mae — Government National Mortgage Association.
GSE — Government-sponsored enterprise.
HAMP — Home Affordable Modification Program.
HUD — U.S. Department of Housing and Urban Development.
IIS — Institutional Investment Solutions.
IPO — Initial public offering.
IRLC — Interest rate lock commitment.
ISDA — International Swaps and Derivatives Association.
LCR — Liquidity coverage ratio.
LGD — Loss given default.
LHFI — Loans held for investment.
LHFS — Loans held for sale.
LIBOR — London InterBank Offered Rate.
LOCOM — Lower of cost or market.
LTI — Long-term incentive.
LTV— Loan to value.
MasterCard — MasterCard International.
MBS — Mortgage-backed securities.
MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MI — Mortgage insurance.
Moody’s — Moody’s Investors Service.
MRA — Master Repurchase Agreement.
MRM — Market Risk Management.
MRMG — Model Risk Management Group.
MSR — Mortgage servicing right.
MVE — Market value of equity.
NOW — Negotiable order of withdrawal account.
NPA — Nonperforming asset.
NPL — Nonperforming loan.
OCI — Other comprehensive income.
OREO — Other real estate owned.
OTC — Over-the-counter.
OTTI — Other-than-temporary impairment.
Parent Company — SunTrust Banks, Inc. (the parent Company of SunTrust Bank and other subsidiaries).
PD — Probability of default.
PWM — Private Wealth Management.
REIT — Real estate investment trust.
RidgeWorth — RidgeWorth Capital Management, Inc.
ROA — Return on average total assets.
ROE — Return on average common shareholders’ equity.
ROTCE — Return on average tangible common shareholders' equity.
RSU — Restricted stock unit.
RWA — Risk-weighted assets.
S&P — Standard and Poor’s.
SBA — Small Business Administration.
SEC — U.S. Securities and Exchange Commission.
SPE — Special purpose entity.
STIS — SunTrust Investment Services, Inc.
STM — SunTrust Mortgage, Inc.
STRH — SunTrust Robinson Humphrey, Inc.
SunTrust — SunTrust Banks, Inc.
STCC — SunTrust Community Capital, LLC.
TDR — Troubled debt restructuring.


i

TRS — Total return swaps.
U.S. — United States.
U.S. GAAP — Generally Accepted Accounting Principles in the United States.
U.S. Treasury — The United States Department of the Treasury.
UPB — Unpaid principal balance.
UTB — Unrecognized tax benefit.
VA —Veterans Administration.
 
VAR —Value at risk.
VI — Variable interest.
VIE — Variable interest entity.
Visa — The Visa, U.S.A. Inc. card association or its affiliates, collectively.
Visa Counterparty — A financial institution that purchased the Company's Visa Class B shares.




ii

PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.



1



Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
 
Three Months Ended March 31
(Dollars in millions and shares in thousands, except per share data) (Unaudited)
2015
 
2014
Interest Income
 
 
 
Interest and fees on loans

$1,091

 

$1,151

Interest and fees on loans held for sale
22

 
15

Interest and dividends on securities available for sale
140

 
153

Trading account interest and other
19

 
17

Total interest income
1,272

 
1,336

Interest Expense
 
 
 
Interest on deposits
56

 
65

Interest on long-term debt
68

 
58

Interest on other borrowings
8

 
9

Total interest expense
132

 
132

Net interest income
1,140

 
1,204

Provision for credit losses
55

 
102

Net interest income after provision for credit losses
1,085

 
1,102

Noninterest Income
 
 
 
Service charges on deposit accounts
151


155

Other charges and fees
89


88

Card fees
80

 
76

Investment banking income
97


88

Trading income
55

 
49

Trust and investment management income
84


130

Retail investment services
72


71

Mortgage production related income
83

 
43

Mortgage servicing related income
43

 
54

Net securities losses
—


(1
)
Other noninterest income
63


38

Total noninterest income
817

 
791

Noninterest Expense
 
 
 
Employee compensation
633

 
659

Employee benefits
138

 
141

Outside processing and software
189

 
170

Net occupancy expense
84

 
86

Equipment expense
40

 
44

Regulatory assessments
37

 
40

Marketing and customer development
27

 
25

Credit and collection services
18

 
22

Operating losses
14

 
21

Amortization
7

 
3

Other noninterest expense
93

 
146

Total noninterest expense
1,280

 
1,357

Income before provision for income taxes
622

 
536

Provision for income taxes
191

 
125

Net income including income attributable to noncontrolling interest
431

 
411

Net income attributable to noncontrolling interest
2

 
6

Net income

$429

 

$405

Net income available to common shareholders

$411

 

$393

Net income per average common share:
 
 
 
Diluted

$0.78

 

$0.73

Basic
0.79

 
0.74

Dividends declared per common share
0.20

 
0.10

Average common shares - diluted
526,837

 
536,992

Average common shares - basic
521,020

 
531,162


See Notes to Consolidated Financial Statements (unaudited).

2



SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended March 31
(Dollars in millions) (Unaudited)
2015
 
2014
Net income

$429

 

$405

Components of other comprehensive income:
 
 
 
Change in net unrealized gains on securities available for sale, net of tax of $53 and $63, respectively
86

 
108

Change in net unrealized gains/(losses) on derivative instruments, net of tax of $27 and ($29), respectively
44

 
(50
)
Change related to employee benefit plans, net of tax of ($43) and $18, respectively
(73
)
 
31

Total other comprehensive income, net of tax
57

 
89

Total comprehensive income

$486

 

$494

See Notes to Consolidated Financial Statements (unaudited).



3


SunTrust Banks, Inc.
Consolidated Balance Sheets
 
March 31,
 
December 31,
(Dollars in millions and shares in thousands, except per share data)
2015
 
2014
Assets
(Unaudited)
 
 
Cash and due from banks

$6,483

 

$7,047

Federal funds sold and securities borrowed or purchased under agreements to resell
1,233

 
1,160

Interest-bearing deposits in other banks
22

 
22

Cash and cash equivalents
7,738

 
8,229

Trading assets and derivative instruments 1
6,595

 
6,202

Securities available for sale 2
26,761

 
26,770

Loans held for sale ($2,077 and $1,892 at fair value at March 31, 2015 and December 31, 2014, respectively)
3,404

 
3,232

Loans 3 ($268 and $272 at fair value at March 31, 2015 and December 31, 2014, respectively)
132,380

 
133,112

Allowance for loan and lease losses
(1,893
)
 
(1,937
)
Net loans
130,487

 
131,175

Premises and equipment
1,494

 
1,508

Goodwill
6,337

 
6,337

Other intangible assets (MSRs at fair value: $1,181 and $1,206 at March 31, 2015 and December 31, 2014, respectively)
1,193

 
1,219

Other assets
5,872

 
5,656

Total assets

$189,881

 

$190,328

Liabilities and Shareholders’ Equity
 
 
 
Noninterest-bearing deposits

$42,376

 

$41,096

Interest-bearing deposits
102,047

 
99,471

Total deposits
144,423

 
140,567

Funds purchased
1,299

 
1,276

Securities sold under agreements to repurchase
1,845

 
2,276

Other short-term borrowings
1,438

 
5,634

Long-term debt 4 ($1,281 and $1,283 at fair value at March 31, 2015 and December 31, 2014, respectively)
13,012

 
13,022

Trading liabilities and derivative instruments
1,459

 
1,227

Other liabilities
3,145

 
3,321

Total liabilities
166,621

 
167,323

Preferred stock, no par value
1,225

 
1,225

Common stock, $1.00 par value
550

 
550

Additional paid in capital
9,074

 
9,089

Retained earnings
13,600

 
13,295

Treasury stock, at cost, and other 5
(1,124
)
 
(1,032
)
Accumulated other comprehensive loss, net of tax
(65
)
 
(122
)
Total shareholders’ equity
23,260

 
23,005

Total liabilities and shareholders’ equity

$189,881

 

$190,328

 
 
 
 
Common shares outstanding 6
522,031

 
524,540

Common shares authorized
750,000

 
750,000

Preferred shares outstanding
12

 
12

Preferred shares authorized
50,000

 
50,000

Treasury shares of common stock
27,890

 
25,381

 
 
 
 
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral

$1,207

 

$1,316

2 Includes securities AFS pledged as collateral where counterparties have the right to sell or repledge the collateral
—

 
369

3 Includes loans of consolidated VIEs
277

 
288

4 Includes debt of consolidated VIEs
292

 
302

5 Includes noncontrolling interest
106

 
108

6 Includes restricted shares
1,712

 
2,930

 


See Notes to Consolidated Financial Statements (unaudited).

4


SunTrust Banks, Inc.
Consolidated Statements of Shareholders’ Equity
(Dollars and shares in millions, except per share data) (Unaudited)
Preferred
Stock
 
Common
Shares
Outstanding
 
Common
Stock
 
Additional
Paid in
Capital
 
Retained 
Earnings
 
Treasury
Stock and
  Other 1
 
Accumulated
Other 
Comprehensive 
(Loss)/Income 2
 
Total
Balance, January 1, 2014

$725

 
536

 

$550

 

$9,115

 

$11,936

 

($615
)
 

($289
)
 

$21,422

Net income
—

 
—

 
—

 
—

 
405

 
—

 
—

 
405

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
89

 
89

Change in noncontrolling interest
—

 
—

 
—

 
—

 
—

 
7

 
—

 
7

Common stock dividends, $0.10 per share
—

 
—

 
—

 
—

 
(54
)
 
—

 
—

 
(54
)
Preferred stock dividends 3
—

 
—

 
—

 
—

 
(9
)
 
—

 
—

 
(9
)
Acquisition of treasury stock
—

 
(1
)
 
—

 
—

 
—

 
(50
)
 
—

 
(50
)
Exercise of stock options and stock compensation expense
—

 
—

 
—

 
(9
)
 
—

 
8

 
—

 
(1
)
Restricted stock activity
—

 
—

 
—

 
7

 
—

 
(3
)
 
—

 
4

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
8

 
—

 
8

Issuance of stock for employee benefit plans and other
—

 
—

 
—

 
(6
)
 
—

 
2

 
—

 
(4
)
Balance, March 31, 2014

$725

 
535

 

$550

 

$9,107

 

$12,278

 

($643
)
 

($200
)
 

$21,817

Balance, January 1, 2015

$1,225

 
525

 

$550

 

$9,089

 

$13,295

 

($1,032
)
 

($122
)
 

$23,005

Net income
—

 
—

 
—

 
—

 
429

 
—

 
—

 
429

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
57

 
57

Change in noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Common stock dividends, $0.20 per share
—

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
(105
)
Preferred stock dividends 3
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
(17
)
Acquisition of treasury stock
—

 
(3
)
 
—

 
—

 
—

 
(115
)
 
—

 
(115
)
Exercise of stock options and stock compensation expense
—

 
—

 
—

 
(10
)
 
—

 
11

 
—

 
1

Restricted stock activity
—

 
—

 
—

 
(5
)
 
(2
)
 
7

 
—

 
—

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
6

 
—

 
6

Issuance of stock for employee benefit plans and other
—

 
—

 
—

 
—

 
—

 
1

 
—

 
1

Balance, March 31, 2015

$1,225

 
522

 

$550

 

$9,074

 

$13,600

 

($1,124
)
 

($65
)
 

$23,260


1 At March 31, 2015, includes ($1,215) million for treasury stock, ($15) million for compensation element of restricted stock, and $106 million for noncontrolling interest.
At March 31, 2014, includes ($727) million for treasury stock, ($42) million for compensation element of restricted stock, and $126 million for noncontrolling interest.
2 At March 31, 2015, includes $384 million in unrealized net gains on securities AFS, $141 million in unrealized net gains on derivative financial instruments, and ($590) million related to employee benefit plans.
At March 31, 2014, includes $31 million in unrealized net gains on securities AFS, $229 million in unrealized net gains on derivative financial instruments, and ($460) million related to employee benefit plans.
3 For the three months ended March 31, 2015, dividends were $1,000 per share for both Perpetual Preferred Stock Series A and B, $1,469 per share for Perpetual Preferred Stock Series E, and $1,406 per share for Perpetual Preferred Stock Series F.
For the three months ended March 31, 2014, dividends were $1,000 per share for both Perpetual Preferred Stock Series A and B, and $1,469 per share for Perpetual Preferred Stock Series E.

See Notes to Consolidated Financial Statements (unaudited).


5


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 
Three Months Ended March 31
(Dollars in millions) (Unaudited)
2015
 
2014
Cash Flows from Operating Activities
 
 
 
Net income including income attributable to noncontrolling interest

$431

 

$411

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
201

 
163

Origination of mortgage servicing rights
(46
)
 
(32
)
Provisions for credit losses and foreclosed property
58

 
104

Stock-based compensation
19

 
17

Excess tax benefits from stock-based compensation
(16
)
 
(3
)
Net securities losses
—

 
1

Net gain on sale of loans held for sale, loans, and other assets
(102
)
 
(70
)
Net (increase)/decrease in loans held for sale
(108
)
 
353

Net (increase)/decrease in trading assets
(322
)
 
53

Net (increase)/decrease in other assets
(340
)
 
64

Net increase/(decrease) in other liabilities
15

 
(231
)
Net cash (used in)/provided by operating activities
(210
)
 
830

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
1,421

 
762

Proceeds from sales of securities available for sale
10

 
69

Purchases of securities available for sale
(1,344
)
 
(1,436
)
Proceeds from sales of auction rate securities
—

 
59

Net decrease/(increase) in loans, including purchases of loans
212

 
(1,667
)
Proceeds from sales of loans
411

 
94

Purchases of mortgage servicing rights
(64
)
 
—

Capital expenditures
(33
)
 
(34
)
Payments related to acquisitions, including contingent consideration
(10
)
 
(8
)
Proceeds from the sale of other real estate owned and other assets
86

 
96

Net cash provided by/(used in) investing activities
689

 
(2,065
)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Net increase in total deposits
3,856

 
3,197

Net decrease in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(4,604
)
 
(60
)
Proceeds from long-term debt
—

 
876

Repayments of long-term debt
(14
)
 
(28
)
Repurchase of common stock
(115
)
 
(50
)
Common and preferred dividends paid
(115
)
 
(63
)
Incentive compensation related activity
22

 
7

Net cash (used in)/provided by financing activities
(970
)
 
3,879

Net (decrease)/increase in cash and cash equivalents
(491
)
 
2,644

Cash and cash equivalents at beginning of period
8,229

 
5,263

Cash and cash equivalents at end of period

$7,738

 

$7,907

 
 
 
 
Supplemental Disclosures:
 
 
 
Loans transferred from loans held for sale to loans

$11

 

$17

Loans transferred from loans to loans held for sale
512

 
115

Loans transferred from loans and loans held for sale to other real estate owned
14

 
42



See Notes to Consolidated Financial Statements (unaudited).

6
Notes to Consolidated Financial Statements (Unaudited)


NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
 
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
The Company evaluated subsequent events through the date its financial statements were issued.
These financial statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K. There have been no significant changes to the Company’s accounting policies as disclosed in the 2014 Annual Report on Form 10-K.


Pending Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that could have a material effect on the Company's financial statements:
Standard
Description
Date of Adoption
Effect on the Financial Statements or Other Significant Matters
Standards not yet adopted
 
 
ASU 2014-09, Revenue from Contracts with Customers
The ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date.
January 1, 2017
The Company is continuing to evaluate the alternative methods of adoption and the anticipated effects on the financial statements and related disclosures.

ASU 2015-02, Amendments to the Consolidation Analysis
The ASU rescinds the indefinite deferral of previous amendments to ASC Topic 810 for certain entities and amends components of the consolidation analysis under ASC Topic 810 including evaluating limited partnerships and similar legal entities, evaluating fees paid to a decision maker or service provider as a variable interest, the effects of fee arrangements and/or related parties on the primary beneficiary determination and investment fund specific matters. The ASU may be adopted either retrospectively or on a modified retrospective basis and early adoption is permitted.
January 1, 2016
The Company is continuing to evaluate the impact of this ASU on the financial statements and related disclosures. The adoption is not expected to materially impact the Company's financial position, results of operations, or EPS.


NOTE 2 - FEDERAL FUNDS SOLD AND SECURITIES FINANCING ACTIVITIES
Federal Funds Sold and Securities Borrowed or Purchased
Under Agreements to Resell
Fed funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions)
March 31, 2015
 
December 31, 2014
Fed funds sold

$—

 

$38

Securities borrowed or purchased
262

 
290

Resell agreements
971

 
832

Total fed funds sold and securities borrowed or purchased under agreements to resell

$1,233

 

$1,160


Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are
 
carried at the amounts at which securities will be subsequently resold. Securities borrowed are primarily collateralized by corporate securities. The Company takes possession of all securities purchased under agreements to resell and securities borrowed and performs a margin evaluation on the acquisition date based on market volatility, as necessary. It is the Company's policy to obtain possession of collateral with a fair value between 95% to 110% of the principal amount loaned under resell and securities borrowing agreements. At March 31, 2015 and December 31, 2014, the total market value of collateral held was $1.2 billion and $1.1 billion, of which $194 million and $222 million was repledged, respectively.


7
Notes to Consolidated Financial Statements (Unaudited), continued



Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
 
March 31, 2015
 
December 31, 2014
(Dollars in millions)
Overnight and Continuous
 
Overnight and Continuous
 
Up to
30 days
 
Total
U.S. Treasury securities

$167

 

$376

 

$—

 

$376

Federal agency securities
101

 
231

 
—

 
231

MBS - agency
1,105

 
1,059

 
45

 
1,104

CP
101

 
238

 
—

 
238

Corporate and other debt securities
371

 
327

 
—

 
327

Total securities sold under agreements to repurchase

$1,845

 

$2,231

 

$45

 

$2,276

For these securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of the collateral pledged. This risk is managed by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions.
Netting of Securities - Repurchase and Resell Agreements
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar agreements are discussed in Note 13, "Derivative Financial Instruments." The following table presents the Company's securities borrowed or purchased under agreements to resell and securities sold under agreements to repurchase subject to MRAs. Under the terms of the MRA, all transactions between the Company and a counterparty constitute a single
 
business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and presented net on the Company's Consolidated Balance Sheets, provided criteria are met that permit balance sheet netting. At March 31, 2015 and December 31, 2014, there were no such transactions subject to a legally enforceable MRA that were eligible for balance sheet netting.
Financial instrument collateral received or pledged related to exposures subject to legally enforceable MRAs are not netted on the Consolidated Balance Sheets, but are presented in the following table as a reduction to the net amount presented in the Consolidated Balance Sheets to derive the aggregate collateral deficits by counterparty. These collateral amounts presented are limited to the related recognized asset/liability balance, and accordingly, do not include excess collateral received/pledged.

(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
  Balance Sheets 1
 
Held/Pledged Financial
  Instruments 2
 
Net
Amount
March 31, 2015
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,233

 

$—

 

$1,233

 

$1,225

 

$8

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,845

 
—

 
1,845

 
1,845

 
—

 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,122

 

$—

 

$1,122

3 

$1,112

 

$10

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
2,276

 
—

 
2,276

 
2,276

 
—

1 None of the Company's repurchase or resell transactions met the right of setoff criteria for net balance sheet presentation at March 31, 2015 and December 31, 2014.
2 Represents collateral received or pledged, limited for presentation purposes to the amount of the related recognized asset or liability for each counterparty, and therefore, may be less than the aggregate amount of collateral actually held/pledged.
3 Excludes $38 million of Fed funds sold which are not subject to a master netting agreement at December 31, 2014.



8
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 3 - TRADING ASSETS AND LIABILITIES AND DERIVATIVES

The fair values of the components of trading assets and liabilities and derivative instruments were as follows:
(Dollars in millions)
March 31, 2015
 
December 31, 2014
Trading Assets and Derivative Instruments:
 
 
 
U.S. Treasury securities

$451

 

$267

Federal agency securities
327

 
547

U.S. states and political subdivisions
100

 
42

MBS - agency
575

 
545

CLO securities
3

 
3

Corporate and other debt securities
646

 
509

CP
239

 
327

Equity securities
46

 
45

Derivative instruments 1
1,475

 
1,307

Trading loans 2
2,733

 
2,610

Total trading assets and derivative instruments

$6,595

 

$6,202

 
 
 
 
Trading Liabilities and Derivative Instruments:
 
 
 
U.S. Treasury securities

$614

 

$485

Federal agency securities
2

 
—

MBS - agency
3

 
1

Corporate and other debt securities
288

 
279

Derivative instruments 1
552

 
462

Total trading liabilities and derivative instruments

$1,459

 

$1,227

1 Amounts include the impact of offsetting cash collateral received from and paid to the same derivative counterparties and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists.
2 Includes loans related to TRS.

Various trading products and derivative instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements executed through the Bank and/or its broker/dealer subsidiary. The Company manages the potential market volatility associated with trading instruments with appropriate risk management strategies. The size, volume, and nature of the trading products and derivative instruments can vary based on economic conditions as well as client-specific and Company-specific asset or liability positions. Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative contracts, and similar financial instruments. Other trading-related activities include acting as a market maker in certain debt and equity
 
securities and derivatives. The Company also uses derivatives to manage its interest rate and market risk from non-trading activities. The Company has policies and procedures to manage market risk associated with client trading activities as well as non-trading activities and assumes a limited degree of market risk by managing the size and nature of its exposure. The Company has pledged $978 million and $1.1 billion of trading securities to secure $935 million and $1.1 billion of repurchase agreements at March 31, 2015 and December 31, 2014, respectively. Additionally, the Company has pledged $234 million and $202 million of trading securities to secure certain derivative agreements at March 31, 2015 and December 31, 2014, respectively.




9
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 4 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
 
March 31, 2015
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$2,110

 

$35

 

$—

 

$2,145

Federal agency securities
461

 
16

 
1

 
476

U.S. states and political subdivisions
183

 
9

 
—

 
192

MBS - agency
22,366

 
614

 
28

 
22,952

MBS - private
118

 
2

 
1

 
119

ABS
19

 
2

 
—

 
21

Corporate and other debt securities
37

 
2

 
—

 
39

Other equity securities 1
815

 
2

 
—

 
817

Total securities AFS

$26,109

 

$682

 

$30

 

$26,761

 
 
 
 
 
 
 
 
 
December 31, 2014
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$1,913

 

$9

 

$1

 

$1,921

Federal agency securities
471

 
15

 
2

 
484

U.S. states and political subdivisions
200

 
9

 
—

 
209

MBS - agency
22,573

 
558

 
83

 
23,048

MBS - private
122

 
2

 
1

 
123

ABS
19

 
2

 
—

 
21

Corporate and other debt securities
38

 
3

 
—

 
41

Other equity securities 1
921

 
2

 
—

 
923

Total securities AFS

$26,257

 

$600

 

$87

 

$26,770

1 At March 31, 2015, the fair value of other equity securities was comprised of the following: $207 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank of Atlanta stock, $201 million in mutual fund investments, and $7 million of other. At December 31, 2014, other equity securities was comprised of the following: $376 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank of Atlanta stock, $138 million in mutual fund investments, and $7 million of other.

The following table presents interest and dividends on securities AFS:
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Taxable interest

$128

 

$141

Tax-exempt interest
2

 
3

Dividends
10

 
9

Total interest and dividends

$140

 

$153


Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $3.1 billion and $2.6 billion at March 31, 2015 and December 31, 2014, respectively.



10
Notes to Consolidated Financial Statements (Unaudited), continued



The amortized cost and fair value of investments in debt securities at March 31, 2015, by estimated average life, are shown below. Receipt of cash flows may differ from estimated
 
average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

 
Distribution of Maturities
(Dollars in millions)
1 Year
or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$200

 

$1,315

 

$595

 

$—

 

$2,110

Federal agency securities
87

 
205

 
36

 
133

 
461

U.S. states and political subdivisions
38

 
27

 
102

 
16

 
183

MBS - agency
2,524

 
12,008

 
4,168

 
3,666

 
22,366

MBS - private
—

 
118

 
—

 
—

 
118

ABS
15

 
3

 
1

 
—

 
19

Corporate and other debt securities
5

 
32

 
—

 
—

 
37

Total debt securities

$2,869

 

$13,708

 

$4,902

 

$3,815

 

$25,294

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$203

 

$1,335

 

$607

 

$—

 

$2,145

Federal agency securities
88

 
215

 
38

 
135

 
476

U.S. states and political subdivisions
38

 
28

 
109

 
17

 
192

MBS - agency
2,679

 
12,343

 
4,249

 
3,681

 
22,952

MBS - private
—

 
119

 
—

 
—

 
119

ABS
14

 
5

 
2

 
—

 
21

Corporate and other debt securities
5

 
34

 
—

 
—

 
39

Total debt securities

$3,027

 

$14,079

 

$5,005

 

$3,833

 

$25,944

 Weighted average yield 1
1.67
%
 
2.26
%
 
2.69
%
 
2.81
%
 
2.43
%
1Average yields are based on amortized cost and presented on an FTE basis.

Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair market value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. At March 31, 2015, the Company did not intend to sell these securities nor was it more-
 
likely-than-not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies described in the Company's 2014 Annual
Report on Form 10-K.

 
March 31, 2015
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses 2
 
Fair
Value
 
Unrealized
Losses 2
 
Fair
Value
 
Unrealized
Losses 2
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$47

 

$—

 

$52

 

$1

 

$99

 

$1

MBS - agency
2,339

 
9

 
1,175

 
19

 
3,514

 
28

ABS
—

 
—

 
14

 
—

 
14

 
—

Total temporarily impaired securities
2,386

 
9

 
1,241

 
20

 
3,627

 
29

OTTI securities 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
67

 
1

 
—

 
—

 
67

 
1

Total OTTI securities
67

 
1

 
—

 
—

 
67

 
1

Total impaired securities

$2,453

 

$10

 

$1,241

 

$20

 

$3,694

 

$30



11
Notes to Consolidated Financial Statements (Unaudited), continued



 
December 31, 2014
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
 Losses 2
 
Fair
Value
 
Unrealized
Losses 2
 
Fair
Value
 
Unrealized
 Losses 2
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$150

 

$1

 

$—

 

$—

 

$150

 

$1

Federal agency securities
20

 
—

 
132

 
2

 
152

 
2

MBS - agency
2,347

 
6

 
4,911

 
77

 
7,258

 
83

ABS
—

 
—

 
14

 
—

 
14

 
—

Total temporarily impaired securities
2,517

 
7

 
5,057

 
79

 
7,574

 
86

OTTI securities 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
69

 
1

 
—

 
—

 
69

 
1

Total OTTI securities
69

 
1

 
—

 
—

 
69

 
1

Total impaired securities

$2,586

 

$8

 

$5,057

 

$79

 

$7,643

 

$87

1 Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.
2 Unrealized losses less than $0.5 million are shown as zero.

At March 31, 2015, unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months included agency MBS, federal agency securities, and one ABS collateralized by 2004 vintage home equity loans. Unrealized losses on federal agency securities and agency MBS securities at March 31, 2015 were due to market interest rates being higher than the securities' stated yield. The ABS continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Cash flow analysis shows that the underlying collateral can withstand highly stressed loss assumptions without incurring a credit loss.
The portion of unrealized losses on OTTI securities that relates to factors other than credit is recorded in AOCI. Losses related to credit impairment on these securities are determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods.
Realized Gains and Losses and Other-than-Temporarily Impaired Securities
Net securities losses are comprised of gross realized gains, gross realized losses, and OTTI losses recognized in earnings. For both the three months ended March 31, 2015 and 2014, gross realized gains and losses were immaterial and there were no OTTI losses recognized in earnings.
Credit impairment that is determined through the use of models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most
 
significant of which include default rates, prepayment rates, and loss severities. If, based on this analysis, the security is in an unrealized loss position and the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities.
The Company continues to reduce existing exposure on OTTI securities primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total unrealized losses, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows.
During the three months ended March 31, 2015 and 2014, there was no credit impairment recognized on securities AFS still held at the end of each period. The accumulated balance of credit losses recognized in earnings on securities AFS held at period end for which a portion of OTTI was recognized in OCI was $25 million at both March 31, 2015 and 2014, all of which was recognized in prior periods. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows.



12
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 5 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio is shown in the following table:
(Dollars in millions)
March 31, 2015
 
December 31, 2014
Commercial loans:
 
 
 
C&I

$65,574

 

$65,440

CRE
6,389

 
6,741

Commercial construction
1,484

 
1,211

Total commercial loans
73,447

 
73,392

Residential loans:
 
 
 
Residential mortgages - guaranteed
655

 
632

Residential mortgages - nonguaranteed 1
23,419

 
23,443

Home equity products
13,954

 
14,264

Residential construction
417

 
436

Total residential loans
38,445

 
38,775

Consumer loans:
 
 
 
Guaranteed student loans
4,337

 
4,827

Other direct
4,937

 
4,573

Indirect
10,336

 
10,644

Credit cards
878

 
901

Total consumer loans
20,488

 
20,945

LHFI

$132,380

 

$133,112

LHFS 2

$3,404

 

$3,232

1 Includes $268 million and $272 million of LHFI carried at fair value at March 31, 2015 and December 31, 2014, respectively.
2 Includes $2.1 billion and $1.9 billion of LHFS carried at fair value at March 31, 2015 and December 31, 2014, respectively.
During the three months ended March 31, 2015 and 2014, the Company transferred $512 million and $115 million in LHFI to LHFS, and $11 million and $17 million in LHFS to LHFI, respectively. Additionally, during the three months ended March 31, 2015 and 2014, the Company sold $405 million and $85 million in loans and leases for gains of $6 million and $9 million, respectively.
At March 31, 2015 and December 31, 2014, the Company had $25.2 billion and $26.5 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $17.5 billion and $18.4 billion of available, unused borrowing capacity, respectively.
At March 31, 2015 and December 31, 2014, the Company had $31.0 billion and $31.2 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $24.5 billion and $24.3 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at March 31, 2015 was used to support $4.0 billion of long-term debt, $500 million of short-term debt, and $6.4 billion of letters of credit issued on the Company's behalf. At December 31, 2014, the available FHLB borrowing capacity was used to support $4.0 billion of long-term debt, $4.0 billion of short-term debt, and $7.9 billion of letters of credit issued on the Company's behalf.

 
Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analyses, and/or qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs, whereas, Criticized assets have higher PDs. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified and Doubtful and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.    Commercial risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, borrower characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.
For government-guaranteed loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At March 31, 2015 and December 31, 2014, 30% and 28%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. At March 31, 2015 and December 31, 2014, 80% and 79%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.


13
Notes to Consolidated Financial Statements (Unaudited), continued





LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
C&I
 
CRE
 
Commercial construction
(Dollars in millions)
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
Risk rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$64,295

 

$64,228

 

$6,265

 

$6,586

 

$1,468

 

$1,196

Criticized accruing
1,139

 
1,061

 
100

 
134

 
15

 
14

Criticized nonaccruing
140

 
151

 
24

 
21

 
1

 
1

Total

$65,574

 

$65,440

 

$6,389

 

$6,741

 

$1,484

 

$1,211


 
Residential Loans 1
 
Residential mortgages -
nonguaranteed
 
Home equity products
 
Residential construction
(Dollars in millions)
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$18,752

 

$18,780

 

$11,245

 

$11,475

 

$327

 

$347

620 - 699
3,411

 
3,369

 
1,932

 
1,991

 
71

 
70

Below 620 2
1,256

 
1,294

 
777

 
798

 
19

 
19

Total

$23,419

 

$23,443

 

$13,954

 

$14,264

 

$417

 

$436


 
Consumer Loans 3
 
Other direct
 
Indirect
 
Credit cards
(Dollars in millions)
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$4,345

 

$4,023

 

$7,324

 

$7,661

 

$613

 

$639

620 - 699
530

 
476

 
2,361

 
2,335

 
219

 
212

Below 620 2
62

 
74

 
651

 
648

 
46

 
50

Total

$4,937

 

$4,573

 

$10,336

 

$10,644

 

$878

 

$901

1 Excludes $655 million and $632 million of guaranteed residential loans at March 31, 2015 and December 31, 2014, respectively.
2 For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
3 Excludes $4.3 billion and $4.8 billion of guaranteed student loans at March 31, 2015 and December 31, 2014, respectively.

14
Notes to Consolidated Financial Statements (Unaudited), continued




The payment status for the LHFI portfolio is shown in the tables below:

 
March 31, 2015
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 
Total
Commercial loans:
 
 
 
 
 
 
 
 
 
C&I

$65,369

 

$44

 

$21

 

$140

 

$65,574

CRE
6,362

 
3

 
—

 
24

 
6,389

Commercial construction
1,483

 
—

 
—

 
1

 
1,484

Total commercial loans
73,214

 
47

 
21

 
165

 
73,447

Residential loans:
 
 
 
 
 
 
 
 
 
Residential mortgages - guaranteed
195

 
34

 
426

 
—

 
655

Residential