STI-6.30.15 10-Q




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


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015

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).    
Yes  þ    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 July 30, 2015, 514,047,186 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.
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.
FASB — Financial Accounting Standards Board.
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.
Form 8-K and other legacy mortgage-related items — Items disclosed in Form 8-K filed with the SEC on July 3, 2014, and other legacy mortgage-related items.
 
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.
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.


i

STCC — SunTrust Community Capital, LLC.
TDR — Troubled debt restructuring.
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 and six months ended June 30, 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 June 30
 
Six Months Ended June 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)
2015
 
2014
 
2015
 
2014
Interest Income
 
 
 
 
 
 
 
Interest and fees on loans

$1,115

 

$1,161

 

$2,206

 

$2,313

Interest and fees on loans held for sale
23

 
17

 
45

 
32

Interest and dividends on securities available for sale
137

 
149

 
277

 
302

Trading account interest and other
22

 
19

 
41

 
36

Total interest income
1,297

 
1,346

 
2,569

 
2,683

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
55

 
61

 
110

 
126

Interest on long-term debt
67

 
66

 
136

 
124

Interest on other borrowings
8

 
10

 
16

 
19

Total interest expense
130

 
137

 
262

 
269

Net interest income
1,167

 
1,209

 
2,307

 
2,414

Provision for credit losses
26

 
73

 
82

 
175

Net interest income after provision for credit losses
1,141

 
1,136

 
2,225

 
2,239

 
 
 
 
 
 
 
 
Noninterest Income
 
 
 
 
 
 
 
Service charges on deposit accounts
156


160

 
308

 
314

Other charges and fees
99


91

 
188

 
179

Card fees
84

 
82

 
164

 
158

Investment banking income
145


119

 
242

 
207

Trading income
54

 
47

 
109

 
96

Trust and investment management income
84


116

 
168

 
247

Retail investment services
80


76

 
152

 
147

Mortgage production related income
76

 
52

 
159

 
95

Mortgage servicing related income
30

 
45

 
73

 
99

Gain on sale of subsidiary
—

 
105

 
—

 
105

Net securities gains/(losses)
14


(1
)
 
14

 
(2
)
Other noninterest income
52


65

 
115

 
103

Total noninterest income
874

 
957

 
1,692

 
1,748

Noninterest Expense
 
 
 
 
 
 
 
Employee compensation
653

 
659

 
1,285

 
1,319

Employee benefits
103

 
104

 
242

 
244

Outside processing and software
204

 
181

 
394

 
351

Net occupancy expense
85

 
83

 
169

 
169

Equipment expense
42

 
42

 
82

 
86

Regulatory assessments
35

 
40

 
72

 
80

Marketing and customer development
34

 
30

 
61

 
56

Credit and collection services
25

 
23

 
43

 
46

Operating losses
16

 
218

 
30

 
239

Amortization
7

 
4

 
13

 
7

Other noninterest expense
124

 
133

 
217

 
277

Total noninterest expense
1,328

 
1,517

 
2,608

 
2,874

Income before provision for income taxes
687

 
576

 
1,309

 
1,113

Provision for income taxes
202

 
173

 
393

 
298

Net income including income attributable to noncontrolling interest
485

 
403

 
916

 
815

Net income attributable to noncontrolling interest
2

 
4

 
4

 
11

Net income

$483

 

$399

 

$912

 

$804

Net income available to common shareholders

$467

 

$387

 

$877

 

$780

 
 
 
 
 
 
 
 
Net income per average common share:
 
 
 
 
 
 
 
Diluted

$0.89

 

$0.72

 

$1.67

 

$1.45

Basic
0.90

 
0.73

 
1.69

 
1.47

Dividends declared per common share
0.24

 
0.20

 
0.44

 
0.30

Average common shares - diluted
522,479

 
535,486

 
524,646

 
536,234

Average common shares - basic
516,968

 
529,764

 
518,983

 
530,459


See accompanying Notes to Consolidated Financial Statements (unaudited).

2



SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions) (Unaudited)
2015
 
2014
 
2015
 
2014
Net income

$483

 

$399

 

$912

 

$804

Components of other comprehensive (loss)/income:
 
 
 
 
 
 
 
Change in net unrealized (losses)/gains on securities available for sale,
net of tax of ($117), $102, ($64), and $165, respectively
(201
)
 
175

 
(115
)
 
284

Change in net unrealized (losses)/gains on derivative instruments,
net of tax of ($20), ($21), $7, and ($50), respectively
(34
)
 
(36
)
 
10

 
(86
)
Change related to employee benefit plans,
net of tax of ($2), $1, ($45), and $19, respectively
6

 
2

 
(67
)
 
32

Total other comprehensive (loss)/income, net of tax
(229
)
 
141

 
(172
)
 
230

Total comprehensive income

$254

 

$540

 

$740

 

$1,034

See accompanying Notes to Consolidated Financial Statements (unaudited).



3


SunTrust Banks, Inc.
Consolidated Balance Sheets
 
June 30,
 
December 31,
(Dollars in millions and shares in thousands, except per share data)
2015
 
2014
Assets
(Unaudited)
 
 
Cash and due from banks

$5,915

 

$7,047

Federal funds sold and securities borrowed or purchased under agreements to resell
1,350

 
1,160

Interest-bearing deposits in other banks
23

 
22

Cash and cash equivalents
7,288

 
8,229

Trading assets and derivative instruments 1
6,438

 
6,202

Securities available for sale 2
27,113

 
26,770

Loans held for sale ($1,866 and $1,892 at fair value at June 30, 2015 and December 31, 2014, respectively)
2,457

 
3,232

Loans 3 ($263 and $272 at fair value at June 30, 2015 and December 31, 2014, respectively)
132,538

 
133,112

Allowance for loan and lease losses
(1,834
)
 
(1,937
)
Net loans
130,704

 
131,175

Premises and equipment
1,448

 
1,508

Goodwill
6,337

 
6,337

Other intangible assets (MSRs at fair value: $1,393 and $1,206 at June 30, 2015 and December 31, 2014, respectively)
1,416

 
1,219

Other assets
5,657

 
5,656

Total assets

$188,858

 

$190,328

Liabilities and Shareholders’ Equity
 
 
 
Noninterest-bearing deposits

$42,773

 

$41,096

Interest-bearing deposits
102,164

 
99,471

Total deposits
144,937

 
140,567

Funds purchased
1,011

 
1,276

Securities sold under agreements to repurchase
1,858

 
2,276

Other short-term borrowings
3,248

 
5,634

Long-term debt 4 ($1,263 and $1,283 at fair value at June 30, 2015 and December 31, 2014, respectively)
10,109

 
13,022

Trading liabilities and derivative instruments
1,308

 
1,227

Other liabilities
3,164

 
3,321

Total liabilities
165,635

 
167,323

Preferred stock, no par value
1,225

 
1,225

Common stock, $1.00 par value
550

 
550

Additional paid in capital
9,080

 
9,089

Retained earnings
13,944

 
13,295

Treasury stock, at cost, and other 5
(1,282
)
 
(1,032
)
Accumulated other comprehensive loss, net of tax
(294
)
 
(122
)
Total shareholders’ equity
23,223

 
23,005

Total liabilities and shareholders’ equity

$188,858

 

$190,328

 
 
 
 
Common shares outstanding 6
518,045

 
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
31,876

 
25,381

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

$1,481

 

$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
266

 
288

4 Includes debt of consolidated VIEs
281

 
302

5 Includes noncontrolling interest
108

 
108

6 Includes restricted shares
1,601

 
2,930

 


See accompanying 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
 
Total
Balance, January 1, 2014

$725

 
536

 

$550

 

$9,115

 

$11,936

 

($615
)
 

($289
)
 

$21,422

Net income
—

 
—

 
—

 
—

 
804

 
—

 
—

 
804

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
230

 
230

Change in noncontrolling interest
—

 
—

 
—

 
—

 
—

 
4

 
—

 
4

Common stock dividends, $0.30 per share
—

 
—

 
—

 
—

 
(160
)
 
—

 
—

 
(160
)
Preferred stock dividends 2
—

 
—

 
—

 
—

 
(19
)
 
—

 
—

 
(19
)
Acquisition of treasury stock
—

 
(3
)
 
—

 
—

 
—

 
(133
)
 
—

 
(133
)
Exercise of stock options and stock compensation expense
—

 
—

 
—

 
(13
)
 
—

 
10

 
—

 
(3
)
Restricted stock activity
—

 
—

 
—

 
6

 
(1
)
 
3

 
—

 
8

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
14

 
—

 
14

Change in equity related to the sale of subsidiary
—

 
—

 
—

 
(23
)
 
—

 
(16
)
 
—

 
(39
)
Issuance of stock for employee benefit plans and other
—

 
—

 
—

 
—

 
—

 
3

 
—

 
3

Balance, June 30, 2014

$725

 
533

 

$550

 

$9,085

 

$12,560

 

($730
)
 

($59
)
 

$22,131

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015

$1,225

 
525

 

$550

 

$9,089

 

$13,295

 

($1,032
)
 

($122
)
 

$23,005

Net income
—

 
—

 
—

 
—

 
912

 
—

 
—

 
912

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(172
)
 
(172
)
Common stock dividends, $0.44 per share
—

 
—

 
—

 
—

 
(229
)
 
—

 
—

 
(229
)
Preferred stock dividends 2
—

 
—

 
—

 
—

 
(32
)
 
—

 
—

 
(32
)
Acquisition of treasury stock
—

 
(7
)
 
—

 
—

 
—

 
(290
)
 
—

 
(290
)
Exercise of stock options and stock compensation expense
—

 
—

 
—

 
(14
)
 
—

 
22

 
—

 
8

Restricted stock activity
—

 
—

 
—

 
5

 
(2
)
 
7

 
—

 
10

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
9

 
—

 
9

Issuance of stock for employee benefit plans and other
—

 
—

 
—

 
—

 
—

 
2

 
—

 
2

Balance, June 30, 2015

$1,225

 
518

 

$550

 

$9,080

 

$13,944

 

($1,282
)
 

($294
)
 

$23,223

1 At June 30, 2015, includes ($1,379) million for treasury stock, ($11) million for the compensation element of restricted stock, and $108 million for noncontrolling interest.
At June 30, 2014, includes ($802) million for treasury stock, ($35) million for the compensation element of restricted stock, and $107 million for noncontrolling interest.
2 For the six months ended June 30, 2015, dividends were $2,022 per share for both Perpetual Preferred Stock Series A and B, $2,938 per share for Perpetual Preferred Stock Series E, and $3,406 per share for Perpetual Preferred Stock Series F.
For the six months ended June 30, 2014, dividends were $2,022 per share for both Perpetual Preferred Stock Series A and B, and $2,938 per share for Perpetual Preferred Stock Series E.

See accompanying Notes to Consolidated Financial Statements (unaudited).


5


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 
Six Months Ended June 30
(Dollars in millions) (Unaudited)
2015
 
2014
Cash Flows from Operating Activities
 
 
 
Net income including income attributable to noncontrolling interest

$916

 

$815

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of subsidiary
—

 
(105
)
Depreciation, amortization, and accretion
404

 
328

Origination of mortgage servicing rights
(117
)
 
(68
)
Provisions for credit losses and foreclosed property
87

 
190

Stock-based compensation
49

 
33

Excess tax benefits from stock-based compensation
(17
)
 
(4
)
Net securities (gains)/losses
(14
)
 
2

Net gain on sale of loans held for sale, loans, and other assets
(114
)
 
(173
)
Net decrease in loans held for sale
191

 
335

Net increase in trading assets
(220
)
 
(314
)
Net (increase)/decrease in other assets
(327
)
 
152

Net decrease in other liabilities
(76
)
 
(43
)
Net cash provided by operating activities
762

 
1,148

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
3,194

 
1,730

Proceeds from sales of securities available for sale
1,477

 
69

Purchases of securities available for sale
(5,302
)
 
(2,949
)
Proceeds from sales of auction rate securities
—

 
59

Net increase in loans, including purchases of loans
(894
)
 
(5,612
)
Proceeds from sales of loans
1,886

 
651

Purchases of mortgage servicing rights
(112
)
 
(76
)
Capital expenditures
(36
)
 
(60
)
Payments related to acquisitions, including contingent consideration
(30
)
 
(8
)
Proceeds from sale of subsidiary
—

 
193

Proceeds from the sale of other real estate owned and other assets
126

 
187

Net cash provided by/(used in) investing activities
309

 
(5,816
)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Net increase in total deposits
4,370

 
3,526

Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(3,069
)
 
376

Proceeds from long-term debt
1,195

 
2,704

Repayments of long-term debt
(3,987
)
 
(39
)
Repurchase of common stock
(290
)
 
(133
)
Common and preferred dividends paid
(261
)
 
(179
)
Incentive compensation related activity
30

 
9

Net cash (used in)/provided by financing activities
(2,012
)
 
6,264

Net (decrease)/increase in cash and cash equivalents
(941
)
 
1,596

Cash and cash equivalents at beginning of period
8,229

 
5,263

Cash and cash equivalents at end of period

$7,288

 

$6,859

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

$651

 

$20

Loans transferred from loans to loans held for sale
1,696

 
2,821

Loans transferred from loans and loans held for sale to other real estate owned
35

 
80

Non-cash impact of the deconsolidation of CLO
—

 
282



See accompanying 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, 2018

(early adoption permitted beginning 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)
June 30, 2015
 
December 31, 2014
Fed funds sold

$92

 

$38

Securities borrowed
313

 
290

Securities purchased under agreements to resell
945

 
832

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

$1,350

 

$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 the securities will be
 
subsequently resold. Securities borrowed are primarily collateralized by corporate securities. The Company receives securities borrowed and securities purchased under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral values daily and calls for additional collateral to be provided as warranted under the agreement. At June 30, 2015 and December 31, 2014, the total market value of collateral held was $1.3 billion and $1.1 billion, of which $244 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:
 
June 30, 2015
 
December 31, 2014
(Dollars in millions)
Overnight and Continuous
 
Up to
30 days
 
Total
 
Overnight and Continuous
 
Up to
30 days
 
Total
U.S. Treasury securities

$105

 

$10

 

$115

 

$376

 

$—

 

$376

Federal agency securities
184

 
—

 
184

 
231

 
—

 
231

MBS - agency
1,152

 
—

 
1,152

 
1,059

 
45

 
1,104

CP
83

 
—

 
83

 
238

 
—

 
238

Corporate and other debt securities
324

 
—

 
324

 
327

 
—

 
327

Total securities sold under agreements to repurchase

$1,848

 

$10

 

$1,858

 

$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 June 30, 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. The collateral amounts held/pledged are limited for presentation purposes to the related recognized asset/liability balance for each counterparty, and accordingly, do not include excess collateral received/pledged.

(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
June 30, 2015
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,258

 

$—

 

$1,258

1 

$1,246

 

$12

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,858

 
—

 
1,858

 
1,858

 
—

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

$1,122

 

$—

 

$1,122

1 

$1,112

 

$10

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

 
—

 
2,276

 
2,276

 
—

1 Excludes $92 million and $38 million of Fed funds sold, which are not subject to a master netting agreement at June 30, 2015 and December 31, 2014, respectively.



8
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 3 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS

The fair values of the components of trading assets and liabilities and derivative instruments were as follows:
(Dollars in millions)
June 30, 2015
 
December 31, 2014
Trading Assets and Derivative Instruments:
 
 
 
U.S. Treasury securities

$556

 

$267

Federal agency securities
560

 
547

U.S. states and political subdivisions
32

 
42

MBS - agency
612

 
545

CLO securities
2

 
3

Corporate and other debt securities
577

 
509

CP
165

 
327

Equity securities
58

 
45

Derivative instruments 1
1,208

 
1,307

Trading loans 2
2,668

 
2,610

Total trading assets and derivative instruments

$6,438

 

$6,202

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

$613

 

$485

MBS - agency
1

 
1

Corporate and other debt securities
294

 
279

Derivative instruments 1
400

 
462

Total trading liabilities and derivative instruments

$1,308

 

$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 other similar financial instruments. Other trading-related activities include acting as a market maker for certain debt and equity securities and derivatives transactions. 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 and non-trading activities, and assumes a limited degree of market risk by managing the size and nature of its exposure.
The Company has pledged $1.1 billion of trading securities to secure $1.1 billion of repurchase agreements, and has pledged $40 million of trading securities under other arrangements at both June 30, 2015 and December 31, 2014, respectively. Additionally, the Company has pledged $341 million and $202 million of trading securities to secure certain derivative agreements at June 30, 2015 and December 31, 2014, respectively.




9
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 4 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
 
June 30, 2015
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$2,905

 

$16

 

$8

 

$2,913

Federal agency securities
466

 
13

 
2

 
477

U.S. states and political subdivisions
178

 
6

 
—

 
184

MBS - agency
22,431

 
461

 
159

 
22,733

MBS - private
110

 
2

 
—

 
112

ABS
15

 
2

 
—

 
17

Corporate and other debt securities
35

 
2

 
—

 
37

Other equity securities 1
639

 
1

 
—

 
640

Total securities AFS

$26,779

 

$503

 

$169

 

$27,113

 
 
 
 
 
 
 
 
 
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 June 30, 2015, the fair value of other equity securities was comprised of the following: $174 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank of Atlanta stock, $58 million in mutual fund investments, and $6 million of other. At December 31, 2014, the fair value of 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 June 30
 
Six Months Ended June 30
(Dollars in millions)
2015
 
2014
 
2015
 
2014
Taxable interest

$126

 

$138

 

$254

 

$279

Tax-exempt interest
2

 
2

 
4

 
5

Dividends
9

 
9

 
19

 
18

Total interest and dividends

$137

 

$149

 

$277

 

$302


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 June 30, 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 AFS at June 30, 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

 

$1,717

 

$988

 

$—

 

$2,905

Federal agency securities
80

 
209

 
42

 
135

 
466

U.S. states and political subdivisions
42

 
20

 
101

 
15

 
178

MBS - agency
2,664

 
12,267

 
3,348

 
4,152

 
22,431

MBS - private
—

 
110

 
—

 
—

 
110

ABS
13

 
1

 
1

 
—

 
15

Corporate and other debt securities
3

 
32

 
—

 
—

 
35

Total debt securities AFS

$3,002

 

$14,356

 

$4,480

 

$4,302

 

$26,140

 
 
 
 
 
 
 
 
 
 
Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$202

 

$1,725

 

$986

 

$—

 

$2,913

Federal agency securities
80

 
219

 
44

 
134

 
477

U.S. states and political subdivisions
42

 
21

 
105

 
16

 
184

MBS - agency
2,819

 
12,511

 
3,322

 
4,081

 
22,733

MBS - private
—

 
112

 
—

 
—

 
112

ABS
13

 
3

 
1

 
—

 
17

Corporate and other debt securities
3

 
34

 
—

 
—

 
37

Total debt securities AFS

$3,159

 

$14,625

 

$4,458

 

$4,231

 

$26,473

 Weighted average yield 1
2.19
%
 
2.29
%
 
2.66
%
 
2.77
%
 
2.40
%
1 Weighted average yields are based on amortized cost and presented on an FTE basis.

Securities AFS in an Unrealized Loss Position
The Company held certain investment securities AFS 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 June 30, 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 reviewed its portfolio for OTTI in accordance with the accounting policies described in the Company's 2014 Annual Report on Form 10-K and the amount of OTTI was deemed not material at June 30, 2015 or December 31, 2014. The following tables show securities AFS in an unrealized loss position at period end.

 
June 30, 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 AFS:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$1,034

 

$8

 

$—

 

$—

 

$1,034

 

$8

Federal agency securities
76

 
1

 
45

 
1

 
121

 
2

MBS - agency
10,172

 
116

 
1,048

 
43

 
11,220

 
159

ABS
—

 
—

 
11

 
—

 
11

 
—

Total temporarily impaired securities AFS
11,282

 
125

 
1,104

 
44

 
12,386

 
169

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
64

 
—

 
—

 
—

 
64

 
—

Total OTTI securities AFS
64

 
—

 
—

 
—

 
64

 
—

Total impaired securities AFS

$11,346

 

$125

 

$1,104

 

$44

 

$12,450

 

$169



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 AFS:
 
 
 
 
 
 
 
 
 
 
 
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 AFS
2,517

 
7

 
5,057

 
79

 
7,574

 
86

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
69

 
1

 
—

 
—

 
69

 
1

Total OTTI securities AFS
69

 
1

 
—

 
—

 
69

 
1

Total impaired securities AFS

$2,586

 

$8

 

$5,057

 

$79

 

$7,643

 

$87

1 Includes OTTI securities AFS 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 June 30, 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 June 30, 2015 were due to market interest rates being higher than the securities' stated yields. 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. Any unrealized losses related to credit impairment on these securities are determined through estimated cash flow analyses and are recorded in earnings.
Realized Gains and Losses and Other-Than-Temporarily Impaired Securities
Net securities gains/(losses) are comprised of gross realized gains, gross realized losses, and OTTI credit losses recognized in earnings. Gross realized gains of $14 million were recognized for both the three and six months ended June 30, 2015. Gross realized losses were immaterial for both the three and six months ended June 30, 2015, and there were no OTTI losses recognized in earnings for either period. For the three and six months ended June 30, 2014, gross realized gains and losses, as well as OTTI losses recognized in earnings were immaterial.
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.
During the three and six months ended June 30, 2015, there was no credit impairment recognized on securities AFS still held at the end of each period. The securities that gave rise to credit impairments recognized during the three and six months ended June 30, 2014, consisted of one private MBS with a fair value of approximately $19 million at June 30, 2014. The accumulated balance of credit losses recognized in earnings on securities AFS held at period end was $25 million at both June 30, 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)
June 30, 2015
 
December 31, 2014
Commercial loans:
 
 
 
C&I

$65,713

 

$65,440

CRE
6,058

 
6,741

Commercial construction
1,530

 
1,211

Total commercial loans
73,301

 
73,392

Residential loans:
 
 
 
Residential mortgages - guaranteed
625

 
632

Residential mortgages - nonguaranteed 1
24,038

 
23,443

Home equity products
13,672

 
14,264

Residential construction
401

 
436

Total residential loans
38,736

 
38,775

Consumer loans:
 
 
 
Guaranteed student
4,401

 
4,827

Other direct
5,329

 
4,573

Indirect
9,834

 
10,644

Credit cards
937

 
901

Total consumer loans
20,501

 
20,945

LHFI

$132,538

 

$133,112

LHFS 2

$2,457

 

$3,232

1 Includes $263 million and $272 million of LHFI carried at fair value at June 30, 2015 and December 31, 2014, respectively.
2 Includes $1.9 billion of LHFS carried at fair value at both June 30, 2015 and December 31, 2014.
During the three months ended June 30, 2015 and 2014, the Company transferred $1.2 billion and $2.7 billion in LHFI to LHFS, and $640 million and $3 million in LHFS to LHFI, respectively. Additionally, during the three months ended June 30, 2015 and 2014, the Company sold $1.4 billion and $534 million in loans and leases for gains of $7 million and $22 million, respectively.
During the six months ended June 30, 2015 and 2014, the Company transferred $1.7 billion and $2.8 billion in LHFI to LHFS, and $651 million and $20 million in LHFS to LHFI, respectively. Additionally, during the six months ended June 30, 2015 and 2014, the Company sold $1.8 billion and $619 million in loans and leases for gains of $13 million and $31 million, respectively.
At June 30, 2015 and December 31, 2014, the Company had $24.3 billion and $26.5 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $17.2 billion and $18.4 billion of available, unused borrowing capacity, respectively.
At both June 30, 2015 and December 31, 2014, the Company had $31.2 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $25.1 billion and $24.3 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at June 30, 2015 was used to support $1.5 billion of long-term debt, $2.3 billion of short-term debt, and $6.2 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 mitig