Edgar Filing: SUNTRUST BANKS INC

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 September 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)

(800) 786-8787

(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 October 30, 2015, 509,612,975 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS



		Page
GLOSSARY OF DEFINED TERMS		i - ii

PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)	2
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	102
Item 4.	Controls and Procedures	102

PART II - OTHER INFORMATION		102

Item 1.	Legal Proceedings	102
Item 1A.	Risk Factors	102
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103
Item 3.	Defaults Upon Senior Securities	104
Item 4.	Mine Safety Disclosures	104
Item 5.	Other Information	104
Item 6.	Exhibits	104

SIGNATURE		105

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.

ASC — Accounting Standards Codification.

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.

EPS — Earnings per share.

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-Ks filed with the SEC on September 9, 2014 and 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.

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.

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.

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 nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.



Item 1.	FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income



	Three Months Ended September 30					Nine Months Ended September 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)	2015		2014			2015		2014
Interest Income
Interest and fees on loans		$1,139		$1,152			$3,345		$3,464
Interest and fees on loans held for sale	20		30			66		61
Interest and dividends on securities available for sale	153		153			430		456
Trading account interest and other	21		18			61		55
Total interest income	1,333		1,353			3,902		4,036
Interest Expense
Interest on deposits	54		54			165		180
Interest on long-term debt	60		74			196		198
Interest on other borrowings	8		10			23		29
Total interest expense	122		138			384		407
Net interest income	1,211		1,215			3,518		3,629
Provision for credit losses	32		93			114		268
Net interest income after provision for credit losses	1,179		1,122			3,404		3,361
Noninterest Income
Service charges on deposit accounts	159		169			466		483
Other charges and fees	97		95			285		274
Card fees	83		81			247		239
Investment banking income	115		88			357		296
Trading income	31		46			140		141
Trust and investment management income	86		93			255		339
Retail investment services	77		76			229		224
Mortgage production related income	58		45			217		140
Mortgage servicing related income	40		44			113		143
Gain on sale of subsidiary	—		—			—		105
Net securities gains/(losses)	7		(9		)	21		(11		)
Other noninterest income	58		52			173		155
Total noninterest income	811		780			2,503		2,528
Noninterest Expense
Employee compensation	641		649			1,926		1,967
Employee benefits	84		81			326		326
Outside processing and software	200		184			593		535
Net occupancy expense	86		84			255		254
Equipment expense	41		41			123		127
Regulatory assessments	32		29			104		109
Marketing and customer development	42		35			104		91
Credit and collection services	8		21			52		67
Consulting and legal fees	23		16			48		43
Operating losses	3		29			33		268
Amortization	9		7			22		14
Other noninterest expense	95		83			286		333
Total noninterest expense	1,264		1,259			3,872		4,134
Income before provision for income taxes	726		643			2,035		1,755
Provision for income taxes	187		67			579		364
Net income including income attributable to noncontrolling interest	539		576			1,456		1,391
Net income attributable to noncontrolling interest	2		—			7		11
Net income		$537		$576			$1,449		$1,380
Net income available to common shareholders		$519		$563			$1,396		$1,343

Net income per average common share:
Diluted		$1.00		$1.06			$2.67		$2.51
Basic	1.01		1.07			2.70		2.54
Dividends declared per common share	0.24		0.20			0.68		0.50
Average common shares - diluted	518,677		533,230			522,634		535,222
Average common shares - basic	513,010		527,402			516,970		529,429

See accompanying Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Comprehensive Income



	Three Months Ended September 30					Nine Months Ended September 30
(Dollars in millions) (Unaudited)	2015		2014			2015			2014
Net income		$537		$576			$1,449			$1,380
Components of other comprehensive income/(loss):
Change in net unrealized gains/(losses) on securities available for sale, net of tax of $70, ($21), $6, and $144, respectively	119		(37		)	4			246
Change in net unrealized gains/(losses) on derivative instruments, net of tax of $50, ($48), $57, and ($98), respectively	84		(82		)	94			(168		)
Change related to employee benefit plans, net of tax of $1, $1, ($44), and $20, respectively	3		1			(64		)	34
Total other comprehensive income/(loss), net of tax	206		(118		)	34			112
Total comprehensive income		$743		$458			$1,483			$1,492

See accompanying Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets



	September 30,			December 31,
(Dollars in millions and shares in thousands, except per share data)	2015			2014
Assets	(Unaudited)
Cash and due from banks		$3,788			$7,047
Federal funds sold and securities borrowed or purchased under agreements to resell	1,105			1,160
Interest-bearing deposits in other banks	23			22
Cash and cash equivalents	4,916			8,229
Trading assets and derivative instruments ¹	6,537			6,202
Securities available for sale ²	27,270			26,770
Loans held for sale ($1,883 and $1,892 at fair value at September 30, 2015 and December 31, 2014, respectively)	2,032			3,232
Loans ³ ($262 and $272 at fair value at September 30, 2015 and December 31, 2014, respectively)	133,560			133,112
Allowance for loan and lease losses	(1,786		)	(1,937		)
Net loans	131,774			131,175
Premises and equipment	1,430			1,508
Goodwill	6,337			6,337
Other intangible assets (MSRs at fair value: $1,262 and $1,206 at September 30, 2015 and December 31, 2014, respectively)	1,282			1,219
Other assets	5,458			5,656
Total assets		$187,036			$190,328
Liabilities and Shareholders’ Equity
Noninterest-bearing deposits		$41,487			$41,096
Interest-bearing deposits	104,884			99,471
Total deposits	146,371			140,567
Funds purchased	1,329			1,276
Securities sold under agreements to repurchase	1,536			2,276
Other short-term borrowings	1,077			5,634
Long-term debt ⁴ ($986 and $1,283 at fair value at September 30, 2015 and December 31, 2014, respectively)	8,444			13,022
Trading liabilities and derivative instruments	1,330			1,227
Other liabilities	3,285			3,321
Total liabilities	163,372			167,323
Preferred stock, no par value	1,225			1,225
Common stock, $1.00 par value	550			550
Additional paid-in capital	9,087			9,089
Retained earnings	14,341			13,295
Treasury stock, at cost, and other ⁵	(1,451		)	(1,032		)
Accumulated other comprehensive loss, net of tax	(88		)	(122		)
Total shareholders’ equity	23,664			23,005
Total liabilities and shareholders’ equity		$187,036			$190,328

Common shares outstanding ⁶	514,106			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	35,815			25,381

¹ Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral		$1,152			$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	256			288
⁴ Includes debt of consolidated VIEs	270			302
⁵ Includes noncontrolling interest	106			108
⁶ Includes restricted shares	1,556			2,930

See accompanying Notes to Consolidated Financial Statements (unaudited).

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 Other¹			Accumulated Other Comprehensive (Loss)/Income			Total
Balance, January 1, 2014		$725	536			$550		$9,115			$11,936			($615	)		($289	)		$21,422
Net income	—		—		—		—			1,380			—			—			1,380
Other comprehensive income	—		—		—		—			—			—			112			112
Common stock dividends, $0.50 per share	—		—		—		—			(266		)	—			—			(266		)
Preferred stock dividends ²	—		—		—		—			(28		)	—			—			(28		)
Acquisition of treasury stock	—		(9	)	—		—			—			(348		)	—			(348		)
Exercise of stock options and stock compensation expense	—		—		—		(14		)	—			15			—			1
Restricted stock activity	—		—		—		13			(2		)	1			—			12
Amortization of restricted stock compensation	—		—		—		—			—			21			—			21
Change in equity related to the sale of subsidiary	—		—		—		(23		)	—			(16		)	—			(39		)
Issuance of stock for employee benefit plans and other	—		—		—		(1		)	—			3			—			2
Balance, September 30, 2014		$725	527			$550		$9,090			$13,020			($939	)		($177	)		$22,269

Balance, January 1, 2015		$1,225	525			$550		$9,089			$13,295			($1,032	)		($122	)		$23,005
Net income	—		—		—		—			1,449			—			—			1,449
Other comprehensive income	—		—		—		—			—			—			34			34
Change in noncontrolling interest	—		—		—		—			—			(2		)	—			(2		)
Common stock dividends, $0.68 per share	—		—		—		—			(352		)	—			—			(352		)
Preferred stock dividends ²	—		—		—		—			(48		)	—			—			(48		)
Acquisition of treasury stock	—		(11	)	—		—			—			(465		)	—			(465		)
Exercise of stock options and stock compensation expense	—		—		—		(16		)	—			25			—			9
Restricted stock activity	—		—		—		14			(3		)	7			—			18
Amortization of restricted stock compensation	—		—		—		—			—			13			—			13
Issuance of stock for employee benefit plans and other	—		—		—		—			—			3			—			3
Balance, September 30, 2015		$1,225	514			$550		$9,087			$14,341			($1,451	)		($88	)		$23,664

¹ At September 30, 2015, includes ($1,550) million for treasury stock, ($7) million for the compensation element of restricted stock, and $106 million for noncontrolling interest.

At September 30, 2014, includes ($1,015) million for treasury stock, ($27) million for the compensation element of restricted stock, and $103 million for noncontrolling interest.

² For the nine months ended September 30, 2015, dividends were $3,044 per share for both Perpetual Preferred Stock Series A and B, $4,406 per share for Perpetual Preferred Stock Series E, and $4,813 per share for Perpetual Preferred Stock Series F. For the nine months ended September 30, 2014, dividends were $3,044 per share for both Perpetual Preferred Stock Series A and B, and $4,406 per share for Perpetual Preferred Stock Series E.

See accompanying Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc. Consolidated Statements of Cash Flows

	Nine Months Ended September 30
(Dollars in millions) (Unaudited)	2015			2014
Cash Flows from Operating Activities
Net income including income attributable to noncontrolling interest		$1,456			$1,391
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of subsidiary	—			(105		)
Depreciation, amortization, and accretion	596			504
Origination of mortgage servicing rights	(185		)	(137		)
Provisions for credit losses and foreclosed property	122			286
Stock-based compensation	65			50
Excess tax benefits from stock-based compensation	(18		)	(5		)
Net securities (gains)/losses	(21		)	11
Net gain on sale of loans held for sale, loans, and other assets	(249		)	(239		)
Net decrease/(increase) in loans held for sale	644			(139		)
Net increase in trading assets	(183		)	(1,088		)
Net (increase)/decrease in other assets	(26		)	189
Net decrease in other liabilities	(196		)	(155		)
Net cash provided by operating activities	2,005			563

Cash Flows from Investing Activities
Proceeds from maturities, calls, and paydowns of securities available for sale	4,621			2,788
Proceeds from sales of securities available for sale	2,708			793
Purchases of securities available for sale	(7,861		)	(6,986		)
Proceeds from sales of auction rate securities	—			59
Net increase in loans, including purchases of loans	(2,097		)	(7,698		)
Proceeds from sales of loans	2,048			3,029
Purchases of mortgage servicing rights	(113		)	(109		)
Capital expenditures	(74		)	(96		)
Payments related to acquisitions, including contingent consideration	(30		)	(11		)
Proceeds from sale of subsidiary	—			193
Proceeds from the sale of other real estate owned and other assets	179			279
Net cash used in investing activities	(619		)	(7,759		)

Cash Flows from Financing Activities
Net increase in total deposits	5,804			6,748
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings	(5,244		)	1,633
Proceeds from long-term debt	1,237			2,574
Repayments of long-term debt	(5,670		)	(67		)
Repurchase of common stock	(465		)	(348		)
Common and preferred dividends paid	(393		)	(294		)
Incentive compensation related activity	32			12
Net cash (used in)/provided by financing activities	(4,699		)	10,258
Net (decrease)/increase in cash and cash equivalents	(3,313		)	3,062
Cash and cash equivalents at beginning of period	8,229			5,263
Cash and cash equivalents at end of period		$4,916			$8,325

Supplemental Disclosures:
Loans transferred from loans held for sale to loans		$726			$39
Loans transferred from loans to loans held for sale	1,734			3,183
Loans transferred from loans and loans held for sale to other real estate owned	52			113
Non-cash impact of the deconsolidation of CLO	—			282
Non-cash impact of debt assumed by purchaser in lease sale	129			29

See accompanying Notes to Consolidated Financial Statements (unaudited).

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. In the third quarter of 2015, the Company elected to prospectively change the date of its annual goodwill impairment test from September 30 to October 1 to better align the timing of the test with the availability of key inputs. There have been no other 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.	January 1, 2016	The Company will adopt this ASU on a modified retrospective basis. The Company is continuing to evaluate the impact of this ASU on the financial statements and related disclosures; however, 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)	September 30, 2015		December 31, 2014
Fed funds sold		$55		$38
Securities borrowed	221		290
Securities purchased under agreements to resell	829		832
Total Fed funds sold and securities borrowed or purchased under agreements to resell		$1,105		$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 borrows securities and purchases securities 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 both September 30, 2015 and December 31, 2014, the total market value of collateral held was $1.1 billion, of which $219 million and $222 million was repledged, respectively.

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:



	September 30, 2015		December 31, 2014
(Dollars in millions)	Overnight and Continuous		Overnight and Continuous		Up to 30 days		Total
U.S. Treasury securities		$84		$376		$—		$376
Federal agency securities	223		231		—		231
MBS - agency	868		1,059		45		1,104
CP	37		238		—		238
Corporate and other debt securities	324		327		—		327
Total securities sold under agreements to repurchase		$1,536		$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 that are 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 September 30, 2015 and December 31, 2014, there were no such transactions subject to a legally enforceable MRAs 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
September 30, 2015
Financial assets:
Securities borrowed or purchased under agreements to resell		$1,050		$—		$1,050	¹		$1,043		$7
Financial liabilities:
Securities sold under agreements to repurchase	1,536		—		1,536			1,536		—

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		—

¹Excludes $55 million and $38 million of Fed funds sold, which are not subject to a master netting agreement at September 30, 2015 and December 31, 2014, respectively.

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)	September 30, 2015		December 31, 2014
Trading Assets and Derivative Instruments:
U.S. Treasury securities		$443		$267
Federal agency securities	532		547
U.S. states and political subdivisions	40		42
MBS - agency	565		545
CLO securities	2		3
Corporate and other debt securities	390		509
CP	312		327
Equity securities	65		45
Derivative instruments ¹	1,449		1,307
Trading loans ²	2,739		2,610
Total trading assets and derivative instruments		$6,537		$6,202

Trading Liabilities and Derivative Instruments:
U.S. Treasury securities		$584		$485
MBS - agency	4		1
Corporate and other debt securities	177		279
Derivative instruments ¹	565		462
Total trading liabilities and derivative instruments		$1,330		$1,227

¹Amounts 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 security transactions and derivative instrument 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 $857 million and $1.1 billion of trading securities to secure $825 million and $1.1 billion of repurchase agreements at September 30, 2015 and December 31, 2014, respectively. Additionally, the Company has pledged $298 million and $202 million of trading securities to secure certain derivative agreements at September 30, 2015 and December 31, 2014, respectively, and has pledged $40 million of trading securities under other arrangements at both September 30, 2015 and December 31, 2014.

Notes to Consolidated Financial Statements (Unaudited), continued

NOTE 4 – SECURITIES AVAILABLE FOR SALE

Securities Portfolio Composition



	September 30, 2015
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$3,020		$45		$—		$3,065
Federal agency securities	408		13		1		420
U.S. states and political subdivisions	167		7		—		174
MBS - agency	22,452		511		58		22,905
MBS - private	100		2		—		102
ABS	13		2		—		15
Corporate and other debt securities	36		2		—		38
Other equity securities ¹	551		1		1		551
Total securities AFS		$26,747		$583		$60		$27,270

	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 September 30, 2015, the fair value of other equity securities was comprised of the following: $32 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $111 million of 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 of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $138 million of mutual fund investments, and $7 million of other.

The following table presents interest and dividends on securities AFS:



	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2015		2014		2015		2014
Taxable interest		$143		$142		$397		$421
Tax-exempt interest	2		2		5		8
Dividends	8		9		28		27
Total interest and dividends		$153		$153		$430		$456

Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $2.9 billion and $2.6 billion at September 30, 2015 and December 31, 2014, respectively.

Notes to Consolidated Financial Statements (Unaudited), continued

The amortized cost and fair value of investments in debt securities AFS at September 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		$25			$921			$2,074			$—			$3,020
Federal agency securities	159			109			14			126			408
U.S. states and political subdivisions	38			13			101			15			167
MBS - agency	2,462			11,098			3,756			5,136			22,452
MBS - private	3			89			8			—			100
ABS	—			12			1			—			13
Corporate and other debt securities	—			36			—			—			36
Total debt securities AFS		$2,687			$12,278			$5,954			$5,277			$26,196

Fair Value:
U.S. Treasury securities		$25			$931			$2,109			$—			$3,065
Federal agency securities	163			116			14			127			420
U.S. states and political subdivisions	39			13			106			16			174
MBS - agency	2,605			11,391			3,772			5,137			22,905
MBS - private	3			91			8			—			102
ABS	—			13			2			—			15
Corporate and other debt securities	—			38			—			—			38
Total debt securities AFS		$2,835			$12,593			$6,011			$5,280			$26,719
Weighted average yield ¹	2.35		%	2.41		%	2.57		%	2.80		%	2.52		%

¹Weighted 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 September 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. The following tables show securities AFS in an unrealized loss position at period end.



	September 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:
Federal agency securities		$33		$—		$35		$1		$68		$1
MBS - agency	3,996		35		982		23		4,978		58
ABS	—		—		9		—		9		—
Other equity securities	4		1		—		—		4		1
Total temporarily impaired securities AFS	4,033		36		1,026		24		5,059		60
OTTI securities AFS ¹:
Total OTTI securities AFS	—		—		—		—		—		—
Total impaired securities AFS		$4,033		$36		$1,026		$24		$5,059		$60

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

¹Includes OTTI securities AFS for which credit losses have been recorded in earnings in current or prior periods.

²Unrealized losses less than $0.5 million are presented as zero within the table.

At September 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 September 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 $11 million and $25 million were recognized for the three and nine months ended September 30, 2015, respectively. Gross realized losses of $3 million were recognized for both the three and nine months ended September 30, 2015, and OTTI losses recognized in earnings were immaterial for both periods. For both the three and nine months ended September 30, 2014, gross realized gains of $3 million were recognized. Gross realized losses of $12 million and $13 million were recognized for the three and nine months ended September 30, 2014, respectively, and OTTI losses recognized in earnings were immaterial for the nine months ended September 30, 2014.

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, a 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 nine months ended September 30, 2015, credit impairment recognized on securities AFS still held at the end of each period was immaterial, all of which related to one private MBS with a fair value of approximately $22 million at September 30, 2015. Securities that gave rise to credit impairments recognized during the nine months ended September 30, 2014, consisted of one private MBS with a fair value of approximately $19 million at September 30, 2014. The accumulated balance of credit losses recognized in earnings on securities AFS held at period end was $25 million at both September 30, 2015 and 2014. 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.

Notes to Consolidated Financial Statements (Unaudited), continued

NOTE 5 - LOANS

Composition of Loan Portfolio



(Dollars in millions)	September 30, 2015		December 31, 2014
Commercial loans:
C&I		$65,371		$65,440
CRE	6,168		6,741
Commercial construction	1,763		1,211
Total commercial loans	73,302		73,392
Residential loans:
Residential mortgages - guaranteed	627		632
Residential mortgages - nonguaranteed ¹	24,351		23,443
Home equity products	13,416		14,264
Residential construction	394		436
Total residential loans	38,788		38,775
Consumer loans:
Guaranteed student	4,588		4,827
Other direct	5,771		4,573
Indirect	10,119		10,644
Credit cards	992		901
Total consumer loans	21,470		20,945
LHFI		$133,560		$133,112
LHFS ²		$2,032		$3,232

¹Includes $262 million and $272 million of LHFI measured at fair value at September 30, 2015 and December 31, 2014, respectively.

²Includes $1.9 billion of LHFS measured at fair value at both September 30, 2015 and December 31, 2014.

During the three months ended September 30, 2015 and 2014, the Company transferred $38 million and $362 million in LHFI to LHFS, and $75 million and $19 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2015 and 2014, the Company sold $178 million and $2.3 billion in loans and leases for gains of $9 million and $40 million, respectively.

During the nine months ended September 30, 2015 and 2014, the Company transferred $1.7 billion and $3.2 billion in LHFI to LHFS, and $726 million and $39 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2015 and 2014, the Company sold $2.0 billion and $3.0 billion in loans and leases for gains of $22 million and $71 million, respectively.

At September 30, 2015 and December 31, 2014, the Company had $23.3 billion and $26.5 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $17.0 billion and $18.4 billion of available, unused borrowing capacity, respectively.