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 March 31, 2016

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 Web site, 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 April 29, 2016, 501,127,617 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.
AIP — Annual Incentive Plan.
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.
CDO — Collateralized debt obligation.
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.
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.
Freddie Mac — Federal Home Loan Mortgage Corporation.
FDIC — Federal Deposit Insurance Corporation.
Federal Reserve — Federal Reserve System.
Fed funds — Federal funds.
FHA — Federal Housing Administration.
FHLB — Federal Home Loan Bank.
FICO — Fair Isaac Corporation.
Fitch — Fitch Ratings Ltd.
FRB — Federal Reserve Board.
 
FTE — Fully taxable-equivalent.
FVO — Fair value option.
GenSpring — GenSpring Family Offices, LLC.
Ginnie Mae — Government National Mortgage Association.
GSE — Government-sponsored enterprise.
HAMP — Home Affordable Modification Program.
HUD — U.S. Department of Housing and Urban Development.
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 Operation.
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.
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.
STCC — SunTrust Community Capital, LLC.
STIS — SunTrust Investment Services, Inc.
STM — SunTrust Mortgage, Inc.
STRH — SunTrust Robinson Humphrey, Inc.
SunTrust — SunTrust Banks, Inc.
TDR — Troubled debt restructuring.
TRS — Total return swaps.
U.S. — United States.


i

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



ii



PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.



1



Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
 
Three Months Ended March 31
(Dollars in millions and shares in thousands, except per share data) (Unaudited)
2016
 
2015
Interest Income
 
 
 
Interest and fees on loans

$1,203

 

$1,091

Interest and fees on loans held for sale
19

 
22

Interest and dividends on securities available for sale
163

 
140

Trading account interest and other
26

 
19

Total interest income
1,411

 
1,272

Interest Expense
 
 
 
Interest on deposits
59

 
56

Interest on long-term debt
59

 
68

Interest on other borrowings
11

 
8

Total interest expense
129

 
132

Net interest income
1,282

 
1,140

Provision for credit losses
101

 
55

Net interest income after provision for credit losses
1,181

 
1,085

Noninterest Income
 
 
 
Service charges on deposit accounts
153

 
151

Other charges and fees
93

 
89

Card fees
78

 
80

Investment banking income
98

 
97

Trading income
55

 
55

Trust and investment management income
75

 
84

Retail investment services
69

 
72

Mortgage servicing related income
62

 
43

Mortgage production related income
60

 
83

Net securities gains/(losses)
—

 
—

Other noninterest income
38

 
63

Total noninterest income
781

 
817

Noninterest Expense
 
 
 
Employee compensation
639

 
633

Employee benefits
135

 
138

Outside processing and software
198

 
189

Net occupancy expense
85

 
84

Marketing and customer development
44

 
27

Equipment expense
40

 
40

Regulatory assessments
36

 
37

Operating losses
24

 
14

Amortization
10

 
7

Other noninterest expense
107

 
111

Total noninterest expense
1,318

 
1,280

Income before provision for income taxes
644

 
622

Provision for income taxes
195

 
191

Net income including income attributable to noncontrolling interest
449

 
431

Net income attributable to noncontrolling interest
2

 
2

Net income

$447

 

$429

Net income available to common shareholders

$430

 

$411

 
 
 
 
Net income per average common share:
 
 
 
Diluted

$0.84

 

$0.78

Basic
0.85

 
0.79

Dividends declared per common share
0.24

 
0.20

Average common shares - diluted
509,931

 
526,837

Average common shares - basic
505,482

 
521,020



See accompanying Notes to Consolidated Financial Statements (unaudited).

2

SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended March 31
(Dollars in millions) (Unaudited)
2016
 
2015
Net income

$447

 

$429

Components of other comprehensive income:
 
 
 
Change in net unrealized gains on securities available for sale, net of tax of $165 and $53, respectively
279

 
86

Change in net unrealized gains on derivative instruments, net of tax of $89 and $27, respectively
150

 
44

Change in credit risk adjustment, net of tax of ($1) and $0, respectively 1
(2
)
 
—

Change related to employee benefit plans, net of tax of $35 and ($43), respectively
59

 
(73
)
Total other comprehensive income, net of tax
486

 
57

Total comprehensive income

$933

 

$486

1 Related to the Company's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk, for the three months ended March 31, 2016. See Note 1, "Significant Accounting Policies," and Note 17, "Accumulated Other Comprehensive Income/(Loss)," for additional information.



See accompanying Notes to Consolidated Financial Statements (unaudited).

3

SunTrust Banks, Inc.
Consolidated Balance Sheets
 
March 31,
 
December 31,
(Dollars in millions and shares in thousands, except per share data)
2016
 
2015
Assets
(Unaudited)
 
 
Cash and due from banks

$3,074

 

$4,299

Federal funds sold and securities borrowed or purchased under agreements to resell
1,229

 
1,277

Interest-bearing deposits in other banks
24

 
23

Cash and cash equivalents
4,327

 
5,599

Trading assets and derivative instruments 1
7,050

 
6,119

Securities available for sale
28,188

 
27,825

Loans held for sale ($1,593 and $1,494 at fair value at March 31, 2016 and December 31, 2015, respectively)
1,911

 
1,838

Loans 2 ($255 and $257 at fair value at March 31, 2016 and December 31, 2015, respectively)
139,746

 
136,442

Allowance for loan and lease losses
(1,770
)
 
(1,752
)
Net loans
137,976

 
134,690

Premises and equipment, net
1,481

 
1,502

Goodwill
6,337

 
6,337

Other intangible assets (MSRs at fair value: $1,182 and $1,307 at March 31, 2016 and December 31, 2015, respectively)
1,198

 
1,325

Other assets
5,690

 
5,582

Total assets

$194,158

 

$190,817

 
 
 
 
Liabilities
 
 
 
Noninterest-bearing deposits

$42,256

 

$42,272

Interest-bearing deposits
109,905

 
107,558

Total deposits
152,161

 
149,830

Funds purchased
1,497

 
1,949

Securities sold under agreements to repurchase
1,774

 
1,654

Other short-term borrowings
1,673

 
1,024

Long-term debt 3 ($975 and $973 at fair value at March 31, 2016 and December 31, 2015, respectively)
8,514

 
8,462

Trading liabilities and derivative instruments
1,536

 
1,263

Other liabilities
2,950

 
3,198

Total liabilities
170,105

 
167,380

Shareholders’ Equity
 
 
 
Preferred stock, no par value
1,225

 
1,225

Common stock, $1.00 par value
550

 
550

Additional paid-in capital
9,017

 
9,094

Retained earnings
14,999

 
14,686

Treasury stock, at cost, and other 4
(1,759
)
 
(1,658
)
Accumulated other comprehensive income/(loss), net of tax
21

 
(460
)
Total shareholders’ equity
24,053

 
23,437

Total liabilities and shareholders’ equity

$194,158

 

$190,817

 
 
 
 
Common shares outstanding 5
505,443

 
508,712

Common shares authorized
750,000

 
750,000

Preferred shares outstanding
12

 
12

Preferred shares authorized
50,000

 
50,000

Treasury shares of common stock
44,478

 
41,209

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

$1,484

 

$1,377

2 Includes loans of consolidated VIEs
237

 
246

3 Includes debt of consolidated VIEs
250

 
259

4 Includes noncontrolling interest
101

 
108

5 Includes restricted shares
80

 
1,334



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 Income/(Loss)
 
Total
Balance, January 1, 2015

$1,225

 
525

 

$550

 

$9,089

 

$13,295

 

($1,032
)
 

($122
)
 

$23,005

Net income
—

 
—

 
—

 
—

 
429

 
—

 
—

 
429

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
57

 
57

Change in noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(2
)
 
—

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

 
—

 
—

 
—

 
(105
)
 
—

 
—

 
(105
)
Preferred stock dividends 2
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
(17
)
Repurchase of common stock
—

 
(3
)
 
—

 
—

 
—

 
(115
)
 
—

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

 
—

 
—

 
(10
)
 
—

 
11

 
—

 
1

Restricted stock activity
—

 
—

 
—

 
(5
)
 
(2
)
 
7

 
—

 
—

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
6

 
—

 
6

Issuance of stock for employee benefit plans and other
—

 
—

 
—

 
—

 
—

 
1

 
—

 
1

Balance, March 31, 2015

$1,225

 
522

 

$550

 

$9,074

 

$13,600

 

($1,124
)
 

($65
)
 

$23,260

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016

$1,225

 
509

 

$550

 

$9,094

 

$14,686

 

($1,658
)
 

($460
)
 

$23,437

Cumulative effect of credit risk adjustment 3
—

 
—

 
—

 
—

 
5

 
—

 
(5
)
 
—

Net income
—

 
—

 
—

 
—

 
447

 
—

 
—

 
447

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
486

 
486

Change in noncontrolling interest
—

 
—

 
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Common stock dividends, $0.24 per share
—

 
—

 
—

 
—

 
(121
)
 
—

 
—

 
(121
)
Preferred stock dividends 2
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
(17
)
Repurchase of common stock
—

 
(4
)
 
—

 
—

 
—

 
(151
)
 
—

 
(151
)
Repurchase of common stock warrants
—

 
—

 
—

 
(24
)
 
—

 
—

 
—

 
(24
)
Exercise of stock options and stock compensation expense
—

 
—

 
—

 
(3
)
 
—

 
2

 
—

 
(1
)
Restricted stock activity
—

 
—

 
—

 
(50
)
 
(1
)
 
53

 
—

 
2

Amortization of restricted stock compensation
—

 
—

 
—

 
—

 
—

 
2

 
—

 
2

Balance, March 31, 2016

$1,225

 
505

 

$550

 

$9,017

 

$14,999

 

($1,759
)
 

$21

 

$24,053

1 At March 31, 2016, includes ($1,859) million for treasury stock, ($1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest.
At March 31, 2015, includes ($1,215) million for treasury stock, ($15) million for the compensation element of restricted stock, and $106 million for noncontrolling interest.
2 For the three months ended March 31, 2016, dividends were $1,011 per share for both Perpetual Preferred Stock Series A and B, $1,469 per share for Perpetual Preferred Stock Series E, and $1,406 per share for Perpetual Preferred Stock Series F.
For the three months ended March 31, 2015, dividends were $1,000 per share for both Perpetual Preferred Stock Series A and B, $1,469 per share for Perpetual Preferred Stock Series E, and $1,406 per share for Perpetual Preferred Stock Series F.
3 Related to the Company's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk, for the three months ended March 31, 2016. See Note 1, "Significant Accounting Policies," and Note 17, "Accumulated Other Comprehensive Income/(Loss)," for additional information.



See accompanying Notes to Consolidated Financial Statements (unaudited).

5

SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 
Three Months Ended March 31
(Dollars in millions) (Unaudited)
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income including income attributable to noncontrolling interest

$449

 

$431

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
 
 
 
Depreciation, amortization, and accretion
171

 
201

Origination of mortgage servicing rights
(46
)
 
(46
)
Provisions for credit losses and foreclosed property
103

 
58

Stock-based compensation
25

 
19

Excess tax benefits from stock-based compensation
(8
)
 
(16
)
Net gain on sale of loans held for sale, loans, and other assets
(84
)
 
(102
)
Net increase in loans held for sale
(4
)
 
(108
)
Net increase in trading assets
(689
)
 
(322
)
Net decrease/(increase) in other assets
138

 
(340
)
Net (decrease)/increase in other liabilities
(306
)
 
15

Net cash used in operating activities
(251
)
 
(210
)
 
 
 
 
Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
1,057

 
1,421

Proceeds from sales of securities available for sale
—

 
10

Purchases of securities available for sale
(1,008
)
 
(1,344
)
Net (increase)/decrease in loans, including purchases of loans
(3,438
)
 
212

Proceeds from sales of loans
18

 
411

Purchases of mortgage servicing rights
(75
)
 
(64
)
Capital expenditures
(24
)
 
(33
)
Payments related to acquisitions, including contingent consideration
(23
)
 
(10
)
Proceeds from the sale of other real estate owned and other assets
34

 
86

Net cash (used in)/provided by investing activities
(3,459
)
 
689

 
 
 
 
Cash Flows from Financing Activities
 
 
 
Net increase in total deposits
2,331

 
3,856

Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
317

 
(4,604
)
Proceeds from long-term debt
1,105

 
—

Repayments of long-term debt
(1,019
)
 
(14
)
Repurchase of common stock
(151
)
 
(115
)
Repurchase of common stock warrants
(24
)
 
—

Common and preferred dividends paid
(130
)
 
(115
)
Incentive compensation related activity
9

 
22

Net cash provided by/(used in) financing activities
2,438

 
(970
)
Net decrease in cash and cash equivalents
(1,272
)
 
(491
)
Cash and cash equivalents at beginning of period
5,599

 
8,229

Cash and cash equivalents at end of period

$4,327

 

$7,738

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

$5

 

$11

Loans transferred from loans to loans held for sale
55

 
512

Loans transferred from loans and loans held for sale to other real estate owned
16

 
14

Non-cash impact of debt assumed by purchaser in lease sale
26

 
21




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 Consolidated Financial Statements and accompanying Notes; actual results
 
could vary from those estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
The Company evaluated events that occurred subsequent to March 31, 2016, and there were no material events that would require recognition in the Company's first quarter of 2016 Consolidated Financial Statements or disclosure in the accompanying Notes.
These interim Consolidated Financial Statements should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K. There have been no significant changes to the Company’s accounting policies as disclosed in the 2015 Annual Report on Form 10-K.


Recently Issued Accounting Pronouncements
The following table provides a brief description of accounting standards that have been issued that could have a material effect on the Company's financial statements:
Standard
Description
Required Date of Adoption
Effect on the Financial Statements or Other Significant Matters
Standards Adopted (or partially adopted) in 2016
 
 
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 adopted this ASU on a modified retrospective basis beginning January 1, 2016. The adoption of this standard had no impact to the Consolidated Financial Statements and related disclosures during the first quarter of 2016.
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities
The ASU amends ASC Topic 825, Financial Instruments - Overall, and addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practicability exception, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. With the exception of disclosure requirements that will be adopted prospectively, the ASU must be adopted on a modified retrospective basis.
January 1, 2018

Early adoption is permitted beginning January 1, 2016 or 2017 for the provision related to changes in instrument-specific credit risk for financial liabilities under the fair value option.
The Company early adopted the provision related to changes in instrument-specific credit risk beginning January 1, 2016, which resulted in an immaterial, cumulative effect adjustment from retained earnings to AOCI. The Company is evaluating the impact of the remaining provisions of this ASU on the Consolidated Financial Statements and related disclosures; however, the impact is not expected to be material.
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 is permitted beginning January 1, 2017.
The Company is evaluating the alternative methods of adoption and the anticipated effects on the Consolidated Financial Statements and related disclosures.

ASU 2016-02, Leases
The ASU creates ASC Topic 842, Leases, and supersedes Topic 840, Leases. Topic 842 requires lessees to recognize the right-of-use assets and liabilities that arise from leases, with the exception of short-term leases. The ASU does not make significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. There are several new qualitative and quantitative disclosures required. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. 
January 1, 2019

Early adoption is permitted.
The adoption of this ASU will result in an increase to the Consolidated Balance Sheets for right-of-use assets and lease liabilities associated with operating leases in which the Company is the lessee. The Company is evaluating the other effects of adoption on the Consolidated Financial Statements and related disclosures.

7
Notes to Consolidated Financial Statements (Unaudited), continued



ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
The ASU amends ASC Topic 323, Investments - Equity Method and Joint Ventures, to eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. In addition, the ASU requires that an entity that has an AFS equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in AOCI at the date the investment becomes qualified for use of the equity method. The ASU is to be applied on a prospective basis.
January 1, 2017

Early application is permitted.
This ASU will not impact the Consolidated Financial Statements and related disclosures until there is an applicable increase in investment or change in influence that results in a transition to the equity method.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
The ASU amends ASC Topic 718, Compensation - Stock Compensation, to simplify and modify several aspects of accounting for share-based payment arrangements, primarily involving income tax consequences, the classification of awards as either equity or liabilities, and the related classification on the statement of cash flows. Adoption methods are specific to the component of the ASU ranging from a retrospective and modified retrospective basis to a prospective basis.
January 1, 2017

Early adoption is permitted.
The Company is evaluating how the adoption of this ASU will impact the Consolidated Financial Statements and related disclosures.


NOTE 2 - FEDERAL FUNDS SOLD AND SECURITIES FINANCING ACTIVITIES
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Fed funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions)
March 31, 2016
 
December 31, 2015
Fed funds sold

$13

 

$38

Securities borrowed
333

 
277

Securities purchased under agreements to resell
883

 
962

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

$1,229

 

$1,277

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 respective agreements. At both March 31, 2016 and December 31, 2015, the total market value of collateral held was $1.2 billion, of which $241 million and $73 million was repledged, respectively.


Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
 
March 31, 2016
 
December 31, 2015
(Dollars in millions)
Overnight and Continuous
 
Up to 30 days
 
Total
 
Overnight and Continuous
 
Up to 30 days
 
Total
U.S. Treasury securities

$202

 

$—

 

$202

 

$112

 

$—

 

$112

Federal agency securities
126

 
—

 
126

 
319

 
—

 
319

MBS - agency
968

 
—

 
968

 
837

 
23

 
860

CP
205

 
—

 
205

 
49

 
—

 
49

Corporate and other debt securities
178

 
95

 
273

 
242

 
72

 
314

Total securities sold under agreements to repurchase

$1,679

 

$95

 

$1,774

 

$1,559

 

$95

 

$1,654


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.



8
Notes to Consolidated Financial Statements (Unaudited), continued



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 March 31, 2016 and December 31, 2015, there were no such transactions subject to 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 reflected on the Consolidated Balance Sheets to derive the held/pledged financial instruments. 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
March 31, 2016
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,216

 

$—

 

$1,216

1 

$1,206

 

$10

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,774

 
—

 
1,774

 
1,774

 
—

 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,239

 

$—

 

$1,239

1 

$1,229

 

$10

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,654

 
—

 
1,654

 
1,654

 
—

1 Excludes $13 million and $38 million of Fed funds sold, which are not subject to a master netting agreement at March 31, 2016 and December 31, 2015, respectively.



9
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)
March 31, 2016
 
December 31, 2015
Trading Assets and Derivative Instruments:
 
 
 
U.S. Treasury securities

$707

 

$538

Federal agency securities
304

 
588

U.S. states and political subdivisions
83

 
30

MBS - agency
686

 
553

CLO securities
3

 
2

Corporate and other debt securities
454

 
468

CP
400

 
67

Equity securities
53

 
66

Derivative instruments 1
1,735

 
1,152

Trading loans 2
2,625

 
2,655

Total trading assets and derivative instruments

$7,050

 

$6,119

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

$568

 

$503

MBS - agency
3

 
37

Corporate and other debt securities
311

 
259

Derivative instruments 1
654

 
464

Total trading liabilities and derivative instruments

$1,536

 

$1,263

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 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 the Company's 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, derivative instrument transactions, and foreign exchange 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. For valuation assumptions and additional information related to the Company's trading products and derivative instruments, see Note 13, “Derivative Financial Instruments,” and the “Trading Assets and Derivative Instruments and Securities Available for Sale” section of Note 14, “Fair Value Election and Measurement.”
The Company pledged $1.0 billion and $986 million of trading securities to secure $1.0 billion and $950 million of repurchase agreements at March 31, 2016 and December 31, 2015, respectively. Additionally, the Company pledged $446 million and $393 million of trading securities to secure certain derivative agreements at March 31, 2016 and December 31, 2015, respectively, and pledged $40 million of trading securities under other arrangements at both March 31, 2016 and December 31, 2015.




10
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 4 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
 
March 31, 2016
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$3,694

 

$103

 

$—

 

$3,797

Federal agency securities
377

 
12

 
—

 
389

U.S. states and political subdivisions
149

 
9

 
—

 
158

MBS - agency
22,615

 
589

 
14

 
23,190

MBS - non-agency residential
88

 
1

 
1

 
88

ABS
10

 
2

 
1

 
11

Corporate and other debt securities
36

 
1

 
—

 
37

Other equity securities 1
518

 
1

 
1

 
518

Total securities AFS

$27,487

 

$718

 

$17

 

$28,188

 
 
 
 
 
 
 
 
 
December 31, 2015
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$3,460

 

$3

 

$14

 

$3,449

Federal agency securities
402

 
10

 
1

 
411

U.S. states and political subdivisions
156

 
8

 
—

 
164

MBS - agency
22,877

 
397

 
150

 
23,124

MBS - non-agency residential
92

 
2

 
—

 
94

ABS
11

 
2

 
1

 
12

Corporate and other debt securities
37

 
1

 
—

 
38

Other equity securities 1
533

 
1

 
1

 
533

Total securities AFS

$27,568

 

$424

 

$167

 

$27,825

1 At March 31, 2016, the fair value of other equity securities was comprised of the following: $64 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $47 million of mutual fund investments, and $5 million of other.
At December 31, 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, $93 million of mutual fund investments, and $6 million of other.

The following table presents interest and dividends on securities AFS:
 
Three Months Ended March 31
(Dollars in millions)
2016
 
2015
Taxable interest

$159

 

$128

Tax-exempt interest
1

 
2

Dividends
3

 
10

Total interest and dividends on securities AFS

$163

 

$140


Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $1.8 billion and $3.2 billion at March 31, 2016 and December 31, 2015, respectively.


11
Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents the amortized cost, fair value, and weighted average yield of investments in debt securities AFS at March 31, 2016, by remaining contractual maturity, with the exception of MBS and ABS, which are based on estimated average life. Receipt of cash flows may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
 
Distribution of Remaining Maturities
(Dollars in millions)
Due in 1 Year or Less
 
Due After 1 Year through 5 Years
 
Due After 5 Years through 10 Years
 
Due After 10 Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,371

 

$2,323

 

$—

 

$3,694

Federal agency securities
142

 
106

 
13

 
116

 
377

U.S. states and political subdivisions
29

 
6

 
100

 
14

 
149

MBS - agency
2,252

 
8,598

 
8,113

 
3,652

 
22,615

MBS - non-agency residential
—

 
88

 
—

 
—

 
88

ABS
2

 
6

 
2

 
—

 
10

Corporate and other debt securities
—

 
36

 
—

 
—

 
36

Total debt securities AFS

$2,425

 

$10,211

 

$10,551

 

$3,782

 

$26,969

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,395

 

$2,402

 

$—

 

$3,797

Federal agency securities
144

 
113

 
13

 
119

 
389

U.S. states and political subdivisions
30

 
6

 
108

 
14

 
158

MBS - agency
2,368

 
8,828

 
8,280

 
3,714

 
23,190

MBS - non-agency residential
—

 
88

 
—

 
—

 
88

ABS
3

 
7

 
1

 
—

 
11

Corporate and other debt securities
—

 
37

 
—

 
—

 
37

Total debt securities AFS

$2,545

 

$10,474

 

$10,804

 

$3,847

 

$27,670

 Weighted average yield 1
2.50
%
 
2.35
%
 
2.69
%
 
2.91
%
 
2.57
%
1 Weighted average yields are based on amortized cost and are presented on an FTE basis.

Securities AFS in an Unrealized Loss Position
The Company held certain investment securities AFS where amortized cost exceeded fair value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market prices of securities fluctuate. At March 31, 2016, 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 Note 1, "Significant Accounting Policies," of the Company's 2015 Annual Report on Form 10-K.


Securities AFS in an unrealized loss position at period end are presented in the following tables.
 
March 31, 2016
 
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

$10

 

$—

 

$34

 

$—

 

$44

 

$—

MBS - agency
859

 
3

 
1,613

 
11

 
2,472

 
14

ABS
—

 
—

 
6

 
1

 
6

 
1

Other equity securities
3

 
1

 
—

 
—

 
3

 
1

Total temporarily impaired securities AFS
872

 
4


1,653


12


2,525


16

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - non-agency residential
51

 
1

 
—

 
—

 
51

 
1

ABS
1

 
—

 
—

 
—

 
1

 
—

Total OTTI securities AFS
52

 
1

 
—

 
—

 
52

 
1

Total impaired securities AFS

$924

 

$5

 

$1,653

 

$12

 

$2,577

 

$17



12
Notes to Consolidated Financial Statements (Unaudited), continued



 
December 31, 2015
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
 Losses 2
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
 Losses 2
Temporarily impaired securities AFS:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$2,169

 

$14

 

$—

 

$—

 

$2,169

 

$14

Federal agency securities
75

 
—

 
34

 
1

 
109

 
1

MBS - agency
11,434

 
114

 
958

 
36

 
12,392

 
150

ABS
—

 
—

 
7

 
1

 
7

 
1

Other equity securities
3

 
1

 
—

 
—

 
3

 
1

Total temporarily impaired securities AFS
13,681

 
129

 
999

 
38

 
14,680

 
167

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
ABS
1

 
—

 
—

 
—

 
1

 
—

Total OTTI securities AFS
1

 
—

 
—

 
—

 
1

 
—

Total impaired securities AFS

$13,682

 

$129

 

$999

 

$38

 

$14,681

 

$167

1 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings.
2 Unrealized losses less than $0.5 million are presented as zero within the table.

At March 31, 2016, temporarily impaired securities AFS that have been in an unrealized loss position for twelve months or longer included agency MBS, federal agency securities, and one ABS collateralized by 2004 vintage home equity loans. Unrealized losses on these temporarily impaired agency MBS and federal agency securities were due to market interest rates being higher than the securities' stated coupon rates. The temporarily impaired ABS continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Unrealized losses on securities AFS that relate to factors other than credit are recorded in AOCI, net of tax.

Realized Gains and Losses and Other-Than-Temporarily Impaired Securities AFS
Net securities gains/(losses) are comprised of gross realized gains, gross realized losses, and OTTI credit losses recognized in earnings. For both the three months ended March 31, 2016 and 2015, gross realized gains and losses were immaterial and there were no OTTI credit losses recognized in earnings.
Securities AFS in an unrealized loss position are evaluated quarterly for other-than-temporary credit impairment, which is determined using cash flow analyses that take into account security specific collateral and transaction structure. Future expected credit losses are determined 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. Credit losses on the OTTI security are recognized in earnings and reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of the security. See Note 1, "Significant Accounting Policies," in the Company's 2015 Annual Report on Form 10-K for additional information regarding the Company's policy on securities AFS and related impairments.
The Company continues to reduce existing exposure on OTTI securities primarily through paydowns. In certain instances, the amount of credit losses recognized in earnings on a debt security exceeds the total unrealized losses on the security, which may result in unrealized gains relating to factors other than credit recorded in AOCI, net of tax.
During the three months ended March 31, 2016 and 2015, there were no credit impairment losses recognized on securities AFS held at the end of each period. The accumulated balance of OTTI credit losses recognized in earnings on securities AFS held at period end was $24 million at March 31, 2016 and $25 million at March 31, 2015. 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.




13
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 5 - LOANS
Composition of Loan Portfolio
(Dollars in millions)
March 31,
2016
 
December 31, 2015
Commercial loans:
 
 
 
C&I

$68,963

 

$67,062

CRE
6,034

 
6,236

Commercial construction
2,498

 
1,954

Total commercial loans
77,495

 
75,252

Residential loans:
 
 
 
Residential mortgages - guaranteed
623

 
629

Residential mortgages - nonguaranteed 1
25,148

 
24,744

Residential home equity products
12,845

 
13,171

Residential construction
383

 
384

Total residential loans
38,999

 
38,928

Consumer loans:
 
 
 
Guaranteed student
5,265

 
4,922

Other direct
6,372

 
6,127

Indirect
10,522

 
10,127

Credit cards
1,093

 
1,086

Total consumer loans
23,252

 
22,262

LHFI

$139,746

 

$136,442

LHFS 2

$1,911

 

$1,838

1 Includes $255 million and $257 million of LHFI measured at fair value at March 31, 2016 and December 31, 2015, respectively.
2 Includes $1.6 billion and $1.5 billion of LHFS measured at fair value at March 31, 2016 and December 31, 2015, respectively.
During the three months ended March 31, 2016 and 2015, the Company transferred $55 million and $512 million in LHFI to LHFS, and $5 million and $11 million in LHFS to LHFI, respectively. In addition to sales of mortgage LHFS in the normal course of business, the Company sold $18 million in loans and leases at a price approximating their recorded investment during the three months ended March 31, 2016. During the three months ended March 31, 2015, the Company sold $405 million in loans and leases for a gain of $6 million.
At March 31, 2016 and December 31, 2015, the Company had $23.9 billion and $23.6 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $16.8 billion and $17.2 billion of available, unused borrowing capacity, respectively.
At March 31, 2016 and December 31, 2015, the Company had $34.2 billion and $33.7 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $28.9 billion and $28.5 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at March 31, 2016 was used to support $408 million of long-term debt, $750 million of short-term debt, and $7.2 billion of letters of credit issued on the Company's behalf. At December 31, 2015, the available FHLB borrowing capacity was used to support $408 million of long-term debt and $6.7 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 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 not collect all amounts due under those loan agreements. 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. Commercial risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, borrower characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities. The increase in criticized accruing and nonaccruing C&I loans at March 31, 2016 compared to December 31, 2015, as presented in the following risk rating table, was primarily driven by downgrades of loans in the energy industry vertical.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.
For government-guaranteed loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At March 31, 2016 and December 31, 2015, 32% and 31%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. At March 31, 2016 and December 31, 2015, 79% and 78%, respectively, of the guaranteed student loan portfolio was current with respect to payments. The Company's loss exposure on guaranteed residential and student loans is mitigated by the government guarantee.


14
Notes to Consolidated Financial Statements (Unaudited), continued




LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
C&I
 
CRE
 
Commercial Construction
(Dollars in millions)
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
Risk rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$66,633

 

$65,379

 

$5,744

 

$6,067

 

$2,459

 

$1,931

Criticized accruing
1,765

 
1,375

 
280

 
158

 
37

 
23

Criticized nonaccruing
565

 
308

 
10

 
11

 
2

 
—

Total

$68,963

 

$67,062

 

$6,034

 

$6,236

 

$2,498

 

$1,954


 
Residential Loans 1
 
Residential Mortgages -
Nonguaranteed
 
Residential Home Equity Products
 
Residential Construction
(Dollars in millions)
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$20,846

 

$20,422

 

$10,476

 

$10,772

 

$322

 

$313

620 - 699
3,249

 
3,262

 
1,717

 
1,741

 
49

 
58

Below 620 2
1,053

 
1,060

 
652

 
658

 
12

 
13

Total

$25,148

 

$24,744

 

$12,845

 

$13,171

 

$383

 

$384


 
Consumer Loans 3
 
Other Direct
 
Indirect
 
Credit Cards
(Dollars in millions)
March 31, 2016
 
December 31, 2015