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, 20152016

Commission File Numberfile number 001-08918
SUNTRUST BANKS, INC.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,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 October 30, 2015, 509,612,97527, 2016, 490,797,754 shares of the Registrant’s Common Stock,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 OperationsOperation
6567
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
102
 
 
Item 4.
Controls and Procedures
102
 
     
 
PART II - OTHER INFORMATION
102103
 
     
 
Item 1.
Legal Proceedings
102103
 
 
Item 1A.
Risk Factors
102103
 
 
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.
AIP — Annual Incentive Plan.
ALCO — Asset/Liability Committee.
ALM — Asset/Liability Management.
ALLL — Allowance for loan and lease losses.
AOCI — Accumulated other comprehensive income.
APIC — Additional paid-in capital.
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.
CECL — Current expected credit loss.
CEO — Chief Executive Officer.
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.
CRO — Chief Risk Officer.
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.
ER — Enterprise Risk.
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.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.
Pillar — Pillar Financial, LLC.
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.


i

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.

STCC — SunTrust Community Capital, LLC.
i

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



ii



PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and nine months ended September 30, 20152016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.2016.





1



Item 1.FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)2015 2014 2015 20142016 2015 2016 2015
Interest Income              
Interest and fees on loans
$1,139
 
$1,152
 
$3,345
 
$3,464

$1,245
 
$1,139
 
$3,670
 
$3,345
Interest and fees on loans held for sale20
 30
 66
 61
25
 20
 62
 66
Interest and dividends on securities available for sale153
 153
 430
 456
159
 153
 483
 430
Trading account interest and other21
 18
 61
 55
22
 21
 70
 61
Total interest income1,333
 1,353
 3,902
 4,036
1,451
 1,333
 4,285
 3,902
Interest Expense              
Interest on deposits54
 54
 165
 180
67
 54
 188
 165
Interest on long-term debt60
 74
 196
 198
68
 60
 191
 196
Interest on other borrowings8
 10
 23
 29
8
 8
 29
 23
Total interest expense122
 138
 384
 407
143
 122
 408
 384
Net interest income1,211
 1,215
 3,518
 3,629
1,308
 1,211
 3,877
 3,518
Provision for credit losses32
 93
 114
 268
97
 32
 343
 114
Net interest income after provision for credit losses1,179
 1,122
 3,404
 3,361
1,211
 1,179
 3,534
 3,404
Noninterest Income              
Service charges on deposit accounts159

169
 466
 483
162

159
 477
 466
Other charges and fees97

95
 285
 274
93

97
 290
 285
Card fees83
 81
 247
 239
83
 83
 243
 247
Investment banking income115

88
 357
 296
147

115
 372
 357
Trading income31
 46
 140
 141
65
 31
 154
 140
Mortgage production related income118
 58
 288
 217
Mortgage servicing related income49
 40
 164
 113
Trust and investment management income86

93
 255
 339
80

86
 230
 255
Retail investment services77

76
 229
 224
71

77
 212
 229
Mortgage production related income58
 45
 217
 140
Mortgage servicing related income40
 44
 113
 143
Gain on sale of subsidiary—
 —
 —
 105
Net securities gains/(losses)7

(9) 21
 (11)
Gain on sale of premises—
 —
 52
 —
Net securities gains—

7
 4
 21
Other noninterest income58

52
 173
 155
21

58
 83
 173
Total noninterest income811
 780
 2,503
 2,528
889
 811
 2,569
 2,503
Noninterest Expense              
Employee compensation641
 649
 1,926
 1,967
687
 641
 1,994
 1,926
Employee benefits84
 81
 326
 326
86
 84
 315
 326
Outside processing and software200
 184
 593
 535
225
 200
 626
 593
Net occupancy expense86
 84
 255
 254
93
 86
 256
 255
Equipment expense41
 41
 123
 127
44
 41
 126
 123
Marketing and customer development38
 42
 120
 104
Regulatory assessments32
 29
 104
 109
47
 32
 127
 104
Marketing and customer development42
 35
 104
 91
Operating losses35
 3
 85
 33
Credit and collection services8
 21
 52
 67
17
 8
 47
 52
Consulting and legal fees23
 16
 48
 43
Operating losses3
 29
 33
 268
Amortization9
 7
 22
 14
14
 9
 35
 22
Other noninterest expense95
 83
 286
 333
123
 118
 341
 334
Total noninterest expense1,264
 1,259
 3,872
 4,134
1,409
 1,264
 4,072
 3,872
Income before provision for income taxes726
 643
 2,035
 1,755
691
 726
 2,031
 2,035
Provision for income taxes187
 67
 579
 364
215
 187
 611
 579
Net income including income attributable to noncontrolling interest539
 576
 1,456
 1,391
476
 539
 1,420
 1,456
Net income attributable to noncontrolling interest2
 —
 7
 11
2
 2
 7
 7
Net income
$537
 
$576
 
$1,449
 
$1,380

$474
 
$537
 
$1,413
 
$1,449
Net income available to common shareholders
$519
 
$563
 
$1,396
 
$1,343

$457
 
$519
 
$1,363
 
$1,396
              
Net income per average common share:              
Diluted
$1.00
 
$1.06
 
$2.67
 
$2.51

$0.91
 
$1.00
 
$2.70
 
$2.67
Basic1.01
 1.07
 2.70
 2.54
0.92
 1.01
 2.72
 2.70
Dividends declared per common share0.24
 0.20
 0.68
 0.50
0.26
 0.24
 0.74
 0.68
Average common shares - diluted518,677
 533,230
 522,634
 535,222
500,885
 518,677
 505,619
 522,634
Average common shares - basic513,010
 527,402
 516,970
 529,429
496,304
 513,010
 501,036
 516,970


See accompanying Notes to Consolidated Financial Statements (unaudited).

2



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 tax206
 (118) 34
 112
Total comprehensive income
$743
 
$458
 
$1,483
 
$1,492
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2016 2015 2016 2015
Net income
$474
 
$537
 
$1,413
 
$1,449
Components of other comprehensive (loss)/income:       
Change in net unrealized (losses)/gains on securities available for sale,
net of tax of ($19), $70, $228, and $6, respectively
(32) 119
 383
 4
Change in net unrealized (losses)/gains on derivative instruments,
net of tax of ($51), $50, $81, and $57, respectively
(86) 84
 137
 94
Change in credit risk adjustment on long-term debt,
net of tax of ($2), $0, ($3), and $0, respectively 1
(3) —
 (5) —
Change related to employee benefit plans,
net of tax of $2, $1, $39, and ($44), respectively
3
 3
 65
 (64)
Total other comprehensive (loss)/income, net of tax(118) 206
 580
 34
Total comprehensive income
$356
 
$743
 
$1,993
 
$1,483
1 Related to the Company's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk. 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
 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 resell1,105
 1,160
Interest-bearing deposits in other banks23
 22
Cash and cash equivalents4,916
 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 loans131,774
 131,175
Premises and equipment1,430
 1,508
Goodwill6,337
 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 assets5,458
 5,656
Total assets
$187,036
 
$190,328
Liabilities and Shareholders’ Equity   
Noninterest-bearing deposits
$41,487
 
$41,096
Interest-bearing deposits104,884
 99,471
Total deposits146,371
 140,567
Funds purchased1,329
 1,276
Securities sold under agreements to repurchase1,536
 2,276
Other short-term borrowings1,077
 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 instruments1,330
 1,227
Other liabilities3,285
 3,321
Total liabilities163,372
 167,323
Preferred stock, no par value1,225
 1,225
Common stock, $1.00 par value550
 550
Additional paid-in capital9,087
 9,089
Retained earnings14,341
 13,295
Treasury stock, at cost, and other 5
(1,451) (1,032)
Accumulated other comprehensive loss, net of tax(88) (122)
Total shareholders’ equity23,664
 23,005
Total liabilities and shareholders’ equity
$187,036
 
$190,328
    
Common shares outstanding 6
514,106
 524,540
Common shares authorized750,000
 750,000
Preferred shares outstanding12
 12
Preferred shares authorized50,000
 50,000
Treasury shares of common stock35,815
 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
 September 30, December 31,
(Dollars in millions and shares in thousands, except per share data)2016 2015
Assets(Unaudited)  
Cash and due from banks
$8,019
 
$4,299
Federal funds sold and securities borrowed or purchased under agreements to resell1,697
 1,277
Interest-bearing deposits in other banks24
 23
Cash and cash equivalents9,740
 5,599
Trading assets and derivative instruments 1
7,044
 6,119
Securities available for sale29,672
 27,825
Loans held for sale ($3,026 and $1,494 at fair value at September 30, 2016 and December 31, 2015, respectively)3,772
 1,838
Loans 2 ($234 and $257 at fair value at September 30, 2016 and December 31, 2015, respectively)
141,532
 136,442
Allowance for loan and lease losses(1,743) (1,752)
Net loans139,789
 134,690
Premises and equipment, net1,510
 1,502
Goodwill6,337
 6,337
Other intangible assets (MSRs at fair value: $1,119 and $1,307 at September 30, 2016 and December 31, 2015, respectively)1,131
 1,325
Other assets6,096
 5,582
Total assets
$205,091
 
$190,817
    
Liabilities   
Noninterest-bearing deposits
$43,835
 
$42,272
Interest-bearing deposits (CDs at fair value: $54 and $0 at September 30, 2016 and December 31, 2015, respectively)115,007
 107,558
Total deposits158,842
 149,830
Funds purchased2,226
 1,949
Securities sold under agreements to repurchase1,724
 1,654
Other short-term borrowings949
 1,024
Long-term debt 3 ($963 and $973 at fair value at September 30, 2016 and December 31, 2015, respectively)
11,866
 8,462
Trading liabilities and derivative instruments1,484
 1,263
Other liabilities3,551
 3,198
Total liabilities180,642
 167,380
Shareholders’ Equity   
Preferred stock, no par value1,225
 1,225
Common stock, $1.00 par value550
 550
Additional paid-in capital9,009
 9,094
Retained earnings15,681
 14,686
Treasury stock, at cost, and other 4
(2,131) (1,658)
Accumulated other comprehensive income/(loss), net of tax115
 (460)
Total shareholders’ equity24,449
 23,437
Total liabilities and shareholders’ equity
$205,091
 
$190,817
    
Common shares outstanding 5
495,936
 508,712
Common shares authorized750,000
 750,000
Preferred shares outstanding12
 12
Preferred shares authorized50,000
 50,000
Treasury shares of common stock53,985
 41,209
    
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral

$1,495
 
$1,377
2 Includes loans of consolidated VIEs
219
 246
3 Includes debt of consolidated VIEs
230
 259
4 Includes noncontrolling interest
101
 108
5 Includes restricted shares
21
 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 (Loss)/Income TotalPreferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
Treasury Stock
and Other 1
 Accumulated Other Comprehensive (Loss)/Income Total
Balance, January 1, 2014
$725
 536
 
$550
 
$9,115
 
$11,936
 
($615) 
($289) 
$21,422
Net income—
 —
 —
 —
 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

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

$1,225
 514
 
$550
 
$9,087
 
$14,341
 
($1,451) 
($88) 
$23,664
               
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—
 —
 —
 —
 1,413
 —
 —
 1,413
Other comprehensive income—
 —
 —
 —
 —
 —
 580
 580
Change in noncontrolling interest—
 —
 —
 —
 —
 (7) —
 (7)
Common stock dividends, $0.74 per share—
 —
 —
 —
 (370) —
 —
 (370)
Preferred stock dividends 2
—
 —
 —
 —
 (49) —
 —
 (49)
Repurchase of common stock—
 (15) —
 —
 —
 (566) —
 (566)
Repurchase of common stock warrants—
 —
 —
 (24) —
 —
 —
 (24)
Exercise of stock options and stock compensation expense 4
—
 1
 —
 (28) —
 43
 —
 15
Restricted stock activity 4
—
 1
 —
 (33) (4) 55
 —
 18
Amortization of restricted stock compensation—
 —
 —
 —
 —
 2
 —
 2
Balance, September 30, 2016
$1,225
 496
 
$550
 
$9,009
 
$15,681
 
($2,131) 
$115
 
$24,449
1 At September 30, 2016, includes ($2,232) million for treasury stock, $0 million for the compensation element of restricted stock, and $101 million for noncontrolling interest.
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, 2016, dividends were $3,056 per share for both Perpetual Preferred Stock Series A and B, $4,406 per share for Perpetual Preferred Stock Series E, and $4,219 per share for Perpetual Preferred Stock Series F.
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
3 Related to the nine months ended September 30, 2014, dividends were $3,044 per shareCompany's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk, beginning January 1, 2016. See Note 1, "Significant Accounting Policies," and Note 17, "Accumulated Other Comprehensive Income/(Loss)," for both Perpetual Preferred Stock Series Aadditional information.
4 Includes a ($4) million net reclassification of excess tax benefits from additional paid-in capital to provision for income taxes, related to the Company's early adoption of ASU 2016-09. See Note 1, "Significant Accounting Policies," and B, and $4,406 per shareNote 11, "Employee Benefit Plans," for Perpetual Preferred Stock Series E.additional information.


See accompanying Notes to Consolidated Financial Statements (unaudited).


5


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30Nine Months Ended September 30
(Dollars in millions) (Unaudited)2015 20142016 2015
Cash Flows from Operating Activities      
Net income including income attributable to noncontrolling interest
$1,456
 
$1,391

$1,420
 
$1,456
Adjustments to reconcile net income to net cash provided by operating activities:   
Gain on sale of subsidiary—
 (105)
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:   
Depreciation, amortization, and accretion596
 504
533
 596
Origination of mortgage servicing rights(185) (137)(198) (185)
Provisions for credit losses and foreclosed property122
 286
347
 122
Stock-based compensation65
 50
85
 65
Excess tax benefits from stock-based compensation(18) (5)
Net securities (gains)/losses(21) 11
Net securities gains(4) (21)
Net gain on sale of loans held for sale, loans, and other assets(249) (239)(376) (249)
Net decrease/(increase) in loans held for sale644
 (139)
Net (increase)/decrease in loans held for sale(1,647) 644
Net increase in trading assets(183) (1,088)(704) (183)
Net (increase)/decrease in other assets(26) 189
Net decrease in other liabilities(196) (155)
Net cash provided by operating activities2,005
 563
Net increase in other assets 1
(193) (26)
Net increase/(decrease) in other liabilities 1
155
 (164)
Net cash (used in)/provided by operating activities(582) 2,055
      
Cash Flows from Investing Activities      
Proceeds from maturities, calls, and paydowns of securities available for sale4,621
 2,788
3,763
 4,621
Proceeds from sales of securities available for sale2,708
 793
197
 2,708
Purchases of securities available for sale(7,861) (6,986)(5,297) (7,861)
Proceeds from sales of auction rate securities—
 59
Net increase in loans, including purchases of loans(2,097) (7,698)(7,007) (2,097)
Proceeds from sales of loans2,048
 3,029
1,482
 2,048
Purchases of mortgage servicing rights(113) (109)(101) (113)
Capital expenditures(74) (96)(188) (74)
Payments related to acquisitions, including contingent consideration(30) (11)(23) (30)
Proceeds from sale of subsidiary—
 193
Proceeds from the sale of other real estate owned and other assets179
 279
171
 179
Net cash used in investing activities(619) (7,759)(7,003) (619)
      
Cash Flows from Financing Activities      
Net increase in total deposits5,804
 6,748
9,012
 5,804
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 debt1,237
 2,574
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings272
 (5,244)
Proceeds from issuance of long-term debt and other4,924
 1,237
Repayments of long-term debt(5,670) (67)(1,448) (5,670)
Repurchase of common stock(465) (348)(566) (465)
Repurchase of common stock warrants(24) —
Common and preferred dividends paid(393) (294)(412) (393)
Incentive compensation related activity32
 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
Taxes paid related to net share settlement of equity awards 1
(47) (32)
Proceeds from exercise of stock options 1
15
 14
Net cash provided by/(used in) financing activities11,726
 (4,749)
   
Net increase/(decrease) in cash and cash equivalents4,141
 (3,313)
Cash and cash equivalents at beginning of period8,229
 5,263
5,599
 8,229
Cash and cash equivalents at end of period
$4,916
 
$8,325

$9,740
 
$4,916
      
Supplemental Disclosures:      
Loans transferred from loans held for sale to loans
$726
 
$39

$23
 
$726
Loans transferred from loans to loans held for sale1,734
 3,183
315
 1,734
Loans transferred from loans and loans held for sale to other real estate owned52
 113
46
 52
Non-cash impact of the deconsolidation of CLO—
 282
Non-cash impact of debt assumed by purchaser in lease sale129
 29
74
 129
1 Related to the Company's early adoption of ASU 2016-09, certain prior period amounts have been retrospectively reclassified between operating activities and financing activities. See Note 1, "Significant Accounting Policies," for additional information.


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 statementsConsolidated 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 statementsConsolidated Financial Statements and accompanying notes. ActualNotes; actual results could vary
from thesethose 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 statementsinterim Consolidated Financial Statements should be read in conjunction with the Company’s 20142015 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 20142015 Annual Report on Form 10-K.
The Company evaluated events that occurred subsequent to September 30, 2016, and there were no material events that would require recognition in the Company's Consolidated Financial Statements or disclosure in the accompanying Notes for the three and nine months ended September 30, 2016, except as follows:
In October of 2016, the Company announced that it signed a definitive agreement to acquire substantially all of the assets of the operating subsidiaries of Pillar Financial, LLC. Pillar is a multi-family agency lending and servicing company with an originate-to-distribute focus that holds licenses with Fannie Mae, Freddie Mac, and the FHA. This acquisition is expected to close in late 2016 or early 2017, subject to certain agency approvals and other closing conditions, and will be part of the Company's Wholesale Banking business segment.


PendingRecently Issued Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncementssummarizes ASUs recently issued by the Financial Accounting Standards Board ("FASB") that could have a material effect on the Company's financial statements:
StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Not Yet Adopted (or partially adopted) in 2016  
ASU 2014-09, Revenue from Contracts with CustomersThe 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,Consolidation, 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, 2016The Company will adoptadopted this ASU on a modified retrospective basis beginning January 1, 2016. The adoption of this standard had no impact to the Consolidated Financial Statements.
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 FVO.

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 continuing to evaluateevaluating the impact of the remaining provisions of this ASU on the financial statementsConsolidated Financial Statements and related disclosures; however, adoptionthe impact is not expected to materiallybe material.
Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
The ASU amends ASC Topic 718, Compensation-Stock Compensation, which simplifies several aspects of the accounting for employee share-based payments transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in 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 early adopted the ASU on April 1, 2016 with an effective date of January 1, 2016, which resulted in a reclassification of $4 million from APIC to provision for income taxes, representing excess tax benefits previously recognized in APIC, during the first quarter of 2016. For the second and third quarters of 2016, the Company recognized excess tax benefits of $6 million and $1 million, respectively, in the provision for income taxes. The early adoption favorably impacted both basic and diluted EPS by $0.02 per share for the nine months ended September 30, 2016.
The effect of the retrospective change in presentation in the Consolidated Statements of Cash Flows related to excess tax benefits for the nine months ended September 30, 2015 (comparative prior year period) was a reclassification of $18 million of excess tax benefits from financing activities to operating activities and a reclassification of $32 million of taxes paid related to net share settlement of equity awards from operating activities to financing activities. The net impact on the Company's financial position,Consolidated Statements of Cash Flows was immaterial.

The Company had no previously unrecognized excess tax benefits; therefore, there was no impact to the Consolidated Financial Statements as it related to the elimination of the requirement that excess tax benefits be realized before recognition.

The Company elected to retain its existing accounting policy election to estimate award forfeitures.
Standards Not Yet Adopted
ASU 2014-09, Revenue from Contracts with Customers

ASU 2015-14, Deferral of the Effective Date

ASU 2016-08, Principal versus Agent Considerations

ASU 2016-10, Identifying Performance Obligations and Licensing

ASU 2016-12, Narrow-Scope Improvements and Practical Expedients

These ASUs supersede 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 ASUs 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 ASUs 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. The Company does not plan to early adopt the standard.

ASU 2016-02, Leases
The ASU creates ASC Topic 842, Leases, and supersedes Topic 840, Leases. Topic 842 requires lessees to recognize right-of-use assets and associated 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. Upon 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 associated lease liabilities for 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.
Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
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 investor obtains significant influence over the investee. In addition, if the investor previously held an AFS equity security, the ASU requires that the investor recognize through earnings the unrealized holding gain or EPS.loss in AOCI, as of the date it obtains significant influence. 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 resulting in a transition to the equity method.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments
The ASU amends ASC Topic 326, Financial Instruments-Credit Losses, to replace the incurred loss impairment methodology with a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend credit. For this purpose, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary prepayments and considering available information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses reflects the portion of the amortized cost basis that the entity does not expect to collect. Additional quantitative and qualitative disclosures are required upon adoption.

The CECL model does not apply to AFS debt securities; however the ASU requires entities to record an allowance when recognizing credit losses for AFS securities, rather than recording a direct write-down of the carrying amount.

January 1, 2020

Early adoption is permitted beginning January 1, 2019.
The Company is evaluating the impact the ASU will have on the Company's 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)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Fed funds sold
$55
 
$38

$31
 
$38
Securities borrowed221
 290
267
 277
Securities purchased under agreements to resell829
 832
1,399
 962
Total Fed funds sold and securities borrowed or purchased under agreements to resell
$1,105
 
$1,160

$1,697
 
$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 agreement.respective agreements. At both September 30, 20152016 and December 31, 2014,2015, the total market value of collateral held was $1.1$1.7 billion and $1.2 billion, of which $219$227 million and $222$73 million was repledged, respectively.


7
Notes to Consolidated Financial Statements (Unaudited), continued



Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
(Dollars in millions)Overnight and Continuous Overnight and Continuous Up to 30 days TotalOvernight and Continuous Up to 30 days 30-90 days Total Overnight and Continuous Up to 30 days Total
U.S. Treasury securities
$84
 
$376
 
$—
 
$376

$27
 
$—
 
$—
 
$27
 
$112
 
$—
 
$112
Federal agency securities223
 231
 —
 231
112
 15
 —
 127
 319
 —
 319
MBS - agency868
 1,059
 45
 1,104
1,026
 64
 —
 1,090
 837
 23
 860
CP37
 238
 —
 238
19
 —
 —
 19
 49
 —
 49
Corporate and other debt securities324
 327
 —
 327
351
 60
 50
 461
 242
 72
 314
Total securities sold under agreements to repurchase
$1,536
 
$2,231
 
$45
 
$2,276

$1,535
 
$139
 
$50
 
$1,724
 
$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.

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, 20152016 and December 31, 2014,2015, 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 inreflected on the Consolidated Balance Sheets to derive the aggregate collateral deficits by counterparty.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
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
September 30, 2015         
September 30, 2016         
Financial assets:                  
Securities borrowed or purchased under agreements to resell
$1,050
 
$—
 
$1,050
1 

$1,043
 
$7

$1,666
 
$—
 
$1,666
1 

$1,652
 
$14
Financial liabilities:                  
Securities sold under agreements to repurchase1,536
 —
 1,536
 1,536
 —
1,724
 —
 1,724
 1,724
 —
                  
December 31, 2014         
December 31, 2015         
Financial assets:                  
Securities borrowed or purchased under agreements to resell
$1,122
 
$—
 
$1,122
1 

$1,112
 
$10

$1,239
 
$—
 
$1,239
1 

$1,229
 
$10
Financial liabilities:                  
Securities sold under agreements to repurchase2,276
 —
 2,276
 2,276
 —
1,654
 —
 1,654
 1,654
 —
1 Excludes $55$31 million and $38 million of Fed funds sold, which are not subject to a master netting agreement at September 30, 20152016 and December 31, 2014,2015, respectively.



8
Notes to Consolidated Financial Statements (Unaudited), continued




NOTE 3 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS

The fair values of the components of trading assets and liabilities and derivative instruments were as follows:are presented in the following table:
(Dollars in millions)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Trading Assets and Derivative Instruments:      
U.S. Treasury securities
$443
 
$267

$547
 
$538
Federal agency securities532
 547
259
 588
U.S. states and political subdivisions40
 42
187
 30
MBS - agency565
 545
883
 553
CLO securities2
 3
1
 2
Corporate and other debt securities390
 509
723
 468
CP312
 327
202
 67
Equity securities65
 45
51
 66
Derivative instruments 1
1,449
 1,307
1,531
 1,152
Trading loans 2
2,739
 2,610
2,660
 2,655
Total trading assets and derivative instruments
$6,537
 
$6,202

$7,044
 
$6,119
      
Trading Liabilities and Derivative Instruments:      
U.S. Treasury securities
$584
 
$485

$918
 
$503
MBS - agency4
 1
2
 37
Corporate and other debt securities177
 279
252
 259
Derivative instruments 1
565
 462
312
 464
Total trading liabilities and derivative instruments
$1,330
 
$1,227

$1,484
 
$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 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 itsSTRH, 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, and 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 has pledged $857Pledged trading assets are presented in the following table:
(Dollars in millions)September 30, 2016 December 31, 2015
Pledged trading assets to secure repurchase agreements 1


$1,037
 
$986
Pledged trading assets to secure derivative agreements

465
 393
Pledged trading assets to secure other arrangements

40
 40
1 Repurchase agreements secured by collateral totaled $999 million and $1.1 billion of trading securities to secure $825$950 million and $1.1 billion of repurchase agreements at September 30, 20152016 and December 31, 2014,2015, 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.




9
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 4 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
September 30, 2015September 30, 2016
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value		Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
U.S. Treasury securities
$3,020
 
$45
 
$—
 
$3,065

$4,850
 
$135
 
$2
 
$4,983
Federal agency securities408
 13
 1
 420
324
 10
 —
 334
U.S. states and political subdivisions167
 7
 —
 174
250
 11
 —
 261
MBS - agency22,452
 511
 58
 22,905
22,606
 714
 4
 23,316
MBS - private100
 2
 —
 102
MBS - non-agency residential75
 1
 —
 76
ABS13
 2
 —
 15
9
 2
 —
 11
Corporate and other debt securities36
 2
 —
 38
35
 1
 —
 36
Other equity securities 1
551
 1
 1
 551
655
 1
 1
 655
Total securities AFS
$26,747
 
$583
 
$60
 
$27,270

$28,804
 
$875
 
$7
 
$29,672
              
December 31, 2014December 31, 2015
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value		Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
U.S. Treasury securities
$1,913
 
$9
 
$1
 
$1,921

$3,460
 
$3
 
$14
 
$3,449
Federal agency securities471
 15
 2
 484
402
 10
 1
 411
U.S. states and political subdivisions200
 9
 —
 209
156
 8
 —
 164
MBS - agency22,573
 558
 83
 23,048
22,877
 397
 150
 23,124
MBS - private122
 2
 1
 123
MBS - non-agency residential92
 2
 —
 94
ABS19
 2
 —
 21
11
 2
 1
 12
Corporate and other debt securities38
 3
 —
 41
37
 1
 —
 38
Other equity securities 1
921
 2
 —
 923
533
 1
 1
 533
Total securities AFS
$26,257
 
$600
 
$87
 
$26,770

$27,568
 
$424
 
$167
 
$27,825
1 At September 30, 2016, the fair value of other equity securities was comprised of the following: $143 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $104 million of mutual fund investments, and $6 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, $111$93 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 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 20142016 2015 2016 2015
Taxable interest
$143
 
$142
 
$397
 
$421

$154
 
$143
 
$470
 
$397
Tax-exempt interest2
 2
 5
 8
2
 2
 4
 5
Dividends8
 9
 28
 27
3
 8
 9
 28
Total interest and dividends
$153
 
$153
 
$430
 
$456
Total interest and dividends on securities AFS
$159
 
$153
 
$483
 
$430

Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $2.9$3.5 billion and $2.6$3.2 billion at September 30, 20152016 and December 31, 2014,2015, respectively.



10
Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents the amortized cost, and fair value, and weighted average yield of investments in debt securities AFS at September 30, 2015,2016, by remaining contractual maturity, with the exception of MBS and ABS, which are based on estimated average life, are shown below.life. 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 MaturitiesDistribution of Remaining Maturities
(Dollars in millions)
1 Year
or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 TotalDue 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
$25
 
$921
 
$2,074
 
$—
 
$3,020

$—
 
$1,847
 
$3,003
 
$—
 
$4,850
Federal agency securities159
 109
 14
 126
 408
118
 92
 7
 107
 324
U.S. states and political subdivisions38
 13
 101
 15
 167
20
 21
 125
 84
 250
MBS - agency2,462
 11,098
 3,756
 5,136
 22,452
2,024
 13,277
 7,104
 201
 22,606
MBS - private3
 89
 8
 —
 100
MBS - non-agency residential—
 75
 —
 —
 75
ABS—
 12
 1
 —
 13
7
 1
 1
 —
 9
Corporate and other debt securities—
 36
 —
 —
 36
—
 35
 —
 —
 35
Total debt securities AFS
$2,687
 
$12,278
 
$5,954
 
$5,277
 
$26,196

$2,169
 
$15,348
 
$10,240
 
$392
 
$28,149
         
Fair Value:                  
U.S. Treasury securities
$25
 
$931
 
$2,109
 
$—
 
$3,065

$—
 
$1,874
 
$3,109
 
$—
 
$4,983
Federal agency securities163
 116
 14
 127
 420
118
 98
 8
 110
 334
U.S. states and political subdivisions39
 13
 106
 16
 174
20
 23
 133
 85
 261
MBS - agency2,605
 11,391
 3,772
 5,137
 22,905
2,129
 13,719
 7,259
 209
 23,316
MBS - private3
 91
 8
 —
 102
MBS - non-agency residential—
 76
 —
 —
 76
ABS—
 13
 2
 —
 15
7
 3
 1
 —
 11
Corporate and other debt securities—
 38
 —
 —
 38
—
 36
 —
 —
 36
Total debt securities AFS
$2,835
 
$12,593
 
$6,011
 
$5,280
 
$26,719

$2,274
 
$15,829
 
$10,510
 
$404
 
$29,017
Weighted average yield 1
2.35% 2.41% 2.57% 2.80% 2.52%2.75% 2.38% 2.42% 3.17% 2.44%
1 Weighted average yields are based on amortized cost and presented on an FTE basis.cost.

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 priceprices of securities fluctuates.fluctuate. At September 30, 2015,2016, the Company did not intend to sell these securities nor was it more-more-likely-than-not
 
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 20142015 Annual Report on Form 10-K. The following tables show securities


Securities AFS in an unrealized loss position at period end.end are presented in the following tables:

September 30, 2015September 30, 2016
Less than twelve months Twelve months or longer TotalLess 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
Fair
Value		 
Unrealized
Losses 2
 Fair
Value		 
Unrealized
Losses 2
 Fair
Value		 
Unrealized
Losses 2
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$350
 
$2
 
$—
 
$—
 
$350
 
$2
Federal agency securities
$33
 
$—
 
$35
 
$1
 
$68
 
$1
15
 —
 3
 —
 18
 —
U.S. states and political subdivisions52
 —
 —
 —
 52
 —
MBS - agency3,996
 35
 982
 23
 4,978
 58
611
 1
 513
 3
 1,124
 4
ABS—
 —
 9
 —
 9
 —
—
 —
 6
 —
 6
 —
Other equity securities4
 1
 —
 —
 4
 1
—
 —
 4
 1
 4
 1
Total temporarily impaired securities AFS4,033
 36

1,026

24

5,059

60
1,028
 3

526

4

1,554

7
OTTI securities AFS 1:
                      
MBS - non-agency residential17
 —
 —
 —
 17
 —
ABS1
 —
 —
 —
 1
 —
Total OTTI securities AFS—
 —
 —
 —
 —
 —
18
 —
 —
 —
 18
 —
Total impaired securities AFS
$4,033
 
$36
 
$1,026
 
$24
 
$5,059
 
$60

$1,046
 
$3
 
$526
 
$4
 
$1,572
 
$7


11
Notes to Consolidated Financial Statements (Unaudited), continued




December 31, 2014December 31, 2015
Less than twelve months Twelve months or longer TotalLess 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
Fair
Value
 
Unrealized
 Losses 2
 
Fair
Value
 Unrealized
Losses		 
Fair
Value
 
Unrealized
 Losses 2
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$150
 
$1
 
$—
 
$—
 
$150
 
$1

$2,169
 
$14
 
$—
 
$—
 
$2,169
 
$14
Federal agency securities20
 —
 132
 2
 152
 2
75
 —
 34
 1
 109
 1
MBS - agency2,347
 6
 4,911
 77
 7,258
 83
11,434
 114
 958
 36
 12,392
 150
ABS—
 —
 14
 —
 14
 —
—
 —
 7
 1
 7
 1
Other equity securities3
 1
 —
 —
 3
 1
Total temporarily impaired securities AFS2,517
 7
 5,057
 79
 7,574
 86
13,681
 129
 999
 38
 14,680
 167
OTTI securities AFS 1:
                      
MBS - private69
 1
 —
 —
 69
 1
ABS1
 —
 —
 —
 1
 —
Total OTTI securities AFS69
 1
 —
 —
 69
 1
1
 —
 —
 —
 1
 —
Total impaired securities AFS
$2,586
 
$8
 
$5,057
 
$79
 
$7,643
 
$87

$13,682
 
$129
 
$999
 
$38
 
$14,681
 
$167
1 Includes OTTI securities AFS are impaired securities for which OTTI credit losses have been recordedpreviously recognized in earnings in current or prior periods.earnings.
2 Unrealized losses less than $0.5 million are presented as zero within the table.

At September 30, 2015, unrealized losses on2016, temporarily impaired securities AFS that have been in a temporarily impairedan unrealized loss position for longer than twelve months or longer included agency MBS, federal agency securities, and one ABS collateralized by 2004 vintage home equity loans. Unrealized losses on federal agency securitiesloans, and agency MBS securities at September 30, 2015 were due to market interest rates being higher than the securities' stated yields.one equity security. The temporarily impaired 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 unrealizedUnrealized losses on OTTI securities AFS that relatesrelate 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.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. GrossFor the three months ended September 30, 2016, no gross realized gains of $11 million and $25 million were recognized forrecognized. For the nine months ended September 30, 2016, gross realized gains were $4 million. For both the three and nine months ended September 30, 2016, gross realized losses were immaterial and there were no OTTI credit losses recognized in earnings. For the three and nine months ended September 30, 2015, gross realized gains were $11 million and $25 million, 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
Securities AFS in an unrealized loss position are evaluated quarterly 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.
Creditother-than-temporary credit impairment, thatwhich is determined through the use of models is estimated using cash flows onflow analyses that take into account 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. Credit losses on the OTTI credit lossessecurity 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 these securities.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 impairmentcredit losses recognized in earnings includes credit losses on a debt securities thatsecurity exceeds the total unrealized losses and as aon the security, which may result the securities may havein unrealized gains in AOCI relating to factors other than credit.credit recorded in AOCI, net of tax.
During the three and nine months ended September 30, 2016, there were no credit impairment losses recognized on securities AFS held at the end of the period. During the three and nine months ended September 30, 2015, credit impairment recognized on securities AFS still held at the end of eachthe 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 OTTI credit losses recognized in earnings on securities AFS held at period end was $24 million at September 30, 2016 and $25 million at both September 30, 2015 and 2014.2015. 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.



12
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 5 - LOANS
Composition of Loan Portfolio
(Dollars in millions)September 30,
2015		 December 31, 2014September 30, 2016 December 31, 2015
Commercial loans:      
C&I
$65,371
 
$65,440

$68,298
 
$67,062
CRE6,168
 6,741
5,056
 6,236
Commercial construction1,763
 1,211
3,875
 1,954
Total commercial loans73,302
 73,392
77,229
 75,252
Residential loans:      
Residential mortgages - guaranteed627
 632
521
 629
Residential mortgages - nonguaranteed 1
24,351
 23,443
26,306
 24,744
Home equity products13,416
 14,264
Residential home equity products12,178
 13,171
Residential construction394
 436
393
 384
Total residential loans38,788
 38,775
39,398
 38,928
Consumer loans:      
Guaranteed student4,588
 4,827
5,844
 4,922
Other direct5,771
 4,573
7,358
 6,127
Indirect10,119
 10,644
10,434
 10,127
Credit cards992
 901
1,269
 1,086
Total consumer loans21,470
 20,945
24,905
 22,262
LHFI
$133,560
 
$133,112

$141,532
 
$136,442
LHFS 2

$2,032
 
$3,232

$3,772
 
$1,838
1 Includes $262$234 million and $272$257 million of LHFI measured at fair value at September 30, 20152016 and December 31, 2014,2015, respectively.
2 Includes $1.9$3.0 billion and $1.5 billion of LHFS measured at fair value at both September 30, 20152016 and December 31, 2014.2015, respectively.
During the three months ended September 30, 20152016 and 2014,2015, the Company transferred $38$153 million and $362$38 million in LHFI to LHFS, and $75$13 million and $19$75 million in LHFS to LHFI, respectively. Additionally,In addition to sales of mortgage LHFS in the normal course of business, the Company sold $1.2 billion and $178 million in loans and leases for net gains of $8 million and $9 million during the three months ended September 30, 20152016 and 2014, the Company sold $178 million and $2.3 billion in loans and leases for gains of $9 million and $40 million,2015, respectively.
During the nine months ended September 30, 20152016 and 2014,2015, the Company transferred $1.7 billion$315 million and $3.2$1.7 billion in LHFI to LHFS, and $726$23 million and $39$726 million in LHFS to LHFI, respectively. Additionally,In addition to sales of mortgage LHFS in the normal course of business, the Company sold $1.5 billion and $2.0 billion in loans and leases for net gains of $6 million and $22 million during the nine months ended September 30, 20152016 and 2014, the Company sold $2.0 billion and $3.0 billion in loans and leases for gains of $22 million and $71 million,2015, respectively.
At both September 30, 20152016 and December 31, 2014,2015, the Company had $23.3 billion and $26.5$23.6 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $17.0$17.1 billion and $18.4$17.2 billion of available, unused borrowing capacity, respectively.
At September 30, 20152016 and December 31, 2014,2015, the Company had $32.0$36.1 billion and $31.2$33.7 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $26.2$31.1 billion and $24.3$28.5 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at September 30, 2016 was used to support $3.0 billion of long-term debt and $4.4 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 $6.2$6.7 billion of letters of credit issued on the Company's behalf. At December 31, 2014, the available FHLB borrowing capacity was used to support $4.0 billion of long-term debt, $4.0 billion of short-term debt, and $7.9 billion of letters of credit issued on the Company's behalf.

Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analyses, and/or qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs, whereas, Criticized assets have higher PDs. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Criticized Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Criticized 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 fromunder those where full collectionloan agreements. The Company's risk rating system is less certain.more 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 establishing 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 criticizedCriticized accruing and nonaccruing C&I loans at September 30, 20152016 compared to December 31, 2014,2015, as presented in the following risk rating table, was due todriven primarily by downgrades of loans primarily in the energy industry vertical that were downgraded to substandard during the first nine months of 2015.vertical.


13
Notes to Consolidated Financial Statements (Unaudited), continued



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 September 30, 20152016 and December 31, 2014, 32%2015, 28% and 28%31%, respectively, of the guaranteed residential loan

Notes to Consolidated Financial Statements (Unaudited), continued



portfolio was current with respect to payments. At September 30, 20152016 and December 31, 2014, 81%2015, 77% and 79%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.



LHFI by credit quality indicator are shownpresented in the tables below:following tables:
Commercial LoansCommercial Loans
C&I CRE Commercial ConstructionC&I CRE Commercial Construction
(Dollars in millions)September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Risk rating:                      
Pass
$63,826
 
$64,228
 
$6,033
 
$6,586
 
$1,739
 
$1,196

$65,800
 
$65,379
 
$4,688
 
$6,067
 
$3,749
 
$1,931
Criticized accruing1,423
 1,061
 120
 134
 23
 14
1,997
 1,375
 358
 158
 124
 23
Criticized nonaccruing122
 151
 15
 21
 1
 1
501
 308
 10
 11
 2
 —
Total
$65,371
 
$65,440
 
$6,168
 
$6,741
 
$1,763
 
$1,211

$68,298
 
$67,062
 
$5,056
 
$6,236
 
$3,875
 
$1,954

Residential Loans 1
Residential Loans 1
Residential Mortgages -
Nonguaranteed
 Home Equity Products Residential Construction
Residential Mortgages -
Nonguaranteed
 Residential Home Equity Products Residential Construction
(Dollars in millions)September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Current FICO score range:                      
700 and above
$19,936
 
$18,780
 
$10,897
 
$11,475
 
$321
 
$347

$22,342
 
$20,422
 
$10,016
 
$10,772
 
$331
 
$313
620 - 6993,330
 3,369
 1,827
 1,991
 59
 70
3,037
 3,262
 1,590
 1,741
 51
 58
Below 620 2
1,085
 1,294
 692
 798
 14
 19
927
 1,060
 572
 658
 11
 13
Total
$24,351
 
$23,443
 
$13,416
 
$14,264
 
$394
 
$436

$26,306
 
$24,744
 
$12,178
 
$13,171
 
$393
 
$384

Consumer Loans 3
Consumer Loans 3
Other Direct Indirect Credit CardsOther Direct Indirect Credit Cards
(Dollars in millions)September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Current FICO score range:                      
700 and above
$5,180
 
$4,023
 
$7,053
 
$7,661
 
$690
 
$639

$6,649
 
$5,501
 
$7,377
 
$7,015
 
$878
 
$759
620 - 699536
 476
 2,426
 2,335
 245
 212
659
 576
 2,483
 2,481
 317
 265
Below 620 2
55
 74
 640
 648
 57
 50
50
 50
 574
 631
 74
 62
Total
$5,771
 
$4,573
 
$10,119
 
$10,644
 
$992
 
$901

$7,358
 
$6,127
 
$10,434
 
$10,127
 
$1,269
 
$1,086
1 Excludes $627$521 million and $632$629 million of guaranteed residential loans at September 30, 20152016 and December 31, 2014,2015, respectively.
2 For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
3 Excludes $4.6$5.8 billion and $4.8$4.9 billion of guaranteed student loans at September 30, 20152016 and December 31, 2014,2015, respectively.

14
Notes to Consolidated Financial Statements (Unaudited), continued




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

September 30, 2015September 30, 2016
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 Total
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 Total
Commercial loans:                  
C&I
$65,148
 
$89
 
$12
 
$122
 
$65,371

$67,751
 
$36
 
$10
 
$501
 
$68,298
CRE6,150
 2
 1
 15
 6,168
5,044
 2
 —
 10
 5,056
Commercial construction1,762
 —
 —
 1
 1,763
3,873
 —
 —
 2
 3,875
Total commercial loans73,060
 91
 13
 138
 73,302
76,668
 38
 10
 513
 77,229
Residential loans:                  
Residential mortgages - guaranteed200
 51
 376
 —
 627
148
 54
 319
 —
 521
Residential mortgages - nonguaranteed 1
24,081
 105
 9
 156
 24,351
26,038
 77
 8
 183
 26,306
Home equity products13,189
 81
 —
 146
 13,416
Residential home equity products11,866
 77
 —
 235
 12,178
Residential construction375
 3
 —
 16
 394
381
 1
 —
 11
 393
Total residential loans37,845
 240
 385
 318
 38,788
38,433
 209
 327
 429
 39,398
Consumer loans:                  
Guaranteed student3,724
 367
 497
 —
 4,588
4,526
 522
 796
 —
 5,844
Other direct5,742
 22
 3
 4
 5,771
7,322
 28
 3
 5
 7,358
Indirect10,032
 83
 1
 3
 10,119
10,329
 103
 —
 2
 10,434
Credit cards978
 8
 6
 —
 992
1,251
 10
 8
 —
 1,269
Total consumer loans20,476
 480
 507
 7
 21,470
23,428
 663
 807
 7
 24,905
Total LHFI
$131,381
 
$811
 
$905
 
$463
 
$133,560

$138,529
 
$910
 
$1,144
 
$949
 
$141,532
1 Includes $262$234 million of loans measured at fair value, the majority of which were accruing current.
2 Nonaccruing loans past due 90 days or more totaled $278$342 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs, and performing second lien loans which are classified as nonaccrual whenwhere the first lien loan is nonperforming.nonperforming, and certain energy-related commercial loans. 


December 31, 2014December 31, 2015
(Dollars in millions)
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 Total
Accruing
Current
 
Accruing
30-89 Days
Past Due
 
Accruing
90+ Days
Past Due
 
 Nonaccruing 2
 Total
Commercial loans:                  
C&I
$65,246
 
$36
 
$7
 
$151
 
$65,440

$66,670
 
$61
 
$23
 
$308
 
$67,062
CRE6,716
 3
 1
 21
 6,741
6,222
 3
 —
 11
 6,236
Commercial construction1,209
 1
 —
 1
 1,211
1,952
 —
 2
 —
 1,954
Total commercial loans73,171
 40
 8
 173
 73,392
74,844
 64
 25
 319
 75,252
Residential loans:                  
Residential mortgages - guaranteed176
 34
 422
 —
 632
192
 59
 378
 —
 629
Residential mortgages - nonguaranteed 1
23,067
 108
 14
 254
 23,443
24,449
 105
 7
 183
 24,744
Home equity products13,989
 101
 —
 174
 14,264
Residential home equity products12,939
 87
 —
 145
 13,171
Residential construction402
 7
 —
 27
 436
365
 3
 —
 16
 384
Total residential loans37,634
 250
 436
 455
 38,775
37,945
 254
 385
 344
 38,928
Consumer loans:                  
Guaranteed student3,801
 425
 601
 —
 4,827
3,861
 500
 561
 —
 4,922
Other direct4,545
 19
 3
 6
 4,573
6,094
 24
 3
 6
 6,127
Indirect10,537
 104
 3
 —
 10,644
10,022
 102
 —
 3
 10,127
Credit cards887
 8
 6
 —
 901
1,070
 9
 7
 —
 1,086
Total consumer loans19,770
 556
 613
 6
 20,945
21,047
 635
 571
 9
 22,262
Total LHFI
$130,575
 
$846
 
$1,057
 
$634
 
$133,112

$133,836
 
$953
 
$981
 
$672
 
$136,442
1 Includes $272$257 million of loans measured at fair value, the majority of which were accruing current.
2 Nonaccruing loans past due 90 days or more totaled $388$336 million. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs and performing second lien loans which are classified as nonaccrual whenwhere the first lien loan is nonperforming.nonperforming, and certain energy-related commercial loans.

15
Notes to Consolidated Financial Statements (Unaudited), continued




Impaired Loans
A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Commercial nonaccrual loans greater than $3 million and certain commercial, residential, and consumer loans whose terms have been modified in a TDR are individually evaluated
 
for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the following tables below exclude guaranteed consumer student loans and guaranteed residential mortgages for which there was nominal risk of principal loss.


September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
(Dollars in millions)
Unpaid
Principal
Balance
 
Amortized
 Cost 1
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Amortized
 Cost 1
 
Related
Allowance
Unpaid
Principal
Balance
 
Amortized
 Cost 1
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Amortized
 Cost 1
 
Related
Allowance
Impaired loans with no related allowance recorded:           Impaired loans with no related allowance recorded:          
Commercial loans:                      
C&I
$59
 
$49
 
$—
 
$70
 
$51
 
$—

$278
 
$263
 
$—
 
$55
 
$42
 
$—
CRE11
 9
 —
 12
 11
 —
—
 —
 —
 11
 9
 —
Total commercial loans70
 58
 —
 82
 62
 —
278
 263
 —
 66
 51
 —
Residential loans:                      
Residential mortgages - nonguaranteed431
 326
 —
 592
 425
 —
468
 361
 —
 500
 380
 —
Residential construction24
 9
 —
 31
 9
 —
16
 8
 —
 29
 8
 —
Total residential loans455
 335
 —
 623
 434
 —
484
 369
 —
 529
 388
 —
           
Impaired loans with an allowance recorded:                      
Commercial loans:                      
C&I14
 12
 7
 27
 26
 7
239
 171
 40
 173
 167
 28
CRE—
 —
 —
 4
 4
 4
Total commercial loans14
 12
 7
 31
 30
 11
239
 171
 40
 173
 167
 28
Residential loans:                      
Residential mortgages - nonguaranteed1,451
 1,395
 181
 1,381
 1,354
 215
1,320
 1,288
 160
 1,381
 1,344
 178
Home equity products709
 637
 60
 703
 630
 66
Residential home equity products837
 766
 54
 740
 670
 60
Residential construction128
 124
 14
 145
 145
 19
113
 112
 11
 127
 125
 14
Total residential loans2,288
 2,156
 255
 2,229
 2,129
 300
2,270
 2,166
 225
 2,248
 2,139
 252
Consumer loans:                      
Other direct11
 11
 1
 13
 13
 1
10
 10
 1
 11
 11
 1
Indirect113
 112
 5
 105
 105
 5
108
 107
 5
 114
 114
 5
Credit cards24
 6
 1
 25
 8
 2
24
 6
 1
 24
 6
 1
Total consumer loans148
 129
 7
 143
 126
 8
142
 123
 7
 149
 131
 7
Total impaired loans
$2,975
 
$2,690
 
$269
 
$3,108
 
$2,781
 
$319

$3,413
 
$3,092
 
$272
 
$3,165
 
$2,876
 
$287
1 Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduceadjust the net book balance.



Included in the impaired loan balances above at both September 30, 20152016 and December 31, 20142015 were $2.5 billion and $2.6 billion, respectively, of accruing TDRs at amortized cost, of which 97% and 96% were current, respectively.current. See Note 1, “Significant Accounting Policies,” to the Company's 20142015 Annual Report on Form 10-K for further information regarding the Company’s loan impairment policy.


16
Notes to Consolidated Financial Statements (Unaudited), continued





Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
2015 2014 2015 20142016 2015 2016 2015
(Dollars in millions)
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
 
Average
Amortized
Cost
 
Interest
Income
Recognized1
Impaired loans with no related allowance recorded:Impaired loans with no related allowance recorded:            Impaired loans with no related allowance recorded:      
Commercial loans:                              
C&I
$51
 
$—
 
$65
 
$—
 
$53
 
$1
 
$68
 
$1

$268
 
$1
 
$51
 
$—
 
$200
 
$1
 
$53
 
$1
CRE9
 —
 15
 —
 10
 —
 16
 —
—
 —
 9
 —
 —
 —
 10
 —
Total commercial loans60
 —
 80
 —
 63
 1
 84
 1
268
 1
 60
 —
 200
 1
 63
 1
Residential loans:                              
Residential mortgages - nonguaranteed330
 4
 454
 5
 335
 11
 467
 14
364
 4
 330
 4
 368
 12
 335
 11
Residential construction9
 —
 14
 —
 11
 —
 15
 —
8
 —
 9
 —
 8
 —
 11
 —
Total residential loans339
 4
 468
 5
 346
 11
 482
 14
372
 4
 339
 4
 376
 12
 346
 11
               
Impaired loans with an allowance recorded:Impaired loans with an allowance recorded:            Impaired loans with an allowance recorded:            
Commercial loans:                              
C&I20
 —
 45
 —
 23
 1
 46
 1
188
 —
 20
 —
 185
 1
 23
 1
CRE—
 —
 10
 —
 —
 —
 9
 —
Total commercial loans20
 —
 55
 —
 23
 1
 55
 1
188
 —
 20
 —
 185
 1
 23
 1
Residential loans:                              
Residential mortgages - nonguaranteed1,393
 17
 1,467
 18
 1,396
 52
 1,443
 59
1,288
 15
 1,393
 17
 1,292
 48
 1,396
 52
Home equity products640
 7
 668
 7
 646
 21
 662
 20
Residential home equity products771
 7
 640
 7
 780
 22
 646
 21
Residential construction124
 2
 164
 2
 125
 6
 162
 6
112
 1
 124
 2
 114
 4
 125
 6
Total residential loans2,157
 26
 2,299
 27
 2,167
 79
 2,267
 85
2,171
 23
 2,157
 26
 2,186
 74
 2,167
 79
Consumer loans:                              
Other direct12
 —
 14
 —
 12
 —
 14
 —
10
 —
 12
 —
 11
 —
 12
 —
Indirect114
 1
 116
 1
 119
 4
 110
 4
109
 1
 114
 1
 115
 4
 119
 4
Credit cards6
 —
 10
 —
 7
 —
 11
 1
6
 —
 6
 —
 6
 —
 7
 —
Total consumer loans132
 1
 140
 1
 138
 4
 135
 5
125
 1
 132
 1
 132
 4
 138
 4
Total impaired loans
$2,708
 
$31
 
$3,042
 
$33
 
$2,737
 
$96
 
$3,023
 
$106

$3,124
 
$29
 
$2,708
 
$31
 
$3,079
 
$92
 
$2,737
 
$96
1 Of the interest income recognized during the three and nine months ended September 30, 2016, cash basis interest income was less than $1 million and $2 million, respectively.
Of the interest income recognized during the three and nine months ended September 30, 2015, cash basis interest income was $1 million and $3 million, respectively.
Of the interest income recognized during the three and nine months ended September 30, 2014, cash basis interest income was less than $1 million and $2 million, respectively.


17
Notes to Consolidated Financial Statements (Unaudited), continued




NPAs are shownpresented in the following table:

(Dollars in millions)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Nonaccrual/NPLs:      
Commercial loans:      
C&I
$122
 
$151

$501
 
$308
CRE15
 21
10
 11
Commercial construction1
 1
2
 —
Residential loans:      
Residential mortgages - nonguaranteed156
 254
183
 183
Home equity products146
 174
Residential home equity products235
 145
Residential construction16
 27
11
 16
Consumer loans:      
Other direct4
 6
5
 6
Indirect3
 —
2
 3
Total nonaccrual/NPLs 1
463
 634
949
 672
OREO 2
62
 99
57
 56
Other repossessed assets7
 9
13
 7
Nonperforming LHFS—
 38
Total NPAs
$532
 
$780

$1,019
 
$735
1Nonaccruing restructured loans are included in total nonaccrual/nonaccrual/NPLs.
2 Does not include foreclosed real estate related to loans insured by the FHA or the VA. Proceeds due from the FHA and the VA are recorded as a receivable in other assets in the Consolidated Balance Sheets until the property is conveyed and the funds are received and the property is conveyed.received. The receivable amount related to proceeds due from the FHA or the VA totaled $50$51 million and $57$52 million at September 30, 20152016 and December 31, 2014,2015, respectively.



The Company's recorded investment of nonaccruing loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 20152016 and December 31, 20142015 was $99$105 million and $152$112 million, respectively, included in NPLs in the table above.respectively. The Company's recorded investment of accruing loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 20152016 and
December 31, 20142015 was $169$140 million and $194$152 million, of which $158$131 million and $179$141 million were insured by the FHA or the VA, respectively.
At September 30, 2015 and December 31, 2014,2016, OREO was comprised of $50 million and $75included $46 million of foreclosed residential real estate properties and $8 million and $16$9 million of foreclosed commercial real estate properties, respectively, with the remainder related to landland.
At December 31, 2015, OREO included $39 million of foreclosed residential real estate properties and other properties.$11 million of foreclosed commercial real estate properties, with the remainder related to land.



18
Notes to Consolidated Financial Statements (Unaudited), continued




Restructured Loans
A TDR is a loan for which the Company has granted an economic concession to the borrower, in response to certain instances of financial difficulty experienced by the borrower that the Company would not have otherwise considered.considered otherwise. When a loan is modified under the terms of a TDR, the Company typically offers the borrower an extension of the loan maturity date and/or a reduction in the original contractual interest rate. In certain
situations, the Company may offer to restructure a loan in a manner that ultimately results in the forgiveness of a contractually specified principal balance.
At both September 30, 20152016 and December 31, 2014,2015, the Company had an immaterial amount$19 million and $4 million, respectively, of commitments to lend additional funds to debtors whose terms have been modified in a TDR.



The number and amortized cost of loans modified under the terms of a TDR, by type of modification, are shownpresented in the following tables.tables:

Three Months Ended September 30, 2015 1
Three Months Ended September 30, 2016 1
(Dollars in millions)Number of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:                 
C&I18 
$—
 
$—
 
$—
 
$—
44
 
$—
 
$—
 
$49
 
$49
CRE2
 —
 —
 —
 —
Residential loans:                 
Residential mortgages - nonguaranteed175 3
 32
 10
 45
311
 2
 22
 1
 25
Home equity products419 —
 7
 21
 28
Residential home equity products884
 —
 —
 55
 55
Residential construction6 —
 —
 —
 —
26
 —
 —
 —
 —
Consumer loans:                 
Other direct10 —
 —
 —
 —
41
 —
 —
 —
 —
Indirect611 —
 —
 13
 13
897
 —
 —
 9
 9
Credit cards157 —
 1
 —
 1
187
 —
 1
 —
 1
Total TDRs1,396 
$3
 
$40
 
$44
 
$87
2,392
 
$2
 
$23
 
$114
 
$139

Nine Months Ended September 30, 2015 1
Nine months ended September 30, 2016 1
(Dollars in millions)Number of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:                 
C&I63 
$—
 
$1
 
$5
 
$6
79
 
$—
 
$—
 
$95
 
$95
CRE1 —
 —
 —
 —
2
 —
 —
 —
 —
Commercial construction1
 —
 —
 —
 —
Residential loans:                 
Residential mortgages - nonguaranteed632 10
 95
 20
 125
550
 2
 80
 9
 91
Home equity products1,386 —
 20
 62
 82
Residential home equity products2,415
 —
 9
 182
 191
Residential construction17 —
 —
 —
 —
26
 —
 —
 —
 —
Consumer loans:                 
Other direct47 —
 —
 1
 1
73
 —
 —
 1
 1
Indirect1,999 —
 —
 39
 39
1,815
 —
 —
 30
 30
Credit cards529 —
 2
 —
 2
539
 —
 2
 —
 2
Total TDRs4,674 
$10
 
$118
 
$127
 
$255
5,500
 
$2
 
$91
 
$317
 
$410
1 Includes loans modified under the terms of a TDR that were charged-off during the period.
2 Restructured loans which had forgiveness of amounts contractually due under the terms of the loan typicallymay have had multipleother concessions including rate modifications and/or term extensions. The total amount of charge-offs associated with principal forgiveness during both the three and nine months ended September 30, 20152016 was immaterial.


19
Notes to Consolidated Financial Statements (Unaudited), continued




 
Three Months Ended September 30, 2014 1
(Dollars in millions)Number of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:         
C&I23 
$—
 
$—
 
$8
 
$8
Residential loans:         
Residential mortgages - nonguaranteed266 2
 26
 8
 36
Home equity products503 —
 1
 22
 23
Residential construction1 —
 —
 —
 —
Consumer loans:         
Other direct21 —
 —
 —
 —
Indirect638 —
 —
 12
 12
Credit cards123 —
 1
 —
 1
Total TDRs1,575 
$2
 
$28
 
$50
 
$80

Nine Months Ended September 30, 2014 1
Three Months Ended September 30, 2015 1
(Dollars in millions)Number of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:                 
C&I66 
$—
 
$—
 
$22
 
$22
18
 
$—
 
$—
 
$—
 
$—
CRE4 3
 —
 3
 6
Residential loans:                 
Residential mortgages - nonguaranteed944 8
 105
 38
 151
175
 3
 32
 10
 45
Home equity products1,407 —
 6
 59
 65
Residential home equity products419
 —
 7
 21
 28
Residential construction11 —
 1
 —
 1
6
 —
 —
 —
 —
Consumer loans:                 
Other direct59 —
 —
 1
 1
10
 —
 —
 —
 —
Indirect2,189 —
 —
 43
 43
611
 —
 —
 13
 13
Credit cards350 —
 2
 —
 2
157
 —
 1
 —
 1
Total TDRs5,030 
$11
 
$114
 
$166
 
$291
1,396
 
$3
 
$40
 
$44
 
$87

 
Nine months ended September 30, 2015 1
(Dollars in millions)Number of Loans Modified 
Principal
Forgiveness 2
 Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:         
C&I63 
$—
 
$1
 
$5
 
$6
CRE1 —
 —
 —
 —
Residential loans:         
Residential mortgages - nonguaranteed632 10
 95
 20
 125
Residential home equity products1,386 —
 20
 62
 82
Residential construction17 —
 —
 —
 —
Consumer loans:         
Other direct47 —
 —
 1
 1
Indirect1,999 —
 —
 39
 39
Credit cards529 —
 2
 —
 2
Total TDRs4,674 
$10
 
$118
 
$127
 
$255
1 Includes loans modified under the terms of a TDR that were charged-off during the period.
2 Restructured loans which had forgiveness of amounts contractually due under the terms of the loan typicallymay have had multipleother concessions including rate modifications and/or term extensions. The total amount of charge-offs associated with principal forgiveness during both the three and nine months ended September 30, 2014 was immaterial.



20
Notes to Consolidated Financial Statements (Unaudited), continued



For the three and nine months ended September 30, 2015 the table below represents defaults on loans that were first modified between the periods January 1, 2014 and September 30, 2015 that became 90 days or more delinquent or were charged-off during the period.
 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015
(Dollars in millions)Number of Loans Amortized Cost Number of Loans Amortized Cost
Commercial loans:       
C&I13
 
$—
 25
 
$1
Residential loans:       
Residential mortgages25
 3
 80
 12
Home equity products33
 2
 95
 4
Consumer loans:       
Other direct2
 —
 3
 —
Indirect47
 —
 118
 1
Credit cards22
 —
 45
 —
Total TDRs142
 
$5
 366
 
$18
was immaterial.

For
TDRs that have defaulted during the three and nine months ended September 30, 2014, the table below represents defaults on loans2016 and 2015 that were first modified betweenwithin the periods January 1, 2013 and September 30, 2014 that became 90 days or more delinquent orprevious 12 months were charged-off during the period.
 Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014
(Dollars in millions)Number of Loans Amortized Cost Number of Loans Amortized Cost
Commercial loans:       
C&I30 
$3
 77 
$8
Residential loans:       
Residential mortgages46 6
 135 16
Home equity products28 1
 75 4
Residential construction—
 —
 6 —
Consumer loans:       
Other direct3
 —
 8 —
Indirect45 —
 134 1
Credit cards60 —
 143 1
Total TDRs212
 
$10
 578 
$30
Theimmaterial. The majority of loans that were modified and subsequently became 90 days or more delinquent have remained on nonaccrual status since the time of modification.delinquency.

Concentrations of Credit Risk
The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the Company operates primarily in the Southeasternwithin Florida, Georgia, Maryland, North Carolina, and Mid-Atlantic regions of the U.S.Virginia. The Company engages in limited international banking activities. The Company’s total cross-border outstanding loans were $1.4$2.1 billion and $1.3$1.6 billion at September 30, 20152016 and December 31, 2014,2015, respectively.
With respect to collateral concentration, at September 30, 2015,2016, the Company owned $38.8$39.4 billion in loans secured by residential real estate, representing 29%28% of total LHFI. Additionally, the Company had $10.6$10.4 billion in commitments to extend credit on home equity lines and $4.0$7.5 billion in mortgage loan commitments outstanding at September 30, 2015.2016. At December 31, 2014,2015, the Company owned $38.8$38.9 billion in loans secured by residential real estate, representing 29% of total LHFI, and had $10.9$10.5 billion in commitments to extend credit on home equity lines and $3.3$3.2 billion in mortgage loan commitments.commitments outstanding. At both September 30, 20152016 and December 31, 2014,2015, 1% and 2% of residential loans owned were guaranteed by a federal agency or a GSE.
The following table presents loans in the residential mortgage portfolio that included a high original LTV ratio (in excess of 80%), an interest only feature, and/or a second lien position that may increase the Company’s exposure to credit risk and result in a concentration of credit risk. At September 30, 2015 and December 31, 2014, borrowers' current weighted average FICO score on these loans was 744 and 738,GSE, respectively.
(Dollars in millions)September 30, 2015 December 31, 2014
Interest only mortgages with MI or
with combined original LTV ≤ 80% 1

$1,892
 
$3,180
Interest only mortgages with no MI
and with combined original LTV > 80% 1
620
 873
Total interest only mortgages 1
2,512
 4,053
Amortizing mortgages with combined original LTV > 80% and/or second liens 2
8,154
 7,368
Total mortgages with potential concentration of credit risk
$10,666
 
$11,421
1 Comprised of first and/or second liens, primarily with an initial 10 year interest only period.
2 Comprised of loans with no MI.



21
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 6 - ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the unfunded commitments reserve. Activity in the allowance for credit losses is summarized in the following table:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 20142016 2015 2016 2015
Balance, beginning of period
$1,886
 
$2,046
 
$1,991
 
$2,094

$1,840
 
$1,886
 
$1,815
 
$1,991
Provision for loan losses23
 93
 107
 275
95
 23
 338
 107
Provision/(benefit) for unfunded commitments9
 —
 7
 (7)
Provision for unfunded commitments2
 9
 5
 7
Loan charge-offs(102) (164) (356) (473)(150) (102) (428) (356)
Loan recoveries31
 36
 98
 122
24
 31
 81
 98
Balance, end of period
$1,847
 
$2,011
 
$1,847
 
$2,011

$1,811
 
$1,847
 
$1,811
 
$1,847
              
Components:              
ALLL    
$1,786
 
$1,968
    
$1,743
 
$1,786
Unfunded commitments reserve 1
    61
 43
    68
 61
Allowance for credit losses    
$1,847
 
$2,011
    
$1,811
 
$1,847
1 The unfunded commitments reserve is recorded in other liabilities in the Consolidated Balance Sheets.

Activity in the ALLL by loan segment for the three and nine months ended September 30, 20152016 and 20142015 is presented in the following tables:
Three Months Ended September 30, 2015Three Months Ended September 30, 2016
(Dollars in millions)Commercial Residential Consumer TotalCommercial Residential Consumer Total
Balance, beginning of period
$993
 
$676
 
$165
 
$1,834

$1,147
 
$439
 
$188
 
$1,774
Provision/(benefit) for loan losses33
 (39) 29
 23
81
 (36) 50
 95
Loan charge-offs(23) (47) (32) (102)
Loan recoveries10
 11
 10
 31
Balance, end of period
$1,013
 
$601
 
$172
 
$1,786
    
 
Three Months Ended September 30, 2014
(Dollars in millions)Commercial Residential Consumer Total
Balance, beginning of period
$958
 
$875
 
$170
 
$2,003
Provision for loan losses25
 34
 34
 93
Loan charge-offs(26) (104) (34) (164)(78) (28) (44) (150)
Loan recoveries14
 12
 10
 36
7
 7
 10
 24
Balance, end of period
$971
 
$817
 
$180
 
$1,968

$1,157
 
$382
 
$204
 
$1,743
           
 
Nine Months Ended September 30, 2015Three Months Ended September 30, 2015
(Dollars in millions)Commercial Residential Consumer TotalCommercial Residential Consumer Total
Balance, beginning of period
$986
 
$777
 
$174
 
$1,937

$993
 
$676
 
$165
 
$1,834
Provision/(benefit) for loan losses74
 (30) 63
 107
33
 (39) 29
 23
Loan charge-offs(82) (177) (97) (356)(23) (47) (32) (102)
Loan recoveries35
 31
 32
 98
10
 11
 10
 31
Balance, end of period
$1,013
 
$601
 
$172
 
$1,786

$1,013
 
$601
 
$172
 
$1,786
              
Nine Months Ended September 30, 2014Nine Months Ended September 30, 2016
(Dollars in millions)Commercial Residential Consumer TotalCommercial Residential Consumer Total
Balance, beginning of period
$946
 
$930
 
$168
 
$2,044

$1,047
 
$534
 
$171
 
$1,752
Provision for loan losses82
 114
 79
 275
Provision/(benefit) for loan losses293
 (72) 117
 338
Loan charge-offs(97) (279) (97) (473)(209) (102) (117) (428)
Loan recoveries40
 52
 30
 122
26
 22
 33
 81
Balance, end of period
$971
 
$817
 
$180
 
$1,968

$1,157
 
$382
 
$204
 
$1,743
       
Nine Months Ended September 30, 2015
(Dollars in millions)Commercial Residential Consumer Total
Balance, beginning of period
$986
 
$777
 
$174
 
$1,937
Provision/(benefit) for loan losses74
 (30) 63
 107
Loan charge-offs(82) (177) (97) (356)
Loan recoveries35
 31
 32
 98
Balance, end of period
$1,013
 
$601
 
$172
 
$1,786


22
Notes to Consolidated Financial Statements (Unaudited), continued



As discussed in Note 1, “Significant Accounting Policies,” to the Company's 20142015 Annual Report on Form 10-K, the ALLL is composed of both specific allowances for certain nonaccrual loans and TDRs and general allowances grouped into loan pools based on similar characteristics. No allowance is required for
 
loans measured at fair value. Additionally, the Company records an immaterial allowance for loan products that are guaranteed by government agencies, as there is nominal risk of principal loss.


The Company’s LHFI portfolio and related ALLL is presented in the following tables.


tables:
September 30, 2015September 30, 2016
Commercial Residential Consumer TotalCommercial Residential Consumer Total
(Dollars in millions)
Carrying
Value
 
Associated
ALLL
 
Carrying
Value
 
Associated
ALLL
 
Carrying
Value
 
Associated
ALLL
 
Carrying
Value
 
Associated
ALLL
Carrying
Value
 ALLL 
Carrying
Value
 ALLL 
Carrying
Value
 ALLL 
Carrying
Value
 ALLL
Individually evaluated
$70
 
$7
 
$2,491
 
$255
 
$129
 
$7
 
$2,690
 
$269

$434
 
$40
 
$2,535
 
$225
 
$123
 
$7
 
$3,092
 
$272
Collectively evaluated73,232
 1,006
 36,035
 346
 21,341
 165
 130,608
 1,517
76,795
 1,117
 36,629
 157
 24,782
 197
 138,206
 1,471
Total evaluated73,302
 1,013
 38,526
 601
 21,470
 172
 133,298
 1,786
77,229
 1,157
 39,164
 382
 24,905
 204
 141,298
 1,743
LHFI at fair value—
 —
 262
 —
 —
 —
 262
 —
—
 —
 234
 —
 —
 —
 234
 —
Total LHFI
$73,302
 
$1,013
 
$38,788
 
$601
 
$21,470
 
$172
 
$133,560
 
$1,786

$77,229
 
$1,157
 
$39,398
 
$382
 
$24,905
 
$204
 
$141,532
 
$1,743
December 31, 2014December 31, 2015
Commercial Residential Consumer TotalCommercial Residential Consumer Total
(Dollars in millions)Carrying
Value		 Associated
ALLL		 Carrying
Value		 Associated
ALLL		 Carrying
Value		 Associated
ALLL		 Carrying
Value		 Associated
ALLL		Carrying
Value		 ALLL Carrying
Value		 ALLL Carrying
Value		 ALLL Carrying
Value		 ALLL
Individually evaluated
$92
 
$11
 
$2,563
 
$300
 
$126
 
$8
 
$2,781
 
$319

$218
 
$28
 
$2,527
 
$252
 
$131
 
$7
 
$2,876
 
$287
Collectively evaluated73,300
 975
 35,940
 477
 20,819
 166
 130,059
 1,618
75,034
 1,019
 36,144
 282
 22,131
 164
 133,309
 1,465
Total evaluated73,392
 986
 38,503
 777
 20,945
 174
 132,840
 1,937
75,252
 1,047
 38,671
 534
 22,262
 171
 136,185
 1,752
LHFI at fair value—
 —
 272
 —
 —
 —
 272
 —
—
 —
 257
 —
 —
 —
 257
 —
Total LHFI
$73,392
 
$986
 
$38,775
 
$777
 
$20,945
 
$174
 
$133,112
 
$1,937

$75,252
 
$1,047
 
$38,928
 
$534
 
$22,262
 
$171
 
$136,442
 
$1,752



NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company conducts a goodwill impairment test at the reporting unit level at least annually, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. In the third quarter of 2015, the Company performed a quantitative assessment of its goodwill and concluded that the fair values of its reporting units exceeded their respective carrying values. Additionally, 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. See Note 1, "Significant Accounting Policies" toPolicies," in the Company's 20142015 Annual Report on Form 10-K for additional information regarding the Company's goodwill accounting policy.
The Company performed a qualitative goodwill assessment in the first, second, and third quarters of 2016, considering changes in key assumptions and monitoring other events or
changes in circumstances occurring since the most recent goodwill impairment analyses performed as of October 1, 2015. The Company concluded, based on the totality of factors observed, that it is not more-likely-than-not that the fair values of its reporting units are less than their respective carrying values. Accordingly, goodwill was not quantitatively tested for impairment during the nine months ended September 30, 2016.
There were no changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2016 and 2015. Changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2014 are as follows:

(Dollars in millions)Consumer Banking and Private Wealth Management Wholesale Banking Total
Balance, January 1, 2014
$4,262
 
$2,107
 
$6,369
Acquisition of Lantana Oil and Gas Partners, Inc.—
 8
 8
Sale of RidgeWorth—
 (40) (40)
Balance, September 30, 2014
$4,262
 
$2,075
 
$6,337


23
Notes to Consolidated Financial Statements (Unaudited), continued



Other Intangible Assets
Changes in the carrying amounts of other intangible assets for the nine months ended September 30 are as follows:presented in the following table:
(Dollars in millions) MSRs -
Fair Value		 Other Total MSRs -
Fair Value		 Other Total
Balance, January 1, 2016
$1,307
 
$18
 
$1,325
Amortization 1
—
 (6) (6)
Servicing rights originated198
 —
 198
Servicing rights purchased104
 —
 104
Changes in fair value:    
Due to changes in inputs and assumptions 2
(328) —
 (328)
Other changes in fair value 3
(160) —
 (160)
Servicing rights sold(2) —
 (2)
Balance, September 30, 2016
$1,119
 
$12
 
$1,131
     
Balance, January 1, 2015
$1,206
 
$13
 
$1,219

$1,206
 
$13
 
$1,219
Amortization 1
—
 (6) (6)—
 (6) (6)
Servicing rights originated185
 13
 198
185
 13
 198
Servicing rights purchased109
 —
 109
109
 —
 109
Changes in fair value:    
    

Due to changes in inputs and assumptions 2
(74) —
 (74)(74) —
 (74)
Other changes in fair value 3
(161) —
 (161)(161) —
 (161)
Servicing rights sold(3) —
 (3)(3) —
 (3)
Balance, September 30, 2015
$1,262
 
$20
 
$1,282

$1,262
 
$20
 
$1,282
     
Balance, January 1, 2014
$1,300
 
$34
 
$1,334
Amortization 1
—
 (10) (10)
Servicing rights originated137
 —
 137
Servicing rights purchased109
 —
 109
Changes in fair value:    

Due to changes in inputs and assumptions 2
(117) —
 (117)
Other changes in fair value 3
(123) —
 (123)
Servicing rights sold(1) —
 (1)
Sale of RidgeWorth—
 (9) (9)
Balance, September 30, 2014
$1,305
 
$15
 
$1,320
1 Does not include amortization of tax credits forexpense associated with non-qualified community development investments. See Note 8, "Certain Transfers of Financial Assets and Variable Interest Entities," for additional information.
2 Primarily reflects changes in option adjusted spreads and prepayment speed assumptions, due to changes in interest rates.
3 Represents changes due to the collection of expected cash flows, net of accretion due to the passage of time.


The Company's estimated future amortization of intangible assets subject to amortization was immaterial at September 30, 2015.2016.

Servicing Rights
The Company acquires servicing rights and retains servicing rights for certain of its sales or securitizations of residential mortgage and consumer indirect loans. MSRs on residential mortgage loans and servicing rights on consumer indirect loans are the only servicing assets capitalized by the Company and are classified within other intangible assets on the Company's Consolidated Balance Sheets.

Mortgage Servicing Rights
Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Such income earned for the three and nine months ended September 30, 20152016 was $94 million and $272 million, respectively, and $89 million and $254 million, respectively, and $81 million and $241 million for the three and nine months ended September 30, 2014,2015, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income.
At September 30, 20152016 and December 31, 2014,2015, the total UPB of mortgage loans serviced was $149.2$154.0 billion and $142.1 $148.2
billion, respectively. Included in these amounts were $122.0$123.9 billion and $115.5$121.0 billion at September 30, 20152016 and December 31, 2014,2015, respectively, of loans serviced for third parties. The Company purchased MSRs on residential loans with a UPB of $10.9 billion during the nine months ended September 30, 2016; $8.1 billion of which are reflected in the UPB amounts above and the transfer of servicing for the remainder is scheduled for the fourth quarter of 2016. The Company purchased MSRs on residential loans with a UPB of $10.3 billion during the nine months ended September 30, 2015, all of which are reflected in the UPB amounts above. The Company purchased MSRs on residential loans with a UPB of $9.0 billion during the nine months ended September 30, 2014.2015. During the nine months ended September 30, 20152016 and 2014,2015, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $590$464 million and $612$590 million, respectively.
The Company calculates the fair value of MSRs using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections, spreads, and other assumptions. Senior management and the STM Valuation Committeevaluation committee review all significant assumptions at least quarterly, comparing these inputs to various sources of market data. Changes to valuation model inputs are reflected in the periods' results. See Note 14, “Fair Value Election and Measurement,” for further information regarding the Company's MSR valuation methodology.


24
Notes to Consolidated Financial Statements (Unaudited), continued



A summary of the key inputs used to estimate the fair value of the Company’s MSRs at September 30, 20152016 and December 31, 2014,2015, and the sensitivity of the fair values to immediate 10% and 20% adverse changes in those inputs, are presented in the following table.
(Dollars in millions)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Fair value of MSRs
$1,262
 
$1,206

$1,119
 
$1,307
Prepayment rate assumption (annual)11% 11%14% 10%
Decline in fair value from 10% adverse change
$51
 
$46

$50
 
$49
Decline in fair value from 20% adverse change98
 88
97
 94
Option adjusted spread (annual)8% 10%9% 8%
Decline in fair value from 10% adverse change
$55
 
$55

$40
 
$64
Decline in fair value from 20% adverse change105
 105
78
 123
Weighted-average life (in years)6.4
 6.4
5.4
 6.6
Weighted-average coupon4.1% 4.2%4.0% 4.1%
These MSR sensitivities are hypothetical and should be used with caution. Changes in fair value based on variations in assumptions generally cannot be extrapolated because (i) the relationship of the change in an assumption to the change in fair value may not be linear and (ii) changes in one assumption may result in changes in another, which might magnify or counteract the sensitivities. The sensitivities do not reflect the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 13, “Derivative Financial Instruments,” for further information regarding these hedging activities.

 
Consumer Loan Servicing Rights
In June 2015, the Company completed the securitization of $1.0 billion of indirect auto loans, with servicing rights retained, and recognized a $13 million servicing asset at the time of sale. See Note 8, “Certain Transfers of Financial Assets and Variable Interest Entities,"” for additional information on the Company's securitization transactions.
Income earned by the Company on its consumer loan servicing rights is derived primarily from contractually specified servicing fees and other ancillary fees. Such income earned for the three and nine months ended September 30, 20152016 was $2 million and $3$5 million, respectively, and is reported in other noninterest income in the Consolidated Statements of Income. There was no incomeIncome earned on consumer loan servicing rights for the three and nine months ended September 30, 2014.2015 was $2 million and $3 million, respectively.
At September 30, 2016 and December 31, 2015, the total UPB of consumer indirect loans serviced was $889$578 million and $807 million, respectively, all of which were serviced for third parties. No consumer loan servicing rights were purchased or sold during the nine months ended September 30,, 2015 2016 and 2014.2015.
Consumer loan servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The Company calculates the fair value of consumer servicing rights using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections and other assumptions. Impairment, if any, is recognized when changes in valuation model inputs reflect a fair value for the servicing asset that is below its respective carrying value. At September 30, 2015, both2016, the amortized cost and the fair value of the Company's consumer loan servicing rights were $11was $5 million.




NOTE 8 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
Certain Transfers of Financial Assets and Related Variable
Interest Entities
The Company has transferred loans and securities in sale or securitization transactions in which the Company has, or had, continuing involvement such as owningretains certain beneficial interests andor servicing rights. These transfers of financial assets include certain residential mortgage loans, commercial and corporate loans, and consumer loans, as discussed in the following section, "Transfers of Financial Assets." Cash receipts on beneficial interests held related to these transfers were $4 million and $10 million for the three and nine months ended September 30, 2016, and $6 million and $14 million for the three and nine months ended September 30, 2015, and $2 million and $14 million for the three and nine months ended September 30, 2014, respectively. The servicing and management fees related to these asset transfers (excluding servicing fees for residential mortgage loan transfers to GSEs, which are discussed in Note 7, “Goodwill and Other Intangible Assets”) were immaterial for both the three and nine months ended September 30, 20152016 and 2014. Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide.2015.
When a transfer or other transaction occurs with a VIE, the Company first determines whether it has a VI in the VIE. A VI is typically in the form of securities representing retained interests in transferred assets and, at times, servicing rights and
and/or collateral managermanagement fees. IfWhen determining whether to consolidate the VIE, the Company has a VI in an entity, it then evaluates whether or not it is a primary beneficiary which has both (1)(i) the power to direct the activities that most significantly impact the economic
performance of the VIE, and (2)(ii) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to theVIEto determine if theCompanyshould consolidate theVIE. If the entity is not consolidated, then an evaluation of whether the transfer is a sale or a secured borrowing is necessary..
To determine whether a transfer should be accounted for as a sale or a secured borrowing, the Company evaluates whether: (i) the transferred assets are legally isolated, (ii) the transferee has the right to pledge or exchange the transferred assets, and (iii) the Company has relinquished effective control of the transferred assets. If theseall three conditions are met, then the transfer is accounted for as a sale.
Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide. No events occurred during the nine months ended September 30, 20152016 that changed the Company’s previous conclusions regarding whether it is the primary beneficiary of the VIEs described herein. Likewise,Furthermore, no events occurred during the nine months ended September 30, 20152016 that changed the Company’s sale accounting conclusion inwith regards to previously


25
Notes to Consolidated Financial Statements (Unaudited), continued



transferred residential mortgage loans, indirect auto loans, student loans, or commercial and corporate loans.

Below is a summary
Notes to Consolidated Financial Statements (Unaudited), continued



Transfers of Financial Assets
The following discussion summarizes transfers of financial assets to VIEs for which the Company has retained some level of continuing involvement, which supplements Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Consolidated Financial Statements in the Company's 2014 Annual Report on Form 10-K.

involvement.
Residential Mortgage Loans
The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and Freddie Mac securitization transactions, whereby the loans are exchanged for cash or securities that are readily redeemable for cash, and servicing rights are retained.
The Company sold residential mortgage loans to the GSEs noted above,Ginnie Mae, Fannie Mae, and Freddie Mac, which resulted in pre-tax net gains of $48$131 million and $50$288 million for the three and nine months ended September 30, 20152016, and 2014, respectively,$48 million and $171 million and $155 million for the three and nine months ended September 30, 2015, and 2014, respectively. Net gains on the sale of residential mortgage loans are recorded at inception of the associated IRLCs within mortgage production related income in the Consolidated Statements of Income. The net gains reflect the change in value of the loans resulting from changes in interest rates from the time the Company enters into the related IRLCs with borrowers, but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 13, “Derivative Financial Instruments,” for further discussion of the Company’s hedging activities. As the seller, the Company has made certain representations and warranties with respect to the originally transferred loans, including those transferred under Ginnie Mae, Fannie Mae, and Freddie Mac programs;transfer of these loans. See Note 12, “Guarantees,” for additional information regarding representations and warranties are discussed in Note 12, “Guarantees.”warranties.
In a limited number of securitizations, the Company has received securities in addition to cash (while also retaining servicing rights) in exchange for the transferred loans.loans, while also retaining servicing rights. The securities received are measured at fair value and classified as securities AFS. At September 30, 20152016 and December 31, 2014,2015, the fair value of securities received totaled $43$32 million and $55$38 million, respectively.
The Company evaluated itsevaluates securitization entities in which were deemed VIEs,it has a VI for potential consolidation.consolidation under the VIE consolidation model. Notwithstanding the Company's role as servicer, the Company typically does not have power over the securitization entities as a result of rights held by the master servicer. However, inIn certain transactions, the Company does have power as the servicer, but does not have an obligation to absorb losses, or the right to receive benefits, that could potentially be significant. In all such cases, the Company does not consolidate the securitization entity. Total assets at September 30, 2015 and December 31, 2014, of the unconsolidated trustsentities in which the Company has a VI were $251$211 million and $288$241 million at September 30, 2016 and December 31, 2015, respectively.
The Company’s maximum exposure to loss related to thethese unconsolidated residential mortgage loan VIEs in which it holds a VIsecuritizations is comprised of the loss of value of any interests it retains, which was immaterial at both September 30, 2016 and December 31, 2015, and any repurchase obligations or other losses it incurs as a result of a breach of representations and warranties,any guarantees related to these securitizations, which is discussed further in Note 12,, “Guarantees.”
Commercial and Corporate Loans
The Company holds securitiesCLOs issued by CLOsecuritization entities that own commercial leveraged loans and bonds, certain of which were transferred to the entities by the Company. These entities had estimated assets of $584 million and $704 million and estimated liabilities of $541 million and $654 million at September 30, 2015 and December 31, 2014, respectively. The Company's holdings include a preference share exposure valued at $2 million and $3 million at September 30, 2015 and December 31, 2014, respectively, and a senior interest exposure valued at $11 million and $18 million at September 30, 2015 and December 31, 2014, respectively. The Company has determined that the CLOthese entities are VIEs and that it is not the primary beneficiary of these entities because it does not possess the power to direct the activities that most significantly impact the economic performance of the entities. Total assets at September 30, 2016 and December 31, 2015, of unconsolidated entities in which the Company has a VI were $355 million and $525 million, respectively. Total liabilities at September 30, 2016 and December 31, 2015, of unconsolidated entities in which the Company has a VI were $319 million and $482 million,
respectively. At September 30, 2016 and December 31, 2015, the Company's holdings included an immaterial amount of preference share exposure and senior debt exposure.

Consumer Loans
Guaranteed Student Loans
During 2006, theThe Company has securitized government-guaranteed student loans through a transfer of loans to a securitization entity and retained the residual interest in the entity. The Company concluded that this entity should be consolidated since itbecause the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and has(ii) the obligation to absorb losses, and the right to receive benefits, that could potentially be significant. At September 30, 20152016 and December 31, 2014,2015, the Company’s Consolidated Balance Sheets reflected $273$233 million and $306$262 million respectively, of assets held by the securitization entity and $270$230 million and $302$259 million respectively, of debt issued by the entity.entity, respectively.
To the extent that the securitization entity incurs losses on its assets, the securitization entity has recourse to the guarantor of the underlying loan, which is backed by the Department of Education up to a maximum guarantee of 100%. Losses in excess of the government guaranteeWhen not fully guaranteed, losses reduce the amount of available cash payable to the Company as the owner of the residual interest. To the extent that losses result from a breach of servicing responsibilities, the securitization entity has recourse to the Company, which functions as the master servicer; the Companyservicer, may be required to repurchase the defaulting loan(s) from the securitization entity at par value. If the breach was caused by the subservicer, the Company would seek reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related to the securitization entity would arise from a breach of its servicing responsibilities. To date, loss claims filed with the guarantor that have been denied due to servicing errors have either been, or are in the process of, being cured, or reimbursement has been provided to the Company by the subservicer, or in very limited cases, absorbed by the Company.
Indirect Auto Loans
In June 2015, the Company transferred indirect auto loans to a securitization entity, which was determined to be a VIE, and accounted for the transfer as a sale. The Company retained servicing rights for the transferred loans, but did not retain any debt or equity interest in the securitization entity, which was determined to beentity. The fees received for servicing do not represent a VIE. Although the Company has the power to direct the activities that most significantly impact the economic performance of the VIE through its


26
Notes to Consolidated Financial Statements (Unaudited), continued



servicing rights, it was determined that this entity should not be consolidated sinceVI and, therefore, the Company does not haveconsolidate the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.securitization entity.
At the time of the transfer, the UPB of the transferred loans was $1.0 billion and the consideration received was $1.0 billion, resulting in an immaterial pre-tax loss for the nine monthsyear ended September 30,December 31, 2015, which was recorded withinin other noninterest income in the Consolidated Statements of Income. Additional detailsSee Note 7, "Goodwill and Other Intangible Assets," for additional information regarding the servicing asset recognized in this transaction can be found in Note 7, "Goodwill and Other Intangible Assets."transaction.
To the extent that any losses on the transferred loans are the result of a breach of representations and warranties related to
either the initial transfer or the Company's ongoing servicing responsibilities, the securitization entity has recourse to the Company whereby the Company may be obligated to either cure the breach or repurchase the affected loans. The Company’s maximum exposure to loss related to the loans transferred to the securitization entity would arise from a breach of representations

Notes to Consolidated Financial Statements (Unaudited), continued



and warranties and/or a breach of the Company's servicing obligations, and any resulting potentialobligations. Potential losses suffered by the securitization entity that the Company may be liable for the amount of which would beare limited to approximately
$578 million, which is the initialtotal remaining UPB of transferred loans and the carrying value of the related servicing asset.


The Company's total managed loans, including the LHFI portfolio loans as well asand other securitized and unsecuritized loans, are presented in the following table by portfolio balance and delinquency status (accruing loans 90 days or more past due and all nonaccrual loans) at September 30, 20152016 and December 31, 2014,2015, as well as the related net charge-offs for the three and nine months ended September 30, 20152016 and 2014.2015.
Portfolio Balance 1
 
Past Due and Nonaccrual 2
 Net Charge-offs
Portfolio Balance 1
 
Past Due and Nonaccrual 2
 Net Charge-offs 
September 30, 2015 December 31, 2014 September 30, 2015 December 31, 2014 Three Months Ended September 30 Nine Months Ended September 30September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015 Three Months Ended September 30 Nine Months Ended September 30 
(Dollars in millions) 2015 2014 2015 2014 2016 2015 2016 2015 
Portfolio LHFI by type:            
LHFI portfolio:                
Commercial
$73,302
 
$73,392
 
$151
 
$181
 
$13
 
$12
 
$47
 
$57

$77,229
 
$75,252
 
$523
 
$344
 
$71
 
$13
 
$183
 
$47
 
Residential38,788
 38,775
 703
 891
 36
 92
 146
 227
39,398
 38,928
 756
 729
 21
 36
 80
 146
 
Consumer21,470
 20,945
 514
 619
 22
 24
 65
 67
24,905
 22,262
 814
 580
 34
 22
 84
 65
 
Total portfolio LHFI133,560
 133,112
 1,368
 1,691
 71
 128
 258
 351
Managed securitized loans by type:            
Total LHFI portfolio141,532
 136,442
 2,093
 1,653
 126
 71
 347
 258
 
Managed securitized loans 3:
                
Residential117,774
 110,591
 135
3 
183
3 
4
 6
 10
 13
120,668
 116,990
 117
3 
126
3 
2
4 
4
4 
6
4 
10
4 
Consumer889
 —
 1
 —
 1
 —
 1
 —
578
 807
 —
 1
 1
 1
 2
 1
 
Total managed securitized loans118,663
 110,591
 136
 183
 5
 6
 11
 13
121,246
 117,797
 117
 127
 3
 5
 8
 11
 
Managed unsecuritized loans4,238
 4,943
 587
 705
 —
 —
 —
 —
Managed unsecuritized loans 5
3,269
 3,973
 501
 597
 —
 —
 —
 —
 
Total managed loans
$256,461
 
$248,646
 
$2,091
 
$2,579
 
$76
 
$134
 
$269
 
$364

$266,047
 
$258,212
 
$2,711
 
$2,377
 
$129
 
$76
 
$355
 
$269
 
1Excludes $2.0$3.8 billion and $3.2$1.8 billion of LHFS at September 30, 20152016 and December 31, 2014,2015, respectively.
2Excludes $1$2 million and $39$1 million of past due LHFS at September 30, 20152016 and December 31, 2014,2015, respectively.
3Excludes loans that have completed the foreclosure or short sale process (i.e., involuntary prepayments).
4 Net charge-offs are associated with $429 million and $501 million of managed securitized residential loans at September 30, 2016 and December 31, 2015, respectively. Net charge-off data is not reported to the Company for the remaining balance of $120.2 billion and $116.5 billion of managed securitized residential loans at September 30, 2016 and December 31, 2015, respectively.
5 Comprised of unsecuritized residential loans the Company originated and sold to private investors with servicing rights retained. Net charge-offs on these loans are not presented in the table as the data is not reported to the Company by the private investors that own these related loans.


Other Variable Interest Entities
In addition to exposure to VIEs arising from transfers of financial assets, the Company also has involvement with VIEs from other business activities.
Total Return Swaps
At both September 30, 20152016 and December 31, 2014, the2015, outstanding notional amounts of the Company's VIE-facing TRS contracts that VIEs entered into with the Company totaled $2.4 billion and $2.3 billion, respectively, and the$2.2 billion. The Company's related senior financing outstanding to VIEs were also $2.4was $2.2 billion at both September 30, 2016 and $2.3 billion, respectively.December 31, 2015. These financings were classified within trading assets and derivative instruments on the Consolidated Balance Sheets and were measured at fair value. The Company entered into client-facing TRS contracts with third parties withof the same outstanding notional amounts. The notional amounts of the TRS contracts with the VIEs represent the Company’s maximum exposure to loss, although suchthis exposure to loss has been mitigated via the TRS contracts with third parties.party clients. For additional information on the Company’s TRS contracts and its involvement with these VIEs, see Note 13, “Derivative Financial Instruments,” in this Form 10-Q, as well as Note 10, “Certain"Certain Transfers of Financial Assets and Variable
Interest Entities,”" to the Company's 20142015 Annual Report on Form 10-K.

Community Development Investments
As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing developments and other community development entities as a limited and/or general partner and/or a debt provider. The Company receives tax credits for its limited partner investments. The Company has determined that the vast majority of the related partnerships are VIEs.
In limited circumstances, the Company owns both the limited partner and general partner interests, in which case the related partnerships are not considered VIEs and are consolidated by the Company. The CompanyThese properties were held for sale at September 30, 2016 and were immaterial. There were no properties sold during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, properties with a carrying value of $72 million were sold for gains of $19 million during the nine months ended September 30, 2015.million. No properties were sold during the third quarter of 2015 and the remaining properties held for sale at September 30, 2015 were immaterial. One property was sold during the three and nine months ended September 30, 2014 for an immaterial gain.2015.


27
Notes to Consolidated Financial Statements (Unaudited), continued



The Company has concluded that it is not the primary beneficiary of affordable housing partnerships when it invests as a limited partner and there is a third party general partner. The investments are accounted for in accordance with the accounting requirementsguidance for investments in affordable housing projects. The general partner, or an affiliate of the general partner, often provides guarantees to the limited partner, which protects the Company from losses attributable toconstruction and operating deficits, construction deficits,losses and tax credit

Notes to Consolidated Financial Statements (Unaudited), continued



allocation deficits. Assets of $1.9$1.7 billion and $1.6 billion in these and other community development partnerships were not included in the Consolidated Balance Sheets at September 30, 20152016 and December 31, 2014,2015, respectively. The Company's limited partner interests had carrying values of $552$804 million and $363$672 million at September 30, 20152016 and December 31, 2014,2015, respectively, and are recorded in other assets inon the Company’s Consolidated Balance Sheets. The Company’s maximum exposure to loss for these investments totaled $1.1 billion and $910 million at both September 30, 20152016 and December 31, 2014, respectively.2015. The Company’s maximum exposure to loss would result from the loss of its limited partner investments along with $396$265 million and $412$268 million of loans, interest-rate swap fair value exposures, or letters of credit issued by the Company to the entities at September 30, 20152016 and December 31, 2014,2015, respectively. The difference between the maximumremaining exposure to loss and the investment and loan balances is primarily attributable to the unfunded equity commitments. Unfunded equity commitments are amounts that the Company has committedis required to the entities upon the entities meetingfund if certain conditions. If these conditions are met, the Company will invest these additional amounts in the entities.met.
The Company also owns noncontrolling interests in funds whose purpose is to invest in community developments. At
September 30, 20152016 and December 31, 2014,2015, the Company's investment in these funds totaled $130$157 million and $113$132 million, respectively, and therespectively. The Company's maximum exposure to loss on its equity investments, whichinvestment in these funds is comprised of its equity investments in the funds, plusloans issued, and any additional unfunded equity commitments, was $255which totaled $503 million and $236$321 million at September 30, 2016 and December 31, 2015, respectively.
During the three and nine months ended September 30, 2015 and 2014,2016, the Company recognized $18$27 million and $15$65 million of tax credits for qualified affordable housing projects, and $17$23 million and $14$62 million of amortization on qualified affordable housing projects in the provision for income taxes, respectively. During the nine months ended September 30, 2015 and 2014, the Company recognized $46 million and $45 million of tax credits for qualified affordable housing projects, and $45 million and $41 million of amortization onthese qualified affordable housing projects in the provision for income taxes, respectively. During the three and nine months ended September 30, 2015, the Company recorded $8recognized $18 million and $18$46 million respectively,of tax credits for qualified affordable housing projects, and $17 million and $45 million of amortization expense (a componenton these qualified affordable housing projects in the provision for income taxes, respectively.
Certain of noninterest expense) related tothe Company's community development investments do not within the scope of the accounting guidance for investments in qualifiedqualify as affordable housing projects.projects for accounting purposes. The Company recognized tax credits for these investments of $18 million and $46 million during the three and nine months ended September 30, 2016, respectively, in the provision for income taxes. During the three and nine months ended September 30, 2014,2015, the Company recorded $4recognized $12 million and $9$30 million of tax credits for these community development investments, respectively, of amortization related toin the provision for income taxes. Amortization recognized on these non-qualified investments; $0investments totaled $13 million and $5$33 million, was recorded within other noninterest expense on the Company's Consolidated Statements of Income forand $8 million and $18 million, during the three and nine months ended September 30, 2014, respectively,2016 and $4 million was recorded2015, respectively. The amortization is classified within amortization expense for bothAmortization in the three and nine months ended September 30, 2014.Company's Consolidated Statements of Income.



NOTE 9 – NET INCOME PER COMMON SHARE
Equivalent shares of 148 million and 1514 million related to common stock options and common stock warrants outstanding at September 30, 20152016 and 2014,2015, respectively, were excluded from the computations of diluted net income per average common share because they would have been anti-dilutive. On April 1, 2016, the Company early adopted ASU 2016-09, which provides improvements to employee share-based payment accounting, with an effective date of January 1, 2016. The early adoption
 
favorably impacted both basic and diluted EPS by $0.02 per share for the nine months ended September 30, 2016. See Note 1, "Significant Accounting Policies," for additional information.
Reconciliations of net income to net income available to common shareholders and the difference between average basic common shares outstanding and average diluted common shares outstanding are presented below.in the following table.

Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars and shares in millions, except per share data)2015 2014 2015 20142016 2015 2016 2015
Net income
$537
 
$576
 
$1,449
 
$1,380

$474
 
$537
 
$1,413
 
$1,449
Preferred dividends(16) (9) (48) (28)(17) (16) (49) (48)
Dividends and undistributed earnings allocated to unvested shares(2) (4) (5) (9)—
 (2) (1) (5)
Net income available to common shareholders
$519
 
$563
 
$1,396
 
$1,343

$457
 
$519
 
$1,363
 
$1,396
       
Average basic common shares513
 527
 517
 529
496
 513
 501
 517
Effect of dilutive securities:              
Stock options2
 2
 2
 2
2
 2
 2
 2
Restricted stock, RSUs, and warrants4
 4
 4
 4
3
 4
 3
 4
Average diluted common shares519
 533
 523
 535
501
 519
 506
 523
       
Net income per average common share - diluted
$1.00
 
$1.06
 
$2.67
 
$2.51

$0.91
 
$1.00
 
$2.70
 
$2.67
Net income per average common share - basic
$1.01
 
$1.07
 
$2.70
 
$2.54
0.92
 1.01
 2.72
 2.70

28
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 10 - INCOME TAXES
For the three months ended September 30, 20152016 and 2014,2015, the provision for income taxes was $187$215 million and $67$187 million, representing effective tax rates of 26%31% and 10%26%, respectively. The effective tax rates for the three months ended September 30, 20152016 and 20142015 were favorably impacted by net discrete income tax benefits of $35$3 million and $130$35 million, respectively. For the nine months ended September 30, 20152016 and 2014,2015, the provision for income taxes was $579$611 million and $364$579 million, representing effective tax rates of 29%30% and 21%29%, respectively. The effective tax rates for the nine months ended September 30, 2016 and 2015 were favorably impacted by net discrete income tax benefits of $13 million and $50 million, respectively.
The provision for income taxes includes both federal and state income taxes and differs from the provision using statutory rates primarily due to favorable permanent tax items such as income from lending to tax exempt entities and federal tax credits from community reinvestment activities. The Company
calculated the provision for income taxes for the three and nine months ended September 30, 20152016 and 20142015 by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete items that occurred during the period.
The Company's liability for UTBs was $152 million and $210 million at September 30, 2015 and December 31, 2014, respectively. The decrease in the liability for UTBs during the nine months ended September 30, 2015 was primarily due to completion of a tax authority examination. It is reasonably possible that the liability for UTBs could decrease by as much as $65 million during the next 12 months due to completion of tax authority examinations. It is uncertain how much, if any, of this potential decrease will impact the Company’s effective tax rate.



NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company sponsors various short-term incentive and LTI plans and programs which are delivered through various plans,for eligible employees, such as defined contribution, noncontributory pension, and other postretirement benefit plans, as well as through the issuance of RSUs, restricted stock, performance stock units, and
AIP and LTI cash. See Note 15, “Employee Benefit Plans,” to the Company's 20142015 Annual
Report on Form 10-K for further information regarding the employee benefit plans.
On April 1, 2016, the Company early adopted ASU 2016-09, which provides improvements to employee share-based payment accounting, with an effective date of January 1, 2016. See Note 1, "Significant Accounting Policies," for additional information.


Stock-based compensation expense recognized in noninterest expense consisted of the following:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 20142016 2015 2016 2015
Stock options
$—
 
$—
 
$1
 
$1

$—
 
$—
 
$—
 
$1
Restricted stock4
 7
 13
 21
—
 4
 2
 13
Performance stock units5
 4
 21
 9
16
 5
 39
 21
RSUs7
 5
 35
 27
13
 7
 44
 35
Total stock-based compensation
$16
 
$16
 
$70
 
$58

$29
 
$16
 
$85
 
$70
              
Stock-based compensation tax benefit
$6
 
$6
 
$27
 
$22

$11
 
$6
 
$32
 
$27

ComponentsChanges in the components of net periodic benefit related to the Company's pension and other postretirement benefits plans consisted ofare presented in the following:following table:
Pension Benefits 1
 Other Postretirement Benefits
Pension Benefits 1
 Other Postretirement Benefits
Three Months Ended September 30 Nine Months Ended September 30 Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 2014 2015 2014 2015 20142016 2015 2016 2015 2016 2015 2016 2015
Service cost
$2
 
$2
 
$4
 
$4
 
$—
 
$—
 
$—
 
$—

$1
 
$2
 
$4
 
$4
 
$—
 
$—
 
$—
 
$—
Interest cost29
 31
 87
 93
 1
 1
 2
 2
24
 29
 73
 87
 —
 1
 1
 2
Expected return on plan assets(52) (50) (155) (150) (2) (1) (4) (4)(46) (52) (140) (155) (1) (2) (3) (4)
Amortization of prior service credit—
 —
 —
 —
 (1) (2) (4) (4)—
 —
 —
 —
 (1) (1) (4) (4)
Amortization of actuarial loss5
 4
 16
 12
 —
 —
 —
 —
6
 5
 19
 16
 —
 —
 —
 —
Net periodic benefit
($16) 
($13) 
($48) 
($41) 
($2) 
($2) 
($6) 
($6)
($15) 
($16) 
($44) 
($48) 
($2) 
($2) 
($6) 
($6)
1 Administrative fees are recognized in service cost for each of the periods presented.


29
Notes to Consolidated Financial Statements (Unaudited), continued




NOTE 12 – GUARANTEES
The Company has undertaken certain guarantee obligations in the ordinary course of business. The issuance of a guarantee imposes an obligation for the Company to stand ready to perform and make future payments should certain triggering events occur. Payments may be in the form of cash, financial instruments, other assets, shares of stock, or through provision of the Company’s services. The following is a discussion of the guarantees that the Company has issued at September 30, 2015.2016. The Company has also entered into certain contracts that are similar to guarantees, but that are accounted for as derivativesderivative instruments as discussed in Note 13, “Derivative Financial Instruments.”

Letters of Credit
Letters of credit are conditional commitments issued by the Company, generally to guarantee the performance of a client to a third party in borrowing arrangements, such as CP, bond financing, andor similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients andbut may be reduced by selling participations to third parties. The Company issues letters of credit that are classified as financial standby, performance standby, or commercial letters of credit.
At September 30, 20152016 and December 31, 2014,2015, the Company's maximum potential amount of the Company’s obligationexposure for issued financial and performance standby letters of credit was $2.9$2.8 billion and $3.0$2.9 billion, respectively. The Company’s outstanding letters of credit generally have a term of lessmore than one year but may extend longer.year. Some standby letters of credit are designed to be drawn upon in the normal course of business and others are drawn upon only in circumstances of dispute or default in the underlying transaction to which the Company is not a party. In all cases, the Company is entitled to reimbursement from the applicant.client. If a letter of credit is drawn upon and reimbursement is not provided by the applicant,client, the Company may take possession of the collateral securing the lineletter of credit, where applicable.
The Company monitors its credit exposure under standby letters of credit in the same manner as it monitors other extensions of credit in accordance with its credit policies. AnConsistent with the methodologies used for all commercial borrowers, an internal assessment of the PD and loss severity in the event of default is performed, consistent with the methodologies used for all commercial borrowers.performed. The management of credit risk for letters of credit leverages the risk rating process to focus greater visibility on higher risk and/or higher dollar letters of credit. The allowance for credit losses associated with letters of credit is a component of the unfunded commitments reserve recorded in other liabilities inon the Consolidated Balance Sheets and is
 
and is included in the allowance for credit losses as disclosed in Note 6, “Allowance for Credit Losses.” Additionally, unearned fees relating to letters of credit are recorded in other liabilities.liabilities on the Consolidated Balance Sheets. The net carrying amount of unearned fees was immaterial at September 30, 20152016 and December 31, 2014.2015.

Loan Sales and Servicing
STM, a consolidated subsidiary of the Company, originates and purchases residential mortgage loans, a portion of which are sold to outside investors in the normal course of business, through a combination of whole loan sales to GSEs, Ginnie Mae, and non-agency investors. Prior to 2008, the Company also sold mortgage loans through a limited number of Company-sponsored securitizations. When mortgage loans are sold, representations and warranties regarding certain attributes of the loans are made to third party purchasers. Subsequent to the sale, if a material underwriting deficiency or documentation defect is discovered, STM may be obligated to repurchase the mortgage loan or to reimburse an investor for losses incurred (make whole requests), if such deficiency or defect cannot be cured by STM within the specified period following discovery. Additionally, defects in the securitization process or breaches of underwriting and servicing representations and warranties can result in loan repurchases, as well as adversely affect the valuation of MSRs, servicing advances, or other mortgage loan-related exposures, such as OREO. These representations and warranties may extend through the life of the mortgage loan. STM’s risk of loss under its representations and warranties is partially driven by borrower payment performance since investors will perform extensive reviews of delinquent loans as a means of mitigating losses.
Non-agency loan sales include whole loan sales and loans sold in private securitization transactions. While representations and warranties have been made related to these sales, they differ from those made in connection with loans sold to the GSEs in that non-agency loans may not be required to meet the same underwriting standards and non-agency investors may be required to demonstrate that an alleged breach is material and caused the investors' loss.
Loans sold to Ginnie Mae are insured by the FHA andor are guaranteed by the VA. As servicer, the Company may elect to repurchase delinquent loans in accordance with Ginnie Mae guidelines;guidelines, however, the loans continue to be insured. The Company indemnifiesmay also indemnify the FHA and VA for losses related to loans not originated in accordance with their guidelines.
See Note 15, "Contingencies," for additional information on current legal matters related to loan sales.



30
Notes to Consolidated Financial Statements (Unaudited), continued



The Company previously reached agreements in principle with Freddie Mac and Fannie Mae that relieve the Company of certain existing and future repurchase obligations related to loans sold from 2000-2008 vintages forto Freddie Mac and loans sold from 2000-2012 vintages forto Fannie Mae. Repurchase requests have declined significantly as a result of the settlements. Repurchase requests from GSEs, Ginnie Mae, and non-agency investors, for all vintages, are illustratedpresented in the following table that summarizes demand activity for the nine months ended September 30.activity.
Nine Months Ended September 30
(Dollars in millions)2015 20142016 2015
Beginning pending repurchase requests
$47
 
$126
Pending repurchase requests, beginning of period
$17
 
$47
Repurchase requests received58
 139
30
 58
Repurchase requests resolved:      
Repurchased(17) (22)(15) (17)
Cured(72) (198)(23) (72)
Total resolved(89) (220)(38) (89)
Ending pending repurchase requests 1

$16
 
$45
Pending repurchase requests, end of period 1

$9
 
$16
      
Percent from non-agency investors:Percent from non-agency investors:  Percent from non-agency investors:  
Pending repurchase requests6.0% 7.0%
Ending pending repurchase requests49.9% 6.0%
Repurchase requests received0.6% 0.8%—% 0.6%
1 Comprised of $15$4 million and $42$15 million from the GSEs, and $1$4 million and $3$1 million from non-agency investors at September 30, 2016 and 2015, and 2014, respectively.

The repurchase and make whole requests received have been due primarily due to alleged material breaches of representations related to compliance with the applicable underwriting standards, including borrower misrepresentation and appraisal issues. STM performs a loan-by-loan review of all requests and contests demands to the extent they are not considered valid.
The following table summarizes the changes in the Company’s reserve for mortgage loan repurchases:
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 2014
Balance, at beginning of period
$60
 
$77
 
$85
 
$78
Repurchase (benefit)/provision(1) 2
 (9) 12
Charge-offs, net of recoveries—
 (2) (17) (13)
Balance, at end of period
$59
 
$77
 
$59
 
$77
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2016 2015 2016 2015
Balance, beginning of period
$51
 
$60
 
$57
 
$85
Repurchase benefit(3) (1) (9) (9)
Charge-offs, net of recoveries—
 —
 —
 (17)
Balance, end of period
$48
 
$59
 
$48
 
$59

A significant degree of judgment is used to estimate the mortgage repurchase liability as the estimation process is inherently uncertain and subject to imprecision. The Company believes that its reserve appropriately estimates incurred losses based on its current analysis and assumptions, inclusive of the Freddie Mac and Fannie Mae settlement agreements, GSE owned loans serviced by third party servicers, loans sold to private investors, and futureother indemnifications.
Notwithstanding the aforementioned agreements with Freddie Mac and Fannie Mae settling certain aspects of the Company's repurchase obligations, those institutions preserve their right to require repurchases arising from certain types of events, and that preservation of rights can impact future losses of the Company. While the repurchase reserve includes the
estimated cost of settling claims related to required repurchases, the Company's estimate of losses depends on its assumptions
regarding GSE and other counterparty behavior, loan performance, home prices, and other factors. The related liability is recorded in other liabilities inon the Consolidated Balance Sheets, and the related repurchase (benefit)/provisionbenefit is recognized in mortgage production related income in the Consolidated Statements of Income. See Note 15, "Contingencies," for additional information on current legal matters related to loan sales.
The following table summarizes the carrying value of the Company's outstanding repurchased mortgage loans at September 30, 2015 and December 31, 2014:at:
(Dollars in millions)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Outstanding repurchased mortgage loans:Outstanding repurchased mortgage loans:  Outstanding repurchased mortgage loans:  
Performing LHFI
$262
 
$271

$235
 
$255
Nonperforming LHFI15
 29
11
 17
Nonperforming LHFS—
 12
Total carrying value of outstanding repurchased mortgage loans
$277
 
$312

$246
 
$272

In addition to representations and warranties related to loan sales, the Company makes representations and warranties that it will service the loans in accordance with investor servicing guidelines and standards, which may include (i) collection and remittance of principal and interest, (ii) administration of escrow for taxes and insurance, (iii) advancing principal, interest, taxes, insurance, and collection expenses on delinquent accounts, (iv) loss mitigation strategies including loan modifications, and (v) foreclosures.
The Company normally retains servicing rights when loans are transferred;transferred, however, servicing rights are occasionally sold to third parties. When MSRs are sold, the Company makes representations and warranties related to servicing standards and obligations, and recognizes a liability for contingent losses recorded in other liabilities inon the Consolidated Balance Sheets,Sheets. This liability, which is separate from the reserve for mortgage loan repurchases, which totaled $18$8 million and $25$14 million at September 30, 20152016 and December 31, 2014, respectively.

Contingent Consideration
The Company has contingent payment obligations related to certain business combination transactions. Payments are calculated using certain post-acquisition performance criteria. The potential obligation is recorded as an other liability, measured at the fair value of the contingent payments, which totaled $23 million and $27 million at September 30, 2015, and December 31, 2014, respectively.

Visa
The Company issuesexecutes credit and debit transactions through Visa and MasterCard. The Company is a defendant, along with Visa and MasterCard (the “Card Associations”), as well as several other banks, in one of several antitrust lawsuits challenging the practices of the Card Associations (the “Litigation”). The Company entered into judgment and loss sharing agreements with Visa and certain other banks in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to the Litigation. Additionally, in connection with Visa's restructuring in 2007, shares of Visa common stock were issued to its financial institution members and the Company received its proportionate number of shares of


31
Notes to Consolidated Financial Statements (Unaudited), continued



Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. upon completion of Visa’s IPO in 2008. A provision of the original Visa By-Laws, which was restated in Visa's certificate of incorporation, contains a general indemnification provision between a Visa member and Visa that explicitly provides that each member's indemnification obligation is limited to losses

Notes to Consolidated Financial Statements (Unaudited), continued



arising from its own conduct and the specifically defined Litigation. While the district court approved a class action settlement of the Litigation in 2012, the U.S. Court of Appeals for the Second Circuit reversed the district court's approval of the settlement on June 30, 2016. The parties await further action on the appeal and/or a return of the case to the district court.
Agreements associated with Visa's IPO have provisions that Visa will fund a litigation escrow account, established for the purpose of funding judgments in, or settlements of, the Litigation. If the escrow account is insufficient to cover the Litigation losses, then Visa will issue additional Class A shares (“loss shares”). The proceeds from the sale of the loss shares would then be deposited in the escrow account. The issuance of the loss shares will cause a dilution of Visa's Class B shares as a result of an adjustment to lower the conversion factor of the Class B shares to Class A shares. Visa U.S.A.'s members are responsible for any portion of the settlement or loss on the Litigation after the escrow account is depleted and the value of the Class B shares is fully diluted.
In May 2009, the Company sold its 3.2 million Class B shares to the Visa Counterparty and entered into a derivative with the Visa Counterparty. Under the derivative, the Visa Counterparty is compensated by the Company for any decline in the conversion factor as a result of the outcome of the
Litigation. Conversely, the Company is compensated by the Visa Counterparty for any increase in the conversion factor. The amount of payments made or received under the derivative is a function of the 3.2 million shares sold to the Visa Counterparty, the change in conversion rate, and Visa’s share price. The Visa Counterparty, as a result of its ownership of the Class B shares, is impacted by dilutive adjustments to the conversion factor of
the Class B shares caused by the Litigation losses. Additionally, the Company will make a quarterly payment based on the notional of the derivative and a fixed rate until the date on which the Litigation is settled. The fair value of the derivative is estimated based on unobservable inputs consisting of management's estimate of the probability of certain litigation scenarios and the timing of the resolution of the Litigation due in large part to the aforementioned decision by the U.S. Court of Appeals for the Second Circuit. The fair value of the derivative liability was approximately $6$15 million and $5$6 million at September 30, 20152016 and December 31, 2014, respectively; however,2015, respectively. The increase in fair value of the derivative liability was driven by changes in management's estimate of both the probability of certain litigation scenarios as well as the timing of the resolution of the Litigation. However, the ultimate impact to the Company could be significantly different based on the outcome of the Litigation.

Tax Credit Investments Sold
STCC, one of the Company's subsidiaries, previously obtained state and federal tax credits through the construction and development of affordable housing properties and continues to obtain state and federal tax credits through investments in affordable housing developments. STCC or its subsidiaries are limited and/or general partners in various partnerships established for the properties. Some of the investments that generate state tax credits may be sold to outside investors.
At September 30, 2015, STCC had four transactions outstanding that contain guarantee provisions stating that STCC will make payment to the outside investors if the tax credits become ineligible. STCC also guarantees that the general partner under the transaction will perform on the delivery of the credits. The guarantees are expected to expire within a 15 year period from inception and have remaining years to expiry ranging from three to seven years. At September 30, 2015, the maximum potential amount that STCC could be obligated to pay under these guarantees is $19 million; however, STCC can seek recourse against the general partner. Additionally, STCC can seek reimbursement from cash flow and residual values of the underlying affordable housing properties, provided that the properties retain value. At September 30, 2015 and December 31, 2014, an immaterial amount was accrued related to the obligation to deliver tax credits, and was recorded in other liabilities in the Consolidated Balance Sheets.Litigation outcome.



NOTE 13 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into various derivative financial instruments, both in a dealer capacity to facilitate client transactions and as an end user as a risk management tool. The ALCO monitors all derivative activities. When derivatives have been entered into with clients, the Company generally manages the risk associated with these derivatives within the framework of its VAR methodology that monitors total daily exposure and seeks to manage the exposure on an overall basis. Derivatives are also used as a risk management tool to hedge the Company’s balance sheet exposure to changes in identified cash flow and fair value risks, either economically or in accordance with hedge accounting provisions. The Company’s Corporate Treasury function is responsible for employing the various hedge accounting strategies to manage these objectives. Additionally, as a normal part of its operations, the Company enters into IRLCs on mortgage loans that are accounted for as freestanding derivatives and has certain contracts containing embedded derivatives that are measured, in their entirety, at fair value. All freestanding derivatives and any embedded derivatives that the Company bifurcates from the host contracts are measured at fair value in the Consolidated Balance Sheets in trading assets and derivative instruments and trading liabilities and derivative
instruments. The associated gains and losses are either recognized in AOCI, net of tax, or within the Consolidated Statements of Income, depending upon the use and designation of the derivatives.

Credit and Market Risk Associated with Derivative Instruments
Derivatives expose the Company to counterparty credit risk if the counterparty to the derivative contract does not perform as expected. The Company minimizes themanages its exposure to credit risk ofassociated with derivatives by entering into transactions with counterparties with defined exposure limits based on their credit
quality and in accordance with established policies and procedures. All counterparties are reviewed regularly reviewed byas part of the Company’s Credit Risk Management divisioncredit risk management practices and appropriate action is taken to adjust the exposure to certain counterparties as necessary. The Company’s derivative transactions may also be governed by ISDA documentationagreements or other legally enforceable industry standard master netting agreements. In certain cases and depending on the nature of the underlying derivative transactions, bilateral collateral agreements are also utilized. Furthermore, the Company and its subsidiaries are subject to OTC derivative clearing requirements, which require certain derivatives to be cleared through central


32
Notes to Consolidated Financial Statements (Unaudited), continued



clearinghouses. These clearinghouses with whichrequire the Company and other counterparties are required to post initial margin. Toand variation margin to mitigate the risk of non-payment, variation marginthe latter of which is received or paid daily based on the net asset or liability position of the contracts.
When the Company has more than one outstanding derivative transaction with a single counterparty, and there exists a legal right of offset with that counterparty, the Company considers its exposure to the counterparty to be the net fair value of its derivative positions with that counterparty. If the net fair value is positive, then the counterpartycorresponding asset value also reflects cash collateral held. At September 30, 2015,2016, these net asset positions were $1.1 billion, reflecting $1.7$1.9 billion of net derivative gains, adjusted for cash and other collateral of $592$811 million that the Company held in relation to these gain positions. At December 31, 2014,2015, reported net derivative assets were $1.1 billion,$896 million, reflecting $1.5$1.4 billion of net derivative gains, adjusted for cash and other collateral held of $386 million that the Company held in relation to these gain positions.$463 million.
Derivatives also expose the Company to market risk. Market risk isarising from the adverse effecteffects that a changechanges in market factors, such as interest rates, currency rates, equity prices, commodity prices,

Notes to Consolidated Financial Statements (Unaudited), continued



or implied volatility, hasmay have on the value of a derivative. Under an established risk governance framework, theThe Company comprehensively manages the marketthis risk associated with its derivatives by establishing and monitoring limits on the types and degree of risk that may be undertaken. The Company continually measures thisits risk associated with itsexposure using a VAR methodology for derivatives designated as trading instruments using a VAR methodology.instruments. Other tools and risk measures are also used to actively manage risk associated with derivatives risk including scenario analysis and stress testing.
Derivative instruments are priced using observable market inputs at a mid-market valuation point and take into consideration appropriate valuation adjustments for collateral, market liquidity, and counterparty credit risk. For purposes of determining fair value adjustments to its OTC derivative positions, the Company takes into consideration the credit profile and likelihood of default by counterparties and itself, as well as its net exposure, which considers legally enforceable master netting agreements and collateral along with remaining maturities. The expected loss of each counterparty is estimated using market-based views of counterparty default probabilities observed in the single-name CDS market, when available and of sufficient liquidity. When single-name CDS market data is not available or not of sufficient liquidity, the probability of default is estimated using a combination of the Company's internal risk rating system and sector/rating based CDS data.
For purposes of estimating the DVA, which is the Company’s own credit risk on derivative liability positions, the DVA, the Company uses financialsprobabilities of default from observable, sector/ratingsrating based CDS spreads. To determine counterparty default probabilities, the Company leverages publicly available counterparty information when data of acceptable quality is available. In particular, for purposes of determining the CVA, the Company incorporates market-based views of counterparty default probabilities derived from
observed credit spreads in the CDS market, when available. Absent available market-derived counterparty information, the expected loss associated with each counterparty is estimated using the Company's internal risk rating system. The risk rating system utilizes counterparty-specific PD and LGD estimates to derive the expected loss.data. The Company adjusted the net fair value of its derivative contracts for estimates of net counterparty credit risk by approximately $5$21 million and $7$4 million at September 30, 20152016 and December 31, 2014,2015, respectively. The increase in the net fair value adjustment during the nine months ended September 30, 2016 was due primarily to the combination of an enhancement of the Company's CVA/DVA methodology in the second quarter of 2016 to further incorporate market-based views of counterparty default probabilities as well as a decline in interest rates which resulted in higher counterparty exposure profiles. The impact from the associated methodology enhancements was an $11 million increase in the net fair value adjustment during the nine months ended September 30, 2016. The Company's approach towardfor determining fair value adjustments of derivative instruments is subject to ongoing internal review and enhancement. This review includes consideration of whether to include a funding valuation adjustment in the fair value measurement of derivatives, which relates to the funding cost or benefit associated with collateralized derivative positions. For additional information on the Company's fair value measurements, see Note 14, "Fair Value Election and Measurement."
Currently, the majority of the Company’s derivatives contain contingencies that relate to the creditworthiness of the Bank. These contingencies, which are contained in industry standard master netting agreements, may be considered events of default. Should the Bank be in default under any of these provisions, the Bank’s counterparties would be permitted to close-outclose
out transactions with the Bank on a net basis, at amounts that would approximate the fair values of the derivatives, resulting in a single sum due by one party to the other. The counterparties would have the right to apply any collateral posted by the Bank against any net amount owed by the Bank. Additionally, certain of the Company’s derivative liability positions, totaling $1.4 billion and $1.1 billion in fair value at both September 30, 20152016 and December 31, 2014,2015, respectively, contain provisions conditioned on downgrades of the Bank’s credit rating. These provisions, if triggered, would either give rise to an ATE that permits the counterparties to close-out net and apply collateral or, where a CSA is present, require the Bank to post additional collateral. At September 30, 2015,2016, the Bank carriedheld senior long-term debt credit ratings of Baal/A-/BBB+A- from Moody’s, S&P, and Fitch, respectively. On October 5, 2015, Fitch announced that it had upgraded the Bank's senior long-term debt rating from BBB+ to A-. At September 30, 2015,2016, ATEs have been triggered for less than $1 million in fair value liabilities. The maximum additional liability that could be triggered from ATEs was approximately $15$13 million at September 30, 2015.2016. At September 30, 2015, $1.12016, $1.4 billion in fair value of derivative liabilities were subject to CSAs, against which the Bank has posted $1.1$1.4 billion in collateral, primarily in the form of cash. At September 30, 2015, ifIf requested by the counterparty pursuant to the terms of the CSA, the Bank would be required to post additional collateral of approximately $7$5 million against these contracts if the Bank were downgraded to Baa3/BBB-. Further downgrades to Ba1/BB+ or below do not contain predetermined collateral posting levels.



33
Notes to Consolidated Financial Statements (Unaudited), continued



Notional and Fair Value of Derivative Positions
The following tables present the Company’s derivative positions at September 30, 20152016 and December 31, 2014.2015. The notional amounts in the tables are presented on a gross basis and have been classified within derivative assets or derivative liabilities based on the estimated fair value of the individual contract at September 30, 20152016 and December 31, 2014.2015. Gross positive and gross negative fair value amounts associated with respective notional amounts are presented without consideration of any netting agreements, including collateral arrangements. Net fair value derivative amounts are adjusted on an aggregate basis, where applicable, to take into consideration the effects of legally enforceable master netting agreements, including any cash collateral received or paid, and are recognized in trading assets
and derivative instruments or trading liabilities and derivative instruments on the Consolidated Balance Sheets. For contracts constituting a combination of options that contain a written option and a purchased option (such as a collar), the notional amount of each option is presented separately, with the purchased notional amount generally being presented as a derivative asset and the written notional amount being presented as a derivative liability. For contracts that contain a combination of options, the fair value is generally presented as a single value with the purchased notional amount if the combined fair value is positive, and with the written notional amount if the combined fair value is negative.


Notes to Consolidated Financial Statements (Unaudited), continued




September 30, 2015September 30, 2016
Asset Derivatives Liability DerivativesAsset Derivatives Liability Derivatives
(Dollars in millions)
Notional
Amounts
 
Fair
Value
 
Notional
Amounts
 
Fair
Value
Notional
Amounts
 
Fair
Value
 
Notional
Amounts
 
Fair
Value
Derivative instruments designated in cash flow hedging relationships 1
              
Interest rate contracts hedging floating rate loans
$15,500
 
$262
 
$—
 
$—

$18,950
 
$359
 
$1,500
 
$3
Derivative instruments designated in fair value hedging relationships 2
              
Interest rate contracts hedging fixed rate debt1,700
 27
 600
 —
2,480
 26
 1,600
 1
Interest rate contracts hedging brokered CDs30
 —
 —
 —
60
 —
 30
 —
Total1,730
 27
 600
 —
2,540
 26
 1,630
 1
Derivative instruments not designated as hedging instruments 3
              
Interest rate contracts hedging:              
MSRs18,209
 285
 6,009
 159
LHFS, IRLCs 4
2,638
 13
 4,478
 40
Trading activity 5
69,745
 2,449
 63,113
 2,237
MSRs 4
13,499
 812
 19,800
 516
LHFS, IRLCs 5
4,620
 12
 7,015
 32
LHFI15
 2
 40
 4
Trading activity 6
66,678
 2,600
 66,930
 2,412
Foreign exchange rate contracts hedging trading activity3,634
 127
 3,303
 123
3,603
 102
 3,440
 83
Credit contracts hedging:              
Loans—
 —
 215
 3
15
 —
 635
 9
Trading activity 6
2,568
 16
 2,735
 13
Equity contracts hedging trading activity 5
22,911
 1,944
 28,546
 2,253
Trading activity 7
2,334
 28
 2,472
 26
Equity contracts hedging trading activity 6
19,841
 2,059
 29,182
 2,464
Other contracts:              
IRLCs and other 7
2,672
 38
 81
 6
IRLCs and other 8
4,884
 79
 277
 15
Commodities466
 97
 463
 96
629
 59
 626
 56
Total122,843
 4,969
 108,943
 4,930
116,118
 5,753
 130,417
 5,617
Total derivative instruments
$140,073
 
$5,258
 
$109,543
 
$4,930

$137,608
 
$6,138
 
$133,547
 
$5,621
              
Total gross derivative instruments, before netting  
$5,258
   
$4,930
  
$6,138
   
$5,621
Less: Legally enforceable master netting agreements  (3,268)   (3,268)  (3,932)   (3,932)
Less: Cash collateral received/paid  (541)   (1,097)  (675)   (1,377)
Total derivative instruments, after netting  
$1,449
   
$565
  
$1,531
   
$312
1 See “Cash Flow Hedges” in this Note for further discussion.
2 See “Fair Value Hedges” in this Note for further discussion.
3 See “Economic Hedging and Trading Activities” in this Note for further discussion.
4 Amount includes $848 million$7.3 billion of notional amounts related to interest rate futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
5 Amount includes $946 million of notional amounts related to interest rate futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
6Amounts include $12.7$11.4 billion and $536 million of notional amounts related to interest rate futures and $954 million of notional amounts related to equity futures, respectively.futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. Amounts also include notional amounts related to interest rate swaps hedging fixed rate debt.
67 Asset and liability amounts include $6 million and $9$8 million, respectively, of notional amounts from purchased and written credit risk participation agreements, respectively, whose notional is calculated as the notional of the derivative participated adjusted by the relevant RWA conversion factor.
78 Includes $49 million notional amount that is based on the number3.2 million of Visa Class B shares, 3.2 million, the conversion ratio from Class B shares to Class A shares, and the Class A share price at the derivative inception date of May 28, 2009. This derivative was established upon the sale of Class B shares in the second quarter of 2009. See Note 12, “Guarantees” for additional information.

34
Notes to Consolidated Financial Statements (Unaudited), continued




December 31, 2014December 31, 2015
Asset Derivatives Liability DerivativesAsset Derivatives Liability Derivatives
(Dollars in millions)
Notional
Amounts
 
Fair
Value
 
Notional
Amounts
 
Fair
Value
Notional
Amounts
 
Fair
Value
 
Notional
Amounts
 
Fair
Value
Derivative instruments designated in cash flow hedging relationships 1
              
Interest rate contracts hedging floating rate loans
$18,150
 
$208
 
$2,850
 
$8

$14,500
 
$130
 
$2,900
 
$11
Derivative instruments designated in fair value hedging relationships 2
              
Interest rate contracts hedging fixed rate debt2,700
 30
 2,600
 1
1,700
 14
 600
 —
Interest rate contracts hedging brokered CDs30
 —
 —
 —
60
 —
 30
 —
Total2,730
 30
 2,600
 1
1,760
 14
 630
 —
Derivative instruments not designated as hedging instruments 3
              
Interest rate contracts hedging:              
MSRs5,172
 163
 8,807
 30
LHFS, IRLCs 4
1,840
 4
 4,923
 23
Trading activity 5
61,049
 2,405
 61,065
 2,225
MSRs 4
7,782
 198
 16,882
 98
LHFS, IRLCs 5
4,309
 10
 2,520
 5
LHFI15
 —
 40
 1
Trading activity 6
67,164
 1,983
 66,854
 1,796
Foreign exchange rate contracts hedging trading activity2,429
 104
 2,414
 100
3,648
 127
 3,227
 122
Credit contracts hedging:              
Loans—
 —
 392
 5
—
 —
 175
 2
Trading activity 6
2,282
 20
 2,452
 20
Equity contracts hedging trading activity 5
21,875
 2,809
 28,128
 3,090
Trading activity 7
2,232
 57
 2,385
 54
Equity contracts hedging trading activity 6
19,138
 1,812
 27,154
 2,222
Other contracts:              
IRLCs and other 7
2,231
 25
 139
 5
IRLCs and other 8
2,024
 21
 299
 6
Commodities381
 71
 374
 70
453
 113
 448
 111
Total97,259
 5,601
 108,694
 5,568
106,765
 4,321
 119,984
 4,417
Total derivative instruments
$118,139
 
$5,839
 
$114,144
 
$5,577

$123,025
 
$4,465
 
$123,514
 
$4,428
              
Total gross derivative instruments, before netting  
$5,839
   
$5,577
  
$4,465
   
$4,428
Less: Legally enforceable master netting agreements  (4,083)   (4,083)  (2,916)   (2,916)
Less: Cash collateral received/paid  (449)   (1,032)  (397)   (1,048)
Total derivative instruments, after netting  
$1,307
   
$462
  
$1,152
   
$464
1 See “Cash Flow Hedges” in this Note for further discussion.
2 See “Fair Value Hedges” in this Note for further discussion.
3 See “Economic Hedging and Trading Activities” in this Note for further discussion.
4 Amount includes $791 million$9.1 billion of notional amounts related to interest rate futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
5 Amount includes $518 million of notional amounts related to interest rate futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
6Amounts include $10.3$12.6 billion and $563 million of notional amounts related to interest rate futures and $329 million of notional amounts related to equity futures, respectively.futures. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. Amounts also include notional amounts related to interest rate swaps hedging fixed rate debt.
67 Asset and liability amounts both include $4$6 million and $9 million, respectively, of notional amounts from purchased and written interest rate swapcredit risk participation agreements, respectively, whose notional is calculated as the notional of the interest rate swapderivative participated adjusted by the relevant RWA conversion factor.
78 Includes $49 million notional amount that is based on the number3.2 million of Visa Class B shares, 3.2 million, the conversion ratio from Class B shares to Class A shares, and the Class A share price at the derivative inception date of May 28, 2009. This derivative was established upon the sale of Class B shares in the second quarter of 2009. See Note 12, “Guarantees” for additional information.

35
Notes to Consolidated Financial Statements (Unaudited), continued




Impact of Derivative Instruments on the Consolidated Statements of Income and Shareholders’ Equity
The impacts of derivative instruments on the Consolidated Statements of Income and the Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30 are presented below.in the following tables. The impacts are segregated between derivatives that are designated in hedge accounting
relationships and those that are used for economic
hedging or trading purposes, with further identification of the underlying risks in the derivatives and the hedged items, where appropriate. The tables do not disclose the financial impact of the activities that these derivative instruments are intended to hedge.


Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016 
(Dollars in millions)
Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)
 
Amount of
Pre-tax Gain
Reclassified from AOCI
into Income
(Effective Portion)
 
Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)
 
Amount of
Pre-tax Gain
Reclassified from AOCI
into Income
(Effective Portion)
 
Classification of Pre-tax Gain
Reclassified
from AOCI
into Income
(Effective Portion)
Amount of 
Pre-tax Loss
Recognized
in OCI on Derivatives
(Effective Portion)
 
Amount of
Pre-tax Gain
Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)
 
Amount of
Pre-tax Gain
Reclassified from
AOCI into Income
(Effective Portion)
 
Classification of Pre-tax Gain/(Loss)
Reclassified from AOCI into Income
(Effective Portion)
Derivative instruments in cash flow hedging relationships:Derivative instruments in cash flow hedging relationships:       Derivative instruments in cash flow hedging relationships:       
Interest rate contracts hedging floating rate loans 1

$204
 
$47
 
$338
 
$126
 Interest and fees on loans
($78) 
$36
 
$408
 
$113
 Interest and fees on loans
1 During the three and nine months ended September 30, 2016, the Company also reclassified $23 million and $77 million of pre-tax gains from AOCI into net interest income. These gains related to hedging relationships that have been terminated or de-designated and are reclassified into earnings consistent with the pattern of net cash flows expected to be recognized.

 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
(Dollars in millions)Amount of Loss on Derivatives
Recognized in Income		 
Amount of Gain
on Related Hedged Items
Recognized in Income
 
Amount of Gain
Recognized in Income
on Hedges
(Ineffective Portion)
 Amount of Gain on Derivatives
Recognized in Income		 
Amount of Loss
on Related Hedged Items
Recognized in Income
 
Amount of Gain
Recognized in Income
on Hedges
(Ineffective Portion)
Derivative instruments in fair value hedging relationships:      
Interest rate contracts hedging fixed rate debt 1

($10) 
$11
 
$1
 
$20
 
($19) 
$1
Interest rate contracts hedging brokered CDs 1
—
 —
 —
 —
 —
 —
Total
($10) 
$11
 
$1
 
$20
 
($19) 
$1
1 Amounts are recognized in trading income in the Consolidated Statements of Income.

(Dollars in millions)
Classification of Gain/(Loss)
Recognized in Income on Derivatives
 Amount of Gain/(Loss) Recognized in Income on Derivatives During the Three Months Ended September 30, 2016 Amount of Gain/(Loss) Recognized in Income on Derivatives During the Nine Months Ended September 30, 2016
Derivative instruments not designated as hedging instruments:    
Interest rate contracts hedging:     
MSRsMortgage servicing related income 
$15
 
$306
LHFS, IRLCsMortgage production related income (35) (162)
LHFIOther noninterest income —
 (3)
Trading activityTrading income 11
 24
Foreign exchange rate contracts hedging trading activityTrading income 36
 52
Credit contracts hedging:     
LoansOther noninterest income (1) (3)
Trading activityTrading income 5
 14
Equity contracts hedging trading activityTrading income 1
 5
Other contracts:     
IRLCsMortgage production related income 122
 291
CommoditiesTrading income 1
 2
Total  
$155
 
$526
Notes to Consolidated Financial Statements (Unaudited), continued





 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015  
(Dollars in millions)Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)		 
Amount of
Pre-tax Gain
Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)
 
Amount of
Pre-tax Gain
Reclassified from
AOCI into Income
(Effective Portion)
 Classification of Pre-tax Gain
Reclassified from AOCI into Income
(Effective Portion)
Derivative instruments in cash flow hedging relationships:        
Interest rate contracts hedging floating rate loans 1

$204
 
$47
 
$338
 
$126
 Interest and fees on loans
1 During the three and nine months ended September 30, 2015, the Company also reclassified $23 million and $61 million, respectively, of pre-tax gains from AOCI into net interest income. These gains related to hedging relationships that have been terminated or de-designated and are reclassified into earnings consistent with the pattern of net cash flows expected to be recognized.

 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015
(Dollars in millions)Amount of Gain/(Loss) on Derivatives
Recognized in Income		 
Amount of Loss on Related
Hedged Items
Recognized in Income
 Amount of Loss Recognized in Income on Hedges
(Ineffective Portion)		 
Amount of
Gain on Derivatives
Recognized in Income
 
Amount of Loss on
Related Hedged Items
Recognized in Income
 
Amount of Loss
Recognized in Income
on Hedges
(Ineffective Portion)
Derivative instruments in fair value hedging relationships:      
Interest rate contracts hedging fixed rate debt 1

$—
 
($1) 
($1) 
$7
 
($8) 
($1)
1 Amounts are recognized in trading income in the Consolidated Statements of Income.

(Dollars in millions)
Classification of Gain/(Loss) Recognized
in Income on Derivatives
 
Amount of Gain/(Loss) Recognized in Income on Derivatives
During the Three Months Ended
September 30, 2015
 
Amount of Gain/(Loss) Recognized in Income on Derivatives
During the Nine Months Ended
September 30, 2015
Derivative instruments not designated as hedging instruments:    
Interest rate contracts hedging:     
MSRsMortgage servicing related income 
$298
 
$223
LHFS, IRLCsMortgage production related income (69) (60)
LHFIOther noninterest income (2) (2)
Trading activityTrading income 5
 46
Foreign exchange rate contracts hedging trading activityTrading income 21
 57
Credit contracts hedging:     
LoansOther noninterest income —
 (1)
Trading activityTrading income 6
 19
Equity contracts hedging trading activityTrading income —
 3
Other contracts hedging:     
IRLCsMortgage production related income 58
 151
CommoditiesTrading income 1
 2
Total  
$318
 
$438

36
Notes to Consolidated Financial Statements (Unaudited), continued





 Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014  
(Dollars in millions)Amount of 
Pre-tax Loss
Recognized
in OCI on Derivatives
(Effective Portion)		 
Amount of
Pre-tax Gain Reclassified from AOCI into Income
(Effective Portion)
 Amount of 
Pre-tax Gain
Recognized
in OCI on Derivatives
(Effective Portion)		 Amount of
Pre-tax Gain
Reclassified from AOCI into Income
(Effective Portion)		 Classification of Pre-tax Gain
Reclassified
from AOCI
into Income
(Effective Portion)
Derivative instruments in cash flow hedging relationships:        
Interest rate contracts hedging floating rate loans 1

($31) 
$76
 
$36
 
$225
 Interest and fees on loans
1 During the three and nine months ended September 30, 2014, the Company also reclassified $23 million and $77 million, respectively, of pre-tax gains from AOCI into net interest income. These gains related to hedging relationships that have been terminated or de-designated and are reclassified into earnings consistent with the pattern of net cash flows expected to be recognized.

Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015
(Dollars in millions)Amount of Loss on Derivatives
Recognized in Income		 Amount of Gain on Related
Hedged Items
Recognized in Income		 Amount of Gain/(Loss) Recognized in Income on Hedges
(Ineffective Portion)		 Amount of
Gain on Derivatives
Recognized in Income		 
Amount of Loss on Related
Hedged Items
Recognized in Income
 Amount of Gain
Recognized in Income
on Hedges
(Ineffective Portion)		Amount of Gain/(Loss) on Derivatives
Recognized in Income		 
Amount of Loss
on Related Hedged Items
Recognized in Income
 
Amount of Loss
Recognized in Income
on Hedges
(Ineffective Portion)
 Amount of Gain on Derivatives
Recognized in Income		 Amount of Loss
on Related Hedged Items
Recognized in Income		 Amount of Loss
Recognized in Income
on Hedges
(Ineffective Portion)
Derivative instruments in fair value hedging relationships:Derivative instruments in fair value hedging relationships:      Derivative instruments in fair value hedging relationships:      
Interest rate contracts hedging fixed rate debt 1

($7) 
$7
 
$—
 
$10
 
($9) 
$1

$—
 
($1) 
($1) 
$7
 
($8) 
($1)
Interest rate contracts hedging brokered CDs 1
—
 —
 —
 —
 —
 —
Total
$—
 
($1) 
($1) 
$7
 
($8) 
($1)
1 Amounts are recognized in trading income in the Consolidated Statements of Income.


(Dollars in millions)
Classification of Gain/(Loss) Recognized
in Income on Derivatives
 
Amount of Gain
Recognized in Income
on Derivatives
During the Three Months Ended
September 30, 2014
 
Amount of Gain/(Loss)
Recognized in Income
on Derivatives
During the Nine
Months Ended
September 30, 2014
Classification of Gain/(Loss)
Recognized in Income on Derivatives
 Amount of Gain/(Loss) Recognized in Income on Derivatives During the Three Months Ended September 30, 2015 Amount of Gain/(Loss) Recognized in Income on Derivatives During the Nine Months Ended September 30, 2015
Derivative instruments not designated as hedging instruments:Derivative instruments not designated as hedging instruments:        
Interest rate contracts hedging:        
MSRsMortgage servicing related income 
$17
 
$138
Mortgage servicing related income 
$298
 
$223
LHFS, IRLCsMortgage production related income 4
 (92)Mortgage production related income (69) (60)
LHFIOther noninterest income (2) (2)
Trading activityTrading income 9
 34
Trading income 5
 46
Foreign exchange rate contracts hedging trading activityTrading income 44
 43
Trading income 21
 57
Credit contracts hedging: 
 
 
 
LoansOther noninterest income 1
 —
Other noninterest income —
 (1)
Trading activityTrading income 4
 13
Trading income 6
 19
Equity contracts hedging trading activityTrading income 1
 4
Trading income —
 3
Other contracts - IRLCsMortgage production related income 52
 190
Other contracts: 
 
IRLCsMortgage production related income 58
 151
CommoditiesTrading income 1
 2
Total 
$132
 
$330
 
$318
 
$438




37
Notes to Consolidated Financial Statements (Unaudited), continued



Netting of Derivative Instruments
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's securities borrowed or purchased under agreements to resell, and securities sold under agreements to repurchase, that are subject to enforceable master netting agreements or similar agreements, are discussed in Note 2, "Federal Funds Sold and Securities Financing Activities." The Company enters into ISDA or other legally enforceable industry standard master netting agreements with derivative counterparties. Under the terms of the master netting agreements, all transactions between the Company and the 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 by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted.
 
The following tables present total gross derivative instrument assets and liabilities at September 30, 20152016 and December 31, 2014,2015, which are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid onwhen calculating the net amount reported in the Consolidated Balance Sheets. Also included in the tables are financial instrument collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and customer cash collateral held at third party custodians. These amounts are not offset on the Consolidated Balance Sheets but are shown as a reduction to total derivative instrument assets and liabilities to derive net derivative assets and liabilities. These amounts are limited to the derivative asset/liability balance, and accordingly, do not include excess collateral received/pledged.

(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged
Financial
Instruments
 
Net
Amount
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged
Financial
Instruments
 
Net
Amount
September 30, 2015         
September 30, 2016         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$4,748
 
$3,455
 
$1,293
 
$51
 
$1,242

$5,703
 
$4,456
 
$1,247
 
$136
 
$1,111
Derivatives not subject to master netting arrangement or similar arrangement38
 —
 38
 —
 38
79
 —
 79
 —
 79
Exchange traded derivatives472
 354
 118
 —
 118
356
 151
 205
 —
 205
Total derivative instrument assets
$5,258
 
$3,809
 
$1,449
1 

$51
 
$1,398

$6,138
 
$4,607
 
$1,531
1 

$136
 
$1,395
                  
Derivative instrument liabilities:                  
Derivatives subject to master netting arrangement or similar arrangement
$4,488
 
$4,011
 
$477
 
$20
 
$457

$5,369
 
$5,158
 
$211
 
$33
 
$178
Derivatives not subject to master netting arrangement or similar arrangement88
 —
 88
 —
 88
101
 —
 101
 —
 101
Exchange traded derivatives354
 354
 —
 —
 —
151
 151
 —
 —
 —
Total derivative instrument liabilities
$4,930
 
$4,365
 
$565
2 

$20
 
$545

$5,621
 
$5,309
 
$312
2 

$33
 
$279
                  
December 31, 2014         
December 31, 2015         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$5,127
 
$4,095
 
$1,032
 
$63
 
$969

$4,184
 
$3,156
 
$1,028
 
$66
 
$962
Derivatives not subject to master netting arrangement or similar arrangement25
 —
 25
 —
 25
21
 —
 21
 —
 21
Exchange traded derivatives687
 437
 250
 —
 250
260
 157
 103
 —
 103
Total derivative instrument assets
$5,839
 
$4,532
 
$1,307
1 

$63
 
$1,244

$4,465
 
$3,313
 
$1,152
1 

$66
 
$1,086
                  
Derivative instrument liabilities:                  
Derivatives subject to master netting arrangement or similar arrangement
$5,001
 
$4,678
 
$323
 
$12
 
$311

$4,162
 
$3,807
 
$355
 
$19
 
$336
Derivatives not subject to master netting arrangement or similar arrangement133
 —
 133
 —
 133
105
 —
 105
 —
 105
Exchange traded derivatives443
 437
 6
 —
 6
161
 157
 4
 —
 4
Total derivative instrument liabilities
$5,577
 
$5,115
 
$462
2 

$12
 
$450

$4,428
 
$3,964
 
$464
2 

$19
 
$445
1 At September 30, 2015, $1.42016, $1.5 billion, net of $541$675 million offsetting cash collateral, is recognized in trading assets and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2014, $1.32015, $1.2 billion, net of $449$397 million offsetting cash collateral, is recognized in trading assets and derivative instruments within the Company's Consolidated Balance Sheets.
2 At September 30, 2015, $5652016, $312 million, net of $1.1$1.4 billion offsetting cash collateral, is recognized in trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2014, $4622015, $464 million, net of $1.0 billion offsetting cash collateral, is recognized in trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets.


38
Notes to Consolidated Financial Statements (Unaudited), continued



Credit Derivative Instruments
As part of SunTrust'sthe Company's trading businesses, the Company enters into contracts that are, in form or substance, written guarantees:guarantees; specifically, CDS, risk participations, and TRS. The Company accounts for these contracts as derivatives and, accordingly, records these contracts at fair value, with changes in fair value recognized in trading income in the Consolidated Statements of Income.
The Company periodically writes CDS, which are agreements under which the Company receives premium payments from its counterparty for protection against an event of default of a reference asset. In the event of default under the CDS, the Company would either settle its obligation net in cash or make a cash payment to its counterparty and take delivery of the defaulted reference asset, from which the Company may recover all, a portion, or none of the credit loss, depending on the performance of the reference asset. Events of default, as defined in the CDS agreements, are generally triggered upon the failure to pay and similar events related to the issuer(s) of the reference asset. When the Company has written CDS, all written CDS contracts reference single name corporate credits or corporate credit indices. The Company generally enters into offsetting purchased CDS for the underlying reference asset, under which the Company pays a premium to its counterparty for protection against an event of default on the reference asset. The counterparties to these purchased CDS are generally of high creditworthiness and typically have ISDA master netting agreements in place that subject the CDS to master netting provisions, thereby mitigating the risk of non-payment to the Company. As such, at September 30, 2015,2016, the Company did not have any material risk of making a non-recoverable payment on any written CDS. During 20152016 and 2014,2015, the only instances of default on written CDS were driven by credit indices with constituent credit default. In all cases where the Company made resulting cash payments to settle, the Company collected like amounts from the counterparties to the offsetting purchased CDS.
At September 30, 2015 and December 31, 2014,2016, written CDS had remaining terms of five years and four years, respectively.years. There were no written CDS at December 31, 2015. The fair valuesvalue of written CDS were under $1 million and $1was $3 million at September 30, 2015 and December 31, 2014, respectively.2016. The maximum guarantees outstanding at September 30, 2015 and December 31, 2014,2016, as measured by the gross notional amountsamount of written CDS, were $150was $170 million, and $20 million, respectively, which represent the curtailment of mirror purchaserepresents risk reduction trades offsetting purchased CDS positions. At September 30, 20152016 and December 31, 2014,2015, the gross notional amounts of purchased CDS contracts which protect the Company against default of a reference asset,designated as trading instruments were $315$305 million and $190$150 million, respectively. The fair values of purchased CDS were $2$5 million and $5$1 million at September 30, 20152016 and December 31, 2014,2015, respectively.
The Company has also entered into TRS contracts on loans. The Company’s TRS business consists of matched trades, such that when the Company pays depreciation on one TRS, it receives the same amount on the matched TRS. To mitigate its credit risk, the Company typically receives initial cash collateral from the counterparty upon entering into the TRS and is entitled to additional collateral if the fair value of the underlying reference assets deteriorates. There were $2.4$2.2 billion and $2.3 billion of
outstanding TRS notional balances at both September 30, 20152016 and December 31, 2014, respectively.2015. The fair values of these TRS assets and liabilities at September 30, 20152016 were $16$25 million and $11$21 million,
respectively, and related collateral held at September 30, 20152016 was $462$474 million. The fair values of the TRS assets and liabilities at December 31, 20142015 were $19$57 million and $14$52 million, respectively, and related collateral held at December 31, 20142015 was $373$492 million. For additional information on the Company's TRS contracts, see Note 8, "Certain Transfers of Financial Assets and Variable Interest Entities," as well as Note 14, "Fair Value Election and Measurement."
The Company writes risk participations, which are credit derivatives, whereby the Company has guaranteed payment to a dealer counterparty in the event the counterparty experiences a loss on a derivative, such as an interest rate swap, due to a failure to pay by the counterparty’s customer (the “obligor”) on that derivative. The Company monitorsmanages its payment risk on its risk participations by monitoring the creditworthiness of the obligors, which is based onare all corporations or partnerships, through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. The obligors are all corporations or partnerships. The Company continues to monitor the creditworthiness of the obligors and the likelihood of payment could change at any time due to unforeseen circumstances. To date, no material losses have been incurred related to the Company’s written risk participations. At September 30, 2015,2016, the remaining terms foron these risk participations generally ranged from zero to 31 years, with a weighted average term on the maximum estimated exposure of 9.0 years. At December 31, 2015, the remaining terms on these risk participations generally ranged from less than one year to eight years, with a weighted average term on the maximum estimated exposure of 45.6 years. The Company’s maximum estimated exposure to written risk participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $73$78 million and $31$55 million at September 30, 20152016 and December 31, 2014,2015, respectively. The fair values of the written risk participations were immaterial at both September 30, 20152016 and December 31, 2014. As part of its trading activities, the2015. The Company may enter into purchased risk participations to mitigate this written credit risk exposure to a derivative counterparty.

Cash Flow Hedging Instruments
The Company utilizes a comprehensive risk management strategy to monitor sensitivity of earnings to movements in interest rates. Specific types of funding and principal amounts hedged are determined based on prevailing market conditions and the shape of the yield curve. In conjunction with this strategy, the Company may employ various interest rate derivatives as risk management tools to hedge interest rate risk from recognized assets and liabilities or from forecasted transactions. The terms and notional amounts of derivatives are determined based on management’s assessment of future interest rates, as well as other factors.
Interest rate swaps have been designated as hedging the exposure to the benchmark interest rate risk associated with floating rate loans. At September 30, 2016, the maturities for hedges of floating rate loans ranged from less than one year to six years, with the weighted average being 4.0 years. At December 31, 2015, the maturities for hedges of floating rate loans ranged from less than one year to seven years, with the weighted average being 3.23.3 years. These hedges have been highly effective in offsetting the designated risks, yielding an immaterial amount of ineffectiveness for the three and nine


39
Notes to Consolidated Financial Statements (Unaudited), continued



an immaterial amount of ineffectiveness for the three and nine months ended September 30, 20152016 and 2014.2015. At September 30, 2015, $2112016, $200 million of the deferred net pre-tax gains on derivative instruments that aredesignated as cash flow hedges on floating rate loans recognized in AOCI are expected to be reclassified tointo net interest income overduring the next twelve months in connection with the recognition of interest income on these hedged items.months. The amount to be reclassified into income includesincorporates the impact from both active and terminated or de-designated cash flow hedges.hedges, including the net interest income earned on the active hedges, assuming no changes in LIBOR. The Company may choose to terminate or de-designate a hedging relationship in this program due to a change in the risk management objective for that specific hedge item, which may arise in conjunction with an overall balance sheet management strategy.
Fair Value Hedging Instruments
The Company enters into interest rate swap agreements as part of the Company’s risk management objectives for hedging its exposure to changes in fair value due to changes in interest rates. These hedging arrangements convert Company-issuedcertain fixed rate long-term debt and CDs to floating rates. Consistent with this objective, the Company reflects the accrued contractual interest on the hedged item and the related swaps as part of current period interest expense. There were no components of derivative gains or losses excluded in the Company’s assessment of hedge effectiveness related to the fair value hedges.
Economic Hedging Instruments and Trading Activities
In addition to designated hedge accounting relationships, the Company also enters into derivatives as an end user to economically hedge risks associated with certain non-derivative and derivative instruments, along with entering into derivatives in a trading capacity with its clients.
The primary risks that the Company economically hedges are interest rate risk, foreign exchange risk, and credit risk. Economic hedging objectives are accomplishedThe
Company mitigates these risks by entering into offsetting derivatives either on an individual basis or collectively on a macro basis and generally accomplish the Company’s goal of mitigating the targeted risk.basis.
The Company utilizes interest rate derivatives to mitigate exposures from various instruments, including:related to:
MSRs. The Company hedges these instruments with a combination of mortgage and interest rate derivatives, including forward and option contracts, futures, and forward rate agreements.
IRLCs and mortgage LHFS. The Company hedges these instruments using forward and option contracts, futures, and option contracts.forward rate agreements.
The Company is exposed to volatility and changes in foreign exchange rates associated with certain commercial loans. To hedge against this foreign exchange rate risk, the Company enters into foreign exchange rate contracts that provide for the future receipt and delivery of foreign currency at previously agreed-upon terms.
The Company enters into CDS to hedge credit risk associated with certain loans held within its Wholesale Banking segment. The Company accounts for these contracts as derivatives and, accordingly, recognizes these contracts at fair value, with changes in fair value recognized in other noninterest income in the Consolidated Statements of Income.
Trading activity primarily includes interest rate swaps, equity derivatives, CDS, futures, options, foreign currency contracts, and commodities. These derivatives are entered into in a dealer capacity to facilitate client transactions, or are utilized as a risk management tool by the Company as an end user (predominantly in certain macro-hedging strategies). The macro-hedging strategies are focused on managing the Company’s overall interest rate risk exposure that is not otherwise hedged by derivatives or in connection with specific hedges and, therefore, the Company does not specifically associate individual derivatives with specific assets or liabilities.hedges.



40
Notes to Consolidated Financial Statements (Unaudited), continued





NOTE 14 - FAIR VALUE ELECTION AND MEASUREMENT
The Company measures certain assets and liabilities at fair value, which are classified as level 1, 2, or 3 within the fair value hierarchy, as shown below, on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions taking into account information about market participant assumptions that is readily available.
Level 1: Quoted prices for identical instruments in active markets.markets
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.markets
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.unobservable
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company’s recurring fair value measurements are based on either a requirement to measure such assets and liabilities at fair value or on the Company’s election to measure certain financial assets and liabilities at fair value. Assets and liabilities that are required to be measured at fair value on a recurring basis include trading securities, securities AFS, and derivative financial instruments. Assets and liabilities that the Company has elected to measure at fair value on a recurring basis include MSRs and certain LHFS, LHFI, trading loans, brokered time deposits, and issuances of fixed rate debt.
The Company elects to measure certain assets and liabilities at fair value to better align its financial performance with the economic value of actively traded or hedged assets or liabilities. The use of fair value also enables the Company to mitigate non-economic earnings volatility caused from financial assets and liabilities being carried atmeasured using different bases of accounting, as well as to more accurately portray the active and dynamic management of the Company’s balance sheet.
The Company uses various valuation techniques and assumptions in estimating fair value. The assumptions used to estimate the value of an instrument have varying degrees of impact to the overall fair value of an asset or liability. This process involves the gathering of multiple sources of information, including broker quotes, values provided by pricing services, trading activity in other identical or similar securities, market indices, and pricing matrices. When observable market prices for the asset or liability are not available, the Company employs various modeling techniques,
 
modeling techniques, such as discounted cash flow analyses, to estimate fair value. Models used to produce material financial reporting information are validated prior to use and following any material change in methodology. Their performance is monitored at least quarterly, and any material deterioration in model performance is addressed.escalated. This review is performed by andifferent internal group that reports togroups depending on the Corporate Risk Function.type of fair value asset or liability.
The Company has formal processes and controls in place to support the appropriateness of its fair value estimates. For fair values obtained from a third party, or those that include certain trader estimates of fair value, there is an independent price validation function that provides oversight for these estimates. For level 2 instruments and certain level 3 instruments, the validation generally involves evaluating pricing received from two or more other third party pricing sources that are widely used by market participants. The Company evaluates this pricing information from both a qualitative and quantitative perspective and determines whether any pricing differences exceed acceptable thresholds. If these thresholds are exceeded, the Company assesses differences in valuation approaches used, which may include contacting a pricing service to gain further insight into the valuation of a particular security or class of securities to resolve the pricing variance, which could include an adjustment to the price used for financial reporting purposes.
The Company classifies instruments within level 2 in the fair value hierarchy when it determines that external pricing sources estimated fair value using prices for similar instruments trading in active markets. A wide range of quoted values from pricing sources may imply a reduced level of market activity and indicate that significant adjustments to price indications have been made. In such cases, the Company evaluates whether the asset or liability should be classified as level 3.
Determining whether to classify an instrument as level 3 involves judgment and is based on a variety of subjective factors, including whether a market is inactive. A market is considered inactive if significant decreases in the volume and level of activity for the asset or liability have been observed. In making this determination the Company evaluates the number of recent transactions in either the primary or secondary market, whether or not price quotations are current, the nature of market participants, the variability of price quotations, the breadth of bid/ask spreads, declines in, (oror the absence of)of, new issuances, and the availability of public information. When a market is determined to be inactive, significant adjustments may be made to price indications when estimating fair value. In making these adjustments the Company seeks to employ assumptions a market participant would use to value the asset or liability, including consideration of illiquidity in the referenced market.



41
Notes to Consolidated Financial Statements (Unaudited), continued



Recurring Fair Value Measurements
The following tables present certain information regarding assets and liabilities measured at fair value on a recurring basis and the changes in fair value for those specific financial instruments for which fair value has been elected.
September 30, 2015September 30, 2016
Fair Value Measurements    Fair Value Measurements    
(Dollars in millions)Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Assets                  
Trading assets and derivative instruments:                  
U.S. Treasury securities
$443
 
$—
 
$—
 
$—
 
$443

$547
 
$—
 
$—
 
$—
 
$547
Federal agency securities—
 532
 —
 —
 532
—
 259
 —
 —
 259
U.S. states and political subdivisions—
 40
 —
 —
 40
—
 187
 —
 —
 187
MBS - agency—
 565
 —
 —
 565
—
 883
 —
 —
 883
CLO securities—
 2
 —
 —
 2
—
 1
 —
 —
 1
Corporate and other debt securities—
 390
 —
 —
 390
—
 723
 —
 —
 723
CP—
 312
 —
 —
 312
—
 202
 —
 —
 202
Equity securities65
 —
 —
 —
 65
51
 —
 —
 —
 51
Derivative instruments474
 4,746
 38
 (3,809) 1,449
356
 5,703
 79
 (4,607) 1,531
Trading loans—
 2,739
 —
 —
 2,739
—
 2,660
 —
 —
 2,660
Total trading assets and derivative instruments982
 9,326
 38
 (3,809) 6,537
954
 10,618
 79
 (4,607) 7,044
                  
Securities AFS:                  
U.S. Treasury securities3,065
 —
 —
 —
 3,065
4,983
 —
 —
 —
 4,983
Federal agency securities—
 420
 —
 —
 420
—
 334
 —
 —
 334
U.S. states and political subdivisions—
 169
 5
 —
 174
—
 257
 4
 —
 261
MBS - agency—
 22,905
 —
 —
 22,905
—
 23,316
 —
 —
 23,316
MBS - private—
 —
 102
 —
 102
MBS - non-agency residential—
 —
 76
 —
 76
ABS—
 —
 15
 —
 15
—
 —
 11
 —
 11
Corporate and other debt securities—
 33
 5
 —
 38
—
 31
 5
 —
 36
Other equity securities 2
111
 —
 440
 —
 551
104
 —
 551
 —
 655
Total securities AFS3,176
 23,527
 567
 —
 27,270
5,087
 23,938
 647
 —
 29,672

                  
Residential LHFS—
 1,881
 2
 —
 1,883
—
 3,023
 3
 —
 3,026
LHFI—
 —
 262
 —
 262
—
 —
 234
 —
 234
MSRs—
 —
 1,262
 —
 1,262
—
 —
 1,119
 —
 1,119
                  
Liabilities                  
Trading liabilities and derivative instruments:                  
U.S. Treasury securities584
 —
 —
 —
 584
918
 —
 —
 —
 918
MBS - agency—
 4
 —
 —
 4
—
 2
 —
 —
 2
Corporate and other debt securities—
 177
 —
 —
 177
—
 252
 —
 —
 252
Derivative instruments355
 4,569
 6
 (4,365) 565
152
 5,454
 15
 (5,309) 312
Total trading liabilities and derivative instruments939
 4,750
 6
 (4,365) 1,330
1,070
 5,708
 15
 (5,309) 1,484
                  
Brokered time deposits—
 54
 —
 —
 54
Long-term debt—
 986
 —
 —
 986
—
 963
 —
 —
 963
Other liabilities 3
—
 —
 23
 —
 23
1 Amounts represent 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 $111$104 million of mutual fund investments, $143 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, and $6 million of other.







Notes to Consolidated Financial Statements (Unaudited), continued






 December 31, 2015
 Fair Value Measurements    
(Dollars in millions)Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Assets         
Trading assets and derivative instruments:         
U.S. Treasury securities
$538
 
$—
 
$—
 
$—
 
$538
Federal agency securities—
 588
 —
 —
 588
U.S. states and political subdivisions—
 30
 —
 —
 30
MBS - agency—
 553
 —
 —
 553
CLO securities—
 2
 —
 —
 2
Corporate and other debt securities—
 379
 89
 —
 468
CP—
 67
 —
 —
 67
Equity securities66
 —
 —
 —
 66
Derivative instruments262
 4,182
 21
 (3,313) 1,152
Trading loans—
 2,655
 —
 —
 2,655
Total trading assets and derivative instruments866
 8,456
 110
 (3,313) 6,119
          
Securities AFS:         
U.S. Treasury securities3,449
 —
 —
 —
 3,449
Federal agency securities—
 411
 —
 —
 411
U.S. states and political subdivisions—
 159
 5
 —
 164
MBS - agency—
 23,124
 —
 —
 23,124
MBS - non-agency residential—
 —
 94
 —
 94
ABS—
 —
 12
 —
 12
Corporate and other debt securities—
 33
 5
 —
 38
Other equity securities 2
93
 —
 440
 —
 533
Total securities AFS3,542
 23,727
 556
 —
 27,825
          
Residential LHFS—
 1,489
 5
 —
 1,494
LHFI—
 —
 257
 —
 257
MSRs—
 —
 1,307
 —
 1,307
          
Liabilities         
Trading liabilities and derivative instruments:         
U.S. Treasury securities503
 —
 —
 —
 503
MBS - agency—
 37
 —
 —
 37
Corporate and other debt securities—
 259
 —
 —
 259
Derivative instruments161
 4,261
 6
 (3,964) 464
Total trading liabilities and derivative instruments664
 4,557
 6
 (3,964) 1,263
          
Long-term debt—
 973
 —
 —
 973
Other liabilities 3
—
 —
 23
 —
 23
1 Amounts represent 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 $93 million of mutual fund investments, $32 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, and $6 million of other.
3 Includes contingent consideration obligations related to acquisitions.








42
Notes to Consolidated Financial Statements (Unaudited), continued






 December 31, 2014
 Fair Value Measurements    
(Dollars in millions)Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Assets         
Trading assets and derivative instruments:         
U.S. Treasury securities
$267
 
$—
 
$—
 
$—
 
$267
Federal agency securities—
 547
 —
 —
 547
U.S. states and political subdivisions—
 42
 —
 —
 42
MBS - agency—
 545
 —
 —
 545
CLO securities—
 3
 —
 —
 3
Corporate and other debt securities—
 509
 —
 —
 509
CP—
 327
 —
 —
 327
Equity securities45
 —
 —
 —
 45
Derivative instruments688
 5,126
 25
 (4,532) 1,307
Trading loans—
 2,610
 —
 —
 2,610
Total trading assets and derivative instruments1,000
 9,709
 25
 (4,532) 6,202
          
Securities AFS:         
U.S. Treasury securities1,921
 —
 —
 —
 1,921
Federal agency securities—
 484
 —
 —
 484
U.S. states and political subdivisions—
 197
 12
 —
 209
MBS - agency—
 23,048
 —
 —
 23,048
MBS - private—
 —
 123
 —
 123
ABS—
 —
 21
 —
 21
Corporate and other debt securities—
 36
 5
 —
 41
Other equity securities 2
138
 —
 785
 —
 923
Total securities AFS2,059
 23,765
 946
 —
 26,770
          
Residential LHFS—
 1,891
 1
 —
 1,892
LHFI—
 —
 272
 —
 272
MSRs—
 —
 1,206
 —
 1,206
          
Liabilities         
Trading liabilities and derivative instruments:         
U.S. Treasury securities485
 —
 —
 —
 485
MBS - agency—
 1
 —
 —
 1
Corporate and other debt securities—
 279
 —
 —
 279
Derivative instruments444
 5,128
 5
 (5,115) 462
Total trading liabilities and derivative instruments929
 5,408
 5
 (5,115) 1,227
          
Long-term debt—
 1,283
 —
 —
 1,283
Other liabilities 3
—
 —
 27
 —
 27
1 Amounts represent 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 $138 million of mutual fund investments, $376 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, and $7 million of other.
3 Includes contingent consideration obligations related to acquisitions.


43
Notes to Consolidated Financial Statements (Unaudited), continued





The following tables present the difference between fair value and the aggregate UPB of trading loans, LHFS, LHFI, and long-term debt instruments for which the FVO has been elected. For LHFS and LHFI for which the FVO has been elected the tables also include the difference between fair valuefor certain trading loans, LHFS, LHFI, brokered time deposits, and the aggregate UPB of loans in nonaccrual status.

long-term debt instruments.
(Dollars in millions)Fair Value at September 30, 2015 Aggregate UPB under FVO at September 30, 2015 
Fair Value
Over/(Under)
Unpaid Principal
Fair Value at
September 30, 2016
 
Aggregate UPB at
September 30, 2016
 
Fair Value
Over/(Under)
Unpaid Principal
Assets:          
Trading loans
$2,739
 
$2,687
 
$52

$2,660
 
$2,607
 
$53
LHFS:          
Accrual1,883
 1,806
 77
Accruing3,026
 2,914
 112
LHFI:          
Accrual260
 269
 (9)
Accruing232
 233
 (1)
Nonaccrual2
 3
 (1)2
 3
 (1)

Liabilities:
          
Brokered time deposits54
 54
 —
Long-term debt986
 907
 79
963
 907
 56
          
(Dollars in millions)Fair Value at December 31, 2014 Aggregate UPB under FVO at December 31, 2014 

Fair Value
Over/(Under)
Unpaid Principal
Fair Value at
December 31, 2015
 
Aggregate UPB at
December 31, 2015
 

Fair Value
Over/(Under)
Unpaid Principal
Assets:          
Trading loans
$2,610
 
$2,589
 
$21

$2,655
 
$2,605
 
$50
LHFS:          
Accrual1,891
 1,817
 74
Nonaccrual1
 1
 —
Accruing1,494
 1,453
 41
LHFI:          
Accrual269
 281
 (12)
Accruing254
 259
 (5)
Nonaccrual3
 5
 (2)3
 5
 (2)

Liabilities:
          
Long-term debt1,283
 1,176
 107
973
 907
 66


44
Notes to Consolidated Financial Statements (Unaudited), continued





The following tables present the change in fair value during the three and nine months ended September 30, 20152016 and 20142015 of financial instruments for which the FVO has been elected, as well as for MSRs. The tables do not reflect the change in fair value attributable to the related economic hedges that the Company uses to mitigate the market-related risks associated with the financial instruments. Generally, the changes in the fair value of economic
 
hedges are recognized in trading income, mortgage production related income, or mortgage servicing related income, or other noninterest income as appropriate, and are designed to partially offset the change in fair value of the financial instruments referenced in the tables below. The Company’s economic hedging activities are deployed at both the instrument and portfolio level.


Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2015 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2015 for Items Measured at Fair Value
Pursuant to Election of the FVO
Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2016 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2016 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income
Mortgage
Production
Related
Income 1
Mortgage
Servicing
Related
Income
Other Noninterest Income
Total Changes
in Fair Values
Included in
Current Period
  Earnings 2
 
Trading
Income
Mortgage Production Related
 Income 1
Mortgage
Servicing
Related
Income
Other Noninterest Income
Total Changes
in Fair Values
Included in
Current
Period
  Earnings 2
Trading Income 
Mortgage Production Related
 Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
 Trading Income 
Mortgage Production Related
Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
Assets:                      
Trading loans
($1)
$—

$—

$—

($1) 
$1

$—

$—

$—

$1

$6
 
$—
 
$—
 
$—
 
$6
 
$11
 
$—
 
$—
 
$—
 
$11
LHFS—
20
—
—
20
 —
32
—
—
32
—
 15
 —
 —
 15
 —
 92
 —
 —
 92
LHFI—
—
—
4
4
 —
—
—
3
3
—
 —
 —
 (1) (1) —
 —
 —
 5
 5
MSRs—
—
(198)—
(198) —
1
(235)—
(234)—
 —
 (56) —
 (56) —
 2
 (488) —
 (486)
Liabilities:
                      
Brokered time deposits1
 —
 —
 —
 1
 1
 —
 —
 —
 1
Long-term debt9
—
—
—
9
 28
—
—
—
28
7
 —
 —
 —
 7
 10
 —
 —
 —
 10
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2016, income related to MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three and nine months ended September 30, 2016 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in interest income or interest expense in the Consolidated Statements of Income.


 
Fair Value (Loss)/Gain for the Three Months Ended
September 30, 2015 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2015 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income 
Mortgage Production Related
 Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
 Trading Income 
Mortgage Production Related
 Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
Assets:                   
Trading loans
($1) 
$—
 
$—
 
$—
 
($1) 
$1
 
$—
 
$—
 
$—
 
$1
LHFS—
 20
 —
 —
 20
 —
 32
 —
 —
 32
LHFI—
 —
 —
 4
 4
 —
 —
 —
 3
 3
MSRs—
 —
 (198) —
 (198) —
 1
 (235) —
 (234)
 
Liabilities:
                   
Long-term debt9
 —
 —
 —
 9
 28
 —
 —
 —
 28
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2015, income related to MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three and nine months ended September 30, 2015 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, and long-term debt that have been elected to be measured at fair value are recognized in interest income or interest expense in the Consolidated Statements of Income.


 
Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2014 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2014 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income
Mortgage
Production
Related
Income 1
Mortgage
Servicing
Related
Income
Total Changes
in Fair Values
Included in
Current
Period
  Earnings 2
 
Trading
Income
Mortgage Production Related
 Income 1
Mortgage
Servicing
Related
Income
Total Changes
in Fair Values
Included in
Current
Period
  Earnings 2
Assets:         
Trading loans
$1

$—

$—

$1
 
$10

$—

$—

$10
LHFS—
(32)—
(32) —
(18)—
(18)
LHFI—
—
—
—
 —
8
—
8
MSRs—
—
(55)(55) —
2
(240)(238)
 
Liabilities:
         
Brokered time deposits1
—
—
1
 6
—
—
6
Long-term debt9
—
—
9
 6
—
—
6
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2014, income related to MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three and nine months ended September 30, 2014 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in interest income or interest expense in the Consolidated Statements of Income.


45
Notes to Consolidated Financial Statements (Unaudited), continued



The following is a discussion of the valuation techniques and inputs used in estimating fair value measurements for assets and liabilities measured at fair value on a recurring basis and classified as level 1, 2, and/or 3.
Trading Assets and Derivative Instruments and Securities Available for Sale
Unless otherwise indicated, trading assets are priced by the trading desk and securities AFS are valued by an independent third party pricing service.

Federal agency securities
The Company includes in this classification securities issued by federal agencies and GSEs. Agency securities consist of debt obligations issued by HUD, FHLB, and other agencies or collateralized by loans that are guaranteed by the SBA and are, therefore, backed by the full faith and credit of the U.S. government. For SBA instruments, the Company estimated fair value based on pricing from observable trading activity for similar securities or obtained fair values from a third party pricing service. Accordingly, the Company classified these instruments as level 2.
U.S. states and political subdivisions
The Company’s investments in U.S. states and political subdivisions (collectively “municipals”) include obligations of county and municipal authorities and agency bonds, which are general obligations of the municipality or are supported by a specified revenue source. Holdings were geographically dispersed, with no significant concentrations in any one state or municipality. Additionally, all AFS municipal obligations classified as level 2 are highly rated or are otherwise collateralized by securities backed by the full faith and credit of the federal government.
Level 3 AFS municipal securities at September 30, 20152016 and December 31, 20142015 includes an immaterial amount of bonds that are only redeemable with the issuer at par and cannot be traded in the market. As such, no significant observable market data for these instruments is available; therefore, these securities are priced at par.

MBS – agency
Agency MBS includes pass-through securities and collateralized mortgage obligations issued by GSEs and U.S. government agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae. Each security contains a guarantee by the issuing GSE or agency. For agency MBS, the Company estimated fair value based on pricing from observable trading activity for similar securities or obtained fair values from a third party pricing service; accordingly, the Company has classified these instruments as level 2.
MBS – privatenon-agency residential
PrivateNon-agency residential MBS includes purchased interests in third party securitizations, as well as retained interests in Company-sponsored securitizations of 2006 and 2007 vintage residential mortgages (including both prime jumbo fixed rate collateral and floating rate collateral). At the time of purchase or origination, these securities had high investment grade ratings; however, through the credit crisis, they have experienced deterioration in credit quality leading to downgrades to non-investment grade levels. Generally, theThe Company obtains pricing for itsthese securities from an independent pricing service. The Company evaluates third
 
third party pricing to determine the reasonableness of the information relative to changes in market data, such as any recent trades, information received from market participants and analysts, and/or changes in the underlying collateral performance. The Company continued to classify privatenon-agency residential MBS as level 3, as the Company believes that available third party pricing relies on significant unobservable assumptions, as evidenced by a persistently wide bid-ask price range and variability in pricing from the pricing services, particularly for the vintage and exposures held by the Company.

CLO Securities
CLO preference share exposure is estimated at fair value based on pricing from observable trading activity for similar securities. Accordingly, the Company has classified these instruments as level 2.
Asset-Backed Securities
ABS classified as securities AFS includes purchased interests in third party securitizations collateralized by home equity loans and are valued based on third party pricing with significant unobservable assumptions; thus,as such, they are classified as level 3.
Corporate and other debt securities
Corporate debt securities are comprised predominantly comprised of senior and subordinate debt obligations of domestic corporations and are classified as level 2. Other debt securities classified as trading in level 3 primarilyat December 31, 2015 included bonds that were not actively traded in the market and for which valuation judgments were highly subjective due to limited observable market data. At December 31, 2015, the fair value of these level 3 bonds were estimated using market comparable bond index yields. These bonds were sold during the first quarter of 2016.
Other debt securities classified as AFS in level 3 at September 30, 2016 and December 31, 2015 include bonds that are redeemable with the issuer at par and cannot be traded in the market; asmarket. As such, observable market data for these instruments is not available.
Commercial Paper
From time to time, theThe Company acquires third party CP that is generally short-term in nature (less(maturity of less than 30 days) and highly rated. The Company estimates the fair value of this CP based on observable pricing from executed trades of similar instruments; thus,as such, CP is classified as level 2.
Equity securities
Equity securities classified as securities AFS include primarily FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock, which are redeemable with the issuer at cost and cannot be traded in the market. As such, observable market data for these instruments is not available and they are classified as level 3. The Company accounts for the stock based on industry guidance that requires these investments be carried at cost and evaluated for impairment based on the ultimate recovery of cost.


Notes to Consolidated Financial Statements (Unaudited), continued



Derivative instruments
The Company holds derivative instruments for both trading and risk management purposes. Level 1 derivative instruments generally include exchange-traded futures or option contracts for which pricing is readily available. The Company’s level 2 instruments are predominantly OTC swaps, options, and forwards, measured using observable market assumptions for interest rates, foreign exchange, equity, and credit. Because fair values for OTC contracts are not readily available, the Company estimates fair values using internal, but standard, valuation models. The selection of valuation models is driven by the type of contract: for option-based products, the Company uses an appropriate option pricing model such as Black-Scholes. For forward-based products, the Company’s valuation methodology is generally a discounted cash flow approach.


46
Notes to Consolidated Financial Statements (Unaudited), continued



The Company's derivative instruments classified as level 2 are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. To this end, the Company has evaluated liquidity premiums required by market participants, as well as the credit risk of its counterparties and its own credit. The Company has considered factors such as the likelihood of default by itself and its counterparties, its net exposures, and remaining maturities in determining the appropriate fair value adjustments to record. See Note 13, “Derivative Financial Instruments,” for additional information on the Company's derivative instruments.
The Company's derivative instruments classified as level 3 include IRLCs that satisfy the criteria to be treated as derivative financial instruments. The fair value of IRLCs on residential LHFS, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These “pull-through” rates are based on the Company’s historical data and reflect the Company’s best estimate of the likelihood that a commitment will ultimately result in a closed loan. As pull-through rates increase, the fair value of IRLCs also increases. Servicing value is included in the fair value of IRLCs, and the fair value of servicing is determined by projecting cash flows, which are then discounted to estimate an expected fair value. The fair value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. Because these inputs are not transparent in market trades, IRLCs are considered to be level 3 assets. During the three and nine months ended September 30, 2015,2016, the Company transferred $41$116 million and $138$232 million, respectively, of net IRLCs out of level 3 as the associated loans were closed. During the three and nine months ended September 30, 20142015, the Company transferred $64$41 million and $181$138 million, respectively, of net IRLCs out of level 3 as the associated loans were closed.
    
Trading loans
The Company engages in certain businesses whereby the electionelecting to measure loans at fair value for financial reporting aligns with the underlying business purpose. Specifically, the loans that are included within this classification include trading loans that are: (i) loans made or acquired in connection with the Company’s TRS business, (ii) loans backed by the SBA, and (iii)part of the loan sales and trading business within the Company’s Wholesale Banking segment.segment, and (iii) backed by the SBA. See Note 8, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 13, “Derivative Financial Instruments,” for further discussion of this business. All of these
loans are classified as level 2 due to the nature of market data that the Company uses in theto estimate of fair value.
The loans made in connection with the Company’s TRS business are short-term, senior demand loans that are collateralizedsupported by cash.a pledge agreement granting first priority security interest to the Bank in all the assets held by the borrower, a VIE with assets comprised primarily of corporate loans. While these loans do not trade in the market, the Company believes that the par amount of the loans approximates fair value and no unobservable assumptions are used by the Company to value these loans. At both September 30, 20152016 and December 31, 2014,2015, the Company had outstanding $2.4$2.2 billion and $2.3 billion, respectively, of suchthese short-term loans measured at fair value.
SBA loans are similar to SBA securities discussed herein under “Federal agency securities,” except for their legal form. In both cases, the Company trades instruments that are fully guaranteed by the U.S. government as to contractual principal and interest and there is sufficient observable trading activity upon which to base the estimate of fair value. As these SBA loans are fully guaranteed, the changes in fair value are attributable to factors other than instrument-specific credit risk.
The loans from the Company’s sales and trading business are commercial and corporate leveraged loans that are either traded in the market or for which similar loans trade. The Company elected to measure these loans at fair value since they are actively traded. For both the three and nine months ended September 30, 20152016 and 2014,2015, the Company recognized an immaterial amount of gains/(losses) in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk. The Company is able to obtain fair value estimates for substantially all of these loans through a third party valuation service that is broadly used by market participants. While most of the loans are traded in the market, the Company does not believe that trading activity qualifies the loans as level 1 instruments, as the volume and level of trading activity is subject to variability and the loans are not exchange-traded. At September 30, 20152016 and December 31, 2014, $2612015, $407 million and $284$356 million, respectively, of loans related to the Company’s trading business were held in inventory.
SBA loans are similar to SBA securities discussed herein under “Federal agency securities,” except for their legal form. In both cases, the Company trades instruments that are fully guaranteed by the U.S. government as to contractual principal and interest and there is sufficient observable trading activity upon which to base the estimate of fair value. As these SBA loans are fully guaranteed, the changes in fair value are attributable to factors other than instrument-specific credit risk.

Loans Held for Sale and Loans Held for Investment
Residential LHFS
The Company values certain newly-originated mortgage LHFS predominantly at fair value based upon defined product criteria. The Company chooses to fair value these mortgage LHFS to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. OriginationAny origination fees are recognized within mortgage production related income in the Consolidated Statements of Income when earned at the time of closing. The servicing value is included in the fair value of the loan and is initially recognized at the time the Company enters into IRLCs with borrowers. The Company usesemploys derivative instruments to economically hedge changes in interest rates and the related impact on servicing value in the fair value of the loan. The mark-to-market adjustments related to LHFS and the associated economic hedges are captured in mortgage production related income.

Notes to Consolidated Financial Statements (Unaudited), continued



LHFS classified as level 2 are primarily agency loans which trade in active secondary markets and are priced using current market pricing for similar securities, adjusted for servicing, interest rate risk, and credit risk. Non-agency residential mortgages are also included in level 2 LHFS. Transfers of certain mortgage LHFS into level 3 during the three and nine months ended September 30, 20152016 and 20142015 were largely due to borrower defaults or the identification of other loan defects impacting the marketability of the loans.
For residential loans that the Company has elected to measure at fair value, the Company considers the component of the fair value changes due to instrument-specific credit risk, which is intended to be an approximation of the fair value change attributable to changes in borrower-specific credit risk. For both


47
Notes to Consolidated Financial Statements (Unaudited), continued



the three and nine months ended September 30, 2015 and 2014, the Company recognized an immaterial amount of gains/(losses) in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk.risk for both the three and nine months ended September 30, 2016 and 2015. In addition to borrower-specific credit risk, there are other more significant variables that drive changes in the fair values of the loans, including interest rates and general conditions in the markets for the loans.market conditions.
LHFI
LHFI classified as level 3 includes predominantly mortgage loans that are not marketable, largely due to the identification of loan defects. The Company chooses to measure these mortgage LHFI at fair value to better align reported results with the underlying economic changes in value of the loans and any related hedging instruments. The Company values these loans using a discounted cash flow approach based on assumptions that are generally not observable in current markets, such as prepayment speeds, default rates, loss severity rates, and discount rates. These assumptions have an inverse relationship to the overall fair value. Level 3 LHFI also includes mortgage loans that are valued using collateral based pricing. Changes in the applicable housing price index since the time of the loan origination are considered and applied to the loan's collateral value. An additional discount representing the return that a buyer would require is also considered in the overall fair value.
Mortgage Servicing Rights
The Company records MSR assets at fair value using a discounted cash flow approach. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, spreads, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio, and comparisons to market transactions. Because these inputs are not transparent in market trades, MSRs are classified as level 3 assets. For additional information see Note 7, "Goodwill and Other Intangible Assets."

Liabilities
Trading liabilities and derivative instruments
Trading liabilities are comprised primarily comprised of derivative contracts, but also include various contracts (primarily U.S. Treasury securities, corporate and other debt securities) that the Company uses in certain of its trading businesses. The Company employs the sameCompany's valuation methodologies for these derivative contracts and securities as are consistent with those discussed within the corresponding sections herein under “Trading“Trading Assets and Derivative Instruments and Securities Available for Sale.Sale.”
 
During the second quarter of 2009, in connection with its sale of Visa Class B shares, the Company entered into a derivative contract whereby the ultimate cash payments received or paid, if any, under the contract are based on the ultimate resolution of litigation involving Visa. The value of the derivative was estimated based on the Company’s expectations regarding the ultimate resolution of that litigation, which involved a high degree of judgment and subjectivity. Accordingly, the value of the related derivative liability is classified as a level 3 instrument. See Note 12, "Guarantees," for a discussion of the valuation assumptions.
Brokered time deposits
The Company has elected to measure certain CDs at fair value. These debt instruments include embedded derivatives where the underlying is considered clearly and closely related to the host debt instrument. The Company elected to measure certain of these instruments at fair value to better align the economics of the CDs with the Company’s risk management strategies. The Company evaluated, on an instrument by instrument basis, whether a new issuance would be measured at fair value.
On January 1, 2016, the Company partially adopted ASU 2016-01, which requires changes in credit spreads for financial liabilities measured at fair value pursuant to a fair value option to be recognized in OCI. The impact to OCI is determined from the change in credit spreads above LIBOR swap spreads. For both the three and nine months ended September 30, 2016 the impact on AOCI due to changes in credit spreads was immaterial. For additional information on the Company's partial adoption of ASU 2016-01, see Note 1, "Significant Accounting Policies."
The Company has classified CDs measured at fair value as level 2 instruments due to the Company's ability to reasonably measure all significant inputs based on observable market variables. The Company employs a discounted cash flow approach based on observable market interest rates for the term of the CD and an estimate of the Bank's credit risk. For the embedded derivative features, the Company uses the same valuation methodologies as if the derivative were a standalone derivative, as discussed herein under "Derivative instruments."
Long-term debt
The Company has elected to measure at fair value certain fixed rate debt issuances of public debt whichthat are valued by obtaining price indications from a third party pricing service and utilizing broker quotes to corroborate the reasonableness of those marks. Additionally, information from market data of recent observable trades and indications from buy side investors, if available, are taken into consideration as additional support for the value. Due to the availability of this information, the Company determined that the appropriate classification for thethese debt issuances is level 2. The election to fair value thecertain fixed rate debt issuances was made to align the accounting for the debt with the accounting for offsetting derivative positions, without having to apply complex hedge accounting, thus avoiding the complex and time consuming fair value hedge accounting requirements.accounting.
The Company utilizes derivative financial instruments to convert interest rates on its debt from fixed to floating rates. Prior to January 1, 2016, changes in the Company’s credit spreads for public debt measured at fair value impacts earnings predominantly through changes inimpacted earnings. For the Company’s credit spreads asthree and nine months ended September 30, 2015, the Company has entered into derivative financial instruments that economically convert the interest rate on the debt from a fixed to a floating rate. The estimated earnings impact from changes in credit spreads above U.S.

Notes to Consolidated Financial Statements (Unaudited), continued



Treasury rates resulted in an immaterial amount of gainsgains/(losses). On January 1, 2016, the Company partially adopted ASU 2016-01, which requires changes in credit spreads for certain financial instruments elected to be measured at fair value to be recognized in OCI. The impact to OCI for public debt measured at fair value is determined based on the change in credit spreads above LIBOR swap spreads. Upon adoption, the Company recognized a $5 million one-time, cumulative credit risk adjustment in AOCI to recognize the change in credit spreads that occurred prior to January 1, 2016. For the three and nine months ended September 30, 2015, respectively, and gains2016, the impact on AOCI from changes in credit spreads resulted in a loss of $2$3 million and losses$5 million, respectively, net of $24 million fortax. For additional information on the three and nine months ended September 30, 2014, respectively.Company's partial adoption of ASU 2016-01, see Note 1, "Significant Accounting Policies."

Other liabilities
TheAt December 31, 2015 the Company’s other liabilities that are measured at fair value on a recurring basis includeincluded a contingent consideration obligationsobligation related to acquisitions.a prior business combination. Contingent consideration associated with acquisitions iswas adjusted to fair value until settled. As the assumptions used to measure fair value arewere based on internal metrics that arewere not observable in the market, observable, the earn-out is considered acontingent consideration liability was classified as level 3 liability.3. During the first quarter of 2016, the Company's contingent consideration obligation under the liability was settled and paid in full.



48
Notes to Consolidated Financial Statements (Unaudited), continued



The valuation technique and range, including weighted average, of the unobservable inputs associated with the Company's level 3 assets and liabilities are as follows:
  Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)Fair value
September 30, 20152016		 Valuation Technique 
Unobservable Input 1
 
Range
(weighted average)
Assets       
Trading assets and derivative instruments:       
Derivative instruments, net 2

$3264
 Internal model Pull through rate 39-100% (75%44-100% (77%)
 MSR value 26-20118-147 bps (100(95 bps)
Securities AFS:
U.S. states and political subdivisions4
CostN/A
MBS - non-agency residential76
Third party pricingN/A
ABS11
Third party pricingN/A
Corporate and other debt securities5
CostN/A
Other equity securities551
CostN/A
Residential LHFS3
Monte Carlo/Discounted cash flowOption adjusted spread104-197 bps (125 bps)
Conditional prepayment rate4-26 CPR (16 CPR)
Conditional default rate0-2 CDR (0.6 CDR)
LHFI232
Monte Carlo/Discounted cash flowOption adjusted spread62-784 bps (185 bps)
Conditional prepayment rate5-37 CPR (16 CPR)
Conditional default rate0-5 CDR (1.8 CDR)
2
Collateral based pricingAppraised value
NM 3
MSRs1,119
Monte Carlo/Discounted cash flowConditional prepayment rate3-28 CPR (14 CPR)
Option adjusted spread0-124% (9%)
1 For certain assets and liabilities where the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available, and therefore, have been noted as not applicable ("N/A").
2 Represents the net of IRLC assets and liabilities entered into by the Mortgage Banking segment and includes the derivative liability associated with the Company's sale of Visa shares.
3 Not meaningful.
Notes to Consolidated Financial Statements (Unaudited), continued





 Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)Fair value December 31, 2015Valuation Technique
Unobservable Input 1
Range
(weighted average)
Assets
Trading assets and derivative instruments:
Corporate and other debt securities
$89
Market comparablesYield adjustment126-447 bps (287 bps)
Derivative instruments, net 2
15
Internal modelPull through rate24-100% (79%)
MSR value29-210 bps (103 bps)
Securities AFS:       
U.S. states and political subdivisions5
 Cost N/A  
MBS - privatenon-agency residential10294
 Third party pricing N/A  
ABS1512
 Third party pricing N/A  
Corporate and other debt securities5
 Cost N/A  
Other equity securities440
 Cost N/A  
Residential LHFS25
 Monte Carlo/Discounted cash flow Option adjusted spread 143-162104-197 bps (156(125 bps)
Conditional prepayment rate3-172-17 CPR (11(8 CPR)
Conditional default rate0-2 CDR (0.5 CDR)
LHFI260251
 Monte Carlo/Discounted cash flow Option adjusted spread 0-45262-784 bps (269(193 bps)
Conditional prepayment rate5-36 CPR (13(14 CPR)
Conditional default rate0-5 CDR (2(1.7 CDR)
26
Collateral based pricingAppraised value
NM 4
MSRs1,2621,307
 Monte Carlo/Discounted cash flow Conditional prepayment rate 2-21 CPR (11(10 CPR)
 Option adjusted spread (5)-107%-110% (8%)
Liabilities       
Other liabilities 3
23
 Internal model Loan production volume 150% (150%)
1 For certain assets and liabilities where the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available, to the Company, and therefore, have been noted as not applicable "N/A."
2 Represents the net of IRLC assets and liabilities entered into by the Mortgage Banking segment and includes the derivative liability associated with the Company's sale of Visa shares.
3 Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. See Note 12, "Guarantees," for additional information.
4 Not meaningful.

49
Notes to Consolidated Financial Statements (Unaudited), continued





 Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)Fair value December 31, 2014Valuation Technique
Unobservable Input 1
Range
(weighted average)
Assets
Trading assets and derivative instruments:
Derivative instruments, net 2

$20
Internal modelPull through rate40-100% (75%)
MSR value39-218 bps (107 bps)
Securities AFS:
U.S. states and political subdivisions12
CostN/A
MBS - private123
Third party pricingN/A
ABS21
Third party pricingN/A
Corporate and other debt securities5
CostN/A
Other equity securities785
CostN/A
Residential LHFS1
Monte Carlo/Discounted cash flowOption adjusted spread145-225 bps (157 bps)
Conditional prepayment rate1-30 CPR (15 CPR)
Conditional default rate0-3 CDR (0.75 CDR)
LHFI269
Monte Carlo/Discounted cash flowOption adjusted spread0-450 bps (286 bps)
Conditional prepayment rate4-30 CPR (14 CPR)
Conditional default rate0-7 CDR (2 CDR)
3
Collateral based pricingAppraised value
NM 4
MSRs1,206
Monte Carlo/Discounted cash flowConditional prepayment rate2-47 CPR (11 CPR)
Option adjusted spread(1)-122% (10%)
Liabilities
Other liabilities 3
27
Internal modelLoan production volume0-150% (107%)
1 For certain assets and liabilities where the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available to the Company, and therefore, have been noted as not applicable, "N/A."("N/A").
2 Represents the net of IRLC assets and liabilities entered into by the Mortgage Banking segment and includes the derivative liability associated with the Company's sale of Visa shares.
3 Input assumptions relate to the Company's contingent consideration obligations related to acquisitions. See Note 12, "Guarantees," for additional information.
4 Not meaningful.



50
Notes to Consolidated Financial Statements (Unaudited), continued



The following tables present a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (other than servicing rights which are disclosed in Note 7, “Goodwill and Other Intangible Assets”). Transfers into and out of the fair value hierarchy levels are assumed to be as ofoccur at the end
 
of the quarterperiod in which the transfer occurred. None of the transfers into or out of level 3 have been the result of using alternative valuation approaches to estimate fair values. There were no transfers between level 1 and 2 during the three and nine months ended September 30, 20152016 and 2014.2015.

Fair Value Measurements
Using Significant Unobservable Inputs
 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
balance
July 1,
2015		 Included
in
earnings		 OCI Purchases Sales Settlements Transfers
to/from
other
balance sheet
line items		 Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair value September 30, 2015 
Included in earnings (held at September 30, 2015) 1
 Beginning
Balance
July 1,
2016		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value September 30, 2016 
Included in Earnings (held at September 30, 2016) 1
 
Assets                                            
Trading assets:                                            
Derivative instruments, net
$14
 
$58
2 

$—
 
$—
 
$—
 
$1
 
($41) 
$—
 
$—
 
$32
 
($1)
2 

$60
 
$118
2 

$—
 
$—
 
$—
 
$2
 
($116) 
$—
 
$—
 
$64
 
$73
2 
Securities AFS:                                            
U.S. states and political subdivisions5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
 4
 —
 —
 —
 —
 —
 —
 —
 —
 4
 —
 
MBS - private112
 (1) 1
5 
—
 —
 (10) —
 —
 —
 102
 (1) 
MBS - non-agency residential83
 —
 —
 —
 —
 (7) —
 —
 —
 76
 —
 
ABS17
 —
 —
 —
 —
 (2) —
 —
 —
 15
 —
 11
 —
 1
3 
—
 —
 (1) —
 —
 —
 11
 —
 
Corporate and other debt securities3
 —
 —
 5
 —
 (3) —
 —
 —
 5
 —
 5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
 
Other equity securities582
 —
 (2)
5 
—
 —
 (140) —
 —
 —
 440
 —
 610
 —
 —
 —
 —
 (59) —
 —
 —
 551
 —
 
Total securities AFS719
 (1) (1) 5
 —
 (155) —
 —
 —
 567
 (1) 713
 —
 1
3 
—
 —
 (67) —
 —
 —
 647
 —
 
                                            
Residential LHFS2
 —
 —
 —
 (7) —
 (1) 8
 —
 2
 —
 4
 —
 —
 —
 (13) —
 (2) 14
 —
 3
 —
 
LHFI263
 3
3 
—
 —
 —
 (8) —
 4
 —
 262
 3
3 
246
 (2)
4 
—
 —
 —
 (10) (2) 2
 —
 234
 (2)
4 
Liabilities                      
Other liabilities23
 —

—
 —
 —
 —
 —
 —
 —
 23
 —
 

Notes to Consolidated Financial Statements (Unaudited), continued



Fair Value Measurements
Using Significant Unobservable Inputs
 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
balance
January 1,
2015		 Included
in
earnings		 OCI Purchases Sales Settlements Transfers to/from other balance sheet line items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair value September 30, 2015 
Included in earnings (held at September 30, 2015) 1
 Beginning
Balance
January 1,
2016		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value September 30, 2016 
Included in Earnings (held at September 30, 2016 1)
 
Assets                                            
Trading assets:                                            
Corporate and other debt securities
$89
 
($1)
5 

$—
 
$—
 
($88) 
$—
 
$—
 
$—
 
$—
 
$—
 
$—
 
Derivative instruments, net
$20
 
$148
2 

$—
 
$—
 
$—
 
$2
 
($138) 
$—
 
$—
 
$32
 
($5)
2 
15
 279
2 
—
 —
 —
 2
 (232) —
 —
 64
 68
2 
Total trading assets104
 278
 —
 —
 (88) 2
 (232) —
 —
 64
 68
 
Securities AFS:                                            
U.S. states and political subdivisions12
 —
 —
   
—
 —
 (7) —
 —
 —
 5
 —
   
5
 —
 —
 —
 —
 (1) —
 —
 —
 4
 —
 
MBS - private123
 (1) 2
5 
—
 —
 (22) —
 —
 —
 102
 (1) 
MBS - non-agency residential94
 —
 (1)
3 
—
 —
 (17) —
 —
 —
 76
 —
 
ABS21
 —
   
—
   
—
 —
 (6) —
 —
 —
 15
 —
   
12
 —
 1
3 
—
 —
 (2) —
 —
 —
 11
 —
 
Corporate and other debt securities5
 —
   
—
   
5
 —
 (5) —
 —
 —
 5
 —
   
5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
 
Other equity securities785
 —
 (2)
5 
104
 —
 (447) —
 —
 —
 440
 —
 440
 —
 1
3 
276
 —
 (166) —
 —
 —
 551
 —
 
Total securities AFS946
 (1)
—
 109
 —
 (487) —
 —
 —
 567
 (1) 556
 —

1
3 
276
 —
 (186) —
 —
 —
 647
 —
 
                                            
Residential LHFS1
 —
 —
   
—
 (16) —
 (2) 19
 —
 2
 —
 5
 —
 —
 —
 (27) —
 (4) 31
 (2) 3
 —
 
LHFI272
 3
3 
—
   
—
 —
 (32) (1) 20
 —
 262
 1
3 
257
 4
4 
—
 —
 —
 (32) (1) 6
 —
 234
 4
4 
Liabilities                                            
Other liabilities27
 6
4 
—
   
—
 —
 (10) —
 —
 —
 23
 6
4 
23
 —
 —
 —
 —
 (23) —
 —
 —
 —
 —
 
1 Change in unrealized gains/(losses) included in earnings during the period related to financial assets still held at September 30, 2016.
2 Includes issuances, fair value changes, and expirations and are recognized in mortgage production related income.
3 Amounts recognized in OCI are included in change in net unrealized gains/(losses) on securities AFS, net of tax.
4 Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in other noninterest income.
5 Amounts included in earnings are recognized in trading income.

Notes to Consolidated Financial Statements (Unaudited), continued



 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
Balance
July 1,
2015		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value September 30, 2015 
Included in Earnings (held at September 30, 2015 1)
 
Assets                      
Trading assets:                      
Derivative instruments, net
$14
 
$58
2 

$—
 
$—
 
$—
 
$1
 
($41) 
$—
 
$—
 
$32
 
($1)
2 
Securities AFS:                      
U.S. states and political subdivisions5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
 
MBS - non-agency residential112
 (1) 1
3 
—
 —
 (10) —
 —
 —
 102
 (1) 
ABS17
 —
 —
 —
 —
 (2) —
 —
 —
 15
 —
 
Corporate and other debt securities3
 —
 —
 5
 —
 (3) —
 —
 —
 5
 —
 
Other equity securities582
 —
 (2)
3 
—
 —
 (140) —
 —
 —
 440
 —
 
Total securities AFS719
 (1) (1) 5
 —
 (155) —
 —
 —
 567
 (1) 
                       
Residential LHFS2
 —
 —
 —
 (7) —
 (1) 8
 —
 2
 —
 
LHFI263
 3
4 
—
 —
 —
 (8) —
 4
 —
 262
 3
4 
Liabilities                      
Other liabilities23
 —
 —
 —
 —
 —
 —
 —
 —
 23
 —
 

 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
Balance
January 1,
2015		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value September 30, 2015 
Included in Earnings (held at September 30, 2015 1)
 
Assets                      
Trading assets:                      
Derivative instruments, net
$20
 
$148
2 

$—
 
$—
 
$—
 
$2
 
($138) 
$—
 
$—
 
$32
 
($5)
2 
Securities AFS:                      
U.S. states and political subdivisions12
 —
 —
 —
 —
 (7) —
 —
 —
 5
 —
 
MBS - non-agency residential123
 (1) 2
3 
—
 —
 (22) —
 —
 —
 102
 (1) 
ABS21
 —
 —
 —
 —
 (6) —
 —
 —
 15
 —
 
Corporate and other debt securities5
 —
 —
 5
 —
 (5) —
 —
 —
 5
 —
 
Other equity securities785
 —
 (2)
3 
104
 —
 (447) —
 —
 —
 440
 —
 
Total securities AFS946
 (1) —
 109
 —
 (487) —
 —
 —
 567
 (1) 
                       
Residential LHFS1
 —
 —
 —
 (16) —
 (2) 19
 —
 2
 —
 
LHFI272
 3
4 
—
 —
 —
 (32) (1) 20
 —
 262
 1
4 
Liabilities                      
Other liabilities27
 6
5 
—
 —
 —
 (10) —
 —
 —
 23
 6
5 
1 Change in unrealized gains/(losses) included in earnings during the period related to financial assets/liabilities still held at September 30, 2015.
2 Includes issuances, fair value changes, and expirations and are recognized in mortgage production related income.
3 Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in other noninterest income.
4 Amounts included in earnings are recognized in other noninterest expense.
5 Amount recognized in OCI is included in change in net unrealized gains/(losses) on securities AFS, net of tax.

51
Notes to Consolidated Financial Statements (Unaudited), continued




 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
balance
July 1,
2014		 Included
in
earnings		 OCI Purchases Sales Settlements Transfers
to/from other
balance sheet
line items		 Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair value September 30, 2014 
Included in earnings (held at September 30, 2014) 1
 
Assets                      
Trading assets:                      
Derivative instruments, net
$21
 
$47
2 

$—
 
$—
 
$—
 
$1
 
($64) 
$—
 
$—
 
$5
 
$16
2 
Securities AFS:                      
U.S. states and political subdivisions12
 —
 —
 —
 —
 —
 —
 —
 —
 12
 —
 
MBS - private140
 (1) (1)
5 
—
 —
 (6) —
 —
 —
 132
 (1) 
ABS22
 —
 —
 —
 —
 (1) —
 —
 —
 21
 —
 
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
 
Other equity securities779
 —
 —
 135
 —
 (90) 6
 —
 —
 830
 —
 
Total securities AFS958
 (1)
4 
(1) 135
 —
 (97) 6
 —
 —
 1,000
 (1) 
                       
Residential LHFS3
 —

—
 —
 (3) —
 —
 1
 —
 1
 —

LHFI292
 1
6 
—
 —
 —
 (8) (2) 1
 —
 284
 1
6 
Liabilities                      
Other liabilities27
 —
 —
 —
 —
 (3) —
 —
 —
 24
 —
 
 
Fair Value Measurements
Using Significant Unobservable Inputs
 
(Dollars in millions)Beginning
balance
January 1,
2014		 Included
in
earnings		 OCI Purchases Sales Settlements Transfers to/from other balance sheet line items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair value September 30, 2014 
Included in earnings (held at September 30, 2014) 1
 
Assets                      
Trading assets:                      
CDO/CLO securities
$54
 
$11
3 

$—
 
$—
 
($65) 
$—
 
$—
 
$—
 
$—
 
$—
 
$—
 
ABS6
 1
3 
—
 —
 (7) —
 —
 —
 —
 —
 —
 
Derivative instruments, net8
 180
2 
—
 —
 —
 2
 (185) —
 —
 5
 (10)
2 
Total trading assets68
 192
 —
 —
   
(72) 2
 (185) —
 —
 5
 (10) 
Securities AFS:                      
U.S. states and political subdivisions34
 (2) —
 —
 (20) —
 —
 —
 —
 12
 —
   
MBS - private154
 (1) 4
5 
—
 —
 (25) —
 —
 —
 132
 (1)
   
ABS21
 —
 1
5 
—
 —
 (1) —
 —
 —
 21
 —
   
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 —
 5
 —
   
Other equity securities739
 —
 —
 270
 —
 (185) 6
 —
 —
 830
 —
   
Total securities AFS953
 (3)
4 
5
 270
   
(20) (211) 6
 —
 —
 1,000
 (1) 
                       
Residential LHFS3
 —
 —
 —
 (7) —
 (6) 12
 (1) 1
 —
 
LHFI302
 9
6 
—
 —
 —
 (31) 3
 1
 —
 284
 6
6 
Liabilities                      
Other liabilities29
 1
7 
—
 —
 —
 (3) (3) —
 —
 24
 —
 
1 Change in unrealized gains/(losses) included in earnings for the period related to financial assets/liabilities still held at September 30, 2014.
2 Includes issuances, fair value changes, and expirations and are recognized in mortgage production related income.
3 Amounts included in earnings are recognized in trading income.
4 Amounts included in earnings are recognized in net securities gains/(losses).
5 Amounts recognized in OCI are included in change in net unrealized gains/(losses) on securities AFS, net of tax.
64 Amounts are generally included in mortgage production related income; however, the mark on certain fair value loans is included in trading income.
75 Amounts included in earnings are recognized in other noninterest expense.



52
Notes to Consolidated Financial Statements (Unaudited), continued



Non-recurring Fair Value Measurements
The following tables present losses recognized on assets still held at period end, and measured at fair value on a non-recurring basis, for the three and nine months ended September 30, 20152016 and for the year ended December 31, 2014.2015. Adjustments to fair value generally result from the application of LOCOM or through
 
through write-downs of individual assets. The tables do not reflect changes in fair value attributable to economic hedges the Company may have used to mitigate interest rate risk associated with LHFS and MSRs.LHFS.

  Fair Value Measurements Losses for the Three Months Ended September 30, 2015 Losses for the Nine Months Ended September 30, 2015  Fair Value Measurements 
Losses for the
Three Months Ended
September 30, 2016
 
Losses for the
Nine Months Ended
September 30, 2016
(Dollars in millions)September 30, 2015 Level 1 Level 2 Level 3 September 30, 2016 Level 1 Level 2 Level 3 
LHFI
$17
 
$—
 
$—
 
$17
 
$—
 
$—

$47
 
$—
 
$—
 
$47
 
$—
 
$—
OREO17
 —
 1
 16
 (2) (3)15
 —
 —
 15
 (1) (2)
Other assets39
 —
 32
 7
 (1) (7)125
 —
 79
 46
 (13) (37)
                      
  Fair Value Measurements Losses for the
Year Ended
December 31, 2014		    Fair Value Measurements 
Losses for the
Year Ended
December 31, 2015
  
(Dollars in millions)December 31, 2014 Level 1 Level 2 Level 3 
December 31, 2015 Level 1 Level 2 Level 3 
LHFS
$1,108
 
$121
 
$45
 
$942
 
($6)  
$202
 
$—
 
$—
 
$202
 
($6)  
LHFI24
 —
 —
 24
 —
  48
 —
 —
 48
 —
  
OREO29
 —
 1
 28
 (6)  19
 —
 —
 19
 (4)  
Affordable housing77
 —
 —
 77
 (21)  
Other assets225
 —
 216
 9
 (64)  36
 —
 29
 7
 (6)  

Discussed below are the valuation techniques and inputs used in developingestimating fair value measurementsvalues for assets measured at fair value on a non-recurring basis and classified as level 1, 2 and/or 3.
Loans Held for Sale
DuringAt December 31, 2015, LHFS consisted of commercial loans that were valued using significant unobservable assumptions from comparably rated loans. As such, these loans are classified as level 3. The decline in LHFS compared to December 31, 2015 was due to the sale of $185 million of these loans in the second quarter of 2015,2016 and the Company transferred certain residential mortgage NPLs to LHFS and valued the loans at LOCOM as the Company elected to actively market these loans for sale. These nonperforming mortgages were predominantly reported at amortized cost prior to transferring to LHFS; however, a portionsale of the NPLs were measured at fair value. Inremaining $17 million in the third quarter of 2015, the Company sold $92 million of these nonperforming LHFS at a value that exceeded their carrying amount by $10 million.
At December 31, 2014, LHFS classified as level 1 consisted of commercial and industrial loans for which pricing is readily available, and level 2 assets consisted primarily of agency and non-agency residential mortgages, which were measured using observable collateral valuations, and corporate loans, all of which are accounted for at LOCOM. Level 3 assets at December 31, 2014 consisted primarily of indirect auto loans and tax-exempt municipal leases that incurred fair value adjustments upon being transferred to LHFS, as the Company elected to actively market these loans for sale. These loans were valued consistent with the methodology discussed in the Recurring Fair Value Measurements section of this footnote.2016.

Loans Held for Investment
At September 30, 20152016 and December 31, 2014,2015, LHFI consisted primarily of consumer and residential real estate loans discharged in Chapter 7 bankruptcy that had not been reaffirmed by the borrower, as well as nonperforming CRE loans for which specific reserves had been recognized. As these loans have been classified as nonperforming, cashCash proceeds from the sale of the underlying collateral is the expected source of repayment for a majority of these loans. Accordingly, the fair value of these loans is derived from the estimated fair value of the underlying collateral, incorporating market data if available. There were no
gains or losses gains/(losses) recognized during the three and nine months ended September 30, 20152016 or during the year ended December 31, 2014,2015, as the charge-offs related to these loans are a component of the ALLL. Due to the lack of market data for similar assets, all of these loans are consideredclassified as level 3.

OREO
OREO is measured at the lower of cost, or fair value less costs to sell. OREO classified as level 2 consists primarily of residential homes and commercial properties and vacant lots and land for which binding purchase agreements exist. OREO classified as level 3 consists primarily of residential homes, commercial properties, and vacant lots and land for which initial valuations are based on property-specific appraisals, broker pricing opinions, or other available
limited, highly subjective market information. Updated value estimates are received regularly onfor level 3 OREO.

Affordable Housing
The Company evaluates its consolidated affordable housing properties for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is recognized if the carrying amount of the property exceeds its fair value. During the three and nine months ended September 30, 2015, the Company did not recognize impairment on any of its affordable housing properties. During the first quarter of 2014, the Company decided to actively market for sale certain consolidated affordable housing properties, and accordingly, recognized an initial impairment charge of $36 million to adjust the carrying values of these properties to their estimated net realizable values, which were obtained from a third party broker opinion and were considered level 3. Subsequently during 2014, the Company recognized recoveries of $15 million on these affordable


53
Notes to Consolidated Financial Statements (Unaudited), continued



housing properties as a result of increased estimated net realizable values. Additionally, the Company recognized gains of $19 million during the nine months ended September 30, 2015 on the sale of these affordable housing investments. There were no related gains recognized on the sale of affordable housing investments for the three months ended September 30, 2015.

Other Assets
Other assets consistconsists of cost and equity method investments, other repossessed assets, assets under operating leases where the Company is the lessor, branch properties, and land held for sale,sale.
Investments in cost and equity method investments are valued based on the expected remaining cash flows to be received from these assets discounted at a market rate that is commensurate with the expected risk, considering relevant Company-specific valuation multiples, where applicable. Based on the valuation methodology and associated unobservable inputs, these investments are classified as level 3. During the nine months ended September 30, 2016, the Company recognized impairment charges of $8 million on its equity investments. There were no impairment charges recognized on equity investments during the three months ended September 30, 2016 or during the year ended December 31, 2015.
Other repossessed assets consist ofcomprises repossessed personal property that is measured at fair value less cost to sell. These assets are consideredclassified as level 3 as their fair value is determined based on a variety of subjective, unobservable factors. There were no losses recognized in earnings by the Company on other repossessed assets during the three and nine months ended September 30, 20152016 or during the year ended December 31, 2014,2015, as the impairment charges on repossessed personal property arewere a component of the ALLL.
The Company monitors the fair value of assets under operating leases where the Company is the lessor and recognizes impairment on the leased asset to the extent the carrying value
is not recoverable and the fair value is lessgreater than its carryingfair value. Fair value is determined using collateral specific pricing digests, external appraisals, broker opinions, recent sales data from industry

Notes to Consolidated Financial Statements (Unaudited), continued



equipment dealers, and the discounted cash flows derived from the underlying lease agreement. As market data for similar assets and lease arrangements is available and used in the valuation, these assets are considered level 2. During both the three and nine months ended September 30, 2015,2016, the Company recognized impairment charges of $6$12 million and $16 million, respectively, attributable to the fair value of various personal property under operating leases. There were no related impairment charges for the three months ended September 30, 2015. During the year ended December 31, 2014,2015, the Company recognized impairment charges of $59$6 million attributable to changes in the fair value of various personal property under operating leases.
The Company recognized impairment charges of $1 million and $8 million on branch properties during the three and nine
months ended September 30, 2016, respectively. These branches are classified as level 3, as their fair values were based on market comparables and broker opinions.
Land held for sale is recorded at the lesser of carrying value or fair value less cost to sell. Land held for salesell, and is considered level 23 as its fair value is determined based on market comparables and broker opinions. The Company recognized $1impairment charges of $5 million inon land held for sale during the nine months ended September 30, 2016. There were no impairment charges recognized on land held for sale during the three and nine months ended September 30, 2015. The Company recognized $5 million in2016, and an immaterial amount of impairment charges were recognized on land held for sale during the year ended December 31, 2014.2015.


Fair Value of Financial Instruments
The measuredcarrying amounts and fair values of the Company’s financial instruments are as follows:
September 30, 2015 Fair Value Measurements September 30, 2016 Fair Value Measurements 
(Dollars in millions)
Measured
Amount
 
Fair
Value
 Level 1 Level 2 Level 3 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3 
Financial assets:                    
Cash and cash equivalents
$4,916
 
$4,916
 
$4,916
 
$—
 
$—
(a) 
$9,740
 
$9,740
 
$9,740
 
$—
 
$—
(a) 
Trading assets and derivative instruments6,537
 6,537
 982
 5,517
 38
(b) 7,044
 7,044
 954
 6,011
 79
(b) 
Securities AFS27,270
 27,270
 3,176
 23,527
 567
(b) 29,672
 29,672
 5,087
 23,938
 647
(b) 
LHFS2,032
 2,034
 —
 2,007
 27
(c) 3,772
 3,789
 —
 3,705
 84
(c) 
LHFI, net131,774
 129,046
 —
 406
 128,640
(d)139,789
 138,557
 —
 273
 138,284
(d)
Financial liabilities:                    
Deposits146,371
 146,407
 —
 146,407
 —
(e) 158,842
 158,801
 —
 158,801
 —
(e) 
Short-term borrowings3,942
 3,942
 —
 3,942
 —
(f) 4,899
 4,899
 —
 4,899
 —
(f) 
Long-term debt8,444
 8,403
 —
 7,852
 551
(f) 11,866
 11,896
 —
 11,181
 715
(f) 
Trading liabilities and derivative instruments1,330
 1,330
 939
 385
 6
(b) 1,484
 1,484
 1,070
 399
 15
(b) 

December 31, 2014 Fair Value Measurements December 31, 2015 Fair Value Measurements 
(Dollars in millions)
Measured
Amount
 
Fair
Value
 Level 1 Level 2 Level 3 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3 
Financial assets:                    
Cash and cash equivalents
$8,229
 
$8,229
 
$8,229
 
$—
 
$—
(a) 
$5,599
 
$5,599
 
$5,599
 
$—
 
$—
(a) 
Trading assets and derivative instruments6,202
 6,202
 1,000
 5,177
 25
(b) 6,119
 6,119
 866
 5,143
 110
(b) 
Securities AFS26,770
 26,770
 2,059
 23,765
 946
(b) 27,825
 27,825
 3,542
 23,727
 556
(b) 
LHFS3,232
 3,240
 —
 2,063
 1,177
(c) 1,838
 1,842
 —
 1,803
 39
(c) 
LHFI, net131,175
 126,855
 —
 545
 126,310
(d)134,690
 131,178
 —
 397
 130,781
(d)
Financial liabilities:                    
Deposits140,567
 140,562
 —
 140,562
 —
(e) 149,830
 149,889
 —
 149,889
 —
(e) 
Short-term borrowings9,186
 9,186
 —
 9,186
 —
(f) 4,627
 4,627
 —
 4,627
 —
(f) 
Long-term debt13,022
 13,056
 —
 12,398
 658
(f) 8,462
 8,374
 —
 7,772
 602
(f) 
Trading liabilities and derivative instruments1,227
 1,227
 929
 293
 5
(b) 1,263
 1,263
 664
 593
 6
(b) 


54
Notes to Consolidated Financial Statements (Unaudited), continued



The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
(a)Cash and cash equivalents are valued at their carrying amounts, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.
(b)Trading assets and derivative instruments, securities AFS, and trading liabilities and derivative instruments that are classified as level 1 are valued based on quoted market prices. For those instruments classified as level 2 or 3, refer to the respective valuation discussions within this footnote.
(c)LHFS are generally valued based on observable current market prices or, if quoted market prices are not available, quoted market prices of similar instruments. Refer to the LHFS section within this footnote for further discussion. When valuation assumptions are not readily observable in the market, instruments are valued based on the best available data to approximate fair value. This data may be internally-developedinternally developed and considers risk premiums that a market participant would require under then-current market conditions.

Notes to Consolidated Financial Statements (Unaudited), continued



market participant would require under then-current market conditions.
(d)LHFI fair values are based on a hypothetical exit price, which does not represent the estimated intrinsic value of the loan if held for investment. The assumptions used are expected to approximate those that a market participant purchasing the loans would use to value the loans, including a market risk premium and liquidity discount. Estimating the fair value of the loan portfolio when loan sales and trading markets are illiquid or nonexistent requires significant judgment.
Generally, the Company measures fair value for LHFI based on estimated future discounted cash flows using current origination rates for loans with similar terms and credit quality, which derived an estimated value of 100%102% and 101% on the loan portfolio’s net carrying value at both September 30, 20152016 and December 31, 2014.2015, respectively. The value derived from origination rates likely does not represent an exit price; therefore, an incremental market risk and liquidity discount was applied when estimating the fair value of these loans. The discounted value is a function of a market participant’s required yield in the current environment and is not a reflection of the expected cumulative losses on the loans.
(e)Deposit liabilities with no defined maturity such as DDAs, NOW/money market accounts, and savings accounts have a fair value equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for CDs are estimated using a discounted cash flow approach that applies current interest rates to a schedule of aggregated expected maturities. The assumptions used in the discounted cash flow analysis are expected to approximate those that market participants would use in valuing deposits. The value of long-term relationships with depositors is not taken into account in estimating fair values.
account in estimating fair values. Refer to the respective valuation section within this footnote for valuation information related to brokered time deposits that the Company measures at fair value as well as those that are carried at amortized cost.
(f)Fair values for short-term borrowings and certain long-term debt are based on quoted market prices for similar instruments or estimated discounted cash flows utilizing the Company’s current incremental borrowing rate for similar types of instruments. ForRefer to the respective valuation section within this footnote for valuation information related to long-term debt that the Company measures at fair value, refer to the respective valuation section within this footnote.value. For level 3 debt, the terms are unique in nature or there are otherwise no similar instruments that can be used to value the instrument without using significant unobservable assumptions. In this situation,these situations, the Company reviews current borrowing rates along with the collateral levels that secure the debt in determining an appropriate fair value adjustment.
Unfunded loan commitments and letters of credit are not included in the table above. At September 30, 20152016 and December 31, 2014,2015, the Company had $63.9$65.0 billion and $56.5$66.2 billion, respectively, of unfunded commercial loan commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related unfunded commitments reserve, which was a combined $64$72 million and $59$66 million at September 30, 20152016 and December 31, 2014,2015, respectively. No active trading market exists for these instruments, and the estimated fair value does not include any value associated with the borrower relationship. The Company does not estimate the fair values of consumer unfunded lending commitments which can generally be canceled by providing notice to the borrower.



55
Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 15 – CONTINGENCIES
Litigation and Regulatory Matters
In the ordinary course of business, the Company and its subsidiaries are parties to numerous civil claims and lawsuits and subject to regulatory examinations, investigations, and requests for information. Some of these matters involve claims for substantial amounts. The Company’s experience has shown that the damages alleged by plaintiffs or claimants are often overstated, based on unsubstantiated legal theories, unsupported by facts, and/or bear no relation to the ultimate award that a court might grant. Additionally, the outcome of litigation and regulatory matters and the timing of ultimate resolution are inherently difficult to predict. These factors make it difficult for the Company to provide a meaningful estimate of the range of reasonably possible outcomes of claims in the aggregate or by individual claim. However, on a case-by-case basis, reserves are established for those legal claims in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company's financial statements at September 30, 20152016 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable.
The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved.
For a limited number of legal matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately $160$190 million. This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information available at September 30, 2015.2016. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which an estimate is not possible are not included within this estimated range; therefore, this estimated range does not represent the Company’s maximum loss exposure. Based on current knowledge, it is the opinion of management that liabilities arising from legal claims in excess of the amounts currently reserved, if any, will not have a material impact on the Company’s financial condition, results of operations, or cash

Notes to Consolidated Financial Statements (Unaudited), continued



flows. However, in light of the significant uncertainties involved in these matters and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s financial condition, results of operations, or cash flows for any given reporting period.
The following is a description of certain litigation and regulatory matters:
Card Association Antitrust Litigation
The Company is a defendant, along with Visa and MasterCard, as well as several other banks, in several antitrust lawsuits challenging their practices. For a discussion regarding the Company’s involvement in this litigation matter, see Note 12, “Guarantees.”

Lehman Brothers Holdings, Inc. Litigation
Beginning in October 2008, STRH, along with other underwriters and individuals, were named as defendants in several individual and putative class action complaints filed in the U.S. District Court for the Southern District of New York and state and federal courts in Arkansas, California, Texas, and Washington. Plaintiffs alleged violations of Sections 11 and 12 of the Securities Act of 1933 and/or state law for allegedly false and misleading disclosures in connection with various debt and preferred stock offerings of Lehman Brothers Holdings, Inc. ("Lehman Brothers") and sought unspecified damages. All cases were transferred for coordination to the multi-district litigation captioned In re Lehman Brothers Equity/Debt Securities Litigation pending in the U.S. District Court for the Southern District of New York. Defendants filed a motion to dismiss all claims asserted in the class action. On July 27, 2011, the District Court granted in part and denied in part the motion to dismiss the claims against STRH and the other underwriter defendants in the class action. A settlement with the class plaintiffs was approved by the Court and the class settlement approval process was completed. A number of individual lawsuits and smaller putative class actions remained following the class settlement. STRH settled two such individual actions. The other individual lawsuits were dismissed. In two of such dismissed individual actions, the plaintiffs were unable to appeal the dismissals of their claims until their claims against a third party were resolved. In one of these individual actions, the plaintiffs have filed a notice of appeal to the Second Circuit Court of Appeals. Oral argument inAppeals, but that appeal is expectedwas denied on July 8, 2016. The plaintiff has filed a petition to occur in 2016.appeal the decision to the U.S. Supreme Court. In the other remainingindividual action, it is unclear whether the plaintiffs will file a notice of appeal.no appeal has been filed.

Bickerstaff v. SunTrust Bank
This case was filed in the Fulton County State Court on July 12, 2010, and an amended complaint was filed on August 9, 2010. Plaintiff asserts that all overdraft fees charged to his account which related to debit card and ATM transactions are actually interest charges and therefore subject to the usury laws of Georgia. Plaintiff has brought claims for violations of civil and criminal usury laws, conversion, and money had and received, and purports to bring the action on behalf of all Georgia citizens who incurred such overdraft fees within the four years before the complaint was filed where the overdraft fee resulted in an
interest rate being charged in excess of the usury rate. SunTrustThe Bank filed a motion to compel arbitration and on March 16, 2012, the Court entered an order holding that SunTrust'sthe Bank's arbitration provision is enforceable but that the named plaintiff in the case had opted out of that provision pursuant to its terms. The Court explicitly stated that it was not ruling at that time on the question of whether the named plaintiff could have opted out for the putative class members. SunTrustThe Bank filed an appeal of this decision, but this appeal was dismissed based on a finding that the appeal was prematurely granted. On April 8, 2013, the plaintiff filed a motion for class certification and that motion was denied on February 19, 2014. Plaintiff appealed the denial of class certification and on September 8, 2015, the Georgia Supreme Court agreed to hear the appeal. On January 4, 2016, the Georgia Supreme Court heard oral argument on the appeal. On July 8, 2016, the Georgia Supreme Court reversed the Court of Appeals of Georgia and remanded the case for further proceedings.


56
Notes to Consolidated Financial Statements (Unaudited), continued



Putative ERISA Class Actions
Company Stock Class Action
Beginning in July 2008, the Company and certain officers, directors, and employees of the Company were named in a putative class action alleging that they breached their fiduciary duties under ERISA by offering the Company's common stock as an investment option in the SunTrust Banks, Inc. 401(k) Plan (the “Plan”). The plaintiffs purport to represent all current and former Plan participants who held the Company stock in their Plan accounts from May 15, 2007 to the presentMarch 30, 2011 and seek to recover alleged losses these participants supposedly incurred as a result of their investment in Company stock.
This case was originally filed in the U.S. District Court for the Southern District of Florida but was transferred to the U.S. District Court for the Northern District of Georgia, Atlanta Division, (the “District Court”) in November 2008. On October 26, 2009, an amended complaint was filed. On December 9, 2009, defendants filed a motion to dismiss the amended complaint. On October 25, 2010, the District Court granted in part and denied in part defendants' motion to dismiss the amended complaint.
On April 14, 2011, the U.S. Court of Appeals for the Eleventh Circuit (“the Circuit Court”) granted defendants and plaintiffs permission to pursue interlocutory review in separate appeals. The Circuit Court subsequently stayed these appeals pending decision of a separate appeal involving The Home Depot in which substantially similar issues are presented. On May 8, 2012, the Circuit Court decided thisthat appeal in favor of The Home Depot. On March 5, 2013, the Circuit Court issued an order remanding the case to the District Court for further proceedings in light of its decision in The Home Depot case. On September 26, 2013, the District Court granted the defendants' motion to dismiss plaintiffs' claims. Plaintiffs filed an appeal of this decision in the Circuit Court. Subsequent to the filing of this appeal, the U.S. Supreme Court decided Fifth Third Bancorp v. Dudenhoeffer, which held that employee stock ownership plan fiduciaries receive no presumption of prudence with respect to employer stock plans. The Eleventh Circuit Court remanded the case back to the District Court for further proceedings in light of Dudenhoeffer. On June 18, 2015, the Court entered an order

Notes to Consolidated Financial Statements (Unaudited), continued



granting in part and denying in part the Company’s motion to dismiss. The discovery process has begun.

On August 17, 2016, the District Court entered an order that among other things granted certain of the plaintiffs' motion for class certification. According to the Order, the class is defined as "All persons, other than Defendants and members of their immediate families, who were participants in or beneficiaries of the SunTrust Banks, Inc. 401(k) Savings Plan (the "Plan") at any time between May 15, 2007 and March 30, 2011, inclusive (the "Class Period") and whose accounts included investments in SunTrust common stock ("SunTrust Stock") during that time period and who sustained a loss to their account as a result of the investment in SunTrust Stock."
On August 1, 2016, certain non-fiduciary defendants filed a motion for summary judgment as it relates to them, which was granted by the District Court on October 5, 2016.
Mutual Funds Class Actions
On March 11, 2011, the Company and certain officers, directors, and employees of the Company were named in a putative class action alleging that they breached their fiduciary duties under ERISA by offering certain STI Classic Mutual Funds as investment options in the Plan. The plaintiffs purport to represent all current and former Plan participants who held the STI Classic Mutual Funds in their Plan accounts from April 2002 through December 2010 and seek to recover alleged losses these Plan participants supposedly incurred as a result of their investment in the STI Classic Mutual Funds. This action is pending in the U.S. District Court for the Northern District of Georgia, Atlanta Division (the “District Court”). On June 6, 2011, plaintiffs filed an amended complaint, and, on June 20, 2011, defendants filed a motion to dismiss the amended complaint. On March 12, 2012, the Court granted in part and denied in part the motion to dismiss. The Company filed a subsequent motion to dismiss the remainder
of the case on the ground that the Court lacked subject matter jurisdiction over the remaining claims. On October 30, 2012, the Court dismissed all claims in this action. Immediately thereafter, plaintiffs' counsel initiated a substantially similar lawsuit against the Company naming two new plaintiffs and also filed an appeal of the dismissal with the U.S. Court of Appeals for the Eleventh Circuit. SunTrustThe Company filed a motion to dismiss in the new action and this motion was granted. On February 26, 2014, the U.S. Court of Appeals for the Eleventh Circuit upheld the District Court's dismissal. On March 18, 2014, the plaintiffs' counsel filed a motion for reconsideration with the Eleventh Circuit. On August 26, 2014, plaintiffs in the original action filed a Motion for Consolidation of Appeals requesting that the Court consider this appeal jointly with the appeal in the second action. This motion was granted on October 9, 2014 and plaintiffs filed their consolidated appeal on December 16, 2014.
On June 27, 2014, the Company and certain current and former officers, directors, and employees of the Company were named in another putative class action alleging breach of fiduciary duties associated with the inclusion of STI Classic Mutual Funds as investment options in the Plan. This case, Brown, et al. v. SunTrust Banks, Inc., et al., was filed in the U.S. District Court for the District of Columbia. On September 3, 2014, the U.S. District Court for the District of Columbia issued an order transferring the case to the U.S. District Court for the Northern District of Georgia. On November 12, 2014, the Court
granted plaintiffs’ motion to stay this case until the U.S. Supreme Court issuesissued a decision in Tibble v. EidsonEdison International. On May 18, 2015, the U.S. Supreme Court decided Tibble and held that plan fiduciaries have a duty, separate and apart from investment selection, to monitor and remove imprudent investments.
After Tibble, the cases pending on appeal were remanded to the District CourtCourt. On March 25, 2016, a consolidated amended complaint was filed, consolidating all of these pending actions into one case.The Company filed an answer to the consolidated amended complaint on June 6, 2016 and discovery is ongoing.

Intellectual Ventures II v. SunTrust Banks, Inc. and SunTrust Bank
This action was filed in the U.S. District Court for the Northern District of Georgia on July 24, 2013. Plaintiff alleges that SunTrust violates one or more of several patents held by plaintiff in connection with SunTrust’s provision of online banking services and other systems and services. Plaintiff seeks damages for alleged patent infringement of an unspecified amount, as well as attorney’s fees and expenses. The matter was stayed on October 7, 2014 pending inter partes review of a number of the claims asserted against SunTrust.

Consent Order with the Federal Reserve
On April 13, 2011, SunTrust, SunTrust Bank, and STM entered into a Consent Order with the FRB in which SunTrust, SunTrust Bank, and STM agreed to strengthen oversight of, and improve risk management, internal audit, and compliance programs concerning the residential mortgage loan servicing, loss mitigation, and foreclosure activities of STM. SunTrust continues its engagement with the FRB to demonstrate compliance with its commitments under the Consent Order.
On July 25, 2014, the FRB imposed a $160 million civil money penalty as a result of the FRB’s review of the Company’s residential mortgage loan servicing and foreclosure processing practices that preceded the Consent Order. The Company expects to satisfy the entirety of this assessed penalty by providing


57
Notes to Consolidated Financial Statements (Unaudited), continued



consumer relief and certain cash payments as contemplated by the settlement with the U.S. and the States Attorneys' General regarding certain mortgage servicing claims, discussed below at “United States Mortgage Servicing Settlement.” SunTrust continues its engagement with the FRB to demonstrate compliance with its commitments under the Consent Order.
United States Mortgage Servicing Settlement
In the second quarter of 2014, STM and the U.S., through the DOJ, HUD, and Attorneys General for several states, reached a final settlement agreement related to the National Mortgage Servicing Settlement. The settlement agreement became effective on September 30, 2014 when the court entered the Consent Judgment. Pursuant to the settlements, STM made $50 million in cash payments and committed to provide $500 million of consumer relief by the fourth quarter of 2017 and to implement certain mortgage servicing standards. While subject to confirmation by the independent Office of Mortgage Settlement Oversight (“OMSO”) appointed to review and certify compliance with the provisions of the settlement, through September 30, 2015, the Company believes it has substantially fulfilled its consumer relief commitments. STM also implemented all of the prescribed servicing standards within the required timeframes. Compliance with the servicing standards continues to be monitored, tested, and reported

Notes to Consolidated Financial Statements (Unaudited), continued



quarterly by an internal review group and semi-annually by the OMSO. As a result, the Company does not expect to incur additional costs in satisfying its consumer relief obligations or implementation of the servicing standards associated with the settlement.

DOJ Investigation of GSE Loan Origination Practices
In January 2014, STM received notice from the DOJ of an investigation regarding the origination and underwriting of single family residential mortgage loans sold by STM to Fannie Mae and Freddie Mac. The DOJ and STM have not yet engaged in any material dialogue about how this matter may proceed and no allegations have been raised against STM. STM continues to cooperate with the investigation.

Mortgage Modification Investigation
In the third quarter of 2014, STM resolved claims by the United States Attorney’s Office for the Western District of Virginia and the Office of the Special Inspector General for the Troubled Asset Relief Program relating to STM's administration of HAMP. Pursuant to the settlement, SunTrust paid $46 million, including $20 million to fund housing counseling for homeowners, $10 million in restitution to Fannie Mae and Freddie Mac, and $16 million to the U.S. Treasury, and transferred its minimum consumer remediation obligation of $179 million (which may increase to a maximum of $274 million) to the required deposit account to be controlled by a third party claims administrator. STM continues to cooperate with the government and the claims administrator regarding administration of the consumer remediation payment process, which currently is expected to resolve in early 2016. The Company incurred a $204 million pre-tax charge in the second quarter of 2014 in connection with this matter, which included its estimate of the consumer remediation obligation.
Residential Funding Company, LLC v. SunTrust Mortgage, Inc.
STM has been named as a defendant in a complaint filed December 17, 2013 in the Southern District of New York by Residential Funding Company, LLC ("RFC"), a Chapter 11 debtor-affiliate of GMAC Mortgage, LLC, alleging breaches of representations and warranties made in connection with loan sales and seeking indemnification against losses allegedly suffered by RFC as a result of such alleged breaches. The case was transferred to the United States Bankruptcy Court for the Southern District of New York. The litigation remains active in the Bankruptcy Court and discovery has commenced.

SunTrust Mortgage Reinsurance Class Actions
STM and Twin Rivers Insurance Company ("Twin Rivers") have been named as defendants in two putative class actions alleging that the companies entered into illegal “captive reinsurance” arrangements with private mortgage insurers. More specifically, plaintiffs allege that SunTrust’s selection of private mortgage insurers who agree to reinsure with Twin Rivers certain loans referred to them by SunTrust results in illegal “kickbacks” in the form of the insurance premiums paid to Twin Rivers. Plaintiffs contend that this arrangement violates the Real Estate Settlement Procedures Act (“RESPA”) and results in unjust enrichment to the detriment of borrowers. The first of these cases, Thurmond, Christopher, et al. v. SunTrust Banks, Inc. et al., was filed in February 2011 in the U.S. District Court for the Eastern District of Pennsylvania. This case was stayed by the Court pending the outcome of Edwards v. First American Financial Corporation, a captive reinsurance case that was pending before the U.S. Supreme Court at the time. The second of these cases, Acosta, Lemuel & Maria Ventrella et al. v. SunTrust Bank, SunTrust Mortgage, Inc., et al., was filed in the U.S. District Court for the Central District of California in December 2011. This case was stayed pending a decision in the Edwards case also. In June 2012,
the U.S. Supreme Court withdrew its grant of certiorari in Edwards and, as a result, the stays in these cases were lifted. SunTrust has filed a motion to dismiss the Thurmond case which was granted in part and denied in part, allowing limited discovery surrounding the argument that the statute of limitations for certain claims should be equitably tolled. Thurmond has been stayed pending a ruling in a similar case currently before the Third Circuit. The Acosta plaintiffs have voluntarily dismissed their case.

United States Attorney’s Office for the Southern District of New York Foreclosure Expense Investigation
STM has been cooperating with the United States Attorney's Office for the Southern District of New York (the "Southern District") in a broad-based industry investigation regarding claims for foreclosure-related expenses charged by law firms in connection with the foreclosure of loans guaranteed or insured by Fannie Mae, Freddie Mac, or FHA. The investigation relates to a private litigant qui tam lawsuit filed under seal and remains in early stages. The Southern District has not yet advised STM how it will proceed in this matter. The Southern District and STM engaged in dialogue regarding potential resolution of this matter as part of the National Mortgage Servicing Settlement, but were unable to reach agreement.

Felix v. SunTrust Mortgage, Inc.
This putative class action was filed against STM on April 4, 2016. Plaintiff alleges that STM breaches its contract with borrowers when it collects interest on FHA loans at repayment because STM fails to use an approved FHA notice form. Plaintiff also alleges that STM violates the Georgia usury statute by collecting such interest. Plaintiff attempts to bring the breach of contract claim on behalf of all borrowers and the usury claim on behalf of Georgia borrowers. Plaintiff and STM reached a settlement of the action with the class, and the U.S. District Court for the Northern District of Georgia granted preliminary approval of the settlement on September 9, 2016. The settlement terms had an insignificant impact on the Company's financial position. A hearing on final approval has been scheduled for February 6, 2017.
Northern District of Georgia Investigation
On April 28, 2016, the Bank received a subpoena from the United States Attorney’s Office for the Northern District of Georgia in connection with an investigation pertaining to a suspected embezzlement by an employee of a SunTrust business client. The subpoena requests information regarding the Bank’s Anti-Money Laundering and Bank Secrecy Act compliance processes to detect such crimes by employees of business clients. The Company is cooperating with the investigation.



58

Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 16 - BUSINESS SEGMENT REPORTING
The Company measures business activity across three segments: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking, with functional activities included in Corporate Other. The businessBusiness segments are determined based on the products and services provided or the type of client served, and they reflect the manner in which financial information is evaluated by management. The following is a description of the segments and their composition.primary businesses.

The Consumer Banking and Private Wealth Management segment is made up of twothree primary businesses: Consumer Banking and Private Wealth Management.
Consumer Banking provides services to consumers and branch-managed small business clients through an extensive network of traditional and in-store branches, ATMs, the internet (www.suntrust.com), mobile banking, and by telephone (1-800-SUNTRUST). Financial products and services offered to consumers and small business clients include deposits home equity lines and payments, loans, credit lines, indirect auto, student lending, bank card, other lending products,brokerage, and various fee-based services. Discount/online and full-service brokerage products are offered to individual clients through STIS. Consumer Banking also serves as an entry point for clients and provides services for other lines of business.
Consumer Lending offers an array of lending products to consumers and small business clients via the Company's Consumer Banking and Private Wealth Management businesses, through the internet (www.suntrust.com and www.lightstream.com), as well as through various national offices and partnerships. Products offered include home equity lines, personal credit lines and loans, direct auto, indirect auto, student lending, credit cards, and other lending products.
PWM provides a full array of wealth management products and professional services to both individual and institutional clients including loans, deposits, brokerage, professional investment management, and trust services to clients seeking active management of their financial resources. Institutional clients are served by the Institutional Investment Solutions business. Discount/online and full-service brokerage products are offered to individual clients through STIS. PWM also includes GenSpring, which provides family office solutions to ultra-high net worth individuals and their families. Utilizing teams of multi-disciplinary specialists with expertise in investments, tax, accounting, estate planning, and other wealth management disciplines, GenSpring helps families manage and sustain wealth across multiple generations.

The Wholesale Banking segment includes the followingis made up of four primary businesses:
CIB delivers comprehensive capital markets solutions, including advisory, capital raising, and financial risk management, with the goal of serving the needs of both public and private companies in the Wholesale Banking segment and PWM business. Investment Banking and Corporate Banking teams within CIB serve clients across the nation, offering a full suite of traditional banking and investment banking products and services to companies
with annual revenues typically greater than $150 million. Investment Banking serves select industry segments including consumer and retail, energy, financial services, healthcare, industrials, and technology, media and communications, real estate, and technology.communications. Corporate Banking serves clients across diversified industry sectors based on size, complexity, and frequency of capital markets issuance. Also managed within CIB is the Equipment Finance Group,
which provides lease financing solutions (through SunTrust Equipment Finance & Leasing).
Commercial & Business Banking offers an array of traditional banking products, including lending, cash management services and investment banking solutions via STRH to commercial clients (generally thoseclients with average revenues between $1 million toand $150 million), not-for-profit organizations, and governmental entities, as well as auto dealer financing (floor plan inventory financing). Also managed within Commercial & Business Banking is the Premium Assignment Corporation, which createsprovides corporate insurance premium financing solutions.
Commercial Real Estate provides a full range of financial solutions for commercial real estate developers, owners, and investors, including construction, mini-perm, and permanent real estate financing, as well as tailored financing and equity investment solutions via STRH, primarily through the REIT group focused on Real Estate Investment Trusts.STRH. The Institutional Real Estateinstitutional real estate team targets relationships with institutional advisors, private funds, and insurance companies and the Regionalregional team focuses on real estate owners and developers through a regional delivery structure. Commercial Real Estate also offers tailored financing and equity investment solutions for community development and affordable housing projects through STCC, with particular expertise in Low Income Housing Tax Credits and New Market Tax Credits.
Treasury & Payment Solutions provides all SunTrust business clients with services required to manage their payments and receipts, combined with the ability to manage and optimize their deposits across all aspects of their business. Treasury & Payment Solutions operates all electronic and paper payment types, including card, wire transfer, ACH, check, and cash. It also provides clients the means to manage their accounts electronically online, both domestically and internationally.

Mortgage Banking offers residential mortgage products nationally through its retail and correspondent channels, as well as via the internet (www.suntrust.com), and by telephone (1-800-SUNTRUST). These products are either sold in the secondary market, primarily with servicing rights retained, or held in the Company’s loan portfolio. Mortgage Banking also services loans for itself and for other investors.investors, in addition to loans held in the Company’s loan portfolio.
Corporate Other includes management of the Company’s investment securities portfolio, long-term debt, end user derivative instruments, short-term liquidity and funding activities, balance sheet risk management, and most real estate assets. Additionally, it includes Enterprise Information Services, which is the primary information technology and operations group; Corporate Real Estate, Marketing, SunTrust Online, Human Resources, Finance, Corporate Risk Management, Legal and Compliance, Communications, Procurement, and Executive Management. The financial results of RidgeWorth, including the gain on sale, are reflected in the Corporate Other segment for the nine months ended September 30, 2014. Prior to the sale of


59
Notes to Consolidated Financial Statements (Unaudited), continued



RidgeWorth inassets. Additionally, Corporate Other includes the second quarter of 2014, RidgeWorth's financial performance was reported in the Wholesale Banking segment.Company's functional activities such as marketing, SunTrust online, human resources, finance, Enterprise Risk, legal and compliance, communications, procurement, enterprise information services, corporate real estate, and executive management.
Because the business segment results are presented based on management accounting practices, the transition to the consolidated results, which are prepared under U.S. GAAP, creates certain differences which are reflected in Reconciling Items. Business segment reporting conventions are described below.
Net interest incomeincome-FTE – Netis reconciled from net interest income and is presented on an FTE basis to make income from tax-exempt assets comparable to other taxable products. The segmentSegment results reflect matched maturity funds transfer pricing, which ascribes credits or charges based on the economic value or cost created by the assets and liabilities of each segment. The mismatchDifferences between fundsthese credits and funds charges at the segment level resides in Reconciling Items.are captured as reconciling items. The change in this mismatchvariance is generally attributable to corporate balance sheet management strategies.
Provision/(benefit) for credit losses – Representsrepresents net charge-offs by segment combined with an allocation to the segments offor the provision/(benefit) attributable to each segment's quarterly change in the ALLL and unfunded commitmentcommitments reserve balances.
Provision/(benefit)Provision for income taxestaxes-FTE – Calculatedis calculated using a blended income tax rate for each segment. This calculation includes the impact of various adjustments, such as the reversal of the FTE gross up on tax-exempt assets, tax adjustments, and credits that are unique to each segment.
The difference between the calculated provision/(benefit)provision for income taxes at the segment level and the consolidated provision/(benefit)provision for income taxes is reported in Reconciling Items.as reconciling items.
The segment’s financial performance is comprised of direct financial results as well asand allocations for various allocationscorporate functions that for internalprovide management reporting purposes provide an enhanced view of the segment’s financial performance. The internalInternal allocations include the following:
Operational costs – Expensesexpenses are charged to the segments based on various statistical volumes multiplied by activity based cost rates. As a result of the activity basedmethodical activity-based costing process, which also allocates residual expenses are also allocated to the segments. TheGenerally, recoveries for the majority of these costs are reported in Corporate Other.
Support and overhead costs – Expensesexpenses not directly attributable to a specific segment are allocated based on various drivers (e.g., number(number of equivalent employees, number of PCs/Laptops, andlaptops, net revenue)revenue, etc.). The recoveriesRecoveries for these allocations are reported in Corporate Other.
Sales and referral credits – Segmentssegments may compensate another segment for referring or selling certain products. The majority of the revenue resides in the segment where the product is ultimately managed.
The application and development of management reporting methodologies is a dynamican active process and is subject toundergoes periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment, with no impact on consolidated results. WheneverIf significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is reclassified, whereverwhen practicable.



60
Notes to Consolidated Financial Statements (Unaudited), continued



Three Months Ended September 30, 2015Three Months Ended September 30, 2016
(Dollars in millions)Consumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 ConsolidatedConsumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:                      
Average loans
$40,206
 
$67,274
 
$25,299
 
$70
 
($12) 
$132,837

$43,405
 
$71,634
 
$27,146
 
$74
 
($2) 
$142,257
Average consumer and commercial deposits91,016
 51,237
 2,918
 84
 (29) 145,226
95,924
 55,921
 3,374
 157
 (63) 155,313
Average total assets45,874
 80,097
 29,280
 29,878
 3,212
 188,341
49,085
 85,772
 31,202
 32,480
 2,937
 201,476
Average total liabilities91,671
 56,611
 3,290
 13,397
 (12) 164,957
96,492
 61,541
 3,744
 15,351
 (62) 177,066
Average total equity—
 —
 —
 —
 23,384
 23,384
—
 —
 —
 —
 24,410
 24,410
                      
Statements of Income:                      
Net interest income
$688
 
$447
 
$123
 
$40
 
($87) 
$1,211

$721
 
$461
 
$111
 
$21
 
($6) 
$1,308
FTE adjustment—
 35
 —
 1
 —
 36
—
 33
 —
 1
 —
 34
Net interest income - FTE 1
688
 482
 123
 41
 (87) 1,247
721
 494
 111
 22
 (6) 1,342
Provision/(benefit) for credit losses 2
22
 47
 (38) —
 1
 32
30
 68
 (1) —
 —
 97
Net interest income after provision/(benefit) for credit losses - FTE666
 435
 161
 41
 (88) 1,215
691
 426
 112
 22
 (6) 1,245
Total noninterest income384
 293
 109
 29
 (4) 811
387
 320
 167
 20
 (5) 889
Total noninterest expense720
 388
 154
 6
 (4) 1,264
790
 427
 196
 1
 (5) 1,409
Income before provision for income taxes - FTE330
 340
 116
 64
 (88) 762
288
 319
 83
 41
 (6) 725
Provision for income taxes - FTE 3
123
 109
 11
 22
 (42) 223
108
 95
 31
 12
 3
 249
Net income including income attributable to noncontrolling interest207
 231
 105
 42
 (46) 539
180
 224
 52
 29
 (9) 476
Net income attributable to noncontrolling interest—
 —
 —
 2
 —
 2
—
 —
 —
 2
 —
 2
Net income
$207
 
$231
 
$105
 
$40
 
($46) 
$537

$180
 
$224
 
$52
 
$27
 
($9) 
$474
           

Three Months Ended September 30, 2014Three Months Ended September 30, 2015
(Dollars in millions)Consumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 ConsolidatedConsumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:                      
Average loans
$41,904
 
$63,542
 
$25,261
 
$46
 
($6) 
$130,747

$40,189
 
$67,291
 
$25,299
 
$69
 
($11) 
$132,837
Average consumer and commercial deposits86,194
 43,319
 2,664
 83
 (65) 132,195
91,039
 51,194
 2,918
 104
 (29) 145,226
Average total assets47,586
 75,156
 30,447
 27,326
 2,918
 183,433
45,887
 80,067
 29,280
 29,895
 3,212
 188,341
Average total liabilities86,888
 49,955
 3,085
 21,356
 (42) 161,242
91,689
 56,627
 3,290
 13,362
 (11) 164,957
Average total equity—
 —
 —
 —
 22,191
 22,191
—
 —
 —
 —
 23,384
 23,384
                      
Statements of Income/(Loss):           
Statements of Income:           
Net interest income
$666
 
$419
 
$148
 
$70
 
($88) 
$1,215

$688
 
$452
 
$123
 
$41
 
($93) 
$1,211
FTE adjustment—
 34
 —
 1
 1
 36
—
 35
 —
 1
 —
 36
Net interest income - FTE 1
666
 453
 148
 71
 (87) 1,251
688
 487
 123
 42
 (93) 1,247
Provision for credit losses 2
40
 9
 44
 —
 —
 93
Net interest income after provision for credit losses - FTE626
 444
 104
 71
 (87) 1,158
Provision/(benefit) for credit losses 2
22
 47
 (38) —
 1
 32
Net interest income after provision/(benefit) for credit losses - FTE666
 440
 161
 42
 (94) 1,215
Total noninterest income399
 241
 130
 14
 (4) 780
384
 292
 109
 29
 (3) 811
Total noninterest expense720
 367
 166
 12
 (6) 1,259
730
 383
 153
 1
 (3) 1,264
Income before provision/(benefit) for income taxes - FTE305
 318
 68
 73
 (85) 679
Provision/(benefit) for income taxes - FTE 3
112
 94
 25
 (108) (20) 103
Income before provision for income taxes - FTE320
 349
 117
 70
 (94) 762
Provision for income taxes - FTE 3
119
 113
 11
 24
 (44) 223
Net income including income attributable to noncontrolling interest193
 224
 43
 181
 (65) 576
201
 236
 106
 46
 (50) 539
Net income attributable to noncontrolling interest—
 —
 —
 —
 —
 —
—
 —
 —
 2
 —
 2
Net income
$193
 
$224
 
$43
 
$181
 
($65) 
$576

$201
 
$236
 
$106
 
$44
 
($50) 
$537
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision/(benefit) for credit losses represents net charge-offs by segment combined with an allocation to the segments offor the provision/(benefit) attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular income tax provision/(benefit)provision and taxable-equivalent income adjustment reversal.



61
Notes to Consolidated Financial Statements (Unaudited), continued



Nine Months Ended September 30, 2015Nine Months Ended September 30, 2016
(Dollars in millions)Consumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 ConsolidatedConsumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:                      
Average loans
$40,556
 
$67,547
 
$24,847
 
$59
 
($9) 
$133,000

$42,502
 
$71,499
 
$26,563
 
$66
 
($2) 
$140,628
Average consumer and commercial deposits90,935
 49,147
 2,754
 85
 (52) 142,869
95,389
 54,564
 2,896
 122
 (60) 152,911
Average total assets46,493
 80,777
 28,595
 29,469
 3,301
 188,635
48,190
 85,402
 30,178
 31,510
 2,333
 197,613
Average total liabilities91,578
 54,826
 3,139
 15,894
 (68) 165,369
95,975
 60,295
 3,274
 14,019
 (26) 173,537
Average total equity—
 —
 —
 —
 23,266
 23,266
—
 —
 —
 —
 24,076
 24,076
                      
Statements of Income:                      
Net interest income
$2,029
 
$1,321
 
$366
 
$103
 
($301) 
$3,518

$2,124
 
$1,362
 
$334
 
$79
 
($22) 
$3,877
FTE adjustment—
 103
 —
 2
 2
 107
—
 103
 —
 2
 —
 105
Net interest income - FTE 1
2,029
 1,424
 366
 105
 (299) 3,625
2,124
 1,465
 334
 81
 (22) 3,982
Provision/(benefit) for credit losses 2
101
 73
 (61) —
 1
 114
107
 253
 (17) —
 —
 343
Net interest income after provision/(benefit) for credit losses - FTE1,928
 1,351
 427
 105
 (300) 3,511
2,017
 1,212
 351
 81
 (22) 3,639
Total noninterest income1,136
 949
 346
 84
 (12) 2,503
1,108
 906
 457
 112
 (14) 2,569
Total noninterest expense2,167
 1,189
 511
 18
 (13) 3,872
2,293
 1,253
 547
 (6) (15) 4,072
Income before provision for income taxes - FTE897
 1,111
 262
 171
 (299) 2,142
832
 865
 261
 199
 (21) 2,136
Provision for income taxes - FTE 3
334
 371
 45
 61
 (125) 686
310
 264
 99
 55
 (12) 716
Net income including income attributable to noncontrolling interest563
 740
 217
 110
 (174) 1,456
522
 601
 162
 144
 (9) 1,420
Net income attributable to noncontrolling interest—
 —
 —
 7
 —
 7
—
 —
 —
 7
 —
 7
Net income
$563
 
$740
 
$217
 
$103
 
($174) 
$1,449

$522
 
$601
 
$162
 
$137
 
($9) 
$1,413
           

Nine Months Ended September 30, 2014Nine Months Ended September 30, 2015
(Dollars in millions)Consumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 ConsolidatedConsumer
Banking and
Private Wealth
Management		 Wholesale Banking Mortgage Banking Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:                      
Average loans
$41,564
 
$61,297
 
$27,106
 
$50
 
($7) 
$130,010

$40,539
 
$67,565
 
$24,847
 
$58
 
($9) 
$133,000
Average consumer and commercial deposits85,190
 42,899
 2,260
 85
 (65) 130,369
90,919
 49,142
 2,754
 106
 (52) 142,869
Average total assets47,244
 72,646
 31,078
 26,313
 2,817
 180,098
46,511
 80,734
 28,595
 29,493
 3,302
 188,635
Average total liabilities85,931
 49,594
 2,763
 19,869
 (31) 158,126
91,557
 54,872
 3,139
 15,870
 (69) 165,369
Average total equity—
 —
 —
 —
 21,972
 21,972
—
 —
 —
 —
 23,266
 23,266
                      
Statements of Income/(Loss):           
Statements of Income:           
Net interest income
$1,957
 
$1,220
 
$422
 
$220
 
($190) 
$3,629

$2,028
 
$1,328
 
$366
 
$106
 
($310) 
$3,518
FTE adjustment—
 102
 —
 2
 1
 105
—
 104
 —
 2
 1
 107
Net interest income - FTE 1
1,957
 1,322
 422
 222
 (189) 3,734
2,028
 1,432
 366
 108
 (309) 3,625
Provision for credit losses 2
135
 39
 94
 —
 —
 268
Net interest income after provision for credit losses - FTE1,822
 1,283
 328
 222
 (189) 3,466
Provision/(benefit) for credit losses 2
101
 73
 (61) —
 1
 114
Net interest income after provision/(benefit) for credit losses - FTE1,927
 1,359
 427
 108
 (310) 3,511
Total noninterest income1,141
 828
 350
 222
 (13) 2,528
1,136
 914
 346
 118
 (11) 2,503
Total noninterest expense2,154
 1,180
 717
 95
 (12) 4,134
2,195
 1,165
 510
 15
 (13) 3,872
Income/(loss) before provision/(benefit) for income taxes - FTE809
 931
 (39) 349
 (190) 1,860
Provision/(benefit) for income taxes - FTE 3
297
 296
 (16) (41) (67) 469
Net income/(loss) including income attributable to noncontrolling interest512
 635
 (23) 390
 (123) 1,391
Income before provision for income taxes - FTE868
 1,108
 263
 211
 (308) 2,142
Provision for income taxes - FTE 3
323
 371
 44
 75
 (127) 686
Net income including income attributable to noncontrolling interest545
 737
 219
 136
 (181) 1,456
Net income attributable to noncontrolling interest—
 —
 —
 11
 —
 11
—
 —
 —
 7
 —
 7
Net income/(loss)
$512
 
$635
 
($23) 
$379
 
($123) 
$1,380
Net income
$545
 
$737
 
$219
 
$129
 
($181) 
$1,449
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision/(benefit) for credit losses represents net charge-offs by segment combined with an allocation to the segments offor the provision/(benefit) attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular income tax provision/(benefit)provision and taxable-equivalent income adjustment reversal.



62
Notes to Consolidated Financial Statements (Unaudited), continued




NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)/INCOME
ComponentsChanges in the components of AOCI, net of tax, were calculated as follows:are presented in the following table:
(Dollars in millions)Securities AFS Derivative Instruments Employee Benefit Plans TotalSecurities AFS Derivative Instruments Long-Term Debt Employee Benefit Plans Total
Three Months Ended September 30, 2016         
Balance, beginning of period
$550
 
$310
 
($7) 
($620) 
$233
Net unrealized losses arising during the period(32) (49) (3) —
 (84)
Amounts reclassified to net income—
 (37) —
 3
 (34)
Other comprehensive (loss)/income, net of tax(32) (86) (3) 3
 (118)
Balance, end of period
$518
 
$224
 
($10) 
($617) 
$115
         
Three Months Ended September 30, 2015                
Balance, beginning of period
$183
 
$107
 
($584) 
($294)
$183
 
$107
 
$—
 
($584) 
($294)
Net unrealized gains arising during the period123
 128
 —
 251
123
 128
 —
 —
 251
Amounts reclassified from AOCI(4) (44) 3
 (45)
Amounts reclassified to net income(4) (44) —
 3
 (45)
Other comprehensive income, net of tax119
 84
 3
 206
119
 84
 —
 3
 206
Balance, end of period
$302
 
$191
 
($581) 
($88)
$302
 
$191
 
$—
 
($581) 
($88)
                
Three Months Ended September 30, 2014       
Nine Months Ended September 30, 2016         
Balance, beginning of period
$206
 
$193
 
($458) 
($59)
$135
 
$87
 
$—
 
($682) 
($460)
Net unrealized losses arising during the period(43) (19) —
 (62)
Amounts reclassified from AOCI6
 (63) 1
 (56)
Other comprehensive (loss)/income, net of tax(37) (82) 1
 (118)
Cumulative credit risk adjustment 1
—
 —
 (5) —
 (5)
Net unrealized gains/(losses) arising during the period386
 256
 (5) —
 637
Amounts reclassified to net income(3) (119) —
 65
 (57)
Other comprehensive income/(loss), net of tax383
 137
 (5) 65
 580
Balance, end of period
$169
 
$111
 
($457) 
($177)
$518
 
$224
 
($10) 
($617) 
$115
                
Nine Months Ended September 30, 2015                
Balance, beginning of period
$298
 
$97
 
($517) 
($122)
$298
 
$97
 
$—
 
($517)

($122)
Net unrealized gains arising during the period17
 212
 —
 229
17
 212
 —
 —
 229
Amounts reclassified from AOCI(13) (118) (64) (195)
Amounts reclassified to net income(13) (118) —
 (64) (195)
Other comprehensive income/(loss), net of tax4
 94
 (64) 34
4
 94
 —
 (64) 34
Balance, end of period
$302
 
$191
 
($581) 
($88)
$302
 
$191
 
$—
 
($581) 
($88)
       
Nine Months Ended September 30, 2014       
Balance, beginning of period
($77) 
$279
 
($491)

($289)
Net unrealized gains arising during the period239
 23
 —
 262
Amounts reclassified from AOCI7
 (191) 34
 (150)
Other comprehensive income/(loss), net of tax246
 (168) 34
 112
Balance, end of period
$169
 
$111
 
($457) 
($177)
1 Related to the Company's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk. See Note 1, "Significant Accounting Policies," for additional information.



63
Notes to Consolidated Financial Statements (Unaudited), continued



Reclassifications from AOCI, and the related tax effects, were as follows:are presented in the following table:
(Dollars in millions) Three Months Ended September 30 Nine Months Ended September 30 Affected Line Item in the Statement Where Net Income is Presented Three Months Ended September 30 Nine Months Ended September 30 Impacted Line Item in the Consolidated Statements of Income
Details About AOCI Components 2015 2014 2015 2014  2016 2015 2016 2015 
Securities AFS:                  
Realized (gains)/losses on securities AFS 
($7) 
$9
 
($21) 
$11
 Net securities gains/(losses)
Realized gains on securities AFS 
$—
 
($7) 
($4) 
($21) Net securities gains
Tax effect 3
 (3) 8
 (4) Provision for income taxes —
 3
 1
 8
 Provision for income taxes
 (4) 6
 (13) 7
  —
 (4) (3) (13) 
                  
Derivative Instruments:                  
Realized gains on cash flow hedges (70) (99) (187) (302) Interest and fees on loans (59) (70) (190) (187) Interest and fees on loans
Tax effect 26
 36
 69
 111
 Provision for income taxes 22
 26
 71
 69
 Provision for income taxes
 (44) (63) (118) (191)  (37) (44) (119) (118) 
                  
Employee Benefit Plans:                  
Amortization of prior service credit (1) (2) (4) (4) Employee benefits (1) (1) (4) (4) Employee benefits
Amortization of actuarial loss 5
 4
 16
 12
 Employee benefits 6
 5
 19
 16
 Employee benefits
Adjustment to funded status of employee benefit obligation —
 —
 (120) 46
 Other assets/other liabilities —
 —
 89
 (120) Other assets/other liabilities
 4
 2
 (108) 54
  5
 4
 104
 (108) 
Tax effect (1) (1) 44
 (20) Provision for income taxes (2) (1) (39) 44
 Provision for income taxes
 3
 1
 (64) 34
  3
 3
 65
 (64) 
                  
Total reclassifications from AOCI 
($45) 
($56) 
($195)

($150) 
Total reclassifications from AOCI to net income 
($34) 
($45) 
($57)

($195) 



64

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATION

Important Cautionary Statement About Forward-Looking Statements
This report contains forward-looking statements. Statements regarding: (1)(i) future levels of UTBs, net interest margin, swap notional balance and related interest income, interest rates, loan delinquencies and/or defaults,regulatory assessments, share repurchases, provision for loan losses, mortgage production volumes and income, the ratio of ALLL to period-end LHFI,period end loans, service charges on deposit accounts and the ratioimpact of NPLs to period-end LHFI,an enhanced posting order process, net occupancy expense, net charge-offs, premium amortization, and share repurchases; (2)the net charge-off ratio; (ii) future asset quality; (3) the sizerates of NPL formation and composition of the securities AFS portfolio; (4)energy-related NPLs and charge-offs; (iii) future provision for loan losses exceeding net charge-offs; (iv) future actions taken regarding the LCR and related effects, and our ability to comply with future regulatory requirements within regulatory timelines; (v) our expectations regarding the return to accruing status for certain TDRs; (vi) the size and (5)composition of the securities AFS portfolio; (vii) efficiency goals, (viii) the timing of the closing and estimated financial effects of the Pillar acquisition, and (ix) future, profitable growth of the Wholesale Banking segment are forward lookingforward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could."” Such statements are based upon the current beliefs and expectations of management and on information currently available to management. They speak as of the date hereof, and we do not assume any obligation to update the statements made herein or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.
Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A., "Risk Factors" of our 20142015 Annual Report on Form 10-K and also include risks discussed in this report and in other periodic reports that we file with the SEC. Additional factors include: as onecurrent and future legislation and regulation could require us to change our business practices, reduce revenue, impose additional costs, or otherwise adversely affect business operations or competitiveness; we are subject to increased capital adequacy and liquidity requirements and our failure to meet these would adversely affect our financial condition; the fiscal and monetary policies of the largest lenders in the Southeastfederal government and Mid-Atlantic U.S. andits agencies could have a provider of financial products and services to consumers and businesses across the U.S.,material adverse effect on our earnings; our financial results have been, and may continue to be, materially affected by general economic conditions, and a deterioration of economic conditions or of the financial markets may materially adversely affect our lending and other businesses and our financial results and condition; legislation and regulation, including the Dodd-Frank Act, as well as future legislation and/changes in market interest rates or regulation,capital markets could require us to change certain of our business practices, reduce our revenue, impose additional costs on us, or otherwise adversely affect our business operations and/or competitive position; we are subject torevenue and
expenses, the value of assets and obligations, and the availability and cost of capital adequacy and liquidity guidelinesliquidity; our earnings may be affected by volatility in mortgage production and if we fail to meet these guidelines, our financial condition would be adversely affected; loss of customer depositsservicing revenues, and market illiquidity could increase our funding costs; we rely on the mortgage secondary market and GSEs for someby changes in carrying values of our liquidity;MSRs and mortgages held for sale due to changes in interest rates; disruptions in our framework for managing risksability to access global capital markets may not be effective in mitigating riskadversely affect our capital resources and loss to us;liquidity; we are subject to credit risk; our ALLL may not be adequate to cover our eventual losses; we may have more credit risk and higher credit losses to the extent that our loans are concentrated by loan type, industry segment,
borrower type, or location of the borrower or collateral; a downgrade inwe rely on the U.S. government's sovereign credit rating, or in the credit ratingsmortgage secondary market and GSEs for some of instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities,our liquidity; loss of customer deposits could result in risks to us and general economic conditions thatincrease our funding costs; we are not ablesubject to predict;litigation, and our expenses related to this litigation may adversely affect our results; we may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations; we are subject to certain risks related to originating and selling mortgages, and we may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, or borrower fraud, or certain breaches of our servicing agreements, and this could harm our liquidity, results of operations, and financial condition; we face certain risks as a servicer of loans; we are subject to risks related to delays in the foreclosure process; our earnings may be affected by volatility in mortgage production and servicing revenues, and by changes in carrying values of our MSRs and mortgages held for sale due to changes in interest rates; changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital and liquidity; disruptions in our ability to access global capital markets may adversely affect our capital resources and liquidity; the fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings; clients could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; consumers and small businesses may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking which subject us to a variety of risks; negative public opinion could damage our reputation and adversely impact business and revenues; we rely on other companies to provide key components of our business infrastructure; we are at risk of increased losses from fraud; a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses; the soundness of other financial institutions could adversely affect us; we depend on the accuracy and completeness of information about clients and counterparties; competition in the financial services industry is intense and we could result in losinglose business or suffer margin declines;declines as a result; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; we might not pay dividends on our common and preferred stock; our ability to receive dividends from our subsidiaries or other investments could affect our liquidity and ability to pay dividends; any reduction in our credit rating could increase the cost of our funding from the capital markets; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; we may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional


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violations; we depend on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer; we may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategies; our framework for managing risks may not be effective in mitigating risk and loss to us; our controls and procedures may not prevent or detect all errors or acts of fraud; we are at risk of increased losses from fraud; a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber-attacks, could disrupt our businesses, result


in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses; the soundness of other financial institutions could adversely affect us; we depend on the accuracy and completeness of information about clients and counterparties; our accounting policies and processes are critical to how we report our financial condition and results of operations,operation, and they require management to make estimates about matters
that are uncertain; changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition;depressed market values for our stock price can be volatile;and adverse economic conditions sustained over a period of time may require us to write down some portion of our disclosure controls and procedures may not prevent or detect all errors or acts of fraud;goodwill; our financial instruments measured at fair value expose us to certain market risks; our revenues derived fromstock price can be volatile; we might not pay dividends on our investment securitiesstock; and certain banking laws and certain provisions of our articles of incorporation may be volatile and subject to a variety of risks; and we may enter into transactions with off-balance sheet affiliates or our subsidiaries.have an anti-takeover effect.


INTRODUCTION
We are a leading provider of financial services particularly in the Southeastern and Mid-Atlantic U.S., andwith our headquarters is located in Atlanta, Georgia. Our principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers, businesses, corporations, and institutions, both through its branches (located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia) and through other national delivery channels. We operate three business segments: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking, with our functional activities included in Corporate Other. See Note 16, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q for a description of our business segments. In addition to deposit, credit, mortgage banking, and trust and investment services offered by the Bank, our other subsidiaries provide asset and wealth management, securities brokerage, and capital markets services.
This MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and
supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements andin Item 1 of this Form 10-Q, as well as other information contained in this document and our 20142015 Annual Report on Form 10-K. When we refer to “SunTrust,” “the Company,” “we,” “our,” and “us” in this narrative, we mean SunTrust Banks, Inc. and subsidiaries (consolidated).the consolidated subsidiaries. In the MD&A, consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax exempt income on a tax equivalent basis, we present net interest income, net interest margin, total revenue, and efficiency ratios are presented on an FTE basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments.investments using a federal tax rate of 35% and state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe this measure to be the preferred industry measurement of net interest income and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. Additionally, we present other non-U.S. GAAP metrics to assist investors in understanding management’s view of particular financial measures, as well as to align presentation of these financial measures with peers in the industry who may also provide a similar presentation.
Reconcilements for all non-U.S. GAAP measures are provided in Table 1.


EXECUTIVE OVERVIEW
Financial Performance
Economic conditionsWe delivered solid revenue growth across all of our business segments, which helped to offset an increase in expenses during the third quarter of 2015 reflected limited economic growth, a continued low interest rate environment, and increased volatility in global markets. Uncertainty surrounding growth trends continued as global economic and fiscal concerns remained elevated, particularly with regards2016. EPS declined compared to China and the potential impact to the U.S. economy.
With respect to our financial performance during the third quarter, improved efficiency, higher net interest income, and strong asset quality performance drove solid sequential quarter earnings growth. We reported diluted earnings per average common share of $1.00 for the third quarter, up 12% from the prior quarter and up 23% from the adjusted figure in the third quarter of 2014. Third2015; however, the prior quarter and third quarter of 2014 results were favorably impacted by a specific tax benefit of $130 million, or $0.252015 included $0.05 and $0.11 per average diluted common share, resulting from the completion of a tax authority examination. Our dilutedrespectively, in discrete items that benefited earnings. Excluding these discrete benefits, EPS of $1.00 for the third quarter was favorably impacted by $0.07 per share in discrete income tax benefits and $0.04 per share related to favorable developments in previous mortgage-related matters, resulting in accrual reductions. During the nine months ended September 30, 2015, our net income available to common
shareholders was $1.4 billion, or $2.67 per share,grew compared to $1.3 billion, or $2.51 per share during the nine months ended September 30, 2014. Results for the first nine months of 2014 were favorably impacted by $81 million, or $0.16 per average diluted common share, related to the net impact of the aforementioned tax benefit and the gain on sale of RidgeWorth, partially offset by operating losses related to the settlement of specific legacy mortgage-related matters. Refer to Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional detail and the resulting impacts of Form 8-K and other legacy mortgage-related items on our 2014 financial results.
both prior periods. Total revenue increased $27 million and declined $134 million for the three and nine months ended September 30, 2015, compared to the same periods in 2014, respectively. Excluding the gain on sale of RidgeWorth that impacted the results for the nine months ended September 30, 2014, total revenue declined $29 million due to lower net interest income, driven primarily by the decline in commercial loan swap income and lower earning asset yields, as well as foregone RidgeWorth investment management income. The increase in total revenue for the current quarter increased modestly compared to the prior year quarter wasand increased 8% year-over-year driven primarily


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by increases in both net interest income and noninterest income. Net interest income for the third quarter increased 8% year-over-year due to an increase in both average earning assets and net interest margin, while the 10% year-over-year increase in noninterest income most notably investment bankingwas driven by higher mortgage and mortgage production income. See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for a reconciliation of total adjusted revenue.
Total revenue declined $19 million sequentially due to lower noninterestcapital markets-related income, driven primarilypartially offset by a decline in capital marketsother noninterest income given record investment banking incomedue to gains from the sale of loans and leases in the secondprior year quarter. The sequential quarter coupled with increased market volatilityimprovement in the third quarter. Highertotal revenue was driven by a 1% increase in net interest income, partiallyas well as growth in mortgage and capital markets-related income, which offset these items, driven by an eight basis point increasethe effect of net asset-related gains recognized in the prior quarter.
Our net interest margin.margin declined three basis points sequentially, due largely to lower residential mortgage loan and security yields. The full effect of our second quarter of 2016 subordinated debt issuance, together with slightly higher deposit costs, also contributed to the sequential decline. Relative to the third quarter of 2015, net interest margin increased two basis points to 2.96%, reflecting higher benchmark interest rates in addition to a favorable mix shift within the loan portfolio, offset partially by higher funding costs. Assuming a static rate environment, we expect net interest margin to decline by approximately two to three basis points in the fourth quarter of 2016. We continue to carefully manage the duration of our balance sheet given the prolonged low interest rate environment, while also being cognizant of controlling interest rate risk. See additional discussion related to revenue, noninterest income, and net interest income and margin in the "Noninterest Income" and "Net Interest Income/Margin" sections of this MD&A. Also in this MD&A, see Table 13, "Net Interest Income Asset Sensitivity," for an analysis of potential changes in net interest income due to instantaneous moves in benchmark interest rates.
Noninterest expense was stable relativeincreased 5% sequentially, and 11% compared to the third quarter of 2014,2015. The sequential quarter increase was driven primarily by higher regulatory and declined $262 million, or 6%, compared to the first nine months of 2014, primarily due to $179 million of specific legacy mortgage-related operating losses recognized in the second quarter of 2014. Excluding these specific legacy mortgage-related losses, adjusted noninterest expense was down $83 million, or 2%, compared to the first nine months of 2014, primarily due to the decline in employee compensation expensecompliance-related costs, increased costs associated with the sale of RidgeWorth, as well as reductions in other expenses resulting from our ongoing efficiency efforts. Noninterest expense decreased $64 million, or 5%, sequentially due to both lower personnel expenses due to seasonality and alignment withimproved business performance, and reductionshigher net occupancy costs. The year-over-year increase was driven by the same factors impacting the prior quarter in legacyaddition to lower incentive-based compensation costs and discrete mortgage-related accrualsbenefits in the third quarter of 2015. Regulatory assessments expense increased as a result of the FDIC’s surcharge on large depository institutions, which became effective during the current quarter. This incremental surcharge is anticipated to be in effect for 10 quarters. We will continue to work diligently to improve our


execution and the effectiveness of our operations to improve our overall efficiency. See additional discussion related to noninterest expense in the "Noninterest Expense" section of this MD&A. Also see Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information regarding, and reconciliationsa reconciliation of, adjusted noninterest expense.
During the third quarter of 2016, our efficiency ratio increased to 63.1% compared to 61.4% in the prior year quarter. Our tangible efficiency ratio also increased during the current quarter to 62.5% compared to 61.0% in the third quarter of 2015, as expense growth outpaced revenue growth. For the three and nine months ended September 30, 2015,2016, our efficiency ratio improved to 61.4% and 63.2%, respectively, compared to 62.0% and 66.0% for the three and nine months ended September 30, 2014. Our tangible efficiency ratio alsoboth improved for the current quartermore than 100 basis points to 62.2% and first nine months of 2015 to 61.0% and 62.8%61.6%, respectively, compared to tangible efficiency ratios of 61.7%63.2% and 65.8%, and adjusted tangible efficiency ratios of 61.7% and 64.0%,62.8% for the same periodsperiod in 2014, respectively. Our year-over-year2015, respectively, driven by positive operating leverage. We remain focused on improving our efficiency ratio improvement puts us on track to achieveeach year with the objective of achieving our full year 2015 goal of being below 63%. Improvinglong-term efficiency remains a strategic priority and we are continuing to make progress towards our long-termratio goal of below 60%. See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information regarding, and reconciliationsa reconciliation of, our tangible and adjusted tangible efficiency ratios.ratio.
OurOverall asset quality performance continued to be very strongtrends remained relatively stable during the third quarter of 2015. Total NPAs were down 32% compared2016, reflecting solid economic conditions in our markets and businesses, as well as continued underwriting discipline. Our loan portfolio continued to December 31, 2014perform well, evidenced by stable delinquency and down 43% compared to September 30, 2014, driven largely by the current quarter sale of $92 million of nonperforming mortgage loans that were transferred to LHFS in the prior quarter. The annualizedNPL levels and a modest net charge-off ratio reached another multi-year low of 0.35% for the third quarter of 2016, compared to 0.39% for the prior quarter, and 0.21% for the third quarter of 2015, down five2015. Energy-related net charge-offs improved sequentially to $33 million during the current quarter, compared to $70 million in the prior quarter, which drove the four basis points and 18 basis pointspoint reduction in our net charge-off ratio compared to the second quarter of 2016. The ALLL to period-end LHFI ratio declined two basis points from the prior quarter and third quarter of 2014, respectively. This performance can be attributed todriven primarily by continued improvements in the
significant actions we have taken to de-risk, diversify, and improve the asset quality of ourthe residential loan portfolio. While weWe expect asset qualityour ALLL to period-end LHFI ratio to remain favorable overrelatively stable in the near-term, the current low levels of net charge-offs will eventually normalize as we do not believe the third quarter level is sustainable.
At September 30, 2015, the ALLL balance equaled 1.34% of total LHFI,medium-term, which should result in a decline of 12 basis points compared to December 31, 2014. The provision for loan losses decreased $70 million, or 75%, compared to the third quarter of 2014, and $168 million, or 61%, compared to the first nine months of 2014. The decline in the provision for loan losses compared to both periods was attributed to the continued improvement in overall asset quality and lowerthat modestly exceeds net charge-offs. We expect our fourth quarter provision expense to increase relative to the current quarter, but remain lower than the fourth quarter of 2014, given continued strength in asset quality. For 2016, we expect our provision for loan losses to more closely match 2016 net charge-offs, as the improvements in asset quality will likely abate. See additional discussion of our energy-related loan exposure, as well as our credit and asset quality, in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A.
Average performing loans duringincreased 1% sequentially, driven by growth across our consumer loan portfolios as well as by growth in nonguaranteed residential mortgages. Our consumer lending strategies continue to produce profitable growth through each of our major channels, while our overall lending pipelines remain healthy. We sold approximately $1 billion of indirect automobile loans in September 2016 as part of our overall balance sheet optimization strategy. Separately, we reclassified $1.1 billion of CRE loans to the commercial construction loan portfolio this quarter in accordance with a revised interpretation of regulatory classification requirements. Compared to the third quarter of 2015, were relatively stable compared to the prior quarter, increasing by $148 million to $132.4 billion. The slight increase was driven by moderate loan growth in residential mortgages and consumer direct loans, largely offset by the second quarter of 2015 transfer of $1.0 billion of consumer indirect auto loans to LHFS that were sold to third parties through a securitization. C&I loans were relatively stable compared to the prior quarter, as growth in a number of industry verticals and client segments was offset by further reductions in lower-return portfolios and loan paydowns as clients deployed liquidity to reduce debt. Consumer direct loans also increased given continued growth in our online origination channels. Compared to the prior year quarter, average performing loans grew $2.5 billion, or 2%7%, driven by 6%5% growth in the C&I portfolioloans, 20% growth in consumer loans, and consumer direct loan8% growth of $1.7 billion,in nonguaranteed residential mortgages, partially offset by paydownsa 10% decline in ourresidential home equity portfolio and reductions in indirect consumer loans, given the aforementioned auto loan securitization. Loan production trends and client activity levels remain healthy and weproducts. We remain focused on improvinggenerating targeted loan growth at accretive risk-adjusted returns and ensuring new business exceedswhile continuing to meet the financing needs of our cost of capital.clients. See
additional loan discussion in the “Loans,” “Nonperforming Assets,” and "Net Interest Income/Margin" sections of this MD&A.
Average quarterly consumer and commercial deposits increased 2%1% sequentially and 10% during the third quarter of 2015 compared to the prior quarter and third quarter of 2014, respectively,7% year-over-year, driven by strong and broad-based growth across most business segments.in lower cost deposits. Our success in growing deposits reflects our overall focus on meetingstrategic efforts to meet more clients’ deposit and payment needs supplementedand thereby improve profitability; this growth has been enabled by investments in our technology platforms and client-facing platforms. Also,bankers. Rates paid on our strong deposit growth has allowed us to significantly reducedeposits increased one basis point sequentially, driven by a slight mix shift between our higher-cost wholesale funding over the past six monthsWholesale Banking and has not resulted in an adverse change in rates paid or deposit mix, as lower-cost deposit growth continues to be strong and higher-cost depositsConsumer Banking clients. We continue to gradually decline. Some of these trends will normalize as interest rates rise; however, we will maintain a disciplined approach to pricing with a focus on maximizing ourthe value proposition, other than rates paid, for our clients. See additional discussion regarding average deposits in the "Net Interest Income/Margin" section of this MD&A.


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Capital and Liquidity
DuringOur regulatory capital position was relatively stable during the third quarter of 2015, we declared2016, with a quarterly common stock dividendCET1 ratio of $0.24 per common share, consistent with the second quarter and an increase of 20% per common share from the third quarter of last year. Additionally, during each of the second and third quarters of 2015, we repurchased $175 million of our outstanding common stock as part of the 2015 capital plan, bringing our total repurchases of common stock during the first nine months of 2015 to approximately $465 million. During October 2015, we repurchased an additional $175 million of our outstanding common stock as part of the 2015 capital plan. We currently expect to repurchase approximately $350 million of additional outstanding common stock and/or common stock warrants through the end of the second quarter of 2016. See additional details related to our capital actions in the “Capital Resources” section of this MD&A.
Our book value and tangible book value per common share9.78% at September 30, 2015 of $43.65 and $31.75, respectively, increased from the prior quarter due2016. Additionally, our CET1 ratio, on a fully phased-in basis, was estimated to growth in retained
earnings and an increase in AOCI. Compared tobe 9.66% at September 30, 2014,2016, which is well above the current regulatory requirement. Our book value and tangible book value per common share increased 7% and 9%, respectively, compared to December 31, 2015, due primarily to growth in retained earnings.
Our regulatoryearnings and a 3% decline in common shares outstanding. See additional details related to our capital position remained strong, with CET1 up approximately $240 million duringin Note 13, "Capital," to the quarter, resultingConsolidated Financial Statements in a CET1 ratio of 10.04% at September 30, 2015. Additionally, our estimated CET1 ratio at September 30, 2015 Annual Report on a fully phased-in basis, was 9.89%, which is well above the current regulatory requirement. SeeForm 10-K. Also see Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures"Measures," in this MD&A for a reconciliationadditional information regarding, and reconciliations of, our transitional CET1 ratio totangible book value per common share and our fully phased-in estimated CET1 ratio.
Separately,During the second quarter of 2016, we announced that the Federal Reserve had no objections to our LCR at September 30, 2015 continuedcapital plan submitted in conjunction with the 2016 CCAR. Accordingly, during the third quarter of 2016, we increased the quarterly common stock dividend to exceed$0.26 per share, which reflects an increase of 8% per common share from the January 1,prior quarter. We repurchased $240 million of our outstanding common stock during the third quarter of 2016 requirementin conjunction with the 2016 capital plan. During October 2016, we repurchased an additional $240 million of 90%.our outstanding common stock as part of the 2016 capital plan, and we expect to repurchase approximately $480 million of additional outstanding common stock in relatively even quarterly increments through the end of the second quarter of 2017. See additional discussion ofdetails related to our capital actions and liquidity positionshare repurchases in the "Capital Resources" and "Liquidity Risk Management" sections“Capital Resources” section of this MD&A.&A and in Part II, Item 2 of this Form 10-Q.
In October 2016, we announced that we signed a definitive agreement to acquire substantially all of the assets of the operating subsidiaries of Pillar Financial, LLC. Pillar is a multi-family agency lending and servicing company with an originate-to-distribute focus that holds licenses with Fannie Mae, Freddie Mac, and the FHA. We expect that this acquisition will expand our capabilities within the commercial real estate business, while also being accretive to our return profile. The acquisition of Pillar is expected to close in late 2016 or early 2017.


Business Segments Highlights
Consumer Banking and Private Wealth Management
Consumer Banking and Private Wealth Management net income increased $14 million sequentially as a result of higher revenue and lower credit costs, but was $21 million lower compared to the third quarter of 2015 as higher noninterest expense and provision for loan losses offset a 3% increase in revenue. Net interest income for the current quarter was up 2% sequentially and 5% compared to the prior year, driven by strong loan and deposit growth. More specifically, our investments in direct consumer lending continue to yield positive results. Average quarterly consumer loans were up 20% year-over-year as our product offerings and strong client experience drove continued to demonstrate steady growth this quarter. Netmarket share gains. Noninterest income was up 7%6% sequentially as a result of discrete items in the current quarter and prior quarter, in addition to seasonally higher trust and investment management fees. Quarterly retail investment income decreased sequentially and year-over-year, as reduced transaction-related activity was partially offset by growth in retail brokerage managed assets. Overall asset quality remained strong with delinquencies and net charge-offs near historically low levels. The sequential decline in the provision for loan losses was primarily due to improvements in the residential home equity portfolio. Noninterest expense increased 4% sequentially and 8% compared to the prior year quarter, generally driven primarily by higher net interest incomeFDIC and a lower provision expense. Core operating performance was also solid, as total revenue improved compared to both the prior quarterregulatory costs, higher occupancy costs, and prior year quarter, respectively.
Net interest income continued to steadily improve, due to both our balance sheet optimization efforts, aimed at improving returns,certain discrete costs and our deposit growth momentum. Average loans were stable sequentially, as growth in higher return portfolios, including consumer direct and credit card, offset the impact of the $1.0 billion auto loan securitization in the prior quarter and continued paydowns of home equity balances.
Average deposits were up 6% over the prior year quarter, with growth driven by the continued execution of our strategy of deepening client relationships, particularly with our wealth management clients, where investments in talent and technology has enabled this growth.
Noninterest income was down marginally compared to both the prior quarter and prior year quarter. Service charges remain pressured as client behavior continues to change. Wealth management-related income declined modestly this quarter given market conditions, which resulted in lower assets under management and reduced transactional activity. Irrespective of short-term market fluctuations, meeting more of our clients’ wealth and investment needs continues to be a strategic priority.
Expenses were flat compared to the prior quarter and prior year quarter, as we maintained a disciplined approach to expense management, while making investments in client-facing talent and technology. We continue to generate solid returns from our digital investments, with continued and steady increases in mobile penetration, digital sales, and self-service deposits, with the latter representing approximately 26% of total deposits received in the third quarter.
Overall, the steady progress we have made in optimizing the balance sheet, meeting more client needs, and investing in technology has helped offset the negative impact of the prolonged low interest rate environment and we are well-positioned to meet the growing needs of each of our client segments.investments.

Wholesale Banking
Wholesale Banking has been a key growth engine for us with another solid quarter despite challenging market conditions. Total revenue was down 6% relative to the prior quarter, but increased 12% compared to the prior year quarter. The sequential quarter decline resulted from lower investment banking related income, primarily due to the record revenue generated in the second quarter. Nonetheless, investment banking income reached its third highest quarter ever and was up 31% compared to the third quarter of 2014. Mergers and acquisitions, investment grade originations, and equity sales and trading all had a strong quarter, each a reflection of the strategic investments we have madein part due to expand and diversify our capabilities. Strength in these product areas helped to mitigate declines in high yield and equity originationsstrong market conditions, but also as a result of elevated market volatility during the quarter.
Trading income was lower this quarter as client investment activity slowedcontinued strategic momentum we have had with our clients. Quarterly revenue increased 4% both sequentially and year-over-year, primarily due to volatile market conditions,strong deal flow activity across most product categories as we continue to expand and increased credit spreads resulteddeepen client relationships. The growth was due, in lower marks on our inventory.
large part, to strength in syndicated finance and mergers and acquisitions advisory services. Net interest income was up 6% compared to the prior year quarter, driven by strong loan and deposit growth; however,2% sequentially as a declineresult of modest increases in loan spreads partially offset thisand continued deposit growth.
Average loans declined slightly Quarterly net income was up sequentially and increased 6% over the prior year quarter. We continue to generate solid growth across a number of industry verticals and lines of business; however, this has been offset by elevated payoffs and targeted reductions in lower-return areas. Though the overall lending environment remains competitive, we have recently observed greater stability in portfolio and production yields. Production and pipeline trends are healthy and we remain


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focused on generating profitable growth, both for our Company and our clients.
Average deposits were up 5% sequentially and 18% over the prior year quarter, with broad-based growth across all major lines of business. This strong performance reflects enhancements in our product offerings, the success of our liquidity specialists, and increased intensity in meeting more of our clients’ deposit needs.
Our provision for credit losses grew relative to the prior quarter and prior year quarter, as we continued to increase the energy portfolio reserve, given the decline in oil prices during the quarter. Our exposure to the exploration & production and oil field services sectors, which are most severely impacted by the decline in oil prices, continues to represent only 1% of our total loan portfolio. Additionally, our overall asset quality continues to be strong.
Noninterest expense was up 6% compared to the prior year quarter,down year-over-year, largely due to the continued strategic investmentsvariance in CIB that yielded improvedthe provision for loan losses, which
decreased sequentially as a result of the decline in energy-related net charge-offs, but increased on a year-over-year basis, also driven by energy. Overall, we believe our Wholesale Banking business performance; though importantly, ouris highly differentiated and will continue to deliver profitable growth. Additionally, the acquisition of Pillar is expected to contribute roughly $90 million to Wholesale Banking’s annual revenue beginning in 2017. Pillar’s efficiency ratio is approximately 80-85%, and while this would be dilutive to the overall efficiency ratio, also improved relativewe expect the acquisition of Pillar will be accretive to the same period.our capabilities, ROA, ROE, and net income.

Mortgage Banking
Mortgage Banking hadwas a solid quarter, with net income of $105 million, which was aided by approximately $50 million (after-tax) of discrete benefits relatedkey contributor to the resolution of specific tax matters and the progression of legacy mortgage-related matters. Continued expense discipline and further de-risking of the loan portfolio, combined with a larger servicing portfolio and an improving purchase market, helped to mitigate the anticipated decline in refinance volumes.
Totalour overall performance this quarter. Quarterly revenue was relatively stableup 1% sequentially and 20% year-over-year, driven by higher noninterest income. Production income increased $7 million sequentially as a result of higher servicing income and a $10 million gain on the sale of nonperforming loans offset the decline inloan production income. Our servicing portfolio is up 12% compared to September 30,
2014, due largely to portfolio acquisitions, as we view our servicing capabilities as a core competency with solid returns.
volume. Compared to the prior year quarter, the decline in revenue was primarilymortgage production income increased $60 million, driven by a $41 millionhigher volume and higher gain on sale margins. Servicing income for the quarter decreased sequentially as a result of loansanticipated increases in decay expense, but increased $9 million compared to the prior year as a result of improved net hedge performance and portfolio acquisitions. The UPB of our servicing portfolio grew 3% since September 30, 2015, and we purchased an additional $2.8 billion in the third quarter of 2014. Excluding that gain, revenue was relatively stable, as higher noninterest income was generally offset by lower net interest income, due2016, which is scheduled to a decline in loan spreads and the 2014 loan sale. Mortgage production income increased 29%, largely due to increased purchase activity in our markets, as consumer confidence continued to steadily rise and the housing market recovers. Total applications and purchase applications were up 20% and 15%, respectively, compared to the prior year quarter, driven primarily by lower rates and the continued recoverytransfer in the housing market.
Asset quality improved this quarter, as net charge-offs and nonperforming loans continue to be on a downward trajectory, resulting in further declines in the residential mortgage-related allowance. Given the quality of new production, combined with stable to improving housing markets, we would expect overall asset quality to continue to trend favorably, though not necessarily at the level or pace of recent quarters.
Expenses were lower both sequentially and compared to the prior year quarter, due primarily to discrete benefits infourth quarter. Net income for the current quarter relatedwas down $12 million sequentially and $54 million year-over-year. The sequential decrease was driven by higher noninterest expense, while the year-over-year decrease was due to legacy matters. Excluding these items, expenses were still well controlled, as cost saving efforts and reduced credit-related expenses have generally offset growthapproximately $50 million in production-related costs and investmentsafter-tax discrete benefits recognized in technology.the third quarter of 2015. While we do not expect fourth quarter of 2016 mortgage production income to match the current quarter level, we expect it to improve relative to the fourth quarter of 2015.
Additional information related to our business segments can be found in Note 16, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q, and further discussion of our business segment results for the third quarter of 20152016 and 20142015 can be found in the "Business Segment Results" section of this MD&A.



69

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures   Table 1
(Dollars in millions and shares in thousands, except per share data)     
Three Months Ended September 30 Nine Months Ended September 30
Selected Financial Data2015 2014 2015 2014
Summary of Operations:       
Interest income
$1,333
 
$1,353
 
$3,902
 
$4,036
Interest expense122
 138
 384
 407
Net interest income1,211
 1,215
 3,518
 3,629
Provision for credit losses32
 93
 114
 268
Net interest income after provision for credit losses1,179
 1,122
 3,404
 3,361
Noninterest income811
 780
 2,503
 2,528
Noninterest expense1,264
 1,259
 3,872
 4,134
Income before provision for income taxes726
 643
 2,035
 1,755
Provision for income taxes187
 67
 579
 364
Net income attributable to noncontrolling interest2
 —
 7
 11
Net income
$537
 
$576
 
$1,449
 
$1,380
Net income available to common shareholders
$519
 
$563
 
$1,396
 
$1,343
Adjusted net income available to common shareholders 1

$519
 
$433
 
$1,396
 
$1,262
Net interest income - FTE 2

$1,247
 
$1,251
 
$3,625
 
$3,734
Total revenue - FTE 2
2,058
 2,031
 6,128
 6,262
Total adjusted revenue - FTE 1, 2
2,058
 2,031
 6,128
 6,157
Net income per average common share:       
Diluted1.00
 1.06
 2.67
 2.51
Adjusted diluted 1
1.00
 0.81
 2.67
 2.35
Basic1.01
 1.07
 2.70
 2.54
Dividends paid per average common share0.24
 0.20
 0.68
 0.50
Book value per common share    43.65
 40.85
Tangible book value per common share 3
    31.75
 29.21
Market capitalization    19,659
 20,055
Selected Average Balances:       
Total assets
$188,341
 
$183,433
 
$188,635
 
$180,098
Earning assets168,334
 163,688
 168,325
 160,491
Loans132,837
 130,747
 133,000
 130,010
Consumer and commercial deposits145,226
 132,195
 142,869
 130,369
Brokered time and foreign deposits1,010
 1,624
 1,125
 1,841
Intangible assets including MSRs7,711
 7,615
 7,596
 7,632
MSRs1,352
 1,262
 1,243
 1,249
Preferred stock1,225
 725
 1,225
 725
Total shareholders’ equity23,384
 22,191
 23,266
 21,972
Average common shares - diluted518,677
 533,230
 522,634
 535,222
Average common shares - basic513,010
 527,402
 516,970
 529,429
Financial Ratios (Annualized):       
ROA1.13% 1.25% 1.03% 1.02%
ROE9.30
 10.41
 8.47
 8.45
ROTCE 4
12.84
 14.59
 11.73
 11.92
Net interest margin - FTE 2
2.94
 3.03
 2.88
 3.11
Efficiency ratio 5
61.44
 62.03
 63.19
 66.01
Tangible efficiency ratio 6
60.99
 61.69
 62.82
 65.79
Adjusted tangible efficiency ratio 1, 6
60.99
 61.69
 62.82
 64.00
Total average shareholders’ equity to total average assets12.42
 12.10
 12.33
 12.20
Tangible equity to tangible assets 7
    9.71
 8.94
Capital Ratios at period end 8:
       
CET1    10.04% N/A
CET1 - fully phased-in    9.89
 N/A
Tier 1 capital    10.90
 N/A
Total capital    12.72
 N/A
Leverage    9.68
 N/A


70


Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
(Dollars in millions, except per share data)   
Three Months Ended September 30 Nine Months Ended September 30
Reconcilement of Non-U.S. GAAP Measures2015 2014 2015 2014
Efficiency ratio 5
61.44 % 62.03 % 63.19 % 66.01 %
Impact of excluding amortization(0.45) (0.34) (0.37) (0.22)
Tangible efficiency ratio 6
60.99
 61.69
 62.82
 65.79
Impact of excluding Form 8-K and other legacy mortgage-related items—
 —
 —
 (1.79)
Adjusted tangible efficiency ratio 1, 6
60.99 % 61.69 % 62.82 % 64.00 %
        
ROE9.30 % 10.41 % 8.47 % 8.45 %
Impact of removing average intangible assets (net of deferred taxes), excluding MSRs, from average common shareholders' equity3.54
 4.18
 3.26
 3.47
ROTCE 4
12.84% 14.59% 11.73% 11.92%
        
Net interest income
$1,211
 
$1,215
 
$3,518
 
$3,629
Taxable-equivalent adjustment36
 36
 107
 105
Net interest income - FTE 2
1,247
 1,251
 3,625
 3,734
Noninterest income811
 780
 2,503
 2,528
Total revenue - FTE 2
2,058
 2,031
 6,128
 6,262
Impact of excluding Form 8-K items—
 —
 —
 (105)
Total adjusted revenue - FTE 1, 2

$2,058
 
$2,031
 
$6,128
 
$6,157
Noninterest income
$811
 
$780
 
$2,503
 
$2,528
Impact of excluding Form 8-K items—
 —
 —
 (105)
Adjusted noninterest income 1

$811
 
$780
 
$2,503
 
$2,423
        
       
(Dollars in millions, except per share data)September 30, 2015 September 30, 2014    
Total shareholders’ equity
$23,664
 
$22,269
    
Goodwill, net of deferred taxes 9
(6,100) (6,127)    
Other intangible assets, net of deferred taxes, and MSRs 10
(1,279) (1,320)    
MSRs1,262
 1,305
    
Tangible equity17,547
 16,127
    
Preferred stock(1,225) (725)    
Tangible common equity
$16,322
 
$15,402
    
        
Total assets
$187,036
 
$186,818
    
Goodwill(6,337) (6,337)    
Other intangible assets including MSRs(1,282) (1,320)    
MSRs1,262
 1,305
    
Tangible assets
$180,679
 
$180,466
    
Tangible equity to tangible assets 7
9.71 % 8.94 %    
Tangible book value per common share 3

$31.75
 
$29.21
    
        
Total LHFI
$133,560
 
$132,151
    
Government-guaranteed LHFI(5,215) (5,965)    
LHFI at fair value(262) (284)    
Total LHFI, excluding government-guaranteed and fair value loans
$128,083
 
$125,902
    
ALLL to total LHFI, excluding government-guaranteed and fair value loans 11
1.39 % 1.56 %    
Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures   Table 1
(Dollars in millions and shares in thousands, except per share data)     
Three Months Ended September 30 Nine Months Ended September 30
Selected Financial Data2016 2015 2016 2015
Summary of Operations:       
Interest income
$1,451
 
$1,333
 
$4,285
 
$3,902
Interest expense143
 122
 408
 384
Net interest income1,308
 1,211
 3,877
 3,518
Provision for credit losses97
 32
 343
 114
Net interest income after provision for credit losses1,211
 1,179
 3,534
 3,404
Noninterest income889
 811
 2,569
 2,503
Noninterest expense1,409
 1,264
 4,072
 3,872
Income before provision for income taxes691
 726
 2,031
 2,035
Provision for income taxes215
 187
 611
 579
Net income attributable to noncontrolling interest2
 2
 7
 7
Net income
$474
 
$537
 
$1,413
 
$1,449
Net income available to common shareholders
$457
 
$519
 
$1,363
 
$1,396
Net interest income-FTE 1

$1,342
 
$1,247
 
$3,982
 
$3,625
Total revenue2,197
 2,022
 6,446
 6,021
Total revenue-FTE 1
2,231
 2,058
 6,551
 6,128
Net income per average common share:       
Diluted
$0.91
 
$1.00
 
$2.70
 
$2.67
Basic0.92
 1.01
 2.72
 2.70
Dividends paid per average common share0.26
 0.24
 0.74
 0.68
Book value per common share 2
    46.63
 43.44
Tangible book value per common share 2, 3
    34.34
 31.56
Market capitalization    21,722
 19,659
Selected Average Balances:       
Total assets
$201,476
 
$188,341
 
$197,613
 
$188,635
Earning assets180,523
 168,334
 177,600
 168,325
Loans142,257
 132,837
 140,628
 133,000
Consumer and commercial deposits155,313
 145,226
 152,911
 142,869
Intangible assets including MSRs7,415
 7,711
 7,509
 7,596
MSRs1,065
 1,352
 1,157
 1,243
Preferred stock1,225
 1,225
 1,225
 1,225
Total shareholders’ equity24,410
 23,384
 24,076
 23,266
Average common shares - diluted500,885
 518,677
 505,619
 522,634
Average common shares - basic496,304
 513,010
 501,036
 516,970
Financial Ratios (Annualized):       
ROA0.94% 1.13% 0.96% 1.03%
ROE 2
7.89
 9.34
 8.01
 8.51
ROTCE 2, 4
10.73
 12.95
 10.95
 11.84
Net interest margin2.88
 2.86
 2.92
 2.79
Net interest margin-FTE 1
2.96
 2.94
 2.99
 2.88
Efficiency ratio 5
64.13
 62.51
 63.17
 64.31
Efficiency ratio-FTE 1, 5
63.14
 61.44
 62.16
 63.19
Tangible efficiency ratio-FTE 1, 5, 6
62.54
 60.99
 61.63
 62.82
Total average shareholders’ equity to total average assets12.12
 12.42
 12.18
 12.33
Tangible common equity to tangible assets 7
    8.57
 8.98
Capital Ratios at period end 8:
       
CET1    9.78% 10.04%
CET1 - fully phased-in    9.66
 9.89
Tier 1 capital    10.50
 10.90
Total capital    12.57
 12.72
Leverage    9.28
 9.68


71


Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
            
(Dollars in millions, except per share data)Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014
Reconcilement of Non-U.S. GAAP Measures (continued)As Reported Adjustments 
As Adjusted 1
 As Reported Adjustments 
As Adjusted 1
Net interest income
$1,215
 
$—
 
$1,215
 
$3,629
 
$—
 
$3,629
Provision for credit losses93
 —
 93
 268
 —
 268
Net interest income after provision for credit losses1,122
 —
 1,122
 3,361
 —
 3,361
Noninterest Income           
Service charges on deposit accounts169
 —
 169
 483
 —
 483
Other charges and fees95
 —
 95
 274
 —
 274
Card fees81
 —
 81
 239
 —
 239
Investment banking income88
 —
 88
 296
 —
 296
Trading income46
 —
 46
 141
 —
 141
Trust and investment management income93
 —
 93
 339
 —
 339
Retail investment services76
 —
 76
 224
 —
 224
Mortgage production related income45
 —
 45
 140
 —
 140
Mortgage servicing related income44
 —
 44
 143
 —
 143
Gain on sale of subsidiary—
 —
 —
 105
 (105)
12 
—
Net securities (losses)/gains
(9) —
 (9) (11) —
 (11)
Other noninterest income52
 —
 52
 155
 —
 155
Total noninterest income780
 —
 780
 2,528
 (105) 2,423
Noninterest Expense           
Employee compensation649
 —
 649
 1,967
 —
 1,967
Employee benefits81
 —
 81
 326
 —
 326
Outside processing and software184
 —
 184
 535
 —
 535
Net occupancy expense84
 —
 84
 254
 —
 254
Equipment expense41
 —
 41
 127
 —
 127
Regulatory assessments29
 —
 29
 109
 —
 109
Marketing and customer development35
 —
 35
 91
 —
 91
Credit and collection services21
 —
 21
 67
 —
 67
Consulting and legal fees16
 —
 16
 43
 —
 43
Operating losses29
 —
 29
 268
 (179)
13 
89
Amortization7
 —
 7
 14
 —
 14
Other noninterest expense83
 —
 83
 333
 —
 333
Total noninterest expense1,259
 —
 1,259
 4,134
 (179) 3,955
Income before provision for income taxes643
 —
 643
 1,755
 74
 1,829
Provision for income taxes67
 130
14 
197
 364
 155
14, 15 
519
Income including income attributable to noncontrolling interest576
 (130) 446
 1,391
 (81) 1,310
Net income attributable to noncontrolling interest—
 —
 —
 11
 —
 11
Net income
$576
 
($130) 
$446
 
$1,380
 
($81) 
$1,299
Net income available to common shareholders
$563
 
($130) 
$433
 
$1,343
 
($81) 
$1,262
Net income per average common share - diluted
$1.06
 
($0.25) 
$0.81
 
$2.51
 
($0.16) 
$2.35
Total revenue - FTE 2

$2,031
 
$—
 
$2,031
 
$6,262
 
($105) 
$6,157
Efficiency ratio 5
62.03%   62.03% 66.01%   64.23%
Tangible efficiency ratio 6
61.69
   61.69
 65.79
   64.00
Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
    
(Dollars in millions, except per share data)Three Months Ended September 30 Nine Months Ended September 30
Reconcilement of Non-U.S. GAAP Measures2016 2015 2016 2015
Net interest margin2.88 % 2.86 % 2.92 % 2.79 %
Impact of FTE adjustment0.08
 0.08
 0.07
 0.09
Net interest margin-FTE 1
2.96 % 2.94 % 2.99 % 2.88 %
        
Efficiency ratio 5
64.13 % 62.51 % 63.17 % 64.31 %
Impact of FTE adjustment(0.99) (1.07) (1.01) (1.12)
Efficiency ratio-FTE 1, 5
63.14
 61.44
 62.16
 63.19
Impact of excluding amortization(0.60) (0.45) (0.53) (0.37)
Tangible efficiency ratio-FTE 1, 5, 6
62.54 % 60.99 % 61.63 % 62.82 %
        
ROE 2
7.89 % 9.34 % 8.01 % 8.51 %
Impact of removing average intangible assets (net of deferred taxes), other than MSRs and other servicing rights, from average common shareholders' equity2.84
 3.61
 2.94
 3.33
ROTCE 2, 4
10.73% 12.95% 10.95% 11.84%
        
Net interest income
$1,308
 
$1,211
 
$3,877
 
$3,518
Fully taxable-equivalent adjustment34
 36
 105
 107
Net interest income-FTE 1
1,342
 1,247
 3,982
 3,625
Noninterest income889
 811
 2,569
 2,503
Total revenue-FTE 1

$2,231
 
$2,058
 
$6,551
 
$6,128
        
        
(Dollars in millions, except per share data)    September 30, 2016 September 30, 2015
        
Total shareholders’ equity    
$24,449
 
$23,664
Goodwill, net of deferred taxes 9
    (6,089) (6,100)
Other intangible assets (including MSRs and other servicing rights), net of deferred taxes 10
 (1,129) (1,279)
MSRs and other servicing rights    1,124
 1,272
Tangible equity    18,355
 17,557
Noncontrolling interest    (101) (106)
Preferred stock    (1,225) (1,225)
Tangible common equity 2
    
$17,029
 
$16,226
        
Total assets    
$205,091
 
$187,036
Goodwill    (6,337) (6,337)
Other intangible assets, including MSRs and other servicing rights   (1,131) (1,282)
MSRs and other servicing rights    1,124
 1,272
Tangible assets    
$198,747
 
$180,689
Tangible common equity to tangible assets 7
    8.57 % 8.98 %
Tangible book value per common share 2, 3
    
$34.34
 
$31.56


A corresponding table for the three and nine months ended September 30, 2015 is not presented as there were no disclosures of material information in this Form 10-Q that included a non-U.S.GAAP financial measure for the current periods.

72


Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
Reconciliation of CET1 Ratio8
September 30, 2015
CET110.04 %
Less:
MSRs(0.12)
Other 16
(0.03)
CET1 - fully phased-in9.89 %
Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)  
    
Reconciliation of CET1 Ratio 8
September 30, 2016 September 30, 2015
CET19.78 % 10.04 %
Less:   
MSRs(0.10) (0.12)
Other 11
(0.02) (0.03)
CET1 - fully phased-in9.66 % 9.89 %
    
    
(Dollars in millions)   
Reconciliation of Pre-Provision Net Revenue ("PPNR") 12
Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
Income before provision for income taxes
$691
 
$2,031
Provision for credit losses97
 343
Less:   
Net securities gains—
 4
PPNR
$788
 
$2,370

1 We present certain income statement categoriesnet interest margin-FTE, net interest income-FTE, total revenue-FTE, efficiency ratio-FTE, and also total adjusted revenue - FTE, adjusted net income per average common diluted share, adjusted net income, adjusted net income available to common shareholders, an adjusted efficiency ratio, and an adjusted tangible efficiency ratio, excluding Form 8-K and other legacy mortgage-related items. We believe these measures are useful to investors because it removes the effect of material items impacting the periods' results and is more reflective of normalized operations as it reflects results that are primarily client relationship and client transaction driven. Removing these items also allows investors to compare our results to other companies in the industry that may not have had similar items impacting their results. Additional detailratio-FTE on certain of these items can be found in the Form 8-Ks filed with the SEC on September 9, 2014 and July 3, 2014.
2 We present net interest income, total revenue, total adjusted revenue, and net interest margin on an FTEa fully taxable-equivalent ("FTE") basis. Total revenue is calculated as net interest income - FTE plus noninterest income. The FTE adjustmentbasis adjusts for the tax-favored status of net interest income from certain loans and investments.investments using a federal tax rate of 35% and state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe this measure to bethe FTE basis is the preferred industry measurement of net interest incomebasis for these measures and that it enhances comparability of net interest income arising from taxable and tax-exempt sources.
2 Beginning January 1, 2016, noncontrolling interest was removed from common shareholders' equity in these calculations to provide more accurate measures of our return on common shareholders' equity and book value per common share. Prior period amounts have been updated for consistent presentation.
3 We present a tangible book value per common share, that excludeswhich removes the after-tax impact of purchase accounting intangible assets, noncontrolling interest, and also excludes preferred stock from tangibleshareholders' equity. We believe this measure is useful to investors because, by removing the effectamount of intangible assets that result from merger and acquisition activity, as well asand removing the amounts of noncontrolling interest and preferred stock that do not represent our common shareholders' equity, it allows investors to more easily compare our capital position to other companies in the industry.
4 We present ROTCE, which removes the after-tax impact of purchase accounting intangible assets from average common shareholders' equity and removes the related intangible asset amortization from net income available to common shareholders. We believe this measure is useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity and related amortization expense (the level of which may vary from company to company), it allows investors to more easily compare our common stock book value to other companies in the industry.
4 We present ROTCE to exclude intangible assets (net of deferred taxes), except for MSRs, from average common shareholders' equity. We believe this measure is useful to investors because, by removing the effect of intangible assets, except for MSRs, (the level of which may vary from company to company), it allows investors to more easily compare our ROE to other companies in the industry who present a similar measure. We also believe that removing intangible assets (net of deferred taxes), except for MSRs, isthese items provides a more relevant measure of theour return on our common shareholders' equity. This measure is utilized by management to assess our profitability.
5 ComputedEfficiency ratio is computed by dividing noninterest expense by total revenue - FTE. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. We believe this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.revenue. Efficiency ratio-FTE is computed by dividing noninterest expense by total revenue-FTE.
6 We present a tangible efficiency ratioratio-FTE, which excludes amortization.amortization related to intangible assets and certain tax credits. We believe this measure is useful to investors because, by removing the impact of amortization (the level of which may vary from company to company), it allows investors to more easily compare our efficiency to other companies in the industry. This measure is utilized by usmanagement to assess our efficiency and that of our lines of business.
7 We present certain capital information on a tangible basis, including tangible equity, tangible common equity, and the ratio of tangible common equity to tangible assets, ratio that excludeswhich removes the after-tax impact of purchase accounting intangible assets. We believe this measure isthese measures are useful to investors because, by removing the effectamount of intangible assets that result from merger and acquisition activity (the level of which may vary from company to company), it allows investors to more easily compare our capital adequacyposition to other companies in the industry. This measure is usedThese measures are utilized by usmanagement to analyze capital adequacy.
8 TheBasel III Final RuleRules became effective for us on January 1, 2015; thus, Basel III capital ratios are not applicable ("N/A") in periods ending prior to January 1, 2015. The CET1 ratio on a fully phased-in basis is estimated at September 30, 2015.2016 is estimated and is presented to provide investors with an indication of our capital adequacy under the future CET1 requirements, which will apply to us beginning on January 1, 2018.
9 Net of deferred taxes of $237$248 million and $210$237 million at September 30, 20152016 and 2014,2015, respectively.
10Net of deferred taxes of $4$2 million and $0$4 million at September 30, 20152016 and 2014,2015, respectively.
11We present a ratio of allowance to total LHFI, excluding government-guaranteed and fair value LHFI. We believe that this presentation more appropriately reflects the relationship between the ALLL and loans subject to an allowance. No allowance is recorded for loans held at fair value or loans guaranteed by a government agency for which we assume nominal risk of principal loss.
12Reflects the pre-tax gain on sale of asset management subsidiary that impacts the Corporate Other segment.
13Reflects the pre-tax impact from the settlement of the mortgage modification investigation and other legacy mortgage-related items that impact the Mortgage Banking segment.
14Includes a $130 million income tax benefit related to the completion of a tax authority examination in the third quarter of 2014 that impacts the Corporate Other segment. Additional detail on this item can be found in Form 8-K filed with the SEC on September 9, 2014.
15Includes the income tax impact on above items.
16Primarily includes the phase-outdeduction from capital of certain carryforward DTAs, the overfunded pension asset, and other intangible assets.
12 We present the reconciliation of PPNR because it is a performance metric utilized by management and in certain of our compensation plans. PPNR impacts the level of awards if certain thresholds are met. We believe this measure is useful to investors because it allows investors to compare our PPNR to other companies in the industry who present a similar measure.


73

Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates PaidConsolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 2 Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 2 
Three Months Ended  Three Months Ended  
September 30, 2015 September 30, 2014 Increase/(Decrease)September 30, 2016 September 30, 2015 Increase/(Decrease)
(Dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
ASSETS                              
Loans held for investment: 1
                              
C&I - FTE 2

$65,269
 
$534
 3.25% 
$61,700
 
$548
 3.53% 
$3,569
 (0.28)
C&I
$68,242
 
$536
 3.13% 
$65,269
 
$499
 3.04% 
$2,973
 0.09
CRE6,024
 43
 2.85
 6,386
 46
 2.86
 (362) (0.01)5,975
 44
 2.92
 6,024
 43
 2.85
 (49) 0.07
Commercial construction1,609
 13
 3.12
 1,162
 9
 3.21
 447
 (0.09)2,909
 24
 3.28
 1,609
 13
 3.12
 1,300
 0.16
Residential mortgages - guaranteed630
 5
 3.14
 635
 6
 3.64
 (5) (0.50)540
 5
 3.34
 630
 5
 3.14
 (90) 0.20
Residential mortgages - nonguaranteed24,109
 232
 3.85
 23,722
 236
 3.99
 387
 (0.14)26,022
 243
 3.74
 24,109
 232
 3.85
 1,913
 (0.11)
Residential home equity products13,381
 126
 3.72
 14,260
 129
 3.58
 (879) 0.14
12,075
 119
 3.93
 13,381
 126
 3.72
 (1,306) 0.21
Residential construction379
 5
 4.68
 445
 6
 5.27
 (66) (0.59)379
 4
 4.47
 379
 5
 4.68
 —
 (0.21)
Consumer student - guaranteed4,494
 43
 3.83
 5,360
 49
 3.66
 (866) 0.17
5,705
 58
 4.03
 4,494
 43
 3.83
 1,211
 0.20
Consumer other direct5,550
 61
 4.33
 3,876
 41
 4.20
 1,674
 0.13
7,090
 81
 4.56
 5,550
 61
 4.33
 1,540
 0.23
Consumer indirect9,968
 83
 3.29
 11,556
 92
 3.15
 (1,588) 0.14
11,161
 96
 3.41
 9,968
 83
 3.29
 1,193
 0.12
Consumer credit cards965
 24
 10.14
 788
 19
 9.74
 177
 0.40
1,224
 31
 10.12
 965
 24
 10.14
 259
 (0.02)
Nonaccrual 3
459
 5
 4.49
 857
 5
 2.16
 (398) 2.33
Total LHFI - FTE 2
132,837
 1,174
 3.51
 130,747
 1,186
 3.60
 2,090
 (0.09)
Nonaccrual 2
935
 4
 1.70
 459
 5
 4.49
 476
 (2.79)
Total LHFI142,257
 1,245
 3.48
 132,837
 1,139
 3.40
 9,420
 0.08
Securities AFS:                              
Taxable26,621
 151
 2.27
 24,195
 151
 2.49
 2,426
 (0.22)28,460
 157
 2.21
 26,621
 151
 2.27
 1,839
 (0.06)
Tax-exempt - FTE 2
170
 3
 5.21
 235
 3
 5.24
 (65) (0.03)
Total securities AFS - FTE 2
26,791
 154
 2.29
 24,430
 154
 2.52
 2,361
 (0.23)
Tax-exempt181
 2
 —
 170
 2
 —
 11
 —
Total securities AFS28,641
 159
 2.22
 26,791
 153
 2.28
 1,850
 (0.06)
Fed funds sold and securities borrowed or purchased
under agreements to resell
1,100
 —
 0.03
 1,036
 —
 —
 64
 0.03
1,171
 —
 0.11
 1,100
 —
 0.03
 71
 0.08
LHFS - FTE 2
2,288
 20
 3.60
 3,367
 30
 3.53
 (1,079) 0.07
Interest-bearing deposits22
 —
 0.14
 53
 —
 0.05
 (31) 0.09
LHFS2,867
 25
 3.47
 2,288
 20
 3.60
 579
 (0.13)
Interest-bearing deposits in other banks24
 —
 0.38
 22
 —
 0.14
 2
 0.24
Interest earning trading assets5,296
 21
 1.57
 4,055
 19
 1.85
 1,241
 (0.28)5,563
 22
 1.57
 5,296
 21
 1.57
 267
 —
Total earning assets - FTE 2
168,334
 1,369
 3.23
 163,688
 1,389
 3.37
 4,646
 (0.14)
Total earning assets180,523
 1,451
 3.20
 168,334
 1,333
 3.14
 12,189
 0.06
ALLL(1,804)     (1,988)     184
  (1,756)     (1,804)     48
  
Cash and due from banks5,729
     5,573
     156
  5,442
     5,729
     (287)  
Other assets14,522
     14,613
     (91)  14,822
     14,522
     300
  
Noninterest earning trading assets and derivative instruments1,165
     1,215
     (50)  1,538
     1,165
     373
  
Unrealized gains on securities available for sale, net395
     332
     63
  907
     395
     512
  
Total assets
$188,341
     
$183,433
     
$4,908
  
$201,476
     
$188,341
     
$13,135
  
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Interest-bearing deposits:                              
NOW accounts
$35,784
 
$8
 0.09% 
$28,224
 
$5
 0.07% 
$7,560
 0.02

$41,160
 
$15
 0.14% 
$35,784
 
$8
 0.09% 
$5,376
 0.05
Money market accounts51,064
 21
 0.16
 45,562
 17
 0.15
 5,502
 0.01
54,500
 29
 0.21
 51,064
 21
 0.16
 3,436
 0.05
Savings6,203
 —
 0.03
 6,098
 1
 0.03
 105
 —
6,304
 —
 0.03
 6,203
 —
 0.03
 101
 —
Consumer time6,286
 12
 0.75
 7,186
 14
 0.75
 (900) —
5,726
 10
 0.69
 6,286
 12
 0.75
 (560) (0.06)
Other time3,738
 10
 1.01
 4,182
 10
 0.99
 (444) 0.02
3,981
 10
 0.97
 3,738
 10
 1.01
 243
 (0.04)
Total interest-bearing consumer and commercial deposits103,075
 51
 0.20
 91,252
 47
 0.20
 11,823
 —
111,671
 64
 0.23
 103,075
 51
 0.20
 8,596
 0.03
Brokered time deposits870
 3
 1.38
 1,392
 7
 1.91
 (522) (0.53)959
 3
 1.31
 870
 3
 1.38
 89
 (0.07)
Foreign deposits140
 —
 0.13
 232
 —
 0.11
 (92) 0.02
130
 —
 0.37
 140
 —
 0.13
 (10) 0.24
Total interest-bearing deposits104,085
 54
 0.21
 92,876
 54
 0.23
 11,209
 (0.02)112,760
 67
 0.24
 104,085
 54
 0.21
 8,675
 0.03
Funds purchased672
 —
 0.10
 937
 —
 0.10
 (265) —
784
 1
 0.36
 672
 —
 0.10
 112
 0.26
Securities sold under agreements to repurchase1,765
 1
 0.22
 2,177
 1
 0.13
 (412) 0.09
1,691
 2
 0.45
 1,765
 1
 0.22
 (74) 0.23
Interest-bearing trading liabilities840
 6
 2.55
 778
 5
 2.72
 62
 (0.17)930
 5
 2.11
 840
 6
 2.55
 90
 (0.44)
Other short-term borrowings2,172
 1
 0.16
 6,559
 4
 0.23
 (4,387) (0.07)1,266
 —
 0.19
 2,172
 1
 0.16
 (906) 0.03
Long-term debt9,680
 60
 2.47
 13,064
 74
 2.24
 (3,384) 0.23
12,257
 68
 2.21
 9,680
 60
 2.47
 2,577
 (0.26)
Total interest-bearing liabilities119,214
 122
 0.41
 116,391
 138
 0.47
 2,823
 (0.06)129,688
 143
 0.44
 119,214
 122
 0.41
 10,474
 0.03
Noninterest-bearing deposits42,151
     40,943
     1,208
  43,642
     42,151
     1,491
  
Other liabilities3,198
     3,620
     (422)  3,356
     3,198
     158
  
Noninterest-bearing trading liabilities and derivative instruments394
     288
     106
  380
     394
     (14)  
Shareholders’ equity23,384
     22,191
     1,193
  24,410
     23,384
     1,026
  
Total liabilities and shareholders’ equity
$188,341
     
$183,433
     
$4,908
  
$201,476
     
$188,341
     
$13,135
  
Interest rate spread    2.82%     2.90%   (0.08)    2.76%     2.73%   0.03
Net interest income - FTE 2, 4
  
$1,247
     
$1,251
      
Net interest income 3
  
$1,308
     
$1,211
      
Net interest income-FTE 3, 4
  
$1,342
     
$1,247
      
Net interest margin 5
    2.94%     3.03%   (0.09)    2.88%     2.86%   0.02
Net interest margin-FTE 4, 5
    2.96
     2.94
   0.02
1 Interest income includes loan fees of $50$40 million and $48$50 million for the three months ended September 30, 20152016 and 2014,2015, respectively.
2Interest income and yields include the effects of FTE adjustments for the tax-favored status of net interest income from certain loans and investments using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table were $36 million for both the three months ended September 30, 2015 and 2014.
3 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
43 Derivative instruments employed to manage our interest rate sensitivity increased net interest income $78by $63 million and $106$78 million for the three months ended September 30, 20152016 and 2014,2015, respectively.  
4 See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information and reconciliations of non-U.S. GAAP performance measures. Approximately 95% of the total FTE adjustment for both the three months ended September 30, 2016 and 2015 was attributed to C&I loans.
5 Net interest margin is calculated by dividing annualized net interest income – FTE by average total earning assets.


74

Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid (continued)
Nine Months Ended  Nine Months Ended 
September 30, 2015 September 30, 2014 Increase/(Decrease)September 30, 2016 September 30, 2015 Increase/(Decrease)
(Dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
ASSETS                              
Loans held for investment: 1
                              
C&I - FTE 2

$65,577
 
$1,570
 3.20% 
$60,055
 
$1,630
 3.63% 
$5,522
 (0.43)
C&I
$68,405
 
$1,599
 3.12% 
$65,577
 
$1,466
 2.99% 
$2,828
 0.13
CRE6,213
 131
 2.81
 6,021
 131
 2.90
 192
 (0.09)6,032
 132
 2.91
 6,213
 131
 2.81
 (181) 0.10
Commercial construction1,491
 35
 3.15
 1,022
 25
 3.31
 469
 (0.16)2,578
 63
 3.27
 1,491
 35
 3.15
 1,087
 0.12
Residential mortgages - guaranteed633
 17
 3.52
 2,316
 63
 3.63
 (1,683) (0.11)587
 16
 3.72
 633
 17
 3.52
 (46) 0.20
Residential mortgages - nonguaranteed23,568
 680
 3.85
 23,834
 717
 4.01
 (266) (0.16)25,383
 720
 3.78
 23,568
 680
 3.85
 1,815
 (0.07)
Residential home equity products13,662
 376
 3.68
 14,389
 386
 3.58
 (727) 0.10
12,461
 368
 3.94
 13,662
 376
 3.68
 (1,201) 0.26
Residential construction387
 14
 4.91
 468
 16
 4.66
 (81) 0.25
374
 12
 4.44
 387
 14
 4.91
 (13) (0.47)
Consumer student - guaranteed4,530
 127
 3.76
 5,448
 149
 3.67
 (918) 0.09
5,404
 162
 4.00
 4,530
 127
 3.76
 874
 0.24
Consumer other direct5,149
 165
 4.28
 3,396
 107
 4.22
 1,753
 0.06
6,641
 225
 4.53
 5,149
 165
 4.28
 1,492
 0.25
Consumer indirect10,317
 248
 3.20
 11,415
 273
 3.19
 (1,098) 0.01
10,739
 273
 3.39
 10,317
 248
 3.20
 422
 0.19
Consumer credit cards917
 68
 9.95
 746
 54
 9.64
 171
 0.31
1,142
 87
 10.17
 917
 68
 9.95
 225
 0.22
Nonaccrual 3
556
 18
 4.21
 900
 16
 2.31
 (344) 1.90
Total LHFI - FTE 2
133,000
 3,449
 3.47
 130,010
 3,567
 3.67
 2,990
 (0.20)
Nonaccrual 2
882
 13
 1.98
 556
 18
 4.21
 326
 (2.23)
Total LHFI140,628
 3,670
 3.49
 133,000
 3,345
 3.36
 7,628
 0.13
Securities AFS:                              
Taxable26,161
 425
 2.17
 23,145
 448
 2.58
 3,016
 (0.41)27,847
 479
 2.29
 26,161
 425
 2.17
 1,686
 0.12
Tax-exempt - FTE 2
180
 7
 5.19
 254
 10
 5.26
 (74) (0.07)
Total securities AFS - FTE 2
26,341
 432
 2.19
 23,399
 458
 2.61
 2,942
 (0.42)
Tax-exempt161
 4
 3.54
 180
 5
 3.71
 (19) (0.17)
Total securities AFS28,008
 483
 2.30
 26,341
 430
 2.18
 1,667
 0.12
Fed funds sold and securities borrowed or purchased
under agreements to resell
1,153
 —
 —
 1,021
 —
 —
 132
 —
1,210
 1
 0.15
 1,153
 —
 —
 57
 0.15
LHFS - FTE 2
2,557
 67
 3.47
 2,172
 61
 3.77
 385
 (0.30)
Interest-bearing deposits23
 —
 0.13
 33
 —
 0.10
 (10) 0.03
LHFS2,235
 62
 3.69
 2,557
 66
 3.42
 (322) 0.27
Interest-bearing deposits in other banks24
 —
 0.38
 23
 —
 0.13
 1
 0.25
Interest earning trading assets5,251
 61
 1.58
 3,856
 55
 1.90
 1,395
 (0.32)5,495
 69
 1.69
 5,251
 61
 1.58
 244
 0.11
Total earning assets - FTE 2
168,325
 4,009
 3.18
 160,491
 4,141
 3.45
 7,834
 (0.27)
Total earning assets177,600
 4,285
 3.22
 168,325
 3,902
 3.10
 9,275
 0.12
ALLL(1,859)     (2,016)     157
  (1,754)     (1,859)     105
  
Cash and due from banks5,832
     5,474
     358
  4,863
     5,832
     (969)  
Other assets14,530
     14,706
     (176)  14,713
     14,530
     183
  
Noninterest earning trading assets and derivative instruments1,276
     1,221
     55
  1,484
     1,276
     208
  
Unrealized gains on securities available for sale, net531
     222
     309
  707
     531
     176
  
Total assets
$188,635
     
$180,098
     
$8,537
  
$197,613
     
$188,635
     
$8,978
  
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Interest-bearing deposits:                              
NOW accounts
$34,443
 
$23
 0.09% 
$28,378
 
$16
 0.07% 
$6,065
 0.02

$40,285
 
$38
 0.12% 
$34,443
 
$23
 0.09% 
$5,842
 0.03
Money market accounts49,935
 64
 0.17
 43,771
 45
 0.14
 6,164
 0.03
53,586
 77
 0.19
 49,935
 64
 0.17
 3,651
 0.02
Savings6,189
 2
 0.03
 6,105
 2
 0.04
 84
 (0.01)6,294
 1
 0.03
 6,189
 2
 0.03
 105
 —
Consumer time6,539
 37
 0.76
 7,731
 53
 0.92
 (1,192) (0.16)5,937
 33
 0.75
 6,539
 37
 0.76
 (602) (0.01)
Other time3,844
 29
 1.01
 4,370
 35
 1.08
 (526) (0.07)3,892
 30
 1.01
 3,844
 29
 1.01
 48
 —
Total interest-bearing consumer and commercial deposits100,950
 155
 0.20
 90,355
 151
 0.22
 10,595
 (0.02)109,994
 179
 0.22
 100,950
 155
 0.20
 9,044
 0.02
Brokered time deposits887
 10
 1.43
 1,762
 29
 2.16
 (875) (0.73)924
 9
 1.34
 887
 10
 1.43
 37
 (0.09)
Foreign deposits238
 —
 0.13
 79
 —
 0.11
 159
 0.02
60
 —
 0.36
 238
 —
 0.13
 (178) 0.23
Total interest-bearing deposits102,075
 165
 0.22
 92,196
 180
 0.26
 9,879
 (0.04)110,978
 188
 0.23
 102,075
 165
 0.22
 8,903
 0.01
Funds purchased806
 1
 0.10
 917
 —
 0.09
 (111) 0.01
1,071
 3
 0.36
 806
 1
 0.10
 265
 0.26
Securities sold under agreements to repurchase1,837
 3
 0.20
 2,176
 2
 0.12
 (339) 0.08
1,742
 6
 0.41
 1,837
 3
 0.20
 (95) 0.21
Interest-bearing trading liabilities882
 16
 2.45
 753
 16
 2.76
 129
 (0.31)984
 17
 2.36
 882
 16
 2.45
 102
 (0.09)
Other short-term borrowings2,479
 3
 0.17
 5,984
 11
 0.24
 (3,505) (0.07)1,611
 3
 0.25
 2,479
 3
 0.17
 (868) 0.08
Long-term debt11,690
 196
 2.24
 12,155
 198
 2.17
 (465) 0.07
10,477
 191
 2.44
 11,690
 196
 2.24
 (1,213) 0.20
Total interest-bearing liabilities119,769
 384
 0.43
 114,181
 407
 0.48
 5,588
 (0.05)126,863
 408
 0.43
 119,769
 384
 0.43
 7,094
 —
Noninterest-bearing deposits41,919
     40,014
     1,905
  42,917
     41,919
     998
  
Other liabilities3,237
     3,584
     (347)  3,299
     3,237
     62
  
Noninterest-bearing trading liabilities and derivative instruments444
     347
     97
  458
     444
     14
  
Shareholders’ equity23,266
     21,972
     1,294
  24,076
     23,266
     810
  
Total liabilities and shareholders’ equity
$188,635
     
$180,098
     
$8,537
  
$197,613
     
$188,635
     
$8,978
  
Interest rate spread    2.75%     2.97%   (0.22)    2.79%     2.67%   0.12
Net interest income - FTE 2, 4
  
$3,625
     
$3,734
      
Net interest income 3
  
$3,877
     
$3,518
      
Net interest income-FTE 3, 4
  
$3,982
     
$3,625
      
Net interest margin 5
    2.88%     3.11%   (0.23)    2.92%     2.79%   0.13
Net interest margin-FTE 4, 5
    2.99
     2.88
   0.11
 
1 Interest income includes loan fees of $142$124 million and $141$142 million for the nine months ended September 30, 20152016 and 2014,2015, respectively.
2Interest income and yields include the effects of FTE adjustments for the tax-favored status of net interest income from certain loans and investments using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table were $107 million and $105 million for the nine months ended September 30, 2015 and 2014, respectively.
3 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
43 Derivative instruments employed to manage our interest rate sensitivity increased net interest income $220by $203 million and $326$220 million for the nine months ended September 30, 20152016 and 2014,2015, respectively.  
4 See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information and reconciliations of non-U.S. GAAP performance measures. Approximately 95% of the total FTE adjustment for both the nine months ended September 30, 2016 and 2015 was attributed to C&I loans.
5 Net interest margin is calculated by dividing annualized net interest income – FTE by average total earning assets.


NET INTEREST INCOME/MARGIN (FTE)
75

Net Interest Income/Margin (FTE)
Third Quarter of 20152016
Net interest income was $1.2$1.3 billion during the third quarter of 2015, which was relatively stable2016, an increase of $95 million, or 8%, compared to the third quarter of 2014.2015. Net interest margin for the third quarter of 2015 declined nine2016 increased two basis points to 2.94%2.96%, compared to the same period last year, primarily due to a 14six basis point declineincrease in average earning asset yields. The earning assetassets yield declineincrease was driven primarily drivenby higher LHFI yields and was partially offset by lower loan andyields on securities AFS yields. Partially offsetting the declineand an increase in the earning asset yield was a six basis point reduction inrates paid on interest-bearing liability costs driven by a favorable mix shift, as growth in client deposits enabled reductions in wholesale funding. Compared to the second quarter of 2015, net interest margin increased eight basis points primarily due to our balance sheet management and optimization efforts.liabilities.
Average earning assets increased $4.6$12.2 billion, or 3%7%, forduring the third quarter of 2016, compared to the third quarter of 2015, compared to 2014,driven primarily driven by a $2.4$9.4 billion, or 10%7%, increase in average LHFI and a $1.9 billion, or 7%, increase in average securities AFS and a $2.1 billion, or 2%, increase in average loans.AFS. The increase in average securities AFS was driven primarily by forthcoming LCR-related requirements. The increase in average loansLHFI was attributable to growth in theacross all consumer loan categories, as well as C&I loans, nonguaranteed residential mortgages, and consumer direct portfolios,commercial construction loans. These increases were partially offset by reductions in indirect auto and student loans. Thea decline in indirect autoresidential home equity products as paydowns exceeded new originations and student loans were due to balance sheet management and optimization activities that we executed over the past few quarters. Average nonaccrual loans declined 46%, driven by the ongoing resolution of nonperforming loans. Refer todraws. See the "Loans" section in this MD&A for additional discussion regarding loan activity during the quarter.activity.
Yields on average earning assets declined 14increased six basis points to 3.23%3.20% for the third quarter of 2015,2016, compared to 2014,the third quarter of 2015, driven primarily drivenby an eight basis point increase in LHFI yields, partially offset by a ninesix basis point decline in yields on securities AFS. The increase in LHFI yields was due largely to a favorable mix shift within the LHFI portfolio along with higher benchmark interest rates, which increased late in the fourth quarter of 2015. Specifically, yields increased on commercial loans, particularly the C&I portfolio, as well as on residential home equity products, guaranteed mortgages, and most consumer loan yields.categories. The six basis point decrease in the yield on average loanssecurities AFS yields was drivendue primarily by declines in commercial loan yields, particularly in our C&I portfolio. The declines were driven by lower commercial loan swap income, the paydown of higher yielding loans, andto the addition of new loan production at lower rates thanlower-yielding U.S. Treasury securities to support LCR requirements that will increase effective January 1, 2017. See the existing portfolio due to"Securities Available for Sale" section in this MD&A for additional information regarding the highly competitive, low interest rate environment. Additionally,composition and associated yields on securities AFS declined 23 basis points compared to the prior year quarter, driven largely by the persistent low interest rate environment.our investment securities.
We utilize interest rate swaps to manage interest rate risk. These instruments are primarily pay variable-receive fixedreceive-fixed, pay-variable swaps that synthetically convert a portion of our commercial loan portfolio from floating rates, based on LIBOR, to fixed rates. At September 30, 2015,2016, the outstanding notional balance of active swaps that qualified as cash flow hedges on variable rate commercial loans was $15.5$18.7 billion, compared to active swaps of $15.4$16.9 billion at December 31, 2014.2015.
In addition to the income recognized from active swaps, we also continue to recognize interest income over the original hedge period resulting from terminated or de-designated swaps that were previously designated as cash flow hedges on variable rate commercial loans. Interest income from our commercial loan swaps decreasedwas $59 million during the third quarter of 2016, compared to $70 million during the third quarter of 2015, compared to $99 million during the third quarter of 2014. The decline was primarily due to a decline in income from the maturity of active and previously terminated swaps that reached their original maturity date during 2014 and the first quarter of
2015. Looking forward into the fourth quarter of 2015, we expect our swap portfolio and related income to be relatively stable. As we manage our interest rate risk we may continue to purchase additional and/or terminate existing interest rate swaps.
Remaining swaps on commercial loans have maturities through 2022. The2022 and have an average maturity of our active swaps4.0 years at September 30, 2015 was 3.2 years. The commercial loan swaps have a fixed rate of interest that is received, while the rate paid is based on LIBOR.2016. The weighted average rate on the receive-fixedreceive-
fixed rate leg of the commercial loan swap portfolio was 1.30%, and the weighted average rate on the pay-variable leg was 0.53%, at September 30, 2015 is 1.30%.2016.
Compared to the three months ended September 30, 2014, averageAverage interest-bearing liabilities increased $2.8$10.5 billion, or 2%9%, during the third quarter of 2016, compared to the third quarter of 2015, due primarily due to growth in lower cost deposits, driven by increases in average lower-cost deposits, partially offset by a decline in wholesale funding. This strong growth in deposits led to a decline of $4.4 billion in average other short-term borrowingsNOW and a $3.4 billion declinemoney market account balances, and an increase in long-term debt. Average consumer and commercial deposits increased $8.6 billion, or 8%, compared to the same period last year. Average long-term debt increased $2.6 billion, or 27%, driven by an increase in long-term FHLB advances and the issuance of $750 million of subordinated debt in the second quarter of 2016. See the "Borrowings" section in this MD&A for additional information regarding other short-term borrowings and long-term debt. Average total client deposits increased $13.0 billion, or 10%, compared to the same period last year.
The six basis point reduction in ratesRates paid on average interest-bearing liabilities increased three basis points during the current quarter, compared to the third quarter of 2015, was driven by slightly lowerincreased rates paid on interest-bearing deposits,in NOW and money market accounts as well as a seven basis point declinethe aforementioned increase in rates paid on other short-term borrowings. The decline inlong-term debt. Compared to the third quarter of 2015, the average rate paid on interest-bearing deposits was a result of the improved mix driven by the shift from time deposits to lower-cost deposit products, as well as a reduction in rates paid on time deposits as higher rate CDs matured.increased three basis points.
Looking forward, assuming a static rate environment, we expect fourth quarter net interest margin to be relatively stable compareddecline by approximately two to three basis points in the fourth quarter of 2016, due largely to the third quarter as favorable loan mix trends help offset the impact of lower rates. continued low interest rate environment.We expect net interest margin likely will decline slightly in 2016 as long as interest rates remain low. Overall, we continueare continuing to carefully manage the duration of our overall balance sheet such that netgiven the prolonged low interest income benefits from rising rates; however, we expect any increase in rates to be gradual and deliberately paced.rate environment, while also being cognizant of controlling interest rate risk. See Table 14, "Net13, "Net Interest Income Asset Sensitivity," in this MD&A for an analysis of potential changes in net interest income due to instantaneous moves in benchmark interest rates.

First Nine Months of 20152016
Net interest income was $3.6$4.0 billion during the first nine months of 2015, a decrease2016, an increase of $109$357 million, or 3%10%, compared to the first nine months of 2014.2015. Net interest margin for the first nine months of 2015 declined 232016 increased 11 basis points, to 2.88%2.99%, compared to the same period last year, primarily due to a 27 basis point decline in average earning asset yields. The earning asset yield decline was primarily driven by lower loan and securities AFS yields. Partially offsetting the decline in the earning asset yield was a five basis point reduction in interest-bearing liability costs driven by lower rates paid on interest-bearing deposits.
Average earning assets increased $7.8 billion, or 5%, for the first nine months of 2015, due to a 12 basis point increase in the average earning asset yields driven by higher loan and securities AFS yields. Compared to the first nine months of 2015, rates paid on interest-bearing liabilities remained stable.
Average earning assets increased $9.3 billion, or 6%, during the first nine months of 2016, compared to 2014,2015, driven primarily driven by a $3.0$7.6 billion, or 2%6%, increase in average loansLHFI and a $2.9$1.7 billion, or 13%6%, increase in average securities AFS. The increase


76

in average loansLHFI was broad-based, primarily driven by targeteddue largely to growth in commercial loans andC&I, nonguaranteed residential mortgages, consumer direct, and commercial construction loans. These increases were partially offset by declinesa decline in guaranteed residential mortgages, student loans,home equity products as paydowns exceeded new originations and indirect auto loans driven by the aforementioned balance sheet optimization activities. Average nonaccrual loans declined 38%, driven by the ongoing resolution of nonperforming loans. Refer todraws. See the "Loans" section in this MD&A for additional discussion regarding loan activity during the year.activity.
TheYields on average earning assets yield declined,increased 12 basis points, to 3.22%, for the first nine months of 2016, compared to 2015, driven primarily driven by a 2013 basis point declineincrease in LHFI yields primarily attributable to increases in yield on average loan yields due to declinescommercial loans, particularly in our C&I and residential mortgage portfolios.portfolio, as well as


an increase in yield on our consumer direct portfolio. The declinesaverage earning asset LHFI yield increases were driven by higher benchmark interest rates, which increased late in the same factors as discussed above for the thirdfourth quarter of 2015. Additionally, the average yield on securities AFS declined 42increased 12 basis points in the first nine months of 2016, compared to 2015, driven largely by lower premium amortization on MBS securities. See the nine months ended September 30, 2014, driven by"Securities Available for Sale" section in this MD&A for additional information regarding the same factors as discussed above for the third quarter of 2015.composition and associated yields on our investment securities.
Compared to the nine months ended September 30, 2014, averageAverage interest-bearing liabilities increased $5.6$7.1 billion, or 5%6%, compared to 2015, primarily due to increasesgrowth in average lower-cost deposits. These increases wereNOW and money market account balances, partially offset by a decline in long-term debt. Average consumer and commercial deposits increased $9.0 billion, or 9%, compared to the first nine months of 2015, enabling a $1.2 billion, or 10%, decrease in average time deposits and average other short-term borrowings. Noninterest-bearing demand deposits also increased $1.9 billion, or 5%,
 
compared to the nine months ended September 30, 2014. The $465 million, or 4%, decrease in average long-term debt, compared to the nine months ended September 30, 2014, wasdriven primarily driven by a decrease in average long-term FHLB advances. The $3.5 billion, or 59%, decrease in average other short-term borrowings was primarily due to decreases in FHLB advances and master notes. See the "Borrowings" section in this MD&A for additional information regarding other short-term borrowings and long-term debt.

Foregone Interest
As average nonaccrual loans decreased, foregoneForegone interest income from NPLs reduced net interest margin by two basis points for both the three and nine months ended September 30, 2016. Foregone interest income from NPLs had a limited effect on the net interest margin during the three and nine months ended September 30, 2015. Foregone interest income from NPLs reduced net interest margin by two basis points during both the three and nine months ended September 30, 2014. See additional discussion of our expectations of future credit quality in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A. In addition, Table 2 of this MD&A contains more detailed information concerning average balances, yields earned, and rates paid.




NONINTEREST INCOME                      
          Table 3
          Table 3
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2015 2014 
% Change 1
 2015 2014 
% Change 1
2016 2015 
% Change 1
 2016 2015 
% Change 1
Service charges on deposit accounts
$159
 
$169
 (6)% 
$466
 
$483
 (4)%
$162
 
$159
 2 % 
$477
 
$466
 2 %
Other charges and fees97
 95
 2
 285
 274
 4
93
 97
 (4) 290
 285
 2
Card fees83
 81
 2
 247
 239
 3
83
 83
 —
 243
 247
 (2)
Investment banking income115
 88
 31
 357
 296
 21
147
 115
 28
 372
 357
 4
Trading income31
 46
 (33) 140
 141
 (1)65
 31
 NM
 154
 140
 10
Mortgage production related income118
 58
 NM
 288
 217
 33
Mortgage servicing related income49
 40
 23
 164
 113
 45
Trust and investment management income86
 93
 (8) 255
 339
 (25)80
 86
 (7) 230
 255
 (10)
Retail investment services77
 76
 1
 229
 224
 2
71
 77
 (8) 212
 229
 (7)
Mortgage production related income58
 45
 29
 217
 140
 55
Mortgage servicing related income40
 44
 (9) 113
 143
 (21)
Gain on sale of subsidiary—
 —
 —
 —
 105
 (100)
Net securities gains/(losses)7
 (9) NM
 21
 (11) NM
Gain on sale of premises—
 —
 —
 52
 —
 NM
Net securities gains—
 7
 (100) 4
 21
 (81)
Other noninterest income58
 52
 12
 173
 155
 12
21
 58
 (64) 83
 173
 (52)
Total noninterest income
$811
 
$780
 4% 
$2,503
 
$2,528
 (1)%
$889
 
$811
 10 % 
$2,569
 
$2,503
 3 %
           
Adjusted noninterest income 2

$811
 
$780
 4% 
$2,503
 
$2,423
 3%
1 “NM”“NM” - Not meaningful. Those changes over 100 percent were not considered to be meaningful.
2 See Table 1 in this MD&A for a reconcilement of non-U.S. GAAP measures and additional information.

Noninterest income increased $31$78 million, or 4%10%, compared to the third quarter of 2014,2015, and decreased $25increased $66 million, or 1%3%, compared to the nine months ended September 30, 2014.2015. The increase compared to the third quarter of 20142015 was driven primarily by higher investment bankingmortgage and mortgage productioncapital markets-related income, along with higher gains on the sale of investment securities. The decrease compared to the nine months ended September 30, 2014 was due to the $105 million gain on the sale of RidgeWorth in the second quarter of 2014 and associated foregone revenue, partially offset by higher
investment banking and mortgage productiona decline in other noninterest income due to gains from the sale of securities, as well as modest growthloans and leases in many other noninterest income categories. Adjusted noninterest income for the nine months ended September 30, 2015 increased $80 million, or 3%, compared to adjusted noninterest income for the same period in 2014.
Investment banking income increased $27 million, or 31%, compared to the third quarter of 2014, and $61 million, or 21%, compared to the nine months ended September 30, 2014. The increase compared to the third quarter of 2014 was due to higher


77

mergers and acquisitions advisory revenue and increased syndicated finance activity.prior year quarter. The increase compared to the nine months ended September 30, 20142015 was due todriven by higher mortgage and capital markets-related income, the second quarter gain on sale of premises, and higher client activity across most product categories, including strongtransaction-related fees, partially offset by a decline in wealth management-related income and a reduction in gains from sales of securities, loans, and leases. The growth in equity originations, syndications,noninterest income for both periods reflects our ongoing strategic investments in talent and debt capital markets activity.capabilities across our businesses.
Trading income decreased $15 million, or 33%,Client transaction-related-fees, which include service charges on deposit accounts, other charges and fees, and card fees, remained relatively flat compared to the third quarter of 2014,2015 and $1increased $12 million, or 1%, compared to the nine months ended September 30, 2014. The decrease compared to the third quarter of 2014 was driven largely by pricing pressure and lower client activity resulting from wider credit spreads and increased market volatility. Relative to the nine months ended September 30, 2015, these factors were largely offset by higher valuation gains on our debt measured at fair value.
Trust and investment management income decreased $7 million, or 8%, compared to the third quarter of 2014, and $84 million, or 25%, compared to nine months ended September 30, 2014. The decrease compared to the third quarter of 2014 was largely due to the decline in market value of assets under management. The decrease compared to the nine months ended September 30, 2014 was primarily due to foregone revenue resulting from the sale of RidgeWorth in the second quarter of 2014 as well as the aforementioned decline in market value of assets under management during 2015.
Mortgage production related income increased $13 million, or 29%, compared to the third quarter of 2014, and $77 million, or 55%, compared to the nine months ended September 30, 2014. The increase compared to the third quarter of 2014 was due to an increase in production volume and higher gain-on-sale margins, partially offset by a shift in production mix towards the correspondent channel. Mortgage production volume increased 36% compared to the third quarter of 2014, as both purchase and refinance activity increased. The increase compared to the nine
 
months ended September 30, 2014 was due to an increase in production volume and a decline in the mortgage repurchase provision due to the continued decline in repurchase requests and resolution of previous repurchase demands. Mortgage production volume increased 52% compared to the nine months ended September 30, 2014. For additional information on the mortgage repurchase reserve, see Note 12, "Guarantees," to the Consolidated Financial Statements in this Form 10-Q.
Mortgage servicing related income decreased $4 million, or 9%, compared to the third quarter of 2014, and $30 million, or 21%, compared to the nine months ended September 30, 2014. The decrease in both periods was due to higher decay and lower net hedge performance during 2015, partially offset by higher servicing fees as a result of a larger servicing portfolio. The servicing portfolio was $149.2 billion at September 30, 2015, compared to $135.8 billion at September 30, 2014.
Repositioning of the investment portfolio during 2015 resulted in higher net securities gains during the three and nine months ended September 30, 2015, compared to the same periods in 2014. For additional information regarding our securities AFS portfolio and related repositioning, see the "Securities Available for Sale" section of this MD&A.
Other noninterest income increased $6 million, or 12%, compared to the third quarter of 2014, and increased $18 million, or 12%, compared to the nine months ended September 30, 2014. The increase compared to the third quarter of 2014 was primarily due to higher leasing-related income and higher gains on the sale of loans in the current quarter, partially offset by foregone income from the sale of affordable housing investments during 2015. The increase compared to the nine months ended September 30, 20142015 was due primarily due to the $18 million gain on sale of legacy affordable housing investmentsincreased client activity. Consistent with our previous guidance, our enhanced posting order process will be fully implemented in the firstfourth quarter of 2015 and higher leasing-relatedthis year, which we expect will result in a reduction in service charges on deposit accounts of approximately $10 million per quarter going forward.
Investment banking income during 2015, partially offset by lower gains on loan sales during the first nine months of 2015.



78

NONINTEREST EXPENSE           
           Table 4
 Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2015 2014 % Change 2015 2014 % Change
Employee compensation
$641
 
$649
 (1)% 
$1,926
 
$1,967
 (2)%
Employee benefits84
 81
 4
 326
 326
 —
Total personnel expenses725
 730
 (1) 2,252
 2,293
 (2)
Outside processing and software200
 184
 9
 593
 535
 11
Net occupancy expense86
 84
 2
 255
 254
 —
Equipment expense41
 41
 —
 123
 127
 (3)
Regulatory assessments32
 29
 10
 104
 109
 (5)
Marketing and customer development42
 35
 20
 104
 91
 14
Credit and collection services8
 21
 (62) 52
 67
 (22)
Consulting and legal fees23
 16
 44
 48
 43
 12
Operating losses3
 29
 (90) 33
 268
 (88)
Amortization9
 7
 29
 22
 14
 57
Other noninterest expense95
 83
 14
 286
 333
 (14)
Total noninterest expense
$1,264
 
$1,259
 —% 
$3,872
 
$4,134
 (6)%
     

 

 

  
Adjusted noninterest expense 1

$1,264
 
$1,259
 —% 
$3,872
 
$3,955
 (2)%
1 See Table 1 in this MD&A for a reconcilement of non-U.S. GAAP measures and additional information.

Noninterest expense remained stableincreased $32 million, or 28%, compared to the third quarter of 2014,2015, and decreased $262increased $15 million, or 6%4%, compared to the nine months ended September 30, 2014.2015. The decreaseincrease for both periods was driven by strong deal flow activity across most product categories as we continue to expand and deepen client relationships. The growth was due, in large part, to strength in equity capital markets and mergers and acquisitions advisory services. The increase compared to the third quarter of 2015 was also driven by strong results in syndicated finance.
Trading income increased $34 million compared to the third quarter of 2015, and increased $14 million, or 10%, compared


to the nine months ended September 30, 20142015. The increase for both periods was driven primarily by $179 million of legacy mortgage-related operating losses recognizedhigher client activity and more favorable market conditions, as well as higher core trading revenue in the secondthird quarter, of 2014. Adjusted noninterest expensemost notably fixed income sales and trading. The increase for the nine months ended September 30, 2015 decreased $83 million, or 2%, compared to the same period in 2014. The decrease2016 was primarily due to the sale of RidgeWorthoffset partially by a CVA-related valuation adjustment recognized in the second quarter of 2014 and the associated decline in expenses as well as our continued focus on expense management. Affordable housing impairment charges recognized in the first quarter of 2014 also contributed to the decrease in noninterest expense for the nine months ended September 30, 2015, compared to the same period in 2014, but were largely offset by debt extinguishment losses during 2015.2016.
Personnel expenses decreased $5Mortgage production related income increased $60 million or 1%, compared to the third quarter of 2014,2015, and $41increased $71 million, or 2%33%, compared to the nine months ended September 30, 2014.2015. The decreaseincrease for both periods was due primarily to higher production volume and an increase in gain-on-sale margins. Mortgage production volume increased 37% compared to the third quarter of 2015, and 16% compared to the nine months ended September 30, 2014 was largely2015. Looking to the fourth quarter of 2016, we expect mortgage production income to decline relative to the third quarter due to moderating application activity; however, we expect mortgage production income to improve relative to the salefourth quarter of RidgeWorth.2015.
Outside processing and software expensesMortgage servicing related income increased $16$9 million, or 9%23%, compared to the third quarter of 2014,2015, and $58increased $51 million, or 11%45%, compared to the nine months ended September 30, 2014.2015. The increase for both periods was due to higher servicing fees resulting from a larger servicing portfolio and improved net hedge performance. Servicing asset decay was higher in the higher utilizationcurrent quarter due to elevated refinancing activity; however, year-to-date servicing asset decay declined due to a lower MSR value resulting from the lower interest rate environment. The UPB of third party services, higher mortgage production,loans in the servicing portfolio was $154.0 billion at September 30, 2016, compared to $149.2 billion at September 30, 2015. The increase in our servicing portfolio was driven by MSR purchases on residential loans with a UPB of $2.8 billion and increased investments in technology.$10.9 billion during the three and nine months ended September 30, 2016, respectively.
Marketing
Trust and customer development increased $7investment management income decreased $6 million, or 20%7%, compared to the third quarter of 2014,2015, and $13decreased $25 million, or 14%10%, compared to the nine months ended September 30, 2014.2015. The increasedecrease for both periods was due primarily to higher advertising costsa mix shift in 2015.assets under management, as well as a decline in non-recurring revenue.
Credit and collectionRetail investment services income decreased $13$6 million, or 62%8%, compared to the third quarter of 2014,2015, and $15decreased $17 million, or
22% 7%, compared to the nine months ended September 30, 2014.2015. The decreasedecline for both periods was primarily due largely to reductionsreduced transactional activity, partially offset by an increase in the reserve for mortgage servicing advances during the third quarter of 2015 dueretail brokerage managed assets in response to continued improvements in credit quality and operating effectiveness.our clients' strategic shift towards our managed asset products.
Consulting and legal fees increasedNet securities gains decreased $7 million, or 44%100%, compared to the third quarter of 2014,2015, and $5decreased $17 million, or 12%81%, compared the nine months ended September 30, 2015. The decrease for both periods was due to higher gains recognized on the sale of MBS in 2015 as a result of our repositioning of the investment portfolio.
Gain on sale of premises totaled $52 million for the nine months ended September 30, 2016, associated with the sale-leaseback of one of our office buildings, which supports our strategy of reducing our real estate footprint.
Other noninterest income decreased $37 million, or 64%, compared to the third quarter of 2015, and declined $90 million, or 52%, compared to the nine months ended September 30, 2014. The increase for both periods was due to higher utilization of consulting services in the current quarter.
Operating losses decreased $26 million, or 90%, compared to the third quarter of 2014, and $235 million, or 88%, compared to the nine months ended September 30, 2014.2015. The decrease compared to the third quarter of 20142015 was primarily due largely to favorable developments in previous mortgage-related matters, resulting in accrual reductionslower gains recognized on the sale of loans and leases as well as asset impairment charges recognized in the current quarter. The decrease compared to the nine months ended September 30, 2015 was primarily due to $179the same factors impacting the quarterly comparison along with an $18 million gain on the sale of legacy mortgage-related charges recognizedaffordable housing investments in the secondfirst quarter of 2014, as well as the aforementioned recoveries during 2015.

Other noninterest

NONINTEREST EXPENSE           
           Table 4
 Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2016 2015 
% Change 1
 2016 2015 
% Change 1
Employee compensation
$687
 
$641
 7 % 
$1,994
 
$1,926
 4 %
Employee benefits86
 84
 2
 315
 326
 (3)
Total personnel expenses773
 725
 7
 2,309
 2,252
 3
Outside processing and software225
 200
 13
 626
 593
 6
Net occupancy expense93
 86
 8
 256
 255
 —
Equipment expense44
 41
 7
 126
 123
 2
Marketing and customer development38
 42
 (10) 120
 104
 15
Regulatory assessments47
 32
 47
 127
 104
 22
Operating losses35
 3
 NM
 85
 33
 NM
Credit and collection services17
 8
 NM
 47
 52
 (10)
Amortization14
 9
 56
 35
 22
 59
Other noninterest expense123
 118
 4
 341
 334
 2
Total noninterest expense
$1,409
 
$1,264
 11% 
$4,072
 
$3,872
 5 %
1 “NM” - Not meaningful. Those changes over 100 percent were not considered to be meaningful.

Noninterest expense increased $12$145 million, or 14%11%, compared to the third quarter of 2014,2015, and decreased $47increased $200 million, or 14%5%, compared to the nine months ended September 30, 2014.2015. The increase for both periods was driven by higher regulatory and compliance-related costs, higher costs associated with increased revenue and business activity, and lower incentive-based compensation costs and discrete mortgage-related benefits in the third quarter of 2015.
Personnel expenses increased $48 million, or 7%, compared to the third quarter of 2015, and increased $57 million, or 3%, compared to the nine months ended September 30, 2015. The increase for both periods was due primarily to lower incentive-based compensation in the third quarter of 2015, as well as higher salaries and incentive-based compensation in the current quarter related to improved revenue and business performance.
Outside processing and software expense increased $25 million, or 13%, compared to the third quarter of 2015, and increased $33 million, or 6%, compared to the nine months ended September 30, 2015. The increase for both periods was driven by increased business activity levels, higher utilization of third party services, and increased investments in technology to enable ongoing efficiency initiatives.
Net occupancy expense increased $7 million, or 8%, compared to the third quarter of 2015, and remained relatively stable compared to the nine months ended September 30, 2015. The increase compared to the third quarter of 20142015 was due to $11lower gains from prior sale-leaseback transactions during the current quarter, as well as the recognition of previously deferred sale-leaseback gains in the second quarter of 2016 as a result of a reduction in our usage of leased office space. Relative to the third quarter of 2016 level, we expect net occupancy expense to be relatively stable over the next one to two years, as further reductions in amortized gains will be generally offset by a more efficient branch network.
Marketing and customer development expense decreased $4 million, or 10%, compared to the third quarter of debt extinguishment2015, and increased $16 million, or 15%, compared to the nine months ended September 30, 2015. The decrease compared to the third
quarter of 2015 was due primarily to lower advertising costs netin the current quarter. The increase compared to the nine months ended September 30, 2015 was primarily due to higher advertising costs during the first half of related hedges,2016 associated with our campaign to further advance the Company's purpose.
Regulatory assessments expense increased $15 million, or 47%, compared to the third quarter of 2015, and increased $23 million, or 22%, compared to the nine months ended September 30, 2015. The increase for both periods was driven primarily by the FDIC surcharge on large banks, which became effective during the current quarter, and higher FDIC assessment fees due to asset growth and a higher assessment rate.
Operating losses increased $32 million compared to the third quarter of 2015, and increased $52 million compared to the nine months ended September 30, 2015. The increase for both periods was due primarily to favorable developments in previous mortgage-related matters, resulting in accrual reductions recognized in 2015.
Credit and collection services increased $9 million compared to the third quarter of 2015, and decreased $5 million, or 10%, compared to the nine months ended September 30, 2015. The increase compared to the third quarter of 2015 was driven primarily by higher credit-related expenses recognized in the current quarter related to balance sheet repositioningincreased business activity. The decrease compared to the nine months ended September 30, 20142015 was driven primarily by mortgage transaction related reserve releases due to the expiration of representation and warranty obligations, offset partially by the current year recoveries of previously recognized losses relatedquarter increase in credit-related expenses.
Amortization expense increased $5 million, or 56%, compared to the financial crisis and the $36 million impairment of legacy affordable housing assets recognized during the firstthird quarter of 2014. These decreases were partially offset by $242015, and increased $13 million, of debt extinguishment costs, net of related hedges, duringor 59%, compared to the first nine months ended September 30, 2015. The increase for both periods was driven by increased investments in certain low-income community development projects, which also resulted in a similar increase in tax credits. See Note 8, "Certain Transfers of 2015 related to balance sheet repositioning activity.Financial Assets and Variable Interest Entities," for additional information regarding our community development investments.



79

LOANS
Our disclosures about the credit quality of our loan portfolio and the related credit reserves (i) describe the nature of credit risk inherent in the loan portfolio, (ii) provide information on how we analyze and assess credit risk in arriving at an adequate and appropriate ALLL, and (iii) explain changes in the ALLL as well as reasons for those changes.
Our loan portfolio consists of three loan segments: commercial, residential, and consumer. Loans are assigned to these segments based on the type of borrower, purpose, collateral, and/or our underlying credit management processes. Additionally, we further disaggregate each loan segment into loan types based on common characteristics within each loan segment.
Commercial Loans
C&I loans include loans to fund business operations or activities, loans secured by owner-occupied properties, corporate credit cards, and other wholesale lending activities. Commercial loans secured by owner-occupied properties are classified as C&I loans because the primary source of loan repayment for these properties is business income and not real estate operations. CRE and commercial construction loans include investor loans where repayment is largely dependent upon the operation, refinance, or sale of the underlying real estate.

Residential Loans
Residential mortgages, both government-guaranteed and nonguaranteed, consist of loans secured by 1-4 family homes, mostly prime, first-lien loans. HomeResidential home equity products consist of equity lines of credit and closed-end equity loans that may be in either a first lien or junior lien position. Residential construction loans include owner-occupied residential lot loans and construction-to-perm loans.

Consumer Loans
Consumer loans include government-guaranteed student loans, other direct loans (consisting primarily of direct auto loans, loans secured by negotiable collateral, unsecured loans, and private student loans), indirect loans (consisting of loans secured by automobiles, boats, and recreational vehicles), other direct loans (consisting primarily of unsecured loans, direct auto loans, loans secured by negotiable collateral, and private student loans), and consumer credit cards.

 
The composition of our loan portfolio is shown in Table 5.
Loan Portfolio by Types of LoansTable 5 
(Dollars in millions)September 30, 2015 December 31, 2014 % Change
Commercial loans:     
C&I
$65,371
 
$65,440
 — %
CRE6,168
 6,741
 (9)
Commercial construction1,763
 1,211
 46
Total commercial loans73,302
 73,392
 —
Residential loans:     
Residential mortgages - guaranteed627
 632
 (1)
Residential mortgages - nonguaranteed 1
24,351
 23,443
 4
Home equity products13,416
 14,264
 (6)
Residential construction394
 436
 (10)
Total residential loans38,788
 38,775
 —
Consumer loans:     
Guaranteed student4,588
 4,827
 (5)
Other direct5,771
 4,573
 26
Indirect10,119
 10,644
 (5)
Credit cards992
 901
 10
Total consumer loans 21,470
 20,945
 3
LHFI
$133,560
 
$133,112
 — %
LHFS 2

$2,032
 
$3,232
 (37)%
Loan Portfolio by Types of LoansTable 5
(Dollars in millions)September 30, 2016 December 31, 2015
Commercial loans:   
C&I
$68,298
 
$67,062
CRE5,056
 6,236
Commercial construction3,875
 1,954
Total commercial loans77,229
 75,252
Residential loans:   
Residential mortgages - guaranteed521
 629
Residential mortgages - nonguaranteed 1
26,306
 24,744
Residential home equity products12,178
 13,171
Residential construction393
 384
Total residential loans39,398
 38,928
Consumer loans:   
Guaranteed student5,844
 4,922
Other direct7,358
 6,127
Indirect10,434
 10,127
Credit cards1,269
 1,086
Total consumer loans 24,905
 22,262
LHFI
$141,532
 
$136,442
LHFS 2

$3,772
 
$1,838
1 Includes $262$234 million and $272$257 million of LHFI measured at fair value at September 30, 20152016 and December 31, 2014,2015, respectively.
2Includes $1.9$3.0 billion and $1.5 billion of LHFS measured at fair value at both September 30, 20152016 and December 31, 2014.2015, respectively.


We believe that our loan portfolio is well diversified by product, client, and geography. However, the loan portfolio may be exposed to concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, types of collateral, certain industries, certain loan products, or regions of the country. The energy industry vertical is an important component of our overall CIB business and it represents 2% of the total loan portfolio, with over half of the balance in the midstream and downstream sectors, which are not as meaningfully impacted by commodity price volatility. Loan balances in the energy industry vertical decreased relative to the prior quarter as utilization declined and a number of clients accessed capital markets to bolster liquidity. We did not experience any delinquencies or defaults related to these loans during the third quarter, but expect delinquencies and/or defaults to increase over time, assuming oil prices remain low. Accordingly, we have taken actions in the current and prior quarters to account for this exposure in our determination of reserves, and we will remain vigilant given the uncertainty associated with oil prices. See Note 5, “Loans,” to the Consolidated Financial Statements in this Form 10-Q for more information.


80

Table 6 shows the breakdown ofpresents our LHFI portfolio by geographic region:geography (based on the U.S. Census Bureau's classifications of U.S. regions):
LHFI Portfolio by Geography         Table 6
             Table 6
September 30, 2015September 30, 2016
Commercial Residential ConsumerCommercial Residential Consumer Total LHFI
(Dollars in millions)Portfolio Balance % of Total Commercial Portfolio Balance % of Total Residential Portfolio Balance % of Total ConsumerBalance % of Total Commercial Balance % of Total Residential Balance % of Total Consumer Balance % of Total LHFI
Geography:           
South region:               
Florida
$12,455
 17% 
$9,766
 25% 
$3,681
 17%
$12,708
 16% 
$9,491
 24% 
$3,924
 16% 
$26,123
 18%
Georgia9,572
 13
 5,923
 15
 1,694
 8
9,712
 13
 5,912
 15
 2,093
 8
 17,717
 13
Virginia6,395
 9
 5,928
 15
 1,453
 7
6,420
 8
 5,986
 15
 1,550
 6
 13,956
 10
Maryland4,156
 5
 4,510
 11
 1,341
 5
 10,007
 7
North Carolina4,201
 5
 3,543
 9
 1,554
 6
 9,298
 7
Tennessee4,571
 6
 2,145
 6
 793
 4
4,483
 6
 2,049
 5
 943
 4
 7,475
 5
North Carolina4,161
 6
 3,561
 9
 1,373
 6
Maryland3,973
 5
 4,227
 11
 1,265
 6
Texas3,918
 5
 479
 1
 2,830
 11
 7,227
 5
South Carolina1,523
 2
 1,807
 5
 468
 2
1,598
 2
 1,749
 4
 570
 2
 3,917
 3
District of Columbia1,334
 2
 785
 2
 85
 —
1,334
 2
 875
 2
 98
 —
 2,307
 2
Total banking region43,984
 60
 34,142
 88
 10,812
 50
California, Illinois, Pennsylvania,
Texas, New Jersey, and New York
15,182
 21
 2,768
 7
 5,716
 27
All other states14,136
 19
 1,878
 5
 4,942
 23
Total outside banking region29,318
 40
 4,646
 12
 10,658
 50
Other Southern states4,009
 5
 587
 1
 1,479
 6
 6,075
 4
Total South region52,539
 68
 35,181
 89
 16,382
 66
 104,102
 74
Northeast region:               
New York4,791
 6
 131
 —
 868
 3
 5,790
 4
Pennsylvania1,651
 2
 110
 —
 930
 4
 2,691
 2
New Jersey1,418
 2
 136
 —
 483
 2
 2,037
 1
Other Northeastern states2,530
 3
 228
 1
 594
 2
 3,352
 2
Total Northeast region10,390
 13
 605
 2
 2,875
 12
 13,870
 10
West region:               
California4,106
 5
 2,205
 6
 1,234
 5
 7,545
 5
Other Western states2,326
 3
 861
 2
 1,184
 5
 4,371
 3
Total West region6,432
 8
 3,066
 8
 2,418
 10
 11,916
 8
Midwest region:               
Illinois1,649
 2
 218
 1
 530
 2
 2,397
 2
Ohio921
 1
 44
 —
 551
 2
 1,516
 1
Other Midwestern states3,286
 4
 284
 1
 2,084
 8
 5,654
 4
Total Midwest region5,856
 8
 546
 1
 3,165
 13
 9,567
 7
Foreign loans2,012
 3
 —
 —
 65
 —
 2,077
 1
Total
$73,302
 100% 
$38,788
 100% 
$21,470
 100%
$77,229
 100% 
$39,398
 100% 
$24,905
 100% 
$141,532
 100%


December 31, 2014December 31, 2015
Commercial Residential ConsumerCommercial Residential Consumer Total LHFI
(Dollars in millions)Portfolio Balance % of Total Commercial Portfolio Balance % of Total Residential Portfolio Balance % of Total ConsumerBalance % of Total Commercial Balance % of Total Residential Balance % of Total Consumer Balance % of Total LHFI
Geography:           
South region:               
Florida
$12,333
 17% 
$10,152
 26% 
$3,651
 17%
$12,712
 17% 
$9,752
 25% 
$3,764
 17% 
$26,228
 19%
Georgia9,221
 13
 5,955
 15
 1,579
 8
9,820
 13
 5,917
 15
 1,769
 8
 17,506
 13
Virginia7,191
 10
 5,721
 15
 1,479
 7
6,650
 9
 5,976
 15
 1,446
 6
 14,072
 10
Maryland4,220
 6
 4,280
 11
 1,262
 6
 9,762
 7
North Carolina4,106
 5
 3,549
 9
 1,419
 6
 9,074
 7
Tennessee4,728
 6
 2,237
 6
 749
 4
4,710
 6
 2,123
 5
 818
 4
 7,651
 6
North Carolina3,733
 5
 3,623
 9
 1,366
 7
Maryland3,903
 5
 3,952
 10
 1,304
 6
Texas3,362
 4
 351
 1
 2,592
 12
 6,305
 5
South Carolina1,441
 2
 1,855
 5
 431
 2
1,517
 2
 1,796
 5
 497
 2
 3,810
 3
District of Columbia1,313
 2
 703
 2
 92
 —
1,375
 2
 790
 2
 85
 —
 2,250
 2
Total banking region43,863
 60
 34,198
 88
 10,651
 51
California, Illinois, Pennsylvania,
Texas, New Jersey, and New York
15,926
 22
 2,630
 7
 5,367
 26
All other states13,603
 18
 1,947
 5
 4,927
 23
Total outside banking region29,529
 40
 4,577
 12
 10,294
 49
Other Southern states4,100
 5
 556
 1
 1,346
 6
 6,002
 4
Total South region52,572
 70
 35,090
 90
 14,998
 67
 102,660
 75
Northeast region:               
New York4,489
 6
 142
 —
 717
 3
 5,348
 4
Pennsylvania1,651
 2
 111
 —
 776
 3
 2,538
 2
New Jersey1,563
 2
 137
 —
 400
 2
 2,100
 2
Other Northeastern states2,165
 3
 230
 1
 516
 2
 2,911
 2
Total Northeast region9,868
 13
 620
 2
 2,409
 11
 12,897
 9
West region:               
California3,368
 4
 1,954
 5
 1,091
 5
 6,413
 5
Other Western states2,059
 3
 752
 2
 1,037
 5
 3,848
 3
Total West region5,427
 7
 2,706
 7
 2,128
 10
 10,261
 8
Midwest region:               
Illinois1,614
 2
 185
 —
 420
 2
 2,219
 2
Ohio885
 1
 52
 —
 457
 2
 1,394
 1
Other Midwestern states3,360
 4
 275
 1
 1,803
 8
 5,438
 4
Total Midwest region5,859
 8
 512
 1
 2,680
 12
 9,051
 7
Foreign loans1,526
 2
 —
 —
 47
 —
 1,573
 1
Total
$73,392
 100% 
$38,775
 100% 
$20,945
 100%
$75,252
 100% 
$38,928
 100% 
$22,262
 100% 
$136,442
 100%

Loans Held for Investment
LHFI totaled $133.6$141.5 billion at September 30, 2015,2016, an increase of $448 million$5.1 billion, or 4%, from December 31, 2014,2015, driven largely by growth in consumer directloans, nonguaranteed residential mortgages, C&I loans, and residential mortgagecommercial construction loans, partially offset by a decreasedecreases in indirectresidential home equity products and CRE loans.
Average loans due toduring the third quarter of 2016 totaled $142.3 billion, up $1.0 billion, auto loan securitization completed in June 2015. Going forward, we may periodically conduct additional auto loan securitization transactions, as they allow us to more efficiently use the balance sheet and diversify our funding sources, while
still being an active loan originator and partner to our auto dealership clients.
Average performing loans during both the three and nine months ended September 30, 2015 totaled $132.4 billion, relatively stableor 1%, compared to the secondprior quarter of 2015. Changes in portfolio mix were driven primarily by the same factors as discussed above related to the changeloan growth in period end LHFI.consumer loans and nonguaranteed residential mortgages, partially offset by declines in C&I loans and residential home equity products. See the "Net Interest Income/Margin" section of this MD&A for more information regarding average loan balances.


81

Commercial loans were relatively stableincreased $2.0 billion, or 3%, during the first nine months of 2015. Commercial construction loans increased $552 million,2016, driven largely by a $1.2 billion, or 46%2%, compared to December 31, 2014, driven primarily by advances on existing loans with developer clients.increase in C&I loans were relatively stable during the first nine months of 2015 asresulting from growth in a number of industry verticals and client segments was offsetsegments. Commercial construction loans also increased by continued elevated paydowns and further reductions$1.9 billion, or 98%, compared to December 31, 2015, due to a reclassification of $1.1 billion of CRE loans to the commercial construction loan portfolio this quarter in lower-return portfolios.accordance with a revised interpretation of regulatory classification requirements. CRE loans decreased $573 million,$1.2 billion, or 9%19%, duringcompared to December 31, 2015, due primarily to the first nine months of 2015, largely due to elevated paydowns.aforementioned reclassification.
Residential loans were relatively stable during the first nine months of 2015. Nonguaranteedincreased $470 million, or 1%, compared to December 31, 2015, driven by a $1.6 billion, or 6%, increase in nonguaranteed residential mortgages increased $908as new originations exceeded paydowns. The increase in nonguaranteed residential mortgages was offset largely by a $993 million, or 4%, offset by an $848 million, or 6%8%, decrease
in residential home equity products. Home equity products decreased as paydowns exceeded new originations and draws during the first nine months of 2015.2016.
At September 30, 2015,2016, 40% of our residential home equity products were in a first lien position and 60% were in a junior lien position. For residential home equity products in a junior lien position, we own or service 30% of the loans that are senior to the home equity product. Additionally, approximately 8%Approximately 10% of the home equity line portfolio is due to convert to amortizing term loans by the end of 20152016 and an additional 42%28% enter the conversion phase over the following three years. Based on historical trends, within 12 months of the end of their draw period, approximately 81% of all accounts, and approximately 70% of accounts with a balance, are closed or refinanced into an amortizing loan or a new line of credit.
We perform credit management activities to limit our loss exposure on home equity accounts. These activities may result in the suspension of available credit and curtailment of available draws of most home equity junior lien accounts when the first lien position is delinquent, including when the junior lien is still current. We monitor the delinquency status of first mortgages serviced by other parties and actively monitor refreshed credit bureau scores of borrowers with junior liens, as these scores are highly sensitive to first lien mortgage delinquency. At September 30, 2015 and December 31, 2014, ourThe loss severity on home equity junior lien loss severityaccounts was approximately 79%71% and 80%,75% at September 30, 2016 and December 31, 2015, respectively. The average borrower FICO score related to loans in our home equity portfolio was approximately 760 at both September 30, 2015 and December 31, 2014, and the average outstanding loan size was approximately $43,000 and $46,000 at both September 30, 20152016 and December 31, 2014, respectively.2015.
Consumer loans increased $525 million,$2.6 billion, or 3%12%, during the first nine months of 2015. The increase was attributable2016, driven by growth across all consumer loan classes as our consumer lending strategies continue to aproduce profitable growth through each of our major channels.


Specifically, other direct loans increased $1.2 billion, or 26%20%, increase in consumer directguaranteed student loans given continued growth in our online origination channels,increased $922 million, or 19%, indirect loans increased $307 million, or 3%, and credit card loans increased $183 million, or 17%. These increases were partially offset by a $525 million, or 5%, decrease in indirect loans and a $239 million, or 5%, decrease in government-guaranteed student loans. The decrease in consumer indirect loans was due to our second quarter securitization of $1.0 billion in consumer indirect auto loans, partially offset by new originations, while the decrease in student loans was driven by a $350 million studentautomobile loan sale in the prior quarter. The mixthird quarter of consumer loans has improved through growth2016, resulting in a gain of $8 million, as part of our higher-return consumer direct
loan portfolio, offset by a reduction in our lower-return indirect loan portfolio.
Going forward, we will continue to seek opportunities to help finance our clients' growth plans, particularly given the solid economic conditions in our markets. Production trends and client activity levels remain healthy and we will continue to focus on improving returns and ensuring new business exceeds our cost of capital.overall balance sheet optimization strategy.
Loans Held for Sale
LHFS decreased $1.2increased $1.9 billion or 37%, during the first nine months of 2015, largely due to loan sales and transfers out of LHFS exceeding the flow of2016, driven primarily by increased mortgage production into LHFS. Loan transfers from LHFS to LHFI totaled $726 million during the first nine months of 2015, comprised primarily of indirect auto loans that were previously transferred to LHFS during 2014 in anticipation of being sold, no longer meeting the criteria for sale.production.
Asset Quality
Our asset quality, performance continued to be veryexcluding energy-related exposure, remained strong during the quarter and first nine months of 2015,2016, driven by economic growth and improved residential housing markets, resolution of NPAs, and lower levels of new NPLs. While our asset quality performance can be attributed, in part, tomarkets. Our strong position reflects the proactive actions we have taken over the past several years to de-risk, diversify, and improve the quality of our loan portfolio, we also recognize that our strong asset quality will eventually normalize across different economic and business cycles.portfolio.
NPAs decreased $248increased $284 million, or 32%39%, compared to December 31, 2015, driven by increases in energy-related C&I NPLs and residential home equity NPLs, the latter of which was associated with changes to our home equity line risk mitigation program that were implemented during the first nine monthsquarter of 2015, due largely to lower inflows of new NPLs and the sale of $92 million of nonperforming mortgage LHFS in the current quarter.2016. At September 30, 2015,2016, substantially all of the percentagehome equity NPLs modified in 2016 were current with respect to payments and the majority are expected to return to accruing status after the borrowers have demonstrated six months of consistent payment history. At September 30, 2016, NPLs to total LHFI was 0.35%0.67%, down 13an increase of 18 basis points compared to December 31, 2014.2015, due to the aforementioned increase in home equity and energy-related NPLs (for additional discussion, see the following "Energy-related Loan Exposure" section).
ForNet charge-offs were $126 million during the third quarter of 20152016, compared to $137 million during the prior quarter and 2014,$71 million during the third quarter of 2015. The current quarter included $33 million in energy-related net charge-offs, compared to $70 million in the prior quarter. This improvement in energy-related charge-offs drove a four basis point reduction in our net charge-off ratio to 0.35% for the third quarter of 2016, compared to 0.39% for the prior quarter, and 0.21% for the third quarter of 2015. Net charge-offs were $71$347 million and $128$258 million, respectively, a decrease of $57 million, or 45%, largely driven by further improvement inand the quality of our residential loan portfolio. Net charge-offsnet charge-off ratio was 0.33% and 0.26%, for the first nine months of 2016 and 2015, and 2014 were $258 million and $351 million, respectively, a decrease of $93 million, or 26%. During the third quarter and first nine months of 2015, the annualized net charge-off ratio declined to 0.21% and 0.26%, respectively, compared to 0.39% and 0.36% during the same periods in 2014. Net charge-offs are currently at very low levels and are likely to increase, as we do not believe the current quarter level is sustainable.respectively.
Total earlyEarly stage delinquencies decreased threesix basis points from December 31, 20142015, to 0.61%0.64% of total loans at September 30, 2015.2016. Early stage delinquencies, excluding government-guaranteed loans, increased one basis point fromwere 0.25% and 0.30% at September 30, 2016 and December 31, 20142015, respectively.
Going forward, assuming no significant changes in the macroeconomic environment, we expect NPLs to 0.31%modestly decline in the near-term and expect our overall net charge-off ratio to be between 30 and 35 basis points for the full year 2016. We also expect our ALLL to period-end LHFI ratio to remain relatively stable in the medium-term, which should result in a provision for loan losses that modestly exceeds net charge-offs.
Energy-related Loan Exposure
We believe that our LHFI portfolio is well diversified by product, client, and geography. However, the LHFI portfolio may be exposed to concentrations of credit risk which exist in relation to individual borrowers or groups of borrowers, types of collateral, certain industries, certain loan products, or regions of the country.
The energy industry vertical is a component of our CIB business. At both September 30, 2016 and December 31, 2015, outstanding loans in the energy portfolio totaled $3.1 billion, and represented 2% of the total loan portfolio. Total exposure, which includes funded and unfunded commitments, was $8.8 billion and $9.3 billion at September 30, 2016 and December 31, 2015, respectively, and represented 4% of our total funded and unfunded commitments at each period end. Loans in the energy portfolio that were in a second lien position at September 30, 2016, were immaterial.
Outstanding loan exposure to the two most adversely impacted sectors, namely oil field services and exploration & production, represented 14% and 21%, respectively, of our energy loan portfolio at September 30, 2016, compared to 15% and 23%, respectively, at December 31, 2015. The remaining energy loan portfolio relates to borrowers in the midstream (i.e., pipeline & transportation) and downstream (i.e., refining & distribution) energy sectors, which have not been as meaningfully impacted by lower commodity prices.
During the third quarter of 2016, net charge-offs on energy loans totaled $33 million and energy-related NPLs declined from $354 million at June 30, 2016 to $337 million at September 30, 2016. At September 30, 2016, 11% of our total energy loans were nonperforming and 30% were criticized (which includes nonperforming loans and criticized accruing loans), both unchanged from the prior quarter, but up from 6% and 19%, respectively, at December 31, 2015. At September 30, 2016, 89% of our nonperforming energy loans were current with respect to payments; however, they are classified as nonperforming due to uncertainty regarding the full collectability of principal, as discussed in the "Critical Accounting Policies" MD&A section and Note 1, "Significant Accounting Policies," to the Consolidated Financial Statements in our 2015 Annual Report on Form 10-K.
We have taken a thorough approach to managing our energy exposure and accounting for increased probable loss content in our reserve estimation process. This includes increasing the resources and intensity around mitigating our risk and helping our clients navigate through this downturn. Reserves associated with the energy portfolio represented 5.5% and 4.6% of total outstanding energy loans at September 30, 2015. At September 30, 2015, early stage delinquencies for all loan classes except C&I showed improvement compared to2016 and December 31, 2014.2015, respectively. Assuming no significant changes in the macroeconomic environment, we expect $40 million to $60 million of energy-related charge-offs over the next two to three quarters. We continue to view our energy-related risk as manageable in the context of our overall Company. See Note 5, “Loans,” to the Consolidated Financial Statements in this Form 10-Q for more information on our LHFI portfolio.



82

ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments reserve.commitments. A rollforward of our allowance for credit losses and summarized credit loss experience is shown in Table 7. See "Critical Accounting Policies - Allowance for Credit Losses" and Note 1, "Significant Accounting Policies," and the "Critical Accounting Policies" to
 
MD&A section of our 20142015 Annual Report on Form 10-K, as well as Note 6, "Allowance for Credit Losses," to the Consolidated Financial Statements in this Form 10-Q for further information regarding our ALLL accounting policy, determination, and allocation.


Summary of Credit Losses ExperienceSummary of Credit Losses Experience Table 7
          Table 7
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2015 2014 
% Change 5
 2015 2014 
% Change 5
2016 2015 
% Change 4
 2016 2015 
% Change 4
Allowance for Credit Losses                      
Balance - beginning of period
$1,886
 
$2,046
 (8)% 
$1,991
 
$2,094
 (5)%
$1,840
 
$1,886
 (2)% 
$1,815
 
$1,991
 (9)%
Provision/(benefit) for unfunded commitments9
 —
 NM
 7
 (7) NM
Provision for unfunded commitments2
 9
 (78) 5
 7
 (29)
Provision/(benefit) for loan losses:                      
Commercial loans33
 25
 32
 74
 82
 (10)81
 33
 NM
 293
 74
 NM
Residential loans(39) 34
 NM
 (30) 114
 NM
(36) (39) 8
 (72) (30) NM
Consumer loans29
 34
 (15) 63
 79
 (20)50
 29
 72
 117
 63
 86
Total provision for loan losses23
 93
 (75) 107
 275
 (61)95
 23
 NM
 338
 107
 NM
Charge-offs:          
          
Commercial loans(23) (26) (12) (82) (97) (15)(78) (23) NM
 (209) (82) NM
Residential loans(47) (104) (55) (177) (279) (37)(28) (47) (40) (102) (177) (42)
Consumer loans(32) (34) (6) (97) (97) —
(44) (32) 38
 (117) (97) 21
Total charge-offs(102) (164) (38) (356) (473) (25)(150) (102) 47
 (428) (356) 20
Recoveries:                      
Commercial loans10
 14
 (29) 35
 40
 (13)7
 10
 (30) 26
 35
 (26)
Residential loans11
 12
 (8) 31
 52
 (40)7
 11
 (36) 22
 31
 (29)
Consumer loans10
 10
 —
 32
 30
 7
10
 10
 —
 33
 32
 3
Total recoveries31
 36
 (14) 98
 122
 (20)24
 31
 (23) 81
 98
 (17)
Net charge-offs(71) (128) (45) (258) (351) (26)(126) (71) 77
 (347) (258) 34
Balance - end of period
$1,847
 
$2,011
 (8)% 
$1,847
 
$2,011
 (8)%
$1,811
 
$1,847
 (2)% 
$1,811
 
$1,847
 (2)%
Components:                      
ALLL    

 
$1,786
 
$1,968
 (9)%    

 
$1,743
 
$1,786
 (2)%
Unfunded commitments reserve 1
    

 61
 43
 42
    

 68
 61
 11
Allowance for credit losses

 

 

 
$1,847
 
$2,011
 (8)%

 

 

 
$1,811
 
$1,847
 (2)%
Average LHFI
$132,837
 
$130,747
 2 % 
$133,000
 
$130,010
 2 %
$142,257
 
$132,837
 7 % 
$140,628
 
$133,000
 6 %
Period-end LHFI outstanding      133,560
 132,151
 1
      141,532
 133,560
 6
Ratios:                      
ALLL to period-end LHFI 2, 3
    

 1.34% 1.49% (10)%
ALLL to NPLs 4
    

 3.87x
 2.60x
 49
ALLL to period-end LHFI 2
1.23% 1.34% (8)% 1.23% 1.34% (8)%
ALLL to NPLs 3
1.84x
 3.87x
 (52) 1.84x
 3.87x
 (52)
ALLL to net charge-offs (annualized)6.33x
 3.88x
 63 % 5.18x
 4.19x
 24
3.49x
 6.33x
 (45) 3.76x
 5.18x
 (27)
Net charge-offs to average LHFI (annualized)0.21% 0.39% (46) 0.26% 0.36% (28)0.35% 0.21% 67
 0.33% 0.26% 27
1 The unfunded commitments reserve is recorded in other liabilities in the Consolidated Balance Sheets.
2 $234 million and $262 million and $284 million of loansLHFI measured at fair value at September 30, 20152016 and 2014,2015, respectively, were excluded from period-end LHFI in the calculation, as no allowance is recorded for loans measured at fair value. We believe that this presentation more appropriately reflects the relationship between the ALLL and loans that attract an allowance.
3 Excluding government-guaranteed loans of $5.2 billion and $6.0 billion from period-end LHFI in the calculation at September 30, 2015 and 2014, respectively, results in ratios of 1.39% and 1.56%, respectively.
4 $2 million and $6 million of NPLs measured at fair value at both September 30, 20152016 and 2014, respectively,2015, were excluded from NPLs in the calculation.
54 “NM”"NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.


83

Provision for Credit Losses
The total provision for credit losses includes the provisionprovision/(benefit) for loan losses and the provision/(benefit) for unfunded commitments. The provision for loan losses is the result of a detailed analysis performed to estimate an appropriate and adequate ALLL. For the third quarter of 2015,2016, the total provision for loan losses decreased $70increased $72 million or 75%, compared to the third quarter of 2014. The decline in the provision was due primarily to continued improvement in the asset quality of the residential loan segment as evidenced by the significant improvements in NPLs, net charge-offs, and delinquencies. Partially offsetting this decline was an increase in our commercial loan loss provision reflecting risk rating downgrades of certain oil and gas and other corporate clients that have occurred during 2015. The provision for unfunded commitments increased in the current quarter driven by a downgrade of a specific unfunded exposure that was individually evaluated for loss content, and an overall increase in the level of binding unused commitments.
For the first nine months of 2015,2016, the total provision for loan losses decreased $168increased $231 million or 61%, compared to the same period in 2014. This decline2015. These increases in the overall provision for loan losses was largelywere driven primarily by the further improvement inhigher energy-related charge-offs, loan growth, and moderating asset quality andimprovements, partially offset by lower net charge-offs in ouron residential loan portfolio.loans.
We expect our fourth quarter provision for loan lossesOur quarterly review processes to increase relative todetermine the current quarter, but remain lower than that of the fourth quarter of 2014, given improvements in asset quality. For 2016, we expect the improvements in asset quality to abate and economic and growth conditions to normalize, and thus, we expect the provision for loan losses to more closely match 2016 net charge-offs. However, the ultimate level of reserves and provision will be determined by our rigorous quarterly review processes, which are informed by trends in our LHFI portfolio (including historical loss experience, expected loss calculations, delinquencies, performing status, size and composition of the loan portfolio, and concentrations within the portfolio) combined with a view on economic conditions. Despite the improvement in manyIn addition to internal credit quality metrics, the ALLL levelestimate is also impacted by other indicators of credit risk associated with the portfolio, such as geopolitical and economic risks, and the increasing availability of credit and resultant higher levels of leverage for consumers and commercial borrowers.

 
Allowance for Loan and Lease Losses
ALLL by Loan SegmentALLL by Loan Segment Table 8
ALLL by Loan Segment Table 8
(Dollars in millions)September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
ALLL:      
Commercial loans
$1,013
 
$986

$1,157
 
$1,047
Residential loans601
 777
382
 534
Consumer loans172
 174
204
 171
Total
$1,786
 
$1,937

$1,743
 
$1,752
Segment ALLL as % of total ALLL:   
Segment ALLL as a % of total ALLL:Segment ALLL as a % of total ALLL:
Commercial loans57% 51%66% 60%
Residential loans34
 40
22
 30
Consumer loans9
 9
12
 10
Total100% 100%100% 100%
Segment LHFI as % of total LHFI:   
Segment LHFI as a % of total LHFI:Segment LHFI as a % of total LHFI:
Commercial loans55% 55%54% 55%
Residential loans29
 29
28
 29
Consumer loans16
 16
18
 16
Total100% 100%100% 100%

The ALLL decreased $151$9 million, or 8%1%, from December 31, 2014,2015, to $1.8$1.7 billion at September 30, 2015.2016. The slight decrease was primarily drivenreflects continued improvements in the asset quality of the residential loan portfolio, largely offset by the further improvement in asset quality.loan growth. The ALLL to period-end LHFI ratio (excluding loans measured at fair value) decreased 12six basis points from December 31, 2014,2015, to 1.34%1.23% at September 30, 2015, excluding loans measured at fair value from period-end LHFI in the calculation. We expect the ratio to gradually trend down for the remainder of 2015 assuming asset quality and economic conditions remain favorable.2016. The ratio of the ALLL to total NPLs increaseddecreased to 3.87x1.84x at September 30, 2015,2016, compared to 3.07x2.62x at December 31, 2014, resulting from2015, reflecting our first quarter of 2016 migration of energy loans to nonperforming status, higher residential NPLs associated with changes to our home equity line risk mitigation program, and a slight decrease in NPLs largely due to the second quarter transfer of NPLs to LHFS and subsequent sale of $92 million of nonperforming mortgage LHFS in the current quarter, partially offset by the decrease in our ALLL.






84

NONPERFORMING ASSETS

The following table presents our NPAs:
  Table 9     Table 9
(Dollars in millions)September 30, 2015 December 31, 2014 
% Change 3
September 30, 2016 December 31, 2015 
% Change 3
Nonaccrual/NPLs:          
Commercial loans:          
C&I
$122
 
$151
 (19)%
$501
 
$308
 63 %
CRE15
 21
 (29)10
 11
 (9)
Commercial construction1
 1
 —
2
 —
 NM
Total commercial NPLs138
 173
 (20)513
 319
 61
Residential loans:          
Residential mortgages - nonguaranteed156
 254
 (39)183
 183
 —
Home equity products146
 174
 (16)
Residential home equity products235
 145
 62
Residential construction16
 27
 (41)11
 16
 (31)
Total residential NPLs318
 455
 (30)429
 344
 25
Consumer loans:          
Other direct4
 6
 (33)5
 6
 (17)
Indirect3
 —
 NM
2
 3
 (33)
Total consumer NPLs7
 6
 17
7
 9
 (22)
Total nonaccrual/NPLs 1
463
 634
 (27)949
 672
 41
OREO 2
62
 99
 (37)57
 56
 2
Other repossessed assets7
 9
 (22)13
 7
 86
Nonperforming LHFS—
 38
 (100)
Total NPAs
$532
 
$780
 (32)%
$1,019
 
$735
 39 %
Accruing LHFI past due 90 days or more
$905
 
$1,057
 (14)%
$1,144
 
$981
 17 %
Accruing LHFS past due 90 days or more1
 1
 —
2
 —
 NM
TDRs:          
Accruing restructured loans
$2,571
 
$2,592
 (1)%
$2,522
 
$2,603
 (3)%
Nonaccruing restructured loans 1
182
 273
 (33)306
 176
 74
Ratios:          
NPLs to period-end LHFI0.35% 0.48% (27)%0.67% 0.49% 37 %
NPAs to period-end LHFI, OREO, other repossessed assets, and nonperforming LHFS0.40
 0.59
 (32)
NPAs to period-end LHFI, OREO, and other repossessed assets0.72
 0.54
 33
1Nonaccruing restructured loans are included in total nonaccrual/nonaccrual/NPLs.
2Does not include foreclosed real estate related to loans insured by the FHA or the VA. Proceeds due from the FHA and the VA are recorded as a receivable in other assets in the Consolidated Balance Sheets until the property is conveyed and the funds are received and the property is conveyed.received. The receivable amount related to proceeds due from the FHA or the VA totaled $50$51 million and $57$52 million at September 30, 20152016 and December 31, 2014,2015, respectively.
3 "NM" - not meaningful. Those changes over 100 percent were not considered to be meaningful.


NPAs decreased $248increased $284 million, or 32%39%, during the first nine months of 2015, primarily2016, largely due to the continued improvement in asset quality and the related economic environment.downgrades of certain energy-related loans as well as home equity lines. At September 30, 2015,2016, our ratio of NPLs to period-end LHFI was 0.35%0.67%, downup 18 basis points from 0.48% at December 31, 2014, reflecting the decrease2015, driven by a deterioration of certain loans in NPLs. We expect the ratio ofour energy industry vertical and due to an increase in residential home equity NPLs, to period-end LHFI to be generally stable to slightly higher for the remainder of 2015, with some dependency on the movementdriven by changes in oil prices, as the ratio has reached a level comparable to that of the pre-financial crisis (2006).our home equity line risk mitigation program.
Problem loans or loans with potential weaknesses, such as nonaccrual loans, loans over 90 days past due and still accruing, and TDR loans, are disclosed in the NPA table above. Loans with known potential credit problems that may not otherwise be disclosed in this table include accruing criticized commercial loans, which are disclosed along with additional credit quality information in Note 5, “Loans,” to the Consolidated Financial Statements in this Form 10-Q. At September 30, 20152016 and
December 31, 2014,2015, there were no known significant potential
problem loans that are not otherwise disclosed.



85

Nonperforming Loans
NPLs at September 30, 20152016 totaled $463$949 million, a $171 million decline during the first nine monthsan increase of 2015. Residential NPLs were the largest driver of the overall decrease, which declined $137$277 million, or 30%41%, from December 31, 2015. Commercial NPLs increased $194 million, or 61%, due largely to downgrades of certain energy-related loans. While certain of these loans may be current with respect to their contractual debt service agreements, the second quarterdecline in oil prices over the last two years, combined with facts and circumstances associated with these specific loan arrangements, raised uncertainty regarding the full collectability of principal. See the "Critical Accounting Policies" section of our 2015 transferAnnual Report on Form 10-K for additional information regarding our policy on loans classified as nonaccrual. See the "Loans" section of mortgagethis MD&A for additional information regarding our energy-related loan exposure.


Residential NPLs to LHFS and subsequent $92 million sale of the transferred loans in the current quarter. Nonperforming commercial loans decreased $35increased $85 million, or 20%25%, from December 31, 20142015, primarily due to $138 million atan increase in residential home equity NPLs driven by changes to our home equity line risk mitigation program implemented during the first quarter of 2016. At September 30, 2015.2016, substantially all of the home equity NPLs modified in 2016 were current with respect to payments and the majority are expected to return to accruing status after the borrowers have demonstrated six months of consistent payment history.
Interest income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis. Interest income on commercial nonaccrual loans is not generally recognized until after the principal amount has been reduced to zero. We recognized $4 million and $5 million of interest income related to nonaccrual loans during both the third quarter of 2016 and 2015, respectively, and 2014,$13 million and $18 million and $16 million during the first nine months of 20152016 and 2014,2015, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $6$13 million and $12$6 million would have been recognized during the third quarter of 20152016 and 2014,2015, respectively, and $22$35 million and $37$22 million during the first nine months of 20152016 and 2014,2015, respectively.

Other Nonperforming Assets
OREO decreased $37increased $1 million, or 37%2%, during the first nine months of 2015 as a result of net decreases of $26 million in residential homes, $8 million in commercial properties, and $3 million in residential construction related properties.2016. Sales of OREO resulted in proceeds of $98$46 million and $181$98 million during the first nine months of 20152016 and 2014,2015, respectively, contributing to net gains on sales of OREO of $19$8 million and $32$19 million, respectively, inclusive of valuation reserves.
Geographically, mostMost of our OREO properties are located in Florida, Georgia,North Carolina, and North Carolina.Maryland. Residential and commercial real estate properties comprised 81%80% and 13%16%, respectively, of the $62$57 million in total OREO at September 30, 2015;2016, with the remainder is related to land and other properties.land. Upon foreclosure, the values of these properties were reevaluated and, if necessary, written down to their then-current estimated value less estimated costs to sell. Any further decreases in property values could result in additional losses on these properties as wethey are periodically revalue them.revalued. See the "Non-recurring Fair Value Measurements" section within Note 14, "Fair Value Election and Measurement," to the Consolidated Financial Statements in this Form 10-Q for additional information.
Gains and losses on the sale of OREO are recorded in other noninterest expense in the Consolidated Statements of Income. Sales of OREO and the related gains or losses are highly dependent on our disposition strategy and buyer opportunities. We are actively managing and disposing of these foreclosed assets to minimize future losses.
Accruing loans past due 90 days or more included LHFI and LHFS, and totaled $906 million and $1.1 billion and $981 million at September 30, 20152016 and December 31, 2014,2015, respectively. Of these, 96%97% and 97%96% were government-guaranteed at September 30, 20152016 and December 31, 2014,2015, respectively. Accruing LHFI past due 90 days or more decreased $152increased $163 million, or 14%17%, during the first nine months of 2015, primarily driven by reductions in
 
nine months of 2016, driven primarily by an increase in government-guaranteed loans.student loans, offset partially by a decrease in government-guaranteed residential mortgages.
Restructured Loans
To maximize the collection of loan balances, we evaluate troubled loans on a case-by-case basis to determine if a loan modification would beis appropriate. We pursue loan modifications when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the debt. For loans secured by residential real estate, if the client demonstrates a loss of income such that the client cannot reasonably support a modified loan, we may pursue short sales and/or deed-in-lieu arrangements. For loans secured by income producing commercial properties, we perform an in-depth and ongoing programmatic review. We review of a number of factors, including cash flows, loan structures, collateral values, and guarantees to identify loans within our income producing commercial loan portfolio that are most likely to experience distress.
Based on our review of thesethe aforementioned factors and our assessment of overall risk, we evaluate the benefits of proactively initiating discussions with our clients to improve a loan’s risk profile. In some cases, we may renegotiate terms of their loans so that they have a higher likelihood of continuing to perform. To date, we have restructured loans in a variety of ways to help our clients service their debt and to mitigate the potential for additional losses. The primary restructuring methods being offered to our residential clients are reductions in interest rates, extensions of terms, or forgiveness of principal. ForSpecifically, for home equity lines nearing the end of the draw period and for commercial loans, the primary restructuring method is thean extension of terms.
Loans with modifications deemed to be economic concessions resulting from borrower financial difficulties are reported as TDRs. Accruing loans may retain accruing status at the time of restructure and the status is determined by, among other things, the nature of the restructure, the borrower's repayment history, and the borrower's repayment capacity.
Nonaccruing loans that are modified and demonstrate a sustainable history of repayment performance typically six months, in accordance with their modified terms, typically six months, are generallyusually reclassified to accruing TDR status. Generally, once a residential loan becomes a TDR, we expect that the loan will continue to be reported as a TDR for its remaining life, even after returning to accruing status unless(unless the modified rates and terms at the time of modification were available in the market at the time of the modification, or if the loan is subsequently remodified at market rates. We note that somerates). Some restructurings may not ultimately result in the complete collection of principal and interest (as modified by the terms of the restructuring), culminating in default, which could result in additional incremental losses. These potential incremental losses have beenare factored into our ALLL estimate. The level of re-defaults will likely be affected by future economic conditions. See Note 5, "Loans," to the Consolidated Financial Statements in this Form 10-Q for more information.



Table 10 displayspresents our recorded investment of residential real estate TDR portfolioTDRs by modification type and payment status. Guaranteed loans that have been repurchased from Ginnie Mae under an early buyout clause and subsequently modified have been excluded from the table. Such loans totaled approximately $69$47 million and $49$61 million at September 30, 20152016 and December 31, 2014,2015, respectively.


86

Selected Residential TDR Data          Table 10
 September 30, 2015
 Accruing TDRs Nonaccruing TDRs
(Dollars in millions)Current 
Delinquent 1
 Total Current 
Delinquent 1
 Total
Rate reduction
$920
 
$70
 
$990
 
$14
 
$34
 
$48
Term extension9
 3
 12
 —
 1
 1
Rate reduction and term extension1,134
 91
 1,225
 12
 45
 57
Other 2
158
 9
 167
 7
 19
 26
Total
$2,221
 
$173
 
$2,394
 
$33
 
$99
 
$132
            
 December 31, 2014
 Accruing TDRs Nonaccruing TDRs
(Dollars in millions)Current 
Delinquent 1
 Total Current 
Delinquent 1
 Total
Rate reduction
$784
 
$69
 
$853
 
$16
 
$40
 
$56
Term extension13
 4
 17
 1
 1
 2
Rate reduction and term extension1,251
 103
 1,354
 30
 68
 98
Other 2
173
 11
 184
 12
 26
 38
Total
$2,221
 
$187
 
$2,408
 
$59
 
$135
 
$194
Residential TDR Data          Table 10
 September 30, 2016
 Accruing TDRs Nonaccruing TDRs
(Dollars in millions)Current 
Delinquent 1
 Total Current 
Delinquent 1
 Total
Residential mortgages - nonguaranteed
$1,491
 
$114
 
$1,605
 
$13
 
$75
 
$88
Residential home equity products600
 21
 621
 114
 31
 145
Residential construction112
 3
 115
 —
 5
 5
Total residential TDRs
$2,203
 
$138
 
$2,341
 
$127
 
$111
 
$238
            
 December 31, 2015
 Accruing TDRs Nonaccruing TDRs
(Dollars in millions)Current 
Delinquent 1
 Total Current 
Delinquent 1
 Total
Residential mortgages - nonguaranteed
$1,537
 
$138
 
$1,675
 
$15
 
$83
 
$98
Residential home equity products596
 25
 621
 15
 25
 40
Residential construction124
 2
 126
 —
 6
 6
Total residential TDRs
$2,257
 
$165
 
$2,422
 
$30
 
$114
 
$144
1 TDRs considered delinquent for purposes of this table were those at least thirty days past due.

2 Primarily consists of extensions and deficiency notes.

At September 30, 2015,2016, our total TDR portfolio was $2.8 billion and was composedcomprised of $2.5$2.6 billion, or 92%91%, of residential loans (predominantly first and second lien residential mortgages and home equity lines of credit), $130$126 million, or 5%, of consumercommercial loans, and $86 million, or 3%, of commercial loans (predominantly income-producing properties). Total TDRs decreased $112$123 million, or 4%, of consumer loans. Total TDRs increased $49 million, or 2%, from December 31, 2014.2015. Nonaccruing TDRs decreased $91increased $130 million, or 33%74%, and accruing TDRs decreased $21$81 million, or 1%3%, from December 31, 2014, respectively.2015. The increase in nonaccruing TDRs was driven largely by the changes to our home equity line risk mitigation program implemented during the first quarter of 2016.
Generally, interest income on restructured loans that have met sustained performance criteria and have been returned to accruing
 
accruing status is recognized according to the terms of the restructuring. Such recognized interest income was $28 million and $29 million during both the third quarter of 2016 and 2015, respectively, and 2014,$84 million and $86 million and $92 million for the first nine months of 20152016 and 2014,2015, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $36$34 million and $37$36 million during the third quarter of 20152016 and 2014,2015, respectively, and $110$105 million and $119$110 million for the first nine months of 2016 and 2015, and 2014, respectively,
would have been recognized.



SELECTED FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The following is a discussion of the more significant financial assets and financial liabilities that are measured at fair value on the Consolidated Balance Sheets at September 30, 20152016 and December 31, 2014.2015. For a complete discussion of our financial instruments measured at fair value and the methodologies used to estimate the fair values of our financial instruments, see Note 14, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.

Trading Assets and Liabilities and Derivative Instruments
Trading assets and derivative instruments increased $335$925 million, or 5%15%, compared to December 31, 2014,2015. This increase was primarily due to increases in U.S. Treasury securities, net derivative instruments, agency MBS, corporate and trading loans,other debt securities, U.S. states and political subdivisions securities, and CP, offset partially by a decrease in federal agency securities, resulting from normal changes in the trading portfolio product mix as we growmanage our
business and continue to meet our clients' needs. These increases were offset
partially by a decreaseneeds, as well as, increased MSR hedging activity related to the fluctuations in corporate and other debt securities.long-term interest rates. Trading liabilities and derivative instruments increased $103$221 million, or 8%17%, compared to December 31, 2014, primarily2015, due to increasesan increase in U.S. Treasury securities, andoffset partially by decreases in net derivative instruments partially offset by a decrease in corporate and other debt securities.agency MBS. For composition and valuation assumptions related to our trading products, as well as additional information on our derivative instruments, see Note 3, “Trading Assets and Liabilities and Derivative Instruments,” Note 13, “Derivative Financial Instruments,” and the “Trading“Trading Assets and Derivative Instruments and Securities Available for Sale”Sale” section of Note 14, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q. Also, for a discussion of market risk associated with our trading activities, refer to the “Market“Market Risk Management—Management—Market Risk from Trading Activities” section of this MD&A.



87

Securities Available for Sale      Table 11
       
      Table 11
September 30, 2015September 30, 2016
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities
$3,020
 
$45
 
$—
 
$3,065

$4,850
 
$135
 
$2
 
$4,983
Federal agency securities408
 13
 1
 420
324
 10
 —
 334
U.S. states and political subdivisions167
 7
 —
 174
250
 11
 —
 261
MBS - agency22,452
 511
 58
 22,905
22,606
 714
 4
 23,316
MBS - private100
 2
 —
 102
MBS - non-agency residential75
 1
 —
 76
ABS13
 2
 —
 15
9
 2
 —
 11
Corporate and other debt securities36
 2
 —
 38
35
 1
 —
 36
Other equity securities 1
551
 1
 1
 551
655
 1
 1
 655
Total securities AFS
$26,747
 
$583
 
$60
 
$27,270

$28,804
 
$875
 
$7
 
$29,672
1At September 30, 2016, the fair value of other equity securities was comprised of the following: $143 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $104 million of mutual fund investments, and $6 million of other.

 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 securities402
 10
 1
 411
U.S. states and political subdivisions156
 8
 —
 164
MBS - agency22,877
 397
 150
 23,124
MBS - non-agency residential92
 2
 —
 94
ABS11
 2
 1
 12
Corporate and other debt securities37
 1
 —
 38
Other equity securities 1
533
 1
 1
 533
Total securities AFS
$27,568
 
$424
 
$167
 
$27,825
1 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, $111$93 million of mutual fund investments, and $6 million of other. 


 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 securities471
 15
 2
 484
U.S. states and political subdivisions200
 9
 —
 209
MBS - agency22,573
 558
 83
 23,048
MBS - private122
 2
 1
 123
ABS19
 2
 —
 21
Corporate and other debt securities38
 3
 —
 41
Other equity securities 1
921
 2
 —
 923
Total securities AFS
$26,257
 
$600
 
$87
 
$26,770
1 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 securities AFS portfolio is managed as part of our overall liquidity management and ALM process to optimize income and portfolio value over an entire interest rate cycle while mitigating the associated risks. Changes in the size and composition of the portfolio reflect our efforts to maintain a high quality, liquid portfolio, while managing our interest rate risk profile. The amortized cost of the portfolio increased $490 million$1.2 billion during the nine months ended September 30, 2015,2016, primarily as a result ofdriven by an increase in our U.S. Treasury securities portfolio to help meetsupport LCR requirements that will increase effective January 1, 2017, as well as an increase in other equity securities due to increased holdings of FHLB of Atlanta capital stock. We expect to add approximately $1 billion of high-quality, liquid securities in the forthcomingfourth quarter to finalize our progress towards the increased 2017 LCR requirements. The fair value of the portfolio increased $500 million over the same period,$1.8 billion compared to December 31, 2015, primarily due to the increase in amortized cost as well asaforementioned addition of U.S. Treasury securities and a $10$611 million increase in net unrealized gains.gains, most notably on agency MBS, due to a decline in market interest rates. At September 30, 2014, our total2016, the overall securities AFS portfolio was in a $523$868 million net gain position.
DuringFor the nine months ended September 30, 2016 and 2015, we recorded $4 million and $21 million, respectively, in net realized gains related to the sale of securities AFS, compared to net realizedAFS. There were no OTTI losses of $11 million duringrecognized in earnings for the nine months ended September 30, 2014.2016, and OTTI losses recognized in earnings duringfor the nine months ended September 30, 2015 and 2014 were immaterial. For
additional information on our accounting policies, composition, and valuation assumptions related to the securities AFS portfolio, see Note 1, "Significant Accounting Policies," in our 2015 Annual Report on Form 10-K, as well as Note 4, "Securities Available for Sale," and the “Trading Assets and Derivative Instruments and
Securities Available for Sale” section of Note 14, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.
For the third quarter of 2015,2016, the average yield on the securities AFS portfolio was 2.29%2.22%, compared to 2.52%2.28% for the third quarter of 2014.2015. For the nine months ended September 30, 2015,2016, the average yield on the securities AFS portfolio was 2.19%2.30%, compared to 2.61%2.18% for the nine months ended September 30, 2014.2015. The year-over-year decrease in average yield for the third quarter of 2016 was primarily due to the addition of lower-yielding U.S. Treasury securities during 2015the current quarter. The year-over-year increase in preparationaverage yield for the forthcoming LCR requirements. Additionally, the decline in yieldnine months ended September 30, 2016 was driven by higherprimarily due to lower MBS premium amortization during the first half of 2015 as a result of increased MBS prepayments. During the second quarter of 2015, we modestly repositioned our portfolio by selling lower-yielding agency MBS (with associated high premiums and related amortization) and purchased higher-yielding agency MBS (with lower premium). Premium amortization will likely remain stable in the fourth quarter of 2015 comparedcurrent year. See additional discussion related to the third quarter, as the third quarter reflected the full effect of the modest repositioning of ouraverage yields on securities AFS portfolio.in the "Net Interest Income/Margin" section of this MD&A.
The securities AFS portfolio had an effective duration of 4.63.8 years at September 30, 20152016 compared to 3.64.5 years at


88

December 31, 2014.2015. Effective duration is a measure of price sensitivity of a bond portfolio to an immediate change in market interest rates, taking into consideration embedded options. An effective duration of 4.63.8 years suggests an expected price change


of approximately 4.6%3.8% for a 100 basis point instantaneous and parallel change in market interest rates.
The credit quality and liquidity profile of the securities AFS portfolio remained strong at September 30, 20152016 and consequently, we believe that we have the flexibility to respond to changes in the economic environment and take actions as opportunities arise to manage our interest rate risk profile and balance liquidity risk against investment returns. Over the longer term, the size and composition of the securities AFS portfolio will reflect balance sheet trends, our overall liquidity position,objectives, and interest rate risk management objectives. Accordingly, the size and composition of the securities AFS portfolio could change over time.

Federal Home Loan Bank and Federal Reserve Bank Stock
We previously acquired capital stock in the FHLB of Atlanta as a precondition for becoming a member of that institution. As a member, we are able to take advantage of competitively priced
advances as a wholesale funding source and to access grants and low-cost loans for affordable housing and community development projects, among other benefits. At September 30, 2015,2016, we held a total of $32$143 million of capital stock in the FHLB a decrease of $344Atlanta, an increase of $111 million compared to December 31, 2014.2015. This decrease in our holdings of FHLB capital stockincrease was due to our purchase of FHLB of Atlanta capital stock during the first half of 2016 related to an increase in FHLB borrowings during the same period, partially offset by a redemption of FHLB capital stock related to a decline in FHLB borrowings overduring the same period. Duringthird quarter of 2016. Dividends recognized in relation to FHLB capital stock were immaterial for both the three and nine months ended September 30, 2015, we recognized dividends related2016, compared to FHLB capital stock of $2 million and $10 million respectively, compared to $3 million and $9 million duringfor the three and nine months ended September 30, 2014,2015, respectively.
Similarly, to remain a member of the Federal Reserve System, we are required to hold a certain amount of capital stock, determined as either a percentage of the Bank’s capital or as a percentage of total deposit liabilities. At September 30, 2015,2016, we held $402 million of Federal Reserve Bank of Atlanta stock, unchanged from December 31, 2014. During both2015. For the three and nine months ended September 30, 2015 and 2014,2016, we recognized dividends related to Federal Reserve Bank of Atlanta stock of $2 million and $5 million, respectively, compared to $6 million and $18 million for the three and nine months ended September 30, 2015, respectively. The decline in dividends recognized was due to legislation passed by the U.S. Congress in December 2015, which changed the dividend rate on our statutory investment in Federal Reserve Bank of Atlanta stock from 6% to the lower of 6% or the 10-year Treasury note rate (which, at September 30, 2016, was 1.60%).


BORROWINGS               
                
Short-Term Borrowings             Table 12
 September 30, 2015 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2015
 Balance Rate Daily Average 
Maximum
Outstanding at
any Month-End
 Daily Average 
Maximum
Outstanding at
any Month-End
(Dollars in millions) Balance Rate  Balance Rate 
Funds purchased 1

$1,329
 0.07% 
$672
 0.10% 
$1,335
 
$806
 0.10% 
$1,335
Securities sold under agreements to repurchase 1
1,536
 0.23
 1,765
 0.22
 1,647
 1,837
 0.20
 1,896
Other short-term borrowings1,077
 0.12
 2,172
 0.16
 2,547
 2,479
 0.17
 4,426
Total
$3,942
   
$4,609
     
$5,122
    
 
   
   
 
   
 September 30, 2014 Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014
 Balance Rate Daily Average 
Maximum
Outstanding at
any Month-End
 Daily Average 
Maximum
Outstanding at
any Month-End
(Dollars in millions) Balance Rate  Balance Rate 
Funds purchased 1

$1,000
 0.07% 
$937
 0.10% 
$1,168
 
$917
 0.09% 
$1,375
Securities sold under agreements to repurchase 1
2,089
 0.10
 2,177
 0.13
 2,142
 2,176
 0.12
 2,228
Other short-term borrowings7,283
 0.22
 6,559
 0.23
 7,283
 5,984
 0.24
 7,283
Total
$10,372
   
$9,673
     
$9,077
    
BORROWINGS
1 Funds purchased and securities sold under agreements to repurchase mature overnight or at a fixed maturity generally not exceeding three months. Rates on overnight funds reflect current market rates. Rates on fixed maturity borrowings are set at the time of the borrowings.
Short-Term Borrowings
Our total period-end short-term borrowings at September 30, 2015 decreased $6.4 billion,2016 increased $272 million, or 62%6%, from September 30, 2014,December 31, 2015, driven by a $6.2 billion decrease$277 million increase in other short-term borrowingsfunds purchased and a $553$70 million decrease in securities sold under agreements to repurchase. The decrease in other short-term borrowings was primarily due to a $5.0 billion decline in outstanding FHLB advances and a $1.4 billion decline in master notes, partially offset by an increase of $189 million in dealer collateral held.
During the three months ended September 30, 2015, our total daily average short-term borrowings decreased $5.1 billion,
or 52%, compared to the three months ended September 30, 2014. The decrease was primarily driven by a decrease in other short-term borrowings of $4.4 billion and a decrease in securities sold under agreements to repurchase, of $412 million.partially offset by a $75 million decrease in other short-term borrowings. The decrease in other short-term
borrowings was primarily due to a $3.3 billion decrease in FHLB advances and a $1.3 billion decrease$106 million decline in master notes partially offset by an increase in dealer collateral held of $209 million. These reductions in wholesale funding were enabled by strong growth in client deposits.


89

During the nine months ended September 30, 2015, our total daily average short-term borrowings decreased $4.0 billion, or 44%, compared to the nine months ended September 30, 2014. The decrease was primarily driven by a decrease in other short-term borrowings of $3.5 billion and a decrease in securities sold under agreements to repurchase of $339 million. The decrease in other short-term borrowings was due to a $2.7 billion decrease in FHLB advances and a $1.0 billion decrease in master notes, partially offset by an increase of $187 million in dealer collateral held. These reductions in wholesale funding were enabled by strong growth in client deposits.

outstanding.
Long-Term Debt
During the nine months ended September 30, 2015,2016, our long-term debt decreasedincreased by $4.6 billion, or 35%, primarily driven by the termination of FHLB advances in the second and third quarter of 2015. These early terminations of FHLB advances were related to a repositioning of the balance sheet and resulted in the recognition of $24 million in debt extinguishment costs, net of related hedges.
Average long-term debt for the three months ended September 30, 2015 decreased $3.4 billion, or 26%, compared40%. This increase was primarily due to the average for the three months ended September 30, 2014, primarily driven by a $2.7addition of $2.6 billion decrease in averageof long-term FHLB advances and a $324the issuance of $750 million decreaseof 10-year fixed rate subordinated notes in subordinated debt.
Average long-term debt for the nine months ended September 30, 2015 decreased $465 million, or 4%, comparedsecond quarter of 2016. Additionally, during the first quarter of 2016, we issued $1.0 billion of 5-year fixed rate senior notes and used the proceeds to the average for the nine months ended September 30, 2014, primarily driven by a $417 million decreasepay off $1.0 billion of higher cost, fixed rate senior notes that were due in average long-term FHLB advances.2016. There have been no other material changes in our long-term debt as described in our 20142015 Annual Report on Form 10-K.

CAPITAL RESOURCES
Regulatory Capital
Our primary federal regulator, the Federal Reserve, measures capital adequacy within a framework that sets capital requirements relative to the risk profiles of individual banks. The framework assigns risk weights to assets and off-balance sheet risk exposures according to predefined classifications, creating a base from which to compare capital levels. Effective January 1, 2015, weWe measure capital adequacy using the standardized approach to the Federal Reserve's Basel III Final Rule. Basel III retained the general framework from the prior capital adequacy calculations under Basel I, but certain predefined classifications have changed and risk weightings have been revised. Additionally, Basel III introduced a new capital measure, CET1, and revised what comprises Tier 1 and Total capital. Further, Basel III revised the requirements related to minimum capital adequacy levels.
In the third quarter, the Federal Reserve released a notice of proposed rulemaking related to capital plan and stress test rules and also indicated that an additional notice of proposed rulemaking is forthcoming in 2017 that would address other elements of Basel III and stress test rules. We are in the process of evaluating this information, but do not expect the final rules to significantly impact our minimum capital requirements.
CET1 is limited to common equity and related surplus (net of treasury stock), retained earnings, AOCI, and common equity minority interest, subject to limitations. Certain regulatory adjustments and exclusions are made to CET1, including removal of goodwill, other intangible assets, certain DTAs, the impact on capital arising from mark-to-market adjustments related to our credit spreads, which is now included in AOCI, and certain defined benefit pension fund net assets. Further, banks employing the standardized
approach to Basel III were granted a one-time permanent election to exclude AOCI from the calculation of regulatory capital. We elected to exclude AOCI from the calculation of our CET1.
Tier 1 capital includes CET1, qualified preferred equity instruments, qualifying minority interest not included in CET1, subject to limitations, and certain other regulatory deductions. Tier 1 capital includesincluded a portion of trust preferred securities during 2015, butin 2015; however, those instruments will be phased outwere completely phased-out of Tier 1 capital as ofeffective January 1, 2016 and will be reclassifiedare now classified as Tier 2 capital. As a result, the $627 million in principal amount of Parent Company trust preferred securities currently outstanding will receivethat


received partial Tier 1 capital treatment duringin 2015 and will beare now treated as Tier 2 capital beginning on January 1, 2016.using the methodology specified in Basel III.
Total capital consists of Tier 1 capital and Tier 2 capital, which includes qualifying portions of subordinated debt, trust preferred securities and minority interest not included in Tier 1 capital, ALLL up to a maximum of 1.25% of RWA, and a limited percentage of unrealized gains on equity securities.
To be considered "adequately capitalized," we are subject to minimum CET1, Tier 1 capital, and Total capital ratios of 4.5%, 6%, and 8%, respectively. To be considered “well-capitalized,” Tier 1 and Total capital ratios of 6% and 10%, respectively, are required. Additionally,plus, beginning in 2016, a CCB amount of 0.625% is required to be maintained above the minimum capital ratios. The CCB will continue to increase each year through January 1, 2019 when the CCB amount will be fully phased-in at 2.5% above the minimum capital ratios. The CCB places restrictions on the amount of retained earnings that may be used for capital distributions or discretionary bonus payments as risk-based capital ratios approach their respective “adequately capitalized” minimum capital ratios plus the CCB. To be considered “well-capitalized,” Tier 1 and Total capital ratios of 6% and 10%, respectively, are required.
We are also subject to a Tier 1 leverage ratio requirement, which measures Tier 1 capital against average total assets less certain deductions, as calculated in accordance with regulatory guidelines. The minimum leverage ratio threshold is 4% and is not subject to the CCB.
Risk weighting under Basel III was modified primarily to enhance risk sensitivity of RWA. Additional risk weight categories were added and certain calculation methodologies were introduced to more precisely calculate exposure risk. Exposures that received a significant risk weight and/or calculation methodology change compared to Basel I included certain nonperforming and past-due loans, MSRs, certain unfunded commitments, derivatives, securitizations, and certain commercial and CRE loans.
A transition period applies to certain capital elements and risk weighted assets.assets, where phase-in percentages are applicable in the calculations of capital and RWA. One of the more significant transitions required by the Basel III Final Rule relates to the risk weighting applied to MSRs, which will impact the CET1 ratio during the transition period when compared to the CET1 ratio that is calculated on a fully phased-in basis. Specifically, the fully phased-in risk weight of MSRs is 250%, while the risk weight to be applied during the transition period is 100%. The transition period is applicable from January 1, 2015 through December 31, 2017. Table 12 presents transitional Basel III regulatory capital metrics at September 30, 2016 and December 31, 2015.



90

Regulatory CapitalTable 13
(Dollars in millions)September 30, 2015
CET1
$16,274
Tier 1 capital17,657
Total capital20,608
RWA162,041
Average total assets for leverage ratio182,420
Risk-based ratios:
CET110.04%
CET1 - fully phased-in 1
9.89
Tier 1 capital10.90
Total capital12.72
Leverage9.68
Total shareholders’ equity to assets12.65
(Dollars in millions)
December 31, 2014 2
Tier 1 capital
$17,554
Total capital20,338
RWA162,516
Average total assets for leverage ratio182,186
Tier 1 common equity:
Tier 1 capital
$17,554
Less:
Qualifying trust preferred securities627
Preferred stock1,225
Minority interest108
Tier 1 common equity
$15,594
Risk-based ratios:
Tier 1 common equity9.60%
Tier 1 capital10.80
Total capital12.51
Tier 1 leverage ratio9.64
Total shareholders’ equity to assets12.09
Regulatory Capital Metrics 1
 Table 12
(Dollars in millions)September 30, 2016 December 31, 2015
Regulatory capital:   
CET1
$16,862
 
$16,421
Tier 1 capital18,101
 17,804
Total capital21,671
 20,668
Assets:   
RWA
$172,461
 
$164,851
Average total assets for leverage ratio195,105
 183,763
Risk-based ratios:   
CET19.78% 9.96%
CET1 - fully phased-in 2
9.66
 9.80
Tier 1 capital10.50
 10.80
Total capital12.57
 12.54
Leverage9.28
 9.69
Total shareholders’ equity to assets11.92
 12.28
1The CET1 ratio on a fully phased-in basis is estimated at September 30, 2015. See the "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures" section in this MD&A for a reconciliation of the fully phased-in CET1 ratio at September 30, 2015.
2 The Basel III Final RuleRules became effective for us on January 1, 2015; thus, capital at December 31, 2014 was calculated under the Basel I capital rule. Tier 1 common equity under Basel I represents the portion of Tier 1 capital that is attributable to common shareholders. We calculated this, together with the Tier 1 common equity ratio, using the methodology specified by our primary regulator.2015. Our calculation of these measures may differ from those of other financial services companies that calculate similar metrics.

2 The CET1 ratio on a fully phased-in basis at September 30, 2016 is estimated. See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for a reconciliation of our transitional CET1 ratio to our fully phased-in, estimated CET1 ratio.
TheAll of our capital ratios, except for the Total capital ratio, declined modestly compared to December 31, 2015, as growth in retained earnings was offset by the impact of growth in RWA due to increased on- and off-balance sheet exposures. Further, as mentioned above, the phase-out of the trust preferred securities from Tier 1 capital to Tier 2 capital resulted in an additional decline in the Tier 1 capital and Leverage ratios. The Total capital ratiosratio increased slightly compared to December 31, 2014,2015, due primarily to an increaseour $750 million subordinated debt issuance in capital and a relatively stable RWA over the first nine monthssecond quarter of 2015. Specifically, Tier 1 capital and Total capital were impacted by an increase in retained earnings, while RWA was predominantly affected by a decline in total assets partially offset by statutory changes to risk weights assigned to certain commercial loans, letters of credit, unfunded commitments, and derivatives, in conjunction with adoption of the Basel III Final Rule.2016. At September 30, 2015,2016, our capital ratios were well above current regulatory requirements.
Our estimate of the fully phased-in CET1 ratio of 9.89%9.66% at September 30, 20152016 considers a 250% risk-weighting for MSRs, which is the primary driver for the difference in the CET1 ratio at September 30, 20152016 compared to the estimated fully phased-in ratio in the same period. The increase in the fully phased-in ratio during the first nine months of 2015 was driven by an increase in retained earnings. Our estimated fully phased-in ratio is in excess of the 4.5% minimum CET1 ratio, and is also in
excess of the 7.0% limit that includes the minimum level of 4.5% plus the 2.5% fully phased-in CCB. See Table 1, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for a reconciliation of our fully phased-in CET1 ratio.
The Board approved a 20% increase in our quarterly common stock dividend from $0.20 per share to $0.24 per share, beginning in the second quarter of 2015.
Capital Actions
We declared and paid common dividends totalingof $370 million, or $0.74 per common share, during the nine months ended September 30, 2016, compared to $352 million, or $0.68 per common share, during the nine months ended September 30, 2015, compared with $266 million, or $0.50 per common share during the nine months ended September 30, 2014. Additionally, we2015. We also recognized dividends on our preferred stock of $48$49 million and $28$48 million during the nine months ended September 30, 2016 and 2015, and 2014, respectively. This increase in preferred stock dividends was driven by an increase in the average balance of our preferred stock for the nine months ended September 30, 2015 to $1.2 billion compared to $725 million for the same period in 2014, due to our issuance of the Series F Preferred Stock at the end of 2014.


Various regulations administered by federal and state bank regulatory authorities restrict the Bank's ability to distribute its retained earnings. At September 30, 20152016 and December 31, 2014,2015, the Bank's capacity to pay cash dividends to the Parent Company under these regulations totaled approximately $2.5$2.3 billion and $2.9$2.7 billion, respectively.
During the first quarter of 2016, we repurchased $151 million of our outstanding common stock and $24 million of our outstanding common stock warrants as part of our 2015 capital plan. During the second quarter of 2016, we repurchased an additional $175 million of our outstanding common stock at market value, which completed our authorized $875 million common equity repurchases as approved by the Board in conjunction with the 2015 capital plan.
In June 2016, we announced capital plans in response to the Federal Reserve's review of and non-objection to our capital plan submitted in conjunction with the 20152016 CCAR. Our 2016 capital plan included theincludes increases in our share repurchase of common stock, an increase in theprogram and quarterly common stock dividend, andwhile maintaining the current level of preferred stock dividends. To this end,Specifically, the Board approved2016 capital plan authorizes the repurchase of up to $875$960 million of our outstanding common stock between the secondthird quarter of 20152016 and the second quarter of 2016,2017, which we anticipate will be conductedexpect to conduct relatively evenly on a quarterly basis.basis, as well as an 8% increase in our quarterly common stock dividend from $0.24 per share to $0.26 per share, beginning in the third quarter of 2016. During eachthe third quarter of the second and third quarters of 2015,2016, we repurchased $175$240 million of our outstanding common stock at market value as part of this 2016 capital plan. During October 2015,of 2016, we repurchased an additional $175$240 million of our outstanding common stock at market value as part of this capital plan.
See Item 5 and Note 13, "Capital," to the Consolidated Financial Statements in our 2015 Annual Report on Form 10-K, as well as Part II, Item 2 in this Form 10-Q for additional information regarding our 2015 capital plan. We currently expect toplan and related share repurchase approximately $350 million of additional outstanding common stock and/or common stock warrants through the end of the second quarter of 2016.activity.
Additionally, during the first quarter of 2015, we repurchased $115 million of our outstanding common stock at market value, which completed our repurchase of authorized shares as approved by the Board in conjunction with the 2014 capital plan.
CRITICAL ACCOUNTING POLICIES
In the third quarter of 2015, we elected to prospectively change the date of our 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 our Critical Accounting Policies as described in our 20142015 Annual Report on Form 10-K.


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ENTERPRISE RISK MANAGEMENT
ThereExcept as noted below, there have been no other significant changes in our Enterprise Risk Management practices as described in our 20142015 Annual Report on Form 10-K.
To ensure increased role clarity and enhanced independent oversight of risk-taking activity, the reporting relationship of all teammates with risk oversight responsibility were realigned under the CRO. To more accurately reflect its scope and mandate, Corporate Risk Management ("CRM") was renamed Enterprise Risk ("ER") in the second quarter of 2016.
Credit Risk Management
There have been no significant changes in our Credit Risk Management practices as described in our 20142015 Annual Report on Form 10-K.
Operational Risk Management
There have been no significant changes in our Operational Risk Management practices as described in our 20142015 Annual Report on Form 10-K.
Market Risk Management
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices, and other relevant market rates or prices. Interest rate risk, defined as the exposure of net interest income and MVE to changes in interest rates, is our primary market risk and mainly arises from the structure of our balance sheet. Variable rate loans, prior to any hedging related actions, were approximately 60% of total loans at September 30, 2015,2016, and after giving consideration to hedging related actions, were approximately 48%45% of total loans. Approximately 5%7% of our variable rate loans at September 30, 20152016 had coupon rates that were equal to a contractually specified interest rate floor. In addition to interest rate risk, we are also exposed to market risk in our trading instruments measured at fair value. Our ALCO meets regularly and is responsible for reviewing our open market positions and establishing policies to monitor and limit exposure to market risk.

Market Risk from Non-Trading Activities
The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board. These limits and guidelines reflect our toleranceappetite for interest rate risk over both short-term and long-term horizons. No limit breaches occurred during the nine months ended September 30, 2015.2016.
The major sources of our non-trading interest rate risk are timing differences in the maturity and repricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of freestanding or embedded options. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models, which, as described in additional detail below, are employed by management to understand net interest income sensitivity and MVE sensitivity. These measures show that our interest rate risk profile is moderately asset sensitive at September 30, 2015.2016.
MVE and net interest income sensitivity are complementary interest rate risk metrics and should be viewed together. Net interest income sensitivity captures asset and liability repricing mismatchesdifferences for one year, inclusive of forecast balance sheet changes, and is considered a shorter term measure, while MVE sensitivity captures mismatchesdifferences within the period end balance
sheets through the financial instruments' respective maturities and is considered a longer term measure.
A positive net interest income sensitivity in a rising rate environment indicates that over the forecast horizon of one year, asset based interest income will increase more quickly than liability based interest expense due to balance sheet composition. A negative MVE sensitivity in a rising rate environment indicates that the value of financial assets will decrease more than the value of financial liabilities.


One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model net interest income from assets, liabilities, and derivative positions under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a two-year time horizon, which differs from the interest rate sensitivities in Table 14,13, which reflect a one-year time horizon. Key assumptions in the simulation analysis (and in the valuation analysis discussed below) relate to the behavior of interest rates and spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most materialsignificant of which relate to the repricing characteristics and balancebehavioral fluctuations of deposits with indeterminate or non-contractual maturities.
As the future path of interest rates is not known, we use simulation analysis to project net interest income under various scenarios including implied forward, and deliberately extreme, and perhaps unlikely scenarios.other scenarios that are unlikely. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve twists. Specific strategies are also analyzed to determine their impact on net interest income levels and sensitivities.
The sensitivity analysis presented in Table 1413 is measured as a percentage change in net interest income due to instantaneous moves in benchmark interest rates. Estimated changes set forth below are dependent upon material assumptions such as those previously discussed.
Net Interest Income Asset SensitivityNet Interest Income Asset SensitivityTable 14Net Interest Income Asset SensitivityTable 13
  
Estimated % Change in
Net Interest Income Over 12 Months 1
Estimated % Change in
Net Interest Income Over 12 Months 1
September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Rate Change  
+200 bps6.1%��6.7%3.6% 5.7%
+100 bps3.2% 3.5%2.1% 3.0%
-25 bps(1.3)% (1.0)%(0.7)% (1.2)%
1 Estimated % change of net interest income is reflected on a non-FTE basis.

The decrease in netNet interest income asset sensitivity at September 30, 20152016 decreased compared to December 31, 2014 is due to growth in interest-bearing indeterminate maturity deposits,2015. This decrease resulted from an increase in the securities AFS portfolio related to LCR compliance,notional balance of received-fixed swaps, growth in fixed rate assets, and slower assumed prepayments.an increase in floating rate liabilities during the first nine months of 2016. See additional discussion related to net interest income in the "Net Interest Income/Margin" section of this MD&A.
We also perform valuation analyses, which we use for discerning levels of risk present in the balance sheet and derivative positions that might not be taken into account in the net interest income simulation horizon. Whereas a net interest income simulation highlights exposures over a relatively short


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time horizon, our valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet and derivative positions.
The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows and derivative cash flows minus the discounted present value of liability cash flows, the net of which is referred to as MVE. The sensitivity of MVE to changes in the level of interest rates is a measure of the
longer-term repricing risk and options risk embedded in the balance sheet. Similar to the net interest income simulation, MVE uses instantaneous changes in rates. However, MVE values only the current balance sheet and does not incorporate projectionsoriginations of new/replacement business or balance sheet growth that are used in the net interest income simulation model. As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows are critical in the MVE analysis. Particularly important are theSignificant MVE assumptions driving prepayments and theinclude those that drive prepayment speeds, expected changes in balances, and pricing of the indeterminate deposit portfolios.
At September 30, 2015,2016, the MVE profile in Table 15 indicated14 indicates a decline in net balance sheet value due to instantaneous upward changes in rates. This MVE sensitivity is reported infor both upward and downward rate shocks. 
Market Value of Equity SensitivityMarket Value of Equity SensitivityTable 15Market Value of Equity SensitivityTable 14
  
Estimated % Change in MVEEstimated % Change in MVE
September 30, 2015 December 31, 2014September 30, 2016 December 31, 2015
Rate Change  
+200 bps(7.6)% (4.2)%(7.3)% (8.2)%
+100 bps(3.4)% (1.5)%(2.9)% (3.7)%
-25 bps0.6% 0.1%0.3% 0.7%
The increasedecrease in MVE sensitivity at September 30, 2016 compared to December 31, 2014 is primarily2015 was due to increasedlower balance sheet duration, arisingprimarily from a combination of factors including, but not limited to, extending receive-fixed(i) lower long-term interest rate swaps, an increase in the securities AFS portfolio related to LCR compliance, slightly shorter deposit lives, and reducedrates, which drive faster prepayment speeds on mortgage loans and securities.securities, and (ii) the implementation of the annual update on client deposit behaviors on indeterminate maturity deposits. The 10-year swap rate at September 30, 2016 declined 72 basis points to 1.46%, compared to 2.18% at December 31, 2015. Updated deposit assumptions reflect increasing balances and slower decays, which lengthens deposit lives, thereby shortening overall balance sheet duration. While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these rate scenarios, we believe that a gradual shift in interest rates would have a much more modest impact.
Since MVE measures the discounted present value of cash flows over the estimated lives of instruments, the change
in MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further,Furthermore, MVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate the impact of changes in interest rates. The net interest income simulation and valuation analyses do not include actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

Market Risk from Trading Activities
We manage market risk associated with trading activities using a comprehensive risk management approach, which includes VAR approach thatmetrics, stress testing, and sensitivity analyses. Risk metrics are measured and monitored on a daily basis at both the trading desk and at the aggregate portfolio level to ensure exposures are in line with our risk appetite. Our risk measurement for covered positions takes into account trading exposures


resulting from interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk.
For trading portfolios, VAR measures the estimated maximum loss from a trading position, given a specified confidence level and time horizon. VAR results are monitored daily against established limits for each trading portfolio.limits. For risk management purposes, our VAR calculation is based on a historical simulation and measures the potential trading losses using a one-day holding period at a one-tail, 99% confidence level. This means that, on average, trading losses are expected to exceed VAR one out of 100 trading days or two to three times per year. WhileDue to inherent VAR can be a useful risk management tool, it does have inherent limitations, includingsuch as the assumption that past market behavior is indicative of future market performance. As such,performance, VAR is only one of several tools used to manage market risk. Other tools used to actively manage market risk include scenario analysis, stress testing, profit and loss attribution, and stop loss limits.
In addition to VAR, in accordance withas required by the Market Risk Rule issued by the U.S. banking regulators, we also calculate Stressed VAR, which is used as a component of the total market risk-basedrisk capital charge. We calculate the Stressed VAR risk measure using a ten-day holding period at a one-tail, 99% confidence level and employ a historical simulation approach based on a continuous twelve-month historical window. The historical period used in the selection of the stress window that reflects aencompasses all recent financial crises including the 2008-2009 global financial crisis, which captures the most significant period of significant financial stress applicable to our specific portfolio. As such, ourOur Stressed VAR calculation uses the same methodology and models as regular VAR, which is a requirement under the Market Risk Rule.
Table 1615 presents VAR and Stressed VAR for the three and nine months ended September 30, 2016 and 2015, as well as VAR by Risk Factor at September 30, 20152016 and 2014.2015.
Value at Risk Profile   Table 15 
        
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2016 2015 2016 2015
VAR (1-day holding period):      
Period end
$2
 
$2
 
$2
 
$2
High3
 3
 3
 3
Low1
 2
 1
 2
Average2
 2
 3
 2
        
Stressed VAR (10-day holding period):
Period end
$72
 
$39
 
$72
 
$39
High87
 81
 87
 104
Low11
 29
 8
 24
Average39
 47
 31
 57
        
VAR by Risk Factor at period end (1-day holding period):
Equity risk    
$1
 
$1
Interest rate risk    2
 2
Credit spread risk    5
 2
VAR total at period end (1-day diversified) 2
 2


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Value at Risk Profile      Table 16
        
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 2014
VAR (1-day holding period):       
Period end
$2
 
$1
 
$2
 
$1
High3
 2
 3
 3
Low2
 1
 2
 1
Average2
 2
 2
 2
        
Stressed VAR (10-day holding period):
Period end
$39
 
$73
 
$39
 
$73
High81
 77
 104
 77
Low29
 35
 24
 18
Average47
 60
 57
 40
        
(Dollars in millions)    September 30, 2015 September 30, 2014
VAR by Risk Factor (1-day holding period):       
Equity risk    
$1
 
$1
Interest rate risk    2
 1
Credit spread risk    2
 2
Commodity price risk    —
 —
Foreign exchange rate risk    —
 —
VAR total (1-day diversified)    2
 1

The trading portfolio, measured in terms of VAR, is predominantly comprised of four material sub-portfolios of covered positions: Credit(i) credit trading, (ii) fixed income securities, (iii) interest rate derivatives, and (iv) equity derivatives. The trading portfolio also contains other sub-portfolios, including foreign exchange and commodities; however, these trading risk exposures are not material. Our covered positions originate primarily from underwriting, market making and associated risk mitigating hedging activity, and other services for our clients. As illustrated in Table 16,15, there was a modest increase in average daily VAR for the nine months ended September 30, 2016 compared to the same period of 2015, while the average daily VAR for the three months ended September 30, 2016 remained at the same level year-over-year. The period end VAR at September 30, 2016 was $2 million, unchanged duringcompared to September 30, 2015. Continued risk mitigating activities within our equity derivatives business since the second half of 2015 contributed to a lower average Stressed VAR for the three and nine months ended September 30, 20152016 compared to the same periods in 2014. Period end VAR at September 30, 2015 increased to $2 million from $1 million at September 30, 2014.of 2015. The increase in VAR was largely driven by generally higher levels of volatility in the market during 2015 compared to 2014. Periodperiod end Stressed VAR at September 30, 2015 and average Stressed VAR for the three months ended2016 was higher compared to September 30, 2015 both decreased comparedprimarily due to an increase in balance sheet usage within the same periodscredit trading business during the third quarter of 2016 in 2014. This decrease was driven largely by risk mitigation activities undertaken withinresponse to increased client demand and more favorable market conditions. Additionally, period end Stressed VaR at September 30, 2016 reflected the temporary impact of maturing positions in the equity derivatives sub-portfolio during the quarter.portfolio. The trading portfolio of covered positions did not contain any correlation trading positions or on- or off-balance sheet securitization positions in 20142015 or during the nine months ended September 30, 2015.2016.
In accordance with the Market Risk Rule, we evaluate the accuracy of our VAR model through daily backtesting by comparing daily trading gains and losses (excluding fees, commissions, reserves, net interest income, and intraday trading) from covered positions with the corresponding daily VAR-based measures.measures derived from the model. As illustrated belowin the following graph for the twelve months ended September 30,
2015, 2016, there was one instance in the fourth quarter of 2014 where trading losses exceeded firmwidewere no VAR which created a VAR backtest exception. As disclosed in our 2014 Annual Report on Form 10-K,backtesting exceptions during this was primarily driven by the widening of credit spreads in the corporate debt markets at that time. More recently, in the third quarter of 2015, there was a near VAR backtest exception with firmwide trading losses marginally lower compared to the previous day’s VAR measure. This was attributed largely to the sell-off in U.S. equity markets, which impacted our equity derivatives and credit trading portfolios. We use backtesting as one of the measures to evaluate performance of the various VAR models and as such, the occurrence of a certain number of backtest exceptions are to be expected in line with a given confidence level. An actual backtest exception, instead of a near exception, during the third quarter of 2015, would not have been inconsistent with the 99% confidence level at which daily VAR is measured.period. The total number of VAR backtesting exceptions over the preceding 12 months is used to determine the multiplication factor for the VAR-based capital requirement under the Market Risk Rule, whereby theRule. The capital multiplication factor increases from a minimum of three to a maximum of four, depending on the number of exceptions. There was no change in the capital multiplication factor over the preceding 12 months.



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vargraph.jpg

We have valuation policies, procedures, and methodologies for all covered positions. Additionally, reporting of trading positions isare reported in accordance with U.S. GAAP and isare subject to independent price verification. See Note 13, "Derivative Financial Instruments" and Note 14, "Fair Value Election and Measurement" to the Consolidated Financial Statements in this Form 10-Q, as well as the "Critical Accounting Policies" MD&A section in our 20142015 Annual Report on Form 10-K for discussion of valuation policies, procedures, and methodologies.
Model risk management: Our model risk management approach for validating and evaluating the accuracy of internal and vendedexternal models, and associated processes, includes developmental and implementation testing andas well as ongoing monitoring and maintenance performed by the various model developers in conjunction with model owners. The MRMG is responsible for the independent model validation for the VAR and Stressed VARtrading risk models. The validation typically includes evaluation of all model documentation, as well as model monitoring and maintenance plans. In addition, the MRMG performs its own independent testing. DueWe regularly review the performance of all trading risk models through our model monitoring and maintenance process to ongoingpreemptively address emerging developments in financial markets, evolution inassess evolving modeling approaches, and for purposes ofto identify potential model enhancement, we assess the performance of all VAR models regularly through the model monitoring and maintenance process.enhancement.
Stress testing: We use a comprehensive range of stress testing techniques to help monitor risks across trading desks and to
augment standard daily VAR and other risk limits reporting. The stress testing framework is designed to quantify the impact of rare and extreme, historical but plausible, stress scenarios that could lead to large unexpected losses. In addition to performing firmwide stress testing of our aggregate trading portfolio, additional types of secondaryOur stress tests includinginclude historical repeats and simulations using hypothetical risk factor shocks are also performed.shocks. All trading positions within each applicable market risk category (interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk) are included in our comprehensive stress testing framework. We review stress testing scenarios on an ongoing basis and make updates as necessary to ensure that both current and potential emerging risks are captured appropriately.
Trading portfolio capital adequacy:We assess capital adequacy on a regular basis, which is based on estimates of our risk profile and capital positions under baseline and stressed scenarios. Scenarios consider materialsignificant risks, including credit risk, market risk, and operational risk. Our assessment of capital adequacy arising from market risk also includes a review of risk arising from material portfolios of covered positions. See the “Capital Resources” section in this MD&A for additional discussion of capital adequacy.



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Liquidity Risk Management
Liquidity risk is the risk of being unable, at a reasonable cost, to meet financial obligations as they come due. We manage liquidity risk utilizing three lines of defense as described below. These lines of defense are designedconsistent with our ER management practices in order to mitigate our three primary liquidity risks: (i) structural (“mismatch”) liquidity risk, (ii) market liquidity risk, and (iii) contingent liquidity risk. Structural liquidity risk arises from our maturity transformation activities and balance sheet structure, which may create mismatchesdifferences in the timing of cash inflows and outflows. Market liquidity risk, which we also describe as refinancing or refunding risk, constitutes the risk that we could lose access to the financial markets or the cost of such access may rise to undesirable levels. Contingent liquidity risk arises from rare and severely adverse liquidity events; these events may be idiosyncratic or systemic.systemic, or a combination thereof.
We mitigate these risks utilizing a variety of tested liquidity management techniques in keeping with regulatory guidance and industry best practices. For example, we mitigate structural liquidity risk by structuring our balance sheet prudently so that we fund less liquid assets, such as loans, with stable funding sources, such as retailconsumer and wholesalecommercial deposits, long-term debt, and capital. We mitigate market liquidity risk by maintaining diverse borrowing resources to fund projected cash needs and structuring our liabilities to avoid maturity concentrations. We modeltest contingent liquidity risk from a range of potential adverse circumstances in our contingency funding scenarios. These scenarios inform the amount of contingency liquidity sources we maintain as a liquidity buffer to ensure we can meet our obligations in a timely manner under adverse contingent liquidity events.
Governance. We maintain a comprehensive liquidity risk governance structure in keeping with regulatory guidance and industry best practices. Our Board, through the BRC, oversees liquidity risk management and establishes our liquidity risk appetite via a set of cascading risk limits. The BRC reviews and approves risk policies to establish these limits and regularly reviews reports prepared by senior management to monitor compliance with these policies. The Board charges the CEO with determining corporate strategies in accordance with its risk appetite and the CEO is a member of our ALCO, which is the executive level committee with oversight of liquidity risk management. The ALCO regularly monitors our liquidity and compliance with liquidity risk limits, and also reviews and approves liquidity management strategies and tactics.
Management and Reporting Framework. We base our governance structure on and mitigate liquidity risk using three lines of defense. Our Corporate Treasury, department constitutesunder the first lineoversight of defense,the ALCO, is responsible for managing consolidated liquidity risks we encounter in the course of our business. Under the oversight of the ALCO, Corporate Treasury thereby assumes responsibility for identifying, measuring, monitoring, reporting, and managing our liquidity risks. In so doing, Corporate Treasury develops and implements short-short-term and long-term liquidity management strategies, funding plans, and liquidity stress tests, and also monitors early warning indicators.indicators; all of which assist in identifying, measuring, monitoring, reporting, and managing our liquidity risks. Corporate Treasury primarily monitors and manages liquidity risk at the Parent Company and Bank levels as the non-bank subsidiaries are relatively small and these subsidiaries ultimately rely upon the Parent Company as a source of liquidity in adverse environments. However, Corporate Treasury also monitors
 
Corporate Treasury also monitors liquidity developments in,of, and maintains a regular dialogue with, our other legal entities within SunTrust.entities.
Our MRM group constitutes our second line of defense in liquidity risk management. MRM conducts independent oversight and governance of liquidity risk management activities. For example, MRM works with Corporate Treasury to ensure our liquidity risk management practices conform to applicable laws and regulations and evaluates key assumptions incorporated in our contingency funding scenarios.
OurFurther, the internal audit function provides a third line of defense inperforms the risk assurance role for liquidity risk management. The role of internalInternal audit is to provide assurance throughconducts an independent assessment of the adequacy of internal controls, in the first two lines of defense. These controls consist ofincluding procedural documentation, approval processes, reconciliations, and other mechanisms employed by the first two lines of defense in ensuringliquidity risk management and MRM to ensure that liquidity risk is consistent with applicable policies, procedures, laws, and regulations.
In September 2014, the Federal Reserve published final rules with respect to LCR requirements under Regulation WW.WW became effective for us on January 1, 2016. The LCR will requirerequires banking organizations to hold unencumbered high quality,high-quality liquid assets sufficient to withstand projected cash outflows under a prescribed liquidity stress scenario. Regulation WW will be phased in as specified withby the regulatory requirements and will requirerequires that we maintain an LCR above 90% beginning January 1,during 2016 and 100% beginning January 1, 2017. We expect to meet or exceed LCR requirements within the regulatory timelines. At September 30, 2015,2016, our LCR was already above 90%.
On May 3, 2016, Federal banking regulators moved forward with a joint proposed rule that would implement a stable funding requirement, the net stable funding ratio ("NSFR"), for large and internationally active banking organizations, and would modify certain definitions in the LCR Final Rule which was finalized in September 2014. The proposed NSFR requirement seeks to (i) reduce vulnerability to liquidity risk in financial institution funding structures and (ii) promote improved standardization in the measurement, management and disclosure of liquidity risk. It would apply to the same large and internationally active banking organizations that are subject to the LCR rule, but with a broader focus. It seeks to require stable funding relative to each bank’s entire balance sheet using a one-year time horizon rather than the LCR's short-term, 30-day stress test requirement. The proposed rule contains an implementation date of January 1, 2016 requirement of 90%.2018.
Uses of Funds. Our primary uses of funds include the extension of loans and credit, the purchase of investment securities, working capital, and debt and capital service. The Bank and the Parent Company borrow infrom the money markets using instruments such as Fed funds, Eurodollars, and CP.securities sold under agreements to repurchase. At September 30, 2015, the Parent Company had no CP outstanding and2016, the Bank retained a material cash position in its Federal Reserve account. The Parent Company also retains a material cash position in its Federal Reserve account in accordance with our policies and risk limits, discussed in greater detail below.
Sources of Funds. Our primary source of funds is a large, stable retail deposit base. Core deposits, predominantly made up of consumer and commercial deposits originated primarily from our retail branch network and Wholesale Banking client base, are our largest and most cost-effective source of funding. CoreTotal deposits


increased to $145.3$158.8 billion at September 30, 2015,2016, from $139.2$149.8 billion at December 31, 2014.2015.
We also maintain access to diversified sources for both secured and unsecured wholesale funding. These uncommitted sources include Fed funds purchased from other banks, securities sold under agreements to repurchase, negotiable CDs, offshore deposits, FHLB advances, Global Bank Notes, and CP.global bank notes. Aggregate wholesale funding decreasedborrowings increased to $13.3$16.8 billion at September 30, 20152016, from $19.4$13.1 billion at December 31, 2014. Net short-term unsecured2015. This increase in aggregate borrowings which includes wholesale domestic and foreign deposits as well as Fed funds purchased, decreased to $3.4 billion at September 30, 2015, from $4.2 billion at December 31, 2014. The decrease in both wholesale


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funding and net short-term unsecured borrowings compared to December 31, 2014 was due to the growth in core deposits.both lending activity and the high-quality, liquid asset portfolio.
As mentioned above, the Bank and Parent Company maintain programs to access the debt capital markets. The Parent Company maintains aan SEC shelf registration from which it may issue senior or subordinated notes and various capital securities, such as common or preferred stock. Our Board has authorized the issuance of up to $5.0 billion of such securities, of which approximately $5.0$4.0 billion of issuance capacity remained available at September 30, 2015.2016. In February 2016, the Parent Company issued $1.0 billion of 5-year fixed rate senior notes.
The Bank maintains a Global Bank Noteglobal bank note program under which it may issue senior or subordinated debt with various terms. In May 2016, the Bank issued $750 million of 10-year fixed rate subordinated notes under this program. At September 30, 2015,2016, the Bank retained $36.6$35.8 billion of remaining capacity to issue notes under the Global Bank Noteglobal bank note program.
Our issuance capacity under these Bank and Parent Company programs refers to authorization granted by our Board, which is a formal program capacity and not a commitment to purchase by any investor. Debt and equity securities issued under these programs are designed to appeal primarily to domestic and international institutional investors. Institutional investor demand for these securities depends upon numerous factors, including, but not limited to, our credit ratings, and investor perception of financial market conditions, and the health of the banking sector. Therefore, our ability to access these markets in the future could be impaired for either idiosyncratic or systemic reasons.
We assess liquidity needs that may occur in both the normal course of business and during times of unusual, adverse events, considering both on and off-balance sheet arrangements and commitments that may impact liquidity in certain business environments. We have contingency funding scenarios and plans that assess liquidity needs that may arise from certain stress events such as severe economic recessions, financial market disruptions, and credit rating downgrades. In particular, a ratings downgrade could adversely impact the cost and availability of
some of our liquid funding sources. Factors that affect our credit ratings include, but are not limited to, the credit risk profile of our assets, the adequacy of our ALLL, the level and stability of our earnings, the liquidity profile of both the Bank and the Parent Company, the economic environment, and the adequacy of our capital base.
As illustrated in Table 17,16, Moody’s, S&P, and Fitch all assigned a “Stable” outlook on our credit ratings based on our improved earnings profile, good asset quality performance, solid liquidity profile, and sound capital position. Future credit rating
downgrades are possible, although not currently anticipated given these “Stable” credit rating outlooks.
Credit Ratings and OutlookTable 1716
 
September 30, 2015 1
2016
 Moody’s S&P 
Fitch1
SunTrust Banks, Inc.:     
Senior debtBaa1 BBB+ A-
Preferred stockBaa3 BB+ BB
      
SunTrust Bank:     
Long-term depositsA1 A- A
Short-term depositsP-1 A-2 F1
Senior debtBaal A- A-
OutlookStable Stable Stable
1 On October 5, 2015, Fitch announced that it had upgraded both the Parent Company and the Bank's senior debt credit ratings from "BBB+" to "A-" and short-term credit ratings from "F2" to "F1", coupled with a "Stable" rating outlook. The credit ratings in the table above reflect these updates.
Although ourOur investment portfolio is a use of funds and we manage that investmentthe portfolio primarily as a store of liquidity, maintaining substantially all (approximately 98%)the majority of our securities in liquid and high-grade asset classes, such as agency MBS, agency debt, and U.S. Treasury securities; nearly all of these securities qualify as high-quality liquid assets under the U.S. LCR Final Rule. At September 30, 2015,2016, our securities AFS portfolio contained $23.5$25.0 billion of unencumbered high-quality, liquid securities at market value.
As mentioned above, we maintain contingency funding scenarios to anticipate and manage the likely impact of impaired capital markets access and other adverse liquidity circumstances. Our contingency plans also provide for continuous monitoring of net borrowed funds dependence and available sources of contingency liquidity. These sources of contingency liquidity include available cash reserves, the ability to sell, pledge, or borrow against unencumbered securities in our investment portfolio, the capacity to borrow from the FHLB system and the capacity to borrow ator the Federal Reserve Discount Window.discount window, and the ability to sell or securitize certain loan portfolios.


The following tableTable 17 presents period end and average balances for our contingency liquidity sources for the third quarter of 20152016 and 2014. We believe these2015. These sources exceed anyour contingent liquidity needs as measured in our contingency funding scenarios.

Contingency Liquidity SourcesContingency Liquidity Sources     Table 18
Contingency Liquidity Sources     Table 17
          
As of Average for the Nine Months Ended ¹ As of Average for the Three Months Ended ¹ 
(Dollars in billions)September 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015
Excess reserves
$2.3
 
$5.2
 
$3.8
 
$3.2

$5.7
 
$2.3
 
$3.4
 
$3.8
Free and liquid investment portfolio securities23.5
 16.4
 23.2
 11.9
25.0
 23.5
 25.0
 23.8
Unused FHLB borrowing capacity19.6
 12.7
 14.8
 14.3
23.7
 19.6
 22.6
 17.9
Unused discount window borrowing capacity17.0
 18.0
 17.4
 19.5
17.1
 17.0
 17.5
 17.0
Total
$62.4
 
$52.3
 
$59.2
 
$48.9

$71.5
 
$62.4
 
$68.5
 
$62.5
1 Average based upon month-end data, except excess reserves, which is based upon a daily average.


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Parent Company Liquidity. Our primary measure of Parent Company liquidity is the length of time the Parent Company can meet its existing and certain forecasted obligations using its cash resources. We measure and manage this metric using forecasts offrom both normal and adverse conditions. Under adverse conditions, we measure how long the Parent Company can meet its capital and debt service obligations after experiencing material attrition of short-term unsecured funding and without the support of dividends from the Bank or access to the capital markets. In accordance with these risk limits established by ALCO and the Board, we manage the Parent Company’s liquidity by structuring its net maturity schedule to minimize the amount of debt maturing within a short period of time. A majority of the Parent Company’s liabilities are long-term in nature, coming from the proceeds of issuances of our capital securities and long-term senior and subordinated notes. See the "Borrowings" section of this MD&A, as well as Note 11, “Borrowings and Contractual Commitments,” to the Consolidated Financial Statements in our 20142015 Annual Report on Form 10-K for further information regarding Parent Companyour debt.
We manage the Parent Company to maintain most of its liquid assets in cash and securities that it couldcan quickly convert tointo cash. Unlike the Bank, it is not typical for the Parent Company to maintain a material investment portfolio of publicly traded securities. We manage the Parent Company cash balance to provide sufficient liquidity to fund all forecasted obligations (primarily debt and capital service) for an extended period of months in accordance with our risk limits.
The primary uses of Parent Company liquidity include debt service, dividends on capital instruments, the periodic purchase
 
of investment securities, loans to our subsidiaries, and common share repurchases. See further details of the authorized common share repurchases in the "Capital Resources" section of this MD&A and in Part II, "Item 2. UnregisteredItem 2, "Unregistered Sales of Equity Securities and Use of Proceeds" in this Form 10-Q. We fund corporate dividends with Parent Company cash, the primary sources of which are dividends from our banking subsidiary and proceeds from the issuance of debt and capital securities. We are subject to both state and federal banking regulations that limit our ability to pay common stock dividends in certain circumstances.
Other Liquidity Considerations. As presented in Table 19,18, we had an aggregate potential obligation of $83.5$89.7 billion to our clients in unused lines of credit at September 30, 2015.2016. Commitments to extend credit are arrangements to lend to clients who have complied with predetermined contractual obligations. We also had $2.9$2.8 billion in letters of credit outstanding at September 30, 2015,2016, most of which are standby letters of credit, which require that we provide funding if certain future events occur. Approximately $690$464 million of these letters supported variable rate demand obligations at September 30, 2015.2016. Unused commercial lines of credit have decreased since December 31, 2015, driven by revolver utilization. Unused credit card lines increased since December 31, 2014, as we continued to provide credit availability2015 due to our clients. Mortgagestrategic focus on growing this business and our launch of new, streamlined credit card product offerings in 2015. Additionally, our mortgage commitments have also increased during the first nine months ofsince December 31, 2015 due to higher purchase and refinance production volume.volume driven by the low interest rate environment.



Unfunded Lending CommitmentsUnfunded Lending Commitments     Table 19
Unfunded Lending Commitments     Table 18
As of Average for the Three Months EndedAs of Average for the Three Months Ended
(Dollars in millions)September 30, 2015 December 31, 2014 September 30, 2015 September 30, 2014September 30, 2016 December 31, 2015 September 30, 2016 September 30, 2015
Unused lines of credit:              
Commercial
$57,208
 
$50,122
 
$55,671
 
$48,372

$57,927
 
$58,855
 
$57,175
 
$55,671
Mortgage commitments 1
4,049
 3,259
 4,459
 3,387
7,488
 3,232
 7,222
 4,459
Home equity lines10,592
 10,858
 10,675
 10,907
10,370
 10,523
 10,420
 10,675
CRE3,768
 3,302
 3,710
 2,857
4,303
 4,455
 4,485
 3,710
Credit card7,929
 6,675
 7,725
 5,902
9,655
 8,478
 9,495
 7,725
Total unused lines of credit
$83,546
 
$74,216
 
$82,240
 
$71,425

$89,743
 
$85,543
 
$88,797
 
$82,240
              
Letters of credit:              
Financial standby
$2,740
 
$2,917
 
$2,780
 
$3,161

$2,656
 
$2,775
 
$2,662
 
$2,780
Performance standby143
 121
 137
 64
131
 137
 129
 137
Commercial27
 32
 30
 31
19
 27
 17
 30
Total letters of credit
$2,910
 
$3,070
 
$2,947
 
$3,256

$2,806
 
$2,939
 
$2,808
 
$2,947
1 Includes IRLC contractsIRLCs and forward loan sales commitments with notional balances of $2.7$5.1 billion and $2.3 billion at September 30, 20152016 and December 31, 2014,2015, respectively.


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Other Market Risk
Except as discussed below, there have been no other significant changes to other market risk as described in our 20142015 Annual Report on Form 10-K.
MSRs are measured at fair value with a balance of $1.3and totaled $1.1 billion and $1.2$1.3 billion at September 30, 20152016 and December 31, 2014,2015, respectively, and are managed within established risk limits and monitored as part of an established governance process.
We originated MSRs with fair values at the time of origination of $68$88 million and $185$198 million forduring the three and nine months ended September 30, 2015,2016, respectively, and $68 million and $137$185 million forduring the three and nine months ended September 30, 2014,2015, respectively. Additionally, we purchased MSRs with fair values of approximately $109 million during the nine months ended September 30, 2015, and $33$27 million and $109$104 million during the three and nine months ended September 30, 2014, respectively. There2016, respectively, and $109 million during the nine months ended September 30, 2015. No MSRs were no MSR purchasespurchased during the three months ended September 30, 2015.
We recognized mark-to-market decreases in the fair value of the MSR portfolio of $198$56 million and $235$488 million during the three and nine months ended September 30, 2015, respectively, and mark-to-market decreases of $54 million and $240 million during2016, respectively. During the three and nine months ended September 30, 2014,2015, we recognized mark-to-market decreases of $198 million and $235 million in the fair value of the MSR portfolio, respectively. Changes in fair value include the decay resulting from the realization of expected monthly net servicing cash flows. We recognized net losses related to MSRs, inclusive of decay and related hedges, of $44 million and $107 million for the three and nine months ended September 30, 2016, and net losses of $47 million and $137 million for the three and nine months ended September 30, 2015, respectively, and net losses of $37 million and $99 million for the three and nine months ended September 30, 2014,
respectively. Compared to the prior year periods,quarter, the increasedecrease in net losses related to MSRs was primarily driven by higher decay in the current periods, resulting from increased prepayments due to higher refinance activity given the low interest rate environment, as well as lowerstronger net hedge performance. Compared to the nine months ended September 30, 2015, the decrease in net losses related to MSRs was primarily driven by lower decay along with improved net hedge performance.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business we engage in certain activities that are not reflected in our Consolidated Balance Sheets, generally referred to as "off-balance sheet arrangements." These activities involve transactions with unconsolidated VIEs as well as other arrangements, such as commitments and guarantees, to meet the financing needs of our customers and to support ongoing operations. Additional information regarding these types of activities is included in the "Liquidity"Borrowings" and “Liquidity Risk Management" and “Contractual Commitments"Management” sections of this MD&A, Note 8, “Certain Transfers of Financial Assets and Variable Interest Entities,” and Note 12, “Guarantees,” to the Consolidated Financial Statements in this Form 10-Q, as well as in our 20142015 Annual Report on Form 10-K.

CONTRACTUAL COMMITMENTSContractual Obligations
In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on debt and lease arrangements, as well as contractual commitments for capital expenditures and service contracts.
Except for changes notedin unfunded lending commitments (presented in Table 18 within the “Borrowings""Liquidity Risk Management" section of this MD&A,&A), borrowings (presented in the "Borrowings" section of this MD&A), and pension and other postretirement benefit plans (disclosed in Note 11, "Employee Benefit Plans," to the Consolidated Financial Statements in this Form 10-Q), there have been no other material changes in our contractual commitments as describedobligations from those disclosed in our 20142015 Annual Report on Form 10-K.



BUSINESS SEGMENTS
Table 2019 presents net income/(loss)income for our reportable business segments:
Net Income/(Loss) by Business Segment      Table 20
Net Income by Business Segment      Table 19
       
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2015 2014 2015 20142016 2015 2016 2015
Consumer Banking and Private Wealth Management
$207
 
$193
 
$563
 
$512

$180
 
$201
 
$522
 
$545
Wholesale Banking231
 224
 740
 635
224
 236
 601
 737
Mortgage Banking105
 43
 217
 (23)52
 106
 162
 219
              
Corporate Other40
 181
 103
 379
27
 44
 137
 129
Reconciling Items 1
(46) (65) (174) (123)(9) (50) (9) (181)
Total Corporate Other(6) 116
 (71) 256
18
 (6) 128
 (52)
Consolidated Net Income
$537
 
$576
 
$1,449
 
$1,380

$474
 
$537
 
$1,413
 
$1,449
1 Includes differences between net income/(loss)income reported for each business segment using management accounting practices and U.S. GAAP. Prior period information has been restated to reflect changes in internal reporting methodology. See additional information in Note 16, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q.


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Table 2120 presents average loans and average deposits for our reportable business segments:
Average Loans and Deposits by Business Segment      Table 21
 Three Months Ended September 30
 Average Loans 
Average Consumer
and Commercial Deposits
(Dollars in millions)2015
2014 2015 2014
Consumer Banking and Private Wealth Management
$40,206
 
$41,904
 
$91,016
 
$86,194
Wholesale Banking67,274
 63,542
 51,237
 43,319
Mortgage Banking25,299
 25,261
 2,918
 2,664
Corporate Other58
 40
 55
 18
 Nine Months Ended September 30
 Average Loans 
Average Consumer
and Commercial Deposits
(Dollars in millions)2015 2014 2015 2014
Consumer Banking and Private Wealth Management
$40,556
 
$41,564
 
$90,935
 
$85,190
Wholesale Banking67,547
 61,297
 49,147
 42,899
Mortgage Banking24,847
 27,106
 2,754
 2,260
Corporate Other50
 43
 33
 20
Average Loans and Deposits by Business Segment      Table 20
 Three Months Ended September 30
 Average Loans Average Consumer
and Commercial Deposits
(Dollars in millions)2016 2015 2016 2015
Consumer Banking and Private Wealth Management
$43,405
 
$40,189
 
$95,924
 
$91,039
Wholesale Banking71,634
 67,291
 55,921
 51,194
Mortgage Banking27,146
 25,299
 3,374
 2,918
Corporate Other72
 58
 94
 75

 Nine Months Ended September 30
 Average Loans Average Consumer
and Commercial Deposits
(Dollars in millions)2016 2015 2016 2015
Consumer Banking and Private Wealth Management
$42,502
 
$40,539
 
$95,389
 
$90,919
Wholesale Banking71,499
 67,565
 54,564
 49,142
Mortgage Banking26,563
 24,847
 2,896
 2,754
Corporate Other64
 49
 62
 54

See Note 16, “Business Segment Reporting,” to the Consolidated Financial Statements in this Form 10-Q for a discussion of our segment structure, basis of presentation, and internal management reporting methodologies, including the
methodologies.

reclassification of RidgeWorth results from the Wholesale Banking segment to Corporate Other in the second quarter of 2014.



BUSINESS SEGMENT RESULTS
Nine Months Ended September 30, 20152016 vs. 2014Nine Months Ended September 30, 2015
Consumer Banking and Private Wealth Management
Consumer Banking and Private Wealth Management reported net income of $563$522 million for the nine months ended September 30, 2015, an increase2016, a decrease of $51 million, or 10%, compared to the same period in 2014. The increase in net income was primarily driven by an increase in net interest income and lower provision for credit losses.
Net interest income was $2.0 billion, an increase of $72$23 million, or 4%, compared to the same period in 2014,2015, driven by increased noninterest expense and decreased noninterest income, partially offset by higher net interest income.
Net interest income was $2.1 billion, an increase of $96 million, or 5%, compared to the same period in 2015, primarily driven by growthan increase in average loan and deposit balancesgrowth, favorable deposit product mix, and improved loan spreads, partially offset by lower deposit spreads and a decline in average loan balances.spreads. Net interest income related to deposits increased $39$57 million, or 3%4%, driven by a $5.7$4.5 billion, or 7%5%, increase in average deposit balances. Favorable deposit mix trends continued as average deposit balances increased in all lower cost products, offsetting a $1.5 billion, or 14%, decline in average time deposits, resulting in a two basis point decline in the overall rate paid on average interest-bearing deposits. Net interest income related to loans increased $20$41 million, or 3%5%, largely driven by a higher loan spreads, partially offset by a $1.0$2.0 billion, decreaseor 5%, increase in average loan balances. Declines in average student and indirect auto loans were driven by portfolio sales and the securitization of indirect auto loans during 2015 in addition to home equity loan attrition. These decreases were partially offset by growth in consumer direct installment loans, personal credit lines, and credit cards.
Provision for credit losses was $101$107 million, a decreasean increase of $34$6 million, or 25%6%, compared to the prior year. The decrease
was largelysame period in 2015, driven primarily by loweran increase in net charge-offs related to the continuation of strong asset quality.charge-offs.
Total noninterest income was $1.1 billion, a decrease of $5$28 million, or 2%, compared to the same period in 2014. Decreases in services charges on deposits due to changes in client behavior and trust and investment management2015. The decrease was largely driven by lower wealth management-related income due to a decline inlower transactional volumes and lower average assets under managementmanagement. Other miscellaneous income decreased due to an asset impairment recognized in 2016 and the impact of loan sale gains recognized in 2015. These decreases were partially offset by gainsincreased service charges on loan portfolio salesdeposits, card services income, and higher card and retail investment income.ATM fees.
Total noninterest expense was $2.2$2.3 billion, an increase of $13$98 million, or 1%4%, compared to the prior year.same period in 2015. The increase was primarily driven by higher allocated functional support costs, increased occupancy expense, outside data processing expenses resulting from lower vendor creditsexpense, and increases in various corporate support expenses, partially offset by decreases in staffother noninterest expense and operating losses.categories.

Wholesale Banking
Wholesale Banking reported net income of $740$601 million for the nine months ended September 30, 2015, an increase2016, a decrease of $105$136 million, or 17%18%, compared to the prior year.same period in 2015. The increasedecrease in net income was attributable to increasesan increase in net interest incomeprovision for credit losses and higher noninterest income,expense, which were partially offset by an increase in the provision for credit losses.net interest income.
Net interest income was $1.4$1.5 billion, an increase of $102$33 million, or 2%, compared to the same period in 2015, primarily driven by an increase in average deposit balances. Deposit-related net interest income increased $39 million as average deposit balances grew $5.4 billion, or 11%. Combined average balance growth in interest-bearing transaction accounts and money market accounts increased $5.3 billion, or 21%. Average loans grew $3.9 billion, or 6%, primarily led by C&I loans; however, net interest income growth related to loans was mitigated due to lower loan spreads.
Provision for credit losses was $253 million, an increase of $180 million, compared to the same period in 2015. The increase was due primarily to higher energy-related charge-offs and related reserves, as well as loan growth.
Total noninterest income was $906 million, a decrease of $8 million, or 1%, compared to the same period in 2015. The decrease was due to lower card fees and lower leasing-related income, which were offset by higher investment banking, trading income, and non-margin loan fees. See additional discussion related to trading income in the "Noninterest Income" section of this MD&A.
Total noninterest expense was $1.3 billion, an increase of $88 million, or 8%, compared to the same period in 2014, driven by increases in average loan and deposit balances, partially offset by lower loan and deposit spreads. Net interest income related to loans increased, as average loan balances grew $6.3 billion, or 10%, led by growth in C&I, CRE, and tax-exempt loans. Net interest income related to client deposits increased as average


100

deposit balances grew $6.2 billion, or 15%, compared to the same period in 2014. Lower cost average demand deposits increased $507 million, or 2%, and average interest-bearing transaction accounts and money market accounts increased $5.9 billion, or 30%, while average CD balances declined approximately $200 million.
Provision for credit losses was $73 million, an increase of $34 million compared to the same period in 2014, driven by increases in loan balances and an increase in reserves related to oil and gas exposure.
Total noninterest income was $949 million, an increase of $121 million, or 15%, compared to the same period in 2014. The increase was attributable to lower impairment charges related to aircraft leases recognized during 2014, higher investment banking income, gains on the disposition of the majority of our remaining held-for-sale affordable housing partnership assets, and higher non-margin loan fees. These increases in income were partially offset by lower net service charges, trading revenue, and lower partnership revenue driven by the sale of affordable housing assets.
Total noninterest expense was $1.2 billion, an increase of $9 million, or 1%, compared to the prior year.2015. The increase was primarily due to an increase in employee compensation as we continue to invest in talent to better meet our clients' needs and augment our capabilities, higher amortization expenses associated with our new market tax credit amortizationinvestments (offsetting benefit in tax credits), and increased investment related expense in our loan origination and outside processing expense. These increases in expense were partially offset by a decrease of $43 million in other expenses due to our strategic decision to sell certain legacy investments in affordable housing partnerships in the first quarter of 2014 that resulted in an impairment charge during 2014 and a decline in associated partnership expenses as a result of the subsequent sale of those assets.treasury payments platform along with increased FDIC insurance premiums.

Mortgage Banking
Mortgage Banking reported net income of $217$162 million for the nine months ended September 30, 2015,2016, a decrease of $57 million, or 26%, compared to a net loss of $23the same period in 2015. The $57 million for the prior year. Excluding the after tax-impact of the second quarter of 2014 Form 8-K and other legacy mortgage-related items, net income increased $125 million, driven by declines in the provision fordecrease is due to higher noninterest expense, lower benefit from credit losses, and noninterest expense,lower net interest income, partially offset by lower net interesthigher noninterest income.
Net interest income was $366$334 million, a decrease of $56$32 million, or 13%9%, compared to the prior year.same period in 2015. The decrease was predominantly due to lower net interest income on loans and LHFS. Net interest income on loans decreased $47$32 million, or 14%12%, due to a $2.3 billion, or 8%, decrease in average loan balances and lower spreads on residential mortgages. The declinemortgages, partially offset by a $1.7 billion, or 7%, increase in average loans was largely driven byloan balances. Compared to the sale of government-guaranteed loans during the second quarter of 2014. Additionally,same period in 2015, net interest income on LHFS decreased $6$4 million due to lower spreads, partially offset by higher average balances while net interest income on deposits increased $7 million due to growth in both balances and spreads.
Provision for credit losses was a benefit of $61$17 million, resulting in a decrease of $155$44 million, or 72%, compared to the same period in 2015 due to moderating asset quality improvements.
Total noninterest income was $457 million, an increase of $111 million, or 32%, compared to the same period in 2015. The increase was driven by higher mortgage production and servicing income. Mortgage production-related income increased $72 million compared to the prior year. The improvement was primarily attributablesame period in 2015, due to significantly improved asset quality.
Total noninterest income was $346 million, a decreasehigher production volume and higher gain on sale margins. Loan originations were $20.7 billion, an increase of $4 million,$2.9 billion, or 1%16%, compared to the prior year. The decrease was predominantly driven by lower mortgage servicing income and gains on the sale of government-guaranteed loanssame period in the second and third quarters of 2014, partially offset by higher mortgage production income.2015. Mortgage servicingservicing-related income was $113$164 million, a decreasean increase of $29$50 million, or 21%44%, compared to the same period in 2015. The increase was driven primarily by higher prepayments, partially offset byfavorable net hedge performance, higher servicing fees.fees, and lower decay expense. Total loans serviced were $154.0 billion at September 30, 2016, compared to $149.2 billion at September 30, 2015, compared to $135.8 billion at September 30, 2014. The 10%an increase of 3%.
Total noninterest expense was largely attributable to the purchase$547 million, an increase of MSRs during 2015. Production-related income increased $77$37 million, or 7%, compared to the same period in 2015. The increase was due to a $42 million increase in operating losses from the favorable resolution of legacy mortgage-related matters in the prior year, due to higher gain on sale revenue,partially offset by a decline$14 million decrease in the mortgage repurchase provision, and higher production-related fee income. Loan originations were $17.8 billionstaff expenses.


Corporate Other
Corporate Other net income was $137 million for the nine months ended September 30, 2015, compared to $11.7 billion for the prior year,2016, an increase of $6.1 billion, or 52%.
Total noninterest expense was $511 million, a decline of $206$8 million, or 29%6%, compared to the prior year.same period in 2015. The decrease was primarily attributable to a $233 million declineincrease in operating losses driven by mortgage-related legal matters recognized during 2014. During 2015, higher mortgage production volumes resulted in increases in total staff expense and outside processing cost and credit services compared to the prior year. Additionally, total allocated costs increased $14 million year-over-year.

Corporate Other
Corporate Other net income for the nine months ended September 30, 2015 was $103 million, a decrease of $276 million, or 73%, compared to the prior year. The decrease in income was primarily due to discrete tax benefits and lower cost allocations during the $105 million gain on sale of RidgeWorth in 2014, foregone associated revenue in 2015, as well as a decline in net interest income, partially offset by lower noninterest expenses.current period.
Net interest income for the nine months ended September 30, 2015 was $105$81 million, a decrease of $117$27 million, or 53%25%, compared to the prior year.same period in 2015. The decrease was primarily duedriven by lower spreads on mortgage backed securities and funding liabilities, which were partially offset by higher swap-related income. Average long-term debt decreased $1.3 billion, or 12%, and average short-term borrowings decreased $0.5 billion, or 21%, compared to a $115 million declinethe same period in commercial loan related swap income.2015, driven by balance sheet management activities. Net interest income within reconciling items improved compared to the same period in 2015 driven by the funds transfer pricing
residual, which became less negative as the average funds transfer pricing rate charged for segment assets increased more than the average funds transfer pricing rate credited for segment liabilities.
Total noninterest income was $84$112 million, a decrease of $138$6 million, or 62%5%, compared to the prior year.same period in 2015. The decrease was driven primarily dueby higher gains recognized in 2015 related to the disposition of the affordable housing investments, the sale of securities, and mark-to-market valuations on our fixed rate long-term debt measured at fair value, partially offset by the gain on the sale of RidgeWorthone of our office buildings in 2014 as well as foregone trust and investment management income as a result of2016.
Total noninterest expense decreased $21 million compared to the sale of RidgeWorth,same period in 2015 due to lower allocated expenses, partially offset by higher 2015 mark-to-market valuation gains on our public debt measured at fair value and net gains onFDIC-related expense tied to the sale of securities AFS of $21 million for the first nine months of 2015 compared to losses on the sale of securities AFSincrease in the prior year of $11 million.
Total noninterest expense was $18 million, a decline of $77 million compared to the prior year. The decline was primarily due to forgone expenses resulting from the sale of RidgeWorth and a reduction in severance costs compared to the prior year. These declines were partially offset by the $24 million debt extinguishment loss, net of related hedges, associated with balance sheet repositioning during 2015.large bank surcharge.



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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the “Enterprise Risk Management” section of the MD&A in this Form 10-Q, which is incorporated herein by reference.


Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company conducted an evaluation, under the supervision and with the participation of its CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) at September 30, 2015.2016. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its CEO and CFO, as
 
appropriate, to allow timely decisions regarding required disclosure. Based upon the evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at September 30, 2015.2016.

Changes in Internal Control over Financial Reporting
There have been no changes to the Company’s internal control over financial reporting during the nine months ended September 30, 20152016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Refer to the Company's 20142015 Annual Report on Form 10-K for additional information.






PART II - OTHER INFORMATION


Item 1.LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to numerous claims and lawsuits arising in the normal course of its business activities, some of which involve claims for substantial amounts. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, when resolved, will have a material effect on the Company’s consolidated results of operations, cash flows, or financial condition. For additional information, see Note 15, “Contingencies,” to the Consolidated Financial Statements in this Form 10-Q, which is incorporated herein by reference.

Item 1A.RISK FACTORS
The risks described in this report and in the Company's 20142015 Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known, or that the Company currently deems to be immaterial, also may adversely affect the Company's business, financial condition, or future results. In addition to the other information set forth in this report, factors discussed in Part I, Item 1A., "Risk Factors," in the Company's 20142015 Annual Report on Form 10-K,
which could materially affect the Company's business, financial condition, or future results, should be carefully considered.
Additionally, we amend the existing risk factor, “Legislation and regulation, including the Dodd-Frank Act, as well as future legislation and/or regulation, could require us to change certain of our business practices, reduce our revenue, impose additional costs on us, or otherwise adversely affect our business operations and/or competitive position,” by inserting the text below after the sixth paragraph:
The FDIC has proposed to apply an annual surcharge of 4.5 basis points on all banks with at least $10 billion in assets as a method of increasing its deposit insurance fund (DIF) reserve ratio. As proposed by the FDIC, the surcharge would apply equally to all institutions with $10 billion or more of assets, and would not differ based on the size or complexity of the institution, or the riskiness of its assets. Further, the proposed surcharge would be multiplied by our statutorily defined deposit insurance assessment base (average total assets less tangible equity) rather than just our insured deposits. The FDIC has indicated that the surtax, if enacted, would apply for approximately two years.



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Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities:
 Table 22    Table 21
Common Stock
Common Stock 1
Total number of
  shares purchased 1
 
Average price
paid per share
 
Number of shares
purchased as part of
publicly announced
plans or programs
 
Approximate dollar
value of shares
that may yet be
purchased under the
plans or programs
at period end
($ in millions)
Total Number of Shares Purchased Average Price Paid per Share Number of Shares Purchased as Part of Publicly Announced Plans or Programs 
Approximate Dollar Value
of Equity that May Yet Be Purchased Under the Plans or Programs at Period End
(in millions)
January 1 - 311,298,650 $38.75 1,298,650 $122
February 1 - 28918,400   41.20 918,400   84
January 1 - 31 2
4,224,215
 $35.37 4,224,215
 $180
February 1 - 29 2
36,212
   34.66 36,212
   175
March 1 - 31655,800   41.17 655,800 ——
 — —
   175
Total during first quarter of 20152,872,850   40.08 2,872,850 —
Total during first quarter of 20164,260,427
   35.36 4,260,427
   175
     
April 1 - 304,212,832   41.54 4,212,832   7004,783,004
   36.59 4,783,004
 —
May 1 - 31—   — —   700—
 — —
 —
June 1 - 30—   — —   700—
 — —
 —
Total during second quarter of 20154,212,832   41.54 4,212,832   700
Total during second quarter of 20164,783,004
   36.59 4,783,004
 —
        
July 1 - 314,024,321   43.49 4,024,321   5255,734,988
   41.85 5,734,988
   720
August 1 - 31—   — —   525—
 — —
   720
September 1 - 30—   — —   525—
 — —
   720
Total during third quarter of 20154,024,321   43.49 4,024,321   525
Total during third quarter of 20165,734,988
   41.85 5,734,988
   720
     
Total year-to-date 201511,110,003 $41.87 11,110,003 $525
Total year-to-date 201614,778,419
 $38.28 14,778,419
 $720
1 During the third quarter of 2015,three and nine months ended September 30, 2016, no shares of SunTrust common stock were surrendered by participants in SunTrust's employee stock option plans, where participants may pay the exercise price upon exercise of SunTrust stock options by surrendering shares of SunTrust common stock whichthat the participant already owns. SunTrust considers any such shares so surrendered by participants in SunTrust's employee stock option plans to be repurchased pursuant to the authority and terms of the applicable stock option plan rather than pursuant to publicly announced share repurchase programs.

2 During the first quarter of 2016, the Company also repurchased $24 million of its outstanding common stock warrants as part of its 2015 CCAR capital plan. In January 2016, 1,035,800 Series A warrants were repurchased at an average price paid of $6.91 per warrant, and 4,272,780 Series B warrants were repurchased at an average price paid of $3.14 per warrant. In February 2016, 14,451 Series A warrants were repurchased at an average price paid of $7.18 per warrant, and 1,120,089 Series B warrants were repurchased at an average price paid of $3.25 per warrant. No warrants were repurchased in March 2016, nor in the second or third quarters of 2016.

During the second quarter of 2016, the Company completed its repurchase of shares pursuant to its 2014authorized common equity under the 2015 CCAR capital plan, which the Company initially announced on March 26, 201411, 2015 and which effectively expired on March 31, 2015.June 30, 2016.
On March 11, 2015,June 29, 2016, the Company announced that the Federal Reserve had no objections to the repurchase of up to $875$960 million
of the Company's outstanding common stock to be completed between AprilJuly 1, 20152016 and June 30, 2016,2017, as part of the Company's 2016 capital plan submitted in connection with the 20152016 CCAR. During eachthe third quarter of the second and third quarters of 2015,2016, the Company repurchased $175$240 million of its outstanding common stock at market value as part of this publicly announced plan. DuringIn October 2015,of 2016, the



Company repurchased an additional $175$240 million of its outstanding common stock at market value as part of this publicly announced plan.plan and the Company expects to repurchase approximately $480 million of additional outstanding common stock through the end of the second quarter of 2017.
At September 30, 2015, 13.92016, 7.4 million warrants remained outstanding. Theoutstanding and the Company hashad authority from its Board to repurchase all of these outstanding stock purchase warrants; however, any such repurchase would be subject to the prior approvalnon-objection of the Federal Reserve through the capital planning and stress testing process.
SunTrust did not repurchase any shares of its Series A Preferred Stock Depositary Shares, Series B Preferred Stock, Series E Preferred Stock Depositary Shares, or Series F Preferred Stock Depositary Shares or warrants to purchase common stock during the first nine monthsthird quarter of 2015,2016, and there was no unused Board authority to repurchase any shares of Series A Preferred Stock Depositary Shares, Series B Preferred Stock, Series E Preferred Stock Depositary Shares, or the Series F Preferred Stock Depositary Shares.
Refer to the Company's 2015 Annual Report on Form 10-K for additional information regarding the Company's equity securities.



103




Item 3.DEFAULTS UPON SENIOR SECURITIES
None.



Item 4.MINE SAFETY DISCLOSURES
Not applicable.



Item 5.OTHER INFORMATION
None.

Item 6.EXHIBITS
Exhibit Description  
3.1 
Amended and Restated Articles of Incorporation, restated effective January 20, 2009, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed January 22, 2009, as further amended by Articles of Amendment dated December 13, 2012, incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed December 20, 2012, and as further amended by Articles of Amendment dated November 6, 2014, incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed November 7, 2014.

 *
     
3.2 
Bylaws of the Registrant, as amended and restated on August 11, 2015, incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed August 13, 2015.
*
10.1
Form of Restricted Stock Unit Award Agreement under the SunTrust Banks, Inc. 2009 Stock Plan, three-year cliff vested (enterprise level).

**
10.2
SunTrust Banks, Inc. 2009 Stock Plan, amended and restated as of August 11, 2015, incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed August 13, 2015.

 *
     
31.1 
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 **
     
31.2 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 **
     
32.1 
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 **
     
32.2 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 **
     
101.1 Interactive Data File. **

*incorporated by reference
**filed herewith

104

  
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   SUNTRUST BANKS, INC.
   (Registrant)
    
Dated:November 6, 20154, 2016 By: /s/ Thomas E. Panther
   
Thomas E. Panther,
Senior Vice President, Director of Corporate Finance and Controller
(on behalf of the Registrant and as Principal Accounting Officer)
    



105