0000750556 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-07-01 2018-09-30


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, 20182019


Commission file number 001-08918
SunTrust Banks, Inc.
(Exact name of registrant as specified in its charter)


Georgia 58-1575035
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia30308
(Address of principal executive offices) (Zip Code)
(800)786-8787
(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each ClassTrading Symbol(s)Name of Exchange on Which Registered
Common StockSTINew York Stock Exchange
Perpetual Preferred Stock, Series A (1)
STI PRANew York Stock Exchange
Perpetual Preferred Stock, Series B (2)
STI/PRINew York Stock Exchange
(1)Depositary Shares, Each Representing a 1/4000th Interest in a Share of Perpetual Preferred Stock, Series A.
(2)5.853% Fixed-to-Floating Rate Normal Preferred Purchase Securities of SunTrust Preferred Capital I (representing interests in shares of Perpetual Preferred Stock, Series B).
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.
Yesþ☑    No ¨☐


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


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerþ☑Accelerated filer¨☐
Non-accelerated filer
¨☐ (Do not check if a smaller reporting company)
Smaller reporting company¨☐
  Emerging growth company¨☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨☐


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

☑
At October 31, 2018, 449,285,21428, 2019, 444,039,931 shares of the registrant’s common stock, $1.00 par value, were outstanding.


TABLE OF CONTENTS

TABLE OF CONTENTS
 Section  Page 
 
GLOSSARY OF DEFINED TERMS
i
 
 
Important Cautionary Statement About Forward-Looking Statements
 
PART I - FINANCIAL INFORMATION
1
 
     
 
Item 1.
Financial Statements (Unaudited)
2PART I - FINANCIAL INFORMATION
 
Consolidated Statements of Income
2
Consolidated Statements of Comprehensive Income
3
 
 
Item 1.
Consolidated Balance SheetsFinancial Statements (Unaudited)
4
 
  
Consolidated Statements of Shareholders’ EquityIncome
4
Consolidated Statements of Comprehensive Income
5
 
  
Consolidated Statements of Cash FlowsBalance Sheets
6
 
  
Notes to Consolidated Financial Statements (Unaudited)of Shareholders’ Equity
7
 
  
Note 1 - Significant Accounting PoliciesConsolidated Statements of Cash Flows
78
 
  
Note 2 - Revenue RecognitionNotes to Consolidated Financial Statements (Unaudited)
129
 
  
Note 1 - Significant Accounting Policies
9
Note 2 - Revenue Recognition
11
Note 3 - Federal Funds Sold and Securities Financing Activities
1713
 
  
Note 4 - Trading Assets and Liabilities and Derivative Instruments
1814
 
  
Note 5 - Investment Securities
15
Note 6 - Loans
19
 
  
Note 67 - LoansAllowance for Credit Losses
2327
 
  
Note 78 - Allowance for Credit LossesGoodwill and Other Intangible Assets
28
Note 9 - Other Assets
31
 
  
Note 810 - Goodwill and Other Intangible AssetsLeases
32
 
  
Note 911 - OtherCertain Transfers of Financial Assets and Variable Interest Entities
35
 
  
Note 1012 - Certain Transfers of Financial Assets and Variable Interest EntitiesNet Income Per Common Share
3638
 
  
Note 1113 - Net Income Per Common ShareTaxes
39
 
  
Note 1214 - Income TaxesEmployee Benefit Plans
39
 
  
Note 1315 - Employee Benefit PlansGuarantees
40
 
  
Note 1416 - GuaranteesDerivative Financial Instruments
4142
 
  
Note 1517 - Derivative Financial InstrumentsFair Value Election and Measurement
4350
 
  
Note 1618 - Fair Value Election and MeasurementContingencies
5159
 
  
Note 1719 - ContingenciesBusiness Segment Reporting
6560
 
  
Note 1820 - Business Segment ReportingAccumulated Other Comprehensive Loss
6764
 
 
Note 19 - Accumulated Other Comprehensive LossItem 2.
71Management’s Discussion and Analysis of Financial Condition and Results of Operation
66
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
97
Item 4.
Controls and Procedures
97
 
     
 
Item 2.PART II - OTHER INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of Operation
7397
 
 
Item 3.1.
Quantitative and Qualitative Disclosures About Market RiskLegal Proceedings
10597
 
 
Item 4.1A.
Controls and ProceduresRisk Factors
97
Item 2.
105Unregistered Sales of Equity Securities and Use of Proceeds
98
Item 3.
Defaults Upon Senior Securities
99
Item 4.
Mine Safety Disclosures
99
Item 5.
Other Information
99
Item 6.
Exhibits
99
 
     
 
PART II - OTHER INFORMATIONSIGNATURE
105100
 
     
Item 1.
Legal Proceedings
105
Item 1A.
Risk Factors
105
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
107
Item 3.
Defaults Upon Senior Securities
108
Item 4.
Mine Safety Disclosures
108
Item 5.
Other Information
108
Item 6.
Exhibits
108
SIGNATURE
109
 





GLOSSARY OF DEFINED TERMS


2017 Tax Act — Tax Cuts and Jobs Act of 2017.
ABS — Asset-backed securities.
ACH — Automated clearing house.
AFS — Available for sale.
AIP — Annual Incentive Plan.
ALCO — Asset/Liability Committee.
ALM — Asset/Liability management.
ALLL — Allowance for loan and lease losses.
AOCI — Accumulated other comprehensive income.
ASC — Accounting Standards Codification.
ASU— Accounting Standards Update.
ATE — Additional termination event.
ATM — Automated teller machine.
Bank — SunTrust Bank.
Basel III — the Third Basel Accord, a comprehensive set of reform measures developed by the BCBS.
BB&T — BB&T Corporation.
BCBS — Basel Committee on Banking Supervision.
BHC— Bank holding company.
Board — the Company’s Board of Directors.
bps — Basis points.
CCAR — Comprehensive Capital Analysis and Review.
CCB — Capital conservation buffer.
CD — Certificate of deposit (time deposit).deposit.
CDR — Conditional default rate.
CDS — Credit default swaps.
CEO — Chief Executive Officer.
CET1 — Common Equity Tier 1 Capital.
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.
CME — Chicago Mercantile Exchange.
Company — SunTrust Banks, Inc.
CP — Commercial paper.
CPI — Consumer Price Index.
CPR — Conditional prepayment rate.
CRE — Commercial real estate.
CSA — Credit support annex.
CVA — Credit valuation adjustment.
DDA — Demand deposit account.
Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DOJ — Department of Justice.
DTA — Deferred tax asset.
DTL — Deferred tax liability.
DVA — Debit valuation adjustment.
EGRRCPA— Economic Growth, Regulatory Relief, and Consumer Protection Act.
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.
FRB — Federal Reserve Board (Board of Governors of the Federal Reserve System.System).
FTE — Fully taxable-equivalent.
FVO — Fair value option.
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.
LCH— LCH.Clearnet Limited.
LCR — Liquidity coverage ratio.
LGD — Loss given default.
LHFI — Loans held for investment.
LHFS — Loans held for sale.
LIBOR — London InterBankInterbank Offered Rate.
LOCOM — Lower of cost or market.
LTI — Long-term incentive.
LTV— Loan to value.
Mastercard — Mastercard International.
MBS — Mortgage-backed securities.
MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Merger — the Company’s proposed merger-of-equals with BB&T that was announced on February 7, 2019.
Moody’s — Moody’s Investors Service.
MRA —Master Repurchase Agreement.
MRM —Market Risk Management.
MSR — Mortgage servicing right.
MVE — Market value of equity.
NCF — National Commerce Financial Corporation.
NOL — Net operating loss.
NOW — Negotiable order of withdrawal account.
NPA — Nonperforming asset.
NPL — Nonperforming loan.
NPR — Notice of proposed rulemaking.
NSFR— Net stable funding ratio.
NYSE — New York Stock Exchange.
OCC — Office of the Comptroller of the Currency.
OCI — Other comprehensive income.
OREO — Other real estate owned.
OTC — Over-the-counter.
OTTI — Other-than-temporary impairment.
PAC — Premium Assignment Corporation.
Parent Company — SunTrust Banks, Inc. (the parent Company of SunTrust Bank and other subsidiaries).
PD — Probability of default.
Pillar — substantially all of the assets of the operating subsidiaries of Pillar Financial, LLC.
PPNR — Pre-provision net revenue.
PWM — Private Wealth Management.
REIT— Real estate investment trust.
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.


i


S&P — Standard and Poor’s.
SBA — Small Business Administration.
SEC — U.S. Securities and Exchange Commission.
STAS — SunTrust Advisory Services, Inc.
STCC— SunTrust Community Capital, LLC.
STIS — SunTrust Investment Services, Inc.
STM — SunTrust Mortgage, Inc.
STRH — SunTrust Robinson Humphrey, Inc.
SunTrust — SunTrust Banks, Inc.
TDR — Troubled debt restructuring.
TRS — Total return swaps.
Truist — Truist Financial Corporation.
U.S. — United States.
U.S. GAAP — Generally Accepted Accounting Principles in the U.S.
U.S. Treasury — the U.S. Department of the Treasury.
UPB — Unpaid principal balance.
UTB — Unrecognized tax benefit.VA —Veterans Administration.
VA — U.S. Department of Veterans Affairs.
VAR — Value —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


Important Cautionary Statement About Forward-Looking Statements

This Quarterly Report contains forward-looking statements. Statements regarding: (i) future impacts of ASUs not yet adopted; (ii) future levels of net interest margin, efficiency ratios, the net charge-offs to total average LHFI ratio, capital ratios, and share count; (iii) the Merger and the potential effects of the Merger on our business and operations upon, after, or prior to the consummation thereof; (iv) the expected timing of closing of the Merger; (v) the synergies, scale, and corresponding benefits expected to be realized from the Merger, including achieving peer-leading efficiency, creating capacity for investments, operating retail and PWM businesses that are industry-leaders in growth, efficiency, talent, and technology, and bringing our Wholesale capabilities and differentiated model to a broader set of clients; (vi) the possibility of purchasing additional interest rate swaps or terminating existing swaps; (vii) future changes in the size and composition of the investment securities portfolio; (viii) the estimated impacts of proposed regulatory capital rules or other changes in banking laws, rules, or regulations; and (ix) our future credit ratings and outlook, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “target,” “forecast,” “future,” “strategy,” “goal,” “initiative,” “plan,” “propose,” “opportunity,” “potentially,” “probably,” “project,” “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,” in our 2018 Annual Report on Form 10-K. Such factors include: failure to complete the Merger could negatively impact our stock price and our future business and financial results; we will be subject to uncertainties while the Merger is pending, which could adversely affect our business; the Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed; because the market price of BB&T Common Stock may fluctuate, our shareholders cannot be certain of the precise value of the merger consideration they may receive in the Merger; our ability to complete the Merger is subject to the receipt of approval from various federal and state regulatory agencies, which may impose conditions that could adversely affect us or cause the Merger to be abandoned; shareholder litigation could prevent or delay the closing of the Merger or otherwise negatively impact our business and operations; current or future legislation or 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 stringent capital adequacy and liquidity requirements and our failure to meet these would adversely affect our financial condition; the monetary and fiscal policies of the federal government and its agencies could have a 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 activity or other businesses, as well as our financial condition and results; changes in market interest rates or capital markets could adversely affect our revenue and expenses, the value of assets and obligations, as well as the availability and cost of capital and liquidity; interest rates on our outstanding and future financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses, and the value of those financial instruments; our earnings may be affected by volatility in mortgage production and servicing revenues, and by changes in carrying values of our servicing assets and mortgages held for sale due to changes in interest rates; disruptions in our ability to access global capital markets and other sources of wholesale funding may adversely affect our capital resources and liquidity; we are subject to credit risk; 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; we rely on the mortgage secondary market and GSEs for some of our liquidity; loss of customer deposits could increase our funding costs; any reduction in our credit rating could increase the cost of our funding from the capital markets; we are subject to 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 may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, or borrower fraud, and this could harm our liquidity, results of operations, and financial condition; we face risks as a servicer of loans; consumers and small businesses may decide not to use banks to complete their financial transactions, which could affect our revenue; 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 may face more intense scrutiny of our sales, training, and incentive compensation practices; we rely on other companies to provide key components of our business infrastructure; competition in the financial services industry is intense and we could lose business or suffer margin declines as a result; we continually encounter technological change and must effectively develop and implement new technology; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; 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 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 changes in the marketplace, 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; our operational or communications systems or infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business or disrupt business continuity; a disruption, breach, or failure in the operational systems or infrastructure of our third party vendors or other service

providers, including as a result of cyber-attacks, could adversely affect our business; natural disasters and other catastrophic events could have a material adverse impact on our operations or our financial condition and results; 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 operation, and they require management to make estimates about matters that are uncertain; depressed market values for our stock and adverse economic conditions sustained over a period of time may require us to write down all or some portion of our goodwill; our stock price can be volatile; we might not pay dividends on our stock; our ability to receive dividends from our subsidiaries or other investments could affect our liquidity and ability to pay dividends; and certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect.






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, 20182019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018.2019.







Item 1.FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)2019 2018 2019 2018
Interest Income       
Interest and fees on loans held for investment
$1,708
 
$1,549
 
$5,125
 
$4,424
Interest and fees on loans held for sale21
 22
 50
 67
Interest on securities available for sale215
 212
 659
 628
Trading account interest and other61
 51
 179
 142
Total interest income2,005
 1,834
 6,013
 5,261
Interest Expense       
Interest on deposits293
 193
 811
 484
Interest on long-term debt150
 95
 425
 252
Interest on other borrowings52
 34
 188
 85
Total interest expense495
 322
 1,424
 821
Net interest income1,510
 1,512
 4,589
 4,440
Provision for credit losses132
 61
 412
 121
Net interest income after provision for credit losses1,378
 1,451
 4,177
 4,319
Noninterest Income       
Service charges on deposit accounts141

144
 417
 433
Other charges and fees90

89
 265
 264
Card fees83
 75
 247
 241
Investment banking income159
 150
 431
 453
Trading income29
 42
 144
 137
Mortgage-related income 1
106
 83
 294
 256
Trust and investment management income78
 80
 222
 230
Retail investment services76
 74
 220
 219
Insurance settlement5
 —
 210
 —
Commercial real estate-related income32
 24
 106
 66
Net securities gains/(losses)4

—
 (38) 1
Other noninterest income40

21
 135
 108
Total noninterest income843
 782
 2,653
 2,408
Noninterest Expense       
Employee compensation744
 719
 2,149
 2,141
Employee benefits97
 76
 344
 310
Outside processing and software241
 234
 720
 667
Net occupancy expense102
 86
 305
 270
Charitable contribution to SunTrust Foundation—
 —
 205
 —
Marketing and customer development44
 45
 131
 127
Equipment expense36
 40
 114
 124
Merger-related costs22
 —
 75
 —
Operating losses23
 18
 60
 40
Amortization21
 19
 54
 51
Regulatory assessments17
 39
 53
 118
Other noninterest expense127
 108
 392
 343
Total noninterest expense1,474
 1,384
 4,602
 4,191
Income before provision for income taxes747
 849
 2,228
 2,536
Provision for income taxes122
 95
 330
 412
Net income including income attributable to noncontrolling interest625
 754
 1,898
 2,124
Less: Net income attributable to noncontrolling interest2
 2
 7
 7
Net income623
 752
 1,891
 2,117
Less: Preferred stock dividends26
 26
 77
 81
Net income available to common shareholders
$597
 
$726
 
$1,814
 
$2,036
Net income per average common share:       
Diluted
$1.34
 
$1.56
 
$4.06
 
$4.34
Basic1.35
 1.58
 4.09
 4.38
Dividends declared per common share0.56
 0.50
 1.56
 1.30
Average common shares outstanding - diluted446,962
 464,164
 446,673
 469,006
Average common shares outstanding - basic443,960
 460,252
 443,779
 464,804

 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)2018 2017 2018 2017
Interest Income       
Interest and fees on loans held for investment
$1,549
 
$1,382
 
$4,424
 
$4,009
Interest and fees on loans held for sale22
 24
 67
 70
Interest on securities available for sale 1
212
 191
 628
 560
Trading account interest and other 1
51
 38
 142
 108
Total interest income1,834
 1,635
 5,261
 4,747
Interest Expense       
Interest on deposits193
 111
 484
 286
Interest on long-term debt95
 76
 252
 216
Interest on other borrowings34
 18
 85
 46
Total interest expense322
 205
 821
 548
Net interest income1,512
 1,430
 4,440
 4,199
Provision for credit losses61
 120
 121
 330
Net interest income after provision for credit losses1,451
 1,310
 4,319
 3,869
Noninterest Income       
Service charges on deposit accounts144

154
 433
 453
Other charges and fees 2
89

89
 264
 270
Card fees75
 86
 241
 255
Investment banking income 2
150
 169
 453
 501
Trading income42
 51
 137
 148
Trust and investment management income80
 79
 230
 229
Retail investment services74
 69
 219
 208
Mortgage servicing related income43
 46
 138
 148
Mortgage production related income40
 61
 118
 170
Commercial real estate related income24
 17
 66
 61
Net securities gains—

—
 1
 1
Other noninterest income21

25
 108
 76
Total noninterest income782
 846
 2,408
 2,520
Noninterest Expense       
Employee compensation719
 725
 2,141
 2,152
Employee benefits76
 81
 310
 302
Outside processing and software234
 203
 667
 612
Net occupancy expense86
 94
 270
 280
Marketing and customer development45
 45
 127
 129
Equipment expense40
 40
 124
 123
Regulatory assessments39
 47
 118
 143
Amortization19
 22
 51
 49
Operating losses/(gains)18
 (34) 40
 17
Other noninterest expense108
 168
 343
 436
Total noninterest expense1,384
 1,391
 4,191
 4,243
Income before provision for income taxes849
 765
 2,536
 2,146
Provision for income taxes95
 225
 412
 606
Net income including income attributable to noncontrolling interest754
 540
 2,124
 1,540
Less: Net income attributable to noncontrolling interest2
 2
 7
 7
Net income752
 538
 2,117
 1,533
Less: Preferred stock dividends26
 26
 81
 65
Net income available to common shareholders
$726
 
$512
 
$2,036
 
$1,468
        
Net income per average common share:       
Diluted
$1.56
 
$1.06
 
$4.34
 
$3.00
Basic1.58
 1.07
 4.38
 3.04
Dividends declared per common share0.50
 0.40
 1.30
 0.92
Average common shares outstanding - diluted464,164
 483,640
 469,006
 489,176
Average common shares outstanding - basic460,252
 478,258
 464,804
 483,711
1Beginning January 1,with the 2018 Form 10-K, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets and began presenting Mortgage production related income associated with certain of these equity securities in Trading account interest and other. For periods prior to January 1, 2018, thisMortgage servicing related income was previously presented in Interest on securities available for sale and has been reclassified to Trading account interest and other for comparability.
2 Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking incomeas a single line item on the Consolidated Statements of Income. ForIncome titled Mortgage-related income. Prior periods priorhave been conformed to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking incomeupdated presentation for comparability.


See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income


 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2019 2018 2019 2018
Net income
$623
 
$752
 
$1,891
 
$2,117
Components of other comprehensive income/(loss):       
Change in net unrealized gains/(losses) on securities available for sale,
net of tax of $51, ($55), $294 and ($223), respectively
166
 (178) 960
 (726)
Change in net unrealized gains/(losses) on derivative instruments,
net of tax of $25, ($6), $93 and ($55), respectively
82
 (20) 302
 (179)
Change in net unrealized losses on brokered time deposits,
net of tax of $0, $0, $0 and $0, respectively
—
 —
 (1) —
Change in credit risk adjustment on long-term debt,
net of tax of $0, $0, $0 and $1, respectively
—
 —
 —
 3
Change related to employee benefit plans,
net of tax of $1, $1, $4 and $1, respectively
4
 3
 10
 2
Total other comprehensive income/(loss), net of tax252
 (195) 1,271
 (900)
Total comprehensive income
$875
 
$557
 
$3,162
 
$1,217

 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2018 2017 2018 2017
Net income
$752
 
$538
 
$2,117
 
$1,533
Components of other comprehensive (loss)/income:       
Change in net unrealized (losses)/gains on securities available for sale,
net of tax of ($55), $24, ($223), and $57, respectively
(178) 40
 (726) 97
Change in net unrealized losses on derivative instruments,
net of tax of ($6), ($1), ($55), and ($7), respectively
(20) (2) (179) (13)
Change in credit risk adjustment on long-term debt,
net of tax of $0, $1, $1, and $1, respectively
—
 1
 3
 1
Change related to employee benefit plans,
net of tax of $1, $2, $1, and $3, respectively
3
 3
 2
 1
Total other comprehensive (loss)/income, net of tax(195) 42
 (900) 86
Total comprehensive income
$557
 
$580
 
$1,217
 
$1,619




See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Balance Sheets
 September 30, December 31,
(Dollars in millions and shares in thousands, except per share data)2019 2018
Assets(Unaudited)  
Cash and due from banks
$7,844
 
$5,791
Federal funds sold and securities borrowed or purchased under agreements to resell1,314
 1,679
Interest-bearing deposits in other banks26
 25
Cash and cash equivalents9,184
 7,495
Trading assets and derivative instruments 1
7,104
 5,506
Securities available for sale 2
31,358
 31,442
Loans held for sale ($1,488 and $1,178 at fair value at September 30, 2019 and December 31, 2018, respectively)2,006
 1,468
Loans held for investment 3 ($124 and $163 at fair value at September 30, 2019 and December 31, 2018, respectively)
158,455
 151,839
Allowance for loan and lease losses(1,699) (1,615)
Net loans held for investment156,756
 150,224
Premises, property, and equipment, net1,985
 2,024
Goodwill6,331
 6,331
Other intangible assets (Residential MSRs at fair value: $1,564 and $1,983 at September 30, 2019 and December 31, 2018, respectively)1,648
 2,062
Other assets ($76 and $95 at fair value at September 30, 2019 and December 31, 2018, respectively)10,996
 8,991
Total assets
$227,368
 
$215,543
    
Liabilities   
Noninterest-bearing deposits
$40,360
 
$40,770
Interest-bearing deposits ($552 and $403 at fair value at September 30, 2019 and December 31, 2018, respectively)127,311
 121,819
Total deposits167,671
 162,589
Funds purchased254
 2,141
Securities sold under agreements to repurchase1,829
 1,774
Other short-term borrowings5,061
 4,857
Long-term debt 4 ($302 and $289 at fair value at September 30, 2019 and December 31, 2018, respectively)
20,369
 15,072
Trading liabilities and derivative instruments1,380
 1,604
Other liabilities4,315
 3,226
Total liabilities200,879
 191,263
Shareholders’ Equity   
Preferred stock, no par value2,025
 2,025
Common stock, $1.00 par value553
 553
Additional paid-in capital8,989
 9,022
Retained earnings20,664
 19,522
Treasury stock, at cost, and other 5
(5,593) (5,422)
Accumulated other comprehensive loss, net of tax
(149) (1,420)
Total shareholders’ equity26,489
 24,280
Total liabilities and shareholders’ equity
$227,368
 
$215,543
    
Common shares outstanding 6
444,033
 446,888
Common shares authorized750,000
 750,000
Preferred shares outstanding20
 20
Preferred shares authorized50,000
 50,000
Treasury shares of common stock108,750
 105,896
    
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral

$1,284
 
$1,442
2 Includes securities AFS pledged as collateral where counterparties have the right to sell or repledge the collateral
151
 222
3 Includes LHFI of consolidated VIEs
136
 153
4 Includes debt of consolidated VIEs
143
 161
5 Includes noncontrolling interest
101
 103
6 Includes restricted shares
4
 7

(Dollars in millions and shares in thousands, except per share data)September 30, 2018 December 31, 2017
Assets(Unaudited)  
Cash and due from banks
$6,206
 
$5,349
Federal funds sold and securities borrowed or purchased under agreements to resell1,374
 1,538
Interest-bearing deposits in other banks25
 25
Cash and cash equivalents7,605
 6,912
Trading assets and derivative instruments 1
5,676
 5,093
Securities available for sale 2, 3
30,984
 30,947
Loans held for sale ($1,822 and $1,577 at fair value at September 30, 2018 and December 31, 2017, respectively)1,961
 2,290
Loans held for investment 4 ($168 and $196 at fair value at September 30, 2018 and December 31, 2017, respectively)
147,215
 143,181
Allowance for loan and lease losses(1,623) (1,735)
Net loans held for investment145,592
 141,446
Premises and equipment, net1,555
 1,734
Goodwill6,331
 6,331
Other intangible assets (Residential MSRs at fair value: $2,062 and $1,710 at September 30, 2018 and December 31, 2017, respectively)2,140
 1,791
Other assets 3 ($92 and $56 at fair value at September 30, 2018 and December 31, 2017, respectively)
9,432
 9,418
Total assets
$211,276
 
$205,962
    
Liabilities   
Noninterest-bearing deposits
$41,870
 
$42,784
Interest-bearing deposits ($384 and $236 at fair value at September 30, 2018 and December 31, 2017, respectively)118,508
 117,996
Total deposits160,378
 160,780
Funds purchased3,354
 2,561
Securities sold under agreements to repurchase1,730
 1,503
Other short-term borrowings2,856
 717
Long-term debt 5 ($235 and $530 at fair value at September 30, 2018 and December 31, 2017, respectively)
14,289
 9,785
Trading liabilities and derivative instruments1,863
 1,283
Other liabilities2,667
 4,179
Total liabilities187,137
 180,808
Shareholders’ Equity   
Preferred stock, no par value2,025
 2,475
Common stock, $1.00 par value553
 550
Additional paid-in capital9,001
 9,000
Retained earnings19,111
 17,540
Treasury stock, at cost, and other 6
(4,677) (3,591)
Accumulated other comprehensive loss, net of tax(1,874) (820)
Total shareholders’ equity24,139
 25,154
Total liabilities and shareholders’ equity
$211,276
 
$205,962
    
Common shares outstanding 7
458,626
 470,931
Common shares authorized750,000
 750,000
Preferred shares outstanding20
 25
Preferred shares authorized50,000
 50,000
Treasury shares of common stock94,038
 79,133
    
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral

$1,362
 
$1,086
2 Includes securities AFS pledged as collateral where counterparties have the right to sell or repledge the collateral
164
 223
3 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets. Reclassifications have been made to previously reported amounts for comparability.
   
4 Includes loans held for investment of consolidated VIEs
159
 179
5 Includes debt of consolidated VIEs
168
 189
6 Includes noncontrolling interest
101
 103
7 Includes restricted shares
7
 9




See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Shareholders’ Equity
(Dollars and shares in millions, except per share data) (Unaudited)Preferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
Treasury Stock
and Other 1
 Accumulated Other Comprehensive Loss TotalPreferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
 Treasury 1
Stock and Other
 Accumulated Other Comprehensive Loss Total
Balance, January 1, 2017
$1,225
 491
 
$550
 
$9,010
 
$16,000
 
($2,346) 
($821) 
$23,618
Balance, July 1, 2019
$2,025
 444
 
$553
 
$8,965
 
$20,319
 
($5,599) 
($401) 
$25,862
Net income—
 —
 —
 —
 1,533
 —
 —
 1,533
—
 —
 —
 —
 623
 —
 —
 623
Other comprehensive income—
 —
 —
 —
 —
 —
 86
 86
—
 —
 —
 —
 —
 —
 252
 252
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $0.92 per share—
 —
 —
 —
 (443) —
 —
 (443)
Common stock dividends, $0.56 per share—
 —
 —
 —
 (249) —
 —
 (249)
Preferred stock dividends 2
—
 —
 —
 —
 (65) —
 —
 (65)—
 —
 —
 —
 (26) —
 —
 (26)
Issuance of preferred stock, Series G750
 —
 —
 (7) —
 —
 —
 743
Exercise of stock options and stock compensation expense—
 —
 —
 (3) —
 5
 —
 2
Restricted stock activity—
 —
 —
 27
 (3) 3
 —
 27
Balance, September 30, 2019
$2,025
 444
 
$553
 
$8,989
 
$20,664
 
($5,593) 
($149) 
$26,489
               
Balance, January 1, 2019
$2,025
 447
 
$553
 
$9,022
 
$19,522
 
($5,422) 
($1,420) 
$24,280
Cumulative effect adjustment related to ASU adoption 3
—
 —
 —
 —
 31
 —
 —
 31
Net income—
 —
 —
 —
 1,891
 —
 —
 1,891
Other comprehensive income—
 —
 —
 —
 —
 —
 1,271
 1,271
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $1.56 per share—
 —
 —
 —
 (693) —
 —
 (693)
Preferred stock dividends 2
—
 —
 —
 —
 (77) —
 —
 (77)
Repurchase of common stock—
 (17) —
 —
 —
 (984) —
 (984)—
 (5) —
 —
 —
 (250) —
 (250)
Exercise of stock options and stock compensation expense—
 1
 —
 (14) —
 27
 —
 13
—
 —
 —
 (7) —
 14
 —
 7
Restricted stock activity—
 1
 —
 (4) (4) 31
 —
 23
—
 2
 —
 (26) (10) 67
 —
 31
Balance, September 30, 2017
$1,975
 476
 
$550
 
$8,985
 
$17,021
 
($3,274) 
($735) 
$24,522
               
Balance, January 1, 2018
$2,475
 471
 
$550
 
$9,000
 
$17,540
 
($3,591) 
($820) 
$25,154
Cumulative effect adjustment related to ASU adoptions 3
—
 —
 —
 —
 144
 —
 (154) (10)
Net income—
 —
 —
 —
 2,117
 —
 —
 2,117
Other comprehensive loss—
 —
 —
 —
 —
 —
 (900) (900)
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $1.30 per share—
 —
 —
 —
 (603) —
 —
 (603)
Preferred stock dividends 2
—
 —
 —
 —
 (81) —
 —
 (81)
Redemption of preferred stock, Series E(450) —
 —
 —
 —
 —
 —
 (450)
Repurchase of common stock—
 (17) —
 —
 —
 (1,160) —
 (1,160)
Exercise of stock options and stock compensation expense—
 1
 —
 —
 —
 36
 —
 36
Exercise of stock warrants—
 3
 3
 (3) —
 —
 —
 —
Restricted stock activity—
 1
 —
 4
 (6) 40
 —
 38
Balance, September 30, 2018
$2,025
 459
 
$553
 
$9,001
 
$19,111
 
($4,677) 
($1,874) 
$24,139
Balance, September 30, 2019
$2,025
 444
 
$553
 
$8,989
 
$20,664
 
($5,593) 
($149) 
$26,489
1 At September 30, 2019, includes ($5,693) million for treasury stock, less than ($1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest.
2 For the three months ended September 30, 2019, dividends were $1,022.22 per share for both Series A and B Preferred Stock, $1,406.25 per share for Series F Preferred Stock, $1,262.50 per share for Series G Preferred Stock, and $1,281.25 per share for Series H Preferred Stock.
For the nine months ended September 30, 2019, dividends were $3,044.44 per share for both Series A and B Preferred Stock, $4,218.75 per share for Series F Preferred Stock, $3,787.50 per share for Series G Preferred Stock, and $3,843.75 per share for Series H Preferred Stock.
3 Related to the Company’s adoption of ASU 2016-02 on January 1, 2019. See Note 1, “Significant Accounting Policies,” for additional information.
(Dollars and shares in millions, except per share data) (Unaudited)Preferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
 Treasury 1
Stock and Other
 Accumulated Other Comprehensive Loss Total
Balance, July 1, 2018
$2,025
 465
 
$552
 
$8,980
 
$18,616
 
($4,178) 
($1,679) 
$24,316
Net income—
 —
 —
 —
 752
 —
 —
 752
Other comprehensive loss—
 —
 —
 —
 —
 —
 (195) (195)
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $0.50 per share—
 —
 —
 —
 (229) —
 —
 (229)
Preferred stock dividends 2
—
 —
 —
 —
 (26) —
 —
 (26)
Repurchase of common stock—
 (7) —
 —
 —
 (500) —
 (500)
Exercise of stock options and stock compensation expense—
 —
 —
 (1) —
 3
 —
 2
Exercise of stock warrants—
 1
 1
 —
 —
 —
 —
 1
Restricted stock activity—
 —
 —
 22
 (2) —
 —
 20
Balance, September 30, 2018
$2,025
 459
 
$553
 
$9,001
 
$19,111
 
($4,677) 
($1,874) 
$24,139
                
Balance, January 1, 2018
$2,475
 471
 
$550
 
$9,000
 
$17,540
 
($3,591) 
($820) 
$25,154
Cumulative effect of adjustment related to ASU adoptions 3
—
 —
 —
 —
 144
 —
 (154) (10)
Net income—
 —
 —
 —
 2,117
 —
 —
 2,117
Other comprehensive loss—
 —
 —
 —
 —
 —
 (900) (900)
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $1.30 per share—
 —
 —
 —
 (603) —
 —
 (603)
Preferred stock dividends 2
—
 —
 —
 —
 (81) —
 —
 (81)
Redemption of preferred stock, Series E(450) —
 —
 —
 —
 —
 —
 (450)
Repurchase of common stock—
 (17) —
 —
 —
 (1,160) —
 (1,160)
Exercise of stock options and stock compensation expense—
 1
 —
 —
 —
 36
 —
 36
Exercise of stock warrants—
 3
 3
 (3) —
 —
 —
 —
Restricted stock activity—
 1
 —
 4
 (6) 40
 —
 38
Balance, September 30, 2018
$2,025
 459
 
$553
 
$9,001
 
$19,111
 
($4,677) 
($1,874) 
$24,139

1At September 30, 2018, includes ($4,777) million for treasury stock, less than ($1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest.
At2 For the three months ended September 30, 2017, includes ($3,374) million2018, dividends were $1,022.22 per share for treasury stock, less than ($1) millionboth Series A and B Preferred Stock, $1,406.25 per share for the compensation element of restricted stock,Series F Preferred Stock, $1,262.50 per share for Series G Preferred Stock, and $101 million$1,281.25 per share for noncontrolling interest.Series H Preferred Stock.
2For the nine months ended September 30, 2018, dividends were $3,044$3,044.44 per share for both Series A and B Preferred Stock, $1,469$1,468.75 per share for Series E Preferred Stock, $4,219$4,218.75 per share for Series F Preferred Stock, $3,788$3,787.50 per share for Series G Preferred Stock, and $4,285$4,285.07 per share for Series H Preferred Stock.
For the nine months ended September 30, 2017, dividends were $3,044 per share for both Series A and B Preferred Stock, $4,406 per share for Series E Preferred Stock, $4,219 per share for Series F Preferred Stock, and $2,090 per share for Series G Preferred Stock.
3 Related to the Company'sCompany’s adoption of ASU 2014-09, ASU 2016-01, ASU 2017-12, and ASU 2018-02 on January 1, 2018. See Note 1, "Significant“Significant Accounting Policies,"” to the Company's 2018 Annual Report on Form 10-K for additional information.


See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2019 2018
Cash Flows from Operating Activities:   
Net income including income attributable to noncontrolling interest
$1,898
 
$2,124
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization, and accretion518
 535
Origination of servicing rights(251) (260)
Provisions for credit losses and foreclosed property418
 130
Stock-based compensation112
 118
Net securities losses/(gains)38
 (1)
Net gains on sale of loans held for sale, loans, and other assets(266) (83)
Net (increase)/decrease in loans held for sale(315) 382
Net increase in trading assets and derivative instruments(1,598) (818)
Net increase in other assets 1
(382) (1,713)
Net (decrease)/increase in other liabilities(166) 478
Net cash provided by operating activities6
 892
Cash Flows from Investing Activities:   
Proceeds from maturities, calls, and paydowns of securities available for sale3,316
 2,840
Proceeds from sales of securities available for sale3,690
 2,047
Purchases of securities available for sale(5,824) (5,534)
Net increase in loans and leases, including purchases 1
(7,957) (4,566)
Proceeds from sales of loans and leases866
 199
Net cash paid for servicing rights(3) (73)
Payments for bank-owned life insurance policy premiums(1) (201)
Proceeds from the settlement of bank-owned life insurance17
 8
Proceeds from the settlement of insurance claims210
 —
Capital expenditures(261) (170)
Proceeds from the sale of other real estate owned and other assets88
 148
Other investing activities2
 1
Net cash used in investing activities(5,857) (5,301)
Cash Flows from Financing Activities:   
Net increase/(decrease) in total deposits5,082
 (402)
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings(1,628) 3,159
Proceeds from issuance of long-term debt5,992
 5,111
Repayments of long-term debt(864) (484)
Repurchase of preferred stock—
 (450)
Repurchase of common stock(250) (1,160)
Common and preferred stock dividends paid(747) (664)
Taxes paid related to net share settlement of equity awards(52) (44)
Proceeds from exercise of stock options7
 36
Net cash provided by financing activities7,540
 5,102
Net increase in cash and cash equivalents1,689
 693
Cash and cash equivalents at beginning of period7,495
 6,912
Cash and cash equivalents at end of period
$9,184
 
$7,605
    
Supplemental Disclosures:   
Loans transferred from loans held for sale to loans held for investment
$17
 
$23
Loans transferred from loans held for investment to loans held for sale812
 449
Loans transferred from loans held for investment to other real estate owned33
 44
Non-cash impact of debt assumed by purchaser in lease sale163
 —

SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2018 2017
Cash Flows from Operating Activities:   
Net income including income attributable to noncontrolling interest
$2,124
 
$1,540
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization, and accretion535
 540
Origination of servicing rights(260) (262)
Provisions for credit losses and foreclosed property130
 336
Stock-based compensation118
 121
Net securities gains(1) (1)
Net gains on sale of loans held for sale, loans, and other assets(83) (183)
Net decrease in loans held for sale382
 1,488
Net increase in trading assets and derivative instruments(818) (272)
Net increase in other assets 1
(1,713) (835)
Net increase/(decrease) in other liabilities478
 (267)
Net cash provided by operating activities892
 2,205
Cash Flows from Investing Activities:   
Proceeds from maturities, calls, and paydowns of securities available for sale2,840
 3,169
Proceeds from sales of securities available for sale2,047
 1,486
Purchases of securities available for sale(5,534) (5,344)
Net increase in loans, including purchases of loans(4,566) (1,839)
Proceeds from sales of loans and leases199
 520
Net cash paid for servicing rights(73) —
Payments for bank-owned life insurance policy premiums 1
(201) (127)
Proceeds from the settlement of bank-owned life insurance 1
8
 3
Capital expenditures(170) (233)
Proceeds from the sale of other real estate owned and other assets148
 183
Other investing activities 1
1
 9
Net cash used in investing activities(5,301) (2,173)
Cash Flows from Financing Activities:   
Net (decrease)/increase in total deposits(402) 2,339
Net increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings3,159
 685
Proceeds from issuance of long-term debt5,111
 2,623
Repayments of long-term debt(484) (3,073)
Proceeds from the issuance of preferred stock—
 743
Repurchase of preferred stock(450) —
Repurchase of common stock(1,160) (984)
Common and preferred stock dividends paid(664) (485)
Taxes paid related to net share settlement of equity awards(44) (38)
Proceeds from exercise of stock options36
 13
Net cash provided by financing activities5,102
 1,823
Net increase in cash and cash equivalents693
 1,855
Cash and cash equivalents at beginning of period6,912
 6,423
Cash and cash equivalents at end of period
$7,605
 
$8,278
    
Supplemental Disclosures:   
Loans transferred from loans held for sale to loans held for investment
$23
 
$16
Loans transferred from loans held for investment to loans held for sale449
 218
Loans transferred from loans held for investment and loans held for sale to other real estate owned44
 43
Non-cash impact of debt assumed by purchaser in lease sale—
 9
1 Related Pursuant to the Company'sCompany’s adoption of ASU 2016-15, certain 2016-02 on January 1, 2019, it began including the interest portion of lessee payments received from sales-type and direct financing leases, which totaled $106 million for the nine months ended September 30, 2019, within operating activities, with the principal portion of lessee payments remaining within investing activities. For periods prior period amounts have beento January 1, 2019, interest payments were not retrospectively reclassified between operating activities and remain within investing activities. See Note 1, "Significant“Significant Accounting Policies,"” for additional information.


See accompanying Notes to Consolidated Financial Statements (unaudited).
Notes to Consolidated Financial Statements (Unaudited)




 
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The unaudited Consolidated Financial Statements included within this report have been prepared in accordance with U.S. GAAP to present interim financial statement information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete, consolidated financial statements. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of the results of operations in these financial statements, have been made.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes; actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Interim Consolidated Financial Statements should be read in conjunction with the Company’s 20172018 Annual Report on Form 10-K.

Changes in Significant Accounting Policies
Pursuant to the Company'sCompany’s adoption of certain ASUsASC Topic 842 as of January 1, 2018,2019, the followingCompany updated its accounting policy related to leases. See Note 10, “Leases,” for new disclosures and policy information related to the Company’s leases. There were no other significant changes to the Company’s accounting policies have been added to or updated from those disclosed in the Company's 2017Company’s 2018 Annual Report on Form 10-K:

Revenue Recognition
In the ordinary course of business, the Company recognizes revenue as services are rendered, or as transactions occur, and as collectability is reasonably assured. For the Company's revenue recognition accounting policies, see Note 2, “Revenue Recognition.”

Trading Activities and Securities AFS
Trading assets and liabilities are measured at fair value with changes in fair value recognized within Noninterest income in the Company's Consolidated Statements of Income.
Securities AFS are used primarily as10-K that could have a store of liquidity and as part of the overall ALM process to optimize income and market performance over an entire interest rate cycle. Interest income on securities AFS is recognized on an accrual basis in Interest income in the Company's Consolidated Statements of Income. Premiums and discounts on securities AFS are amortized or accreted as an adjustment to yield over the life of the security. The Company estimates principal prepayments on securities AFS for which prepayments are probable and the timing and amount of prepayments can be reasonably estimated. The estimates are informed by analyses of both historical prepayments and anticipated macroeconomic conditions, such as spot interest rates compared to implied forward interest rates. The estimate of prepayments for these securities impacts their lives and thereby the amortization or accretion of associated premiums and discounts. Securities AFS are measured at fair value with unrealized gains and losses, net of any taxmaterial effect included in AOCI as a component of shareholders’ equity. Realized gains and losses, including OTTI, are determined using the specific identification method and are recognized as a
component of Noninterest income in the Consolidated Statements of Income.
Securities AFS are reviewed for OTTI on a quarterly basis. In determining whether OTTI exists for securities AFS in an unrealized loss position, the Company assesses whether it has the intent to sell the security or assesses the likelihood of selling the security prior to the recovery of its amortized cost basis. If the Company intends to sell the security or it is more-likely-than-not that the Company will be required to sell the security prior to the recovery of its amortized cost basis, the security is written down to fair value, and the full amount of any impairment charge is recognized as a component of Noninterest income in the Consolidated Statements of Income. If the Company does not intend to sell the security and it is more-likely-than-not that the Company will not be required to sell the security prior to recovery of its amortized cost basis, only the credit component of any impairment of a security is recognized as a component of Noninterest income in the Consolidated Statements of Income, with the amount of any remaining unrealized losses recorded in OCI.
For additional information on the Company’s trading and securities AFS activities, see Note 4, “Trading Assets and Liabilities and Derivatives,” and Note 5, “Securities Available for Sale.”

Equity Securities
The Company records equity securities that are not classified as trading assets or liabilities within Other assets in its Consolidated Balance Sheets.
Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of Noninterest income in the Company's Consolidated Statements of Income.
Investments in equity investments that do not have readily determinable fair values (nonmarketable) are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in Noninterest income in the Company's Consolidated Statements of Income.
For additional information on the Company's equity securities, see Note 9, “Other Assets,” and Note 16, “Fair Value Election and Measurement.”

Derivative Instruments and Hedging Activities
The Company records derivative contracts at fair value in the Consolidated Balance Sheets. Accounting for changes in the fair value of a derivative depends upon whether or not it has been designated in a formal, qualifying hedging relationship. 
Changes in the fair value of derivatives not designated in a hedging relationship are recorded in noninterest income. This includes derivatives that the Company enters into in a dealer capacity to facilitate client transactions and as a risk management tool to economically hedge certain identified risks, along with certain IRLCs on residential mortgage and commercial loans that are a normal part of the Company’s operations. The Company
Notes to Consolidated Financial Statements (Unaudited), continued



also evaluates contracts, such as brokered deposits and debt, to determine whether any embedded derivatives are required to be bifurcated and separately accounted for as freestanding derivatives.
Certain derivatives used as risk management tools are designated as accounting hedges of the Company’s exposure to changes in interest rates or other identified market risks. The Company prepares written hedge documentation for all derivatives which are designated as hedges of (i) changes in the fair value of a recognized asset or liability (fair value hedge) attributable to a specified risk or (ii) a forecasted transaction, such as the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written hedge documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item and methodologies for assessing and measuring hedge effectiveness, along with support for management’s assertion that the hedge will be highly effective. Methodologies related to hedge effectiveness include (i) statistical regression analysis of changes in the cash flows of the actual derivative and hypothetical derivatives, or (ii) statistical regression analysis of changes in the fair values of the actual derivative and the hedged item.
For designated hedging relationships, subsequent to the initial assessment of hedge effectiveness, the Company generally performs retrospective and prospective effectiveness testing using a qualitative approach. Assessments of hedge effectiveness are performed at least quarterly. Changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a fair value hedge are recorded in current period earnings, in the same line item with the changes in the fair value of the hedged item that are attributable to the hedged risk. The changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a cash flow hedge is initially recorded in AOCI and reclassified to earnings in the
same period that the hedged item impacts earnings. The amount reclassified to earnings is recorded in the same line item as the earnings effect of the hedged item.
Hedge accounting ceases for hedging relationships that are no longer deemed effective, or for which the derivative has been terminated or de-designated. For discontinued fair value hedges where the hedged item remains outstanding, the hedged item would cease to be remeasured at fair value attributable to changes in the hedged risk and any existing basis adjustment would be recognized as an adjustment to net interest income over the remaining life of the hedged item. For discontinued cash flow hedges, the unrealized gains and losses recorded in AOCI would be reclassified to earnings in the period when the previously designated hedged cash flows occur unless it was determined that transaction was probable to not occur, in which case any unrealized gains and losses in AOCI would be immediately reclassified to earnings.
It is the Company's policy to offset derivative transactions with a single counterparty as well as any cash collateral paid to and received from that counterparty for derivative contracts that are subject to ISDA or other legally enforceable netting arrangements and meet accounting guidance for offsetting treatment. For additional information on the Company’s derivative activities, see Note 15, “Derivative Financial Instruments,” and Note 16, “Fair Value Election and Measurement.”

financial statements.
Subsequent Events
The Company evaluated events that occurred between September 30, 20182019 and the date the accompanying financial statements were issued, and there were no material events, other than those already discussed in this Form 10-Q, that would require recognition in the Company'sCompany’s Consolidated Financial Statements or disclosure in the accompanying Notes.


Accounting Pronouncements
The following table summarizes ASUs issued by the FASB that were adopted during the current yearnine months ended September 30, 2019 or not yet adopted as of September 30, 2018,2019, that could have a material effect on the Company'sCompany’s financial statements:
StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Adopted in 20182019
ASU 2014-09, 2016-02, Leases (Topic 842) and subsequent related ASUs
These ASUs create and amend ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. ASC Topic 842 requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. These ASUs do not make significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606). Furthermore, there are several new qualitative and subsequent related ASUs
These ASUs comprise ASC Topic 606, Revenue from Contracts with Customers, which supersedequantitative disclosures required for lessees and lessors, including updated guidance around the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughoutpresentation of certain cash receipts on the Industry TopicsCompany’s Consolidated Statements of the ASC. The core principle of these 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.Cash Flows.

January 1, 20182019
The Company adopted these ASUs on January 1, 2019, using a modified retrospective basis beginning January 1, 2018. transition approach as of the date of adoption, which resulted in the recognition of $1.2 billion and $1.3 billion in right-of-use assets and associated lease liabilities, respectively, arising from operating leases in which the Company is the lessee, on the Company's Consolidated Balance Sheets. The amount of the right-of-use assets and associated lease liabilities recorded upon adoption was based primarily on the present value of unpaid future minimum lease payments, the amount of which was based on the population of leases in effect at the date of adoption. At September 30, 2019, right-of-use assets and lease liabilities recorded on the Company’s Consolidated Balance Sheets totaled $1.1 billion and $1.2 billion, respectively.
 
Upon adoption, the Company also recognized an immateriala cumulative effect adjustment that resulted in a decreaseof $31 million to increase the beginning balance of retained earnings as(as of January 1, 2018. 2019) for deferred gains on sale-leaseback transactions that occurred prior to the date of adoption and for other transition provisions. These ASUs did not have a material impact on the timing of expense or income recognition in the Company’s Consolidated Statements of Income.

Furthermore, effective January 1, 2019, the Company prospectively changed theits presentation of certain typescash receipts related to sales-type and direct financing leases in which it is the lessor on its Consolidated Statements of revenueCash Flows. Specifically, the Company began including on its Consolidated Statements of Cash Flows the interest portion of lessee payments received from sales-type and expenses, such as underwriting revenuedirect financing leases within investment banking income which is shown on a gross basis,operating activities, with the principal portion remaining within investing activities. For periods prior to the date of adoption, interest payments were not retrospectively reclassified and certain cash promotions and card network expenses, which were reclassified from noninterest expense to service charges on deposit accounts, card fees, and other charges and fees. The net quantitative impact of these presentation changes decreased both revenue and expenses by $9 million and $16 million forremain within investing activities. For the three and nine months ended September 30, 2018, respectively; however,2019, the Company included $36 million and $106 million, respectively, of interest payments received from these presentation changes did not have an impactsales-type and direct financing leases within operating activities on net income. Prior period balances have not been restated to reflect these presentation changes. See Note 2, “Revenue Recognition,” forits Consolidated Statements of Cash Flows.

For additional information and required disclosures relatingrelated to ASC Topic 606.842, see Note 10, “Leases.”



Notes to Consolidated Financial Statements (Unaudited), continued






StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Adopted in 2018 (continued)
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities; and

ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
These ASUs amend ASC Topic 825, Financial Instruments-Overall, and address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require most investments in equity securities to be measured at fair value through net income, unless they qualify for a measurement alternative, 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 and the application of the measurement alternative for certain equity investments that was adopted prospectively, these ASUs must be adopted on a modified retrospective basis.
January 1, 2018

Early adoption was permitted 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. See Note 1, “Significant Accounting Policies,” to the Company's 2016 Annual Report on Form 10-K for additional information regarding the early adoption of this provision.

Additionally, the Company adopted the remaining provisions of these ASUs beginning January 1, 2018, which resulted in an immaterial cumulative effect adjustment to the beginning balance of retained earnings. In connection with the adoption of these ASUs, an immaterial amount of equity securities previously classified as securities AFS were reclassified to other assets, as the AFS classification is no longer permitted for equity securities under these ASUs.

Subsequent to adoption of these ASUs, the Company recognized net gains on certain of its equity investments during the three and nine months ended September 30, 2018. For additional information relating to these net gains, see Note 9, “Other Assets,” and Note 16, “Fair Value Election and Measurement.”

The remaining provisions and disclosure requirements of these ASUs did not have a material impact on the Company's Consolidated Financial Statements or related disclosures upon adoption.

ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU amends ASC Topic 230, Statement of Cash Flows, to clarify the classification of certain cash receipts and payments within the Company's Consolidated Statements of Cash Flows. These items include: cash payments for debt prepayment or debt extinguishment costs; cash outflows for the settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned and bank-owned life insurance policies; distributions received from equity method investees; and beneficial interests acquired in securitization transactions. The ASU also clarifies that when no specific U.S. GAAP guidance exists and the source of the cash flows are not separately identifiable, the predominant source of cash flow should be used to determine the classification for the item. The ASU must be adopted on a retrospective basis.

January 1, 2018
The Company adopted this ASU on a retrospective basis effective January 1, 2018 and changed the presentation of certain cash payments and receipts within its Consolidated Statements of Cash Flows. Specifically, the Company changed the presentation of proceeds from the settlement of bank-owned life insurance policies from operating activities to investing activities. The Company also changed the presentation of cash payments for bank-owned life insurance policy premiums from operating activities to investing activities. Lastly, for contingent consideration payments made more than three months after a business combination, the Company changed the presentation for the portion of the cash payment up to the acquisition date fair value of the contingent consideration as a financing activity and any amount paid in excess of the acquisition date fair value as an operating activity.

For the nine months ended September 30, 2018 and 2017, the Company reclassified $201 million and $127 million, respectively, of cash payments for bank-owned life insurance policy premiums and an immaterial amount of proceeds from the settlement of bank-owned life insurance policies from operating activities to investing activities on the Company’s Consolidated Statements of Cash Flows. The remaining presentation change described above was immaterial for both the nine months ended September 30, 2018 and 2017.

ASU 2017-09, Stock Compensation (Topic 718): Scope of Modification Accounting
This ASU amends ASC Topic 718, Stock Compensation, to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting per ASC Topic 718, Stock Compensation. The amendments clarify that modification accounting only applies to an entity if the fair value, vesting conditions, or classification of the award changes as a result of changes in the terms or conditions of a share-based payment award. The ASU should be applied prospectively to awards modified on or after the adoption date.

January 1, 2018The Company adopted this ASU on January 1, 2018 and upon adoption, the ASU did not have a material impact on the Company's Consolidated Financial Statements or related disclosures.
Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Adopted in 2018 (continued)
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
This ASU amends ASC Topic 815, Derivatives and Hedging, to simplify the requirements for hedge accounting. Key amendments include: eliminating the requirement to separately measure and report hedge ineffectiveness, requiring changes in the value of the hedging instrument to be presented in the same income statement line as the earnings effect of the hedged item, and the ability to measure the hedged item based on the benchmark interest rate component of the total contractual coupon for fair value hedges. These changes expand the types of risk management strategies eligible for hedge accounting. The ASU also permits entities to qualitatively assert that a hedging relationship was and continues to be highly effective. New incremental disclosures are required for reporting periods subsequent to the date of adoption. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption using a modified retrospective approach.

January 1, 2019

Early adoption is permitted.
The Company early adopted this ASU beginning January 1, 2018 and modified its measurement methodology for certain hedged items designated under fair value hedge relationships. The Company elected to perform its subsequent assessments of hedge effectiveness using a qualitative, rather than a quantitative, approach. The adoption resulted in an immaterial cumulative effect adjustment to the opening balance of retained earnings and a basis adjustment to the related hedged items arising from measuring the hedged items based on the benchmark interest rate component of the total contractual coupon of the fair value hedges. For additional information on the Company’s derivative and hedging activities, see Note 15, “Derivative Financial Instruments.”

ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from AOCI

This ASU amends ASC Topic 220, Income Statement - Reporting Comprehensive Income, to allow for a reclassification from AOCI to Retained earnings for the tax effects stranded in AOCI as a result of the remeasurement of DTAs and DTLs for the change in the federal corporate tax rate pursuant to the 2017 Tax Act, which was recognized through the income tax provision in 2017. The Company may apply this ASU at the beginning of the period of adoption or retrospectively to all periods in which the 2017 Tax Act is enacted.

January 1, 2019

Early adoption is permitted.
The Company early adopted this ASU beginning January 1, 2018. Upon adoption of this ASU, the Company elected to reclassify $182 million of stranded tax effects relating to securities AFS, derivative instruments, credit risk on long-term debt, and employee benefit plans from AOCI to retained earnings. This amount was offset by $28 million of stranded tax effects relating to equity securities previously classified as securities AFS, resulting in a net $154 million increase to retained earnings.

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU amends ASC Topic 820, Fair Value Measurement, to add new disclosure requirements, as well as to modify and remove certain disclosure requirements to improve the effectiveness of disclosures in the notes to financial statements. In the initial period of adoption, the Company will be required to disclose the average of significant unobservable inputs used to develop level 3 fair value measurements and to disclose information about the measurement uncertainty around these measurements on a prospective basis. All other amendments of this ASU must be applied retrospectively to all periods presented upon adoption.

January 1, 2020

Early adoption is permitted.

The Company early adopted this ASU beginning September 30, 2018 and modified its fair value disclosures accordingly. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements. See Note 16, “Fair Value Election and Measurement,” for the Company's fair value disclosures.

Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Not Yet Adopted
ASU 2016-02, Leases (ASC Topic 842) and subsequent related ASUs
This ASU creates ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. ASC 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 ASC Topic 606, Revenue from Contracts with Customers. There are several new qualitative and quantitative disclosures required.

Upon transition, lessees and lessors have the option to:
- Recognize and measure leases at the beginning of the earliest period presented using a modified retrospective transition approach, or
- Apply a modified retrospective transition approach as of the date of adoption.

January 1, 2019

Early adoption is permitted.
The Company has formed a cross-functional team to oversee the implementation of this ASU. The Company's implementation efforts are ongoing, including the review of its lease portfolios and related lease accounting policies, the review of its service contracts for embedded leases, and the deployment of a new lease software solution. Additionally, in conjunction with this implementation, the Company is reviewing business processes and evaluating potential changes to its control environment.

The Company will adopt this ASU on January 1, 2019, which will result in an increase in right-of-use assets and associated lease liabilities, arising from operating leases in which the Company is the lessee, on its Consolidated Balance Sheets. The amount of the right-of-use assets and associated lease liabilities recorded upon adoption will be based primarily on the present value of unpaid future minimum lease payments, the amount of which will depend on the population of leases in effect at the date of adoption. At September 30, 2018, the Company’s estimate of right-of-use assets and lease liabilities that would be recorded on its Consolidated Balance Sheets upon adoption was between $1.0 billion and $1.5 billion.

The Company expects to recognize a cumulative effect adjustment upon adoption to increase the beginning balance of retained earnings as of January 1, 2019 for remaining deferred gains on sale-leaseback transactions which occurred prior to the date of adoption. The Company had approximately $44 million of deferred gains on sale-leaseback transactions as of September 30, 2018. The Company does not expect this ASU to have a material impact on the timing of expense recognition in its Consolidated Statements of Income.

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and subsequent related ASUs
This ASU addsThese ASUs create and amend ASC Topic 326, Financial Instruments - Credit Losses, to replacewhich replaces 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 is deducted from the amortized cost basis of the financial assets to reflect the net amount expected to be collected on the financial assets. Additional quantitative and qualitative disclosures are required upon adoption. The change to the allowance for credit losses at the time of the adoption will be made with a cumulative effect adjustment to Retainedretained earnings.

The
Although the current expected credit loss modelmethodology does not apply to AFS debt securities; however, the ASU requiressecurities, these ASUs do require 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 has formed a cross-functional team to oversee the implementation of this ASU.these ASUs. A detailed implementation plan has beenwas developed and substantial progress has been made onis substantially complete in regards to the identification and staging of data, development and validation of models, refinement of economic forecasting processes, and documentation of accounting policy decisions. Additionally, a new credit loss platform is beingforecasting process was implemented in the first half of 2019, resulting in modifications to host data and run models in a controlled, automated environment.the Company’s associated internal control environment that will be effective upon adoption of these ASUs. In conjunction with this implementation,the first half of 2019, the Company is reviewing businessperformed testing in which methodologies, processes, and evaluating potential changesinternal controls were evaluated and refined. The Company performed a full parallel run of the new methodology in the third quarter of 2019 and will perform another full parallel run in the fourth quarter of 2019. The parallel runs include execution of internal controls, supporting analytics, reserve estimation, process and procedure documentation, and subject matter expert reviews. The Company continues to refine its processes and methodology based on the control environment.results of these exercises.


The Company plans to adopt this ASUthese ASUs on January 1, 2020, and it is evaluatingcontinues to evaluate the impact that this ASUthese ASUs will have on its Consolidated Financial Statements and related disclosures. The Company currently anticipates that an increase to the allowance for credit losses will be recognized upon adoption to provide for the expected credit losses over the estimated life of the financial assets. The actual magnitude of the increase will depend on existing and forecasted economic conditions and trends in the Company’s portfolio at the time of adoption. The Company is also evaluating the anticipated impact that the Merger will have on its estimated impact of adopting these ASUs on its Consolidated Financial Statements.


ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
This ASU amends ASC Topic 350, Intangibles - Goodwill and Other, to simplify the subsequent measurement of goodwill, by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This ASU requires an entity to recognize an impairment charge for the amount by which a reporting unit's carrying amount exceeds its fair value, with the loss limited to the total amount of goodwill allocated to that reporting unit. The ASU must be applied on a prospective basis.


January 1, 2020

Early adoption is permitted.
Based on the Company'sCompany’s most recent annualqualitative goodwill impairment testassessment performed asin the third quarter of October 1, 2017,2019, there were no reporting units for which it was more-likely-than-not that the carrying amount of thea reporting unit exceeded its respective fair value; therefore, this ASU would not currently have an impact on the Company'sCompany’s Consolidated Financial Statements or related disclosures. However, if upon thesubsequent to adoption, date, which is expected to occur on January 1, 2020, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge for the amount that the carrying value exceeds the fair value.
Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Not Yet Adopted (continued)
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

This ASU amends ASC Subtopic 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General, to add new disclosure requirements, as well as to remove certain disclosure requirements to improve the effectiveness of disclosures in the notes to financial statements. The ASU must be adopted on a retrospective basis.

December 31, 2020

Early adoption is permitted.

The Company is in the process of evaluating this ASU and does not expect this ASU to have a material impact on its Consolidated Financial Statements or related disclosures.

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract


This ASU amends ASC Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company may apply this ASU either retrospectively, or prospectively to all implementation costs incurred after the date of adoption.


January 1, 2020


Early adoption is permitted.


The Company is in the process of evaluating this ASU. The Company’s current accounting policy for capitalizing implementation costs incurred in a hosting arrangement generally aligns with the requirements of this ASU. Therefore,ASU; therefore, the Company's adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements or related disclosures.








Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 2 – REVENUE RECOGNITION
Pursuant to the Company's adoption of ASC Topic 606, Revenue from Contracts with Customers, the following disclosures discuss the Company's revenue recognition accounting policies. The Company recognizes two primary types of revenue: Interest income and noninterest income.
Interest Income
The Company’s principal source of revenue is interest income from loans and securities, which is recognized on an accrual basis using the effective interest method. For additional information on the Company’s policies for recognizing interest income on loans and securities, see Note 1, “Significant Accounting Policies,” in the Company’s 2017 Annual Report on Form 10-K. Interest income is not within the scope of ASC Topic 606.
Noninterest Income
Noninterest income includes revenue from various types of transactions and services provided to clients. The following table reflectstables reflect the Company’s noninterest income disaggregated by the amount of revenue that is in scope and out of scope of ASC Topic 606.
(Dollars in millions)Three Months Ended September 30 Nine Months Ended September 30
Noninterest income2018 2017 2018 2017
Revenue in scope of ASC Topic 606
$508
 
$530
 
$1,514
 
$1,571
Revenue out of scope of ASC Topic 606274
 316
 894
 949
Total noninterest income
$782
 
$846
 
$2,408
 
$2,520

Notes to Consolidated Financial Statements (Unaudited), continued



The following tables further disaggregate the Company’s noninterest income by financial statement line item, business segment, and by the amount of each revenue stream that is in scope orand out of scope of ASC Topic 606. The commentary following these tables describes the nature, amount, and timing of the related revenue streams.
 
 Three Months Ended September 30, 2018 1
(Dollars in millions)
 Consumer 2
 
 Wholesale 2
 
  Out of Scope 2, 3
 Total
Noninterest income       
Service charges on deposit accounts
$111
 
$33
 
$—
 
$144
Other charges and fees 4
28
 3
 58
 89
Card fees49
 26
 —
 75
Investment banking income 4
—
 101
 49
 150
Trading income—
 —
 42
 42
Trust and investment management income79
 —
 1
 80
Retail investment services73
 —
 1
 74
Mortgage servicing related income—
 —
 43
 43
Mortgage production related income—
 —
 40
 40
Commercial real estate related income—
 —
 24
 24
Net securities gains—
 —
 —
 —
Other noninterest income5
 —
 16
 21
Total noninterest income
$345
 
$163
 
$274
 
$782
1 Amounts are presented in accordance with ASC Topic 606, Revenue from Contracts with Customers, except for out of scope amounts.
2 Consumer total noninterest income and Wholesale total noninterest income exclude $100 million and $210 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 18, "Business Segment Reporting."Out of scope total noninterest income includes these amounts and also includes ($36) million of Corporate Other noninterest income that is not subject. Refer toASC Topic 606.
3 The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
4 Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability.


 
 Three Months Ended September 30, 2017 1
(Dollars in millions)
 Consumer 2
 
 Wholesale 2
 
  Out of Scope 2, 3
 Total
Noninterest income       
Service charges on deposit accounts
$119
 
$35
 
$—
 
$154
Other charges and fees 4
29
 3
 57
 89
Card fees58
 27
 1
 86
Investment banking income 4
—
 106
 63
 169
Trading income—
 —
 51
 51
Trust and investment management income78
 —
 1
 79
Retail investment services69
 —
 —
 69
Mortgage servicing related income—
 —
 46
 46
Mortgage production related income—
 —
 61
 61
Commercial real estate related income—
 —
 17
 17
Net securities gains—
 —
 —
 —
Other noninterest income6
 —
 19
 25
Total noninterest income
$359
 
$171
 
$316
 
$846
1 Amounts for periods prior to January 1, 2018 are presented in accordance with ASC Topic 605, Revenue Recognition, and have not been restated to conform with ASC Topic 606, Revenue from Contracts with Customers.
2 Consumer total noninterest income and Wholesale total noninterest income exclude $123 million and $226 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 18, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($33) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
3 The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
4 Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability.

Notes to Consolidated Financial Statements (Unaudited), continued



 
 Nine Months Ended September 30, 2018 1
(Dollars in millions)
 Consumer 2
 
 Wholesale 2
 
  Out of Scope 2, 3
 Total
Noninterest income       
Service charges on deposit accounts
$330
 
$103
 
$—
 
$433
Other charges and fees 4
85
 8
 171
 264
Card fees160
 78
 3
 241
Investment banking income 4
—
 287
 166
 453
Trading income—
 —
 137
 137
Trust and investment management income228
 —
 2
 230
Retail investment services216
 2
 1
 219
Mortgage servicing related income—
 —
 138
 138
Mortgage production related income—
 —
 118
 118
Commercial real estate related income—
 —
 66
 66
Net securities gains—
 —
 1
 1
Other noninterest income17
 —
 91
 108
Total noninterest income
$1,036
 
$478
 
$894
 
$2,408
1 Amounts are presented in accordance with ASC Topic 606, Revenue from Contracts with Customers, except for out of scope amounts.
2 Consumer total noninterest income and Wholesale total noninterest income exclude $313 million and $646 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 18, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($65) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
3 The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
4 Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability.


 
 Nine Months Ended September 30, 2017 1
(Dollars in millions)
 Consumer 2
 
 Wholesale 2
 
  Out of Scope 2, 3
 Total
Noninterest income       
Service charges on deposit accounts
$344
 
$109
 
$—
 
$453
Other charges and fees 4
93
 9
 168
 270
Card fees172
 81
 2
 255
Investment banking income 4
—
 309
 192
 501
Trading income—
 —
 148
 148
Trust and investment management income227
 —
 2
 229
Retail investment services206
 1
 1
 208
Mortgage servicing related income—
 —
 148
 148
Mortgage production related income—
 —
 170
 170
Commercial real estate related income—
 —
 61
 61
Net securities gains—
 —
 1
 1
Other noninterest income20
 —
 56
 76
Total noninterest income
$1,062
 
$509
 
$949
 
$2,520
1 Amounts for periods prior to January 1, 2018 are presented in accordance with ASC Topic 605, Revenue Recognition, and have not been restated to conform with ASC Topic 606, Revenue from Contracts with Customers.
2 Consumer total noninterest income and Wholesale total noninterest income exclude $365 million and $660 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 18, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($76) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
3 The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
4 Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability.


Service Charges on Deposit Accounts
Service charges on deposit accounts represent fees relating to the Company’s various deposit products. These fees include account maintenance, cash management, treasury management, wire transfers, overdraft and other deposit-related fees. The Company’s execution of the services related to these fees represents its related performance obligations. Each of these
performance obligations are either satisfied over time or at a point in time as the services are provided to the customer. The Company is the principal when rendering these services. Payments for services provided are either withdrawn from the customer’s account as services are rendered or in the billing period following the completion of the service. The transaction
Notes to Consolidated Financial Statements (Unaudited), continued



price for each of these fees is based on the Company’s predetermined fee schedule.

Other Charges and Fees
Other charges and fees consist primarily of loan commitment and letter of credit fees, operating lease revenue, ATM fees, insurance revenue, and miscellaneous service charges including wire fees and check cashing fees. Loan commitment and letter of credit fees and operating lease revenue are out of scope of ASC Topic 606.
The Company’s execution of the services related to the fees within the scope of ASC Topic 606 represents its related performance obligations, which are either satisfied at a point in time or over time as services are rendered. ATM fees and miscellaneous service charges are recognized at a point in time as the services are provided.
Insurance commission revenue is earned through the sale of insurance products. The commissions are recognized as revenue when the customer executes an insurance policy with the insurance carrier. In some cases, the Company receives payment of trailing commissions each year when the customer pays its annual premium. For both the three and nine months ended September 30, 2018, the Company recognized an immaterial amount of insurance trailing commissions related to performance obligations satisfied in prior periods.
Card Fees
Card fees consist of interchange fees from credit and debit cards, merchant acquirer revenue, and other card related services. Interchange fees are earned by the Company each time a request for payment is initiated by a customer at a merchant for which the Company transfers the funds on behalf of the customer. Interchange rates are set by the payment network and are based on purchase volumes and other factors. Interchange fees are received daily and recognized at a point in time when the card transaction is processed. The Company is considered an agent of the customer and incurs costs with the payment network to facilitate the interchange with the merchant; therefore, the related payment network expense is recognized as a reduction of card fees. Prior to the adoption of ASC Topic 606, these expenses were recognized in Outside processing and software in the Company's Consolidated Statements of Income. The Company offers rewards and/or rebates to its customers based on card usage. The costs associated with these programs are recognized as a reduction of card fees.
The Company also has a revenue sharing agreement with a merchant acquirer. The Company’s referral of a merchant to the merchant acquirer represents its related performance obligation, which is satisfied at a point in time when the referral is made. Monthly revenue is estimated based on the expected amount of transactions processed. Payments are generally made by the merchant acquirer quarterly in the month following the quarter in which the services are rendered.

Investment Banking Income
Investment banking income is comprised primarily of securities underwriting fees, advisory fees, and loan syndication fees. The Company assists corporate clients in raising capital by offering equity or debt securities to potential investors. The underwriting fees are earned on the trade date when the Company, as a member
of an underwriting syndicate, purchases the securities from the issuer and sells the securities to third party investors. Each member of the syndicate is responsible for selling its portion of the underwriting and is liable for the proportionate costs of the underwriting; therefore, the Company’s portion of underwriting revenue and expense is presented gross within noninterest income and noninterest expense. Prior to the adoption of ASC Topic 606, underwriting expense was recorded as a reduction of investment banking income. The transaction price is based on a percentage of the total transaction amount and payments are settled shortly after the trade date.
Loan syndication fees are typically recognized at the closing of a loan syndication transaction. These fees are out of the scope of ASC Topic 606.
The Company also provides merger and acquisition advisory services, including various activities such as business valuation, identification of potential targets or acquirers, and the issuance of fairness opinions. The Company’s execution of these advisory services represents its related performance obligations. The performance obligations relating to advisory services are fulfilled at a point in time upon completion of the contractually specified merger or acquisition. The transaction price is based on contractually specified terms agreed upon with the client for each advisory service. Additionally, payments for advisory services consist of upfront retainer fees and success fees at the date the related merger or acquisition is closed. The retainer fees are typically paid upfront, which creates a contract liability. At September 30, 2018, the contract liability relating to these retainer fees was immaterial.
Revenue related to trade execution services is earned on the trade date and recognized at a point in time. The fees related to trade execution services are due on the settlement date.

Trading Income
The Company recognizes trading income as a result of gains and losses from the sales of trading account assets and liabilities. The Company also recognizes trading income as a result of changes in the fair value of trading account assets and liabilities that it holds. The Company’s trading accounts include various types of debt and equity securities, trading loans, and derivative instruments. For additional information relating to trading income, see Note 15, “Derivative Financial Instruments,” and Note 16, “Fair Value Election and Measurement.”

Trust and Investment Management Income
Trust and investment management income includes revenue from custodial services, trust administration, financial advisory services, employee benefit solutions, and other services provided to customers within the Consumer business segment.
The Company generally recognizes trust and investment management revenue over time as services are rendered. Revenue is based on either a percentage of the market value of the assets under management, or advisement, or fixed based on the services provided to the customer. Fees are generally swept from the customer’s account one billing period in arrears based on the prior period’s assets under management or advisement.
Retail Investment Services
Retail investment services consists primarily of investment management, selling and distribution services, and trade
Notes to Consolidated Financial Statements (Unaudited), continued



execution services. The Company’s execution of these services represents its related performance obligations.
Investment management fees are generally recognized over time as services are rendered and are based on either a percentage of the market value of the assets under management, or advisement, or fixed based on the services provided to the customer. The fees are calculated quarterly and are usually collected at the beginning of the period from the customer’s account and recognized ratably over the related billing period.
The Company also offers selling and distribution services and earns commissions through the sale of annuity and mutual fund products. The Company acts as an agent in these transactions and recognizes revenue at a point in time when the customer enters into an agreement with the product carrier. The Company may also receive trailing commissions and 12b-1 fees related to mutual fund and annuity products, and recognizes this revenue in the period that they are realized since the revenue cannot be accurately predicted at the time the policy becomes effective. The Company recognized revenue of $12 million and $38 million for the three and nine months ended September 30, 2018, respectively, which relates to mutual fund 12b-1 fees and annuity trailing commissions from performance obligations satisfied in periods prior to September 30, 2018.
Trade execution commissions are earned and recognized on the trade date, when the Company executes a trade for a customer. Payment for the trade execution is due on the settlement date.

Mortgage Servicing Related Income
The Company recognizes as assets the rights to service mortgage loans, either when the loans are sold and the associated servicing rights are retained or when servicing rights are purchased from a third party. Mortgage servicing related income includes servicing fees, modification fees, fees for ancillary services, other fees customarily associated with servicing arrangements, gains or losses from hedging, and changes in the fair value of residential MSRs inclusive of decay resulting from the realization of monthly net servicing cash flows. For additional information relating to mortgage servicing related income, see Note 1, “Significant Accounting Policies,” in and Note 2, “Revenue Recognition,” to
the Company’s 2017Company's 2018 Annual Report on Form 10-K, and Note 8, “Goodwill and Other Intangible Assets,” Note 15, “Derivative Financial Instruments,” and Note 16, “Fair Value Election and Measurement,” in this Form 10-Q.

Mortgage Production Related Income
Mortgage production related income is comprised primarily of activity related tofor the sale of consumer mortgage loans as well as loan origination fees such as closing charges, document review fees, application fees, other loan origination fees, and loan processing fees. For additional information relating to mortgage production related income, see Note 1, “Significant Accounting Policies,” in the Company’s 2017 Annual Report on Form 10-K, and Note 15, “Derivative Financial Instruments,” and Note 16, “Fair Value Election and Measurement,” in this Form 10-Q.

Commercial Real Estate Related Income
Commercial real estate related income consists primarily of origination fees, such as loan placement and broker fees, gains and losses on the sale of commercial loans, commercial mortgage
loan servicing fees, income from community development investments, gains and losses from the sale of structured real estate, and other fee income, such as asset advisory fees. For additional information relating to commercial real estate related income, see Note 1, “Significant Accounting Policies,” in the Company’s 2017 Annual Report on Form 10-K, and Note 8, “Goodwill and Other Intangible Assets,” Note 15, “Derivative Financial Instruments,” and Note 16, “Fair Value Election and Measurement,” in this Form 10-Q.

Net Securities Gains or Losses
The Company recognizes net securities gains or losses primarily as a result of the sale of securities AFS and the recognition of any OTTI on securities AFS. For additional information relating to net securities gains or losses, see Note 5, “Investment Securities.”

Other Noninterest Income
OtherCompany's accounting policies for recognizing noninterest income, withinincluding the scope of ASC Topic 606 consists primarily of fees from the sale of customized personal checks. The Company serves as an agent for customers by connecting them with a third party check provider. Revenue from such sales are earned in the form of commissions from the third party check providernature and is recognized at a point in time on the date the customer places an order. Commissions for personal check orders are credited to revenue on an ongoing basis, and commissions for commercial check orders are received quarterly in arrears.
Other noninterest income also includes income from bank-owned life insurance policies that is not within the scope of ASC Topic 606. Income from bank-owned life insurance primarily represents changes in the cash surrender valuetiming of such life insurance policies held on certain key employees, for which the Company is the owner and beneficiary. Revenue is recognized in each period based on the change in the cash surrender value during the period.

Practical Expedients and Other
revenue streams. The Company has elected the practical expedient to exclude disclosure of unsatisfied performance obligations for (i)Company's contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
The Company pays sales commissions as a cost to obtain certain contracts within the scope of ASC Topic 606; however, sales commissions relating to these contracts are generally expensed when incurred because the amortization period would be one year or less. Sales commissions are recognized as employee compensation within Noninterest expense on the Company’s Consolidated Statements of Income.
At September 30, 2018, the Company does not have any material contract assets, liabilities, or other receivables recorded on its Consolidated Balance Sheets, relating to its revenue streams within the scope of ASC Topic 606. Additionally, the Company's contractscustomers generally do not contain terms that require significant judgment to determine the amount of revenue to recognize.

 Three Months Ended September 30, 2019
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$112
 
$29
 
$—
 
$141
Other charges and fees 3
27
 4
 59
 90
Card fees57
 24
 2
 83
Investment banking income—
 97
 62
 159
Trading income—
 —
 29
 29
Mortgage-related income—
 —
 106
 106
Trust and investment management income77
 —
 1
 78
Retail investment services 4
76
 —
 —
 76
Insurance settlement—
 —
 5
 5
Commercial real estate-related income—
 —
 32
 32
Net securities gains/(losses)—
 —
 4
 4
Other noninterest income6
 —
 34
 40
Total noninterest income
$355
 
$154
 
$334
 
$843

1
Consumer total noninterest income and Wholesale total noninterest income exclude $124 million and $214 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting."Out of scope total noninterest income includes these amounts and also includes ($4) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
4
The Company recognized $12 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods.

 Three Months Ended September 30, 2018
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$111
 
$33
 
$—
 
$144
Other charges and fees 3
28
 3
 58
 89
Card fees49
 26
 —
 75
Investment banking income—
 101
 49
 150
Trading income—
 —
 42
 42
Mortgage-related income—
 —
 83
 83
Trust and investment management income79
 —
 1
 80
Retail investment services 4
73
 —
 1
 74
Insurance settlement—
 —
 —
 —
Commercial real estate-related income—
 —
 24
 24
Net securities gains/(losses)—
 —
 —
 —
Other noninterest income5
 —
 16
 21
Total noninterest income
$345
 
$163
 
$274
 
$782
1
Consumer total noninterest income and Wholesale total noninterest income exclude $99 million and $205 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($30) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
4
The Company recognized $12 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods.

Notes to Consolidated Financial Statements (Unaudited), continued







 Nine Months Ended September 30, 2019
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$324
 
$93
 
$—
 
$417
Other charges and fees 3
82
 12
 171
 265
Card fees168
 75
 4
 247
Investment banking income—
 261
 170
 431
Trading income—
 —
 144
 144
Mortgage-related income—
 —
 294
 294
Trust and investment management income220
 —
 2
 222
Retail investment services 4
218
 1
 1
 220
Insurance settlement—
 —
 210
 210
Commercial real estate-related income—
 —
 106
 106
Net securities gains/(losses)—
 —
 (38) (38)
Other noninterest income17
 —
 118
 135
Total noninterest income
$1,029
 
$442
 
$1,182
 
$2,653

1
Consumer total noninterest income and Wholesale total noninterest income exclude $386 million and $695 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes $101 million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
4
The Company recognized $31 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods.

 Nine Months Ended September 30, 2018
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$330
 
$103
 
$—
 
$433
Other charges and fees 3
85
 8
 171
 264
Card fees160
 78
 3
 241
Investment banking income—
 287
 166
 453
Trading income—
 —
 137
 137
Mortgage-related income—
 —
 256
 256
Trust and investment management income228
 —
 2
 230
Retail investment services 4
216
 2
 1
 219
Insurance settlement—
 —
 —
 —
Commercial real estate-related income—
 —
 66
 66
Net securities gains/(losses)—
 —
 1
 1
Other noninterest income17
 —
 91
 108
Total noninterest income
$1,036
 
$478
 
$894
 
$2,408

1
Consumer total noninterest income and Wholesale total noninterest income exclude $311 million and $618 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($35) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
4
The Company recognized $38 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods.


Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 3 - 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, 2019 December 31, 2018
Fed funds sold
$5
 
$42
Securities borrowed491
 394
Securities purchased under agreements to resell818
 1,243
Total Fed funds sold and securities borrowed or purchased under agreements to resell
$1,314
 
$1,679
(Dollars in millions)September 30, 2018 December 31, 2017
Fed funds sold
$46
 
$65
Securities borrowed429
 298
Securities purchased under agreements to resell899
 1,175
Total Fed funds sold and securities borrowed or purchased under agreements to resell
$1,374
 
$1,538

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, plus accrued interest. Securities borrowed are primarily collateralized by corporate securities. The Company borrows securities and purchases securities under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the
 
related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral values daily and calls for additional collateral to be provided as warranted under the respective agreements. At September 30, 20182019 and December 31, 2017,2018, the total market value of collateral held was $1.3 billion and $1.5$1.6 billion, of which $112$72 million and $177$108 million was repledged, respectively.


Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
 September 30, 2019 December 31, 2018
(Dollars in millions)Overnight and Continuous Up to 30 days Total Overnight and Continuous Up to 30 days 30-90 days Total
U.S. Treasury securities
$89
 
$—
 
$89
 
$197
 
$7
 
$—
 
$204
Federal agency securities95
 9
 104
 112
 10
 —
 122
MBS - agency residential1,031
 143
 1,174
 881
 35
 —
 916
CP74
 —
 74
 78
 —
 —
 78
Corporate and other debt securities196
 192
 388
 216
 158
 80
 454
Total securities sold under agreements to repurchase
$1,485
 
$344
 
$1,829
 
$1,484
 
$210
 
$80
 
$1,774

 September 30, 2018 December 31, 2017
(Dollars in millions)Overnight and Continuous Up to 30 days 30-90 days Total Overnight and Continuous Up to 30 days 30-90 days Total
U.S. Treasury securities
$119
 
$23
 
$—
 
$142
 
$95
 
$—
 
$—
 
$95
Federal agency securities64
 43
 —
 107
 101
 15
 —
 116
MBS - agency772
 148
 —
 920
 694
 135
 —
 829
CP19
 —
 —
 19
 19
 —
 —
 19
Corporate and other debt securities356
 146
 40
 542
 316
 88
 40
 444
Total securities sold under agreements to repurchase
$1,330
 
$360
 
$40
 
$1,730
 
$1,225
 
$238
 
$40
 
$1,503


For 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 15, "Derivative16, “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. Generally, MRAs require collateral to exceed the asset or liability recognized on the balance sheet. Transactions subject to these agreements are treated as collateralized financings, and those with a single counterparty are permitted to be presented net on the Company's Consolidated Balance Sheets, provided certain criteria are met that permit balance sheet netting. At September 30, 20182019 and December 31, 2017,2018, there were no such transactions subject to legally enforceable MRAs that were eligible for balance sheet netting. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs. While these agreements are typically over-collateralized, the amount of collateral presented in this table is limited to the amount of the related recognized asset or liability for each counterparty.
Notes to Consolidated Financial Statements (Unaudited), continued






(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
September 30, 2019         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,309
 
$—
 
$1,309
1 

$1,293
 
$16
Financial liabilities:         
Securities sold under agreements to repurchase1,829
 —
 1,829
 1,829
 —
          
December 31, 2018         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,637
 
$—
 
$1,637
1 

$1,624
 
$13
Financial liabilities:         
Securities sold under agreements to repurchase1,774
 —
 1,774
 1,774
 —

(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
September 30, 2018         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,328
 
$—
 
$1,328
1 

$1,309
 
$19
Financial liabilities:         
Securities sold under agreements to repurchase1,730
 —
 1,730
 1,730
 —
          
December 31, 2017         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,473
 
$—
 
$1,473
1 

$1,462
 
$11
Financial liabilities:         
Securities sold under agreements to repurchase1,503
 —
 1,503
 1,503
 —
1 Excludes $46$5 million and $65$42 million of Fed Funds sold whichthat are not subject to a master netting agreement at September 30, 20182019 and December 31, 2017,2018, respectively.




NOTE 4 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS


The fair values of the components of trading assets and liabilities and derivative instruments are presented in the following table:
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Trading Assets and Derivative Instruments:      
U.S. Treasury securities
$247
 
$157

$212
 
$262
Federal agency securities507
 395
319
 188
U.S. states and political subdivisions91
 61
43
 54
MBS - agency743
 700
MBS - agency residential1,004
 860
MBS - agency commercial51
 —
ABS7
 —
Corporate and other debt securities820
 655
628
 700
CP408
 118
122
 190
Equity securities67
 56
86
 73
Derivative instruments 1
622
 802
1,770
 639
Trading loans 2
2,171
 2,149
2,862
 2,540
Total trading assets and derivative instruments
$5,676
 
$5,093

$7,104
 
$5,506
   
Trading Liabilities and Derivative Instruments:      
U.S. Treasury securities
$742
 
$577

$538
 
$801
MBS - agency—
 3
Corporate and other debt securities411
 289
539
 385
Equity securities12
 9
20
 5
Derivative instruments 1
698
 408
274
 410
Trading loans9
 —
Total trading liabilities and derivative instruments
$1,863
 
$1,283

$1,380
 
$1,604
1 Amounts include the impact of offsetting cash collateral received from and paid to the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists.
2 Includes loans related to TRS.


Various trading and derivative instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements executed through the Bank and/or STRH, a broker/dealer subsidiary of the Company. The Company manages the potential market volatility associated with trading instruments by using 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-
relatedtrading-related activities include acting as a market maker for certain debt and equity security transactions, derivative instrument transactions, and foreign exchange transactions. The Company also uses derivatives to manage its interest rate and market risk from non-trading activities. The Company has policies and procedures to manage market risk associated with client trading and non-trading activities, and assumes a limited degree of market risk by managing the size and nature of its exposure. For
Notes to Consolidated Financial Statements (Unaudited), continued



valuation assumptions and additional information related to the Company's trading products and derivative instruments, see Note 15,16, “Derivative Financial Instruments,” and the “Trading Assets and Derivative Instruments and Investment Securities” section ofin this Form 10-Q as
well as Note 16,20, “Fair Value Election and Measurement.Measurement,”
Notes to the Consolidated Financial Statements (Unaudited), continuedin the Company's 2018 Annual Report on Form 10-K.




Pledged trading assets are presented in the following table:
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Pledged trading assets to secure repurchase agreements 1

$1,284
 
$1,016

$1,226
 
$1,418
Pledged trading assets to secure certain derivative agreements76
 72
62
 22
Pledged trading assets to secure other arrangements40
 41
40
 40
1 Repurchase agreements secured by collateral totaled $1.2 billion and $975 million$1.4 billion at September 30, 20182019 and December 31, 2017,2018, respectively.





NOTE 5 – INVESTMENT SECURITIES
Investment Securities Portfolio Composition
 September 30, 2019
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$3,915
 
$103
 
$—
 
$4,018
Federal agency securities123
 1
 —
 124
U.S. states and political subdivisions564
 9
 1
 572
MBS - agency residential22,069
 520
 4
 22,585
MBS - agency commercial2,881
 103
 1
 2,983
MBS - non-agency commercial1,008
 56
 —
 1,064
Corporate and other debt securities12
 —
 —
 12
Total securities AFS
$30,572
 
$792
 
$6
 
$31,358
        
 
 December 31, 2018 
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$4,277
 
$—
 
$66
 
$4,211
Federal agency securities221
 2
 2
 221
U.S. states and political subdivisions606
 4
 21
 589
MBS - agency residential23,161
 128
 425
 22,864
MBS - agency commercial2,688
 8
 69
 2,627
MBS - non-agency commercial943
 —
 27
 916
Corporate and other debt securities14
 —
 —
 14
Total securities AFS
$31,910
 
$142
 
$610
 
$31,442

 September 30, 2018
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$4,275
 
$—
 
$142
 
$4,133
Federal agency securities224
 2
 3
 223
U.S. states and political subdivisions621
 3
 22
 602
MBS - agency residential23,112
 111
 718
 22,505
MBS - agency commercial2,713
 1
 112
 2,602
MBS - non-agency commercial943
 —
 38
 905
Corporate and other debt securities14
 —
 —
 14
Total securities AFS
$31,902
 
$117
 
$1,035
 
$30,984
        
 
 December 31, 2017 1
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$4,361
 
$2
 
$32
 
$4,331
Federal agency securities257
 3
 1
 259
U.S. states and political subdivisions618
 7
 8
 617
MBS - agency residential22,616
 222
 134
 22,704
MBS - agency commercial2,121
 3
 38
 2,086
MBS - non-agency residential55
 4
 —
 59
MBS - non-agency commercial862
 7
 3
 866
ABS6
 2
 —
 8
Corporate and other debt securities17
 —
 —
 17
Total securities AFS
$30,913
 
$250
 
$216
 
$30,947

1 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability. See Note 9, "Other Assets," for additional information.



The following table presents interest on securities AFS:
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018
Taxable interest
$211
 
$207
 
$646
 
$614
Tax-exempt interest4
 5
 13
 14
Total interest on securities AFS
$215
 
$212
 
$659
 
$628

 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017
Taxable interest
$207
 
$187
 
$614
 
$551
Tax-exempt interest5
 4
 14
 9
Total interest on securities AFS 1

$212
 
$191
 
$628
 
$560

1 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets and began presenting income associated with certain of these equity securities in Trading account interest and other on the Consolidated Statements of Income. For periods prior to January 1, 2018, this income was previously presented in Interest on securities available for sale and has been reclassified to Trading account interest and other for comparability.

Notes to Consolidated Financial Statements (Unaudited), continued



Investment securities pledged to secure public deposits, repurchase agreements, trusts, certain derivative agreements, and other funds had a fair value of $3.4$4.0 billion and $4.3$3.3 billion at September 30, 20182019 and December 31, 2017,2018, respectively.
Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents the amortized cost, fair value, and weighted average yield of the Company's investment
securities at September 30, 2018,2019, by remaining contractual maturity, with the exception of MBS, which are based on estimated average life. Receipt of cash flows may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Distribution of Remaining MaturitiesDistribution of Remaining Maturities
(Dollars in millions)Due in 1 Year or Less Due After 1 Year through 5 Years Due After 5 Years through 10 Years Due After 10 Years 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:                  
Securities AFS:                  
U.S. Treasury securities
$15
 
$2,695
 
$1,565
 
$—
 
$4,275

$632
 
$2,331
 
$952
 
$—
 
$3,915
Federal agency securities113
 28
 8
 75
 224
50
 10
 6
 57
 123
U.S. states and political subdivisions3
 72
 25
 521
 621
—
 90
 317
 157
 564
MBS - agency residential1,619
 6,488
 14,736
 269
 23,112
1,435
 9,389
 10,890
 355
 22,069
MBS - agency commercial1
 467
 1,937
 308
 2,713
—
 835
 1,683
 363
 2,881
MBS - non-agency commercial—
 12
 931
 —
 943
—
 12
 996
 —
 1,008
Corporate and other debt securities—
 14
 —
 —
 14
—
 12
 —
 —
 12
Total securities AFS
$1,751
 
$9,776
 
$19,202
 
$1,173
 
$31,902

$2,117
 
$12,679
 
$14,844
 
$932
 
$30,572
Fair Value:                  
Securities AFS:                  
U.S. Treasury securities
$15
 
$2,615
 
$1,503
 
$—
 
$4,133

$634
 
$2,389
 
$995
 
$—
 
$4,018
Federal agency securities114
 28
 8
 73
 223
50
 10
 6
 58
 124
U.S. states and political subdivisions3
 75
 25
 499
 602
—
 95
 320
 157
 572
MBS - agency residential1,674
 6,341
 14,230
 260
 22,505
1,485
 9,630
 11,108
 362
 22,585
MBS - agency commercial1
 448
 1,859
 294
 2,602
—
 851
 1,752
 380
 2,983
MBS - non-agency commercial—
 12
 893
 —
 905
—
 12
 1,052
 —
 1,064
Corporate and other debt securities—
 14
 —
 —
 14
—
 12
 —
 —
 12
Total securities AFS
$1,807
 
$9,533
 
$18,518
 
$1,126
 
$30,984

$2,169
 
$12,999
 
$15,233
 
$957
 
$31,358
Weighted average yield 1
3.22% 2.38% 2.94% 3.12% 2.79%3.09% 2.81% 2.93% 3.02% 2.89%
1 Weighted average yields are based on amortized cost and presented on an FTE basis.




Notes to Consolidated Financial Statements (Unaudited), continued






Investment Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market prices of securities fluctuate. At September 30, 2018,2019, the Company did not intend to sell these securities nor was it more-likely-than-not
 
that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company reviewed its portfolio for OTTI in accordance with the accounting policies described in Note 1, "Significant Accounting Policies," to the Company's 20172018 Annual Report on Form 10-K.


Investment securities in an unrealized loss position at period end are presented in the following tables:
September 30, 2018September 30, 2019
Less than twelve months Twelve months or longer TotalLess than twelve months Twelve months or longer Total
(Dollars in millions)Fair
Value		 
Unrealized
Losses 1
 Fair
Value		 
Unrealized
Losses 1
 Fair
Value		 
Unrealized
Losses 1
Fair
Value		 
 Unrealized 1
Losses
 Fair
Value		 
 Unrealized 1
Losses
 Fair
Value		 
 Unrealized 1
Losses
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$2,554
 
$77
 
$1,579
 
$65
 
$4,133
 
$142

$50
 
$—
 
$—
 
$—
 
$50
 
$—
Federal agency securities16
 —
 62
 3
 78
 3
20
 —
 —
 —
 20
 —
U.S. states and political subdivisions210
 7
 280
 15
 490
 22
119
 1
 —
 —
 119
 1
MBS - agency residential10,347
 276
 8,772
 442
 19,119
 718
1,089
 4
 —
 —
 1,089
 4
MBS - agency commercial1,029
 25
 1,519
 87
 2,548
 112
207
 1
 —
 —
 207
 1
MBS - non-agency commercial781
 30
 124
 8
 905
 38
Corporate and other debt securities—
 —
 9
 —
 9
 —
—
 —
 6
 —
 6
 —
Total temporarily impaired securities AFS14,937
 415

12,345

620

27,282

1,035
1,485
 6

6

—

1,491

6
OTTI securities AFS 2:
                      
Total OTTI securities AFS—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
Total impaired securities AFS
$14,937
 
$415
 
$12,345
 
$620
 
$27,282
 
$1,035

$1,485
 
$6
 
$6
 
$—
 
$1,491
 
$6
1 Unrealized losses less than $0.5 million are presented as zero within the table.
2 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings.


December 31, 2017 1
December 31, 2018
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 1
Losses
 
Fair
Value
 
 Unrealized 1
Losses
 
Fair
Value
 
 Unrealized 1
Losses
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$1,993
 
$12
 
$841
 
$20
 
$2,834
 
$32

$—
 
$—
 
$4,177
 
$66
 
$4,177
 
$66
Federal agency securities23
 —
 60
 1
 83
 1
—
 —
 63
 2
 63
 2
U.S. states and political subdivisions267
 3
 114
 5
 381
 8
49
 1
 430
 20
 479
 21
MBS - agency residential8,095
 38
 4,708
 96
 12,803
 134
1,229
 5
 15,384
 420
 16,613
 425
MBS - agency commercial887
 9
 915
 29
 1,802
 38
68
 —
 1,986
 69
 2,054
 69
MBS - non-agency commercial134
 1
 93
 2
 227
 3
106
 1
 773
 26
 879
 27
ABS—
 —
 4
 —
 4
 —
Corporate and other debt securities10
 —
 —
 —
 10
 —
—
 —
 9
 —
 9
 —
Total temporarily impaired securities AFS11,409
 63
 6,735
 153
 18,144
 216
1,452
 7
 22,822
 603
 24,274
 610
OTTI securities AFS 3:
           
ABS—
 —
 1
 —
 1
 —
OTTI securities AFS 2:
           
Total OTTI securities AFS—
 —
 1
 —
 1
 —
—
 —
 —
 —
 —
 —
Total impaired securities AFS
$11,409
 
$63
 
$6,736
 
$153
 
$18,145
 
$216

$1,452
 
$7
 
$22,822
 
$603
 
$24,274
 
$610
1 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability.
2Unrealized losses less than $0.5 million are presented as zero within the table.
32 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings.


The Company does not consider the unrealized losses on temporarily impaired securities AFS to be credit-related. These unrealized losses were due primarily to market interest rates
 
being higher than the securities' stated coupon rates, and therefore, arethe unrealized losses were recorded in AOCI, net of tax.




Notes to Consolidated Financial Statements (Unaudited), continued






Realized Gains and Losses and Other-Than-Temporarily Impaired Securities
Net securities gains or losses are comprised of gross realized gains, gross realized losses, and OTTI credit losses recognized in earnings. During the nine months ended September 30, 2019, the Company recognized $38 million in net securities losses, driven by the Company's second quarter of 2019 repositioning of a portion of the securities AFS portfolio, which resulted in $42 million of gross realized losses. This repositioning in the second quarter of 2019 was not due to any requirement to sell the securities before their anticipated recovery or maturity.
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018
Gross realized gains
$4
 
$—
 
$4
 
$7
Gross realized losses—
 —
 (42) (6)
OTTI credit losses recognized in earnings—
 —
 —
 —
Net securities gains/(losses)
$4
 
$—
 
($38) 
$1

 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017
Gross realized gains
$—
 
$1
 
$7
 
$2
Gross realized losses—
 (1) (6) (1)
OTTI credit losses recognized in earnings—
 —
 —
 —
Net securities gains
$—
 
$—
 
$1
 
$1


Investment securities in an unrealized loss position are evaluated quarterly for other-than-temporary credit impairment, which is determined using cash flow analyses that take into account security specific collateral and transaction structure. Future expected credit losses are determined using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. If, based on this analysis, a security is
in an unrealized loss position and the Company does not expect to recover the entire amortized cost basis of the security, the
expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. Credit losses on the OTTI security are recognized in earnings and reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of the security. Subsequent credit losses may be recorded on OTTI securities without a corresponding further decline in fair value when there has been a decline in expected cash flows. See Note 1, "Significant Accounting Policies," to the Company's 20172018 Annual Report on Form 10-K for additional information regarding the Company's accounting policy on securities AFS and related impairments.
The Company seeks to reduce its exposure on any existing OTTI securities primarily through paydowns. In certain instances, the amount of credit losses recognized in earnings on a debt security exceeds the total unrealized losses on the security, which may result in unrealized gains relating to factors other than credit recorded in AOCI, net of tax.
During the three and nine months ended September 30, 20182019 and 2017,2018, there were no credit impairment losses recognized on securities AFS held at the end of eachthe period. During the nine months ended September 30, 2018, the Company sold securities AFS that had accumulated OTTI credit losses of $23 million and recognized an associated gain on sale of $6 million in Net securities gains on the Consolidated Statements of Income. The accumulated balance of OTTI credit losses recognized in earnings on securities AFS held at period end was zero and $22 million0 at both September 30, 20182019 and 2017, respectively.2018.




Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 6 - LOANS
Composition of Loan Portfolio
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Commercial loans:      
C&I 1

$68,203
 
$66,356

$73,374
 
$71,137
CRE6,618
 5,317
9,491
 7,265
Commercial construction3,137
 3,804
2,142
 2,538
Total commercial LHFI77,958
 75,477
85,007
 80,940
Consumer loans:      
Residential mortgages - guaranteed452
 560
457
 459
Residential mortgages - nonguaranteed 2
28,187
 27,136
28,810
 28,836
Residential home equity products9,669
 10,626
8,696
 9,468
Residential construction197
 298
144
 184
Guaranteed student7,039
 6,633
7,146
 7,229
Other direct10,100
 8,729
12,431
 10,615
Indirect12,010
 12,140
14,060
 12,419
Credit cards1,603
 1,582
1,704
 1,689
Total consumer LHFI69,257
 67,704
73,448
 70,899
LHFI
$147,215
 
$143,181

$158,455
 
$151,839
LHFS 3

$1,961
 
$2,290

$2,006
 
$1,468
1 Includes $3.8$4.0 billion and $3.7$4.1 billion of leasesales-type, direct financing, and $838leveraged leases at September 30, 2019 and December 31, 2018, respectively. Includes $817 million and $778$796 million of installment loans at September 30, 20182019 and December 31, 2017,2018, respectively.
2 Includes $168$124 million and $196$163 million of LHFI measured at fair value at September 30, 20182019 and December 31, 2017,2018, respectively.
3 Includes $1.8$1.5 billion and $1.6$1.2 billion of LHFS measured at fair value at September 30, 20182019 and December 31, 2017,2018, respectively.
During
LHFI Purchases, Sales, and Transfers
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018
Non-routine LHFI purchases 1, 2:
Consumer loans
$160
 
$101
 
$418
 
$101
Routine LHFI purchases 2, 3:
      
Consumer loans517
 545
 1,433
 1,568
LHFI sales 4, 5:
       
Commercial loans171
 14
 387
 87
Consumer loans—
 —
 432
 100
Transfers from:       
LHFI to LHFS    812
 449
LHFS to LHFI    17
 23
LHFI to OREO    33
 44
1 Purchases are episodic in nature and are conducted based on specific business strategies.
2 Represents UPB of loans purchased.
3 Purchases are routine in nature and are conducted in the normal course of business.
4 Excludes sales of loans originated for sale and loans recorded at fair value conducted in the normal course of business.
5 The net gain on LHFI sales was $47 million for the nine months ended September 30, 2019, and was immaterial for the three months ended September 30, 2018 and 2017, the Company transferred $122 million and $91 million of LHFI to LHFS, and $5 million and $6 million of LHFS to LHFI, respectively. In addition to sales of residential and commercial mortgage LHFS in the normal course of business, the Company sold $14 million and $285 million of loans and leases during2019 as well as the three months ended September 30, 2018 and 2017, respectively, at a price approximating their recorded investment.
During the nine months ended September 30, 2018 and 2017, the Company transferred $449 million and $218 million of LHFI to LHFS, and transferred $23 million and $16 million of LHFS to LHFI, respectively. In addition to sales of residential and commercial mortgage LHFS in the normal course of business, the Company sold $187 million and $513 million of loans and leases during the nine months ended September 30, 2018 and 2017, respectively, at a price approximating their recorded investment.2018.
During the three months ended September 30, 2018 and 2017, the Company purchased $433 million and $333 million, respectively, of guaranteed student loans. During the three months ended September 30, 2018, the Company purchased $213 million of consumer indirect loans. No consumer indirect loans were purchased during the three months ended September 30, 2017. During each of the nine months ended September 30, 2018 and 2017, the Company purchased $1.4 billion of guaranteed student loans, and purchased $229 million and $99 million, respectively, of consumer indirect loans.
 
At September 30, 20182019 and December 31, 2017,2018, the Company had $26.1$33.3 billion and $24.3$28.1 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $19.8$24.4 billion and $18.2$21.3 billion of available, unused borrowing capacity, respectively.
At September 30, 20182019 and December 31, 2017,2018, the Company had $39.4$39.8 billion and $38.0$39.2 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $31.5$32.5 billion and $30.5$31.0 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at September 30, 20182019 was used to support $3.0$7.5 billion of long-term debtadvances and $4.3$4.2 billion of letters of credit issued on the Company's behalf. At December 31, 2017,2018, the available FHLB borrowing capacity was used to support $4 million$5.0 billion of long-term debtadvances and $6.7$5.8 billion of letters of credit issued on the Company's behalf.
Credit Quality Evaluation
The Company evaluates the credit quality of its loanLHFI portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of these ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analyses, and/or qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of Pass or Criticized. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Substandard, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Criticized accruing (which includes Special Mention and a portion of Substandard) and Criticized nonaccruing (which includes a portion of Substandard as well as Doubtful and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will not collect all amounts due under those loan agreements. The Company's risk rating system is more granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs,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. As reflected in the following risk rating table, the increase in Criticized C&I loans at September 30, 2019 compared to December 31, 2018, was due to certain borrower downgrades that occurred during 2019.
Notes to Consolidated Financial Statements (Unaudited), continued



For consumer 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
Notes to Consolidated Financial Statements (Unaudited), continued



process, and refreshed FICO scores are obtained by the Company at least quarterly.
For 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 both September 30, 20182019 and December 31, 2017,
28%2018, 29% and 27%, respectively, of guaranteed residential mortgages were current with respect to payments. At September 30, 20182019 and December 31, 2017, 74%2018, 78% and 75%72%, respectively, of guaranteed student loans were current with respect to payments. The Company's loss exposure on guaranteed residential mortgages and student loans is mitigated by the government guarantee.


LHFI by credit quality indicator are presented in the following tables:
Commercial LoansCommercial Loans
C&I CRE Commercial ConstructionC&I CRE Commercial Construction
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Risk rating:                      
Pass
$66,224
 
$64,546
 
$6,418
 
$5,126
 
$3,038
 
$3,770

$70,739
 
$69,095
 
$9,410
 
$7,165
 
$2,082
 
$2,459
Criticized accruing1,723
 1,595
 157
 167
 99
 33
2,285
 1,885
 80
 98
 60
 79
Criticized nonaccruing256
 215
 43
 24
 —
 1
350
 157
 1
 2
 —
 —
Total
$68,203
 
$66,356
 
$6,618
 
$5,317
 
$3,137
 
$3,804

$73,374
 
$71,137
 
$9,491
 
$7,265
 
$2,142
 
$2,538




 Consumer Loans 1
 Consumer Loans 1
Residential Mortgages -
Nonguaranteed
 Residential Home Equity Products Residential Construction
Residential Mortgages -
Nonguaranteed
 Residential Home Equity Products Residential Construction
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Current FICO score range:                      
700 and above
$24,968
 
$23,602
 
$8,208
 
$8,946
 
$163
 
$240

$25,985
 
$25,764
 
$7,406
 
$8,060
 
$116
 
$151
620 - 6992,499
 2,721
 1,046
 1,242
 27
 50
2,219
 2,367
 929
 1,015
 22
 27
Below 620 2
720
 813
 415
 438
 7
 8
606
 705
 361
 393
 6
 6
Total
$28,187
 
$27,136
 
$9,669
 
$10,626
 
$197
 
$298

$28,810
 
$28,836
 
$8,696
 
$9,468
 
$144
 
$184


 Other Direct Indirect Credit Cards
(Dollars in millions)September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Current FICO score range:           
700 and above
$10,671
 
$9,296
 
$10,904
 
$9,315
 
$1,145
 
$1,142
620 - 6991,543
 1,175
 2,367
 2,395
 423
 420
Below 620 2
217
 144
 789
 709
 136
 127
Total
$12,431
 
$10,615
 
$14,060
 
$12,419
 
$1,704
 
$1,689

 Other Direct Indirect Credit Cards
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Current FICO score range:           
700 and above
$9,197
 
$7,929
 
$8,967
 
$9,094
 
$1,084
 
$1,088
620 - 699866
 757
 2,321
 2,344
 401
 395
Below 620 2
37
 43
 722
 702
 118
 99
Total
$10,100
 
$8,729
 
$12,010
 
$12,140
 
$1,603
 
$1,582
1 Excludes $7.0$7.1 billion and $6.6$7.2 billion of guaranteed student loans and $452$457 million and $560$459 million of guaranteed residential mortgages at September 30, 20182019 and December 31, 2017,2018, respectively, for which there was nominal risk of principal loss due to the government guarantee.
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.
Notes to Consolidated Financial Statements (Unaudited), continued








The LHFI portfolio by payment status is presented in the following tables:


September 30, 2018September 30, 2019
Accruing    Accruing    
(Dollars in millions)Current 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 TotalCurrent 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 Total
Commercial loans:                  
C&I
$67,897
 
$40
 
$10
 
$256
 
$68,203

$72,955
 
$55
 
$14
 
$350
 
$73,374
CRE6,572
 2
 1
 43
 6,618
9,486
 3
 1
 1
 9,491
Commercial construction3,137
 —
 —
 —
 3,137
2,142
 —
 —
 —
 2,142
Total commercial LHFI77,606
 42
 11
 299
 77,958
84,583
 58
 15
 351
 85,007
Consumer loans:                  
Residential mortgages - guaranteed127
 38
 287
 —
3 
452
131
 25
 301
 —
3 
457
Residential mortgages - nonguaranteed 2
27,880
 73
 9
 225
 28,187
28,620
 55
 10
 125
 28,810
Residential home equity products9,449
 70
 1
 149
 9,669
8,534
 61
 1
 100
 8,696
Residential construction185
 1
 2
 9
 197
135
 1
 —
 8
 144
Guaranteed student5,175
 711
 1,153
 —
3 
7,039
5,563
 543
 1,040
 —
3 
7,146
Other direct10,050
 39
 4
 7
 10,100
12,362
 53
 5
 11
 12,431
Indirect11,905
 99
 —
 6
 12,010
13,951
 103
 1
 5
 14,060
Credit cards1,573
 15
 15
 —
 1,603
1,666
 18
 20
 —
 1,704
Total consumer LHFI66,344
 1,046
 1,471
 396
 69,257
70,962
 859
 1,378
 249
 73,448
Total LHFI
$143,950
 
$1,088
 
$1,482
 
$695
 
$147,215

$155,545
 
$917
 
$1,393
 
$600
 
$158,455
1 Includes nonaccruing LHFI past due 90 days or more of $348$306 million. Nonaccruing LHFI past due fewer than 90 days include nonaccrual loansLHFI modified in TDRs, performing second lien loansLHFI where the first lien loan is nonperforming, and certain energy-related commercial loans.LHFI.
2 Includes $168$124 million of loansLHFI measured at fair value, the majority of which were accruing current.
3 Guaranteed loansLHFI are not placed on nonaccruingnonaccrual status regardless of delinquency status because collection of principal and interest is reasonably assured by the government. 




December 31, 2017December 31, 2018
Accruing    Accruing    
(Dollars in millions)Current 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 TotalCurrent 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 Total
Commercial loans:                  
C&I
$66,092
 
$42
 
$7
 
$215
 
$66,356

$70,901
 
$64
 
$15
 
$157
 
$71,137
CRE5,293
 —
 —
 24
 5,317
7,259
 3
 1
 2
 7,265
Commercial construction3,803
 —
 —
 1
 3,804
2,538
 —
 —
 —
 2,538
Total commercial LHFI75,188
 42
 7
 240
 75,477
80,698
 67
 16
 159
 80,940
Consumer loans:                  
Residential mortgages - guaranteed159
 55
 346
 —
3 
560
125
 39
 295
 —
3 
459
Residential mortgages - nonguaranteed 2
26,778
 148
 4
 206
 27,136
28,552
 70
 10
 204
 28,836
Residential home equity products10,348
 75
 —
 203
 10,626
9,268
 62
 —
 138
 9,468
Residential construction280
 7
 —
 11
 298
170
 3
 —
 11
 184
Guaranteed student4,946
 659
 1,028
 —
3 
6,633
5,236
 685
 1,308
 —
3 
7,229
Other direct8,679
 36
 7
 7
 8,729
10,559
 45
 4
 7
 10,615
Indirect12,022
 111
 —
 7
 12,140
12,286
 125
 1
 7
 12,419
Credit cards1,556
 13
 13
 —
 1,582
1,654
 17
 18
 —
 1,689
Total consumer LHFI64,768
 1,104
 1,398
 434
 67,704
67,850
 1,046
 1,636
 367
 70,899
Total LHFI
$139,956
 
$1,146
 
$1,405
 
$674
 
$143,181

$148,548
 
$1,113
 
$1,652
 
$526
 
$151,839
1 Includes nonaccruing LHFI past due 90 days or more of $357$306 million. Nonaccruing LHFI past due fewer than 90 days include nonaccrual loansLHFI modified in TDRs, performing second lien loansLHFI where the first lien loan is nonperforming, and certain energy-related commercial loans.LHFI.
2 Includes $196$163 million of loansLHFI measured at fair value, the majority of which were accruing current.
3 Guaranteed loansLHFI are not placed on nonaccruingnonaccrual status regardless of delinquency status because collection of principal and interest is reasonably assured by the government.


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 and consumer loansLHFI whose terms have been modified in a TDR are individually evaluated for
 
impairment. Smaller-balance homogeneous loansLHFI that are collectively evaluated for impairment and loansLHFI measured at fair value are not included in the following tables. Additionally, the following tables exclude guaranteed student loans and guaranteed residential mortgages for which there was nominal risk of principal loss due to the government guarantee.


September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
(Dollars in millions)
Unpaid
Principal
Balance
 
 Carrying 1
Value
 
Related
ALLL
 
Unpaid
Principal
Balance
 
 Carrying 1
Value
 
Related
ALLL
Unpaid
Principal
Balance
 
 Carrying 1
Value
 
Related
ALLL
 
Unpaid
Principal
Balance
 
 Carrying 1
Value
 
Related
ALLL
Impaired LHFI with no ALLL recorded:Impaired LHFI with no ALLL recorded:          Impaired LHFI with no ALLL recorded:          
Commercial loans:                      
C&I
$51
 
$32
 
$—
 
$38
 
$35
 
$—

$48
 
$39
 
$—
 
$132
 
$79
 
$—
CRE21
 20
 —
 —
 —
 —
—
 —
 —
 10
 —
 —
Total commercial LHFI with no ALLL recorded72
 52
 —
 38
 35
 —
48
 39
 —
 142
 79
 —
Consumer loans:                      
Residential mortgages - nonguaranteed483
 378
 —
 458
 363
 —
354
 283
 —
 501
 397
 —
Residential construction12
 6
 —
 15
 9
 —
7
 4
 —
 12
 7
 —
Total consumer LHFI with no ALLL recorded495
 384
 —
 473
 372
 —
361
 287
 —
 513
 404
 —
                      
Impaired LHFI with an ALLL recorded:                      
Commercial loans:                      
C&I189
 165
 26
 127
 117
 19
311
 300
 71
 81
 70
 13
CRE25
 21
 2
 21
 21
 2
Total commercial LHFI with an ALLL recorded214
 186
 28
 148
 138
 21
311
 300
 71
 81
 70
 13
Consumer loans:                      
Residential mortgages - nonguaranteed1,049
 1,027
 101
 1,133
 1,103
 113
561
 561
 54
 1,006
 984
 96
Residential home equity products873
 821
 49
 953
 895
 54
753
 721
 41
 849
 799
 44
Residential construction83
 81
 6
 93
 90
 7
70
 68
 5
 79
 76
 6
Other direct57
 57
 1
 59
 59
 1
57
 57
 1
 57
 57
 1
Indirect131
 131
 6
 123
 122
 7
136
 135
 4
 133
 133
 5
Credit cards29
 8
 1
 26
 7
 1
12
 12
 3
 30
 9
 2
Total consumer LHFI with an ALLL recorded2,222
 2,125
 164
 2,387
 2,276
 183
1,589
 1,554
 108
 2,154
 2,058
 154
Total impaired LHFI
$3,003
 
$2,747
 
$192
 
$3,046
 
$2,821
 
$204

$2,309
 
$2,180
 
$179
 
$2,890
 
$2,611
 
$167
1 Carrying value reflects charge-offs that have been recognized plus other amounts that have been applied to adjust the net book balance.




Included in the impaired LHFI carrying values above at September 30, 20182019 and December 31, 20172018 were $1.8 billion and $2.3 billion, and $2.4 billionrespectively, of accruing TDRs held for investment, of which 97% and 96% were current, respectively.current. This reduction was driven by our sale of $465 million of accruing TDRs in the second
quarter of 2019 for a net gain on sale of $44 million. See Note 1, “Significant Accounting Policies,” to the Company's 20172018 Annual Report on Form 10-K, for further information regarding the Company’s loan impairment policy.


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
2018 2017 2018 20172019 2018 2019 2018
(Dollars in millions)
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
Impaired LHFI with no ALLL recorded:Impaired LHFI with no ALLL recorded:      Impaired LHFI with no ALLL recorded:      
Commercial loans:                              
C&I
$44
 
$—
 
$70
 
$—
 
$45
 
$1
 
$81
 
$—

$40
 
$—
 
$44
 
$—
 
$41
 
$—
 
$45
 
$1
CRE20
 —
 —
 —
 20
 —
 —
 —
—
 —
 20
 —
 —
 —
 20
 —
Total commercial LHFI with no ALLL recorded64
 —
 70
 —
 65
 1
 81
 —
40
 —
 64
 —
 41
 —
 65
 1
Consumer loans:                              
Residential mortgages - nonguaranteed381
 4
 364
 4
 386
 11
 361
 11
284
 4
 381
 4
 287
 12
 386
 11
Residential construction7
 —
 9
 —
 7
 —
 9
 —
4
 —
 7
 —
 4
 —
 7
 —
Total consumer LHFI with no ALLL recorded388
 4
 373
 4
 393
 11
 370
 11
288
 4
 388
 4
 291
 12
 393
 11
                              
Impaired LHFI with an ALLL recorded:Impaired LHFI with an ALLL recorded:            Impaired LHFI with an ALLL recorded:            
Commercial loans:                              
C&I177
 —
 150
 —
 176
 3
 145
 2
303
 2
 177
 —
 305
 8
 176
 3
CRE21
 —
 —
 —
 22
 —
 —
 —
—
 —
 21
 —
 —
 —
 22
 —
Total commercial LHFI with an ALLL recorded198
 —
 150
 —
 198
 3
 145
 2
303
 2
 198
 —
 305
 8
 198
 3
Consumer loans:                              
Residential mortgages - nonguaranteed1,027
 13
 1,135
 14
 1,031
 39
 1,146
 45
562
 8
 1,027
 13
 565
 28
 1,031
 39
Residential home equity products824
 9
 890
 8
 833
 27
 901
 24
723
 8
 824
 9
 732
 25
 833
 27
Residential construction80
 1
 96
 2
 82
 4
 98
 4
68
 1
 80
 1
 69
 3
 82
 4
Other direct57
 1
 58
 1
 58
 3
 59
 3
58
 1
 57
 1
 58
 3
 58
 3
Indirect134
 2
 120
 2
 141
 5
 128
 4
139
 2
 134
 2
 147
 5
 141
 5
Credit cards8
 —
 6
 —
 8
 1
 6
 1
12
 —
 8
 —
 11
 1
 8
 1
Total consumer LHFI with an ALLL recorded2,130
 26
 2,305
 27
 2,153
 79
 2,338
 81
1,562
 20
 2,130
 26
 1,582
 65
 2,153
 79
Total impaired LHFI
$2,780
 
$30
 
$2,898
 
$31
 
$2,809
 
$94
 
$2,934
 
$94

$2,193
 
$26
 
$2,780
 
$30
 
$2,219
 
$85
 
$2,809
 
$94
1 Of the interest income recognized during each ofthe three and nine months ended September 30, 2019, cash basis interest income was immaterial and $9 million, respectively.
Of the interest income recognized during the three and nine months ended September 30, 2018, and 2017, cash basis interest income was immaterial.


Notes to Consolidated Financial Statements (Unaudited), continued








NPAs are presented in the following table:


(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
NPAs:      
Commercial NPLs:      
C&I
$256
 
$215

$350
 
$157
CRE43
 24
1
 2
Commercial construction—
 1
Consumer NPLs:      
Residential mortgages - nonguaranteed225
 206
125
 204
Residential home equity products149
 203
100
 138
Residential construction9
 11
8
 11
Other direct7
 7
11
 7
Indirect6
 7
5
 7
Total nonaccrual loans/NPLs 1
695
 674
Total nonaccrual LHFI/NPLs 1
600
 526
OREO 2
52
 57
52
 54
Other repossessed assets7
 10
8
 9
Nonperforming LHFS1
 —
Total NPAs
$754
 
$741

$661
 
$589
1Nonaccruing restructured loansLHFI are included in total nonaccrual loans/LHFI/NPLs.
2 Does not include foreclosed real estate related to loans insured by the FHA or guaranteed by 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. The receivable related to proceeds due from the FHA and the VA totaled $49$43 million and $45$50 million at September 30, 20182019 and December 31, 2017,2018, respectively.






The Company's recorded investment of nonaccruing loansLHFI secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 20182019 and December 31, 20172018 was $89$73 million and $73$93 million, respectively. The Company's recorded investment of accruing loansLHFI secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 20182019 and December 31, 20172018 was $108$123 million and $101$110 million, of which $100$115 million and $97$103 million were insured by the FHA or guaranteed by the VA, respectively.
 
At September 30, 2019, OREO included $50 million of foreclosed residential real estate properties and $1 million of foreclosed commercial real estate properties, with the remaining $1 million related to land.
At December 31, 2018, OREO included $49$50 million of foreclosed residential real estate properties and $2 million of foreclosed commercial real estate properties, with the remaining $1 million related to land.
At December 31, 2017, OREO included $51 million of foreclosed residential real estate properties and $4 million of foreclosed commercial real estate properties, with the remaining $2 million related to land.



Notes to Consolidated Financial Statements (Unaudited), continued







Restructured Loans
A TDR is a loan for which the Company has granted an economic concession to a borrower in response to financial difficulty experienced by the borrower, which the Company would not have 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 limited 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, 20182019 and December 31, 2017,2018, the Company had an immaterial amount of commitments to lend additional funds to debtors whose terms have been modified in a TDR. The number and carrying value of loans modified under the terms of a TDR, by type of modification, are presented in the following tables:

Three Months Ended September 30, 2018 1
Three Months Ended September 30, 2019 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:              
C&I47
 
$—
 
$16
 
$16
32
 
$—
 
$12
 
$12
Consumer loans:              
Residential mortgages - nonguaranteed48
 3
 7
 10
30
 2
 2
 4
Residential home equity products130
 1
 11
 12
54
 —
 3
 3
Other direct141
 —
 2
 2
234
 —
 3
 3
Indirect559
 —
 14
 14
634
 —
 16
 16
Credit cards345
 1
 —
 1
537
 3
 —
 3
Total TDR additions1,270
 
$5
 
$50
 
$55
1,521
 
$5


$36
 
$41
1 Includes loans modified under the terms of a TDR that were charged-off during the period.


 
Nine Months Ended September 30, 2019 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:       
C&I88
 
$1
 
$17
 
$18
Consumer loans:       
Residential mortgages - nonguaranteed88
 4
 7
 11
Residential home equity products215
 2
 13
 15
Other direct642
 —
 10
 10
Indirect1,755
 —
 42
 42
Credit cards1,531
 7
 —
 7
Total TDR additions4,319
 
$14
 
$89
 
$103

 
Nine Months Ended September 30, 2018 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:       
C&I122
 
$—
 
$75
 
$75
Consumer loans:       
Residential mortgages - nonguaranteed267
 18
 46
 64
Residential home equity products410
 1
 34
 35
Residential construction4
 —
 —
 —
Other direct 
469
 —
 6
 6
Indirect1,954
 —
 46
 46
Credit cards1,079
 4
 —
 4
Total TDR additions4,305
 
$23
 
$207
 
$230
1 Includes loans modified under the terms of a TDR that were charged-off during the period.

Notes to Consolidated Financial Statements (Unaudited), continued







Three Months Ended September 30, 2017 1
Three Months Ended September 30, 2018 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:              
C&I76
 
$2
 
$7
 
$9
47
 
$—
 
$16
 
$16
Consumer loans:              
Residential mortgages - nonguaranteed41
 6
 4
 10
48
 3
 7
 10
Residential home equity products696
 18
 45
 63
130
 1
 11
 12
Other direct135
 —
 2
 2
141
 —
 2
 2
Indirect738
 —
 17
 17
559
 —
 14
 14
Credit cards182
 1
 —
 1
345
 1
 —
 1
Total TDR additions1,868
 
$27
 
$75
 
$102
1,270
 
$5
 
$50
 
$55
1 Includes loans modified under the terms of a TDR that were charged-off during the period.

Nine Months Ended September 30, 2017 1
Nine Months Ended September 30, 2018 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:              
C&I136
 
$2
 
$86
 
$88
122
 
$—
 
$75
 
$75
Consumer loans:              
Residential mortgages - nonguaranteed119
 17
 8
 25
267
 18
 46
 64
Residential home equity products1,971
 18
 172
 190
410
 1
 34
 35
Residential construction4
 —
 —
 —
Other direct425
 —
 6
 6
469
 —
 6
 6
Indirect2,034
 —
 50
 50
1,954
 —
 46
 46
Credit cards615
 3
 —
 3
1,079
 4
 —
 4
Total TDR additions5,300
 
$40
 
$322
 
$362
4,305
 
$23
 
$207
 
$230
1 Includes loans modified under the terms of a TDR that were charged-off during the period.


TDRs that defaulted during the three and nine months ended September 30, 20182019 and 2017,2018, which were first modified within the previous 12twelve months, were immaterial. The majority of loans that were modified under the terms of a TDR and subsequently became 90 days or more delinquent have remained on nonaccrual status since the time of delinquency.


Concentrations of Credit Risk
The Company does not have a significant concentration of credit risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the majority of the Company's LHFI portfolio represents borrowers that reside in Florida, Georgia, Virginia, Maryland,Texas, and North Carolina.Maryland. The Company’s cross-border outstanding loans totaled $1.4$1.9 billion and $1.8 billion at both September 30, 20182019 and December 31, 2017.2018, respectively.
 
With respect to collateral concentration, the Company's recorded investment in residential real estate secured LHFI totaled $38.5$38.1 billion at September 30, 20182019 and represented 26%24% of total LHFI. At December 31, 2017,2018, the Company's recorded investment in residential real estate secured LHFI totaled $38.6$38.9 billion and represented 27%26% of total LHFI. Additionally, at September 30, 20182019 and December 31, 2017,2018, the Company had commitments to extend credit on home equity lines of $10.2$10.6 billion and $10.1$10.3 billion, and had residential mortgage commitments outstanding of $3.8$5.7 billion and $3.0$2.7 billion, respectively. At both September 30, 20182019 and December 31, 2017,2018, 1% of the Company's LHFI secured by residential real estate was insured by the FHA or guaranteed by the VA.


Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 7 - 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 by loanLHFI segment is presented in the following tables:
 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(Dollars in millions)Commercial Consumer Total Commercial Consumer Total
ALLL, beginning of period
$1,202
 
$479
 
$1,681
 
$1,080
 
$535
 
$1,615
Provision for loan losses42
 88
 130
 208
 201
 409
Loan charge-offs(35) (104) (139) (88) (289) (377)
Loan recoveries5
 22
 27
 14
 69
 83
Other 1
—
 —
 —
 —
 (31) (31)
ALLL, end of period1,214
 485
 1,699
 1,214
 485
 1,699
            
Unfunded commitments reserve, beginning of period 2
70
 —
 70
 69
 —
 69
Provision for unfunded commitments2
 —
 2
 3
 —
 3
Unfunded commitments reserve, end of period 2
72
 —
 72
 72
 —
 72
            
Allowance for credit losses, end of period
$1,286
 
$485
 
$1,771
 
$1,286
 
$485
 
$1,771

 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
(Dollars in millions)Commercial Consumer Total Commercial Consumer Total
ALLL, beginning of period
$1,068
 
$582
 
$1,650
 
$1,101
 
$634
 
$1,735
Provision for loan losses36
 25
 61
 37
 91
 128
Loan charge-offs(51) (71) (122) (95) (234) (329)
Loan recoveries9
 25
 34
 19
 70
 89
ALLL, end of period1,062
 561
 1,623
 1,062
 561
 1,623
            
Unfunded commitments reserve, beginning of period 1
72
 —
 72
 79
 —
 79
Benefit for unfunded commitments—
 —
 —
 (7) —
 (7)
Unfunded commitments reserve, end of period 1
72
 —
 72
 72
 —
 72
            
Allowance for credit losses, end of period
$1,134
 
$561
 
$1,695
 
$1,134
 
$561
 
$1,695
1 Represents the allowance for restructured loans that were transferred from LHFI to LHFS in the first quarter of 2019 and subsequently sold in the second quarter of 2019.
2 The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets.


 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
(Dollars in millions)Commercial Consumer Total Commercial Consumer Total
ALLL, beginning of period
$1,068
 
$582
 
$1,650
 
$1,101
 
$634
 
$1,735
Provision for loan losses36
 25
 61
 37
 91
 128
Loan charge-offs(51) (71) (122) (95) (234) (329)
Loan recoveries9
 25
 34
 19
 70
 89
ALLL, end of period1,062
 561
 1,623
 1,062
 561
 1,623
            
Unfunded commitments reserve, beginning of period 1
72
 —
 72
 79
 —
 79
(Benefit)/provision for unfunded commitments—
 —
 —
 (7) —
 (7)
Unfunded commitments reserve, end of period 1
72
 —
 72
 72
 —
 72
            
Allowance for credit losses, end of period
$1,134
 
$561
 
$1,695
 
$1,134
 
$561
 
$1,695

 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
(Dollars in millions)Commercial Consumer Total Commercial Consumer Total
ALLL, beginning of period
$1,140
 
$591
 
$1,731
 
$1,124
 
$585
 
$1,709
Provision for loan losses5
 114
 119
 89
 235
 324
Loan charge-offs(33) (76) (109) (122) (235) (357)
Loan recoveries11
 20
 31
 32
 64
 96
ALLL, end of period1,123
 649
 1,772
 1,123
 649
 1,772
            
Unfunded commitments reserve, beginning of period 1
72
 —
 72
 67
 —
 67
Provision for unfunded commitments1
 —
 1
 6
 —
 6
Unfunded commitments reserve, end of period 1
73
 —
 73
 73
 —
 73
            
Allowance for credit losses, end of period
$1,196
 
$649
 
$1,845
 
$1,196
 
$649
 
$1,845
1The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets.


As discussed in Note 1, “Significant Accounting Policies,” to the Company's 20172018 Annual Report on Form 10-K, the ALLL is composed of both specific allowances for certain nonaccrual loans and TDRs, and general allowances for groups of loansLHFI with similar risk characteristics. No allowance is required for loansLHFI
 
measured at fair value. Additionally, the Company records an immaterial allowance for loanLHFI products that are insured by federal agencies or guaranteed by GSEs, as there is nominal risk of principal loss.


Notes to Consolidated Financial Statements (Unaudited), continued






The Company’s LHFI portfolio and related ALLL are presented in the following tables:
 September 30, 2019
 Commercial Loans Consumer Loans Total
(Dollars in millions)
Carrying
Value
 
Related
ALLL
 
Carrying
Value
 Related
ALLL		 
Carrying
Value
 Related
ALLL
LHFI evaluated for impairment:           
Individually evaluated
$339
 
$71
 
$1,841
 
$108
 
$2,180
 
$179
Collectively evaluated84,668
 1,143
 71,483
 377
 156,151
 1,520
Total evaluated85,007
 1,214
 73,324
 485
 158,331
 1,699
LHFI measured at fair value—
 —
 124
 —
 124
 —
Total LHFI
$85,007
 
$1,214
 
$73,448
 
$485
 
$158,455
 
$1,699

 September 30, 2018
 Commercial Loans Consumer Loans Total
(Dollars in millions)
Carrying
Value
 
Related
ALLL
 
Carrying
Value
 Related
ALLL		 
Carrying
Value
 Related
ALLL
LHFI evaluated for impairment:           
Individually evaluated
$238
 
$28
 
$2,509
 
$164
 
$2,747
 
$192
Collectively evaluated77,720
 1,034
 66,580
 397
 144,300
 1,431
Total evaluated77,958
 1,062
 69,089
 561
 147,047
 1,623
LHFI measured at fair value—
 —
 168
 —
 168
 —
Total LHFI
$77,958
 
$1,062
 
$69,257
 
$561
 
$147,215
 
$1,623


 December 31, 2018
 Commercial Loans Consumer Loans Total
(Dollars in millions)Carrying
Value		 
Related
ALLL
 Carrying
Value		 Related
ALLL		 Carrying
Value		 Related
ALLL
LHFI evaluated for impairment:           
Individually evaluated
$149
 
$13
 
$2,462
 
$154
 
$2,611
 
$167
Collectively evaluated80,791
 1,067
 68,274
 381
 149,065
 1,448
Total evaluated80,940
 1,080
 70,736
 535
 151,676
 1,615
LHFI measured at fair value—
 —
 163
 —
 163
 —
Total LHFI
$80,940
 
$1,080
 
$70,899
 
$535
 
$151,839
 
$1,615

 December 31, 2017
 Commercial Loans Consumer Loans Total
(Dollars in millions)Carrying
Value		 
Related
ALLL
 Carrying
Value		 Related
ALLL		 Carrying
Value		 Related
ALLL
LHFI evaluated for impairment:           
Individually evaluated
$173
 
$21
 
$2,648
 
$183
 
$2,821
 
$204
Collectively evaluated75,304
 1,080
 64,860
 451
 140,164
 1,531
Total evaluated75,477
 1,101
 67,508
 634
 142,985
 1,735
LHFI measured at fair value—
 —
 196
 —
 196
 —
Total LHFI
$75,477
 
$1,101
 
$67,704
 
$634
 
$143,181
 
$1,735






NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company conducts a qualitative goodwill impairment testassessment at the reporting unit level at least annually,quarterly, 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. The Company performed a qualitative goodwill assessment for the Consumer and Wholesale reporting units in the first, second, and third quarters of 2019, and concluded that a quantitative goodwill impairment test was not necessary for either reporting unit as it was more-likely-than-not that the fair value of both reporting units were greater than their respective
carrying amounts. See Note 1, "Significant“Significant Accounting Policies,"” to the Company's 20172018 Annual Report on Form 10-K for additional information regardingand the Company'sCompany’s goodwill accounting policy.
In the first, second, and third quarters of 2018, the Company performed qualitative goodwill assessments on its Consumer and Wholesale reporting units, consideringThere were no changes in key assumptions as well as other events and circumstances occurring since the most recent annualcarrying amount of goodwill impairment test performed as of October 1, 2017. The Company concluded, based on the totality of factors observed, that it is not more-likely-than-not
that the fair values of itsby reportable segments are less than their respective carrying values. Accordingly, goodwill was not required to be quantitatively testedsegment for impairment during the nine months ended September 30, 2018.
In the second quarter of 2018, certain business banking clients were transferred from the Wholesale segment to the Consumer segment, resulting in the reallocation of $128 million in goodwill. See Note 18, "Business Segment Reporting," for additional information. The changes2019. Changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2018 are presented in the following table. There were no material changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2017.

(Dollars in millions)Consumer Wholesale Total
Balance, January 1, 2018
$4,262
 
$2,069
 
$6,331
Reallocation related to intersegment transfer of business banking clients128
 (128) —
Balance, September 30, 2018
$4,390
 
$1,941
 
$6,331


(Dollars in millions)Consumer Wholesale Total
Balance, January 1, 2018
$4,262
 
$2,069
 
$6,331
Reallocation related to intersegment transfer of business banking clients128
 (128) —
Balance, September 30, 2018
$4,390
 
$1,941
 
$6,331

Notes to Consolidated Financial Statements (Unaudited), continued






Other Intangible Assets
Changes in the carrying amount of other intangible assets are presented in the following table:
(Dollars in millions)Residential MSRs - Fair Value Commercial Mortgage Servicing Rights and Other TotalResidential MSRs - Fair Value Commercial MSRs - Amortized Cost Other Total
Balance, January 1, 2019
$1,983
 
$66
 
$13
 
$2,062
Amortization 1
—
 (8) (1) (9)
Servicing rights originated237
 14
 —
 251
Changes in fair value:      

Due to changes in inputs and assumptions 2
(439) —
 —
 (439)
Other changes in fair value 3
(215) —
 —
 (215)
Servicing rights sold(2) —
 —
 (2)
Balance, September 30, 2019
$1,564
 
$72
 
$12
 
$1,648
       
Balance, January 1, 2018
$1,710
 
$81
 
$1,791

$1,710
 
$65
 
$16
 
$1,791
Amortization 1
—
 (13) (13)—
 (11) (2) (13)
Servicing rights originated250
 10
 260
250
 10
 —
 260
Servicing rights purchased89
 —
 89
89
 —
 —
 89
Changes in fair value:    
      

Due to changes in inputs and assumptions 2
198
 —
 198
198
 —
 —
 198
Other changes in fair value 3
(183) —
 (183)(183) —
 —
 (183)
Servicing rights sold(2) —
 (2)(2) —
 —
 (2)
Balance, September 30, 2018
$2,062
 
$78
 
$2,140

$2,062
 
$64
 
$14
 
$2,140
     
Balance, January 1, 2017
$1,572
 
$85
 
$1,657
Amortization 1
—
 (16) (16)
Servicing rights originated252
 10
 262
Changes in fair value:    

Due to changes in inputs and assumptions 2
(27) —
 (27)
Other changes in fair value 3
(168) —
 (168)
Servicing rights sold(1) —
 (1)
Other 4
—
 (1) (1)
Balance, September 30, 2017
$1,628
 
$78
 
$1,706
1 Does not include expense associated with community development investments. See Note 10, "Certain11, “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.
4 Represents measurement period adjustment on other intangible assets acquired previously in the Pillar acquisition.



The gross carrying value and accumulated amortization of other intangible assets are presented in the following table:
September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
(Dollars in millions)Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying ValueGross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Amortized other intangible assets 1:
                      
Commercial mortgage servicing rights
$89
 
($25) 
$64
 
$79
 
($14) 
$65
Commercial MSRs
$109
 
($37) 
$72
 
$95
 
($29) 
$66
Other19
 (17) 2
 32
 (28) 4
6
 (6) —
 6
 (5) 1
Unamortized other intangible assets:                      
Residential MSRs2,062
 —
 2,062
 1,710
 —
 1,710
1,564
 —
 1,564
 1,983
 —
 1,983
Other12
 —
 12
 12
 —
 12
12
 —
 12
 12
 —
 12
Total other intangible assets
$2,182
 
($42) 
$2,140
 
$1,833
 
($42) 
$1,791

$1,691
 
($43) 
$1,648
 
$2,096
 
($34) 
$2,062
1 Excludes other intangible assets that are indefinite-lived, carried at fair value, or fully amortized.


Servicing Rights
The Company acquires servicing rights and retains servicing rights for certain of its sales or securitizations of residential mortgages and commercial loans. Servicing rights on residential and commercial mortgages are the only material servicing assets capitalized by the Company and are classified as Other intangible assets on the Company's Consolidated Balance Sheets.


Residential Mortgage Servicing Rights
Income earned by the Company on its residential MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs, and is presented 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)2018 2017 2018 20172019 2018 2019 2018
Income from residential MSRs 1

$108
 
$100
 
$322
 
$301

$110
 
$108
 
$331
 
$322
1 Recognized in Mortgage servicing relatedMortgage-related income in the Consolidated Statements of Income.


The UPB of residential mortgage loans serviced for third parties is presented in the following table:
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
UPB of loans underlying residential MSRs
$139,955
 
$136,071

$135,029
 
$140,801

Notes to Consolidated Financial Statements (Unaudited), continued






NaN MSRs on residential loans were purchased during the nine months ended September 30, 2019. The Company purchased MSRs on residential loans with a UPB of $7.0 billion during the nine months ended September 30, 2018; $5.9 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 2018. No MSRs on residential loans were purchased during the nine months ended September 30, 2017. During the nine months ended September 30, 20182019 and 2017,2018, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $781$708 million and $350$781 million, respectively.
The Company measures the fair value of its residential MSRs using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections, spreads, and other assumptions. The Consumer Valuation Committee reviews and approves all significant assumption changes at least annually, drawing upon various market and empirical data sources. Changes to valuation model inputs are reflected in the periods'periods’ results. SeeFor additional information regarding the Company’s residential MSR valuation methodology, see Note 16,20, “Fair Value Election and Measurement,” for further information regardingto the Company's residential MSR valuation methodology.2018 Annual Report on Form 10-K.
A summary of the significant unobservable inputs used to estimate the fair value of the Company’s residential MSRs and the uncertainty of the fair values in response to 10% and 20% adverse changes in those inputs at the reporting date are presented in the following table.
(Dollars in millions)September 30, 2019 December 31, 2018
Fair value of residential MSRs
$1,564
 
$1,983
Prepayment rate assumption (annual)15% 13%
Decline in fair value from 10% adverse change
$95
 
$96
Decline in fair value from 20% adverse change180
 183
Option adjusted spread (annual)3% 2%
Decline in fair value from 10% adverse change
$28
 
$44
Decline in fair value from 20% adverse change56
 86
Weighted-average life (in years)4.4
 5.5
Weighted-average coupon4.0% 4.0%
(Dollars in millions)September 30, 2018 December 31, 2017
Fair value of residential MSRs
$2,062
 
$1,710
Prepayment rate assumption (annual)12% 13%
Decline in fair value from 10% adverse change
$91
 
$85
Decline in fair value from 20% adverse change173
 160
Option adjusted spread (annual)3% 4%
Decline in fair value from 10% adverse change
$52
 
$47
Decline in fair value from 20% adverse change100
 90
Weighted-average life (in years)5.8
 5.4
Weighted-average coupon4.0% 3.9%

Residential MSR uncertainties 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 uncertainties. The uncertainties do not reflect the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 15,16, “Derivative Financial Instruments,” for further information regarding these hedging activities.
Commercial Mortgage Servicing Rights
Income earned by the Company on its commercial mortgage servicing rightsMSRs is derived primarily from contractually specified servicing fees and other ancillary fees. The Company also earns income from subservicing certain third party commercial mortgages for which the Company does not record servicing rights.
 
rights. The following table presents the Company'sCompany’s income earned from servicing commercial mortgages.
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 20172019 2018 2019 2018
Income from commercial mortgage servicing rights 1

$5
 
$6
 
$20
 
$17
Income from commercial MSRs 1

$6
 
$5
 
$19
 
$20
Income from subservicing third party commercial mortgages 1
3
 3
 9
 11
5
 3
 13
 9
1 Recognized in Commercial real estate relatedestate-related income in the Consolidated Statements of Income.

The UPB of commercial mortgage loans serviced for third parties is presented in the following table:
(Dollars in millions)September 30, 2019 December 31, 2018
UPB of commercial mortgages subserviced for third parties
$32,725
 
$28,140
UPB of loans underlying commercial MSRs7,391
 6,399
Total UPB of commercial mortgages serviced for third parties
$40,116
 
$34,539

(Dollars in millions)September 30, 2018 December 31, 2017
UPB of commercial mortgages subserviced for third parties
$26,206
 
$24,294
UPB of loans underlying commercial mortgage servicing rights6,039
 5,760
Total UPB of commercial mortgages serviced for third parties
$32,245
 
$30,054


No commercial mortgage servicing rightsMSRs were purchased or sold during the nine months ended September 30, 20182019 and 2017.2018.
Commercial mortgage servicing rightsMSRs are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The Company calculates the fair value of commercial servicing rightsMSRs based on the present value of estimated future net servicing income, considering prepayment projections and other assumptions. Impairment, if any, is recognized when the carrying value of the servicing asset exceeds the fair value at the measurement date. The amortized cost of the Company'sCompany’s commercial mortgage servicing rightsMSRs was $64$72 million and $65$66 million at September 30, 20182019 and December 31, 2017,2018, respectively.
A summary of the significant unobservable inputs used to estimate the fair value of the Company’s commercial mortgage servicing rightsMSRs and the uncertainty of the fair values in response to 10% and 20% adverse changes in those inputs at the reporting date, are presented in the following table.
(Dollars in millions)September 30, 2019 December 31, 2018
Fair value of commercial MSRs
$80
 
$77
Discount rate (annual)12% 12%
Decline in fair value from 10% adverse change
$3
 
$3
Decline in fair value from 20% adverse change6
 6
Prepayment rate assumption (annual)7% 5%
Decline in fair value from 10% adverse change
$1
 
$1
Decline in fair value from 20% adverse change2
 2
Weighted-average life (in years)8.6
 8.1
Float earnings rate (annual)1.1% 1.1%
(Dollars in millions)September 30, 2018 December 31, 2017
Fair value of commercial mortgage servicing rights
$77
 
$75
Discount rate (annual)12% 12%
Decline in fair value from 10% adverse change
$3
 
$3
Decline in fair value from 20% adverse change6
 6
Prepayment rate assumption (annual)6% 7%
Decline in fair value from 10% adverse change
$1
 
$1
Decline in fair value from 20% adverse change2
 2
Weighted-average life (in years)7.8
 7.0
Float earnings rate (annual)1.1% 1.1%

Commercial mortgage servicing rightMSR uncertainties are hypothetical and should be used with caution.
Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 9 - OTHER ASSETS
The components of other assets are presented in the following table:
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Equity securities 1:
      
Marketable equity securities 2:
   
Marketable equity securities:   
Mutual fund investments
$65
 
$49

$66
 
$79
Other equity 3
27
 7
Other equity10
 16
Nonmarketable equity securities:      
Federal Reserve Bank stock 2
403
 403
FHLB stock 2
142
 15
Other equity 3
50
 26
Lease assets2,110
 1,528
Tax credit investments 4
1,583
 1,272
Federal Reserve Bank stock403
 403
FHLB stock334
 227
Other equity84
 68
Tax credit investments 2
1,998
 1,722
Bank-owned life insurance1,619
 1,411
1,652
 1,627
Lease assets:   
Operating lease right-of-use assets 3
1,110
 —
Underlying lessor assets
subject to operating leases, net 3
1,090
 1,205
Build-to-suit lease assets993
 735
Accrued income1,059
 880
1,106
 1,106
Accounts receivable669
 2,201
825
 602
Pension assets, net518
 464
499
 484
Prepaid expenses248
 319
285
 231
OREO52
 57
52
 54
Other887
 786
489
 432
Total other assets
$9,432
 
$9,418

$10,996
 
$8,991
1 EquityDoes not include equity securities held for trading purposes are classified inas Trading assets and derivative instruments or Trading liabilities and derivative instruments on the Company'sCompany’s Consolidated Balance Sheets.
2 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability.
3 During the second quarter of 2018, the Company reclassified $22 million of equity securities from nonmarketable to marketable equity securities due to readily determinable fair value information observed in active markets.
4 See Note 10, "Certain4, “Trading Assets and Liabilities and Derivative Instruments,” for more information.
2 See Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities,"” for additional information.
3 See Note 10, “Leases,” for additional information.
Equity Securities Not Classified as Trading Assets or Liabilities
Equity securities with readily determinable fair values (marketable) that are not held for trading purposes are recorded at fair value and include mutual fund investments and other publicly traded equity securities.
Equity securities without readily determinable fair values (nonmarketable) that are not held for trading purposes include Federal Reserve Bank of Atlanta and FHLB of Atlanta capital stock, both held at cost, as well as other equity securities that the Company elected to account for under the measurement alternative, pursuant to its adoption of ASU 2016-01 on January 1, 2018.alternative. See the “Equity Securities” and “Accounting Pronouncements” sections of Note 1, “Significant Accounting Policies,” to the Company's 2018 Annual Report on Form 10-K for additional information on the Company's adoption of ASU 2016-01 andCompany’s accounting policy for policy updates related to equity securities.

 
The following table summarizes net gains/(losses) foron equity securities not classified as trading assets:
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018
Net (losses)/gains on marketable equity securities 1

($6) 
($4) 
($3) 
$10
Net gains/(losses) on nonmarketable equity securities:       
Remeasurement losses and impairment—
 —
 —
 —
Remeasurement gains 1
16
 7
 16
 30
Less: Net realized gains on sale—
 —
 —
 —
Total net unrealized gains on non-trading equity securities
$10
 
$3
 
$13
 
$40

(Dollars in millions)Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Net (losses)/gains from marketable equity securities 1

($4) 
$10
Net gains/(losses) from nonmarketable equity securities:   
Remeasurement losses and impairment—
 —
Remeasurement gains 1
7
 30
Less: Net realized gains from sale—
 —
Total net unrealized gains from non-trading equity securities
$3
 
$40
1 Recognized in Other noninterest income in the Company'sCompany’s Consolidated Statements of Income.
Lease Assets
Lease assets consist primarily of operating leases in which the Company is the lessor. In these scenarios, the Company leases assets and receives periodic rental payments. Depreciation on the leased asset is recognized over the term of the operating lease. Any impairment on the leased asset is recognized to the extent that the carrying value of the asset is not recoverable and is greater than its fair value.
Bank-Owned Life Insurance
Bank-owned life insurance consists of life insurance policies held on certain employees for which the Company is the beneficiary. These policies provide the Company an efficient form of funding for retirement and other employee benefits costs.
Build-to-Suit Lease Assets
Build-to-suit lease assets includes assets under construction associated with the Company’s build-to-suit leasing arrangements for clients. A direct financing lease, sales-type lease, or operating lease is created after construction of the build-to-suit lease asset is complete.
Accrued Income
Accrued income consists primarily of interest and other income accrued on the Company'sCompany’s LHFI. Interest income on loans, except those classified as nonaccrual, is accrued based upon the outstanding principal amounts using the effective yield method. See Note 1, “Significant Accounting Policies,” to the Company's 20172018 Annual Report on Form 10-K for information regarding the Company'sCompany’s accounting policy for loans.
Accounts Receivable
Accounts receivable consists primarily of receivables from brokers, dealers, and customers related to pending loan trades, unsettled trades of securities, loan-related advances, and investment securities income due but not received. Additionally,Accounts receivable also includes proceeds due from the FHA and the VA on foreclosed real estate related to loans that are insured by the FHA or guaranteed by the VA.
Pension Assets
Pension assets (net) represent the funded status of the Company'sCompany’s overfunded pension and other postretirement benefits plans, measured as the difference between the fair value of plan assets and the benefit obligation at period end.




Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 10 - LEASES

The Company adopted ASC Topic 842, Leases, on January 1, 2019 using a modified retrospective transition approach. As permitted by ASC 842, the Company elected not to reassess (i) whether any expired or existing contracts are leases or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) the initial direct costs for existing leases.

Lessee Accounting
The Company's right-of-use assets, lease liabilities, and associated balance sheet classifications are presented in the following table:
(Dollars in millions)ClassificationSeptember 30, 2019
Assets:
Operating lease right-of-use assetsOther assets
$1,110
Finance lease right-of-use assetsPremises, property, and equipment, net24
Total right-of-use assets
$1,134
Liabilities:
Operating leasesOther liabilities
$1,189
Finance leasesLong-term debt26
Total lease liabilities
$1,215


The Company leases certain assets, consisting primarily of real estate, and assesses at contract inception whether a contract is, or contains, a lease. A right-of-use asset and lease liability is recorded on the balance sheet for all leases except those with an original lease term of twelve months or less.
The Company's leases typically have lease terms between five years and ten years, with the longest lease term having an expiration date in 2081. Most of these leases include one or more renewal options for five years or less, and certain leases also include lessee termination options. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability.
The Company uses its incremental borrowing rate to calculate the present value of lease payments when the interest
rate implicit in a lease is not disclosed. Variable lease payments that are linked to a certain rate or index, such as the CPI, are included in the present value of lease payments and measured using the prevailing rate or index at lease commencement, with changes in the associated rate or index recognized in earnings during the period in which the change occurs. The right-of-use asset and lease liability are not remeasured as a result of any subsequent change in the index or rate unless remeasurement is required for another reason. Variable lease payments that are not linked to a certain rate or index are comprised primarily of operating costs. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component for all of its real estate leases.
At September 30, 2019, the Company had operating leases that had not yet commenced with undiscounted cash flows totaling less than $100 million. Leases that do not commence until a future date generally include executed ground and office space leases where construction is underway and the Company does not control the underlying asset during the construction.


The components of total lease cost and other supplemental lease information are presented in the following tables:
(Dollars in millions)Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Components of total lease cost:   
Operating lease cost
$49
 
$152
Finance lease cost:   
Amortization of right-of-use assets1
 3
Variable lease cost10
 27
Less: Sublease income(1) (4)
Total lease cost, net
$59
 
$178


Notes to Consolidated Financial Statements (Unaudited), continued



(Dollars in millions)Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Supplemental lease information   
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases
$47
 
$144
Operating cash flows from finance leases1
 1
Financing cash flows from finance leases3
 5
    
Lease liabilities arising from obtaining right-of-use assets (subsequent to adoption):   
Operating leases7
 30
Finance leases—
 11


Weighted average remaining lease terms and discount rates are presented in the following table:
(Dollars in millions)September 30, 2019
Weighted-average remaining lease term (in years):
Operating leases8.0
Finance leases7.0
Weighted-average discount rate (annual):
Operating leases3.3%
Finance leases6.6


The following table presents a maturity analysis of the Company's operating and finance lease liabilities at September 30, 2019:
(Dollars in millions)Operating Leases Finance Leases Total
Year 1
$185
 
$5
 
$190
Year 2194
 5
 199
Year 3179
 5
 184
Year 4158
 5
 163
Year 5140
 3
 143
Thereafter518
 11
 529
Total lease payments1,374
 34
 1,408
Less: Imputed interest(185) (8) (193)
Present value of lease liabilities
$1,189
 
$26
 
$1,215


Lessor Accounting
The Company’s two primary lessor businesses are equipment financing and structured real estate. In addition, the Company is the lessor in circumstances where a portion of its corporate owned real estate is leased to other tenants.
Payment terms are typically fixed; however, some agreements contain variable lease payments linked to an index or rate, such as the CPI or LIBOR. In certain agreements, lease payments increase based on a fixed percentage after a set duration of time. Variable lease payments that are based on an index or rate are included in the net lease investment for sales-type or direct financing leases, and are included in lease receivables for operating leases using the prevailing index or rate at lease commencement. The Company has elected to exclude its sales tax collection and remission activity from being reported as lease revenue with an associated expense.
The Company’s leases generally do not contain non-lease components. If a lease does contain non-lease components, the Company has elected not to separate lease and non-lease components for each class of underlying asset in which it is the lessor, when the timing and patterns of revenue recognition for the components are the same, and the lease component, if accounted for separately, would be classified as an operating lease.
Equipment Financing
The Company finances various types of essential-use business equipment, such as transportation and construction equipment, under operating, sales-type, and direct financing leases. Lease terms are generally noncancelable and range between three years and fifteen years. Most lease agreements contain renewal options that range from one month to three years, and are generally reset at the effective fair market value at time of renewal. Certain lease agreements also include an option to purchase the lease asset at least twelve months prior to the end of the lease term.
The Company evaluates various inputs when estimating the amount it expects to derive from the underlying asset following the end of the lease term, including but not limited to, appraisals and inputs from third party sources, and historical portfolio experience. The Company manages residual risk on an individual lease basis, and in certain cases, obtains lessee residual value guarantees or enters into remarketing agreements in the event of lessee default or lease termination. The Company performs a review of residual risk annually and obtains a third party appraisal for the majority of leased assets. At September 30, 2019, the carrying amount of residual assets covered by residual value guarantees was $106 million.
Notes to Consolidated Financial Statements (Unaudited), continued



Structured Real Estate
The Company offers structured real estate arrangements, including build-to-suit arrangements, whereby real property is leased to corporate clients under operating, sales-type, and direct financing leases. These leases typically have noncancelable terms that range between fifteen years and twenty years as well as multiple renewal options that can extend a lease up to an additional twenty years. These leases generally do not have termination or purchase options.
When a lease asset is acquired, the amount the Company expects to derive from the underlying asset is estimated using
property appraisal values and assumptions regarding the economic life of the asset. The Company manages residual risk through continuous monitoring of the associated asset and credit quality of the lessee, which may include site visits to view the property and surrounding area. In certain cases, the Company may obtain third party residual value guarantees. In most instances, there are no lessee residual value guarantees. Assets are reviewed at least annually for impairment. At September 30, 2019, the carrying amount of residual assets covered by residual value guarantees was $12 million.


The components of total lease income are presented in the following table:
(Dollars in millions)Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Interest income from sales-type and direct financing leases
$37
 
$111
Lease income relating to operating leases52
 157
Lease income relating to variable lease payments not included in the measurement of the lease receivable1
 3
Total lease income
$90
 
$271



Components of the Company's net investment in sales-type and direct financing leases are presented in the following table:
(Dollars in millions)September 30, 2019
Carrying amount of lease receivables
$3,657
Unguaranteed residual assets149
Net investment in sales-type and direct financing lease assets 1

$3,806

1 Included in LHFS and LHFI on the Company's Consolidated Balance Sheets.


The following table presents a maturity analysis of the Company's sales-type and direct financing lease receivables at September 30, 2019:
(Dollars in millions)Sales-Type and Direct Financing Leases
Year 1
$876
Year 2746
Year 3585
Year 4411
Year 5328
Thereafter1,256
Total lease receivables4,202
Less: Reconciling items 1
(545)
Present value of lease receivables
$3,657

1 Primarily comprised of interest and guaranteed residual assets.


Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents a maturity analysis of the Company's operating lease payments to be received as of September 30, 2019:
(Dollars in millions)Operating Leases
Year 1
$191
Year 2155
Year 3127
Year 495
Year 594
Thereafter225
Total lease payments to be received
$887



Underlying lessor assets subject to operating leases at September 30, 2019 consisted of the following:
(Dollars in millions)
Useful life
(in years)
September 30, 2019
Underlying lessor assets subject to operating leases: 1
Real estate 2
15 - 20
$116
Equipment2 - 301,539
Total underlying lessor assets subject to operating leases1,655
Less: Accumulated depreciation(565)
Underlying lessor assets subject to operating leases, net 3

$1,090

1 Excludes owned assets subject to operating leases that are held and used by the Company and which are included in Premises, property, and equipment, net, on the Company's Consolidated Balance Sheets.
2 Includes certain land parcels subject to operating leases that have indefinite lives.
3 Included in Other Assets on the Company's Consolidated Balance Sheets.


Depreciation expense on underlying assets subject to operating leases for the three and nine months ended September 30, 2019 totaled $35 million and $106 million, respectively.



NOTE 1011 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
The Company has transferred loans and securities in sale or securitization transactions for which the Company retains certain beneficial interests, servicing rights, and/or recourse. These transfers of financial assets include certain residential mortgage loans, guaranteed student loans, and commercial loans, as discussed in the following section, "Transfers of Financial Assets." Cash receipts on beneficial interests held related to these transfers were immaterial for each of the three and nine months ended September 30, 20182019 and 2017.2018.
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 for commercial mortgage loans sold to Fannie Mae, the loss share guarantee. See Note 14,15, “Guarantees,” for further discussion of the Company's loss share guarantee. When determining whether to consolidate the VIE, the Company evaluates whether it is a primary beneficiary which has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
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 all 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, 20182019 that changed the Company’s previous conclusions regarding whether it is the primary beneficiary of the VIEs described herein. Furthermore, no events occurred during the nine months ended September 30, 20182019 that changed the Company’s sale conclusion with regards to previously transferred residential mortgage loans, guaranteed student loans, or commercial loans.
Notes to Consolidated Financial Statements (Unaudited), continued



Transfers of Financial Assets
The following discussion summarizes transfers of financial assets to entities for which the Company has retained some level of continuing involvement.
Consumer Loans
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 Ginnie Mae, Fannie Mae, and Freddie Mac, which resulted in pre-tax net gains of $46$108 million and $53 million for the three and nine
months ended September 30, 2018, and pre-tax net gains of $73 million and $152$223 million for the three and nine months ended September 30, 2017,2019, and pre-tax net gains of $46 million and $53 million for the three and nine months ended September 30, 2018, respectively. Net gains/losses on the sale of residential mortgage LHFS are recorded at inception of the associated IRLCs and 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 until the loans are sold, but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 15,16, "Derivative Financial Instruments," for further discussion of the Company's hedging activities. The Company has made certain representations and warranties with respect to the transfer of these loans. See Note 14,15, “Guarantees,” for additional information regarding representations and warranties.
In a limited number of securitizations, the Company has received securities in addition to cash in exchange for the transferred loans, while also retaining servicing rights. The securities received are measured at fair value and classified as securities AFS. During the second quarter of 2018, the Company sold the majority of these securities for a net gain of $6 million, recognized in Net securities gains on the Consolidated Statements of Income for the nine months ended September 30, 2018. The fair value of retained securities was immaterial at September 30, 2018 and totaled $22 million at December 31, 2017.
The Company evaluates securitization entities in which it has a VI for potential 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. In 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. Due to the aforementioned sale of securities AFS in the second quarter of 2018, the Company’s remaining VI in the securitization entity was immaterial at September 30, 2018. Assets of the unconsolidated entities in which the Company has a VI totaled $147 million at December 31, 2017.
The Company’s maximum exposure to loss related to these unconsolidated residential mortgage loan securitizations is comprised of the loss of value of any interests it retains, which was immaterial at September 30, 2018 and totaled $22 million at December 31, 2017, as well as any repurchase obligations or other losses it incurs as a result of any guarantees related to these securitizations, which is discussed further in Note 14, “Guarantees.”
Guaranteed Student Loans
The 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 because the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses, and the right to receive benefits, that could potentially be significant. At September 30, 20182019 and December 31, 2017,2018, the Company’s Consolidated
Notes to Consolidated Financial Statements (Unaudited), continued



Balance Sheets reflected $171$147 million and $192$165 million of assets
held by the securitization entity and $168$143 million and $189$161 million of debt issued by the entity, respectively, inclusive of related accrued interest.
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 98%, or in the event of death, disability, or bankruptcy, 100%. When 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 Company, which functions as the master servicer, may be required to repurchase the defaulted loan(s) 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 limited cases, absorbed by the Company.
Commercial Loans
The Company originates and sells certain commercial mortgage loans to Fannie Mae and Freddie Mac, originates FHA insured loans, and issues and sells Ginnie Mae commercial MBS secured by FHA insured loans. The Company transferred commercial loans to these Agencies and GSEs, which resulted in pre-tax net gains of $9 million and $28 million for the three and nine months ended September 30, 2019, and pre-tax net gains of $8 million and $22 million for the three and nine months ended September 30, 2018, and pre-tax net gains of $9 million and $33 million for the three and nine months ended September 30, 2017, respectively. The loans are exchanged for cash or securities that are readily redeemable for cash, with servicing rights retained. The Company has made certain representations and warranties with respect to the transfer of these loans and has entered into a loss share guarantee related to certain loans transferred to Fannie Mae. See Note 14,15, “Guarantees,” for additional information regarding the commercial mortgage loan loss share guarantee.


Notes to Consolidated Financial Statements (Unaudited), continued



The Company's total managed loans, including the LHFI portfolio and other transferred loans (securitized and unsecuritized), 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, 20182019 and December 31, 2017,2018, as well as the related net charge-offs for the three and nine months ended September 30, 20182019 and 2017.2018.
 Portfolio Balance Past Due and Nonaccrual Net Charge-offs 
 September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018 Three Months Ended September 30 Nine Months Ended September 30 
(Dollars in millions) 2019 2018 2019 2018 
LHFI portfolio:                
Commercial
$85,007
 
$80,940
 
$366
 
$175
 
$30
 
$42
 
$74
 
$76
 
Consumer73,448
 70,899
 1,627
 2,003
 82
 46
 220
 164
 
Total LHFI portfolio158,455
 151,839
 1,993
 2,178
 112
 88
 294
 240
 
Managed securitized loans:                
Commercial 1
7,391
 6,399
 7
 —
 —
 —
 —
 —
 
Consumer134,515
 139,809
 114
 146
 —
2 
1
2 
1
2 
5
2 
Total managed securitized loans141,906
 146,208
 121
 146
 —
 1
 1
 5
 
Managed unsecuritized loans 3
514
 1,134
 61
 152
 —
 —
 —
 —
 
Total managed loans
$300,875
 
$299,181
 
$2,175
 
$2,476
 
$112
 
$89
 
$295
 
$245
 

 Portfolio Balance Past Due and Nonaccrual Net Charge-offs 
 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 Three Months Ended September 30 Nine Months Ended September 30 
(Dollars in millions) 2018 2017 2018 2017 
LHFI portfolio:                
Commercial
$77,958
 
$75,477
 
$310
 
$247
 
$42
 
$22
 
$76
 
$90
 
Consumer69,257
 67,704
 1,867
 1,832
 46
 56
 164
 171
 
Total LHFI portfolio147,215
 143,181
 2,177
 2,079
 88
 78
 240
 261
 
Managed securitized loans:                
Commercial 1
6,039
 5,760
 —
 —
 —
 —
 —
 —
 
Consumer138,747
 134,160
 226
 171
 1
2 
3
2 
5
2 
7
2 
Total managed securitized loans144,786
 139,920
 226
 171
 1
 3
 5
 7
 
Managed unsecuritized loans 3
1,380
 2,200
 190
 340
 —
 —
 —
 —
 
Total managed loans
$293,381
 
$285,301
 
$2,593
 
$2,590
 
$89
 
$81
 
$245
 
$268
 
1 Comprised of commercial mortgages sold through Fannie Mae, Freddie Mac, and Ginnie Mae securitizations, whereby servicing has been retained by the Company.
2 Amounts associated with $429$212 million and $602$387 million of managed securitized loans at September 30, 20182019 and December 31, 2017,2018, respectively. Net charge-off data is not reported to the Company for the remaining balance of $138.3$134.3 billion and $133.6$139.4 billion of managed securitized loans at September 30, 20182019 and December 31, 2017,2018, respectively.
3 Comprised of unsecuritized 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.


Notes to Consolidated Financial Statements (Unaudited), continued




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.
Tax Credit Investments
The following table providespresents information related to the Company's investments in tax credit VIEs that it does not consolidate:
 Community Development Investments Renewable Energy Partnerships
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Carrying value of investments 1

$1,515
 
$1,272
 
$68
 
$—
Maximum exposure to loss related to investments 2
2,173
 1,905
 165
 —
1
At September 30, 2018 and December 31, 2017, the carrying value of community development investments excludes $67 million and $59 million of investments in funds that do not qualify for tax credits, respectively.
2
At September 30, 2018 and December 31, 2017, the Company's maximum exposure to loss related to community development investments includes $484 million and $354 million of loans and $648 million and $627 million of unfunded equity commitments, respectively. At September 30, 2018 and December 31, 2017, the Company's maximum exposure to loss related to renewable energy partnerships includes $97 million and $0 of unfunded equity commitments, respectively.

 Community Development Investments Renewable Energy Partnerships
(Dollars in millions)September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Carrying value of investments 1

$1,943
 
$1,636
 
$55
 
$86
Maximum exposure to loss related to investments 2
2,379
 2,207
 241
 138

1 At September 30, 2019 and December 31, 2018, the carrying value of community development investments excludes $67 million and $68 million of investments in funds that do not qualify for tax credits, respectively.
2 At September 30, 2019 and December 31, 2018, the Company's maximum exposure to loss related to community development investments includes $470 million and $422 million of loans and $593 million and $639 million of unfunded equity commitments, respectively. At September 30, 2019 and December 31, 2018, the Company's maximum exposure to loss related to renewable energy partnerships includes $186 million and $52 million of unfunded equity commitments, respectively.

Community Development Investments
The Company invests in multi-family affordable housing partnership developments and other community development entities as a limited partner and/or a lender. The carrying value of these investments is recorded in Other assets on the Company’s Consolidated Balance Sheets. The Company receives tax credits for its limited partner investments, which are recorded in Provision for income taxes in the Company's Consolidated Statements of Income. Amortization recognized on qualified affordable housing partnerships is recorded in the Provision for income taxes, net of the related tax benefits, in the Company's Consolidated Statements of Income. Amortization recognized on other community development investments is recorded in Amortization in the Company's Consolidated
Statements of Income. The Company has determined that the majority of the related partnerships are VIEs.
The Company has concluded that it is not the primary beneficiary of these investments when it invests as a limited partner and there is a third party general partner. The general partner, or an affiliate of the general partner, often provides guarantees to the limited partner, which protects the Company from construction and operating losses and tax credit allocation deficits. The Company’s maximum exposure to loss would result from the loss of its limited partner investments, net of liabilities, along with loans or interest rate swap exposures related to these investments as well as unfunded equity commitments that the Company is required to fund if certain conditions are met.

Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents tax credits and amortization associated with the Company’s investments in community development investments.
investments:
 Tax Credits Amortization
 Three Months Ended September 30 Nine Months Ended September 30 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018 2019 2018 2019 2018
Qualified affordable housing partnerships
$33
 
$28
 
$98
 
$87
 
$35
 
$29
 
$103
 
$92
Other community development investments25
 23
 64
 62
 21
 19
 53
 49

 Tax Credits Amortization
 Three Months Ended September 30 Nine Months Ended September 30 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017 2018 2017 2018 2017
Qualified affordable housing partnerships
$28
 
$27
 
$87
 
$77
 
$29
 
$27
 
$92
 
$76
Other community development investments23
 25
 62
 60
 19
 19
 49
 45




Renewable Energy Partnerships
In the second quarter of 2018, the Company began investing in entities that promote renewable energy sources as a limited partner. The carrying value of these renewable energy partnership investments is recorded in Other assets on the Company’s Consolidated Balance Sheets, and the associated tax credits received for these investments are recorded as a reduction to the carrying value of these investments. The Company has determined that these renewable energy tax credit partnerships are VIEs.
The Company has concluded that it is not the primary beneficiary of these VIEs because it does not have the power to direct the activities that most significantly impact the VIEs' financial performance and therefore, it is not required to consolidate these VIEs. The Company’s maximum exposure to loss related to these investments is comprised of its equity investments in these partnerships and any additional unfunded equity commitments.
 
Total Return Swaps
At September 30, 20182019 and December 31, 2017,2018, the outstanding notional amount of the Company's VIE-facing TRS contracts totaled $1.9$2.5 billion and $1.7$2.0 billion, and related loans outstanding to VIEs totaled $1.9$2.5 billion and $1.7$2.0 billion, respectively. These financings were measured at fair value and classified within Trading assets and derivative instruments on the Consolidated Balance Sheets. The Company entered into client-facing TRS contracts of the same outstanding notional amounts. The notional amounts of the TRS contracts with VIEs represent the Company’s maximum exposure to loss, although this exposure has been mitigated via the TRS contracts with clients. For additional information on the Company’s TRS contracts and its involvement with these VIEs, see Note 15,16, “Derivative Financial Instruments,” as well as Note 10,12, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Company's 20172018 Annual Report on Form 10-K.


Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 1112 – NET INCOME PER COMMON SHARE
Reconciliations of net income to net income available to common shareholders and average basic common shares outstanding to
average diluted common shares outstanding are presented in the following table.
Equivalent shares of less than 1 million related to common stock options and warrants outstanding at September 30, 2017 were excluded from the computations of diluted net income per average common share because they would have been anti-dilutive.
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars and shares in millions, except per share data)2019 2018 2019 2018
Net income
$623
 
$752
 
$1,891
 
$2,117
Less:       
Preferred stock dividends(26) (26) (77) (81)
Net income available to common shareholders
$597
 
$726
 
$1,814
 
$2,036
        
Average common shares outstanding - basic444.0
 460.3
 443.8
 464.8
Add dilutive securities:       
RSUs2.6
 3.0
 2.4
 2.8
Common stock warrants, options, and restricted stock0.4
 0.9
 0.5
 1.4
Average common shares outstanding - diluted447.0
 464.2
 446.7
 469.0
        
Net income per average common share - diluted
$1.34
 
$1.56
 
$4.06
 
$4.34
Net income per average common share - basic1.35
 1.58
 4.09
 4.38


 Three Months Ended September 30 Nine Months Ended September 30
(Dollars and shares in millions, except per share data)2018 2017 2018 2017
Net income
$752
 
$538
 
$2,117
 
$1,533
Less:       
Preferred stock dividends(26) (26) (81) (65)
Net income available to common shareholders
$726
 
$512
 
$2,036
 
$1,468
        
Average common shares outstanding - basic460.3
 478.3
 464.8
 483.7
Add dilutive securities:       
RSUs3.0
 2.9
 2.8
 2.9
Common stock warrants, options, and restricted stock0.9
 2.4
 1.4
 2.6
Average common shares outstanding - diluted464.2
 483.6
 469.0
 489.2
        
Net income per average common share - diluted
$1.56
 
$1.06
 
$4.34
 
$3.00
Net income per average common share - basic1.58
 1.07
 4.38
 3.04



Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 1213 - INCOME TAXES
For the three months ended September 30, 20182019 and 2017,2018, the provision for income taxes was $95$122 million and $225$95 million, representing effective tax rates of 11%16% and 29%11%, respectively. For the nine months ended September 30, 20182019 and 2017,2018, the provision for income taxes was $412$330 million and $606$412 million, representing effective tax rates of 16%15% and 28%16%, respectively. The effective tax raterates for the nine months ended September 30, 2019 and 2018 waswere favorably impacted by a net$56 million and $71 million of net discrete income tax benefit, while the effective tax rate for the nine months ended September 30, 2017 was favorably impacted by a net $26 million discrete income tax benefit related primarily to share-based compensation.benefits, respectively.
The $71$56 million net discrete income tax benefit for the nine months ended September 30, 20182019 was driven by a $55$33 million of tax benefit for the income tax effects of the 2017 Tax Act, a $22 million tax benefit for share-based compensation, and an $8 million tax benefitbenefits related to changes in the release of certain UTBsliability for unrecognized tax benefits due to the expirationcompletion of the applicable statute of limitation. Thesecertain income tax benefits were offset partially by a $14 million discrete tax expense resulting from the merger of the Company's STM and Bank legal entities, which includes the $35 million discrete tax expense in the first quarter of 2018 related to the increase in the valuation allowance recorded for STM's state carryforwards and a $21 million discrete tax benefit in the third quarter of 2018 related to the net adjustment of STM’s state DTAs and DTLs upon completion of the merger. The $55 million adjustment forauthority
 
examinations and the expiration of statutes of limitation, $12 million of tax benefits related to stock-based compensation, and $11 million of tax benefits related primarily to federal and state income tax effects of the 2017 Tax Act reflects the final adjustment to the Company's December 31, 2017 DTAs and DTLs at the reduced federal corporate income tax rate of 21%. This adjustment completed the Company's accounting for the income tax effects of the 2017 Tax Act.
At September 30, 2018 and December 31, 2017, the Company had a valuation allowance against its state carryforwards and certain state DTAs of $89 million and $143 million, respectively. This decrease in the valuation allowance was due primarily to the reversal of the valuation allowance that was recorded against certain of STM's pre-merger state NOL carryforwards that could not be carried forward by the Bank after the merger. The reversal of the valuation allowance was offset by the write-off of the related state NOL carryforwards. See Note 18, “Business Segment Reporting,” for additional information regarding the merger of STM and the Bank.true-ups.
The provision for income taxes includes both federal and state income taxes and differs from the provision using statutory rates due primarily to favorable permanent tax items such as interest income from lending to tax-exempt entities, tax credits, and amortization expense related to qualified affordable housing investment costs. The Company calculated the provision for income taxes 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.




Notes to Consolidated Financial Statements (Unaudited), continued




NOTE 1314 - EMPLOYEE BENEFIT PLANS
The Company sponsors various compensation and benefit programs to attract and retain talent. Aligned with a pay for performance culture, the Company's plans and programs include short-term incentives, AIP, and various LTI plans. See Note 15,17, “Employee Benefit Plans,” to the Company's 2018 Annual
 
"Employee Benefit Plans," to the Company's 2017 Annual Report on Form 10-K for additional information regarding the Company's employee benefit plans.

Stock-based compensation expense recognized in Employee compensation in the Consolidated Statements of Income 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)2018 2017 2018 20172019 2018 2019 2018
RSUs
$21
 
$14
 
$82
 
$64

$30
 
$21
 
$84
 
$82
Phantom stock units 1
10
 17
 36
 57
3
 10
 28
 36
Total stock-based compensation expense
$31
 
$31
 
$118
 
$121

$33
 
$31
 
$112
 
$118
              
Stock-based compensation tax benefit 2

$8
 
$12
 
$28
 
$46

$8
 
$8
 
$27
 
$28
1 Phantom stock units are settled in cash. During the three and nine months ended September 30, 2019, the Company paid less than $1 million and $44 million, respectively, related to these share-based liabilities. During the three and nine months ended September 30, 2018, the Company paid $1 million and $76 million, respectively, related to these share-based liabilities. During the three and nine months ended September 30, 2017, the Company paid $2 million and $79 million, respectively, related to these share-based liabilities.
2 Does not include excess tax benefits or deficiencies recognized in the Provision for income taxes in the Consolidated Statements of Income.




Components of net periodic benefit related to the Company's pension and other postretirement benefits plans are presented in the following table and are recognized in Employee benefits in the Consolidated Statements of Income:
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)2018 2017 2018 2017 2018 2017 2018 20172019 2018 2019 2018 2019 2018 2019 2018
Service cost
$1
 
$1
 
$4
 
$4
 
$—
 
$—
 
$—
 
$—

$1
 
$1
 
$4
 
$4
 
$—
 
$—
 
$—
 
$—
Interest cost23
 24
 68
 71
 —
 —
 1
 1
23
 23
 70
 68
 —
 —
 1
 1
Expected return on plan assets(47) (49) (140) (146) (1) (1) (4) (4)(36) (47) (110) (140) (1) (1) (4) (4)
Amortization of prior service credit—
 —
 —
 —
 (2) (1) (5) (4)—
 —
 —
 —
 (1) (2) (4) (5)
Amortization of actuarial loss6
 6
 17
 18
 —
 —
 —
 —
6
 6
 18
 17
 —
 —
 —
 —
Net periodic benefit
($17) 
($18) 
($51) 
($53) 
($3) 
($2) 
($8) 
($7)
($6) 
($17) 
($18) 
($51) 
($2) 
($3) 
($7) 
($8)
1 Administrative fees are recognized in service cost for each of the periods presented.



In the second quarter of 2017, the Company amended its NCF Retirement Plan in accordance with its decision to terminate the pension plan effective as of July 31, 2017. The Company expects
to reclassify approximately $61 million of pre-tax deferred losses from AOCI into net income upon settlement of the NCF pension plan, which is on schedule to be completed by the end of 2018.

Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1415 – 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, 2018.2019. The Company has also entered into certain contracts that are similar to guarantees, but that are accounted for as derivative instruments as discussed in Note 15,16, “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, or similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients but 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; however, commercial letters of credit are considered guarantees of funding and are not subject to the disclosure requirements of guarantee obligations.
At September 30, 20182019 and December 31, 2017,2018, the maximum potential exposure to loss related to the Company'sCompany’s issued letters of credit was $3.1$2.6 billion and $2.6$2.9 billion, respectively. The Company’s outstanding letters of credit generally have a term of more than one 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 client. If a letter of credit is drawn upon and reimbursement is not provided by the client, the Company may take possession of the collateral securing the letter 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. Consistent with the methodologies used for all commercial borrowers, an internal assessment of the PD and loss severity in the event of default is performed. The Company'sCompany’s credit risk management for letters of credit leverages the risk rating process to focus greater visibility on higher risk and higher dollar letters of credit. The allowance associated with letters of credit is a component of the unfunded commitments reserve recorded in Other liabilities on the Consolidated Balance Sheets and is included in the allowance for credit losses as disclosed in Note 7, “Allowance for Credit Losses.” Additionally, unearned fees relating to letters of credit are recorded in Other liabilities on the Consolidated Balance Sheets. The net carrying amount of unearned fees was immaterial at both September 30, 20182019 and December 31, 2017.2018.


 
Loan Sales and Servicing
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. The Company also originates and sells certain commercial mortgage loans to Fannie Mae and Freddie Mac, originates FHA insured loans, and issues and sells Ginnie Mae commercial MBS secured by FHA insured loans.
When 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, the Company may be obligated to repurchase the loan or to reimburse an investor for losses incurred (make whole requests), if such deficiency or defect cannot be cured by the Company within the specified period following discovery. These representations and warranties may extend through the life of the loan. 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, and (iv) loss mitigation strategies, including loan modifications and foreclosures.
The following table summarizes the changes in the Company’s reserve for residential mortgage loan repurchases:
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2019 2018 2019 2018
Balance, beginning of period
$23
 
$36
 
$26
 
$39
Repurchase (benefit)/provision(1) 1
 (4) (2)
Charge-offs, net of recoveries—
 (1) —
 (1)
Balance, end of period
$22
 
$36
 
$22
 
$36

 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017
Balance, beginning of period
$36
 
$40
 
$39
 
$40
Repurchase provision/(benefit)1
 —
 (2) —
Charge-offs, net of recoveries(1) (1) (1) (1)
Balance, end of period
$36
 
$39
 
$36
 
$39


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. While the mortgage repurchase reserve includes the estimated cost of settling claims related to required repurchases, the Company'sCompany’s estimate of losses depends on its assumptions regarding GSE and other counterparty behavior, loan performance, home prices, and other factors. The liability is recorded in Other liabilities on the Consolidated Balance Sheets, and the related repurchase provision/(benefit)/provision is recognized in Mortgage production relatedMortgage-related income in the Consolidated Statements of Income. See Note 17, "Contingencies," for additional information on current legal matters related to loan sales.
Notes to Consolidated Financial Statements (Unaudited), continued






The following table summarizes the carrying value of the Company'sCompany’s outstanding repurchased residential mortgage loans:
(Dollars in millions)September 30,
2019		 December 31, 2018
Outstanding repurchased residential mortgage loans:
Performing LHFI
$135
 
$183
Nonperforming LHFI9
 16
Total carrying value of outstanding repurchased residential mortgages
$144
 
$199
(Dollars in millions)September 30, 2018 December 31, 2017
Outstanding repurchased residential mortgage loans:
Performing LHFI
$189
 
$203
Nonperforming LHFI17
 16
Total carrying value of outstanding repurchased residential mortgages
$206
 
$219

Residential mortgage loans sold to Ginnie Mae are insured by the FHA or are guaranteed by the VA. As servicer, the Company may elect to repurchase delinquent loans in accordance with Ginnie Mae guidelines; however, the loans continue to be insured. The Company may also indemnify the FHA and VA for losses related to loans not originated in accordance with their guidelines.
Commercial Mortgage Loan Loss Share Guarantee
In connection with the acquisition of Pillar, the Company assumed a loss share obligation associated with the terms of a master loss sharing agreement with Fannie Mae for multi-family commercial mortgage loans that were sold by Pillar to Fannie Mae under Fannie Mae’s delegated underwriting and servicing program. Upon the acquisition of Pillar, the Company entered into a lender contract amendment with Fannie Mae for multi-family commercial mortgage loans that Pillar sold to Fannie Mae prior to acquisition and that the Company sold to Fannie Mae subsequent to acquisition, whereby the Company bears a risk of loss of up to one-third of the incurred losses resulting from borrower defaults. The breach of any representation or warranty related to a loan sold to Fannie Mae could increase the Company'sCompany’s level of risk-sharing associated with the loan. The outstanding UPB of loans sold subject to the loss share guarantee was $3.4$3.9 billion and $3.5 billion at both September 30, 20182019 and December 31, 2017.2018, respectively. The maximum potential exposure to loss was $978 million$1.2 billion and $962 million$1.0 billion at September 30, 20182019 and December 31, 2017,2018, respectively. Using probability of default and severity of loss estimates, the Company'sCompany’s loss share liability was $12$7 million and $11$5 million at September 30, 20182019 and December 31, 2017,2018, respectively, and is recorded in Other liabilities on the Consolidated Balance Sheets.
Visa
The Company executes credit and debit transactions through Visa and Mastercard. The Company is a defendant, along with Visa and Mastercard (the “Card Associations”), as well as 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'sVisa’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 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'sVisa’s certificate of incorporation, contains a general indemnification provision between a Visa member and Visa that explicitly provides that each member'smember’s indemnification obligation is limited to losses arising from its own conduct and the specifically defined Litigation. While the district court approved a class action settlement of the Litigation in 2012 that settled the claims of both a damages class and an injunctive relief class, the U.S. Court of Appeals for the Second Circuit reversed the district court'scourt’s approval of the settlement on June 30, 2016. The U.S. Supreme Court denied plaintiffs'plaintiffs’ petition for certiorari on March 27, 2017, and the case returned to the district court for further action. Since being remanded to the district court, plaintiffs have pursued two separate class actions—one class action seeking damages that names, among others, the Company as a defendant, and one class action seeking injunctive relief that does not name the Company as a defendant, but for which the Company could bear some responsibility under the judgment and loss sharing agreement described above. An agreement to resolve the claims ofwas reached and the damages class has been filed withsettlement was preliminarily approved by the district court and is awaiting court approval.on January 24, 2019.
Agreements associated with Visa'sVisa’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'sVisa’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’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 periodic payments 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'smanagement’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.Litigation. The fair value of the derivative liability was $7$8 million and $15$7 million at September 30, 20182019 and December 31, 2017,2018, respectively. The fair value of the derivative is estimated based on the Company'sCompany’s expectations regarding the resolution of the Litigation. The ultimate impact to the Company could be significantly different based on the Litigation outcome.
Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1516 - 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 Company generally manages the risk associated with these derivatives within the established MRMmarket risk management and credit risk management frameworks. Derivatives may be used by the Company to hedge various economic or client-related exposures. In such instances, derivative positions are typically monitored using a VAR methodology, with exposures reviewed daily. 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 strategies to manage these objectives. The Company enters into IRLCs on residential and commercial mortgage loans that are accounted for as freestanding derivatives. Additionally, certain contracts containing embedded derivatives are measured, in their entirety, at fair value. All derivatives, including both freestanding as well asand 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 risk that the counterparty to the derivative contract does not perform as expected. The Company manages its exposure to counterparty credit risk associated 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 as part of the Company’s credit risk management practices and appropriate action is taken to adjust the exposure limits to certain counterparties as necessary. The Company’s derivative transactions are generally governed by ISDA agreements 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 clearing houses, such as LCH and the CME. These clearing houses require the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. Effective January 3, 2017, the CME amended its rulebook to legally characterize variation margin cash payments for cleared OTC derivatives as settlement rather than as collateral. Consistent with the CME's amended requirements, LCH
amended its rulebook effective January 16, 2018, to legally characterize variation margin cash payments for cleared OTC derivatives as settlement rather than as collateral. As a result, in the first quarter of 2018, the Company began reducing the corresponding derivative asset and liability balances for LCH-
cleared-cleared OTC derivatives to reflect the settlement of those positions via the exchange of variation margin.
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 corresponding asset value also reflects cash collateral held. At September 30, 2018,2019, the economic exposure of these net derivative asset positions was $404 million,$1.4 billion, reflecting $889 million$1.8 billion of net derivative gains, adjusted for cash and other collateral of $485$374 million that the Company held in relation to these positions. At December 31, 2017,2018, the economic exposure of net derivative asset positions was $541 million, reflecting $940$891 million of net derivative gains, adjusted for cash and other collateral held of $399$350 million.
Derivatives also expose the Company to market risk arising from the adverse effects that changes in market factors, such as interest rates, currency rates, equity prices, commodity prices, or implied volatility, may have on the value of the Company's derivatives. The Company manages this risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. The Company measures its market risk exposure using a VAR methodology for derivatives designated as trading instruments. Other tools and risk measures are also used to actively manage risk associated with derivatives 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,the CVA, the Company’s own credit risk, the DVA, as well as itsthe Company's net exposure, which considers legally enforceable master netting agreements and collateral along with remaining maturities. TheIn determining the CVA, the expected loss ofassociated with 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'sCompany’s internal risk rating system and sector/rating based CDS data.
For purposes of estimating the Company’s own credit risk on derivative liability positions, the DVA, the Company uses probabilities of default from observable, sector/rating based CDS data. The net fair value of the Company's derivative contracts were adjusted by an immaterial amount for estimates of counterparty credit risk and its own credit risk at both September 30, 2018 and December 31, 2017. For additional information on the Company'sCompany’s fair value measurements, see Note 16, "Fair17, “Fair Value Election and Measurement."”

Notes to Consolidated Financial Statements (Unaudited), continued



Currently, the industry standard master netting agreements governing the majority of the Company's derivative transactions with counterparties contain bilateral events of default and acceleration provisions related to the creditworthiness of the Bank and the counterparty. Should the Bank be inor a counterparty default under any of these provisions, the Bank’s counterpartiesother party would be
Notes to Consolidated Financial Statements (Unaudited), continued



permitted to close out transactions with the Banktransactions 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 counterpartiesnon-defaulting counterparty would have the right to apply any collateral posted byunder a CSA against the Bank against any net amount owed by the Bank.defaulting counterparty. Additionally, certain of the Company’s derivative liability positions, totaling $1.0$1.4 billion and $1.1 billion$589 million in fair value at September 30, 20182019 and December 31, 2017,2018, 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, 2018,2019, the Bank held senior long-term debt credit ratings of Baal/A-/A- from Moody’s, S&P, and Fitch, respectively. At September 30, 2018,2019, 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 $18$19 million at September 30, 2018.2019. At
September 30, 2018, $1.02019, $1.4 billion in fair value of derivative liabilities were subject to CSAs, against which the Bank has posted $918$958 million in collateral, primarily in the form of cash.
Pursuant to the terms of the CSA, the Bank would not be required to post any additional collateral of approximately $2 million against these contracts if the Bank were downgraded to Baa2/BBB+. Further downgrades to Baa3/BBB and Ba1/BBB- would require the Bank to post an additional $3$1 million and $2$8 million of collateral, respectively. Any downgrades below Ba2/BB+ do not contain predetermined collateral posting levels.
Notional and Fair Value of Derivative Positions
The following table presents the Company’s derivative positions at September 30, 20182019 and December 31, 2017.2018. The notional amounts in the table are presented on a gross basis at September 30, 20182019 and December 31, 2017.2018. 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.
Notes to Consolidated Financial Statements (Unaudited), continued








 September 30, 2019 December 31, 2018
   Fair Value   Fair Value
(Dollars in millions)
Notional
Amounts
 Asset Derivatives Liability Derivatives 
Notional
Amounts
 Asset Derivatives Liability Derivatives
Derivative instruments designated in hedging relationships          
Cash flow hedges: 1
           
Interest rate contracts hedging floating rate LHFI
$15,225
 
$—
 
$1
 
$10,500
 
$1
 
$2
Subtotal15,225
 —
 1
 10,500
 1
 2
Fair value hedges: 2
           
Interest rate contracts hedging fixed rate debt12,155
 —
 —
 9,550
 1
 1
Interest rate contracts hedging brokered time deposits—
 —
 —
 59
 —
 —
Subtotal12,155
 —
 —
 9,609
 1
 1
            
Derivative instruments not designated as hedging instruments 3
          
Interest rate contracts hedging:           
Residential MSRs 4
19,300
 43
 24
 28,011
 54
 10
LHFS, IRLCs 5
6,688
 10
 12
 4,891
 18
 38
LHFI102
 —
 —
 159
 —
 —
Trading activity 6
147,485
 1,706
 709
 127,286
 771
 687
Foreign exchange rate contracts hedging loans and trading activity11,954
 185
 182
 9,824
 129
 119
Credit contracts hedging:           
LHFI918
 —
 28
 830
 —
 14
Trading activity 7
5,136
 38
 34
 4,058
 97
 95
Equity contracts hedging trading activity 6
36,181
 1,774
 1,939
 34,471
 1,447
 1,644
Other contracts:           
IRLCs and other 8
3,763
 28
 11
 1,393
 20
 15
Commodity derivatives2,491
 94
 91
 2,020
 93
 91
Subtotal234,018
 3,878
 3,030
 212,943
 2,629
 2,713
            
Total derivative instruments
$261,398
 
$3,878
 
$3,031
 
$233,052
 
$2,631
 
$2,716
            
Total gross derivative instruments (before netting)  
$3,878
 
$3,031
   
$2,631
 
$2,716
Less: Legally enforceable master netting agreements  (1,750) (1,750)   (1,654) (1,654)
Less: Cash collateral received/paid  (358) (1,007)   (338) (652)
Total derivative instruments (after netting)  
$1,770
 
$274
   
$639
 
$410
 September 30, 2018 December 31, 2017
   Fair Value   Fair Value
(Dollars in millions)
Notional
 Amounts
 Asset Derivatives Liability Derivatives 
Notional
Amounts
 Asset Derivatives Liability Derivatives
Derivative instruments designated in hedging relationships          
Cash flow hedges: 1
           
Interest rate contracts hedging floating rate LHFI
$12,900
 
$2
 
$1
 
$14,200
 
$2
 
$252
Subtotal12,900
 2
 1
 14,200
 2
 252
Fair value hedges: 2
           
Interest rate contracts hedging fixed rate debt7,705
 2
 —
 5,920
 1
 58
Interest rate contracts hedging brokered time deposits60
 —
 —
 60
 —
 —
Subtotal7,765
 2
 —
 5,980
 1
 58
            
Derivative instruments not designated as hedging instruments 3
          
Interest rate contracts hedging:           
Residential MSRs 4
25,690
 18
 20
 42,021
 119
 119
LHFS, IRLCs 5
5,485
 15
 4
 7,590
 9
 6
LHFI183
 —
 —
 175
 2
 2
Trading activity 6
127,059
 595
 894
 126,366
 1,066
 946
Foreign exchange rate contracts hedging loans and trading activity7,418
 106
 91
 7,058
 110
 102
Credit contracts hedging:           
LHFI825
 —
 23
 515
 —
 11
Trading activity 7
3,869
 25
 23
 3,454
 15
 12
Equity contracts hedging trading activity 6
37,362
 2,384
 2,648
 38,907
 2,499
 2,857
Other contracts:           
IRLCs and other 8
1,886
 13
 9
 2,017
 18
 16
Commodity derivatives1,678
 118
 116
 1,422
 63
 61
Subtotal211,455
 3,274
 3,828
 229,525
 3,901
 4,132
            
Total derivative instruments
$232,120
 
$3,278
 
$3,829
 
$249,705
 
$3,904
 
$4,442
            
Total gross derivative instruments (before netting)  
$3,278
 
$3,829
   
$3,904
 
$4,442
Less: Legally enforceable master netting agreements  (2,185) (2,185)   (2,731) (2,731)
Less: Cash collateral received/paid  (471) (946)   (371) (1,303)
Total derivative instruments (after netting)  
$622
 
$698
   
$802
 
$408

1 
See “Cash Flow Hedging” in this Note for further discussion.
2 
See “Fair Value Hedging” in this Note for further discussion.
3 
See “Economic Hedging Instruments and Trading Activities” in this Note for further discussion.
4 
Notional amounts include $5.6 billion$753 million and $16.6 billion$921 million related to interest rate futures at September 30, 20182019 and December 31, 2017,2018, respectively. 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 
Notional amounts include $302$53 million and $190$116 million related to interest rate futures at September 30, 20182019 and December 31, 2017,2018, respectively. 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.
6 
Notional amounts include $4.9$2.7 billion and $9.8$1.2 billion related to interest rate futures at September 30, 20182019 and December 31, 2017,2018, and $274$210 million and $1.2 billion$136 million related to equity futures at September 30, 20182019 and December 31, 2017,2018, respectively. 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. Notional amounts also include amounts related to interest rate swaps hedging fixed rate debt.
7 
Notional amounts include $7$9 million and $4$6 million from purchased credit risk participation agreements at September 30, 20182019 and December 31, 2017,2018, and $33$41 million and $11$33 million from written credit risk participation agreements at September 30, 20182019 and December 31, 2017,2018, respectively. These notional amounts are calculated as the notional of the derivative participated adjusted by the relevant RWA conversion factor.
8 
Notional amounts include $41 million and $49 million related to the Visa derivative liability at both September 30, 20182019 and December 31, 2017, respectively.2018. See Note 14,15, "Guarantees" for additional information.




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 3, "Federal“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.
 
The following tables present total gross derivative instrument assets and liabilities at September 30, 20182019 and December 31, 2017,2018, which are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid when 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, 2018         
September 30, 2019         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$2,940
 
$2,525
 
$415
 
$14
 
$401

$3,269
 
$1,973
 
$1,296
 
$15
 
$1,281
Derivatives not subject to master netting arrangement or similar arrangement14
 —
 14
 —
 14
143
 —
 143
 1
 142
Exchange traded derivatives324
 131
 193
 —
 193
466
 135
 331
 —
 331
Total derivative instrument assets
$3,278
 
$2,656
 
$622
1 

$14
 
$608

$3,878
 
$2,108
 
$1,770
1 

$16
 
$1,754
                  
Derivative instrument liabilities:                  
Derivatives subject to master netting arrangement or similar arrangement
$3,587
 
$3,000
 
$587
 
$58
 
$529

$2,787
 
$2,622
 
$165
 
$18
 
$147
Derivatives not subject to master netting arrangement or similar arrangement111
 —
 111
 —
 111
109
 —
 109
 13
 96
Exchange traded derivatives131
 131
 —
 —
 —
135
 135
 —
 —
 —
Total derivative instrument liabilities
$3,829
 
$3,131
 
$698
2 

$58
 
$640

$3,031
 
$2,757
 
$274
2 

$31
 
$243
                  
December 31, 2017         
December 31, 2018         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$3,491
 
$2,923
 
$568
 
$28
 
$540

$2,425
 
$1,873
 
$552
 
$12
 
$540
Derivatives not subject to master netting arrangement or similar arrangement18
 —
 18
 —
 18
20
 —
 20
 —
 20
Exchange traded derivatives395
 179
 216
 —
 216
186
 119
 67
 —
 67
Total derivative instrument assets
$3,904
 
$3,102
 
$802
1 

$28
 
$774

$2,631
 
$1,992
 
$639
1 

$12
 
$627
                  
Derivative instrument liabilities:                  
Derivatives subject to master netting arrangement or similar arrangement
$4,128
 
$3,855
 
$273
 
$27
 
$246

$2,521
 
$2,187
 
$334
 
$14
 
$320
Derivatives not subject to master netting arrangement or similar arrangement130
 —
 130
 —
 130
76
 —
 76
 —
 76
Exchange traded derivatives184
 179
 5
 —
 5
119
 119
 —
 —
 —
Total derivative instrument liabilities
$4,442
 
$4,034
 
$408
2 

$27
 
$381

$2,716
 
$2,306
 
$410
2 

$14
 
$396
1 At September 30, 2018, $622 million,2019, $1.8 billion, net of $471$358 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2017, $8022018, $639 million, net of $371$338 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Company's Consolidated Balance Sheets.
2 At September 30, 2018, $6982019, $274 million, net of $946 million$1.0 billion offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2017, $4082018, $410 million, net of $1.3 billion$652 million offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets.
Notes to Consolidated Financial Statements (Unaudited), continued






Fair Value and Cash Flow Hedging Instruments
Fair Value Hedging
The Company enters into interest rate swap agreements as part of its risk management objectives for hedging exposure to changes in fair value due to changes in interest rates. These hedging arrangements convert certain fixed rate long-term debt and CDs to floating rates. Subsequent to the adoption of ASU 2017-12,For all designated fair value hedge relationships, changes in the fair value of the hedging instrument attributable to the hedged risk are recognized in the same income statement line as the earnings impact from the hedged item. There were no components of derivative gains or losses excluded in the Company’s assessment of hedge effectiveness related to the fair value hedges. For additional information on the Company's adoption of ASU 2017-12 and related policy updates, see Note 1, “Significant Accounting Policies.”
    
Cash Flow Hedging
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.
 
The Company enters into interest rate swaps designated as cash flow hedging instruments to hedge its exposure to benchmarkcontractually specified interest rate risk associated with floating rate loans. For the three and nine months ended September 30, 2019, the amount of pre-tax gain recognized in OCI on derivative instruments was $61 million and $266 million, respectively. For the three and nine months ended September 30, 2018, the amount of pre-tax loss recognized in OCI on derivative instruments was $48 million and $274 million, respectively. For the three and nine months ended September 30, 2017, the amount of pre-tax gain recognized in OCI on derivative instruments was $10 million and $61 million, respectively. At September 30, 2018,2019, the maturities for hedges of floating rate loans ranged from less than one year to seven years, with the weighted average being 3.13.3 years. At December 31, 2017,2018, the maturities for hedges of floating rate loans ranged from less than one year to five years, with the weighted average being 3.62.5 years. These hedges have been highly effective in offsetting the designated risks. At September 30, 2018, $1352019, $158 million of deferred net pre-tax losses on derivative instruments designated as cash flow hedges on floating rate loans recognized in AOCI are expected to be reclassified into net interest income during the next twelve months. The amount to be reclassified into income incorporates the impact from both active and terminated cash flow 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 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.
 
Notes to Consolidated Financial Statements (Unaudited), continued






Pursuant to the adoption of ASU 2017-12, theThe following table presents gains and losses on derivatives in fair value and cash flow hedging relationships by contract type and by income statement line item for the three and nine months ended September 30, 2018. For the three and nine months ended September 30, 2017 the amounts presented below were not conformed to the new hedge accounting guidance.item. The table does not disclose the financial impact of the activities that these derivative instruments are intended to hedge.
Net Interest Income 
Noninterest
Income
  Net Interest Income  
(Dollars in millions)Interest and fees on LHFI Interest on Long-term Debt Interest on Deposits Trading Income TotalInterest and fees on LHFI Interest on Long-term Debt Total
Three Months Ended September 30, 2019     
Interest income/(expense), including the effects of fair value and cash flow hedges
$1,708
 
($150) 
$1,558
     
(Loss)/gain on fair value hedging relationships:     
Interest rate contracts:     
Amounts related to interest settlements on derivatives
$—
 
($1) 
($1)
Recognized on derivatives—
 43
 43
Recognized on hedged items—
 (47)
1 
(47)
Net expense recognized on fair value hedges
$—
 
($5) 
($5)
     
Loss on cash flow hedging relationships:     
Interest rate contracts:     
Amount of pre-tax loss reclassified from AOCI into income
($46)
2 

$—
 
($46)
Net expense recognized on cash flow hedges
($46) 
$—
 
($46)
     
Nine Months Ended September 30, 2019     
Interest income/(expense), including the effects of fair value and cash flow hedges
$5,125
 
($425) 
$4,700
     
(Loss)/gain on fair value hedging relationships:     
Interest rate contracts:     
Amounts related to interest settlements on derivatives
$—
 
($10) 
($10)
Recognized on derivatives—
 267
 267
Recognized on hedged items—
 (282)
1 
(282)
Net expense recognized on fair value hedges
$—
 
($25) 
($25)
     
Loss on cash flow hedging relationships:     
Interest rate contracts:     
Amount of pre-tax loss reclassified from AOCI into income
($129)
2 

$—
 
($129)
Net expense recognized on cash flow hedges
($129) 
$—
 
($129)
     
Three Months Ended September 30, 2018              
Interest income/(expense), including the effects of fair value and cash flow hedges
$1,549
 
($95) 
($193) 
$42
 
$1,303

$1,549
 
($95) 
$1,454
              
(Loss)/gain on fair value hedging relationships:              
Interest rate contracts:              
Amounts related to interest settlements on derivatives
$—
 
($2) 
$—
 
$—
 
($2)
$—
 
($2) 
($2)
Recognized on derivatives—
 (33) —
 —
 (33)—
 (33) (33)
Recognized on hedged items—
 31
1 
—
 —
 31
—
 31
1 
31
Net expense recognized on fair value hedges
$—
 
($4) 
$—
 
$—
 
($4)
$—
 
($4) 
($4)
              
Loss on cash flow hedging relationships:              
Interest rate contracts:              
Amount of pre-tax loss reclassified from AOCI into income
($22)
2 

$—
 
$—
 
$—
 
($22)
($22)
2 

$—
 
($22)
Net expense recognized on cash flow hedges
($22) 
$—
 
$—
 
$—
 
($22)
($22) 
$—
 
($22)
              
Nine Months Ended September 30, 2018              
Interest income/(expense), including the effects of fair value and cash flow hedges
$4,424
 
($252) 
($484) 
$137
 
$3,825

$4,424
 
($252) 
$4,172
              
(Loss)/gain on fair value hedging relationships:              
Interest rate contracts:              
Amounts related to interest settlements on derivatives
$—
 
($1) 
$—
 
$—
 
($1)
$—
 
($1) 
($1)
Recognized on derivatives—
 (130) —
 —
 (130)—
 (130) (130)
Recognized on hedged items—
 124
1 
—
 —
 124
—
 124
1 
124
Net expense recognized on fair value hedges
$—
 
($7) 
$—
 
$—
 
($7)
$—
 
($7) 
($7)
              
Loss on cash flow hedging relationships:              
Interest rate contracts:              
Amount of pre-tax loss reclassified from AOCI into income
($39)
2 

$—
 
$—
 
$—
 
($39)
($39)
2 

$—
 
($39)
Net expense recognized on cash flow hedges
($39) 
$—
 
$—
 
$—
 
($39)
($39) 
$—
 
($39)
         
Three Months Ended September 30, 2017         
Interest income/(expense), including the effects of fair value and cash flow hedges
$1,382
 
($76) 
($111) 
$51
 
$1,246
         
Gain/(loss) on fair value hedging relationships:         
Interest rate contracts:         
Amounts related to interest settlements on derivatives
$—
 
$3
 
$—
 
$—
 
$3
Recognized on derivatives—
 —
 —
 (3) (3)
Recognized on hedged items—
 —
 —
 3
 3
Net income recognized on fair value hedges
$—
 
$3
 
$—
 
$—
 
$3
         
Gain on cash flow hedging relationships:         
Interest rate contracts:         
Amount of pre-tax gain reclassified from AOCI into income
$13
2 

$—
 
$—
 
$—
 
$13
Net income recognized on cash flow hedges
$13
 
$—
 
$—
 
$—
 
$13
         
Nine Months Ended September 30, 2017         
Interest income/(expense), including the effects of fair value and cash flow hedges
$4,009
 
($216) 
($286) 
$148
 
$3,655
         
Gain/(loss) on fair value hedging relationships:         
Interest rate contracts:         
Amounts related to interest settlements on derivatives
$—
 
$12
 
$—
 
$—
 
$12
Recognized on derivatives—
 —
 —
 5
 5
Recognized on hedged items—
 —
 —
 (4) (4)
Net income recognized on fair value hedges
$—
 
$12
 
$—
 
$1
 
$13
         
Gain on cash flow hedging relationships:         
Interest rate contracts:         
Amount of pre-tax gain reclassified from AOCI into income
$81
2 

$—
 
$—
 
$—
 
$81
Net income recognized on cash flow hedges
$81
 
$—
 
$—
 
$—
 
$81
1 Includes amortization from de-designated fair value hedging relationships.
2 These amounts include pre-tax gains/(losses) related to cash flow hedging relationships that have been terminated and were reclassified into earnings consistent with the pattern of net cash flows expected to be recognized.
Notes to Consolidated Financial Statements (Unaudited), continued






The following table presents the carrying amount of hedged liabilities on the Consolidated Balance Sheets in fair value hedging relationships and the associated cumulative basis adjustment related to the application of hedge accounting:
  Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities  Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities
(Dollars in millions)Carrying Amount of Hedged Liabilities Hedged Items Currently Designated Hedged Items No Longer DesignatedCarrying Amount of Hedged Liabilities Hedged Items Currently Designated Hedged Items No Longer Designated
September 30, 2018     
September 30, 2019     
Long-term debt
$11,295
 
$180
 
($28)
     
December 31, 2018     
Long-term debt
$6,495
 
($170) 
($73)
$8,411
 
($10) 
($120)
Brokered time deposits29
 —
 —
29
 —
 —




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. The Company mitigates these risks by entering into offsetting derivatives either on an individual basis or collectively on a macro basis.
The Company utilizes interest rate derivatives as economic hedges related to:
Residential MSRs. The Company hedges these instruments with a combination of interest rate derivatives, including forward and option contracts, futures, and forward rate agreements.
Residential mortgage IRLCs and LHFS. The Company hedges these instruments using forward and option contracts, futures, and forward rate agreements.
•
Residential MSRs. The Company hedges these instruments with a combination of interest rate derivatives, including forward and option contracts, futures, and forward rate agreements.
•
Residential mortgage IRLCs and LHFS. The Company hedges these instruments using forward and option contracts, futures, and 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 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 exchange rate contracts, and commodity derivatives. 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 impacts of derivative instruments used for economic hedging or trading purposes on the Consolidated Statements of Income are presented in the following table:
 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 Amount of Gain/(Loss) Recognized in Income on Derivatives During the Nine Months Ended September 30
(Dollars in millions) 2019 2018 2019 2018
Derivative instruments not designated as hedging instruments:        
Interest rate contracts hedging:         
Residential MSRsMortgage-related income 
$166
 
($54) 
$436
 
($210)
LHFS, IRLCsMortgage-related income (31) 10
 (76) 57
LHFIOther noninterest income (1) 1
 (4) 3
Trading activityTrading income 1
 18
 22
 48
Foreign exchange rate contracts hedging loans and trading activityTrading income 39
 9
 46
 49
Credit contracts hedging:         
LHFIOther noninterest income (1) (5) (16) (5)
Trading activityTrading income 7
 5
 20
 16
Equity contracts hedging trading activityTrading income 6
 6
 34
 8
Other contracts:         
IRLCs and otherMortgage-related income;
Commercial real estate-related income		 58
 19
 144
 39
Commodity derivativesTrading income 1
 —
 2
 —
Total  
$245
 
$9
 
$608
 
$5
 Classification of (Loss)/Gain Recognized in Income on Derivatives Amount of (Loss)/Gain Recognized in Income on Derivatives During the Three Months Ended September 30 Amount of (Loss)/Gain Recognized in Income on Derivatives During the Nine Months Ended September 30
(Dollars in millions) 2018 2017 2018 2017
Derivative instruments not designated as hedging instruments:        
Interest rate contracts hedging:         
Residential MSRsMortgage servicing related income 
($54) 
$17
 
($210) 
$41
LHFS, IRLCsMortgage production related income 10
 (20) 57
 (57)
LHFIOther noninterest income 1
 —
 3
 (1)
Trading activityTrading income 18
 11
 48
 33
Foreign exchange rate contracts hedging loans and trading activityTrading income 9
 (10) 49
 (43)
Credit contracts hedging:         
LHFIOther noninterest income (5) (1) (5) (3)
Trading activityTrading income 5
 8
 16
 19
Equity contracts hedging trading activityTrading income 6
 (1) 8
 (1)
Other contracts:         
IRLCs and otherMortgage production related income,
Commercial real estate related income		 19
 49
 39
 154
Commodity derivativesTrading income —
 —
 —
 1
Total  
$9
 
$53
 
$5
 
$143


Notes to Consolidated Financial Statements (Unaudited), continued






Credit Derivative Instruments
As part of the Company's trading businesses, the Company enters into contracts that are, in form or substance, written 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.
At September 30, 2018, there were no purchased CDS contracts designated as trading instruments. At December 31, 2017, the gross notional amount of purchased CDS contracts designated as trading instruments was $5 million. The fair value of purchased CDS was immaterial at December 31, 2017.
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 $1.9 billion and $1.7 billion ofThe following table presents information related to the Company's outstanding TRS notional balances at September 30, 2018 and December 31, 2017, respectively. The fair values of these TRS assets and liabilities at September 30, 2018 were $25 million and $23 million, respectively, and related cash collateral held at September 30, 2018 was $486 million. The fair values of the TRS assets and liabilities at December 31, 2017 were $15 million and $13 million, respectively, and related cash collateral held at December 31, 2017 was $368 million. contracts.
(Dollars in millions)September 30, 2019 December 31, 2018
Outstanding TRS notional balances
$2,543
 
$2,009
TRS assets at fair value38
 97
TRS liabilities at fair value34
 94
Cash collateral held for TRS contracts635
 601


For additional information on the Company'sCompany’s TRS contracts, see Note 10, "Certain11, “Certain Transfers of Financial Assets and Variable Interest
Entities,"” in this Form 10-Q as well as Note 16, "Fair20, “Fair Value Election and Measurement."Measurement,” to the Company’s 2018 Annual Report on Form 10-K.
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 manages its payment risk on its risk participations by monitoring the creditworthiness of the obligors, which are 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. To date, no material losses have been incurred related to the Company’s written risk participations. At September 30, 2018,2019, the remaining terms on these risk participations generally ranged from less than one year to 11 years, with a weighted average term on the maximum estimated exposure of 6.46.0 years. At December 31, 2017,2018, the remaining terms on these risk participations generally ranged from less than one year to nine10 years, with a weighted average term on the maximum estimated exposure of 5.55.9 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 $230$281 million and $55$217 million at September 30, 20182019 and December 31, 2017,2018, respectively. The fair values of the written risk participations were immaterial at both September 30, 20182019 and December 31, 2017.2018.


Notes to Consolidated Financial Statements (Unaudited), continued








NOTE 1617 - 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
•
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
•
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
Level 1: Quoted prices for identical instruments in active 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
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are 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, derivative instruments, securities AFS, and derivative financial instruments.certain other equity securities. Assets and liabilities that the Company has elected to measure at fair value on a recurring basis include itstrading loans, certain LHFS and LHFI, residential MSRs, trading loans, and certain LHFS, LHFI, brokered time deposits, and certain structured notes and fixed rate issuances included in long-term debt issuances.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 measured 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 gathering 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 thean asset or liability are not available, the Company employs various 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 escalated.
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 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 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.


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. There have been no significant changes in the Company’s valuation techniques or inputs used
in estimating fair value for assets and liabilities measured on a recurring basis from those disclosed in Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K.
September 30, 2018September 30, 2019
Fair Value Measurements    Fair Value Measurements 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
(Dollars in millions)Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Assets                  
Trading assets and derivative instruments:                  
U.S. Treasury securities
$247
 
$—
 
$—
 
$—
 
$247

$212
 
$—
 
$—
 
$—
 
$212
Federal agency securities—
 507
 —
 —
 507
—
 319
 —
 —
 319
U.S. states and political subdivisions—
 91
 —
 —
 91
—
 43
 —
 —
 43
MBS - agency—
 743
 —
 —
 743
MBS - agency residential—
 1,004
 —
 —
 1,004
MBS - agency commercial—
 51
 —
 —
 51
ABS—
 7
 —
 —
 7
Corporate and other debt securities—
 820
 —
 —
 820
—
 628
 —
 —
 628
CP—
 408
 —
 —
 408
—
 122
 —
 —
 122
Equity securities67
 —
 —
 —
 67
86
 —
 —
 —
 86
Derivative instruments324
 2,942
 12
 (2,656) 622
466
 3,385
 27
 (2,108) 1,770
Trading loans—
 2,171
 —
 —
 2,171
Trading loans 2
—
 2,862
 —
 —
 2,862
Total trading assets and derivative instruments638
 7,682
 12
 (2,656) 5,676
764
 8,421
 27
 (2,108) 7,104
                  
Securities AFS:                  
U.S. Treasury securities4,133
 —
 —
 —
 4,133
4,018
 —
 —
 —
 4,018
Federal agency securities—
 223
 —
 —
 223
—
 124
 —
 —
 124
U.S. states and political subdivisions—
 602
 —
 —
 602
—
 572
 —
 —
 572
MBS - agency residential—
 22,505
 —
 —
 22,505
—
 22,585
 —
 —
 22,585
MBS - agency commercial—
 2,602
 —
 —
 2,602
—
 2,983
 —
 —
 2,983
MBS - non-agency commercial—
 905
 —
 —
 905
—
 1,064
 —
 —
 1,064
Corporate and other debt securities—
 14
 —
 —
 14
—
 12
 —
 —
 12
Total securities AFS 2
4,133
 26,851
 —
 —
 30,984
Total securities AFS4,018
 27,340
 —
 —
 31,358

                  
LHFS—
 1,822
 —
 —
 1,822
—
 1,488
 —
 —
 1,488
LHFI—
 —
 168
 —
 168
—
 —
 124
 —
 124
Residential MSRs—
 —
 2,062
 —
 2,062
—
 —
 1,564
 —
 1,564
Other assets 2
92
 —
 —
 —
 92
Other assets76
 —
 —
 —
 76
                  
Liabilities                  
Trading liabilities and derivative instruments:                  
U.S. Treasury securities742
 —
 —
 —
 742
538
 —
 —
 —
 538
Corporate and other debt securities—
 411
 —
 —
 411
—
 539
 —
 —
 539
Equity securities12
 —
 —
 —
 12
20
 —
 —
 —
 20
Derivative instruments132
 3,688
 9
 (3,131) 698
135
 2,886
 10
 (2,757) 274
Trading loans—
 9
 —
 —
 9
Total trading liabilities and derivative instruments886
 4,099
 9
 (3,131) 1,863
693
 3,434
 10
 (2,757) 1,380
                  
Brokered time deposits—
 384
 —
 —
 384
—
 552
 —
 —
 552
Long-term debt—
 235
 —
 —
 235
—
 302
 —
 —
 302

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. See Note 15, "Derivative16, “Derivative Financial Instruments,"” for additional information.
2Beginning January 1, 2018, At September 30, 2019, includes $2.5 billion of loans related to the Company reclassified equity securities previously presentedCompany’s TRS business, $70 million of loans related to the Company’s loan sales and trading business held in Securities available for sale to Other assets oninventory, and $227 million of loans backed by the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability. See Note 9, "Other Assets," for additional information.SBA held in inventory.


Notes to Consolidated Financial Statements (Unaudited), continued










 December 31, 2018
 Fair Value Measurements 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
(Dollars in millions)Level 1 Level 2 Level 3  
Assets         
Trading assets and derivative instruments:         
U.S. Treasury securities
$262
 
$—
 
$—
 
$—
 
$262
Federal agency securities—
 188
 —
 —
 188
U.S. states and political subdivisions—
 54
 —
 —
 54
MBS - agency residential—
 860
 —
 —
 860
Corporate and other debt securities—
 700
 —
 —
 700
CP—
 190
 —
 —
 190
Equity securities73
 —
 —
 —
 73
Derivative instruments186
 2,425
 20
 (1,992) 639
Trading loans 2
—
 2,540
 —
 —
 2,540
Total trading assets and derivative instruments521
 6,957
 20
 (1,992) 5,506
          
Securities AFS:         
U.S. Treasury securities4,211
 —
 —
 —
 4,211
Federal agency securities—
 221
 —
 —
 221
U.S. states and political subdivisions—
 589
 —
 —
 589
MBS - agency residential—
 22,864
 —
 —
 22,864
MBS - agency commercial—
 2,627
 —
 —
 2,627
MBS - non-agency commercial—
 916
 —
 —
 916
Corporate and other debt securities—
 14
 —
 —
 14
Total securities AFS4,211
 27,231
 —
 —
 31,442
          
LHFS—
 1,178
 —
 —
 1,178
LHFI—
 —
 163
 —
 163
Residential MSRs—
 —
 1,983
 —
 1,983
Other assets95
 —
 —
 —
 95
          
Liabilities         
Trading liabilities and derivative instruments:         
U.S. Treasury securities801
 —
 —
 —
 801
MBS - agency—
 3
 —
 —
 3
Corporate and other debt securities—
 385
 —
 —
 385
Equity securities5
 —
 —
 —
 5
Derivative instruments119
 2,590
 7
 (2,306) 410
Total trading liabilities and derivative instruments925
 2,978
 7
 (2,306) 1,604
          
Brokered time deposits—
 403
 —
 —
 403
Long-term debt—
 289
 —
 —
 289

 December 31, 2017
 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
$157
 
$—
 
$—
 
$—
 
$157
Federal agency securities—
 395
 —
 —
 395
U.S. states and political subdivisions—
 61
 —
 —
 61
MBS - agency—
 700
 —
 —
 700
Corporate and other debt securities—
 655
 —
 —
 655
CP—
 118
 —
 —
 118
Equity securities56
 —
 —
 —
 56
Derivative instruments395
 3,493
 16
 (3,102) 802
Trading loans—
 2,149
 —
 —
 2,149
Total trading assets and derivative instruments608
 7,571
 16
 (3,102) 5,093
          
Securities AFS:         
U.S. Treasury securities4,331
 —
 —
 —
 4,331
Federal agency securities—
 259
 —
 —
 259
U.S. states and political subdivisions—
 617
 —
 —
 617
MBS - agency residential—
 22,704
 —
 —
 22,704
MBS - agency commercial—
 2,086
 —
 —
 2,086
MBS - non-agency residential—
 —
 59
 —
 59
MBS - non-agency commercial—
 866
 —
 —
 866
ABS—
 —
 8
 —
 8
Corporate and other debt securities—
 12
 5
 —
 17
Total securities AFS 2
4,331
 26,544
 72
 —
 30,947
          
LHFS—
 1,577
 —
 —
 1,577
LHFI—
 —
 196
 —
 196
Residential MSRs—
 —
 1,710
 —
 1,710
Other assets 2
56
 —
 —
 —
 56
          
Liabilities         
Trading liabilities and derivative instruments:         
U.S. Treasury securities577
 —
 —
 —
 577
Corporate and other debt securities—
 289
 —
 —
 289
Equity securities9
 —
 —
 —
 9
Derivative instruments183
 4,243
 16
 (4,034) 408
Total trading liabilities and derivative instruments769
 4,532
 16
 (4,034) 1,283
          
Brokered time deposits—
 236
 —
 —
 236
Long-term debt—
 530
 —
 —
 530
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. See Note 15, "Derivative16, “Derivative Financial Instruments,"” for additional information.
2 Beginning January 1, At December 31, 2018, includes $2.0 billion of loans related to the Company reclassified equity securities previously presentedCompany’s TRS business, $137 million of loans related to the Company’s loan sales and trading business held in Securities available for sale to Other assets oninventory, and $366 million of loans backed by the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability. See Note 9, "Other Assets," for additional information.SBA loans held in inventory, measured at fair value.


Notes to Consolidated Financial Statements (Unaudited), continued







The following tables present the difference between fair value and the aggregate UPB for which the FVO has been elected for certain trading loans, LHFS, LHFI, brokered time deposits, and long-term debt instruments.
(Dollars in millions)
Fair Value at
September 30, 2019
 
Aggregate UPB at
September 30, 2019
 
Fair Value
Over/(Under)
Unpaid Principal
Assets:     
Trading loans
$2,862
 
$2,779
 
$83
LHFS:     
Accruing1,488
 1,446
 42
LHFI:     
Accruing121
 119
 2
Nonaccrual3
 4
 (1)

Liabilities:
     
Trading loans9
 9
 —
Brokered time deposits552
 539
 13
Long-term debt302
 290
 12
      
(Dollars in millions)
Fair Value at
December 31, 2018
 
Aggregate UPB at
December 31, 2018
 

Fair Value
Over/(Under)
Unpaid Principal
Assets:     
Trading loans
$2,540
 
$2,526
 
$14
LHFS:     
Accruing1,178
 1,128
 50
LHFI:     
Accruing158
 163
 (5)
Nonaccrual5
 6
 (1)

Liabilities:
     
Brokered time deposits403
 403
 —
Long-term debt289
 286
 3

(Dollars in millions)
Fair Value at
September 30, 2018
 
Aggregate UPB at
September 30, 2018
 
Fair Value
Over/(Under)
Unpaid Principal
Assets:     
Trading loans
$2,171
 
$2,160
 
$11
LHFS:     
Accruing1,822
 1,775
 47
LHFI:     
Accruing162
 171
 (9)
Nonaccrual6
 8
 (2)

Liabilities:
     
Brokered time deposits384
 379
 5
Long-term debt235
 230
 5
      
(Dollars in millions)
Fair Value at
December 31, 2017
 
Aggregate UPB at
December 31, 2017
 

Fair Value
Over/(Under)
Unpaid Principal
Assets:     
Trading loans
$2,149
 
$2,111
 
$38
LHFS:     
Accruing1,576
 1,533
 43
Past due 90 days or more1
 1
 —
LHFI:     
Accruing192
 198
 (6)
Nonaccrual4
 6
 (2)

Liabilities:
     
Brokered time deposits236
 233
 3
Long-term debt530
 517
 13



Notes to Consolidated Financial Statements (Unaudited), continued






The following tables present the changes in fair value of financial instruments for which the FVO has been elected. The tables do not reflect the change in fair value attributable to related economic hedges that the Company uses to mitigate market-related risks associated with the financial instruments. Generally, changes in the fair value of economic hedges are recognized in Trading income, Mortgage production related income, Mortgage
 
servicing relatedTrading income, Mortgage-related income, Commercial real estate relatedestate-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, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
Fair Value (Loss)/Gain for the Three Months Ended
September 30, 2019 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2019 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
Trading Income 
  Mortgage 1
Related
Income
 Other Noninterest Income 
  Total 2
Changes in Fair Values Included in Earnings
 
Trading
Income
 
  Mortgage 1
Related
Income
 
Other
Noninterest
Income
 
  Total 2
Changes in Fair Values Included in Earnings
Assets:                                  
Trading loans
$3
 
$—
 
$—
 
$—
 
$3
 
$10
 
$—
 
$—
 
$—
 
$10
LHFS—
 5
 —
 —
 5
 —
 (3) —
 —
 (3)
Trading loans 3

($1) 
$—
 
$—
 
($1) 
$18
 
$—
 
$—
 
$18
LHFS 4
—
 40
 —
 40
 —
 80
 —
 80
LHFI—
 —
 —
 (1) (1) —
 —
 —
 (4) (4)—
 —
 2
 2
 —
 —
 5
 5
Residential MSRs—
 3
 (11) —
 (8) —
 7
 15
 —
 22
—
 (250) —
 (250) —
 (650) —
 (650)
Liabilities:                                  
Brokered time deposits(4) —
 —
 —
 (4) 6
 —
 —
 —
 6
(3) —
 —
 (3) (24) —
 —
 (24)
Long-term debt1
 —
 —
 —
 1
 6
 —
 —
 —
 6
(2) —
 —
 (2) (15) —
 —
 (15)
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2019, income related to residential 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, 2019 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.
3 Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk for three and nine months ended September 30, 2019.
4 Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for the three and nine months ended September 30, 2019.

 
Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income 
  Mortgage 1
Related
Income
 Other Noninterest Income 
  Total 2
Changes in Fair Values Included in Earnings
 Trading
Income		 
  Mortgage 1
Related
Income
 Other
Noninterest
Income		 
  Total 2
Changes in Fair Values Included in Earnings
Assets:               
Trading loans 3

$3
 
$—
 
$—
 
$3
 
$10
 
$—
 
$—
 
$10
LHFS 4
—
 5
 —
 5
 —
 (3) —
 (3)
LHFI—
 —
 (1) (1) —
 —
 (4) (4)
Residential MSRs—
 (8) —
 (8) —
 22
 —
 22
Liabilities:               
Brokered time deposits(4) —
 —
 (4) 6
 —
 —
 6
Long-term debt1
 —
 —
 1
 6
 —
 —
 6
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2018, income related to residential 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, 2018 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 Gain/(Loss) for the Three Months Ended
September 30, 2017 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2017 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
$8
 
$—
 
$—
 
$—
 
$8
 
$16
 
$—
 
$—
 
$—
 
$16
LHFS—
 21
 —
 —
 21
 —
 44
 —
 —
 44
LHFI—
 —
 —
 —
 —
 —
 —
 —
 1
 1
Residential MSRs—
 1
 (70) —
 (69) —
 3
 (195) —
 (192)
Liabilities:                   
Brokered time deposits—
 —
 —
 —
 —
 2
 —
 —
 —
 2
Long-term debt5
 —
 —
 —
 5
 16
 —
 —
 —
 16
1 3Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2017, income related to residential 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, 2017 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.

Notes to Consolidated Financial Statements (Unaudited), continued



The following is a discussion of the valuation techniques and inputs used in estimating fair value for assets and liabilities measured at fair value on a recurring basis.

Trading Assets and Derivative Instruments and Investment Securities
Unless otherwise indicated, trading assets are priced by the trading desk and investment securities are valued by an independent third party pricing service. The third party pricing service gathers relevant market data and observable inputs, such as new issue data, benchmark curves, reported trades, credit spreads, and dealer bids and offers, and integrates relevant credit information, market movements, and sector news into its matrix pricing and other market-based modeling techniques.

U.S. Treasury Securities
The Company estimates the fair value of its U.S. Treasury securities based on quoted prices observed in active markets; as such, these investments are classified as level 1.

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, as well as securities collateralized by loans that are guaranteed by the SBA, and thus, are backed by the full faith and credit of the U.S. government. For SBA instruments, the Company estimates fair value based on pricing from observable trading activity for similar securities or from a third party pricing service. Accordingly, these instruments are classified 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 are 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.
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 estimates fair value based on pricing from observable trading activity for similar securities or from a third party pricing service; accordingly, the Company classified these instruments as level 2.
MBS – Non-Agency
Non-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, they have experienced deterioration in credit quality leading to downgrades to non-investment grade levels. The
Company obtains pricing for these securities from an independent pricing service. The Company evaluates 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. At December 31, 2017, the Company classified non-agency residential MBS as level 3.
Non-agency commercial MBS consists of purchased interests in third party securitizations. These interests have high investment grade ratings, and the Company obtains pricing for these securities from an independent pricing service. The Company has classified these non-agency commercial MBS as level 2, as the third party pricing service relies on observable data for similar securities in active markets.
Asset-Backed Securities
ABS classified as securities AFS includes purchased interests in third party securitizations collateralized by home equity loans. At December 31, 2017, the Company classified ABS as level 3.
Corporate and Other Debt Securities
Corporate debt securities are comprised predominantly of senior and subordinate debt obligations of domestic corporations and are classified as level 2. Other debt securities classified as AFS include bonds that are redeemable with the issuer at par. At September 30, 2018 and December 31, 2017, the Company classified other debt securities AFS as level 2 and level 3, respectively.
Commercial Paper
The Company acquires CP that is generally short-term in nature (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; as such, CP is classified as level 2.
Equity Securities
The Company estimates the fair value of its equity securities classified as trading assets based on quoted prices observed in active markets; accordingly, these investments are classified as level 1.

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.
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. See Note 15, “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 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 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, 2018, the Company transferred $26 million and $43 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed. During the three and nine months ended September 30, 2017, the Company transferred $51 million and $157 million, respectively, of net IRLC assets out of level 3, as the associated loans were closed.
Trading Loans
The Company engages in certain businesses whereby electing to measure loans at fair value for financial reporting aligns with the underlying business purpose. Specifically, loans included within this classification include trading loans that are (i) made or acquired in connection with the Company’s TRS business, (ii) part of the loan sales and trading business within the Company’s Wholesale segment, or (iii) backed by the SBA. See Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 15, “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 to estimate fair value.
The loans made in connection with the Company’s TRS business are short-term, senior demand loans supported by 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 TRS-related 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 September 30, 2018 and December 31, 2017, the Company had $1.9 billion and $1.7 billion, respectively, of these short-term loans outstanding, measured at fair value.
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 each of the three and nine months ended September 30, 2018 and 2017, the Company recognized Includes an immaterial amount of gains/(losses)gains or 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 estimatesrisk 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 volumethree and level of trading activity is subject to variability and the loans are not exchange-traded. Atnine months ended September 30, 2018 and December 31, 2017, $65 million and $48 million, respectively, of loans related to the Company’s trading business were held in inventory.2018.
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. At September 30, 2018 and December 31, 2017, the Company held $182 million and $368 million of SBA loans in inventory, respectively.
Loans Held for Sale and Loans Held for Investment
Residential Mortgage LHFS
The Company values certain newly-originated residential mortgage LHFS at fair value based upon defined product criteria. The Company chooses to fair value these residential 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. Any 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 employs 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.
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 mortgage LHFS are also included in level 2.
For residential mortgages that the Company has elected to measure at fair value, the Company recognized4 Includes an immaterial amount of gains/(losses)gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for each of the three and nine months ended September 30, 2018 and 2017. 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 market conditions.2018.


Notes to Consolidated Financial Statements (Unaudited), continued






Commercial Mortgage LHFS
The Company values certain commercial mortgage LHFS at fair value based upon observable current market prices for similar loans. These loans are generally transferred to agencies within 90 days of origination. The Company had commitments from agencies to purchase these loans at September 30, 2018 and December 31, 2017; therefore, they are classified as level 2. Origination fees are recognized within Commercial real estate related income in the Consolidated Statements of Income when earned at the time of closing. To mitigate the effect of interest rate risk inherent in entering into IRLCs with borrowers, the Company enters into forward contracts with investors at the same time that it enters into IRLCs with borrowers. The mark-to-market adjustments related to commercial mortgage LHFS, IRLCs, and forward contracts are recognized in Commercial real estate related income. For commercial mortgages that the Company has elected to measure at fair value, the Company recognized no gains/(losses) in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for each of the three and nine months ended September 30, 2018 and 2017.
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. 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.
Residential Mortgage Servicing Rights
The Company records residential MSR assets at fair value using a discounted cash flow approach. The fair values of residential MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, 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, residential MSRs are classified as level 3 assets. For additional information see Note 8, "Goodwill and Other Intangible Assets."
Other Assets
The Company estimates the fair value of its mutual fund investments and other equity securities with readily determinable fair values based on quoted prices observed in active markets; therefore, these investments are classified as level 1. During the second quarter of 2018, the Company reclassified $22 million of nonmarketable equity securities to
marketable equity securities due to newly available, readily determinable fair value information observed in active markets.
Liabilities
Trading Liabilities and Derivative Instruments
Trading liabilities are comprised primarily of derivative contracts, including IRLCs that satisfy the criteria to be treated as derivative financial instruments, as well as various contracts (primarily U.S. Treasury securities, corporate and other debt securities) that the Company uses in certain of its trading businesses. The Company's valuation methodologies for these derivative contracts and securities are consistent with those discussed within the corresponding sections herein under “Trading Assets and Derivative Instruments and Investment Securities.”
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 the Litigation involving Visa. The fair value of the derivative is estimated based on the Company’s expectations regarding the ultimate resolution of that Litigation. The significant unobservable inputs used in the fair value measurement of the derivative involve a high degree of judgment and subjectivity; accordingly, the derivative liability is classified as level 3. See Note 14, "Guarantees," for a discussion of the valuation assumptions.
Brokered Time Deposits
The Company has elected to measure certain CDs that contain embedded derivatives at fair value. This fair value election better aligns 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.
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 any embedded derivative features, the Company uses the same valuation methodologies as if the derivative were a standalone derivative, as discussed in the "Derivative Instruments" section above.
Long-Term Debt
The Company has elected to measure at fair value certain fixed rate issuances of public debt that 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 classifies these debt issuances as level 2. The Company utilizes derivative instruments to convert interest rates on its fixed rate debt to floating rates. The Company elected to measure certain fixed rate debt issuances at fair value to align the accounting for the
Notes to Consolidated Financial Statements (Unaudited), continued



debt with the accounting for offsetting derivative positions, without having to apply complex hedge accounting.
The Company has elected to measure certain debt issuances that contain embedded derivatives at fair value. This fair value election better aligns the economics of the debt 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. The Company has classified these instruments 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 debt and an estimate of the Parent Company's credit risk. For any embedded derivative features, the Company uses the same valuation methodologies that would be used if the derivative were a standalone derivative, as discussed in the "Derivative Instruments" section above.



The valuation technique and range, including weighted average, of the unobservable inputs associated with the Company'sCompany’s level 3 assets and liabilities are as follows:
  Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)
Fair value
September 30, 20182019
 Valuation Technique Unobservable Input 
Range
 (Weighted Average) 1
Assets       
Trading assets and derivative instruments:      
Derivative instruments, net 2


$317

 Internal model Pull through rate 40-100% (82%2-100% (83%)
 MSR value 28-17321-155 bps (116(102 bps)
LHFI162121

 Monte Carlo/Discounted cash flow Option adjusted spread 62-78462-250 bps (177(172 bps)
Conditional prepayment rate4-277-31 CPR (12(16 CPR)
Conditional default rate0-2 CDR (0.7(0.5 CDR)
63

Collateral based pricingAppraised value
NM 3
Residential MSRs2,0621,564

 Monte Carlo/Discounted cash flow Conditional prepayment rate 5-306-31 CPR (13(15 CPR)
 Option adjusted spread 0-113%1-29% (3%)

1 Unobservable inputs were weighted by the relative fair value of the financial instruments.
2 Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company'sCompany’s sale of Visa shares. Refer to the "Trading“Trading Liabilities and Derivative Instruments"Instruments” section hereinin Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.
3 Not meaningful.

  Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)
Fair value
December 31, 20172018
 Valuation Technique 
Unobservable Input1
 
Range
(Weighted Average) 21
Assets       
Trading assets and derivative instruments:      
Derivative instruments, net 32


$—13

 Internal model Pull through rate 41-100% (81%)
 MSR value 41-19011-165 bps (113(108 bps)
Securities AFS:
MBS - non-agency residential59
Third party pricingN/A
ABS8
Third party pricingN/A
Corporate and other debt securities5
CostN/A
LHFI192158

 Monte Carlo/Discounted cash flow Option adjusted spread 62-7840-250 bps (215(164 bps)
 Conditional prepayment rate 2-347-22 CPR (11(12 CPR)
 Conditional default rate 0-50-1 CDR (0.7(0.6 CDR)
45

 Collateral based pricing Appraised value 
NM 43
Residential MSRs1,7101,983

 Monte Carlo/Discounted cash flow Conditional prepayment rate 6-30 CPR (13 CPR)
 Option adjusted spread 1-125% (4%0-116% (2%)

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 Unobservable inputs were weighted by the relative fair value of the financial instruments.
32 Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company'sCompany’s sale of Visa shares. Refer to the "Trading“Trading Liabilities and Derivative Instruments"Instruments” section hereinin Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.
43 Not meaningful.


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 rightsresidential MSRs which are disclosed in Note 8, “Goodwill and Other Intangible Assets”). Transfers into and out
 
of the fair value hierarchy levels are assumed to occur at the end of the period 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.

Fair Value Measurements
Using Significant Unobservable Inputs
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
July 1,
2018		 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,
2018		Beginning
Balance
July 1,
2019		 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,
2019
Assets                   
Trading assets:                                      
Derivative instruments, net
$3
 
$18
1 

$—
 
$—
 
$—
 
$8
 
($26) 
$—
 
$—
 
$3

$24
 
$60
1 

$—
 
$—
 
$—
 
($3) 
($64)
2 

$—
 
$—
 
$17
                   
LHFI177
 —
2 
—
 —
 —
 (9) —
 —
 —
 168
127
 2
3 
—
 —
 —
 (6) —
 1
 —
 124
(Dollars in millions)Beginning
Balance
January 1,
2019		 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,
2019
Trading assets:                   
Derivative instruments, net
$13
 
$147
1 

$—
 
$—
 
$—
 
($5) 
($138)
2 

$—
 
$—
 
$17
LHFI163
 5
3 
—
 —
 —
 (21) —
 2
 (25) 124

 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2018		 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,
2018
Assets                   
Trading assets:                   
Derivative instruments, net
$—
 
$36
1 

$—
 
$—
 
$—
 
$10
 
($43) 
$—
 
$—
 
$3
Securities AFS:                   
MBS - non-agency residential59
 —
 —
 —
 —
 (2) —
 —
 (57) —
ABS8
 —
 —
 —
 —
 (1) —
 —
 (7) —
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 (5) —
Total securities AFS72
 —

—
 —
 —
 (3) —
 —
 (69) —
                    
LHFI196
 (3)
2 
—
 —
 —
 (26) —
 1
 —
 168
1Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage production relatedMortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estateestate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $23 million in earnings during both the three and nine months ended September 30, 2019, related to changes in unrealized gains on net derivative instruments still held at September 30, 2019.
2 During the three and nine months ended September 30, 2019, the Company transferred $64 million and $138 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed.
3 Amounts are generally included in Mortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $3 million and $5 million in earnings during the three and nine months ended September 30, 2019, respectively, related to changes in unrealized gains on LHFI still held at September 30, 2019.

 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
July 1,
2018		 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,
2018
Trading assets:                   
Derivative instruments, net
$3
 
$18
1 

$—
 
$—
 
$—
 
$8
 
($26)
2 

$—
 
$—
 
$3
LHFI177
 —
3 
—
 —
 —
 (9) —
 —
 —
 168
(Dollars in millions)Beginning
Balance
January 1,
2018		 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,
2018
Trading assets:                   
Derivative instruments, net
$—
 
$36
1 

$—
 
$—
 
$—
 
$10
 
($43)
2 

$—
 
$—
 
$3
Securities AFS:                   
MBS - non-agency residential59
 —
 —
 —
 —
 (2) —
 —
 (57) —
ABS8
 —
 —
 —
 —
 (1) —
 —
 (7) —
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 (5) —
Total securities AFS72
 —

—
 —
 —
 (3) —
 —
 (69) —
LHFI196
 (3)
3 
—
 —
 —
 (26) —
 1
 —
 168

1 Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $10 million and $7 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized gains on net derivative instruments still held at September 30, 2018.
2During the three and nine months ended September 30, 2018, the Company transferred $26 million and $43 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed.
3 Amounts are generally included in Mortgage production relatedMortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $4 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized losses on LHFI still held at September 30, 2018.
Notes to Consolidated Financial Statements (Unaudited), continued






 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
July 1,
2017		 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,
2017
Assets                   
Trading assets:                   
Derivative instruments, net
$4
 
$52
1 

$—
 
$—
 
$—
 
$1
 
($51) 
$—
 
$—
 
$6
Securities AFS:                   
U.S. states and political subdivisions—
 —
 —
 —
 —
 —
 —
 —
 —
 —
MBS - non-agency residential67
 —
 1
2 
—
 —
 (6) —
 —
 —
 62
ABS9
 —
 —
 —
 —
 (1) —
 —
 —
 8
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 —
 5
Total securities AFS81
 —
 1
2 
—
 —
 (7) —
 —
 —
 75
                    
Residential LHFS2
 —
 —
 —
 (2) (1) (1) 3
 —
 1
LHFI214
 —
3 
—
 —
 —
 (9) 1
 —
 —
 206


 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2017		 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,
2017
Assets                   
Trading assets:                   
Derivative instruments, net
$6
 
$157
1 

$—
 
$—
 
$—
 
$—
 
($157) 
$—
 
$—
 
$6
Securities AFS:                   
U.S. states and political subdivisions4
 —
 —
 —
 —
 (4) —
 —
 —
 —
MBS - non-agency residential74
 —
 1
2 
—
 —
 (13) —
 —
 —
 62
ABS10
 —
 —
 —
 —
 (2) —
 —
 —
 8
Corporate and other debt securities5
 —
 —
 —
 —
 —
 —
 —
 —
 5
Total securities AFS93
 —

1
2 
—
 —
 (19) —
 —
 —
 75
                    
Residential LHFS12
 —
 —
 —
 (22) (1) (3) 17
 (2) 1
LHFI222
 1
3 
—
 —
 —
 (24) 3
 4
 —
 206
1 Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage production related income, amount related to commercial IRLCs is recognized in Commercial real estate related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $19 million and $17 million in earnings during the three and nine months ended September 30, 2017, respectively, related to changes in unrealized gains on net derivative instruments still held at September 30, 2017.
2 Amounts recognized in OCI are included in change in net unrealized gains on securities AFS, net of tax.
3 Amounts are generally included in Mortgage production related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $1 million in earnings during the three and nine months ended September 30, 2017, respectively, related to changes in unrealized gains on LHFI still held at September 30, 2017.


Notes to Consolidated Financial Statements (Unaudited), continued




Non-recurring Fair Value Measurements
The following tables present gains and 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, 20182019 and the year ended December 31, 2017.2018. Adjustments to fair value generally result from the application
 
of LOCOM, or the measurement alternative, or 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.
   Fair Value Measurements (Losses)/Gains for the
Three Months Ended September 30, 2019		 
(Losses)/Gains for the
Nine Months Ended
September 30, 2019
(Dollars in millions)September 30, 2019 Level 1 Level 2 Level 3  
LHFS
$311
 
$—
 
$311
 
$—
 
($14) 
($14)
LHFI128
 —
 —
 128
 —
 —
OREO22
 —
 —
 22
 (1) (3)
Other assets74
 —
 61
 13
 16
 14
            
   Fair Value Measurements 
(Losses)/Gains for the
Year Ended
December 31, 2018
  
(Dollars in millions)December 31, 2018 Level 1 Level 2 Level 3  
LHFS
$47
 
$—
 
$47
 
$—
 
($1)  
LHFI63
 —
 —
 63
 —
  
OREO19
 —
 —
 19
 (4)  
Other assets67
 —
 47
 20
 24
  

   Fair Value Measurements 
(Losses)/Gains for the
Three Months Ended
September 30, 2018
 
(Losses)/Gains for the
Nine Months Ended
September 30, 2018
(Dollars in millions)September 30, 2018 Level 1 Level 2 Level 3  
LHFS
$12
 
$—
 
$12
 
$—
 
$—
 
$—
LHFI17
 —
 —
 17
 —
 —
OREO22
 —
 1
 21
 (3) (4)
Other assets63
 —
 44
 19
 3
 18
            
   Fair Value Measurements 
Losses for the
Year Ended
December 31, 2017
  
(Dollars in millions)December 31, 2017 Level 1 Level 2 Level 3  
LHFS
$13
 
$—
 
$13
 
$—
 
$—
  
LHFI49
 —
 —
 49
 —
  
OREO24
 —
 1
 23
 (4)  
Other assets53
 —
 4
 49
 (43)  


Discussed below are the valuation techniques and inputs used in estimating fair values for assets measured at fair value on a non-recurring basis and classified as level 2 and/or 3.
Loans Held for Sale
At September 30, 20182019 and December 31, 2017,2018, LHFS classified as level 2 consisted of commercial loans that were valued using market prices and measured at LOCOM. There were no gains/(losses) recognized in earnings duringDuring both the three and nine months ended September 30, 2018 or during2019, the Company recognized impairment charges of $14 million attributable to changes in the fair value of LHFS. During the year ended December 31, 2017 as2018, the charge-offs relatedCompany recognized an immaterial amount of impairment charges attributable to these loans are a componentchanges in the fair value of the ALLL.LHFS.


Loans Held for Investment
At September 30, 20182019 and December 31, 2017,2018, LHFI classified as level 3 consisted primarily of consumer 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.borrower. Cash 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. Due to the lack of market data for similar assets, all of these loans are classified as level 3. There were no gains/(losses) recognized during the three and nine months ended September 30, 20182019 or during the year ended December 31, 2017,2018, as the charge-offs related to these loans are a component of the ALLL.


OREO
OREO is measured at the lower of cost or fair value less costs to sell. Level 2 OREO consists primarily of residential homes, commercial properties, and vacant lots and land for which binding purchase agreements exist. Level 3 OREO 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
limited, highly subjective market information. Updated value estimates are received regularly for level 3 OREO.

Other Assets
Other assets consist of equity investments, other repossessed assets, assets under operating leases where the Company is the lessor, branch properties, and land held for sale, and software.sale.
Pursuant to the adoption of ASU 2016-01 on January 1, 2018, theThe Company elected the measurement alternative for measuring certain equity securities without readily determinable fair values, which are adjusted based on any observable price changes in orderly transactions. These equity securities are classified as level 2 based on the valuation methodology and associated inputs. During both the three and nine months ended September 30, 2019, the Company recognized remeasurement gains of $16 million on these equity securities. During the year ended December 31, 2018, the Company recognized remeasurement gains of $7 million and $30 million on these equity securities, respectively.
Prior to the adoption of ASU 2016-01, equity investments were evaluated for potential impairment 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 year ended December 31, 2017, the Company recognized an immaterial amount of impairment charges on its equity investments.securities.
Other repossessed assets include repossessed personal property that is measured at fair value less cost to sell. These assets are classified 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, 20182019 or during the year ended December 31, 2017,
Notes to Consolidated Financial Statements (Unaudited), continued



2018, as the impairment charges on repossessed personal property were 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 is greater than its fair value. Fair value is determined using collateral specific pricing digests, external appraisals, broker opinions, recent sales data from industry 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 each of the three and nine months ended September 30, 20182019 and the year ended December 31, 2017,2018, the Company recognized an immaterial amount of impairment charges attributable to changes in the fair value of various personal property under operating leases.
Notes to Consolidated Financial Statements (Unaudited), continued



Branch properties are classified as level 3, as their fair value is based on property-specific appraisals and broker opinions. The CompanyNo impairment charges were recognized an immaterial amount of impairment on
branch properties during the three months ended September 30, 2019 and an immaterial amount was recognized during the nine months ended September 30, 2018.2019. During the year ended December 31, 2017,2018, the Company recognized impairment charges of $10$5 million on branch properties.
Land held for sale is recorded at the lesser of carrying value or fair value less cost to sell, and is considered level 3 as its fair value is determined based on property-specific appraisals and broker opinions. The Company recognized noNo impairment charges were recognized on land held for sale during the three andmonths ended September 30, 2019. During the nine months ended September 30, 2018. During2019 and the year ended December 31, 2017,2018, the Company recognized an immaterial amount of impairment charges on land held for sale.
Software consisted primarily of external software licenses and internally developed software that were impaired and for which fair value was determined using a level 3 measurement. This resulted in impairment charges of $8 million during the nine months ended September 30, 2018, and $28 million during the year ended December 31, 2017. No impairment charges were recognized during the three months ended September 30, 2018.

Notes to Consolidated Financial Statements (Unaudited), continued




Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments are as follows:
   September 30, 2019 Fair Value Measurements
(Dollars in millions)Measurement Category Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:           
Cash and cash equivalentsAmortized cost 
$9,184
 
$9,184
 
$9,184
 
$—
 
$—
Trading assets and derivative instrumentsFair value 7,104
 7,104
 764
 6,313
 27
Securities AFSFair value 31,358
 31,358
 4,018
 27,340
 —
LHFSAmortized cost 518
 525
 —
 448
 77
Fair value 1,488
 1,488
 —
 1,488
 —
LHFI, netAmortized cost 156,632
 156,222
 —
 —
 156,222
Fair value 124
 124
 —
 —
 124
Other 1
Amortized cost 737
 737
 —
 —
 737
Fair value 76
 76
 76
 —
 —
Financial liabilities:           
Consumer and other time depositsAmortized cost 16,727
 16,637
 —
 16,637
 —
Brokered time depositsAmortized cost 993
 964
 —
 964
 —
Fair value 552
 552
 —
 552
 —
Short-term borrowingsAmortized cost 7,144
 7,144
 —
 7,144
 —
Long-term debtAmortized cost 20,067
 20,257
 —
 18,490
 1,767
Fair value 302
 302
 —
 302
 —
Trading liabilities and derivative instrumentsFair value 1,380
 1,380
 693
 677
 10


 September 30, 2018 Fair Value Measurements December 31, 2018 Fair Value Measurements
(Dollars in millions)
Measurement
Category
 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3Measurement Category Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:                    
Cash and cash equivalentsAmortized cost 
$7,605
 
$7,605
 
$7,605
 
$—
 
$—
Amortized cost 
$7,495
 
$7,495
 
$7,495
 
$—
 
$—
Trading assets and derivative instrumentsFair value 5,676
 5,676
 638
 5,026
 12
Fair value 5,506
 5,506
 521
 4,965
 20
Securities AFSFair value 30,984
 30,984
 4,133
 26,851
 —
Fair value 31,442
 31,442
 4,211
 27,231
 —
LHFSAmortized cost 139
 142
 —
 110
 32
Amortized cost 290
 291
 —
 261
 30
Fair value 1,822
 1,822
 —
 1,822
 —
Fair value 1,178
 1,178
 —
 1,178
 —
LHFI, netAmortized cost 145,424
 144,480
 —
 —
 144,480
Amortized cost 150,061
 148,167
 —
 —
 148,167
Fair value 168
 168
 —
 —
 168
Fair value 163
 163
 —
 —
 163
Other 1
Amortized cost 545
 545
 —
 —
 545
Amortized cost 630
 630
 —
 —
 630
Fair value 92
 92
 92
 —
 —
Fair value 95
 95
 95
 —
 —
Financial liabilities:                    
Consumer and other time depositsAmortized cost 15,166
 14,889
 —
 14,889
 —
Amortized cost 15,355
 15,106
 —
 15,106
 —
Brokered time depositsAmortized cost 662
 738
 —
 738
 —
Amortized cost 642
 615
 —
 615
 —
Fair value 384
 384
 —
 384
 —
Fair value 403
 403
 —
 403
 —
Short-term borrowingsAmortized cost 7,940
 7,940
 —
 7,940
 —
Amortized cost 8,772
 8,772
 —
 8,772
 —
Long-term debtAmortized cost 14,054
 14,125
 —
 12,396
 1,729
Amortized cost 14,783
 14,729
 —
 13,024
 1,705
Fair value 235
 235
 —
 235
 —
Fair value 289
 289
 —
 289
 —
Trading liabilities and derivative instrumentsFair value 1,863
 1,863
 886
 968
 9
Fair value 1,604
 1,604
 925
 672
 7
1Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values.

   December 31, 2017 Fair Value Measurements
(Dollars in millions)Measurement Category 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
Financial assets:           
Cash and cash equivalentsAmortized cost 
$6,912
 
$6,912
 
$6,912
 
$—
 
$—
Trading assets and derivative instrumentsFair value 5,093
 5,093
 608
 4,469
 16
Securities AFSFair value 30,947
 30,947
 4,331
 26,544
 72
LHFSAmortized cost 713
 716
 —
 662
 54
Fair value 1,577
 1,577
 —
 1,577
 —
LHFI, netAmortized cost 141,250
 141,379
 —
 —
 141,379
Fair value 196
 196
 —
 —
 196
Other 1
Amortized cost 418
 418
 —
 —
 418
Fair value 56
 56
 56
 —
 —
Financial liabilities:           
Consumer and other time depositsAmortized cost 12,076
 11,906
 —
 11,906
 —
Brokered time depositsAmortized cost 749
 725
 —
 725
 —
Fair value 236
 236
 —
 236
 —
Short-term borrowingsAmortized cost 4,781
 4,781
 —
 4,781
 —
Long-term debtAmortized cost 9,255
 9,362
 —
 8,304
 1,058
Fair value 530
 530
 —
 530
 —
Trading liabilities and derivative instrumentsFair value 1,283
 1,283
 769
 498
 16
1 Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values.


Unfunded loan commitments and letters of credit are not included in the table above. At September 30, 20182019 and December 31, 2017,2018, the Company had $71.1$76.2 billion and $66.4$72.0 billion respectively, of unfunded commercial loan commitments and letters of credit. Acredit, respectively, that are not included in the preceding tables. Since no active trading market exists for these instruments, a reasonable estimate of the instruments' fair value of these instruments is the carrying value of deferred fees plus
the related unfunded commitments reserve, which was a combined
$74totaled $76 million and $84$72 million at September 30, 20182019 and December 31, 2017,2018, respectively. No active trading market exists for these instruments, and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair valuesvalue of its unfunded consumer unfunded lending commitments, which can generally be canceled by providing notice to the borrower.

Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1718 – 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, 20182019 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 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, 2018.2019. 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 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 14,15, “Guarantees.”


 
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. On April 8, 2013, the plaintiff filed a motion for class certification and that motion was denied but the ruling was later reversed and remanded by the Georgia Supreme Court. On October 6, 2017, the trial court granted plaintiff's motion for class certification and the decision was affirmed by the Georgia Court of Appeals on March 6, 2019. The Bank filed an appeal ofa petition with the decisionGeorgia Supreme Court on November 3, 2017.April 15, 2019, asking the court to review the decision.
Mutual Funds ERISA Class Action
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 purportpurported 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”). Subsequently, plaintiffs' counsel initiated a substantially similar lawsuit against the Company naming two new plaintiffs. On June 27, 2014, Brown, et al. v. SunTrust Banks, Inc., et al., another putative class action alleging breach of fiduciary duties associated with the inclusion of STI Classic Mutual Funds as investment options in the Plan,was filed in the U.S. District Court for the District of Columbia but then was transferred to the District Court.
After various appeals, the cases were remanded to the District Court. 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. Subsequent to the closing of fact discovery, plaintiffs filed their second amended consolidated complaint on December 19, 2017 which among other things named five new defendants. On January 2, 2018, defendants filed their answer to the second amended consolidated complaint. Defendants' motion for partial summary judgment was filed on January 12, 2018, and on January 16, 2018 the plaintiffs filed for motion for class certification. Defendants' motion for partial summary judgment was granted by the District Court on May 2, 2018, which held that all claims prior to March 11, 2005 have been dismissed as well as dismissing three individual defendants from the action. On June 27, 2018, the District Court granted the plaintiffs' motion for class certification. An additional motion for partial summary judgment was filed by defendants on October 5, 2018.
Notes to Consolidated Financial Statements (Unaudited), continued






Intellectual Ventures II v. SunTrust Banks, Inc. and SunTrust Bank
This action was filed incertification. On March 29, 2019, the U.S. District Court fordismissed RidgeWorth Capital Management, Inc. from the Northern District of Georgialawsuit and on July 24, 2013. Plaintiff alleged that SunTrust violates five patents held by plaintiff16, 2019, the District Court dismissed plaintiffs' claim for successor liability. On October 3, 2019, the District Court granted in connection with SunTrust’s provision of online banking servicespart and other systems and services. Plaintiff seeks damagesdenied in part defendants' motion for alleged patent infringement of an unspecified amount, as well as attorney’s fees and expenses.summary judgment on plaintiffs' remaining claims. The matter was stayedsurviving claims have been placed on October 7, 2014 pending inter partes reviews of a number of the claims asserted against SunTrust. After completion of those reviews, plaintiff dismissed its claims regarding four of the five patents on August 1, 2017.

United States Mortgage Servicing Settlement
In the second quarter of 2014, STM and the U.S., through the DOJ, HUD, and Attorneys Generalcivil trial calendar 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, provided $500 million of consumer relief, and implemented certain mortgage servicing standards. In an August 10, 2017 report, the independent Office of Mortgage Settlement Oversight ("OMSO"), appointed to review and certify compliance with the provisions of the settlement, confirmed that STM fulfilled its consumer relief commitments of the settlement. STM's mortgage servicing standard obligations concluded on March 31, 2018. On August 22, 2018, the OMSO issued its final compliance report confirming that STM completed its obligations under the settlement.

LR Trust v. SunTrust Banks, Inc., et al.
In November 2016, the Company and certain officers and directors were named as defendants in a shareholder derivative action alleging that defendants failed to take action related to activities at issue in the National Mortgage Servicing, HAMP, and FHA Originations settlements, and certain other legal
matters or to ensure that the alleged activities in each were remedied and otherwise appropriately addressed. Plaintiff sought an award in favor of the Company for the amount of damages sustained by the Company, disgorgement of alleged benefits obtained by defendants, and enhancements to corporate governance and internal controls. On September 18, 2017, the district court dismissed this matter and on October 16, 2017, plaintiff filed an appeal. A settlement of the matter was reached in which the defendants agreed to pay $585,000 and the Company committed to certain non-monetary corporate governance activities through March 2021. Preliminary approval of the settlement was granted by the district court on September 18, 2018.

early 2020.
Millennium Lender Claim Trust v. STRH and SunTrust Bank, et al.
In August 2017, the Trustee of the Millennium Lender Claim Trust filed a suit in the New York State Court against STRH, SunTrustthe Bank, and other lenders of the $1.775 B Millennium Health LLC f/k/a Millennium Laboratories LLC (“Millennium”) syndicated loan. The Trustee alleges that the loan was actually a security and that defendants misrepresented or omitted to state material facts in the offering materials and communications provided concerning the legality of Millennium's sales, marketing, and billing practices and the known risks posed by a pending government investigation into the illegality of such practices. The Trustee brings claims for violation of the California Corporate Securities Law, the Massachusetts Uniform Securities Act, the Colorado Securities Act, and the Illinois Securities Law, as well as negligent misrepresentation and seeks rescission of sales of securities as well as unspecified rescissory damages, compensatory damages, punitive damages, interest, and attorneys' fees and costs. The defendants have removed the case to the U.S. District Court for the Southern District of New York and Trustee's motion to remand the case back to state court was
denied. The defendants filed a motion to dismiss the claims on April 12, 2019.
SunTrust and BB&TMerger Litigation
Following the Merger announcement, six civil actions were filed challenging, among other things, the adequacy of the disclosures contained in the preliminary proxy statement/prospectus filed by BB&T with the SEC in connection with the proposed transaction. Five of these suits were filed by purported SunTrust stockholders against SunTrust and its Board and assert claims under Sections 14(a) and 20(a) of the Exchange Act challenging the adequacy of the public disclosures made concerning the proposed transaction. One of these five suits also asserts a claim against BB&T under Section 20(a). The sixth suit was filed by a purported BB&T stockholder against BB&T and its board of directors and asserts claims under state law challenging, among other things, the adequacy of the public disclosures made concerning the proposed transaction. Following discussions, SunTrust and BB&T reached agreement with plaintiffs to resolve these actions by making certain supplemental disclosures in the joint proxy statement/prospectus filed with the SEC in connection with the proposed transaction, which became definitive on June 19, 2019. To date, one of the suits filed by purported SunTrust stockholders has been dismissed with prejudice, and the suit filed by a purported BB&T stockholder has been discontinued with prejudice. Plaintiffs in the four remaining suits have similarly agreed to dismiss their actions in their entirety, with prejudice as to the named plaintiffs only and without prejudice to all other members of the putative class.


Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 1819 - BUSINESS SEGMENT REPORTING
The Company operates and measures business activity across two2 segments: Consumer and Wholesale, with functional activities included in Corporate Other. The Company's business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. In the second quarter of 2018, certain business banking clients within Commercial Banking were transferred from the Wholesale segment to the Consumer segment to create greater consistency in delivering tailored solutions to business banking clients through the alignment of client coverage and client service in branches. Prior period business segment results were revised to conform with this updated business segment structure. Additionally, the transfer resulted in a reallocation of goodwill from Wholesale to Consumer, as disclosed in Note 8, "Goodwill and Other Intangible Assets."
The following is a description of the segments and their primary businesses at September 30, 2018.2019.


The Consumer segment is made up of fourthree primary businesses:
•
Consumer Banking provides services to individual consumers and business banking clients through an extensive network of traditional and in-store branches, ATMs, online banking (www.suntrust.com), mobile banking, and by telephone (1-800-SUNTRUST). Financial products and services offered to consumers and small business clients include deposits and payments, loans, and various fee-based services. Consumer Banking also serves as an entry point for clients and provides services for other businesses.
•
Consumer Lending Solutions offers an array of lending products to individual consumers and business banking clients via the Company's Consumer Banking and PWM businesses, correspondent channels, the internet (www.suntrust.com and www.lightstream.com), telephone (1-800-SUNTRUST), as well as through various national
Consumer Banking provides services to individual consumers, small business, and business banking clients through an extensive network of traditional and in-store branches, ATMs, online banking (www.suntrust.com), mobile banking, and by telephone (1-800-SUNTRUST). Financial products and services offered to consumers and small business clients include deposits and payments, loans, and various fee-based services. Consumer Banking also serves as an entry point for clients and provides services for other businesses.
Consumer Lending offers an array of lending products to individual consumers and small business clients via the Company's Consumer Banking and PWM businesses, through the internet (www.suntrust.com and www.lightstream.com), as well as through various national offices and partnerships. Products offered include mortgages, 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 individual consumers and institutional clients, including loans, deposits, brokerage, professional investment advisory, 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. Investment advisory products and services are offered to clients by STAS, an SEC registered investment advisor. PWM also includes GFO Advisory Services, LLC, which provides family office solutions to clients and their families to help them manage and sustain wealth across multiple generations, including family meeting facilitation, consolidated reporting, expense management, specialty asset management, and business transition advice, as well as other wealth management disciplines.
Mortgage Banking offers residential mortgage products nationally through its retail and correspondent channels, the internet (www.suntrust.com), and by telephone (1-800-SUNTRUST). These products are either sold in the secondary market, primarilygenerally with servicing rights retained, or held in the Company’s loanLHFI portfolio. Mortgage BankingConsumer Lending Solutions also services mortgage loans for other investors in addition to loans held in the Company’s loanLHFI portfolio.
◦•The Company successfully merged its STM
PWM provides a full array of wealth management products and Bank legal entities inprofessional services to individual consumers and institutional clients, including loans, deposits, brokerage, professional investment advisory, and trust services to clients seeking active management of their financial resources. Institutional clients are served by the third quarter of 2018. SubsequentInstitutional Investment Solutions business. Online and full-service brokerage products are offered to the merger, mortgage operations have continued under the Bank’s charter. This merger will simplify the Company's organizational structureindividual clients through STIS. Investment advisory products and allow itservices are offered to more fully serve the needs of clients. There were no material financial impacts associated with the merger,clients by STAS, an SEC registered investment advisor. PWM also includes GFO Advisory Services, LLC, which provides family office solutions to clients and their families to help them manage and sustain wealth across multiple generations, including family meeting facilitation, consolidated reporting, expense management, specialty asset management, and business transition advice, as well as other than the tax impacts described in Note 12, “Income Taxes.”wealth management disciplines.
Notes to Consolidated Financial Statements (Unaudited), continued



The Wholesale segment is made up of three primary businesses and the Treasury & Payment Solutions product group:
CIB delivers comprehensive capital markets solutions, including advisory, capital raising,capital-raising, and financial risk management, with the goal of serving the needs of both public and private companies in the Wholesale 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, technology, financial services, healthcare, industrials, and media and communications. Corporate Banking serves clients across diversified industry sectors based on size, complexity, and frequency of capital markets issuance. CIB also includes the Company's Asset Finance Group, which offers a full complement of asset-based financing solutions such as securitizations, asset-based lending, equipment financing, and structured real estate arrangements.
Commercial Banking offers an array of traditional banking products, including lending, cash management, and investment banking solutions via CIB, to commercial clients (generally clients with revenues between $5 million and $250 million), including not-for-profit organizations, governmental entities, healthcare and aging services, and auto dealer financing (floor plan inventory financing). Local teams deliver these solutions along with the Company's industry expertise to commercial clients to help them achieve smart growth.
Commercial Real Estate provides a range of credit and deposit services as well as fee-based product offerings to privately held real estate companies and institutional funds operating within the office, retail, multifamily, and industrial property sectors. Commercial Real Estate also provides multi-family agency lending and servicing, advisory, and commercial mortgage brokerage services via its Agency Lending division. Additionally, Commercial Real Estate offers tailored financing and equity investment
Notes to Consolidated Financial Statements (Unaudited), continued



solutions for community development and affordable housing projects through STCC, with particular expertise in Low Income Housing Tax Credits and New Market Tax Credits. The Institutional Property Group business targets relationships with REITs, pension fund advisors, private funds, homebuilders, and insurance companies and the Regional business focuses on private real estate owners and developers through a regional delivery structure. The Investor Services Group offers loan administration, special servicing, valuation, and advisory services to third party clients.
•
Commercial Real Estate provides a range of credit and deposit services as well as fee-based product offerings on a regional delivery basis to privately held developers, operators, and investors in commercial real estate properties through its National Banking Division. Commercial Real Estate also provides multi-family agency lending and servicing, advisory, and commercial mortgage brokerage services via its Agency Lending division. Additionally, Commercial Real Estate 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. Real Estate Corporate and Investment Banking targets relationships with REITs and homebuilders, both publicly-traded and privately owned. The Investor Services Group offers loan administration, special servicing, valuation, and advisory services to third party clients.
Treasury & Payment Solutions provides business clients in the Wholesale segment 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.

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, as well as the Company's functional activities such as marketing, finance, ER,enterprise risk, legal, enterprise information services, and executive management, among others. Additionally, for all periods prior to January 1, 2018, the results of PAC were reported in the Wholesale segment and were reclassified to Corporate Other for enhanced comparability of the Wholesale segment results excluding PAC. See Note 2, "Acquisitions/Dispositions," in the Company's 2017 Annual Report on Form 10-K for additional information related to the sale of PAC in December 2017.
Because business segment results are presented based on management accounting practices, the transition to the consolidated results prepared under U.S. GAAP creates certain differences, which are reflected in reconciling items. Business segment reporting conventions are described below.
Net interest income-FTE – is reconciled from Net interest income and is grossed-up on an FTE basis to make income from tax-exempt assets comparable to other taxable
products. Segment results reflect matched maturity funds transfer pricing, which ascribes credits or charges based on the economic value or cost created by assets and liabilities of each segment. Differences between these credits and charges are captured as reconciling items.
Provision for credit losses – represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to each segment's quarterly change in the ALLL and unfunded commitments reserve balances.
Noninterest income – includes federal and state tax credits that are grossed-up on a pre-tax equivalent basis, related primarily to certain community development investments.
Provision for income taxes-FTE – is calculated using a blended income tax rate for each segment and includes reversals of the tax adjustments and credits described above. The difference between the calculated provision for income taxes at the segment level and the consolidated provision for income taxes is reported as reconciling items.
•
Net interest income-FTE – is reconciled from Net interest income and is grossed-up on an FTE basis to make income from tax-exempt assets comparable to other taxable products. Segment results reflect matched maturity funds transfer pricing, which ascribes credits or charges based on the economic value or cost created by assets and liabilities of each segment. Differences between these credits and charges are captured as reconciling items.
•
Provision for credit losses – represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to each segment's quarterly change in the ALLL and unfunded commitments reserve balances.
•
Noninterest income – includes federal and state tax credits that are grossed-up on a pre-tax equivalent basis, related primarily to certain community development investments.
•
Provision for income taxes-FTE – is calculated using a blended income tax rate for each segment and includes reversals of the tax adjustments and credits described above. The difference between the calculated provision for income taxes at the segment level and the consolidated provision for income taxes is reported as reconciling items.
The segment’s financial performance is comprised of direct financial results and allocations for various corporate functions that provide management an enhanced view of the segment’s financial performance. Internal allocations include the following:
Operational costs – expenses are charged to segments based on an activity-based costing process, which also allocates residual expenses to the segments. Generally, recoveries of these costs are reported in Corporate Other.
Support and overhead costs – expenses not directly attributable to a specific segment are allocated based on various drivers (number of equivalent employees, number of PCs/laptops, net revenue, etc.). Recoveries for these allocations are reported in Corporate Other.
•
Operational costs – expenses are charged to segments based on an activity-based costing process, which also allocates residual expenses to the segments. Generally, recoveries of these costs are reported in Corporate Other.
•
Support and overhead costs – expenses not directly attributable to a specific segment are allocated based on various drivers (number of equivalent employees, number of PCs/laptops, net revenue, etc.). Recoveries for these allocations are reported in Corporate Other.
The application and development of management reporting methodologies is an active process and undergoes 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. If significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is revised, when practicable.

Notes to Consolidated Financial Statements (Unaudited), continued







 Three Months Ended September 30, 2019
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$80,414
 
$77,107
 
$91
 
$—
 
$157,612
Average consumer and commercial deposits114,132
 45,817
 2,779
 (195) 162,533
Average total assets90,329
 93,584
 38,557
 2,277
 224,747
Average total liabilities114,989
 52,471
 31,126
 (65) 198,521
Average total equity—
 —
 —
 26,226
 26,226
Statements of Income:         
Net interest income
$1,068
 
$529
 
($79) 
($8) 
$1,510
FTE adjustment—
 21
 —
 1
 22
Net interest income-FTE 1
1,068
 550
 (79) (7) 1,532
Provision for credit losses 2
77
 56
 —
 (1) 132
Net interest income after provision for credit losses-FTE991
 494
 (79) (6) 1,400
Total noninterest income479
 368
 34
 (38) 843
Total noninterest expense1,025
 457
 (5) (3) 1,474
Income before provision for income taxes-FTE445
 405
 (40) (41) 769
Provision for income taxes-FTE 3
102
 96
 (10) (44) 144
Net income including income attributable to noncontrolling interest343
 309
 (30) 3
 625
Less: Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$343
 
$309
 
($32) 
$3
 
$623

 Three Months Ended September 30, 2018
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$75,414
 
$70,485
 
$96
 
$—
 
$145,995
Average consumer and commercial deposits111,930
 47,773
 212
 (567) 159,348
Average total assets86,112
 84,766
 35,612
 905
 207,395
Average total liabilities112,879
 54,284
 16,481
 (524) 183,120
Average total equity—
 —
 —
 24,275
 24,275
Statements of Income:         
Net interest income
$1,079
 
$550
 
($49) 
($68) 
$1,512
FTE adjustment—
 22
 1
 (1) 22
Net interest income-FTE 1
1,079
 572
 (48) (69) 1,534
Provision for credit losses 2
36
 25
 —
 —
 61
Net interest income after provision for credit losses-FTE1,043
 547
 (48) (69) 1,473
Total noninterest income445
 373
 10
 (46) 782
Total noninterest expense994
 433
 (38) (5) 1,384
Income before provision for income taxes-FTE494
 487
 —
 (110) 871
Provision for income taxes-FTE 3
113
 115
 (52) (59) 117
Net income including income attributable to noncontrolling interest381
 372
 52
 (51) 754
Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$381
 
$372
 
$50
 
($51) 
$752
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.



 Three Months Ended September 30, 2018
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$75,234
 
$70,669
 
$93
 
($1) 
$145,995
Average consumer and commercial deposits111,950
 44,702
 3,264
 (568) 159,348
Average total assets85,933
 84,909
 35,647
 906
 207,395
Average total liabilities112,898
 51,215
 19,531
 (524) 183,120
Average total equity—
 —
 —
 24,275
 24,275
Statements of Income:         
Net interest income
$1,056
 
$539
 
($46) 
($37) 
$1,512
FTE adjustment—
 22
 1
 (1) 22
Net interest income-FTE 1
1,056
 561
 (45) (38) 1,534
Provision for credit losses 2
36
 24
 —
 1
 61
Net interest income after provision for credit losses-FTE1,020
 537
 (45) (39) 1,473
Total noninterest income444
 368
 16
 (46) 782
Total noninterest expense991
 432
 (35) (4) 1,384
Income before provision for income taxes-FTE473
 473
 6
 (81) 871
Provision for income taxes-FTE 3
108
 112
 (51) (52) 117
Net income including income attributable to noncontrolling interest365
 361
 57
 (29) 754
Less: Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$365
 
$361
 
$55
 
($29) 
$752
 
 Three Months Ended September 30, 2017 1, 2
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$74,742
 
$68,568
 
$1,399
 
($3) 
$144,706
Average consumer and commercial deposits109,774
 49,515
 189
 (59) 159,419
Average total assets84,345
 82,573
 36,286
 2,534
 205,738
Average total liabilities110,713
 55,054
 15,406
 (8) 181,165
Average total equity—
 —
 —
 24,573
 24,573
Statements of Income:         
Net interest income
$999
 
$511
 
($5) 
($75) 
$1,430
FTE adjustment—
 36
 1
 —
 37
Net interest income-FTE 3
999
 547
 (4) (75) 1,467
Provision/(benefit) for credit losses 4
140
 (19) —
 (1) 120
Net interest income after provision/(benefit) for credit losses-FTE859
 566
 (4) (74) 1,347
Total noninterest income482
 397
 19
 (52) 846
Total noninterest expense927
 421
 48
 (5) 1,391
Income before provision for income taxes-FTE414
 542
 (33) (121) 802
Provision for income taxes-FTE 5
150
 201
 (18) (71) 262
Net income including income attributable to noncontrolling interest264
 341
 (15) (50) 540
Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$264
 
$341
 
($17) 
($50) 
$538

1 
During the second quarter of 2018, certain of the Company's business banking clients were transferred from the Wholesale business segment to the Consumer business segment. For all periods prior to the second quarter of 2018, the corresponding financial results have been transferred to the Consumer business segment for comparability purposes.
2
During the fourth quarter of 2017, the Company sold PAC, the results of which were previously reported within the Wholesale business segment. For all periods prior to January 1, 2018, PAC's financial results, including the gain on sale, have been transferred to Corporate Other for enhanced comparability of the Wholesale business segment excluding PAC.
3
Presented on a matched maturity funds transfer price basis for the segments.
4
Provision/(benefit) for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision/(benefit) attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
5
Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.

Notes to Consolidated Financial Statements (Unaudited), continued



 Nine Months Ended September 30, 2018
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$75,122
 
$69,155
 
$93
 
($2) 
$144,368
Average consumer and commercial deposits111,025
 48,259
 205
 (330) 159,159
Average total assets85,124
 83,001
 35,563
 1,682
 205,370
Average total liabilities111,928
 54,383
 15,038
 (303) 181,046
Average total equity—
 —
 —
 24,324
 24,324
Statements of Income:         
Net interest income
$3,144
 
$1,605
 
($120) 
($189) 
$4,440
FTE adjustment—
 63
 2
 —
 65
Net interest income-FTE 1
3,144
 1,668
 (118) (189) 4,505
Provision for credit losses 2
101
 19
 —
 1
 121
Net interest income after provision for credit losses-FTE3,043
 1,649
 (118) (190) 4,384
Total noninterest income1,349
 1,124
 50
 (115) 2,408
Total noninterest expense2,995
 1,307
 (95) (16) 4,191
Income before provision for income taxes-FTE1,397
 1,466
 27
 (289) 2,601
Provision for income taxes-FTE 3
316
 346
 (29) (156) 477
Net income including income attributable to noncontrolling interest1,081
 1,120
 56
 (133) 2,124
Less: Net income attributable to noncontrolling interest—
 —
 7
 —
 7
Net income
$1,081
 
$1,120
 
$49
 
($133) 
$2,117
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.


 
 Nine Months Ended September 30, 2017 1, 2
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$73,613
 
$69,303
 
$1,362
 
($2) 
$144,276
Average consumer and commercial deposits109,301
 49,724
 149
 (29) 159,145
Average total assets83,310
 82,916
 35,903
 2,704
 204,833
Average total liabilities110,264
 55,322
 15,110
 6
 180,702
Average total equity—
 —
 —
 24,131
 24,131
Statements of Income:         
Net interest income
$2,915
 
$1,490
 
$29
 
($235) 
$4,199
FTE adjustment—
 105
 2
 —
 107
Net interest income-FTE 3
2,915
 1,595
 31
 (235) 4,306
Provision for credit losses 4
310
 19
 —
 1
 330
Net interest income after provision for credit losses-FTE2,605
 1,576
 31
 (236) 3,976
Total noninterest income1,427
 1,169
 59
 (135) 2,520
Total noninterest expense2,939
 1,284
 34
 (14) 4,243
Income before provision for income taxes-FTE1,093
 1,461
 56
 (357) 2,253
Provision for income taxes-FTE 5
395
 544
 (11) (215) 713
Net income including income attributable to noncontrolling interest698
 917
 67
 (142) 1,540
Less: Net income attributable to noncontrolling interest—
 —
 7
 —
 7
Net income
$698
 
$917
 
$60
 
($142) 
$1,533
1
During the second quarter of 2018, certain of the Company's business banking clients were transferred from the Wholesale business segment to the Consumer business segment. For all periods prior to the second quarter of 2018, the corresponding financial results have been transferred to the Consumer business segment for comparability purposes.
2 
During the fourth quarter of 2017, the Company sold PAC, the results of which were previously reported within the Wholesale business segment. For all periods prior to January 1, 2018, PAC's financial results, including the gain on sale, have been transferred to Corporate Other for enhanced comparability of the Wholesale business segment excluding PAC.
3
Presented on a matched maturity funds transfer price basis for the segments.
4
Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
53 
Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.

Notes to Consolidated Financial Statements (Unaudited), continued







 Nine Months Ended September 30, 2019
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$79,473
 
$76,481
 
$90
 
$—
 
$156,044
Average consumer and commercial deposits113,067
 44,777
 3,224
 (289) 160,779
Average total assets89,026
 92,046
 38,189
 1,758
 221,019
Average total liabilities113,979
 51,441
 30,465
 (173) 195,712
Average total equity—
 —
 —
 25,307
 25,307
Statements of Income:         
Net interest income
$3,222
 
$1,607
 
($222) 
($18) 
$4,589
FTE adjustment—
 65
 1
 —
 66
Net interest income-FTE 1
3,222
 1,672
 (221) (18) 4,655
Provision for credit losses 2
204
 208
 —
 —
 412
Net interest income after provision for credit losses-FTE3,018
 1,464
 (221) (18) 4,243
Total noninterest income1,415
 1,137
 230
 (129) 2,653
Total noninterest expense3,029
 1,382
 207
 (16) 4,602
Income before provision for income taxes-FTE1,404
 1,219
 (198) (131) 2,294
Provision for income taxes-FTE 3
321
 289
 (81) (133) 396
Net income including income attributable to noncontrolling interest1,083
 930
 (117) 2
 1,898
Less: Net income attributable to noncontrolling interest—
 —
 7
 —
 7
Net income
$1,083
 
$930
 
($124) 
$2
 
$1,891
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.

 Nine Months Ended September 30, 2018
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$74,907
 
$69,375
 
$89
 
($3) 
$144,368
Average consumer and commercial deposits111,008
 45,247
 3,234
 (330) 159,159
Average total assets84,909
 83,193
 35,585
 1,683
 205,370
Average total liabilities111,909
 51,375
 18,065
 (303) 181,046
Average total equity—
 —
 —
 24,324
 24,324
Statements of Income:         
Net interest income
$3,087
 
$1,580
 
($111) 
($116) 
$4,440
FTE adjustment—
 63
 2
 —
 65
Net interest income-FTE 1
3,087
 1,643
 (109) (116) 4,505
Provision for credit losses 2
102
 19
 —
 —
 121
Net interest income after provision for credit losses-FTE2,985
 1,624
 (109) (116) 4,384
Total noninterest income1,347
 1,096
 81
 (116) 2,408
Total noninterest expense2,984
 1,307
 (83) (17) 4,191
Income before provision for income taxes-FTE1,348
 1,413
 55
 (215) 2,601
Provision for income taxes-FTE 3
305
 334
 (23) (139) 477
Net income including income attributable to noncontrolling interest1,043
 1,079
 78
 (76) 2,124
Less: Net income attributable to noncontrolling interest—
 —
 7
 —
 7
Net income
$1,043
 
$1,079
 
$71
 
($76) 
$2,117
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.

Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 1920 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the components of AOCI, net of tax, are presented in the following table:
(Dollars in millions)Securities AFS Derivative Instruments Brokered Time Deposits Long-Term Debt Employee Benefit Plans Total
Three Months Ended September 30, 2019           
Balance, beginning of period
$437
 
($148) 
$—
 
($1) 
($689) 
($401)
Net unrealized gains arising during the period169
 47
 —
 —
 —
 216
Amounts reclassified to net income(3) 35
 —
 —
 4
 36
Other comprehensive income, net of tax166
 82
 —
 —
 4
 252
Balance, end of period
$603
 
($66) 
$—
 
($1) 
($685) 
($149)
            
Three Months Ended September 30, 2018           
Balance, beginning of period
($519) 
($459) 
($1) 
($2) 
($698) 
($1,679)
Net unrealized losses arising during the period(178) (37) —
 —
 —
 (215)
Amounts reclassified to net income—
 17
 —
 —
 3
 20
Other comprehensive (loss)/income, net of tax(178) (20) —
 —
 3
 (195)
Balance, end of period
($697) 
($479) 
($1) 
($2) 
($695) 
($1,874)
            
Nine Months Ended September 30, 2019           
Balance, beginning of period
($357) 
($368) 
$1
 
($1) 
($695) 
($1,420)
Net unrealized gains/(losses) arising during the period931
 203
 (1) —
 —
 1,133
Amounts reclassified to net income29
 99
 —
 —
 10
 138
Other comprehensive income/(loss), net of tax960
 302
 (1) —
 10
 1,271
Balance, end of period
$603
 
($66) 
$—
 
($1) 
($685) 
($149)
            
Nine Months Ended September 30, 2018           
Balance, beginning of period
($1) 
($244) 
($1) 
($4) 
($570)

($820)
Cumulative effect adjustment related to ASU adoption 1
30
 (56) —
 (1) (127) (154)
Net unrealized (losses)/gains arising during the period(725) (209) —
 3
 (7) (938)
Amounts reclassified to net income(1) 30
 —
 —
 9
 38
Other comprehensive (loss)/income, net of tax(726) (179) —
 3
 2
 (900)
Balance, end of period
($697) 
($479) 
($1) 
($2) 
($695) 
($1,874)

1
Related to the Company’s early adoption of ASU 2018-02 on January 1, 2018. See Note 1, “Significant Accounting Policies,” to the Company's 2018 Annual Report on Form 10-K for additional information.
(Dollars in millions)Securities AFS Derivative Instruments Brokered Time Deposits Long-Term Debt Employee Benefit Plans Total
Three Months Ended September 30, 2018           
Balance, beginning of period
($519) 
($459) 
($1) 
($2) 
($698) 
($1,679)
Net unrealized losses arising during the period(178) (37) —
 —
 —
 (215)
Amounts reclassified to net income—
 17
 —
 —
 3
 20
Other comprehensive (loss)/income, net of tax(178) (20) —
 —
 3
 (195)
Balance, end of period
($697) 
($479) 
($1) 
($2) 
($695) 
($1,874)
            
Three Months Ended September 30, 2017           
Balance, beginning of period
($5) 
($168) 
($1) 
($7) 
($596) 
($777)
Net unrealized gains arising during the period40
 6
 —
 1
 —
 47
Amounts reclassified to net income—
 (8) —
 —
 3
 (5)
Other comprehensive income/(loss), net of tax40
 (2) —
 1
 3
 42
Balance, end of period
$35
 
($170) 
($1) 
($6) 
($593) 
($735)
            
Nine Months Ended September 30, 2018           
Balance, beginning of period
($1) 
($244) 
($1) 
($4) 
($570) 
($820)
Cumulative effect adjustment related to ASU adoption 1
30
 (56) —
 (1) (127) (154)
Net unrealized (losses)/gains arising during the period(725) (209) —
 3
 (7) (938)
Amounts reclassified to net income(1) 30
 —
 —
 9
 38
Other comprehensive (loss)/income, net of tax(726) (179) —
 3
 2
 (900)
Balance, end of period
($697) 
($479) 
($1) 
($2) 
($695) 
($1,874)
            
Nine Months Ended September 30, 2017           
Balance, beginning of period
($62) 
($157) 
($1) 
($7) 
($594)

($821)
Net unrealized gains/(losses) arising during the period98
 38
 —
 1
 (9) 128
Amounts reclassified to net income(1) (51) —
 —
 10
 (42)
Other comprehensive income/(loss), net of tax97
 (13) —
 1
 1
 86
Balance, end of period
$35
 
($170) 
($1) 
($6) 
($593) 
($735)
1 Related to the Company's adoption of ASU 2018-02 on January 1, 2018. See Note 1, "Significant Accounting Policies," for additional information.



Notes to Consolidated Financial Statements (Unaudited), continued






Reclassifications from AOCI to Net income, and the related tax effects, are presented in the following table:
(Dollars in millions) Three Months Ended September 30 Nine Months Ended September 30 Impacted Line Item in the Consolidated Statements of Income
Details About AOCI Components 2019 2018 2019 2018 
Securities AFS:          
Net realized (gains)/losses on securities AFS 
($4) 
$—
 
$38
 
($1) Net securities gains/(losses)
Tax effect 1
 —
 (9) —
 Provision for income taxes
  (3) —
 29
 (1)  
Derivative Instruments:          
Net realized losses on cash flow hedges 46
 22
 129
 39
 Interest and fees on loans held for investment
Tax effect (11) (5) (30) (9) Provision for income taxes
  35
 17
 99
 30
  
Employee Benefit Plans:          
Amortization of prior service credit (1) (2) (4) (5) Employee benefits
Amortization of actuarial loss 6
 6
 18
 17
 Employee benefits
  5
 4
 14
 12
  
Tax effect (1) (1) (4) (3) Provision for income taxes
  4
 3
 10
 9
  
           
Total reclassifications from AOCI to net income 
$36
 
$20
 
$138
 
$38
  

(Dollars in millions) Three Months Ended September 30 Nine Months Ended September 30 Impacted Line Item in the Consolidated Statements of Income
Details About AOCI Components 2018 2017 2018 2017 
Securities AFS:          
Net realized gains on securities AFS 
$—
 
$—
 
($1) 
($1) Net securities gains
Tax effect —
 —
 —
 —
 Provision for income taxes
  —
 —
 (1) (1)  
Derivative Instruments:          
Net realized losses/(gains) on cash flow hedges 22
 (13) 39
 (81) Interest and fees on loans held for investment
Tax effect (5) 5
 (9) 30
 Provision for income taxes
  17
 (8) 30
 (51)  
           
Employee Benefit Plans:          
Amortization of prior service credit (2) (1) (5) (4) Employee benefits
Amortization of actuarial loss 6
 6
 17
 18
 Employee benefits
  4
 5
 12
 14
  
Tax effect (1) (2) (3) (4) Provision for income taxes
  3
 3
 9
 10
  
           
Total reclassifications from AOCI to net income 
$20
 
($5) 
$38
 
($42)  



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


Important Cautionary Statement About Forward-Looking Statements
This Quarterly Report contains forward-looking statements. Statements regarding: (i) 2018 on track to be the seventh consecutive year of growth in EPS, improved efficiency, and higher capital returns; (ii) future levels of net interest margin, noninterest income, the tangible efficiency ratio, share repurchases, the net charge-offs to total average LHFI ratio, the ALLL to period-end LHFI ratio, the NPLs to period-end LHFI ratio, and the provision for loan losses; (iii) the pace of expansion in our net interest margin; (iv) the timing of our tangible efficiency ratio goals; (v) continued migration towards higher cost deposit products; (vi) future trends or increases in deposit costs; (vii) our access to alternative funding sources; (viii) potential acceleration of share repurchases; (ix) the possible purchase of additional, or termination of existing, interest rate swaps; (x) the amount and timing of pre-tax deferred losses that will be reclassified from AOCI into net income related to the termination and settlement of the NCF pension plan; (xi) growth opportunities in our Wholesale segment; (xii) future changes in the size and composition of the securities AFS portfolio; (xiii) our flexibility to use our securities AFS portfolio to manage our interest rate risk profile; (xiv) the estimated impact of proposed regulatory capital rules and changes in banking laws, rules, and regulations; (xv) the impact of a gradual shift in interest rates on our MVE; and (xvi) future credit ratings and outlook, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “target,” “forecast,” “future,” “strategy,” “goal,” “initiative,” “plan,” “opportunity,” “potentially,” “probably,” “project,” “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,” in our 2017 Annual Report on Form 10-K and in Part II, Item 1A., “Risk Factors,” in our Quarterly Report on Form 10-Q for the period ended March 31, 2018, and also include risks discussed in this Quarterly Report and in other periodic 2018 reports that we filed with the SEC. Such factors include: current 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 stringent capital adequacy and liquidity requirements and our failure to meet these would adversely affect our financial condition; the monetary and
fiscal policies of the federal government and its agencies could have a 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; changes in market interest rates or capital markets could adversely affect our revenue and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; interest rates on our outstanding financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses, and the value of those financial instruments; our earnings may be affected by volatility in mortgage production and servicing revenues, and by changes in carrying values of our servicing assets and mortgages held for sale due to changes in interest rates; disruptions in our ability to access global capital markets may adversely affect our capital resources and liquidity; we are subject to credit risk; 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; we rely on the mortgage secondary market and GSEs for some of our liquidity; loss of customer deposits could increase our funding costs; any reduction in our credit rating could increase the cost of our funding from the capital markets; we are subject to 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 may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, or borrower fraud, and this could harm our liquidity, results of operations, and financial condition; we face risks as a servicer of loans; 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 may face more intense scrutiny of our sales, training, and incentive compensation practices; we rely on other companies to provide key components of our business infrastructure; competition in the financial services industry is intense and we could lose business or suffer margin declines as a result; we continually encounter technological change and must effectively develop and implement new technology; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; 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 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; our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business and disrupt business continuity; a disruption, breach, or failure in the operational systems and infrastructure of our third party vendors and other service providers, including as a result of cyber-attacks, could adversely affect our business; natural disasters and other catastrophic events could have a material adverse impact on our operations
or our financial condition and results; 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 operation, and they require management to make estimates about matters that are uncertain; depressed market values for our stock and adverse economic conditions sustained over a period of time may require us to write down all or some portion of our goodwill; our stock price can be volatile; we might not pay dividends on our stock; our ability to receive dividends from our subsidiaries or other investments could affect our liquidity and ability to pay dividends; and certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect.


INTRODUCTION
We are a leading provider of financial services, with our headquarters located in Atlanta, Georgia. We are an organization driven by our Company purpose of Lighting the Way to Financial Well-Being — helping instill a sense of confidence in the financial circumstances of clients, communities, teammates, and shareholdersowners is at the center of everything we do. Our principal subsidiary, SunTrust Bank, offers a full line of financial services for consumers, businesses, corporations, institutions, and not-for-profit entities, both through its branches (located primarily in Florida, Georgia, Virginia, North Carolina, Tennessee, Maryland, South Carolina, and the District of Columbia) and through other digital and national delivery channels. In addition to deposit, credit, mortgage banking, and trust and investment services offered by the Bank, our other subsidiaries provide capital markets, securities brokerage, investment banking, and wealth management services. We operate two business segments: Consumer and Wholesale, with functional activities included in Corporate Other. See Note 18, "Business19, “Business Segment Reporting,"” to the Consolidated Financial Statements in this Form 10-Q for a description of our business segments.
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 accompanying Notes to the Consolidated Financial Statements in Part I, Item 1
of this Form 10-Q, as well as with the other information contained in this document and in our 20172018 Annual Report on Form 10-K. When we refer to “SunTrust,” “the Company,” “we,” “our,” and “us” in this report, we mean SunTrust Banks, Inc. and its consolidated subsidiaries.
In this MD&A, consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax exempttax-exempt income on a tax equivalent basis, we present net interest income, net interest margin, total revenue, and efficiency ratios on an FTE basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 21% for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe the FTE basis is the preferred industry measurement basis for net interest income, net interest margin, total revenue, and efficiency ratios, and that it enhances comparability of net interest income and total revenue 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 20.17.



EXECUTIVE OVERVIEW
Financial Performance
AidedWe delivered solid core business results in the third quarter of 2019, marked by a favorable operating environment, we delivered 47% year-over-year diluted EPS growth, reflecting ongoing efficiency improvements, solidcontinued loan growth, higher capital return,improved deposit growth, diverse fee income, and continued strong credit quality. Our sustained performanceDiluted EPS for the third quarter of 2019 was $1.34, which included $(0.06) per share in these areas and our momentum going intoMerger-related impacts. This compares to $1.56 per average common diluted share for the fourththird quarter indicate that we are on track to realize our seventh consecutive year of growth2018, which included $0.14 per share of net discrete income tax benefits. See additional discussion regarding Merger-related impacts in EPS, improved efficiency, and higher capital returns.the “Noninterest Expense” section of this MD&A.
Total revenue for the third quarter of 2018 was down 1% sequentially and stable year-over-year, as lower noninterest income was largely offset by higher net interest income.
Net interest income was $1.5 billion for the third quarter of 2018, an increase of 2% sequentially and 5% relative to the third quarter of 2017, driven by growth in average earning assets relative to both comparative periods and net interest margin expansion year-over-year. Our net interest margin decreased one basis point sequentially and2019 increased 12 basis points compared to the third quarter of 2017. The year-over-year increase was driven primarily by higher earning asset yields arising from higher benchmark interest rates, favorable mix shift in the LHFI and securities AFS portfolios, and lower premium amortization expense, offset partially by higher rates paid on average interest-bearing liabilities. Looking to the fourth quarter of 2018, we expect net interest margin to increase between zero and two basis points3% compared to the third quarter of 2018, largelydriven by higher noninterest income. Net interest income was stable relative to the third quarter of 2018 as a result21 basis point decline in the net interest margin was offset by 8% growth in average performing LHFI and 2% growth in average client deposits. The year-over-year decrease in net interest margin was driven primarily by higher funding costs resulting from higher rates paid on deposits and higher levels of wholesale funding needed to support earning asset growth. On a standalone basis, we expect net interest margin for the fourth quarter of 2019 to decline by five to eight basis points relative to the third quarter, given the impacts of the September 2018and October Fed Funds rate increase.reductions and our net exposure to interest rates. See additional discussion related to revenue, noninterest income, and net interest income and margin in the "Noninterest Income" and "Net“Net Interest Income/Margin" sectionsMargin” section of this MD&A. Also in this MD&A, see Table 12, "“Net Interest Income Asset Sensitivity,"” for an analysis of potential changes in net interest income due to instantaneous moves in benchmark interest rates.
Noninterest income decreased 6% sequentially and 8% compared to the third quarter of 2017. The sequential decrease was due primarily to lower capital markets-related income, other noninterest income, and client transaction-related fees, which was offset partially by higher commercial real estate related income and wealth management-related income. Year-over-year, the decrease in noninterest income was driven by lower mortgage and capital markets-related income as well as lower client transaction-related fees. We expect noninterest income in the fourth quarter of 2018 to increase relative to the third quarter of 2018, given our solid capital markets pipelines and seasonally higher fee income in certain categories, including mortgage servicing and commercial real estate related income.
Noninterest expense decreased $6 million compared to the prior quarter and $7increased $61 million, or 1%8%, compared to the third quarter of 2017.2018 and increased $245 million, or 10%, compared to the nine months ended September 30, 2018. Excluding the $5 million and $205 million insurance settlement benefits related to financial crisis-era related claims recognized in the current and prior quarters, respectively, noninterest income increased $56 million, or 7%, compared to the third quarter of 2018 and increased $35 million, or 1%, compared to the nine months ended September 30, 2018. The sequential decreaseincrease compared to the third quarter of 2018 was driven largely by increases across most categories, most notably a $23 million increase in mortgage-related income. The increase compared to the nine months ended September 30, 2018 was driven primarily by higher commercial real estate-related and mortgage-related income, offset partially by net securities losses and lower employee compensationcapital markets-related income. See additional discussion related to revenue and benefits, othernoninterest income in the “Noninterest Income” section of this MD&A.
Noninterest expense increased $90 million, or 7%, compared to the third quarter of 2018 and increased $411 million, or 10%, compared to the nine months ended September 30, 2018. Excluding the Merger-related impacts of $33 million in the current quarter and $92 million in the first nine months of 2019 as well as the $205 million charitable contribution to the SunTrust Foundation in the prior quarter, noninterest expense increased $57 million, or 4%, compared to the third quarter of

2018 and increased $114 million, or 3%, compared to the nine months ended September 30, 2018. The 4% increase compared to the third quarter of 2018 was driven by higher personnel expenses, net occupancy expense, and equipment expense, offset partiallyongoing investments in technology. The 3% increase compared to the nine months ended September 30, 2018 was driven by higher outside processing and software, personnel expenses, net occupancy expense, and operating losses. For additional discussion of noninterest expense, including further information regarding Merger-related costs and marketing and customer development costs. The decrease compared toimpacts, see the third quarter of 2017 was due to reductions in most expense categories, offset largely by higher outside processing and software expense in the current quarter as well as the favorable resolution of several legal matters in the third quarter of 2017.
Separately, in accordance with our previously announced decision to terminate a pension plan that we acquired as part of the NCF acquisition in 2004, we expect to reclassify approximately $61 million of pre-tax deferred losses from AOCI into net income upon settlement of the pension plan in the fourth quarter of 2018. See additional discussion related to noninterest expense in the "Noninterest Expense"“Noninterest Expense” section of this MD&A.
For the third quarter of 2018,2019, our efficiency and tangible efficiency ratios were 62.1% and 61.2%, compared to 59.8% and 58.9%, respectively, which represent slight increases compared to the prior quarter ratios of 59.4% and 58.7%, and improvements compared to for the third quarter of 20172018, respectively. Our current year efficiency ratios were unfavorably impacted by the Merger-related impacts, but were favorably impacted by the insurance settlement benefits recognized during the current quarter; when excluding the impact of 60.1% and 59.2%, respectively. Given the progress we have made, we are on track to achievethese items, our full-yearadjusted tangible efficiency ratio goalwas 59.9% for the third quarter of below 60% by 2019. We remain focused on continuinganticipate realizing significant synergies and scale through the Merger, which will afford us the opportunity to achieve peer-leading efficiency and create incremental capacity to invest in technology and talent given the compelling opportunities we have to invest in growth, which we believe will create the most long-term value for our clients and our shareholders.investments. See Table 20, "Selected17, “Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures,"” in this MD&A for additional information regarding, and a reconciliationreconciliations of, our tangible and adjusted tangible efficiency ratio.ratios.
OverallOur asset quality wasmetrics were strong during the third quarter and first nine months of 2018,2019, evidenced by our 0.24% annualized0.28% net charge-offs to total average LHFI ratio on an annualized basis and 0.47% NPL0.38% NPLs to period-end LHFI ratio. In addition, our ALLL to period-end LHFI ratio (excluding loans measured at fair value) decreased four basis points sequentially due primarily to improved economic and credit conditions. These low levels reflect the relative strength across our LHFI portfolio, particularly in C&I, CRE, and residential mortgages, thoughportfolio. On a standalone basis, we recognize that there could be variability moving forward. Westill expect to operate within an annualizedour full year 2019 net charge-offs to total average LHFI ratio ofto be between 25 and 30 basis points forpoints. However, we believe this ratio will have an upward trajectory over time, given the fourth quarterstrong performance we have experienced in recent years combined with increased levels of 2018. Additionally, we expect the ALLL to period-end LHFI ratio to stabilize, which would result in a provision for loan losses that modestly exceeds net charge-offs, given loan growth.macroeconomic, political, and global uncertainty. See additional discussion of our credit and asset quality, in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A.
Average LHFI grew 1% both sequentially and year-over-year as improved lending trends continued. These increases were driven largelyfor the third quarter of 2019 totaled $157.6 billion, up $11.6 billion, or 8%, compared to the third quarter of 2018, led by growth in C&I, CRE, consumer direct and nonguaranteedindirect loans, and residential mortgages, offset partially by a declinedeclines in commercial construction loans and residential home equity products. See additional loan discussions in the “Loans,” “Nonperforming Assets,” and "Net“Net Interest Income/Margin"Margin” sections of this MD&A.
Average consumer and commercial deposits remained stable sequentiallyincreased 2% compared to the third quarter of 2018 as growth in NOW accounts and year-over-year. Our clients continue to migrate from lower-costtime deposits to CDs,were offset, in large part, due to our targeted strategy that allows us to retain our existing depositorsby declines in noninterest-bearing deposits and capture newmoney market share, while also managing our asset sensitivity profile. We believe this is an effective strategy and we expect this migration towards CDs to continue as interest rates rise. Rates paid on ouraccounts. The increase in average interest-bearing consumer and commercial deposits reflects improved production from our Consumer segment, where we are benefiting from increased compared tomomentum associated with new checking and savings products that were introduced at the prior quarterend of 2018, as well as our targeted marketing and the third quarter of 2017 in response to rising benchmark interest rates, the move towards higher-cost deposits, and the pickup in
pricing strategies. We also benefited from targeted growth with certain corporate clients through successes achieved by our corporate liquidity product specialist team. See additional

lending activity. We expect deposit costs to continue to trend upwards, with the trajectory influenced by the absolute level of interest rates, the pace of interest rate increases, and loan growth. We remain focused on maximizing the value proposition of deposits for our clients, outside of rate paid. Our access to alternative funding is strong should deposit growth prove to be slower than expected. See additional discussion regarding average deposits in the "Net“Net Interest Income/Margin"Margin” section of this MD&A.
Capital and Liquidity
Our capital ratios continue to be well above regulatory requirements. The CET1 ratio decreased slightly to 9.60%was 9.33% at September 30, 2018,2019, a 1412 basis point declineincrease compared to December 31, 2017,2018, driven primarily by growth in risk weighted assets,retained earnings, offset partially by an increase in retained earnings. OurRWA. The Tier 1 capital and Total capital ratios declinedalso increased compared to December 31, 2017,2018, due to the impactsame factors impacting our CET1 ratio. Going forward, we continue to expect our capital ratios to trend upward given our suspension of our redemptionshare repurchases in anticipation of all outstanding shares of Series E Preferred Stockthe Merger. This will result in a share count that is relatively stable until the first quarter of 2018. Merger closes.
Our book value and tangible book value per common share both remained relatively stableincreased by 11% and 14%, respectively, compared to December 31, 2017, as higher accumulated other comprehensive loss was offset largely2018, driven primarily by growth in retained earnings.earnings and a decrease in accumulated other comprehensive loss. See additional details related to our capital in theNote 15, “Capital, Resources” section of this MD&A and in Note 13, "Capital,"” to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.10-K and in the “Capital Resources” section of this MD&A. Also see Table 20, "Selected17, “Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures,"” in this MD&A for additional information regarding, and a reconciliation of, tangible book value per common share.
In June 2018, we announced capital plans in response toDuring the Federal Reserve's review of and non-objection to our 2018 capital plan submitted in conjunction with the 2018 CCAR. Accordingly, during the thirdfirst quarter of 2018,2019, we increased our quarterly common stock dividend by 25% to $0.50 per common share. We also repurchased $500$250 million of our outstanding common stock duringunder the 2018 capital plan pursuant to an SEC Rule 10b5-1 repurchase plan entered into on November 6, 2018. During the second quarter of 2019, we had $500 million of unused common stock repurchase capacity remaining under the 2018 capital plan, which effectively expired on June 30, 2019 as we did not utilize this remaining share repurchase capacity in view of the Merger. Additionally, we increased our common stock dividend to $0.56 per common share in the third quarter of 2018 in conjunction with2019, up 12% compared to both the 2018 capital plan. At September 30, 2018, we had $1.5 billion of remaining common stock repurchase capacity available under this plan. We will repurchase a minimum of $500 million of our outstanding common stock inprior quarter and the fourththird quarter of 2018. SeeFor additional details related to our capital actions and share repurchases, inrefer to the “Capital Resources” section of this MD&A and in Part II, Item 2 of this Form 10-Q.
Merger
On February 7, 2019, we announced that our Board approved a definitive agreement to combine with BB&T in an all-stock Merger. Under the terms of the Agreement and Plan of Merger (the “Merger Agreement”), our shareholders will have the right to receive 1.295 shares of BB&T common stock for each share of our common stock. A new corporate headquarters for the combined company has been announced and will be established in Charlotte, North Carolina. It will operate under the new name and brand, Truist Financial Corporation (“Truist”), while the combined company's board of directors and executive management team will be evenly split between SunTrust and BB&T. The Merger is expected to expand capabilities and accelerate capacity to invest in transformational technologies for clients and communities, combine complementary business models to create a diverse and comprehensive business mix with strong market positions, and deliver organizational and other Merger-related synergies, while also being accretive to the combined company's profitability profile and increasing the

service and benefits to clients and communities. Our Merger with BB&T is expected to close in the fourth quarter of 2019, subject to satisfaction of customary closing conditions, including receipt of remaining regulatory approvals.
On July 10, 2019, BB&T received regulatory approval from the North Carolina Commissioner of Banks for the Merger. On July 16, 2019, SunTrust and BB&T announced a Truist Bank Community Benefits Plan (the “Plan”) under which the combined company will invest, lend, or donate a total of $60 billion to low and moderate-income borrowers and communities over a three-year period from 2020 to 2022. The Plan represents an increase in the comparable community investment, lending, and philanthropy of SunTrust and BB&T, and is an important opportunity of the Merger. On July 30, 2019, SunTrust and BB&T shareholders approved the Merger and BB&T's shareholders approved Truist Financial Corporation to be the name of the combined company.
Additionally, during the third quarter of 2019 SunTrust and BB&T continued the organizational design process for Truist, which culminated in the announcement of nearly 8,000 positions. Consistent with earlier phases of the organizational design, these leaders reflect top talent in both BB&T and SunTrust and a balance between both companies. The companies also made progress in selecting the systems to be used for the combined company and creating roadmaps for integration of these systems. As part of this process, we completed a vast majority of key technology ecosystem decisions to create a successful foundation for Truist. For more information on our proposed Merger with BB&T, see Part I, Items 1 and 1A, “Business” and “Risk Factors,” as well as Note 21, “Subsequent Event,” to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
Business Segments Highlights
Consumer
Our investments across Consumer Lending, together with our strategic partnerships, have collectively improved our growth, returns, and diversity. Enhanced analytics, new product offerings, and increased referrals have been key contributors to our growth in LightStream and direct consumer lending. This growth has been offset partially by declines in home equity loan balances and certain lower return portfolios such as indirect auto.
Net interest income increased $21decreased $10 million, or 1%, sequentially and $80increased $12 million, or 1%, compared to the third quarter of 2017, resulting from2018. The year-over-year increase was due primarily to loan and deposit growth which was offset partially by margin compression. Noninterest income decreased $10 million, or 2%, sequentially and increased $35 million, or 8%, compared to the third quarter of 2018. Excluding the impact of the $44 million gain on the sale of accruing TDRs in the second quarter of 2019, noninterest income increased $34 million, or 8%, sequentially. These sequential and year-over-year increases in noninterest income were driven primarily by strength in mortgage production-related income as a result of increased refinancing activity and improved gain on sale margins. Wealth management-related income increased 4% sequentially due to the seasonality of certain services. Assets under management grew 2% year-over-year as a result of improved market conditions and collaboration across our Consumer segment.
The positive lending momentum we have had in Consumer continued balance sheetin the third quarter of 2019. Consumer lending production, excluding mortgage, was up 7% year-over-year. The investments that we have made in LightStream and our point-of-sale lending partnerships continue to contribute to our loan growth. Enhanced analytics, improved automation, new product offerings, partnership growth, and increased deposit spreads. referrals have all
been key contributors to our 38% year-over-year growth in LightStream.
The average balance of our LHFI portfolio was stable
increased $1.1 billion, or 1%, sequentially, and increased 1%$5.2 billion, or 7%, compared to the third quarter of 2017. Noninterest income decreased 2%2018. In addition to the aforementioned growth in LightStream originations, we have enhanced our point-of-sale lending capabilities and expanded our partnership network. We added two additional point of sale financing partners this quarter; one focused on solar and the other focused on equipment. These partnerships further our strategy of investing in digital lending channels to meet clients where they make purchase decisions. The average balance of our deposits increased $1.3 billion, or 1%, sequentially, and decreased 8%$2.2 billion, or 2%, compared to the third quarter of 2017, due primarily2018, reflecting good momentum with new product offerings introduced at the end of 2018 and our targeted marketing campaigns.
Overall, our Consumer business segment continues to lower mortgage-related income.grow, benefiting from a strong presence across high growth markets and our continued progress in enhancing digital and technology capabilities. These strengths will be amplified when we consummate the Merger, with the potential to create retail and PWM businesses that will be among the leaders in the industry across many key dimensions; growth, efficiency, talent, and technology.
We continue to demonstrate positive underlying trends within PWM, as assets under management increased 3%
Wholesale
Net interest income decreased $9 million, or 2%, sequentially and 7%decreased $11 million, or 2%, compared to the third quarter of 2017 and wealth management-related noninterest income increased 4% year-over-year. Our value proposition for our targeted client segments is resonating in the marketplace, continuing to drive growth in new clients and in deepening relationships with existing clients.
Our efficiency ratio was 65.3% for the third quarter of 2018, compared to 62.6% for the third quarter of 2017. The increase was due primarily to the favorable resolution of a legal matter during the third quarter of 2017, which resulted in a $55lower net interest margin. Noninterest income decreased $36 million, discrete benefit. Our branch count is down 5%, which is largely enabled by our increasing digital adoption rates and our broader strategy to leverage technology to enhance our efficiency. Our digital capabilities have received national recognition for online and mobile banking and we remain committed to improving our client experience through all of our delivery channels.
We completed the merger of our STM and Bank legal entities in the third quarter of 2018. This merger will simplify our organizational structure, enable operational efficiencies, and allow us to more fully serve the needs of our clients irrespective of whether they began their SunTrust relationship with a mortgage or another lending or deposit product. Subsequent to the merger, mortgage operations have continued under the Bank’s charter. See Note 18, “Business Segment Reporting,” to the Consolidated Financial Statements in this Form 10-Q for additional information.

Wholesale
Our consistent strategy within the Wholesale segment continues to drive good results. We saw solid loan growth across CIB, Commercial Banking, and Commercial Real Estate, reflecting our client's increased optimism in the economy, which has led to slightly higher utilization rates and increased mergers and acquisition activity. This growth also reflects the investments we have made to meet a broader set of client needs, particularly within Commercial Real Estate and aging services, in addition to our geographic expansion within Commercial Banking.
Total revenue was stable compared to the prior quarter and the third quarter of 2017. Net interest income increased $16 million9%, sequentially and $25 millionremained flat compared to the third quarter of 2017. These increases2018. The sequential decrease was due in net interestpart to a $14 million loss in trading income were due primarilyfor counterparty credit valuation reserves as well as a decline in commercial real estate-related income given our strong performance in the second quarter of 2019. The decrease in noninterest income was offset partially by a strong performance in investment banking income particularly in debt capital markets and mergers and acquisitions. Approximately 35% of our merger and acquisition fees in the current year have come from our commercial banking clients, which is a good indicator of the continued success we are having in bringing enhanced advisory capabilities to the aforementioned loan growth. Noninterest income decreased $15a broader set of clients.
The average balance of our LHFI portfolio increased $253 million, sequentially and $24 million$6.4 billion, or 9%, compared to the third quarter of 2017.2018. Paydown activity increased during the third quarter of 2019, particularly in C&I, which drove slower growth relative to the second quarter of 2019. The primary driveraverage balance of these declines isour deposits increased $1.7 billion, or 4%, sequentially and $1.1 billion, or 2%, compared to the timing of certain transactions, which were pushed into the fourththird quarter of 2018. Notwithstanding these declines,The strong deposit growth during the current quarter was a result of success from our underlying momentum within capital markets iscorporate liquidity specialist team, in addition to several large temporary client deposits.
We have made consistent strategic investments in building out our product and industry expertise, broadening our product offerings, and expanding into new markets. Commercial real estate-related income was up 61% compared to the nine months ended September 30, 2018, reflective of our strong with mergersclient relationships and acquisition and equity-related income up 7% and capital market fees from Commercial Banking, Commercial Real Estate, and PWM clients up 37% year-to-date. We are stilldeep expertise in the early stages of executing this component ofstructured real estate business, the improved momentum from our strategy, but we are highly encouraged by our progress and believe we are uniquely positioned to succeed in this space, given our full set of capabilities and OneTeam approach.agency lending

Overall, while market conditions can create quarterly variability,business given increased collaboration between our pipelines are strongcoverage bankers and we continueproduct specialists, and solid core performance from STCC. In our Commercial Banking business, our continued success is driven by the national expansion of our aging services vertical and the expansion of our core commercial business into new markets. We have improved technology capabilities for our clients and teammates both for loan originations and Treasury & Payment Solutions. Each of these investments in growth is the result of our ongoing efficiency initiatives and these achievements were all accomplished in the context of our consistent risk discipline and our ability to be optimistic about growth opportunities within Wholesale, as our differentiated business model attracts clients from new and existing markets.

succeed based on advice, not structure or price.
 
Our strategies within the Wholesale segment continue to drive solid, sustainable results and have created a strong foundation to build upon when we consummate the Merger, which will provide us the opportunity to bring our capabilities and differentiated model to a broader set of corporate and commercial clients.

Additional information related to our business segments can be found in Note 18, "Business19, “Business Segment Reporting,"” to the Consolidated Financial Statements in this Form 10-Q, and further discussion of our business segment results for the nine months ended September 30, 20182019 and 20172018 can be found in the "Business“Business Segment Results"Results” section of this MD&A.




Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates PaidConsolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 1 Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 1 
Three Months Ended (Decrease)/IncreaseThree Months Ended Increase/(Decrease)
September 30, 2018 September 30, 2017 September 30, 2019 September 30, 2018 
(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                              
LHFI: 1
                              
C&I
$67,632
 
$659
 3.87% 
$68,277
 
$583
 3.39% 
($645) 0.48

$73,121
 
$703
 3.82% 
$67,632
 
$659
 3.87% 
$5,489
 (0.05)
CRE6,418
 68
 4.19
 5,227
 47
 3.57
 1,191
 0.62
9,005
 96
 4.23
 6,418
 68
 4.19
 2,587
 0.04
Commercial construction3,300
 40
 4.76
 3,918
 38
 3.86
 (618) 0.90
2,225
 28
 5.03
 3,300
 40
 4.76
 (1,075) 0.27
Residential mortgages - guaranteed502
 3
 2.76
 512
 5
 3.57
 (10) (0.81)475
 4
 3.04
 502
 3
 2.76
 (27) 0.28
Residential mortgages - nonguaranteed27,584
 268
 3.89
 26,687
 255
 3.82
 897
 0.07
28,693
 275
 3.84
 27,584
 268
 3.89
 1,109
 (0.05)
Residential home equity products9,632
 121
 4.97
 10,778
 120
 4.40
 (1,146) 0.57
8,683
 116
 5.29
 9,632
 121
 4.97
 (949) 0.32
Residential construction193
 2
 4.75
 333
 4
 4.68
 (140) 0.07
142
 2
 4.66
 193
 2
 4.75
 (51) (0.09)
Consumer student - guaranteed6,912
 88
 5.05
 6,535
 73
 4.44
 377
 0.61
7,137
 89
 4.94
 6,912
 88
 5.05
 225
 (0.11)
Consumer other direct9,726
 135
 5.49
 8,426
 104
 4.91
 1,300
 0.58
12,074
 190
 6.24
 9,726
 135
 5.49
 2,348
 0.75
Consumer indirect11,770
 114
 3.86
 11,824
 105
 3.51
 (54) 0.35
13,831
 151
 4.33
 11,770
 114
 3.86
 2,061
 0.47
Consumer credit cards1,573
 46
 11.71
 1,450
 37
 10.32
 123
 1.39
1,691
 51
 12.00
 1,573
 46
 11.71
 118
 0.29
Nonaccrual 2
753
 5
 2.70
 739
 11
 5.90
 14
 (3.20)535
 3
 2.55
 753
 5
 2.70
 (218) (0.15)
Total LHFI145,995
 1,549
 4.21
 144,706
 1,382
 3.79
 1,289
 0.42
157,612
 1,708
 4.30
 145,995
 1,549
 4.21
 11,617
 0.09
Securities AFS: 3
               
Securities AFS:               
Taxable30,927
 207
 2.68
 30,089
 187
 2.49
 838
 0.19
30,862
 211
 2.73
 30,927
 207
 2.68
 (65) 0.05
Tax-exempt625
 5
 2.99
 504
 4
 2.99
 121
 —
571
 4
 2.99
 625
 5
 2.99
 (54) —
Total securities AFS31,552
 212
 2.69
 30,593
 191
 2.49
 959
 0.20
31,433
 215
 2.73
 31,552
 212
 2.69
 (119) 0.04
Fed funds sold and securities borrowed or purchased under agreements to resell1,426
 7
 1.79
 1,189
 3
 0.89
 237
 0.90
1,215
 7
 2.11
 1,426
 7
 1.79
 (211) 0.32
LHFS2,022
 22
 4.40
 2,477
 24
 3.89
 (455) 0.51
2,297
 21
 3.75
 2,022
 22
 4.40
 275
 (0.65)
Interest-bearing deposits in other banks25
 —
 3.90
 25
 —
 1.88
 —
 2.02
26
 —
 3.65
 25
 —
 3.90
 1
 (0.25)
Interest earning trading assets4,789
 39
 3.18
 5,291
 31
 2.38
 (502) 0.80
5,454
 45
 3.30
 4,789
 39
 3.18
 665
 0.12
Other earning assets 3
535
 5
 3.79
 580
 4
 3.06
 (45) 0.73
Other earning assets841
 9
 4.29
 535
 5
 3.79
 306
 0.50
Total earning assets186,344
 1,834
 3.90
 184,861
 1,635
 3.51
 1,483
 0.39
198,878
 2,005
 4.00
 186,344
 1,834
 3.90
 12,534
 0.10
ALLL(1,665)     (1,748)     (83)  (1,692)     (1,665)     (27)  
Cash and due from banks4,575
     5,023
     (448)  5,218
     4,575
     643
  
Other assets18,192
     16,501
     1,691
  
Other noninterest earning assets19,780
     18,192
     1,588
  
Noninterest earning trading assets and derivative instruments668
     948
     (280)  1,876
     668
     1,208
  
Unrealized (losses)/gains on securities AFS, net(719)     153
     (872)  
Unrealized gains/(losses) on securities AFS, net687
     (719)     1,406
  
Total assets
$207,395
     
$205,738
     
$1,657
  
$224,747
     
$207,395
     
$17,352
  
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Interest-bearing deposits:                              
NOW accounts
$45,345
 
$65
 0.57% 
$44,604
 
$37
 0.33% 
$741
 0.24

$50,723
 
$109
 0.85% 
$45,345
 
$65
 0.57% 
$5,378
 0.28
Money market accounts49,926
 73
 0.58
 53,278
 43
 0.32
 (3,352) 0.26
48,121
 100
 0.82
 49,926
 73
 0.58
 (1,805) 0.24
Savings6,658
 —
 0.02
 6,535
 —
 0.02
 123
 —
6,570
 —
 0.02
 6,658
 —
 0.02
 (88) —
Consumer time6,413
 17
 1.03
 5,675
 11
 0.76
 738
 0.27
7,228
 28
 1.51
 6,413
 17
 1.03
 815
 0.48
Other time8,357
 33
 1.55
 5,552
 16
 1.14
 2,805
 0.41
9,602
 49
 2.01
 8,357
 33
 1.55
 1,245
 0.46
Total interest-bearing consumer and commercial deposits116,699
 188
 0.64
 115,644
 107
 0.37
 1,055
 0.27
122,244
 286
 0.93
 116,699
 188
 0.64
 5,545
 0.29
Brokered time deposits1,041
 4
 1.54
 947
 3
 1.28
 94
 0.26
1,566
 7
 1.79
 1,041
 4
 1.54
 525
 0.25
Foreign deposits172
 1
 1.94
 295
 1
 1.13
 (123) 0.81
—
 —
 —
 172
 1
 1.94
 (172) (1.94)
Total interest-bearing deposits117,912
 193
 0.65
 116,886
 111
 0.38
 1,026
 0.27
123,810
 293
 0.94
 117,912
 193
 0.65
 5,898
 0.29
Funds purchased1,352
 7
 1.94
 1,689
 5
 1.15
 (337) 0.79
371
 2
 2.12
 1,352
 7
 1.94
 (981) 0.18
Securities sold under agreements to repurchase1,638
 8
 1.85
 1,464
 4
 1.07
 174
 0.78
1,801
 10
 2.09
 1,638
 8
 1.85
 163
 0.24
Interest-bearing trading liabilities1,233
 10
 3.33
 912
 6
 2.84
 321
 0.49
Other short-term borrowings2,259
 9
 1.57
 1,797
 3
 0.56
 462
 1.01
6,182
 33
 2.13
 2,259
 9
 1.57
 3,923
 0.56
Long-term debt12,922
 95
 2.92
 11,204
 76
 2.70
 1,718
 0.22
20,311
 150
 2.92
 12,922
 95
 2.92
 7,389
 —
Interest-bearing trading liabilities1,132
 7
 2.62
 1,233
 10
 3.33
 (101) (0.71)
Total interest-bearing liabilities137,316
 322
 0.93
 133,952
 205
 0.61
 3,364
 0.32
153,607
 495
 1.28
 137,316
 322
 0.93
 16,291
 0.35
Noninterest-bearing deposits42,649
     43,775
     (1,126)  40,289
     42,649
     (2,360)  
Other liabilities2,465
     3,046
     (581)  
Other noninterest-bearing liabilities4,148
     2,465
     1,683
  
Noninterest-bearing trading liabilities and derivative instruments690
     392
     298
  477
     690
     (213)  
Shareholders’ equity24,275
     24,573
     (298)  26,226
     24,275
     1,951
  
Total liabilities and shareholders’ equity
$207,395
     
$205,738
     
$1,657
  
$224,747
     
$207,395
     
$17,352
  
Interest rate spread    2.97%     2.90%   0.07
    2.72%     2.97%   (0.25)
Net interest income 4
  
$1,512
     
$1,430
      
Net interest income-FTE 4, 5
  
$1,534
     
$1,467
      
Net interest margin 6
    3.22%     3.07%   0.15
Net interest margin-FTE 5, 6
    3.27
     3.15
   0.12
Net interest income 3
  
$1,510
     
$1,512
      
Net interest income-FTE 3, 4
  
$1,532
     
$1,534
      
Net interest margin 5
    3.01%     3.22%   (0.21)
Net interest margin-FTE 4, 5
    3.06
     3.27
   (0.21)
1 Interest income includes loan fees of $43$31 million and $45$43 million for the three months ended September 30, 2019 and 2018, and 2017, respectively.
2 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
3 Beginning January 1, 2018, we began presenting certain equity securities previously presented in Securities available for sale as Other earning assets. For periods prior to January 1, 2018, these equity securities have been reclassified to Other earning assets for comparability.
4 Derivative instruments employed to manage our interest rate sensitivity decreased net interest income by $51 million and $22 million for the three months ended September 30, 2019 and 2018, and increased net interest income by $16 million for the three months ended September 30, 2017.respectively.
54 See Table 20, "Selected17, “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, 20182019 and 20172018 was attributed to C&I loans.
65 Net interest margin is calculated by dividing annualized net interest income by average total earning assets.

Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid (continued)
Nine Months Ended  Nine Months Ended  
September 30, 2018 September 30, 2017 (Decrease)/IncreaseSeptember 30, 2019 September 30, 2018 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                              
LHFI: 1
                              
C&I
$67,042
 
$1,880
 3.75% 
$68,822
 
$1,711
 3.32% 
($1,780) 0.43

$72,955
 
$2,167
 3.97% 
$67,042
 
$1,880
 3.75% 
$5,913
 0.22
CRE5,787
 175
 4.04
 5,141
 130
 3.38
 646
 0.66
8,314
 273
 4.39
 5,787
 175
 4.04
 2,527
 0.35
Commercial construction3,534
 120
 4.53
 4,032
 109
 3.63
 (498) 0.90
2,417
 95
 5.24
 3,534
 120
 4.53
 (1,117) 0.71
Residential mortgages - guaranteed576
 13
 3.09
 537
 13
 3.19
 39
 (0.10)472
 10
 2.97
 576
 13
 3.09
 (104) (0.12)
Residential mortgages - nonguaranteed27,159
 780
 3.83
 26,234
 749
 3.81
 925
 0.02
28,545
 832
 3.89
 27,159
 780
 3.83
 1,386
 0.06
Residential home equity products9,929
 356
 4.79
 11,117
 354
 4.26
 (1,188) 0.53
8,925
 355
 5.31
 9,929
 356
 4.79
 (1,004) 0.52
Residential construction223
 8
 4.81
 360
 12
 4.29
 (137) 0.52
153
 6
 5.16
 223
 8
 4.81
 (70) 0.35
Consumer student - guaranteed6,778
 249
 4.91
 6,426
 209
 4.36
 352
 0.55
7,216
 277
 5.13
 6,778
 249
 4.91
 438
 0.22
Consumer other direct9,236
 365
 5.28
 8,100
 298
 4.92
 1,136
 0.36
11,433
 525
 6.14
 9,236
 365
 5.28
 2,197
 0.86
Consumer indirect11,834
 330
 3.72
 11,322
 295
 3.48
 512
 0.24
13,412
 425
 4.24
 11,834
 330
 3.72
 1,578
 0.52
Consumer credit cards1,541
 133
 11.47
 1,404
 105
 10.03
 137
 1.44
1,664
 149
 11.96
 1,541
 133
 11.47
 123
 0.49
Nonaccrual 2
729
 15
 2.77
 781
 24
 4.04
 (52) (1.27)538
 11
 2.69
 729
 15
 2.77
 (191) (0.08)
Total LHFI144,368
 4,424
 4.10
 144,276
 4,009
 3.72
 92
 0.38
156,044
 5,125
 4.39
 144,368
 4,424
 4.10
 11,676
 0.29
Securities AFS: 3
               
Securities AFS:               
Taxable30,912
 614
 2.65
 30,037
 551
 2.45
 875
 0.20
31,135
 646
 2.77
 30,912
 614
 2.65
 223
 0.12
Tax-exempt630
 14
 2.99
 380
 9
 3.01
 250
 (0.02)585
 13
 2.99
 630
 14
 2.99
 (45) —
Total securities AFS31,542
 628
 2.66
 30,417
 560
 2.45
 1,125
 0.21
31,720
 659
 2.77
 31,542
 628
 2.66
 178
 0.11
Fed funds sold and securities borrowed or purchased under agreements to resell1,411
 16
 1.52
 1,221
 6
 0.63
 190
 0.89
1,266
 22
 2.23
 1,411
 16
 1.52
 (145) 0.71
LHFS2,055
 67
 4.35
 2,436
 70
 3.82
 (381) 0.53
1,686
 50
 3.96
 2,055
 67
 4.35
 (369) (0.39)
Interest-bearing deposits in other banks25
 1
 2.70
 25
 —
 1.05
 —
 1.65
25
 1
 4.42
 25
 1
 2.70
 —
 1.72
Interest earning trading assets4,677
 110
 3.16
 5,204
 89
 2.27
 (527) 0.89
5,321
 133
 3.34
 4,677
 110
 3.16
 644
 0.18
Other earning assets 3
529
 15
 3.75
 601
 13
 3.00
 (72) 0.75
Other earning assets840
 23
 3.71
 529
 15
 3.75
 311
 (0.04)
Total earning assets184,607
 5,261
 3.81
 184,180
 4,747
 3.45
 427
 0.36
196,902
 6,013
 4.08
 184,607
 5,261
 3.81
 12,295
 0.27
ALLL(1,691)     (1,724)     (33)  (1,664)     (1,691)     27
  
Cash and due from banks4,706
     5,158
     (452)  4,526
     4,706
     (180)  
Other assets17,678
     16,235
     1,443
  
Other noninterest earning assets19,808
     17,678
     2,130
  
Noninterest earning trading assets and derivative instruments650
     918
     (268)  1,301
     650
     651
  
Unrealized (losses)/gains on securities AFS, net(580)     66
     (646)  
Unrealized gains/(losses) on securities AFS, net146
     (580)     726
  
Total assets
$205,370
     
$204,833
     
$537
  
$221,019
     
$205,370
     
$15,649
  
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Interest-bearing deposits:                              
NOW accounts
$45,755
 
$162
 0.47% 
$44,595
 
$90
 0.27% 
$1,160
 0.20

$49,398
 
$299
 0.81% 
$45,755
 
$162
 0.47% 
$3,643
 0.34
Money market accounts50,102
 182
 0.49
 54,120
 114
 0.28
 (4,018) 0.21
48,212
 282
 0.78
 50,102
 182
 0.49
 (1,890) 0.29
Savings6,684
 1
 0.03
 6,530
 1
 0.02
 154
 0.01
6,641
 1
 0.02
 6,684
 1
 0.03
 (43) (0.01)
Consumer time6,261
 45
 0.95
 5,573
 30
 0.72
 688
 0.23
7,013
 74
 1.41
 6,261
 45
 0.95
 752
 0.46
Other time7,680
 81
 1.41
 4,830
 38
 1.06
 2,850
 0.35
9,346
 138
 1.97
 7,680
 81
 1.41
 1,666
 0.56
Total interest-bearing consumer and commercial deposits116,482
 471
 0.54
 115,648
 273
 0.32
 834
 0.22
120,610
 794
 0.88
 116,482
 471
 0.54
 4,128
 0.34
Brokered time deposits1,026
 11
 1.45
 931
 9
 1.28
 95
 0.17
1,249
 16
 1.71
 1,026
 11
 1.45
 223
 0.26
Foreign deposits121
 2
 1.85
 563
 4
 0.86
 (442) 0.99
65
 1
 2.41
 121
 2
 1.85
 (56) 0.56
Total interest-bearing deposits117,629
 484
 0.55
 117,142
 286
 0.33
 487
 0.22
121,924
 811
 0.89
 117,629
 484
 0.55
 4,295
 0.34
Funds purchased1,112
 15
 1.74
 1,242
 9
 0.97
 (130) 0.77
927
 17
 2.36
 1,112
 15
 1.74
 (185) 0.62
Securities sold under agreements to repurchase1,630
 20
 1.66
 1,583
 10
 0.85
 47
 0.81
1,763
 29
 2.21
 1,630
 20
 1.66
 133
 0.55
Interest-bearing trading liabilities1,219
 28
 3.11
 968
 20
 2.70
 251
 0.41
Other short-term borrowings2,051
 22
 1.41
 1,852
 7
 0.54
 199
 0.87
6,824
 116
 2.28
 2,051
 22
 1.41
 4,773
 0.87
Long-term debt11,635
 252
 2.89
 11,094
 216
 2.60
 541
 0.29
18,437
 425
 3.08
 11,635
 252
 2.89
 6,802
 0.19
Interest-bearing trading liabilities1,212
 26
 2.88
 1,219
 28
 3.11
 (7) (0.23)
Total interest-bearing liabilities135,276
 821
 0.81
 133,881
 548
 0.55
 1,395
 0.26
151,087
 1,424
 1.26
 135,276
 821
 0.81
 15,811
 0.45
Noninterest-bearing deposits42,677
     43,497
     (820)  40,169
     42,677
     (2,508)  
Other liabilities2,424
     2,961
     (537)  
Other noninterest-bearing liabilities4,039
     2,424
     1,615
  
Noninterest-bearing trading liabilities and derivative instruments669
     363
     306
  417
     669
     (252)  
Shareholders’ equity24,324
     24,131
     193
  25,307
     24,324
     983
  
Total liabilities and shareholders’ equity
$205,370
     
$204,833
     
$537
  
$221,019
     
$205,370
     
$15,649
  
Interest rate spread    3.00%     2.90%   0.10
    2.82%     3.00%   (0.18)
Net interest income 4
  
$4,440
     
$4,199
      
Net interest income-FTE 4, 5
  
$4,505
     
$4,306
      
Net interest margin 6
    3.22%     3.05%   0.17
Net interest margin-FTE 5, 6
    3.26
     3.13
   0.13
Net interest income 3
  
$4,589
     
$4,440
      
Net interest income-FTE 3, 4
  
$4,655
     
$4,505
      
Net interest margin 5
    3.12%     3.22%   (0.10)
Net interest margin-FTE 4, 5
    3.16
     3.26
   (0.10)
 
1 Interest income includes loan fees of $121$105 million and $135$121 million for the nine months ended September 30, 2019 and 2018, and 2017, respectively.
2 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
3 Beginning January 1, 2018, we began presenting certain equity securities previously presented in Securities available for sale as Other earning assets. For periods prior to January 1, 2018, these equity securities have been reclassified to Other earning assets for comparability.
4 Derivative instruments employed to manage our interest rate sensitivity decreased net interest income by $155 million and $43 million for the nine months ended September 30, 2019 and 2018, and increased net interest income by $93 million for the nine months ended September 30, 2017.respectively.
54 See Table 20, "Selected17, “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, 20182019 and 20172018 was attributed to C&I loans.
65 Net interest margin is calculated by dividing annualized net interest income by average total earning assets.


NET INTEREST INCOME/MARGIN (FTE)
Third Quarter of 20182019
Net interest income was $1.5 billion for the third quarter of 2018, an increase2019, a decrease of $67$2 million, or 5%, compared to the third quarter of 2017.2018. Net interest margin increased 12decreased 21 basis points year-over-year, to 3.27%3.06%, driven primarily by higher funding costs.
Rates paid on average interest-bearing deposits and average other short-term borrowings increased 29 and 56 basis points, respectively, compared to the third quarter of 2017. The increase was driven2018. These increases were offset partially by a 3910 basis point increase in average earning asset yields asover the same period, due primarily to a result of higher benchmark interest rates, favorable mix shift, and lower premium amortization expense. Specifically,nine basis point increase in average LHFI yields increased 42 basis points, driven by broad-based increases inincreased yields across most loan categories, while yields on securities AFS increased 20most notably in consumer direct and indirect loans.
On a standalone basis, points. These increases were offset partially by higher rates paid on average interest-bearing liabilities.
Rates paid on average interest-bearing liabilities increased 32 basis points compared towe expect net interest margin for the thirdfourth quarter of 2017, driven2019 to decline by increases in rates paid across all interest-bearing liability categories. The average rate paid on interest-bearing deposits increased 27five to eight basis points relative to the third quarter, given the impacts of 2017.the September and October Fed Funds rate reductions and our net exposure to interest rates.
Looking to the fourth quarter of 2018, we expect net interest margin to increase between zero and two basis pointsAverage earning assets increased $12.5 billion, or 7%, compared to the third quarter of 2018, largely asdriven primarily by an $11.6 billion, or 8%, increase in average LHFI, and a result of$665 million, or 14%, increase in average interest earning trading assets. See the September 2018 Fed Funds rate increase.“Loans” section in this MD&A for additional discussion regarding loan activity.
Average earning assetsinterest-bearing liabilities increased $1.5$16.3 billion, or 1%12%, compared to the third quarter of 2017, driven by a $1.3 billion, or 1%, increase in average LHFI due primarily to growth in consumer direct and CRE loans, as well as by a $959 million, or 3%, increase in average securities AFS. These increases were offset partially by a $1.1 billion decline in home equity products and decreases in other earning asset categories, led by a $502 million, or 9%, decrease in average interest earning trading assets and a $455 million, or 18%, decrease in average LHFS.
Average interest-bearing liabilities increased $3.4 billion, or 3%, compared to the third quarter of 2017,2018, due primarily to increases in average long-term debt, other short-term borrowings, and most consumer and commercial deposit categories, offset partially by declines in money market accounts and short-term borrowings.funds purchased. Average interest-bearing consumer and commercial deposits increased $1.1$5.5 billion, or 1%5%, due primarily to growth in NOW accounts and time deposits, offset partially by a decline in money market accounts. The increase in average interest-bearing consumer and commercial deposits reflects improved production from our Consumer segment, where we are benefiting from increased momentum associated with new checking and savings products that were introduced at the end of 2018, as well as our targeted marketing and pricing strategies. We also benefited from targeted growth with certain corporate clients through successes achieved by our corporate liquidity product specialist team.
Average long-term debt increased $7.4 billion, or 57%, compared to the third quarter of 2017, due primarily to growth in2018, and average time deposits in response to our targeted focus on CDs and certain corporate deposits. The continued movement from lower cost deposits to CDs allows us to retain our existing depositors and capture new market share, while also managing our asset sensitivity profile, and we expect this trend to continue as interest rates rise. These increases were offset largely by a decline in money market accounts.
Average long-term debtother short-term borrowings increased $1.7$3.9 billion, or 15%, compared to the third quarter of 2017, due primarily2018, in response to our first quarter of 2018 issuances of $500 million of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under the Global Bank Note program, our second quarter of 2018 issuance of $850 million of 7-year fixed rate senior notes under the Parent Company SEC shelf registration, and our third quarter of 2018 issuances of $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes under the Global Bank Note program. The effect of these issuances was offset partially by terminations and maturities of senior notes
and long-term FHLB advances during the fourth quarter of 2017.strong loan growth. See the "Borrowings"“Borrowings” section of this MD&A for additional information regarding our short-term borrowings and long-term debt.
We utilize interest rate swaps to manage interest rate risk. These instruments are primarily receive-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, 2018,2019, the outstanding notional balance of active swaps that qualified as cash flow hedges on variable rate commercial loans was $12.2$13.2 billion, compared to $12.1$10.3 billion at December 31, 2017, respectively.2018.
In addition to the income recognized from active swaps, we recognize interest income or expense from terminated swaps that were previously designated as cash flow hedges on variable rate commercial loans. Interest expense from our commercial loan swaps was $46 million during the third quarter of 2019, compared to $22 million during the third quarter of 2018 compared to income of $13 million during the third quarter of 2017 due primarily to ana year-over-year increase in LIBOR. As we manage our interest rate risk we may continue to purchase additional and/or terminate existing interest rate swaps.
Remaining active swaps on commercial loans have maturities through 20252026 and have an average maturity of 3.13.3 years at September 30, 2018.2019. The weighted average rate on the receive-fixed rate leg of the commercial loan swap portfolio was 1.71%1.76%, and the weighted average rate on the pay-variable leg was 2.26%2.02%, at September 30, 2018.2019.


First Nine Months of 20182019
Net interest income was $4.5$4.7 billion for the first nine months of 2018,2019, an increase of $199$150 million, or 5%3%, compared to the first nine months of 2017.2018. Net interest margin for the first nine months of 2018 increased 132019 decreased 10 basis points, to 3.26%3.16%, compared to the first nine months of 2017.prior year period. The increasedecrease in net interest margin was driven largely by a 38 basis point increase in average earning asset yields due to the same factors as discussed above for the third quarter of 2018.2019.
Rates paid on average interest-bearing liabilitiesAverage earning asset yields increased 2627 basis points compared to the first nine months of 2017,2018, due primarily to increases in average LHFI yields of 29 basis points, driven by broad based increases in rates paidyields across all interest-bearing liabilitymost loan categories. The average rate paid on interest-bearing deposits increased 22 basis points.
Average earning assets increased $427 million,$12.3 billion, or 7%, compared to the first nine months of 2017,2018, driven primarily by a $1.1an $11.7 billion, or 4%8%, increase in average securities AFS, offset in part byLHFI, and a $527$644 million, or 10%, decrease14% increase in average interest earning trading assets and a $381 million, or 16%, decrease in average LHFS.assets. See the "Loans"“Loans” section in this MD&A for additional discussion regarding loan activity.
Average interest-bearing liabilities increased $1.4$15.8 billion or 1%12%, compared to the first nine months of 2017,2018, due primarily to increases across most consumerdeposit and commercial deposit categories as well as averageborrowing categories. Average long-term debt offset largely by declines in money market accountsincreased $6.8 billion, or 58%, average other short-term borrowings increased $4.8 billion, and foreign deposits. Averageaverage interest-bearing consumer and commercial deposits increased $834 million,$4.1 billion, or 1%4%, due primarily to the same factors as discussed above for the third quarter of 2018.
2019.



Foregone Interest
Foregone interest income from NPLs reduced net interest margin by one basis point for both the three and nine months ended September 30, 2019. Forgone interest income from NPLs reduced net interest margin by one basis point and two basis points for the three and nine months ended September 30, 2018, respectively. The effect of foregone interest income from NPLs on net interest margin was less than one basis point for both the three and nine months ended September 30, 2017. See additional discussion regarding our
credit quality in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A. In addition, Table 1 in this MD&A contains more detailed information regarding average balances, yields earned, rates paid, and associated impacts on net interest income.



NONINTEREST INCOME                      
          Table 2
           
Components of Noninterest Income          Table 2
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended September 30 
%
Change 1
 Nine Months Ended September 30 
%
Change 1
(Dollars in millions)2018 2017 % Change 2018 2017 % Change2019 2018 2019 2018 
Service charges on deposit accounts
$144
 
$154
 (6)% 
$433
 
$453
 (4)%
$141
 
$144
 (2)% 
$417
 
$433
 (4)%
Other charges and fees 1
89
 89
 —
 264
 270
 (2)
Other charges and fees90
 89
 1
 265
 264
 —
Card fees75
 86
 (13) 241
 255
 (5)83
 75
 11
 247
 241
 2
Investment banking income 1
150
 169
 (11) 453
 501
 (10)
Client transaction-related fees314
 308
 2
 929
 938
 (1)
           
Investment banking income159
 150
 6
 431
 453
 (5)
Trading income42
 51
 (18) 137
 148
 (7)29
 42
 (31) 144
 137
 5
Capital markets-related income188
 192
 (2) 575
 590
 (3)
           
Mortgage production-related income81
 40
 NM
 181
 118
 53
Mortgage servicing-related income25
 43
 (42) 113
 138
 (18)
Mortgage-related income106
 83
 28
 294
 256
 15
           
Trust and investment management income80
 79
 1
 230
 229
 —
78
 80
 (3) 222
 230
 (3)
Retail investment services74
 69
 7
 219
 208
 5
76
 74
 3
 220
 219
 —
Mortgage servicing related income43
 46
 (7) 138
 148
 (7)
Mortgage production related income40
 61
 (34) 118
 170
 (31)
Commercial real estate related income24
 17
 41
 66
 61
 8
Net securities gains—
 —
 —
 1
 1
 —
Wealth management-related income154
 154
 —
 442
 449
 (2)
           
Insurance settlement5
 —
 NM
 210
 —
 NM
Commercial real estate-related income32
 24
 33
 106
 66
 61
Net securities gains/(losses)4
 —
 NM
 (38) 1
 NM
Other noninterest income21
 25
 (16) 108
 76
 42
40
 21
 90
 135
 108
 25
           
Total noninterest income
$782
 
$846
 (8)% 
$2,408
 
$2,520
 (4)%
$843
 
$782
 8 % 
$2,653
 
$2,408
 10 %
1
Beginning July 1, 2018, we began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability. Capital market bridge fee income totaled $7 million and $3 million for the three months ended September 30, 2018 and 2017, and $12 million and $21 million for the nine months ended September 30, 2018 and 2017, respectively.

1 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.

Noninterest income decreased $64increased $61 million, or 8%, compared to the third quarter of 20172018 and decreased $112 million, or 4%, compared to the nine months ended September 30, 2017. These decreases were driven primarily by lower mortgage and capital markets-related income as well as lower client transaction-related fees. The decrease compared to the nine months ended September 30, 2017 was offset partially by a $32 million, or 42%, increase in other noninterest income.
Client transaction-related fee income, which includes service charges on deposit accounts, other charges and fees, and card fees, decreased $21 million, or 6%, compared to the third quarter of 2017 and decreased $40 million, or 4%, compared to the nine months ended September 30, 2017. These decreases were driven, in part, by a change in our process for recognizing card rewards expenses, which effectively resulted in four months of rewards expenses being recognized in the third quarter of 2018, as well as the impact of our January 1, 2018 adoption of the revenue recognition accounting standard, which resulted in the netting of certain expense items against this income. The revenue recognition accounting standard decreased client transaction-related fee income by $13 million and $28 million for the three and nine months ended September 30, 2018, respectively. See Note 1, "Significant Accounting Policies," to the Consolidated Financial Statements in this Form 10-Q for additional information regarding our adoption of this accounting standard.
Investment banking income decreased $19 million, or 11%, compared to the third quarter of 2017 and decreased $48increased $245 million, or 10%, compared to the nine months ended September 30, 2017. The decrease2018. Excluding the $5 million and $210 million insurance settlement benefits related to financial crisis-era related claims recognized in the current quarter and in the nine months ended September 30, 2019, respectively, noninterest income increased $56 million, or 7%, compared to the third quarter of 20172018 and increased $35 million, or 1%, compared to the nine months ended September 30, 2018. The increase compared to the third quarter of 2018 was driven by increases across most categories, most notably a $23 million increase in mortgage-related income. The increase compared to the nine months ended September 30, 2018 was driven primarily by higher commercial real estate-related and mortgage-related income, offset partially by net securities losses and lower loan syndicationcapital markets-related income.
Client transaction-related fees increased $6 million, or 2%, compared to the third quarter of 2018 and investment grade bond origination activity.decreased $9 million, or 1%, compared to the nine months ended September 30, 2018. The increase compared to the third quarter of 2018 was driven primarily by certain discrete impacts (recorded as contra-revenue) recognized in card fees in the third quarter of 2018. The decrease compared to the nine months ended September 30, 20172018 was duedriven primarily to decreased activity in loan syndications, leveraged finance, mergers and acquisitions, and investment grade bond originations. The declines compared to both prior year periods were offset partially by strong deal flow activity in equity offerings as well as the impact of our January 1, 2018 adoption of the revenue recognition accounting standard. The revenue recognition accounting standard increased investmentlower client-related transaction activity.
Investment banking income by $4 million and $13 million for the three and nine months ended September 30, 2018, respectively.
Trading income decreasedincreased $9 million, or 18%6%, compared to the third quarter of 20172018 and decreased $11 million, or 7%, compared to the nine months ended September 30, 2017. These decreases were due largely to lower fixed income sales and trading revenue.
Retail investment services income increased $5 million, or 7%, compared to the third quarter of 2017 and increased $11$22 million, or 5%, compared to the nine months ended September 30, 2017. These increases were2018. The increase compared to the third quarter of 2018 was driven primarily by growthhigher syndicated finance and investment grade
bond origination activity, offset partially by a decline in assets under management.
equity capital markets. The decrease compared to the nine months ended September 30, 2018 was due primarily to declines in equity offerings and mergers and acquisitions, offset partially by increases in investment grade and high yield bond originations.

Mortgage servicing relatedTrading income decreased $3$13 million, or 7%31%, compared to the third quarter of 20172018 and decreased $10increased $7 million, or 7%5%, compared to the nine months ended September 30, 2017. These decreases were due to lower net hedge performance and higher servicing asset decay, offset largely by higher servicing fee income. The UPB of mortgage loans in the servicing portfolio was $170.5 billion at September 30, 2018, compared to $165.3 billion at September 30, 2017.
Mortgage production related income decreased $21 million, or 34%, compared to the third quarter of 2017 and decreased $52 million, or 31%, compared to the nine months ended September 30, 2017. These decreases were driven by lower gain on sale margins and reduced refinance activity as well as less favorable channel mix. Mortgage application volume decreased 1% and closed loan volume remained relatively stable compared to the third quarter of 2017. Compared to the nine months ended September 30, 2017, both mortgage application and closed loan volume decreased 3%.
Commercial real estate related income increased $7 million, or 41%, compared to the third quarter of 2017 and increased $5 million, or 8%, compared to the nine months ended September 30, 2017. These increases were due primarily to higher transactional activity in our agency lending business as well as higher tax credit-related income from our investments in affordable housing partnerships.
Other noninterest income decreased $4 million, or 16%, compared to the third quarter of 2017 and increased $32 million, or 42%, compared to the nine months ended September 30, 2017.2018. The decrease compared to the third quarter of 20172018 was driven primarilylargely by mark-to-market adjustments on equity investments and a decreasean increase in net gains on the sale of leases recognizedcounterparty credit valuation reserves in the current quarter. The increase compared to the nine months ended September 30, 20172018 was due primarily to $16 million of mark-to-market net gains on equity investments recognized during the first nine months of 2018increased fixed income sales and trading revenue as well as aincreased client activity, offset largely by an increase in counterparty credit valuation reserves.
Mortgage-related income increased $23 million, remeasurement gain on an equity investment recognized in the first quarter of 2018, following our full adoption of the recognition and measurement of financial assets accounting standard on January 1, 2018. See Note 1, "Significant Accounting Policies," to the Consolidated Financial Statements in this Form 10-Q for additional information regarding our adoption of this accounting standard.
We expect noninterest income in the fourth quarter of 2018 to increase relative to the third quarter of 2018, given our solid capital markets pipelines and seasonally higher fee income in certain categories, including mortgage servicing and commercial real estate related income.


NONINTEREST EXPENSE           
           Table 3
 Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2018 2017 
% Change 1
 2018 2017 
% Change 1
Employee compensation
$719
 
$725
 (1)% 
$2,141
 
$2,152
 (1)%
Employee benefits76
 81
 (6) 310
 302
 3
Total personnel expenses795
 806
 (1) 2,451
 2,454
 —
Outside processing and software234
 203
 15
 667
 612
 9
Net occupancy expense86
 94
 (9) 270
 280
 (4)
Marketing and customer development45
 45
 —
 127
 129
 (2)
Equipment expense40
 40
 —
 124
 123
 1
Regulatory assessments39
 47
 (17) 118
 143
 (17)
Amortization19
 22
 (14) 51
 49
 4
Operating losses/(gains)18
 (34) NM
 40
 17
 NM
Other noninterest expense108
 168
 (36) 343
 436
 (21)
Total noninterest expense
$1,384
 
$1,391
 (1)% 
$4,191
 
$4,243
 (1)%
1 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.

Noninterest expense decreased $7 million, or 1%28%, compared to the third quarter of 20172018 and decreased $52increased $38 million, or 1%15%, compared to the nine months ended September 30, 2017. The decrease compared to the third quarter of 2017 was due to reductions in most expense categories, offset largely2018. These increases were driven by higher outside processing and software expensemortgage production-related income in the current quarter as well as the favorable resolution of several legal mattersperiods due primarily to increases in the third quarter of 2017. The decrease compared to the nine months ended September 30, 2017refinance volumes and gain on sale margins. Higher mortgage production-related income was driven largely by lower other noninterest expense related to ongoing efficiency initiatives, offset partially by lower mortgage servicing-related income in the current periods as a result of higher outside processing and software expense.
servicing asset decay. The UPB of mortgage loans underlying our residential MSR portfolio totaled $165.6 billion at September 30, 2019, compared to $170.5 billion at September 30, 2018.
Personnel expenses decreased $11Commercial real estate-related income increased $8 million, or 1%33%, compared to the third quarter of 20172018 and decreased $3increased $40 million, or 61% compared to the nine months ended September

30, 2017. The $11 million decrease compared to the third quarter of 2017 was due2018. These increases were driven primarily to lower compensationby structured real estate gains and benefit-related costs in the current quarter, offset partially by higher contract programming costs.commercial mortgage production from our agency lending business.
Outside processing and software expenseOther noninterest income increased $31$19 million, or 15%90%, compared to the third quarter of 20172018 and increased $55$27 million,
or 9%25%, compared to the nine months ended September 30, 2017.2018. These increases were driven primarily by net remeasurement gains on equity investments recognized in the current quarter as well as by our second quarter of 2019 gain on the sale of accruing TDRs of $44 million.

NONINTEREST EXPENSE           
            
Components of Noninterest Expense          Table 3
 Three Months Ended September 30 
% Change 1
 Nine Months Ended September 30 
% Change 1
(Dollars in millions)2019 2018  2019 2018 
Employee compensation
$744
 
$719
 3 % 
$2,149
 
$2,141
 — %
Employee benefits97
 76
 28
 344
 310
 11
Personnel expenses841
 795
 6
 2,493
 2,451
 2
           

Outside processing and software241
 234
 3
 720
 667
 8
Net occupancy expense102
 86
 19
 305
 270
 13
Charitable contribution to SunTrust Foundation—
 —
 —
 205
 —
 NM
Marketing and customer development44
 45
 (2) 131
 127
 3
Equipment expense36
 40
 (10) 114
 124
 (8)
Merger-related costs22
 —
 NM
 75
 —
 NM
Operating losses23
 18
 28
 60
 40
 50
Amortization21
 19
 11
 54
 51
 6
Regulatory assessments17
 39
 (56) 53
 118
 (55)
Other noninterest expense127
 108
 18
 392
 343
 14
            
Total noninterest expense
$1,474
 
$1,384
 7 % 
$4,602
 
$4,191
 10 %
1
"NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.

Noninterest expense increased $90 million, or 7%, compared to the third quarter of 2018 and increased $411 million, or 10%, compared to the nine months ended September 30, 2018. Excluding the Merger-related impacts of $33 million in the current quarter and $92 million in the first nine months of 2019 as well as the $205 million charitable contribution to the SunTrust Foundation in the prior quarter, noninterest expense increased $57 million, or 4%, compared to the third quarter of 2018 and increased $114 million, or 3%, compared to the nine months ended September 30, 2018. The 4% increase compared to the third quarter of 2018 was driven by higher personnel expenses, net occupancy expense, and ongoing investments in technology. The 3% increase compared to the nine months ended September 30, 2018 was driven by higher outside processing and software, personnel expenses, net occupancy expense, and operating losses.
Personnel expenses increased $46 million, or 6%, compared to the third quarter of 2018 and increased $42 million, or 2%, compared to the nine months ended September 30, 2018. These increases were driven primarily by higher salary and benefits costs recognized in the third quarter of 2019.
Outside processing and software expense increased $7 million, or 3%, compared to the third quarter of 2018 and increased $53 million, or 8%, compared to the nine months ended September 30, 2018. These increases were driven primarily by higher software-related costs resulting from the amortization of new and upgraded technology assets.

Net occupancy expense decreased $8increased $16 million, or 9%19%, compared to the third quarter of 20172018 and decreased $10increased $35 million, or 4%13%, compared to the nine months ended September 30, 2017.2018. These decreasesincreases were driven primarily by lease termination gains recognized in the secondthird quarter of 2018 and third quarters of 2018.
Regulatory assessmentshigher rent expense decreased $8 million, or 17%, compared toin the third quarter of 2017 and decreased $25 million, or 17%, compared to the nine months ended September 30, 2017. These decreases were driven by lower FDIC insurance premiums as a result of our improved earnings profile and higher levels of unsecured debt.
Amortization expense decreased $3 million, or 14%, compared to the third quarter of 2017 and increased $2 million, or 4%, compared to the nine months ended September 30, 2017. The decrease compared to the third quarter of 2017 was driven by lower amortization expense on other intangible assets.2019. The increase compared to the nine months ended September 30, 20172018 was also driven by an increasegains on sale-leaseback transactions recognized in our community development investments, which are amortized over the life of the related tax credits that these investments generate. See the "Community Development Investments" section of Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Consolidated Financial Statements in this Form 10-Q2018.
Merger-related costs totaled $22 million for additional information regarding these investments.
Operating losses increased $52 million compared to the third quarter of 20172019, related primarily to legal and increased $23professional fees and write-offs of certain technology development projects in progress. They totaled $75 million compared tofor the nine months ended September 30, 2017. These increases2019, comprised primarily of merger and acquisition advisory fees and legal costs. In addition to these Merger-related costs, there were due primarily to the favorable resolution of several legal matters in the third quarter of 2017, which resulted in $58$11 million and $17 million of discrete benefits.
other Merger-related expenses attributable largely to consulting and retention payments, which were recorded primarily in Other noninterest expense decreased $60during the three and nine months ended September 30, 2019, respectively. Combined, these costs and expenses represented $33 million and $92 million of Merger-related impacts for the three and nine months ended September 30, 2019, respectively.
Operating losses increased $5 million, or 36%28%, compared to the third quarter of 20172018 and decreased $93increased $20 million, or 21%50%, compared to the nine months ended September 30, 2017.2018. The increase compared to the third quarter of 2018 was driven primarily by higher fraud costs recognized during the third

quarter of 2019. The increase compared to the nine months ended September 30, 2018 was additionally driven by a $10 million net benefit recognized in the first quarter of 2018 related to the progression of certain legal matters.
Regulatory assessments expense decreased $22 million, or 56%, compared to the third quarter of 2018 and decreased $65 million, or 55%, compared to the nine months ended September 30, 2018. These decreases were driven primarily by lower severance-related expenses and software writedowns in the current quarter.
Separately, in accordance with our previously announced decision to terminate a pension plan that we acquired as partcessation of the NCF acquisition in 2004, we expect to reclassify approximately $61 million of pre-tax deferred losses from AOCI into net income upon settlement of the pension planFDIC surcharge in the fourth quarter of 2018.

Other noninterest expense increased $19 million, or 18%, compared to the third quarter of 2018 and increased $49 million, or 14%, compared to the nine months ended September 30, 2018. These increases were driven primarily by the aforementioned other Merger-related expenses during the current periods. The increase compared to the nine months ended September 30, 2018 was also driven by higher branch closure-related costs in the first quarter of 2019 and by gains on the sale of certain real estate assets in the second quarter of 2018.




LOANS
Our disclosures about the credit quality of our loanLHFI 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 loanLHFI portfolio consists of two loan segments: Commercial loans and Consumer loans. Loans are assigned to these segments based on the type of borrower, purpose, and/or our underlying credit management processes. Additionally, we further disaggregate each loanLHFI segment into loan types based on common characteristics within each loanLHFI 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.


Consumer Loans
Residential mortgages, both guaranteed (by a federal agency or GSE) and nonguaranteed, consist of loans secured by 1-4 family homes; mostly prime, first-lien loans. Residential home equity products consist of equity lines of credit and closed-end equity loans secured by residential real estate that may be in either a first lien or junior lien position. Residential construction loans include residential real estate secured owner-occupied construction-to-perm loans and lot loans.loans secured by residential real estate.
Consumer loans also include Guaranteed 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 Credit cards.

The composition of our loan portfolio is presented in Table 4:
Loan Portfolio by Types of LoansLoan Portfolio by Types of LoansTable 4
Loan Portfolio by Types of LoansTable 4 
        
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018 % Change
Commercial loans:        
C&I 1

$68,203
 
$66,356

$73,374
 
$71,137
 3 %
CRE6,618
 5,317
9,491
 7,265
 31
Commercial construction3,137
 3,804
2,142
 2,538
 (16)
Total commercial LHFI77,958
 75,477
85,007
 80,940
 5
Consumer loans:        
Residential mortgages - guaranteed452
 560
457
 459
 —
Residential mortgages - nonguaranteed 2
28,187
 27,136
28,810
 28,836
 —
Residential home equity products9,669
 10,626
8,696
 9,468
 (8)
Residential construction197
 298
144
 184
 (22)
Guaranteed student7,039
 6,633
7,146
 7,229
 (1)
Other direct10,100
 8,729
12,431
 10,615
 17
Indirect12,010
 12,140
14,060
 12,419
 13
Credit cards1,603
 1,582
1,704
 1,689
 1
Total consumer LHFI69,257
 67,704
73,448
 70,899
 4
LHFI
$147,215
 
$143,181

$158,455
 
$151,839
 4 %
LHFS 3

$1,961
 
$2,290

$2,006
 
$1,468
 37 %
1 Includes $3.8$4.0 billion and $3.7$4.1 billion of leasesales-type, direct financing, and $838leveraged leases at September 30, 2019 and December 31, 2018, and $817 million and $778$796 million of installment loans at September 30, 20182019 and December 31, 2017,2018, respectively.
2 Includes $168$124 million and $196$163 million of LHFI measured at fair value at September 30, 20182019 and December 31, 2017,2018, respectively.
3 Includes $1.8$1.5 billion and $1.6$1.2 billion of LHFS measured at fair value at September 30, 20182019 and December 31, 2017,2018, respectively.

Table 5 presents our LHFI portfolio by geography (based on the U.S. Census Bureau's classifications of U.S. regions):
         Table 5
LHFI Portfolio by GeographyLHFI Portfolio by Geography         Table 5
September 30, 2018September 30, 2019
Commercial LHFI Consumer LHFI Total LHFICommercial LHFI Consumer LHFI Total LHFI
(Dollars in millions)Balance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFIBalance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFI
South region:                      
Florida
$13,035
 17% 
$13,250
 19% 
$26,285
 18%
$13,589
 16% 
$13,375
 18% 
$26,964
 17%
Georgia10,519
 13
 8,485
 12
 19,004
 13
10,412
 12
 8,593
 12
 19,005
 12
Virginia6,349
 8
 7,457
 11
 13,806
 9
6,215
 7
 7,669
 10
 13,884
 9
Texas5,702
 7
 5,336
 7
 11,038
 7
Maryland4,317
 6
 6,148
 9
 10,465
 7
4,497
 5
 6,381
 9
 10,878
 7
North Carolina4,667
 6
 5,354
 8
 10,021
 7
5,012
 6
 5,596
 8
 10,608
 7
Texas4,166
 5
 4,512
 7
 8,678
 6
Tennessee4,248
 5
 2,938
 4
 7,186
 5
4,094
 5
 2,932
 4
 7,026
 4
South Carolina1,505
 2
 2,396
 3
 3,901
 3
1,701
 2
 2,487
 3
 4,188
 3
District of Columbia1,653
 2
 1,063
 2
 2,716
 2
1,982
 2
 1,162
 2
 3,144
 2
Other Southern states2,669
 3
 2,536
 4
 5,205
 4
3,000
 4
 2,950
 4
 5,950
 4
Total South region53,128
 68
 54,139
 78
 107,267
 73
56,204
 66
 56,481
 77
 112,685
 71
Northeast region:                      
New York5,184
 7
 1,226
 2
 6,410
 4
5,174
 6
 1,396
 2
 6,570
 4
Pennsylvania1,664
 2
 1,254
 2
 2,918
 2
1,832
 2
 1,439
 2
 3,271
 2
New Jersey1,427
 2
 731
 1
 2,158
 1
1,558
 2
 774
 1
 2,332
 1
Other Northeastern states2,691
 3
 948
 1
 3,639
 2
2,871
 3
 1,061
 1
 3,932
 2
Total Northeast region10,966
 14
 4,159
 6
 15,125
 10
11,435
 13
 4,670
 6
 16,105
 10
West region:                      
California4,349
 6
 3,463
 5
 7,812
 5
5,660
 7
 3,666
 5
 9,326
 6
Other Western states2,466
 3
 2,588
 4
 5,054
 3
3,187
 4
 3,139
 4
 6,326
 4
Total West region6,815
 9
 6,051
 9
 12,866
 9
8,847
 10
 6,805
 9
 15,652
 10
Midwest region:                      
Illinois1,903
 2
 1,074
 2
 2,977
 2
2,145
 3
 1,184
 2
 3,329
 2
Ohio792
 1
 763
 1
 1,555
 1
928
 1
 827
 1
 1,755
 1
Missouri914
 1
 460
 1
 1,374
 1
907
 1
 528
 1
 1,435
 1
Other Midwestern states2,084
 3
 2,534
 4
 4,618
 3
2,735
 3
 2,879
 4
 5,614
 4
Total Midwest region5,693
 7
 4,831
 7
 10,524
 7
6,715
 8
 5,418
 7
 12,133
 8
Foreign loans1,356
 2
 77
 —
 1,433
 1
1,806
 2
 74
 —
 1,880
 1
Total
$77,958
 100% 
$69,257
 100% 
$147,215
 100%
$85,007
 100% 
$73,448
 100% 
$158,455
 100%

LHFI Portfolio by Geography (continued)LHFI Portfolio by Geography (continued)          
December 31, 2017December 31, 2018
Commercial LHFI Consumer LHFI Total LHFICommercial LHFI Consumer LHFI Total LHFI
(Dollars in millions)Balance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFIBalance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFI
South region:                      
Florida
$12,792
 17% 
$13,474
 20% 
$26,266
 18%
$13,442
 17% 
$13,358
 19% 
$26,800
 18%
Georgia10,250
 14
 8,462
 12
 18,712
 13
10,689
 13
 8,519
 12
 19,208
 13
Virginia6,580
 9
 7,545
 11
 14,125
 10
6,481
 8
 7,529
 11
 14,010
 9
Maryland4,104
 5
 6,095
 9
 10,199
 7
4,591
 6
 6,236
 9
 10,827
 7
North Carolina4,482
 6
 5,354
 8
 9,836
 7
4,418
 5
 5,424
 8
 9,842
 6
Texas3,954
 5
 4,122
 6
 8,076
 6
4,420
 5
 4,782
 7
 9,202
 6
Tennessee4,101
 5
 2,985
 4
 7,086
 5
4,244
 5
 2,962
 4
 7,206
 5
South Carolina1,155
 2
 2,385
 4
 3,540
 2
1,522
 2
 2,418
 3
 3,940
 3
District of Columbia1,501
 2
 1,022
 2
 2,523
 2
1,746
 2
 1,094
 2
 2,840
 2
Other Southern states2,791
 4
 2,452
 4
 5,243
 4
2,325
 3
 2,619
 4
 4,944
 3
Total South region51,710
 69
 53,896
 80
 105,606
 74
53,878
 67
 54,941
 77
 108,819
 72
Northeast region:                      
New York4,731
 6
 1,139
 2
 5,870
 4
5,033
 6
 1,278
 2
 6,311
 4
Pennsylvania1,458
 2
 1,189
 2
 2,647
 2
1,942
 2
 1,312
 2
 3,254
 2
New Jersey1,327
 2
 689
 1
 2,016
 1
1,426
 2
 755
 1
 2,181
 1
Other Northeastern states2,387
 3
 895
 1
 3,282
 2
2,844
 4
 985
 1
 3,829
 3
Total Northeast region9,903
 13
 3,912
 6
 13,815
 10
11,245
 14
 4,330
 6
 15,575
 10
West region:                      
California4,893
 6
 3,246
 5
 8,139
 6
5,299
 7
 3,653
 5
 8,952
 6
Other Western states2,172
 3
 2,235
 3
 4,407
 3
2,705
 3
 2,813
 4
 5,518
 4
Total West region7,065
 9
 5,481
 8
 12,546
 9
8,004
 10
 6,466
 9
 14,470
 10
Midwest region:                      
Illinois1,637
 2
 922
 1
 2,559
 2
1,947
 2
 1,131
 2
 3,078
 2
Ohio718
 1
 688
 1
 1,406
 1
985
 1
 795
 1
 1,780
 1
Missouri922
 1
 395
 1
 1,317
 1
979
 1
 491
 1
 1,470
 1
Other Midwestern states2,211
 3
 2,336
 3
 4,547
 3
2,183
 3
 2,663
 4
 4,846
 3
Total Midwest region5,488
 7
 4,341
 6
 9,829
 7
6,094
 8
 5,080
 7
 11,174
 7
Foreign loans1,311
 2
 74
 —
 1,385
 1
1,719
 2
 82
 —
 1,801
 1
Total
$75,477
 100% 
$67,704
 100% 
$143,181
 100%
$80,940
 100% 
$70,899
 100% 
$151,839
 100%


Loans Held for Investment
LHFI totaled $147.2$158.5 billion at September 30, 2018,2019, an increase of $4.0$6.6 billion from December 31, 2017,2018, driven largelyprimarily by increases in C&I, CRE, consumer direct, CRE, nonguaranteed residential mortgages, and guaranteed studentconsumer indirect loans, offset partially by decreasesdeclines in residential home equity products and commercial construction and consumer indirect loans.
Average LHFI for the third quarter of 20182019 totaled $146.0$157.6 billion, up $1.8$1.4 billion, or 1%, compared to the prior quarter, drivenand up $11.6 billion, or 8%, compared to the third quarter of 2018. These increases in average LHFI were led primarily by growth in the same factors as discussed above related toloan categories that drove the change in period end LHFI.LHFI described above, as well as growth in nonguaranteed residential mortgages year-over-year. See Table 1 and the "Net Interest Income/Margin" section in this MD&A for more detailed information regarding average LHFI balances, yields earned, and associated impacts on net interest income.
Commercial loans increased $2.5$4.1 billion, or 3%5%, during the first nine months of 2018,2019, driven by a $1.8$2.2 billion, or 3%, increase in C&I loans resulting from growth in a number of industry verticals and client segments. In addition, CRE loans also increased $1.3$2.2 billion, or 24%31%, driven by portfolio diversificationincreased production on existing, stabilized properties. These increases in C&I and increased loan production,CRE loans
were offset partiallyslightly by a $667$396 million, or 18%16%, decrease in commercial construction loans due to payoffs and paydowns.loans.
Consumer loans increased $1.6$2.5 billion, or 4%, during the first nine months of 2018,2019, driven by a $1.4$1.8 billion, or 16%17%, increase in otherconsumer direct loans and a $1.1$1.6 billion, or 4%13%, increase in nonguaranteed residential mortgages, and a $406 million, or 6%, increase in guaranteed studentconsumer indirect loans. These increases were offset partially by a $957$772 million, or 9%8%, decreasedecline in residential home equity products and a $130 million, or 1%, decline in indirect loans during the first nine months of 2018.
products. At September 30, 2018, 40%2019, 39% of our residential home equity product balance was in a first lien position and 60%61% was in a junior lien position. For residential home equity products in a junior lien position at September 30, 2018,2019, we own or service 32% of the balance of loans that are senior to the home equity product.

Loans Held for Sale
LHFS decreased $329increased $538 million, or 14%37%, during the first nine months of 2018,2019 due primarily to loan sales exceedingincreased mortgage production.production, particularly in commercial mortgages through our agency lending business.

Asset Quality
Our asset quality metrics were strong during the third quarter and the first nine months of 2018,2019, evidenced by our low annualized net charge-offs to total average LHFI ratio and low NPLs to period-end LHFI ratio. These low levels reflect the relative strength across our LHFI portfolio, particularly in C&I, CRE, and residential mortgages, though we recognize that there could be normalization and variability moving forward. See the “Allowance for Credit Losses” and “Nonperforming Assets” sections of this MD&A for detailed information regarding our net charge-offs and NPLs.
NPAs increased $13$72 million, or 2%12%, during the first nine months of 2018,2019, driven primarily by an increase in C&I and CRE borrower downgrades as well as the impact of hurricane-related forbearances,NPLs, offset largely by charge-offs, paydowns,a decrease in nonguaranteed residential mortgages and the return to accrual status of certain nonperforming home equity products. At both September 30, 20182019 and December 31, 2017,2018, the ratio of NPLs to period-end LHFI was 0.47%.0.38% and 0.35%, respectively.
Early stage delinquencies were 0.74%0.58% and 0.80%0.73% of total loans at September 30, 20182019 and December 31, 2017,2018, respectively. Early stage delinquencies, excluding government-guaranteed loans, were 0.24%0.23% and 0.32%0.27% at September 30, 2018 2019
and December 31, 2017,2018, respectively. The reductions in early
stage delinquencies resulted primarily from improvements in consumer loans.
For the third quarter of 2018,2019, net charge-offs totaled $88$112 million, compared to $73$85 million infor the prior quarter and $78$88 million infor the third quarter of 2017.2018. The annualized net charge-offs to total average LHFI ratio on an annualized basis was 0.24% and 0.21%0.28% for the third quarter of 2018 and 2017, respectively, and was 0.20%2019, compared to 0.22% for the prior quarter.quarter and 0.24% for the third quarter of 2018. For the first nine months of 20182019 and 2017,2018, net charge-offs totaled $240$294 million and $261$240 million, and the annualized net charge-offs to total average LHFI ratio was 0.22%0.25% and 0.24%0.22%, respectively. The declineincrease in net charge-offs compared to the first nine months of 20172018 was drivendue primarily by overall asset quality improvements and lower commercialto higher net charge-offs.charge-offs on consumer LHFI.
WeOn a standalone basis, we still expect to operate within an annualizedour full year 2019 net charge-offs to total average LHFI ratio ofto be between 25 and 30 basis points forpoints. However, we believe this ratio will have an upward trajectory over time, given the fourth quarterstrong performance we have experienced in recent years combined with increased levels of 2018. Additionally, we expect the ALLL to period-end LHFI ratio to stabilize, which would result in a provision for loan losses that modestly exceeds net charge-offs, given loan growth.macroeconomic, political, and global uncertainty.





ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. A rollforward of our allowance for credit losses and summarized credit loss experience is shown in Table 6. See Note 1, "Significant“Significant Accounting Policies,"” and the "Critical“Critical Accounting Policies"Policies”
 
MD&A section of our 20172018 Annual Report on Form 10-K, as well as Note 7, "Allowance“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 6
Summary of Credit Losses Experience Table 6
              
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended September 30   Nine Months Ended September 30  
(Dollars in millions)2018 2017 
% Change 4
 2018 2017 
% Change 4
2019 2018 
% Change 5
 2019 2018 
% Change 5
Allowance for Credit Losses                      
Balance - beginning of period
$1,722
 
$1,803
 (4)% 
$1,814
 
$1,776
 2 %
$1,751
 
$1,722
 2 % 
$1,684
 
$1,814
 (7)%
Provision/(benefit) for unfunded commitments—
 1
 (100) (7) 6
 NM
2
 —
 NM
 3
 (7) NM
Provision for loan losses:                      
Commercial LHFI36
 5
 NM
 37
 89
 (58)42
 36
 17
 208
 37
 NM
Consumer LHFI25
 114
 (78) 91
 235
 (61)88
 25
 NM
 201
 91
 NM
Total provision for loan losses61
 119
 (49) 128
 324
 (60)130
 61
 NM
 409
 128
 NM
Charge-offs:          
          
Commercial LHFI(51) (33) 55
 (95) (122) (22)(35) (51) (31) (88) (95) (7)
Consumer LHFI(71) (76) (7) (234) (235) —
(104) (71) 46
 (289) (234) 24
Total charge-offs(122) (109) 12
 (329) (357) (8)(139) (122) 14
 (377) (329) 15
Recoveries:                      
Commercial LHFI9
 11
 (18) 19
 32
 (41)5
 9
 (44) 14
 19
 (26)
Consumer LHFI25
 20
 25
 70
 64
 9
22
 25
 (12) 69
 70
 (1)
Total recoveries34
 31
 10
 89
 96
 (7)27
 34
 (21) 83
 89
 (7)
Net charge-offs(88) (78) 13
 (240) (261) (8)(112) (88) 27
 (294) (240) 23
Other 1
—
 —
 —
 (31) —
 NM
Balance - end of period
$1,695
 
$1,845
 (8)% 
$1,695
 
$1,845
 (8)%
$1,771
 
$1,695
 4 % 
$1,771
 
$1,695
 4 %
Components:                      
ALLL    

 
$1,623
 
$1,772
 (8)%    

 
$1,699
 
$1,623
 5 %
Unfunded commitments reserve 1
    

 72
 73
 (1)
Unfunded commitments reserve 2
    

 72
 72
 —
Allowance for credit losses

 

 

 
$1,695
 
$1,845
 (8)%

 

 

 
$1,771
 
$1,695
 4 %
Average LHFI
$145,995
 
$144,706
 1 % 
$144,368
 
$144,276
 — %
$157,612
 
$145,995
 8 % 
$156,044
 
$144,368
 8 %
Period-end LHFI outstanding      147,215
 144,264
 2
      158,455
 147,215
 8
Ratios:                      
ALLL to period-end LHFI 2
      1.10% 1.23% (11)%
ALLL to NPLs 3
      2.35x
 2.55x
 (8)
Net charge-offs to total average LHFI (annualized)0.24% 0.21% 14
 0.22% 0.24% (8)
ALLL to period-end LHFI 3
      1.07% 1.10% (3)%
ALLL to NPLs 4
      2.84x
 2.35x
 21
Net charge-offs to total average LHFI0.28% 0.24% 17
 0.25% 0.22% 14
1Represents the allowance for restructured loans that were transferred from LHFI to LHFS in the first quarter of 2019 and subsequently sold in the second quarter of 2019.
2 The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets.
23 $168 $124 million and $206$168 million of LHFI measured at fair value at September 30, 20182019 and 2017,2018, 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.
4 $3$6 million and $3$6 million of NPLs measured at fair value at September 30, 20182019 and 2017, respectively,2018, were excluded from NPLs in the calculation, as no allowance is recorded for NPLs measured at fair value. We believe that this presentation more appropriately reflects the relationship between the ALLL and NPLs that attract an allowance.calculation.
45 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.



Provision for Credit Losses
The total provision for credit losses includes the provision 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 and first nine months of 2018,2019, the total provision for loan losses decreased $58increased $69 million compared to the third quarter of 2017, due to elevated hurricane-related reserves in the third quarter of 2017 and improved economic and credit conditions resulting in a lower ALLL. For the first nine months of 2018, the total provision for loan losses decreased $196$281 million compared to the same periodperiods in 2017, driven2018. These increases primarily by a lower ALLLreflect loan growth and lowerhigher net charge-offs.charge-offs on consumer loans.
Our quarterly review processes to determine the level of reserves and provision 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. In addition to internal credit quality metrics, the ALLL estimate is 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 7
ALLL by Loan Segment Table 7
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
ALLL:      
Commercial LHFI
$1,062
 
$1,101

$1,214
 
$1,080
Consumer LHFI561
 634
485
 535
Total
$1,623
 
$1,735

$1,699
 
$1,615
Segment ALLL as a % of total ALLL:
Commercial LHFI65% 63%71% 67%
Consumer LHFI35
 37
29
 33
Total100% 100%100% 100%
Segment LHFI as a % of total LHFI:
Commercial LHFI53% 53%54% 53%
Consumer LHFI47
 47
46
 47
Total100% 100%100% 100%


The ALLL decreased $112increased $84 million, or 6%5%, from December 31, 2017,2018, to $1.6$1.7 billion at September 30, 2018.2019. The decreaseincrease was due primarily to a reduction in the amount ofloan growth and higher reserves held for hurricane-related losses and improved economic and credit conditions, offset partially by loan growth.associated with commercial loans. The ALLL to period-end LHFI ratio (excluding loans measured at fair value) decreased 11increased one basis pointspoint from December 31, 2017,2018, to 1.10%1.07% at September 30, 2018.2019. The ratio of the ALLL to NPLs (excluding NPLs measured at fair value) decreased to 2.35x2.84x at September 30, 2018,2019, compared to 2.59x3.10x at December 31, 2017, due to a decrease in the ALLL and2018, driven primarily by an increase in NPLs.NPLs, offset partially by an increase in the ALLL.




NONPERFORMING ASSETS

NPA and TDR Composition and Other Credit Data    Table 8
    Table 8
(Dollars in millions)September 30, 2018 December 31, 2017 % ChangeSeptember 30, 2019 December 31, 2018 
% Change 3
NPAs:          
Commercial NPLs:          
C&I
$256
 
$215
 19 %
$350
 
$157
 NM
CRE43
 24
 79
1
 2
 (50)
Commercial construction—
 1
 (100)
Total commercial NPLs299
 240
 25
351
 159
 NM
Consumer NPLs:          
Residential mortgages - nonguaranteed225
 206
 9
125
 204
 (39)
Residential home equity products149
 203
 (27)100
 138
 (28)
Residential construction9
 11
 (18)8
 11
 (27)
Other direct7
 7
 —
11
 7
 57
Indirect6
 7
 (14)5
 7
 (29)
Total consumer NPLs396
 434
 (9)249
 367
 (32)
Total nonaccrual loans/NPLs 1

$695
 
$674
 3 %
Total nonaccrual LHFI/NPLs 1

$600
 
$526
 14 %
OREO 2

$52
 
$57
 (9)%
$52
 
$54
 (4)%
Other repossessed assets7
 10
 (30)8
 9
 (11)
Nonperforming LHFS1
 —
 NM
Total NPAs
$754
 
$741
 2 %
$661
 
$589
 12 %
Accruing LHFI past due 90 days or more
$1,482
 
$1,405
 5 %
$1,393
 
$1,652
 (16)%
Accruing LHFS past due 90 days or more2
 2
 —
3
 1
 NM
TDRs:          
Accruing restructured loans
$2,327
 
$2,468
 (6)%
Nonaccruing restructured loans 1
345
 286
 21
Accruing restructured LHFI
$1,752
 
$2,339
 (25)%
Nonaccruing restructured LHFI 1
163
 291
 (44)
Ratios:          
NPLs to period-end LHFI0.47% 0.47% — %0.38% 0.35% 9 %
NPAs to period-end LHFI, OREO, and other repossessed assets0.51
 0.52
 (2)
NPAs to period-end LHFI, OREO, repossessed assets, and nonperforming LHFS0.42
 0.39
 8
1Nonaccruing restructured loansLHFI are included in total nonaccrual loans/LHFI/NPLs.
2Does not include foreclosed real estate related to loans insured by the FHA or guaranteed by 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. The receivable related to proceeds due from the FHA andor the VA totaled $49$43 million and $45$50 million at September 30, 20182019 and December 31, 2017,2018, respectively.

3 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.


Problem loans or loans with potential weaknesses, such as nonaccrual loans, loans over 90 days past due and still accruing, and TDR loans held for investment, 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 6, “Loans,” to the Consolidated Financial Statements in this Form 10-Q. At September 30, 20182019 and December 31, 2017,2018, there were no known significant potential problem loans that are not otherwise disclosed. See the "Critical“Critical Accounting Policies"Policies” MD&A section of our 20172018 Annual Report on Form 10-K for additional information regarding our policy on loans classified as nonaccrual.
NPAs increased $13$72 million, or 2%12%, during the first nine months of 2018.2019. The increase in NPAs was driven primarily by commercial borrower downgrades and hurricane-related forbearances on residential mortgage loans,due to an increase in C&I NPLs during the first nine months of 2019, offset largely by the return to accrual status of certain nonperformingdecreases in nonguaranteed residential mortgages and home equity products.NPLs.


Nonperforming Loans
NPLs at September 30, 20182019 totaled $695$600 million, an increase of $21$74 million, or 3%14%, from December 31, 2017,2018, driven primarily by increasesan
increase in C&I, CRE, and residential mortgagecommercial NPLs, offset largely by a decreasedecline in home equityconsumer NPLs. The ratio of NPLs to period-end LHFI was 0.47%0.38% and 0.35% at both September 30, 20182019 and December 31, 2017.2018, respectively.
Commercial NPLs increased $59$192 million or 25%, during the first nine months of 2018 driven by increases2019, due to an increase in C&I and CRE NPLs as a result of $41 million, or 19%, and $19 million, or 79%, respectively, due primarily to borrower downgrades, offset partially by charge-offs and paydowns.downgrades.
Consumer NPLs decreased $38$118 million, or 9%32%, from December 31, 2017,2018, driven primarily by thelower levels of nonperforming residential mortgages and home equity products due to their return back to accrual status (as a result of certain home equity products, offset partially by an increase in residential mortgage NPLs due primarily to hurricane-related forbearances.forbearance relief provided after hurricanes).
Interest income on consumer nonaccrual loans, if received, 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. Interest income

recognized on nonaccrual loans (which includes out-of-period interest for certain commercial nonaccrual loans) totaled $5$3 million and $11$5 million for the third quarterquarters of 2019 and 2018, and 2017, and totaled $15$11 million and $24$15 million for the first nine months of 20182019 and 2017,2018, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $9 million and $12 million and $11 million would

have been recognized for the third quarterquarters of 2019 and 2018, and 2017,$27 million and $34 million and $33 million for the first nine months of 20182019 and 2017,2018, respectively.


Other Nonperforming Assets
OREO decreased $5$2 million, or 9%4%, during the first nine months of 20182019 to $52 million at September 30, 2018.2019. Sales of OREO resulted in proceeds of $47$33 million and $46$47 million during the first nine months of 20182019 and 2017,2018, resulting in net gains of $7$4 million and $8$7 million, respectively, inclusive of valuation reserves.
Most of our OREO properties are located in Florida, Maryland, Virginia,Georgia, and South Carolina.Virginia. Residential and commercial real estate properties comprised 93%96% and 4%1%, respectively, of total OREO at September 30, 2018,2019, with the remainder related to land. Upon foreclosure, the values of these properties were re-evaluated and, if necessary, written down to their then-current estimated fair value less estimated costs to sell. Any further decreases in property values could result in additional losses as they are regularly revalued. See the "Non-recurring Fair Value Measurements" section within Note 16,17, "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. We are actively managing and disposing of these assets to minimize future losses and to maintain compliancecomply with regulatory requirements.
Accruing loans past due 90 days or more are included in LHFI and LHFS, and totaled $1.5$1.4 billion and $1.4$1.7 billion at September 30, 20182019 and December 31, 2017,2018, respectively. Of these, 97%96% and 98%97% were government-guaranteed at September 30, 20182019 and December 31, 2017,2018, respectively. Accruing LHFI past due 90 days or more increased $77decreased $259 million, or 5%16%, during
the first nine months of 2018,2019, driven by a $125$268 million, or 12%20%, increasedecrease in guaranteed student loans, offset partiallyslightly by a $59$6 million, or 17%2%, decreaseincrease in guaranteed residential mortgages.

Restructured Loans
At September 30, 2018,2019, our total TDR portfolio included in LHFI totaled $2.7$1.9 billion and was comprised of $2.5$1.8 billion, or 95%97%, of consumer loans (predominantly first and second lien residential mortgages and home equity lines of credit) and $63 million, or 3%, of commercial loans.
Total TDRs held for investment decreased $715 million, or 27%, from December 31, 2018, due to a $587 million, or 25%, reduction in accruing TDRs and a $128 million, or 5%, of commercial loans. Total TDRs decreased $82 million from December 31, 2017, as a $141 million, or 6%44%, decreasedecline in nonaccruing TDRs. The reduction in accruing TDRs was offset partiallydriven by our sale of $465 million of TDRs in the second quarter of 2019 for a $59 million, or 21%, increase in nonaccruing TDRs.net gain on sale of $44 million.
Generally, interest income on restructured loans that have met sustained performance criteria and returned to accruing status is recognized according to the terms of the restructuring. Such recognized interest income totaled $26$20 million and $27$26 million for the third quarterquarters of 2019 and 2018, and 2017, and totaled $80$63 million and $81$80 million for the first nine months of 20182019 and 2017,2018, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $30$22 million and $32$30 million for the third quarter of 2019 and 2018, and 2017,$71 million and $93 million and $98 million for the first nine months of 20182019 and 2017,2018, respectively, would have been recognized.
For additional information regarding our restructured loans and associated accounting policies, see Note 1, "Significant“Significant Accounting Policies,"” and the "Nonperforming Assets"“Nonperforming Assets” MD&A section inof our 20172018 Annual Report on Form 10-K, as well as Note 6, “Loans,” to the Consolidated Financial Statements in this Form 10-Q.


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, 20182019 and December 31, 2017.2018. 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 16,17, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.10-Q as well as in our 2018 Annual Report on Form 10-K.


Trading Assets and Liabilities and Derivative Instruments
Trading assets and derivative instruments increased $583 million,$1.6 billion, or 11%29%, compared to December 31, 2017.2018. This increase was dueconsisted primarily toof increases in CP,derivative instruments, trading loans, agency MBS, and federal agency securities, offset partially by decreases in corporate and other debt securities, federal agency securities,CP, and U.S. Treasury securities, agency MBS, and municipal securities, offset partially by a decrease in derivative instruments.securities. These changes were driven
by normal activity in the trading portfolio product mix as we manage our
business and continue to meet our clients' needs. Trading liabilities and derivative instruments increased $580decreased $224 million, or 45%14%, compared to December 31, 2017, driven by increases2018, consisting primarily of decreases in derivative instruments, U.S. Treasury securities and derivative instruments, offset partially by an increase in corporate and other debt securities. For composition and valuation assumptions related to our trading products, as well as additional information on our derivative instruments, see Note 4, “Trading Assets and Liabilities and Derivative Instruments,” and Note 15,16, “Derivative Financial Instruments,” andto the “Trading Assets and Derivative Instruments and Investment Securities” section ofConsolidated Financial Statements in this Form 10-Q as well as Note 16,20, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in thisour 2018 Annual Report on Form 10-Q.10-K. 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 ofin this MD&A.&A and in our 2018 Annual Report on Form 10-K.





Investment Securities              
              
Investment Securities Portfolio Composition

      Table 9
      Table 9
September 30, 2018September 30, 2019
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Securities AFS:              
U.S. Treasury securities
$4,275
 
$—
 
$142
 
$4,133

$3,915
 
$103
 
$—
 
$4,018
Federal agency securities224
 2
 3
 223
123
 1
 —
 124
U.S. states and political subdivisions621
 3
 22
 602
564
 9
 1
 572
MBS - agency residential23,112
 111
 718
 22,505
22,069
 520
 4
 22,585
MBS - agency commercial2,713
 1
 112
 2,602
2,881
 103
 1
 2,983
MBS - non-agency commercial943
 —
 38
 905
1,008
 56
 —
 1,064
Corporate and other debt securities14
 —
 —
 14
12
 —
 —
 12
Total securities AFS
$31,902
 
$117
 
$1,035
 
$30,984

$30,572
 
$792
 
$6
 
$31,358


 December 31, 2017 1
December 31, 2018
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Securities AFS:              
U.S. Treasury securities
$4,361
 
$2
 
$32
 
$4,331

$4,277
 
$—
 
$66
 
$4,211
Federal agency securities257
 3
 1
 259
221
 2
 2
 221
U.S. states and political subdivisions618
 7
 8
 617
606
 4
 21
 589
MBS - agency residential22,616
 222
 134
 22,704
23,161
 128
 425
 22,864
MBS - agency commercial2,121
 3
 38
 2,086
2,688
 8
 69
 2,627
MBS - non-agency residential55
 4
 —
 59
MBS - non-agency commercial862
 7
 3
 866
943
 —
 27
 916
ABS6
 2
 —
 8
Corporate and other debt securities17
 —
 —
 17
14
 —
 —
 14
Total securities AFS
$30,913
 
$250
 
$216
 
$30,947

$31,910
 
$142
 
$610
 
$31,442
1 Beginning January 1, 2018, we reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability. See Note 9, "Other Assets," to the Consolidated Financial Statements in this Form 10-Q for additional information.


The investment securities 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 decreased $1.3 billion during the nine months ended September 30, 2019, due primarily to decreased holdings of agency residential MBS, U.S. Treasury securities, federal agency securities, and municipal securities, offset partially by increased $989holdings of commercial MBS. The fair value of the securities AFS portfolio decreased $84 million during the nine months ended September 30, 2018, due primarily to increased holdings of agency commercial and residential MBS as well as non-agency commercial MBS, offset partially by decreased holdings of U.S. Treasury securities, non-agency residential MBS, and federal agency securities. The fair value of the securities AFS portfolio increased $37 million compared to December 31, 2017,2019, due primarily to the aforementioned increasesdecreases in securities holdings offset largely by a $952 millionan increase in net unrealized lossesgains associated with increasedthe decline in market interest rates. At September 30, 2018,2019, the overall securities AFS portfolio was in a $918$786 million net unrealized lossgain position, compared to a net unrealized gainloss position of $34$468 million at December 31, 2017.2018. The securities AFS portfolio had an effective duration of 4.83.4 years at September 30, 20182019 compared to 4.54.6 years at December 31, 2017.2018.
For the three months ended September 30, 2019, net realized gains on the sale of securities AFS totaled $4 million. For the nine months ended September 30, 2019, net realized losses on the sale of securities AFS totaled $38 million, driven by the repositioning of approximately $3.0 billion of our securities AFS portfolio in the second quarter of 2019. For the three and nine
 
Netmonths ended September 30, 2018, net realized gains related toon the sale of securities AFS were immaterialimmaterial. No OTTI credit losses were recognized in earnings for both the three and nine months ended September 30, 20182019 and 2017. There were no OTTI credit losses recognized in earnings for the nine months ended September 30, 2018 and 2017.2018. For additional information on our accounting policies, composition, and valuation assumptions related to the securities AFS portfolio, see Note 1, "Significant“Significant Accounting Policies," to” and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 20, “Fair Value Election and Measurement,” in our 20172018 Annual Report on Form 10-K, as well as Note 5, "Investment“Investment Securities," Note 1, "Significant Accounting Policies," and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 16, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.
For the three months ended September 30, 2018,2019, the average yield on the securities AFS portfolio was 2.69%2.73%, compared to 2.49%2.69% for the three months ended September 30, 2017.2018. For the nine months ended September 30, 2018,2019, the average yield on the securities AFS portfolio was 2.66%2.77%, compared to 2.45%2.66% for the nine months ended September 30, 2017.2018. The increases in average yield were due primarily to higher benchmark interest rates, favorable mix shift, and loweryields on reinvestments across most categories of securities AFS as well as the aforementioned repositioning of the securities AFS portfolio, offset partially by higher premium amortization. See additional discussion related to average yields on securities AFS in the "Net Interest Income/Margin" section of this MD&A.

The credit quality and liquidity profile of our investment securities portfolio remained strong at September 30, 2018.2019. Over the longer term, the size and composition of the investment securities portfolio will reflect balance sheet trends and our overall liquidity objectives. Accordingly, the size and composition of the investment securities portfolio could change over time.

BORROWINGS

BORROWINGS
Short-Term Borrowings
Short-term borrowings include funds purchased, securities sold under agreements to repurchase, and other short-term borrowings. Our short-term borrowings at September 30, 2018 increased $3.22019 decreased $1.6 billion, or 66%19%, from December 31, 2017,2018, driven primarily by increases of $2.1a $1.9 billion $793 million, and $227 milliondecrease in other short-term borrowings, funds purchased, and securities sold under agreements to repurchase, respectively. Theoffset partially by a $204 million increase in other short-term borrowings was due primarily to a $2.0 billion increase in outstanding FHLB advances.borrowings.
Long-Term Debt
During the nine months ended September 30, 2018,2019, our long-term debt increased by $4.5$5.3 billion, or 46%35%. This increase was driven by (i) the Bank's first quarter of 2018our 2019 debt issuances of $500 million of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under the Global Bank Note program, (ii) our second quarter of 2018 issuance of $850 million of 7-year fixed rate senior notes under the Parent Company SEC shelf registration, (iii) the Bank's third quarter of 2018 issuances of $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes$3.3 billion (summarized in Table 10) as well as $300a $2.5 billion increase in outstanding long-term FHLB advances. These increases were offset partially by $701 million of 4-year floating rate senior notes under the Global Bank Note program, and (iv) increases of $1.0 billion and $542 million in outstanding FHLB advances and direct finance leases, respectively, during the nine months ended September 30, 2018. Partially offsetting these increases was $314 million of subordinated note maturities during the first nine months of 2018.
Table 10 presents our October 2018 issuances of long-term debt under the Global Bank Note program (completed subsequent to the current reporting period).
2019.
Debt Issuances Subsequent to September 30, 2018
Completed
During the First Nine Months of 2019
 Table 10
Description 
Principal Amount
(Dollars in millions)
Bank issuances:  
Bank IssuancesPrincipal AmountInterest RateOptional RedemptionMaturity Date
7-year3-year fixed rate senior notes $500 million
$1,3504.050% per annumCallable either (i) on or after September 3, 2025, or (ii) on or after 180 days from October 26, 2018 and prior to September 3, 2025 under a "make-whole" provisionNovember 3, 2025
3-year fixed-to-floating5-year fixed rate senior notes $600 million1,250Fixed annual rate of 3.525% until October 25, 2020 and floating rate thereafter of 3-month LIBOR plus 50 basis pointsCallable on October 26, 2020October 26, 2021
3-year floating rate senior notes $300 million650
Total 3-month LIBOR plus 50 basis points
$3,250Callable on or after October 26, 2020October 26, 2021


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. We measure capital adequacy using the standardized approach to the FRB'sFRB’s Basel III Final Rule. Basel III capital categories are discussed below.
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, and certain defined benefit pension fund net assets. Further, banks not subject to the advanced approaches risk-based capital rules 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 2 capital 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. Total capital consists of Tier 1 capital and Tier 2 capital.
To be considered "adequately“adequately capitalized,"” we are subject to minimum CET1, Tier 1 capital, and Total capital ratios of 4.5%, 6%, and 8%, respectively, plus, in 2018 2017, and 2016,2017, CCB amounts of 1.875%, and 1.25%, and 0.625%, respectively, arewere required to be maintained above the minimum capital ratios. The CCB will bewas fully phased-in at 2.5% above the minimum capital ratios on January 1, 2019. 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.

In April 2018, the FRB issued an NPR that included proposed modifications to minimum regulatory capital requirements as well as proposed changes to assumptions used in the stress testing process. The modifications would replace the 2.5% CCB with a Stress Capital Buffer ("SCB"(“SCB”). The SCB is the greater of (i) the difference between the actual CET1 ratio and the minimum forecasted CET1 ratio under a severely adverse scenario, based on modeling and projections performed by the Federal Reserve, plus four quarters of planned common stock dividends, or (ii) 2.5%, based on modeling and projections performed by the Federal Reserve.. If finalized, the SCB would be calculated based on the 2019 CCAR process and be incorporated into capital requirements effective as of the fourth quarter of 2019.
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.
A transition period previously applied to certain capital elements and risk weighted assets, where phase-in percentages were applicable in the calculations of capital and RWA. One of the more significant transitions required by the Basel III Final Rule relatesrelated to the risk weighting applied to MSRs, which impacted the CET1 ratio during the transition period when compared to the CET1 ratio calculated on a fully phased-in basis. Specifically, the fully phased-in risk weight of MSRs would have been 250%, while the risk weight to be applied during the transition period was 100%.
In the third quarter of 2017, the OCC, FRB, and FDIC issued two NPRs in an effort to simplify certain aspects of the capital rules, a Transitions NPR and a Simplifications NPR. The Transitions NPR proposed to extend certain transition provisions in the capital rules for banks with less than $250 billion in total consolidated assets. The Transitions NPR was finalized in November 2017, resulting in the MSR risk weight of 100% being extended indefinitely.extended. The rule became effective on January 1, 2018. The Simplifications NPR would will simplify the capital treatment for certain acquisition, development, and construction loans, mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest.interest, and will reinstate the 250% risk weighting for MSRs as outlined in the original Basel III capital rules. The SimplificationsNPR was finalized on July 9, 2019, and it will become effective on April 1, 2020.


In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act ("the Act"(“EGRRCPA”) was signed into law, which provides certain limited amendments to the Dodd-Frank Act as well as certain targeted modifications to other post-financial crisis regulatory requirements. While certain of the Act's provisions could impact our capital planning and strategy execution, the extent of the impact is yet to be determined given thatThe federal banking regulatorsagencies have not yet conformed current regulationsproposed several rules to implement the provisionsEGRRCPA (including the October 2018 NPR discussed below that was finalized in October 2019). See the “Enhanced Prudential Standards,” “Mandatory Liquidity Coverage Ratio and Net Stable Funding Ratio,” and “Capital Planning and Stress Testing” sections of Part I, Item 1, “Business,” in our 2018 Annual Report on Form 10-K for more information on the Act.EGRRCPA.
In September 2018, the OCC, FRB, and FDIC issued an NPR that would revise the definition of high volatility commercial real estate exposure ("HVCRE"(“HVCRE”) to conform withto the statutory definition of a high volatility commercial real estate acquisition, development, or construction loan, in accordance with the Act.EGRRCPA. The revised definition would exclude any loans made prior to January 1, 2015, and certain other loans currently classified as HVCRE. We are currently evaluating the impactadopted this revised definition of this NPR on our capital ratios.
HVCRE effective March 31, 2019.
In October 2018, the OCC, FRB, and FDIC issued an a joint NPR to address the tailoring provided for in the EGRRCPA that would establish four risk-based categories of standards for determining applicability of capital and liquidity requirements for large U.S. banking organizations. Among other things, the proposal would modify the frequency of and disclosures related to stress testing, and would also modify the application of certain regulatory capital provisions based on a particular bank holding company’s category within the proposal. The proposal is consistent with a separate NPR issued concurrently by the FRB that would amend certain prudential standards, including standards relating to liquidity, risk management, stress testing, and single-counterparty credit limits, to reflect the risk profiles of banking organizations. We
The joint tailoring NPR and the separate NPR issued by the FRB amending certain prudential standards were both finalized on October 10, 2019 and become effective 60 days after they are published in the Federal Register. As a Category IV bank, we would submit an annual capital plan, be exempted from the Dodd-Frank Act company-run stress testing requirement, and would be subject to biennial supervisory stress testing. Should the Merger consummate as planned, the combined company would be considered a Category III bank and would submit an annual capital plan, conduct company-run stress tests every other year, and would be subject to annual supervisory stress testing. Category III banking organizations are also subject to the Countercyclical Capital Buffer, which, if implemented by the Federal Reserve, would increase minimum required capital levels through an extension of the CCB. The Countercyclical Capital Buffer is currently evaluatingset at 0% by the impact of these NPRs.Federal Reserve, and if implemented would have a 12-month delay before it would become effective.
InAlso in October 2018, the OCC, FRB, and FDIC issued an NPR that introduced a new approach for calculating the exposure amount of derivative contracts for regulatory capital purposes, the standardized approach for counterparty credit risk ("SA-CCR"(“SA-CCR”). If finalized, we would be permittedcould elect to utilize the SA-CCR in place of the current exposure methodology for determining
counterparty credit risk exposures. We are currently evaluatingexposures, as the impactSA-CCR would be optional for non-advanced approaches banking institutions such as us.
In February 2019, the FRB announced that certain less-complex BHCs with less than $250 billion in assets, including the Company, would not be subject to supervisory stress testing, company-run stress testing, or CCAR for 2019.
For more information on these NPRs and announcements, see the “Enhanced Prudential Standards,” “Mandatory Liquidity Coverage Ratio and Net Stable Funding Ratio,” and “Capital Planning and Stress Testing” sections of this NPR.Part I, Item 1, “Business,” in our 2018 Annual Report on Form 10-K.
Table 11 presents the Company'sCompany’s Basel III regulatory capital metrics:
Regulatory Capital Metrics 1
Regulatory Capital Metrics 1
 Table 11
Regulatory Capital Metrics 1
 Table 11
(Dollars in millions)September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Regulatory capital:      
CET1
$17,543
 
$17,141

$18,243
 
$17,258
Tier 1 capital19,591
 19,622
20,290
 19,306
Total capital22,791
 23,028
23,582
 22,517
Assets:      
RWA
$182,729
 
$175,950

$195,455
 
$187,380
Average total assets for leverage ratio202,786
 200,141
218,598
 208,482
Risk-based ratios 2:
      
CET19.60% 9.74%9.33% 9.21%
Tier 1 capital10.72
 11.15
10.38
 10.30
Total capital12.47
 13.09
12.07
 12.02
Leverage9.66
 9.80
9.28
 9.26
Total shareholders’ equity to assets11.43
 12.21
11.65
 11.26
1We calculated these measures based on the methodology specified by our primary regulator, which may differ from the calculations used by other financial services companies that present similar metrics.
2 Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented.


Our CET1 ratio decreasedincreased compared to December 31, 2017,2018, driven primarily by growth in risk weighted assets,retained earnings, offset partially by an increase in retained earnings.RWA. The Tier 1 capital and Total capital ratios declinedalso increased compared to December 31, 2017,2018, due to the impact ofaforementioned impacts to our redemption of all outstanding shares of Series E Preferred Stock in the first quarter of 2018. Specifically, we used net proceeds from our November 2017 Series H Preferred Stock issuance to redeem all 4,500 shares of our outstanding higher cost Series E Preferred Stock in the first quarter of 2018.CET1 ratio. At September 30, 2018,2019, our capital ratios were well above current regulatory requirements. See Note 13, "Capital,"15, “Capital,” to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K for additional information regarding our regulatory capital adequacy requirements and metrics.

Capital Actions
We declared and paid common stock dividends of $693 million, or $1.56 per common share, for the nine months ended September 30, 2019, compared to $603 million, or $1.30 per common share, for the nine months ended September 30, 2018, compared to $443 million, or $0.92 per common share, for the nine months ended September 30, 2017.2018. Additionally, we declared dividends on our preferred stock of $81$77 million and $65$81 million during the nine months ended September 30, 20182019 and 2017,2018, respectively.
Various regulations administered by federal and state bank regulatory authorities restrict the Bank'sBank’s ability to distribute its retained earnings. At both September 30, 20182019 and December 31, 2017,2018, the Bank'sBank’s capacity to pay cash dividends

to the Parent Company under these regulations totaled approximately $2.1 billion and $2.5 billion, respectively.$2.2 billion.
During each of the first and second quartersquarter of 2018,2019, we repurchased $330$250 million of our outstanding common stock at market value, which completed our $1.32 billion of authorized common equity repurchases approved by the Board in conjunction with the 2017 capital plan.
In June 2018, we announced capital plans in response to the Federal Reserve's review of and non-objection tounder our 2018 capital plan submitted in conjunction with the 2018 CCAR. Our 2018 capitalpursuant to an SEC Rule 10b5-1 repurchase plan includes increases in our share repurchase program and quarterly common stock dividend, while maintaining our level of preferred stock dividends. Specifically, the 2018 capital plan authorized the repurchase of up to $2.0 billion of our outstanding common stock to be completed between the third quarter of 2018 andentered into on November 6, 2018. During the second quarter of 2019, we had $500 million of unused common stock repurchase capacity remaining under the 2018 capital plan, which effectively expired on June 30, 2019 as well aswe did not utilize this remaining share repurchase capacity in view of the Merger. In March 2019, our Board Risk Committee approved our 2019 internal capital plan, and in April 2019, we submitted certain required schedules to the Federal Reserve to support our 2019 internal capital plan. This 2019 internal capital plan included a 25%12% increase in our quarterly common stock dividend from $0.40 per sharecompared to $0.50both the prior quarter and the third quarter of 2018 to $0.56 per share, beginning in the third quarter of 2018.2019.
DuringGoing forward, we continue to expect our capital ratios to trend upward given our suspension of share repurchases in anticipation of the third quarter of 2018, we repurchased $500 million of our outstanding common stock at market value as part of this 2018 capital plan. We will repurchase a minimum of $500 million of our outstanding common stock in the fourth quarter of 2018.
Merger. See Item 5 and Note 13, "Capital,"15, “Capital,” to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K, as well as Part II, Item 2 in this Form 10-Q for additional information regarding our capital actions.


CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our Critical Accounting Policies from those described in our 20172018 Annual Report on Form 10-K.
ENTERPRISE RISK MANAGEMENT
Except as noted below, thereThere have been no significant changes in our Enterprise Risk Management practices from those described in our 20172018 Annual Report on Form 10-K.
In the second quarter of 2018, we established two additional executive committees:
The Strategic Initiative Review Committee ("SIRC") was formed to further support executive level review of strategic initiatives. The SIRC is chaired by the Chief Risk Officer and is responsible for identifying constraints to business accelerations, challenging assumptions or execution strategies, and validating alignment with our purpose, risk appetite, and strategic direction.
The Technology Management Committee ("TMC") was formed to provide the Executive Council, comprised of the CEO and his direct reports, with a forum to discuss, debate, and challenge technology strategies and investments to ensure alignment of technology strategy execution across the Executive Council. The TMC is chaired by the Chief Information Officer.

Credit Risk Management
There have been no significant changes in our Credit Risk Management practices from those described in our 20172018 Annual Report on Form 10-K.
Operational Risk Management
There have been no significant changes in our Operational Risk Management practices from those described in our 20172018 Annual Report on Form 10-K.


Market Risk Management
There have been no significant changes in our Market Risk Management practices from those described in our 20172018 Annual Report on Form 10-K, other than those already discussed in this section.MD&A.


LIBOR Transition
On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop requiring banks to submit LIBOR rates after 2021. As such, LIBOR in its current form may cease to exist, which would have implications for a number of products across our business. To prepare for this possibility and for the associated transition to alternative reference rates, management formed an
enterprise LIBOR Transition Program in 2018 with representation across the Company, collectively focused on addressing the various issues that may arise in the transition process. Over the last year, we have taken a number of steps in furthering this program, including performing an impact assessment and identifying specific risks associated with a possible cessation of LIBOR. Additionally, a governance framework has been established, which includes oversight by executive management committees and which supports communication across the enterprise as well as to the Board.
As part of the aforementioned impact assessment, we have identified and are monitoring our on and off-balance sheet LIBOR exposures, which include but are not limited to, contracts related to loans and leases, securities, wholesale borrowings, and derivatives. We continue to focus on measures to mitigate risks associated with these exposures, including evaluating changes to various products, systems, and strategies, as well as incorporating language within our new and existing agreements to better contemplate the transition to an alternative reference rate in the event that LIBOR ceases to exist. While considerable uncertainty remains around the LIBOR transition, we continue to be engaged as part of the industry effort and we are focused on promoting measures that best serve the needs of our clients and stakeholders. For additional information regarding the various risks associated with a change in interest rates based on regulatory developments, such as the potential cessation of LIBOR and the transition to an alternative reference rate, see the “Market Risks” section of Part I, Item 1A., “Risk Factors,” in our 2018 Annual Report on Form 10-K.

Market Risk from Non-Trading Activities
The sensitivity analysis presented in Table 12 is measured as a percentage change in net interest income due to instantaneous moves in benchmark interest rates. Estimated changes are dependent upon material assumptions such as those described in our 20172018 Annual Report on Form 10-K.
Net Interest Income Asset SensitivityNet Interest Income Asset SensitivityTable 12Net Interest Income Asset SensitivityTable 12
  
Estimated % Change in
Net Interest Income Over 12 Months 1
Estimated % Change in
Net Interest Income Over Twelve Months 1
September 30, 2018 December 31, 2017September 30, 2019 December 31, 2018
Rate Change  
+200 bps2.0% 2.4%0.9% 2.3%
+100 bps1.1% 1.4%0.8% 1.2%
-50 bps(0.8)% (1.0)%(1.4)% (0.9)%
1 Estimated % change of net interest income is reflected on a non-FTE basis.

Net interest income asset sensitivity at September 30, 20182019 decreased compared to December 31, 2017,2018, driven primarily by changesgrowth in our funding profile.deposits and an increase in commercial loan swaps. See additional discussion related to net interest income in the "Net Interest Income/Margin" section of this MD&A.
At September 30, 2018,In addition to assessing net interest income asset sensitivities, we also perform simulation analyses to assess the sensitivity of our MVE profile in Table 13 indicates a decline in net balance sheet value duerelative to instantaneous upward changes in rates. This MVE sensitivity is reported for both upward and downward rate shocks. 
Market Value of Equity SensitivityTable 13
    
 Estimated % Change in MVE
 September 30, 2018 December 31, 2017
Rate Change   
+200 bps(7.5)% (7.6)%
+100 bps(3.5)% (3.3)%
 -50 bps1.3% 0.8%
MVE sensitivity for downward rate shocks at September 30, 2018 increased compared to December 31, 2017, driven primarily by higher absolute levels ofmarket interest rates. 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 measuresis measured as the discounted present value of asset and derivative cash flows overminus the estimated livesdiscounted present value of instruments, the change inliability cash flows. Management uses MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Furthermore, MVE does not take into account factors suchsensitivity as future balance sheet growth, changes in product mix, changes in yield curve relationships,an

additional means of measuring interest rate risk and changing product spreads that could mitigate the impactincorporates this form of changes in interest rates. The net interest income simulationanalysis within its governance and valuation analyses do not include
limits framework.
actions that management may undertake to manage this risk in response to anticipated changes in interest rates.
Market Risk from Trading Activities
Covered positions subject to the Market Risk Rule issued by the U.S. banking regulators include trading positions exposed to interest rate risk, equity risk, foreign exchange rate risk, credit spread risk, and commodity price risk. We manage market risk associated with trading activities using a comprehensive risk management approach, which includes VAR metrics, 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.
For trading portfolios, VAR measures the estimated maximum loss from one or more trading positions, given a specified confidence level and time horizon. VAR results are monitored daily against established 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 could exceed VAR one out of 100 trading days or two to three times per year. For Market Risk Capital purposes, we calculate VAR using a 10-day holding period and a 99% confidence level as required by the Market Risk Rule. Due to inherent limitations of the VAR methodology, such as the assumption that past market behavior is indicative of future market performance, VAR is only one of several tools used to manage market risk. Other tools used to actively manage market risk include stress testing, profit and loss attribution, and stop loss limits.
Stressed VAR, another component of Market Risk Capital, is calculated using a 10-day holding period at a one-tail, 99% confidence level and employs a historical simulation approach based on a continuous 12-month historical window selected to reflect a period of significant financial stress for our trading portfolio. The historical period used in the selection of the stress window encompasses the global financial crisis and all market disruptions since January 1, 2008. Our Stressed VAR calculation uses the same methodology and models as VAR, which is a requirement under the Market Risk Rule.
As required by the Market Risk Rule, in addition to risk charges based on VAR and Stressed VAR, we also calculate a specific risk add-on for all positions, including a portfolio of securitization positions in the trading portfolio for which we have de minimis market making exposure. The aggregate market value of on-balance sheet securitization positions was $7 million on September 30, 2019, all of which were non-agency ABS positions. There were no off-balance sheet securitization positions during the reporting period.
Table 1413 presents VAR and Stressed VAR for the three and nine months ended September 30, 20182019 and 2017,2018, as well as VAR by Risk Factorrisk factor at September 30, 20182019 and 2017.2018.
Value at Risk ProfileValue at Risk Profile   Table 14 Value at Risk Profile   Table 13 
              
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 20172019 2018 2019 2018
VAR (1-day holding period):VAR (1-day holding period):      VAR (1-day holding period):      
Period end
$2
 
$2
 
$2
 
$2

$2
 
$2
 
$2
 
$2
High2
 3
 3
 3
3
 2
 3
 3
Low1
 1
 1
 1
1
 1
 1
 1
Average2
 2
 2
 2
2
 2
 2
 2
Stressed VAR (10-day holding period):
Period end
$60
 
$69
 
$60
 
$69

$63
 
$60
 
$63
 
$60
High81
 100
 103
 100
87
 81
 127
 103
Low25
 44
 25
 22
24
 25
 22
 25
Average55
 65
 61
 53
39
 55
 50
 61
VAR by Risk Factor at period end (1-day holding period):
VAR by risk factor at period end (1-day holding period):VAR by risk factor at period end (1-day holding period):
Equity risk    
$2
 
$1
    
$3
 
$2
Interest rate risk    1
 1
    2
 1
Credit spread risk    2
 3
    2
 2
VAR total at period end (1-day diversified)VAR total at period end (1-day diversified) 2
 2
VAR total at period end (1-day diversified) 2
 2
The trading portfolio'sportfolio, measured in terms of VAR, is predominantly comprised of four sub-portfolios of covered positions: (i) credit trading, (ii) fixed income securities, (iii) interest rate derivatives, and (iv) equity derivatives. As a market-maker, our trading portfolio also contains other sub-portfolios, including foreign exchange rate contracts and commodity derivatives, which do not generate material trading risk exposures. Our covered positions result primarily from market-making and underwriting services for our clients, as well as associated risk mitigating hedging activity. The trading portfolio’s VAR profile, presented in Table 14,13, is influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. Notwithstanding normal quarterly variations in the VAR associated with individual risk factors, average daily VAR as well as period end VAR for the three and nine months ended September 30, 20182019 remained largely unchanged compared to the same periods in 2017.2018. Average Stressed VAR remained within historic ranges throughoutand decreased for the firstthree and nine months ofended September 30, 2019 compared to the same periods in 2018, reflecting typical fluctuations in portfolio composition and balance sheet usage.primarily lower stressed exposures associated with our equity derivatives portfolio. The trading portfolio of covered positions did not contain any correlation trading positions or on- or off-balance sheet securitization positions during the nine months ended September 30, 20182019 or 2017.2018.

In accordance with the Market Risk Rule, we evaluate the accuracy of our VAR model through daily backtesting by comparing aggregate 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 generated by the model. As illustrated in the following graph, there were notwo firmwide VAR backtesting exceptions during the twelve months ended September 30, 2018.2019. These two backtesting exceptions in December 2018 were driven primarily by credit spread widening during the broader sell-off
in equity and credit markets during the latter half of the month, which impacted our corporate credit trading portfolio of bonds and loans. The total number of firmwide VAR backtesting exceptions over the preceding twelve months is used to determine the multiplication factor for the VAR-based capital requirement under the Market Risk Rule. 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 twelve months.



vara15.jpgvara27.jpg


We have valuation policies, procedures, and methodologies for all covered positions. Additionally, trading positions are reported in accordance with U.S. GAAP and are subject to independent price verification. See Note 15, "Derivative16, “Derivative Financial Instruments,"” and Note 16, "Fair17, “Fair Value Election and Measurement,"” to the Consolidated Financial Statements in this Form 10-Q, as well as the "Critical“Critical Accounting Policies"Policies” MD&A section of our 20172018 Annual Report on Form 10-K for additional discussion of valuation policies, procedures, and methodologies.


Liquidity Risk Management
LCR requirements under Regulation WW require large U.S. banking organizations to hold unencumbered high-quality liquid assets sufficient to withstand projected 30-day total net cash outflows, each as defined under the LCR rule. At September 30, 2018, ourOur average month-end LCR calculated pursuant towas 114% for the rulethird quarter of 2019, which was above the 100% minimum regulatory requirement.
On December 19, 2016, the FRB published a final rule implementing public disclosure requirements for BHCs subject to the LCR that will requirerequires them to publicly disclose quantitative and qualitative information regarding their respective LCR
calculations on a quarterly basis. We will beare required to begin disclosingdisclose elements under this final rule for quarterly periods ending after October 1, 2018.2018, which can be found on our investor relations website at http://investors.suntrust.com.
On May 3, 2016, the FRB, OCC, and the FDIC issued a joint proposed rule to implement the NSFR. The proposal would require large U.S. banking organizations to maintain a stable funding profile over a one-year horizon. The FRB proposed a modified NSFR requirement for BHCs with greater than $50 billion but less than $250 billion in total consolidated assets, and less than $10 billion in total on balance sheet foreign exposure. 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. The proposed rule contains an implementation date of January 1, 2018; however, a final rule has not yet been issued.
On October 10, 2019, the FRB finalized rules tailoring the application of the enhanced prudential standards pursuant to the EGRRCPA. Under the rules, Domestic and Foreign Banking Organizations are categorized based on size, complexity, and

other risk-based factors. As written under these final rules, we are considered a Category IV bank and are no longer subject to the mandatory LCR and proposed NSFR requirements. Internal liquidity stress testing, liquidity buffer, and liquidity risk management requirements still apply. Should the Merger consummate as planned, the combined company would be considered a Category III bank and would be subject to a reduced daily LCR of 85% under these final rules, which become effective 60 days after they are published in the Federal Register. The proposed NSFR requirements have not been finalized as part of these final tailoring rules.
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 borrows from the money markets using instruments such as Fed Funds Eurodollars, and securities sold under agreements to repurchase. At September 30, 2018,2019, the Bank retained a material cash position in its Federal Reserve account. The Parent Company also retained a material cash position in its account with the Bank 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 deposit base. Core deposits, predominantly made up of consumer and commercial deposits originated primarily from our retail branch network and Wholesale client base, are our largest and most cost-effective source of funding. Total deposits decreasedincreased to $160.4$167.7 billion at September 30, 2018,2019, from $160.8$162.6 billion at December 31, 2017.2018.
We also maintain access to diversified sources for both secured and unsecured wholesale funding. These uncommitted sources include Fed Funds purchased from other banks,financial institutions, securities sold under agreements to repurchase, FHLB advances, and Global Bank Notes. Aggregate borrowings increased to $22.2$27.5 billion at September 30, 2018,2019, from $14.6$23.8 billion at December 31, 2017.2018. These additional borrowings include a mix of both secured and unsecured funding and have primarily been used to support loan growth.

As mentioned above, theThe Bank and Parent Company maintain programs to access the debt capital markets. The Parent Company maintains an SEC shelf registration from which it may issue senior or subordinated notes and various capital securities, such as common or preferred stock. In August 2018, our Board approved a new SEC shelf registration, which authorized the issuance of up to $6.0 billion of such securities, of which $6.0$5.9 billion of issuance capacity remained available at September 30, 2018. Under our previous SEC shelf registration, the Board authorized the issuance of up to $5.0 billion of such securities, of which $1.7 billion of issuance capacity remained available at December 31, 2017. In April 2018, the Parent Company issued $850 million of 7-year fixed rate senior notes under our previous SEC shelf registration.2019.
The Bank maintains a Global Bank Note program under which it may issue senior or subordinated debt with various terms. In the first quarter of 2018, we issued $500 million of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under this program. In the third quarter of 2018, we issued $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes under this program. At September 30, 2018,2019, the Bank retained $32.9$28.3 billion of remaining capacity to issue notes under the Global Bank Note program. SeeRefer to Table 10 in the “Recent Developments”“Borrowings” section below for a descriptiondetails regarding Bank debt issuances completed during the first nine months of issuances subsequent to September 30, 2018 under this program.2019.
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, 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 15, at September 30, 2018, S&P has14, Moody’s assigned a “Positive”“Review for Upgrade” outlook on our credit rating, while both Moody’sS&P assigned a “Credit Watch Positive” outlook, and Fitch maintained “Stable” outlooks.assigned a “Rating Watch Positive” outlook. Future credit rating downgrades are possible, although not currently anticipated, given these “Positive” and “Stable”current credit rating outlooks.
Credit Ratings and OutlookTable 1514
 September 30, 20182019
 Moody’s S&P Fitch
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-
OutlookStableReview for Upgrade Credit Watch Positive StableRating Watch Positive
Our investment securities portfolio is a use of funds and a store of liquidity that is managed as part of our overall liquidity management and ALM process to optimize income and portfolio value, maintaining the majority of 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, 2018,2019, our securities AFS portfolio contained $27.4$27.2 billion of unencumbered, high-quality liquid securities at market value.
As mentioned above, we evaluate 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 contingency liquidity sources 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 or the Federal Reserve discount window, and the ability to sell or

securitize certain loan portfolios. Table 1615 presents period end and average balances of our contingency liquidity sources for the third quarters of 20182019 and 2017.
2018. These sources exceed our contingency liquidity needs as measured in our contingency funding scenarios.

Contingency Liquidity SourcesContingency Liquidity Sources     Table 16
Contingency Liquidity Sources     Table 15
        
As of Average for the Three Months Ended ¹ As of Average for the Three Months Ended ¹ 
(Dollars in billions)September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Excess reserves
$3.8
 
$4.5
 
$2.4
 
$2.8

$5.2
 
$3.8
 
$3.1
 
$2.4
Free and liquid investment portfolio securities27.4
 27.4
 27.4
 27.8
27.2
 27.4
 28.3
 27.4
Unused FHLB borrowing capacity24.2
 24.5
 25.3
 23.2
20.8
 24.2
 20.3
 25.3
Unused discount window borrowing capacity19.8
 17.8
 19.4
 17.8
24.4
 19.8
 24.2
 19.4
Total
$75.2
 
$74.2
 
$74.5
 
$71.6

$77.6
 
$75.2
 
$75.9
 
$74.5
1 Average based upon month-end data, except excess reserves, which is based upon a daily average.


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, 2018,2019, we held $142$334 million of capital stock in the FHLB of Atlanta, an increase of $127$107 million compared to December 31, 20172018 due to an increaseincreased holdings in short-termlong-term FHLB advances over the same period. For eachthe three and nine months ended September 30, 2019, we recognized $6 million and $14 million of dividend income related to FHLB capital stock, respectively. For the three and nine months ended September 30, 2018, and 2017, we recognized an immaterial amount of dividendsdividend income related to FHLB capital stock.
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 both September 30, 20182019 and December 31, 2017,2018, we held $403 million of Federal Reserve Bank of Atlanta stock. For both the three months ended September 30, 20182019 and 2017,2018, we recognized an immaterial amount of dividendsdividend income related to Federal Reserve Bank of Atlanta stock. For the nine months ended September 30, 20182019 and 2017,2018, we recognized dividends$6 million and $9 million in dividend income related to Federal Reserve Bank of Atlanta stock, of $9 million and $7 million, respectively.


Parent Company Liquidity. Our primary measure of Parent Company liquidity is the length of time the Parent Company can meet its existing and forecasted obligations using its cash resources. We measure and manage this metric using forecasts from 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. Our ALCO and the Board have established risk limits against these metrics to 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 13, “Borrowings and Contractual Commitments,” to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for further information regarding our debt.
We manage the Parent Company to maintain most of its liquid assets in cash and securities that it can quickly convert into 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 inof this Form 10-Q. We fund corporate dividends with Parent Company cash, the primary sources of which are dividends from our banking subsidiarythe Bank 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. The Bank is also subject to federal and state laws and regulations that limit the amount of dividends it can pay to the Parent Company, which could affect the Parent Company’s ability to pay dividends to its shareholders.


Recent Developments. In October 2018, the Bank issued $500 million of 7-year fixed rate senior notes, $600 million of 3-year fixed-to-floating rate senior notes, and $300 million of 3-year floating rate senior notes under our Global Bank Note program. Similar to our debt issuances in the first nine months of 2018, these issuances allowed us to supplement our funding sources and pay down other borrowings. See Table 10 in “Borrowings” for additional details regarding debt issuances we completed subsequent to September 30, 2018.
Other Liquidity Considerations. As presented in Table 17,16, we had an aggregate potential obligation of $92.5$100.9 billion to our clients in unused lines of credit at September 30, 2018.2019. Commitments to extend credit are arrangements to lend to clients who have complied with predetermined contractual obligations. We also had $3.2$2.6 billion in letters of credit outstanding at September 30, 2018,2019, most of which are standby letters of credit, which require that we provide funding if certain future events occur. Approximately $196$113 million of these letters were available to support variable rate demand obligations at September 30, 2018.2019. Unused commercial lines of credit increased since December 31, 2017,2018, driven by an increase in commercial line of credit commitments during the nine months ended September 30, 2018.commitments. Residential mortgage commitments also increased since December 31, 2017,2018, driven by the increase in IRLC volume outpacing the increase in closed loan volume during the nine months ended September 30, 2018. Additionally, unused CRE lines of credit increased since December 31, 2017, driven primarily by an increase in CRE line of credit commitments during the nine months ended September 30, 2018.volume.


Unfunded Lending CommitmentsUnfunded Lending Commitments     Table 17
Unfunded Lending Commitments     Table 16
As of Average for��the Three Months EndedAs of Average for the Three Months Ended
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 September 30, 2017September 30, 2019 December 31, 2018 September 30, 2019 September 30, 2018
Unused lines of credit:              
Commercial
$63,400
 
$59,625
 
$62,728
 
$57,807

$68,085
 
$63,779
 
$67,529
 
$62,728
Residential mortgage commitments 1
3,777
 3,036
 3,810
 4,268
5,740
 2,739
 5,544
 3,810
Home equity lines10,200
 10,086
 10,165
 10,159
10,598
 10,338
 10,574
 10,165
CRE 2
4,534
 4,139
 4,263
 3,953
5,483
 5,307
 5,878
 4,263
Credit card10,601
 10,533
 10,602
 10,338
10,944
 10,852
 11,023
 10,602
Total unused lines of credit
$92,512
 
$87,419
 
$91,568
 
$86,525

$100,850
 
$93,015
 
$100,548
 
$91,568
              
Letters of credit:              
Financial standby
$3,041
 
$2,453
 
$2,912
 
$2,722

$2,541
 
$2,769
 
$2,550
 
$2,912
Performance standby101
 125
 101
 121
57
 102
 58
 101
Commercial37
 14
 34
 14
26
 38
 26
 34
Total letters of credit
$3,179
 
$2,592
 
$3,047
 
$2,857

$2,624
 
$2,909
 
$2,634
 
$3,047
1 Includes residential mortgage IRLCs with notional balances of $1.6$3.5 billion and $1.7 billion$992 million at September 30, 20182019 and December 31, 2017,2018, respectively.
2 Includes commercial mortgage IRLCs and other commitments with notional balances of $262$216 million and $240$360 million at September 30, 20182019 and December 31, 2017,2018, respectively.
Other Market Risk
Except as discussed below, there have been no other significant changes to other market risk asrisks from those described in our 20172018 Annual Report on Form 10-K.
We measure our residential MSRs at fair value on a recurring basis and hedge the risk associated with changes in fair value. Residential MSRs totaled $2.1$1.6 billion and $1.7$2.0 billion at September 30, 20182019 and December 31, 2017,2018, respectively, and are managed and monitored as part of a comprehensive risk governance process, which includes established risk limits.
We originated residential MSRs with fair values at the time of origination of $98 million and $237 million during the three and nine months ended September 30, 2019 and $100 million and $250 million during the three and nine months ended September 30, 2018, and $90 million and $252 million during the three and nine months ended September 30, 2017, respectively. Additionally, we purchased residential MSRs with a fair valuevalues of approximately $14 million and $89 million during the three and nine months ended September 30, 2018, respectively. No residential MSRs were purchased during the three and nine months ended September 30, 2017.2019.
We recognized a mark-to-market decreasedecreases in the fair value of our residential MSRs of $250 million and $654 million during the three and nine months ended September 30, 2019, and a decrease of $10 million and an increase of $15 million during the three and nine months ended September 30, 2018, and decreases of $70 million and $195 million during the three and nine months ended September 30, 2017, respectively. Changes in fair value include the decay resulting from the realization of monthly net servicing cash flows. We recognized net losses related to residential MSRs, inclusive of fair value changes and related hedges, of $85 million and $218 million for the three and nine months ended September 30, 2019 and $64 million and $184 million for the three and nine months ended September 30, 2018, and $54 million and $153 million for the three and nine months ended September 30, 2017, respectively. Compared to the prior year periods, the increase in net losses related to residential MSRs was driven primarily driven by higher decay combined with lower net hedge performance in the current periods. Higher decay was driven byperiods resulting from an increase in residential MSR asset value as well as an increase in the size of the servicing portfolio, offset partially
by a decrease in payoff volume. All other servicing rights, which include commercial mortgage and consumer indirect loan servicing rights,Commercial MSRs are not measured at fair value on a recurring basis, and therefore, are not subject to the same market risks associated with residential MSRs.

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“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 clients and to support ongoing operations. Additional information regarding these types of activities is included in the "Liquidity“Liquidity Risk Management"Management” section of this MD&A, as well as in Note 10, "Certain11, “Certain Transfers of Financial Assets and Variable Interest Entities,"” and Note 14, "Guarantees,"15, “Guarantees,” to the Consolidated Financial Statements in this Form 10-Q, as well as in our 20172018 Annual Report on Form 10-K.
Contractual Obligations
In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on ourtime deposits, borrowings, partnershiptax credit investments, and certain lease arrangements, as well as commitments to lend to clients and to fund capital expenditures and service contracts.
Except for changes in unfunded lending commitments (presented in Table 17 within the "Liquidity Risk Management" section16 of this MD&A), time deposits (presented in Table 1 of this MD&A), borrowings (presented in the "Borrowings"“Borrowings” section of this MD&A), leases (disclosed in Note 10, “Leases,” to the Consolidated Financial Statements in this Form 10-Q), commitments to fund tax credit investments (disclosed in Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities,” to the Consolidated Financial Statements in this Form 10-Q), and pension and other postretirement benefit plans (disclosed in Note 13, "Employee14, “Employee Benefit Plans,"” to the Consolidated Financial Statements in this Form 10-Q), there have been no material changes in our contractual obligations from those disclosed in our 20172018 Annual Report on Form 10-K.



BUSINESS SEGMENTSSEGMENT RESULTS
Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018
Consumer
Consumer reported net income of $1.1 billion for the nine months ended September 30, 2019, an increase of $40 million, or 4%, compared to the same period in 2018. The increase was driven primarily by higher net interest income and noninterest income, offset partially by higher noninterest expense and provisions for credit losses and income taxes.
Net interest income was $3.2 billion, an increase of $135 million, or 4%, compared to the same period in 2018, driven by an increase in average LHFI and deposit balances and improved spreads on deposit balances. Net interest income related to LHFI increased $76 million, or 7%, driven primarily by a $4.6 billion, or 6%, increase in average LHFI balances, while spreads on loan balances increased one basis point. Consumer loan growth was driven by increases in consumer direct and indirect loans, residential mortgages, and guaranteed student loans, offset partially by declines in home equity products and personal credit lines. Net interest income related to deposits increased $41 million, or 2%, driven by a one basis point increase in deposit spreads and a $2.1 billion, or 2%, increase in average consumer and commercial deposit balances. Deposit balance growth was driven by increases in CDs and interest-bearing DDAs, offset partially by declines in money market accounts and noninterest-bearing DDAs.
Provision for credit losses was $204 million, an increase of $102 million, or 100%, compared to the same period in 2018. The increase was driven primarily by loan growth and higher net charge-offs.
Total noninterest income was $1.4 billion, an increase of $68 million, or 5%, compared to the same period in 2018. The increase was driven primarily by a $44 million gain on the sale of accruing TDRs in the second quarter of 2019 and an increase in mortgage-related income, offset partially by lower client transaction-related fee income.
Total noninterest expense was $3.0 billion, an increase of $45 million, or 2%, compared to the same period in 2018. The increase was driven primarily by higher operating losses due to favorable developments with certain legal matters in the first half of 2018, as well as fixed asset write-downs and increased escrow deposit referral fee costs for the first nine months of 2019. These increases were offset partially by lower personnel expenses and other corporate overhead allocations.
Wholesale
Wholesale reported net income of $930 million for the nine months ended September 30, 2019, a decrease of $149 million, or 14%, compared to the same period in 2018. The decrease was due to higher provision for credit losses and higher noninterest expense, offset partially by higher net interest income and noninterest income as well as lower provision for income taxes.
Net interest income was $1.7 billion, an increase of $29 million, or 2%, compared to the same period in 2018, driven primarily by an increase in average LHFI balances. Net interest income related to deposits decreased $46 million, or 7%, as a result of decreased deposit spreads and volumes. Average
consumer and commercial deposit balances decreased $470 million, or 1%, as a result of decreases in noninterest-bearing commercial DDAs and money market accounts, offset partially by increases in interest-bearing commercial DDAs and CD balances. Net interest income related to LHFI increased $61 million, or 7%, as a result of an increase in average LHFI balances, offset by a decrease in loan spreads. Average LHFI increased $7.1 billion, or 10%, primarily in C&I and CRE loans. Net interest income related to equity increased $29 million, or 17%, due to higher equity spreads.
Provision for credit losses was $208 million, an increase of $189 million compared to the same period in 2018, driven primarily by loan growth and a release of loan loss reserves in the prior year.
Total noninterest income was $1.1 billion, an increase of $41 million, or 4%, compared to the same period in 2018. The increase was due largely to higher trading income primarily attributable to fixed income, higher commercial real estate-related income, and higher tax credits, offset partially by a decrease in investment banking income.
Total noninterest expense was $1.4 billion, an increase of $75 million, or 6%, compared to the same period in 2018. The increase was due primarily to higher outside processing and software expenses as well as higher other corporate overhead allocations.
Corporate Other
Corporate Other net income was a net loss of $124 million for the nine months ended September 30, 2019, a decrease of $195 million compared to the same period in 2018. The decrease in net income was due primarily to increases in discretionary expenses and Merger-related impacts, offset partially by an increase in noninterest income.
Net interest income was a net expense of $221 million, a decrease of $112 million compared to the same period in 2018. The decrease was driven primarily by lower commercial loan swap income resulting from higher benchmark interest rates. Average short-term borrowings increased $4.2 billion, and average long-term debt increased $6.5 billion, or 64%, driven by balance sheet management activities.
Total noninterest income was $230 million, an increase of $149 million, compared to the same period in 2018. The increase was due primarily to the $210 million insurance settlement benefit related to financial crisis-era related claims, offset partially by $38 million in net securities losses related primarily to a repositioning of our securities AFS portfolio.
Total noninterest expense was $207 million for the nine months ended September 30, 2019. The increase of $290 million compared to the same period in 2018 was due to a $205 million charitable contribution to the SunTrust Foundation in the second quarter of 2019 and $92 million of Merger-related impacts comprised primarily of merger and acquisition advisory fees, legal costs, and consulting and retention payments.

See Note 18,19, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q for a description of our business segments, basis of presentation, internal management
reporting methodologies, and additional information. Table 18 presents net income for our reportable business segments:

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures   Table 17
(Dollars in millions and shares in thousands, except per share data)     
Three Months Ended September 30 Nine Months Ended September 30
Selected Financial Data2019 2018 2019 2018
Summary of Operations:       
Interest income
$2,005
 
$1,834
 
$6,013
 
$5,261
Interest expense495
 322
 1,424
 821
Net interest income1,510
 1,512
 4,589
 4,440
Provision for credit losses132
 61
 412
 121
Net interest income after provision for credit losses1,378
 1,451
 4,177
 4,319
Noninterest income843
 782
 2,653
 2,408
Noninterest expense1,474
 1,384
 4,602
 4,191
Income before provision for income taxes747
 849
 2,228
 2,536
Provision for income taxes122
 95
 330
 412
Net income attributable to noncontrolling interest2
 2
 7
 7
Net income
$623
 
$752
 
$1,891
 
$2,117
Net income available to common shareholders
$597
 
$726
 
$1,814
 
$2,036
Net interest income-FTE 1

$1,532
 
$1,534
 
$4,655
 
$4,505
Total revenue2,353
 2,294
 7,242
 6,848
Total revenue-FTE 1
2,375
 2,316
 7,308
 6,913
Net securities gains/(losses)4
 —
 (38) 1
Net income per average common share:       
Diluted
$1.34
 
$1.56
 
$4.06
 
$4.34
Basic1.35
 1.58
 4.09
 4.38
Dividends declared per common share0.56
 0.50
 1.56
 1.30
Book value per common share    54.87
 48.00
Tangible book value per common share 2
    40.58
 34.51
Market capitalization    30,549
 30,632
Market price per common share (NYSE trading symbol “STI”):       
High
$69.57
 
$75.08
 
$69.57
 
$75.08
Low58.61
 65.82
 49.78
 64.32
Close68.80
 66.79
 68.80
 66.79
Selected Average Balances:       
Total assets
$224,747
 
$207,395
 
$221,019
 
$205,370
Earning assets198,878
 186,344
 196,902
 184,607
LHFI157,612
 145,995
 156,044
 144,368
Intangible assets including residential MSRs8,044
 8,396
 8,235
 8,332
Residential MSRs1,632
 1,987
 1,824
 1,922
Consumer and commercial deposits162,533
 159,348
 160,779
 159,159
Preferred stock2,025
 2,025
 2,025
 2,145
Total shareholders’ equity26,226
 24,275
 25,307
 24,324
Average common shares - diluted446,962
 464,164
 446,673
 469,006
Average common shares - basic443,960
 460,252
 443,779
 464,804
Financial Ratios (Annualized):       
ROA1.10% 1.44% 1.14% 1.38%
ROE9.83
 13.01
 10.46
 12.33
ROTCE 3
13.23
 18.06
 14.27
 17.14
Net interest margin3.01
 3.22
 3.12
 3.22
Net interest margin-FTE 1
3.06
 3.27
 3.16
 3.26
Efficiency ratio 4
62.63
 60.34
 63.55
 61.20
Efficiency ratio-FTE 1, 4
62.06
 59.76
 62.97
 60.62
Tangible efficiency ratio-FTE 1, 4, 5
61.17
 58.94
 62.23
 59.89
Adjusted tangible efficiency ratio-FTE 1, 4, 5, 6
59.91
 58.94
 59.89
 59.89
Total average shareholders’ equity to total average assets11.67
 11.71
 11.45
 11.84
Tangible common equity to tangible assets 7
    8.23
 7.72
Common dividend payout ratio    41.6
 31.6

Net Income by Business Segment      Table 18
        
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 
  2017 1, 2
 2018 
  2017 1, 2
Consumer
$381
 
$264
 
$1,081
 
$698
Wholesale372
 341
 1,120
 917
        
Corporate Other50
 (17) 49
 60
Reconciling Items 3
(51) (50) (133) (142)
Total Corporate Other(1) (67) (84) (82)
Consolidated Net Income
$752
 
$538
 
$2,117
 
$1,533
Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
    
Selected Financial Data (continued)Nine Months Ended September 30
Capital Ratios at period end 8:
2019 2018
CET19.33% 9.60%
Tier 1 capital10.38
 10.72
Total capital12.07
 12.47
Leverage9.28
 9.66

        
(Dollars in millions, except per share data)Three Months Ended September 30 Nine Months Ended September 30
Reconcilement of Non-U.S. GAAP Measures2019 2018 2019 2018
Net interest margin3.01 % 3.22 % 3.12 % 3.22 %
Impact of FTE adjustment0.05
 0.05
 0.04
 0.04
Net interest margin-FTE 1
3.06 % 3.27 % 3.16 % 3.26 %
        
Efficiency ratio 4
62.63 % 60.34 % 63.55 % 61.20 %
Impact of FTE adjustment(0.57) (0.58) (0.58) (0.58)
Efficiency ratio-FTE 1, 4
62.06
 59.76
 62.97
 60.62
Impact of excluding amortization related to intangible assets and certain tax credits(0.89) (0.82) (0.74) (0.73)
Tangible efficiency ratio-FTE 1, 4, 5
61.17
 58.94
 62.23
 59.89
Impact of excluding unusual or infrequent items(1.26) —
 (2.34) —
Adjusted tangible efficiency ratio-FTE 1, 4, 5, 6
59.91 % 58.94 % 59.89 % 59.89 %
        
ROE9.83 % 13.01 % 10.46 % 12.33 %
Impact of removing average intangible assets other than residential and commercial MSRs from average common shareholders' equity, and removing related pre-tax amortization expense from net income available to common shareholders3.40
 5.05
 3.81
 4.81
ROTCE 3
13.23% 18.06% 14.27% 17.14%
        
Net interest income
$1,510
 
$1,512
 
$4,589
 
$4,440
FTE adjustment22
 22
 66
 65
Net interest income-FTE 1
1,532
 1,534
 4,655
 4,505
Noninterest income843
 782
 2,653
 2,408
Total revenue-FTE 1

$2,375
 
$2,316
 
$7,308
 
$6,913
        
Diluted net income per average common share 

$1.34
 
$1.56
 
$4.06
 
$4.34
Impact of excluding Merger-related impacts0.06
 —
 0.17
 —
Adjusted diluted net income per average common share 9

$1.40
 
$1.56
 
$4.23
 
$4.34
        
        
(Dollars in millions, except per share data)    September 30, 2019 September 30, 2018
Total shareholders’ equity    
$26,489
 
$24,139
Goodwill, net of deferred taxes 10
    (6,168) (6,171)
Other intangible assets (including residential and commercial MSRs)    (1,648) (2,140)
Residential and commercial MSRs    1,636
 2,126
Tangible equity 7
    20,309
 17,954
Noncontrolling interest    (101) (101)
Preferred stock    (2,025) (2,025)
Tangible common equity 7
    
$18,183
 
$15,828
        
Total assets    
$227,368
 
$211,276
Goodwill    (6,331) (6,331)
Other intangible assets (including residential and commercial MSRs)    (1,648) (2,140)
Residential and commercial MSRs    1,636
 2,126
Tangible assets    
$221,025
 
$204,931
Tangible common equity to tangible assets 7
    8.23 % 7.72 %
Tangible book value per common share 2
    
$40.58
 
$34.51

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)  
    
(Dollars in millions)   
Reconciliation of PPNR 11
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Income before provision for income taxes
$747
 
$2,228
Provision for credit losses132
 412
Less:   
Net securities gains/(losses)4
 (38)
PPNR
$875
 
$2,678

1 
DuringWe present Net interest income-FTE, Total revenue-FTE, Net interest margin-FTE, Efficiency ratio-FTE, Tangible efficiency ratio-FTE, and Adjusted tangible efficiency ratio-FTE on a fully taxable-equivalent ("FTE") basis. The FTE basis adjusts for the second quartertax-favored status of 2018,Net interest income from certain business banking clients were transferredloans and investments using a federal tax rate of 21% as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe the FTE basis is the preferred industry measurement basis for these measures and that it enhances comparability of Net interest income arising from the Wholesale business segment to the Consumer business segment. For all periods prior to the second quarter of 2018, the corresponding financial results have been transferred to the Consumer business segment for comparability purposes.taxable and tax-exempt sources. Total revenue-FTE is calculated as Net interest income-FTE plus Noninterest income. Net interest margin-FTE is calculated by dividing annualized Net interest income-FTE by average Total earning assets.
2 
DuringWe present Tangible book value per common share, which removes the fourth quarterafter-tax impact of 2017, we sold PAC,purchase accounting intangible assets, noncontrolling interest, and preferred stock from shareholders' equity. We believe this measure is useful to investors because, by removing the resultsamount of which were previously reported withinintangible assets that result from merger and acquisition activity, and removing the Wholesale business segment. For all periods prioramounts of noncontrolling interest and preferred stock that do not represent our common shareholders' equity, it allows investors to January 1, 2018, PAC's financial results, includingmore easily compare our capital position to other companies in the gain on sale, have been transferred to Corporate Other for enhanced comparability of the Wholesale business segment excluding PAC.
industry.
3 
Reflects differences between net 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 18, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q.



Table 19 presents average LHFI and average deposits for our reportable business segments:
Average LHFI and Deposits by Business Segment     Table 19
  
 Three Months Ended September 30
 Average LHFI Average Consumer
and Commercial Deposits
(Dollars in millions)2018 
  2017 1, 2
 2018 
  2017 1, 2
Consumer
$75,414
 
$74,742
 
$111,930
 
$109,774
Wholesale70,485
 68,568
 47,773
 49,515
Corporate Other96
 1,396
 (355) 130

 Nine Months Ended September 30
 Average LHFI Average Consumer
and Commercial Deposits
(Dollars in millions)2018 
  2017 1, 2
 2018 
  2017 1, 2
Consumer
$75,122
 
$73,613
 
$111,025
 
$109,301
Wholesale69,155
 69,303
 48,259
 49,724
Corporate Other91
 1,360
 (125) 120
1
During the second quarter of 2018, certain business banking clients were transferred from the Wholesale business segment to the Consumer business segment. For all periods prior to the second quarter of 2018, the corresponding financial results have been transferred to the Consumer business segment for comparability purposes.
2
During the fourth quarter of 2017, we sold PAC, the assets and liabilities of which were previously reported within the Wholesale business segment. For all periods prior to January 1, 2018, PAC's assets and liabilities, including loans and deposits, have been transferred to Corporate Other for enhanced comparability of the Wholesale business segment excluding PAC.



BUSINESS SEGMENT RESULTS
Nine Months Ended September 30, 2018 versus Nine Months Ended September 30, 2017
Consumer
Consumer reported net income of $1.1 billion for the nine months ended September 30, 2018, an increase of $383 million, or 55%, compared to the same period in 2017. The increase was driven primarily by higher net interest income and lower provisions for credit losses and income taxes, offset partially by lower noninterest income and higher noninterest expense.
Net interest income was $3.1 billion, an increase of $229 million, or 8%, compared to the same period in 2017, driven by improved spreads on deposit balances. Net interest income related to deposits increased $235 million, or 14%, driven by a 25 basis point increase in deposit spreads and a $1.7 billion, or 2%, increase in average deposit balances. Net interest income related to LHFI increased $8 million, or 1%, driven primarily by a $1.5 billion, or 2%, increase in average LHFI balances, offset partially by a three basis point decrease in loan spreads. Consumer loan growth was driven by increases in residential mortgages, consumer direct, indirect, and guaranteed student loans, offset partially by declines in home equity products.
Provision for credit losses was $101 million, a decrease of $209 million, or 67%, compared to the same period in 2017. The decrease was driven by lower net charge-offs, improved credit quality, and the release of hurricane-related ALLL reserves.
Total noninterest income was $1.3 billion, a decrease of $78 million, or 5%, compared to the same period in 2017. The decrease was driven primarily by lower mortgage related income and lower client transaction-related fee income (which includes service charges on deposit accounts, other charges and fees, and card fees), offset partially by increases in retail investment services and other noninterest income. The decline in client transaction-related fee income was due primarily to the impact of our adoption of the revenue recognition accounting standard on January 1, 2018 and by a change in our process for recognizing card rewards expenses, which resulted in four months of rewards expenses being recognized in card fee income in the third quarter of 2018.
Total noninterest expense was $3.0 billion, an increase of $56 million, or 2%, compared to the same period in 2017. The increase was driven primarily by higher outside processing and software costs due to investments in technology and favorable developments with certain legal matters in the third quarter of 2017, offset partially by revenue recognition accounting impacts in the current period.
Wholesale
Wholesale reported net income of $1.1 billion for the nine months ended September 30, 2018, an increase of $203 million, or 22%, compared to the same period in 2017. The increase was due to higher net interest income and lower provision for income taxes, offset partially by lower noninterest income and higher noninterest expense.
Net interest income was $1.7 billion, an increase of $73 million, or 5%, compared to the same period in 2017, driven primarily by improved deposit and equity spreads, offset partially by declines in loan and deposit volume. Net interest income related to deposits increased $84 million, or 15%, as a
result of improved spreads, offset partially by decreased deposit volumes. Average deposit balances decreased $1.5 billion, or 3%, as a result of decreases in money market accounts and non-interest-bearing commercial DDAs, offset partially by increases in interest-bearing commercial DDAs and business CD products. Net interest income related to LHFI decreased $44 million, or 5%, as a result of lower tax exempt loan and lease spreads, which were specifically impacted by the 2017 Tax Act. Net interest income related to equity increased $40 million, or 32%, due to higher equity balances and spreads.
Provision for credit losses was $19 million, stable compared to the same period in 2017.
Total noninterest income was $1.1 billion, a decrease of $45 million, or 4%, compared to the same period in 2017. The decrease was driven largely by lower investment banking income, which decreased $32 million, or 7%, as a result of lower syndication and high yield bond fees. The gross-up of tax credits decreased $21 million, or 17%, driven by the lower effective tax rate for the nine months ended September 30, 2018. Commercial credit related income was down $10 million, or 4%, as a result of lower bridge commitment fees and service charges, which were down $5 million, or 4%. These decreases were offset partially by $30 million of remeasurement gains on an equity investment following our adoption of the recognition and measurement of financial assets accounting standard on January 1, 2018 and a $4 million, or 3%, increase in trading income resulting from higher client-related derivative activity.
Total noninterest expense was $1.3 billion, an increase of $23 million, or 2%, compared to the same period in 2017. The increase was due to higher investment banking transaction expenses related to the impact of our adoption of the revenue recognition accounting standard on January 1, 2018, higher functional support expense, and higher amortization expense associated with STCC tax credit investments, offset partially by lower headcount and incentive related compensation.
Corporate Other
Corporate Other net income was $49 million for the nine months ended September 30, 2018, a decrease of $11 million, or 18%, compared to the same period in 2017. The decrease in net income was due primarily to lower net interest income.
Net interest income was a net expense of $118 million, a decrease of $149 million compared to the same period in 2017. The decrease was driven by lower commercial loan-related swap income due to higher benchmark interest rates. Average long-term debt remained stable and average short-term borrowings increased $316 million, or 15%, driven by balance sheet management activities.
Total noninterest income was $50 million, a decrease of $9 million, or 15%, compared to the same period in 2017. The decrease was driven primarily by a decline in capital markets related income, which decreased $15 million, or 82%, offset partially by a mark-to-market net gain of $9 million recognized on an equity investment for the nine months ended September 30, 2018.
Total noninterest expense was a benefit of $95 million for the nine months ended September 30, 2018. The benefit increased $129 million compared to the same period in 2017 due primarily to higher recoveries of internal expense allocations during the current period.

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures   Table 20
(Dollars in millions and shares in thousands, except per share data)     
Three Months Ended September 30 Nine Months Ended September 30
Selected Financial Data2018 2017 2018 2017
Summary of Operations:       
Interest income
$1,834
 
$1,635
 
$5,261
 
$4,747
Interest expense322
 205
 821
 548
Net interest income1,512
 1,430
 4,440
 4,199
Provision for credit losses61
 120
 121
 330
Net interest income after provision for credit losses1,451
 1,310
 4,319
 3,869
Noninterest income782
 846
 2,408
 2,520
Noninterest expense1,384
 1,391
 4,191
 4,243
Income before provision for income taxes849
 765
 2,536
 2,146
Provision for income taxes95
 225
 412
 606
Net income attributable to noncontrolling interest2
 2
 7
 7
Net income
$752
 
$538
 
$2,117
 
$1,533
Net income available to common shareholders
$726
 
$512
 
$2,036
 
$1,468
Net interest income-FTE 1

$1,534
 
$1,467
 
$4,505
 
$4,306
Total revenue2,294
 2,276
 6,848
 6,719
Total revenue-FTE 1
2,316
 2,313
 6,913
 6,826
Net income per average common share:       
Diluted
$1.56
 
$1.06
 
$4.34
 
$3.00
Basic1.58
 1.07
 4.38
 3.04
Dividends declared per common share0.50
 0.40
 1.30
 0.92
Book value per common share    48.00
 47.16
Tangible book value per common share 2
    34.51
 34.34
Market capitalization    30,632
 28,451
Market price per common share (NYSE trading symbol “STI”):       
High
$75.08
 
$60.04
 
$75.08
 
$61.69
Low65.82
 51.96
 64.32
 51.96
Close66.79
 59.77
 66.79
 59.77
Selected Average Balances:       
Total assets
$207,395
 
$205,738
 
$205,370
 
$204,833
Earning assets186,344
 184,861
 184,607
 184,180
LHFI145,995
 144,706
 144,368
 144,276
Intangible assets including residential MSRs8,396
 8,009
 8,332
 8,019
Residential MSRs1,987
 1,589
 1,922
 1,599
Consumer and commercial deposits159,348
 159,419
 159,159
 159,145
Preferred stock2,025
 1,975
 2,145
 1,643
Total shareholders’ equity24,275
 24,573
 24,324
 24,131
Average common shares - diluted464,164
 483,640
 469,006
 489,176
Average common shares - basic460,252
 478,258
 464,804
 483,711
Financial Ratios (Annualized):       
ROA1.44% 1.04% 1.38% 1.00%
ROE13.01
 9.03
 12.33
 8.77
ROTCE 3
18.06
 12.45
 17.14
 12.09
Net interest margin3.22
 3.07
 3.22
 3.05
Net interest margin-FTE 1
3.27
 3.15
 3.26
 3.13
Efficiency ratio 4
60.34
 61.12
 61.20
 63.16
Efficiency ratio-FTE 1, 4
59.76
 60.14
 60.62
 62.17
Tangible efficiency ratio-FTE 1, 4, 5
58.94
 59.21
 59.89
 61.44
Total average shareholders’ equity to total average assets11.71
 11.94
 11.84
 11.78
Tangible common equity to tangible assets 6
    7.72
 8.10
Common dividend payout ratio    31.6
 37.2

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
        
Selected Financial Data (continued)    Nine Months Ended September 30
Capital Ratios at period end 7:
    2018 2017
CET1    9.60% 9.62%
Tier 1 capital    10.72
 10.74
Total capital    12.47
 12.69
Leverage    9.66
 9.50

        
(Dollars in millions, except per share data)Three Months Ended September 30 Nine Months Ended September 30
Reconcilement of Non-U.S. GAAP Measures2018 2017 2018 2017
Net interest margin3.22 % 3.07 % 3.22 % 3.05 %
Impact of FTE adjustment0.05
 0.08
 0.04
 0.08
Net interest margin-FTE 1
3.27 % 3.15 % 3.26 % 3.13 %
        
Efficiency ratio 4
60.34 % 61.12 % 61.20 % 63.16 %
Impact of FTE adjustment(0.58) (0.98) (0.58) (0.99)
Efficiency ratio-FTE 1, 4
59.76
 60.14
 60.62
 62.17
Impact of excluding amortization related to intangible assets and certain tax credits(0.82) (0.93) (0.73) (0.73)
Tangible efficiency ratio-FTE 1, 4, 5
58.94 % 59.21 % 59.89 % 61.44 %
        
ROE13.01 % 9.03 % 12.33 % 8.77 %
Impact of removing average intangible assets other than residential MSRs and other servicing rights from average common shareholders' equity, and removing related pre-tax amortization expense from net income available to common shareholders5.05
 3.42
 4.81
 3.32
ROTCE 3
18.06% 12.45% 17.14% 12.09%
        
Net interest income
$1,512
 
$1,430
 
$4,440
 
$4,199
FTE adjustment22
 37
 65
 107
Net interest income-FTE 1
1,534
 1,467
 4,505
 4,306
Noninterest income782
 846
 2,408
 2,520
Total revenue-FTE 1

$2,316
 
$2,313
 
$6,913
 
$6,826
        
        
(Dollars in millions, except per share data)    September 30, 2018 September 30, 2017
Total shareholders’ equity    
$24,139
 
$24,522
Goodwill, net of deferred taxes 8
    (6,171) (6,084)
Other intangible assets (including residential MSRs and other servicing rights)    (2,140) (1,706)
Residential MSRs and other servicing rights    2,126
 1,690
Tangible equity 6
    17,954
 18,422
Noncontrolling interest    (101) (101)
Preferred stock    (2,025) (1,975)
Tangible common equity 6
    
$15,828
 
$16,346
        
Total assets    
$211,276
 
$208,252
Goodwill    (6,331) (6,338)
Other intangible assets (including residential MSRs and other servicing rights)    (2,140) (1,706)
Residential MSRs and other servicing rights    2,126
 1,690
Tangible assets    
$204,931
 
$201,898
Tangible common equity to tangible assets 6
    7.72 % 8.10 %
Tangible book value per common share 2
    
$34.51
 
$34.34

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)  
    
(Dollars in millions)   
Reconciliation of PPNR 9
Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Income before provision for income taxes
$849
 
$2,536
Provision for credit losses61
 121
Less:   
Net securities gains—
 1
PPNR
$910
 
$2,656

1 We present net interest income-FTE, total revenue-FTE, net interest margin-FTE, efficiency ratio-FTE, and tangible efficiency ratio-FTE on a fully taxable-equivalent ("FTE") basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 21% for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe the FTE basis is the preferred industry measurement basis for these measures and that it enhances comparability of net interest income and total revenue arising from taxable and tax-exempt sources. Total revenue-FTE is calculated as net interest income-FTE plus noninterest income. Net interest margin-FTE is calculated by dividing annualized net interest income-FTE by average total earning assets.
2 We present tangible book value per common share, which removes the after-tax impact of purchase accounting intangible assets, noncontrolling interest, and preferred stock from shareholders' equity. We believe this measure is useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity, and 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.
3
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 netNet 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 pre-tax amortization expense (the level of which may vary from company to company), it allows investors to more easily compare our ROTCE to other companies in the industry who present a similar measure. We also believe that removing these items provides a more relevant measure of our returnReturn on common shareholders' equity. This measure is utilized by management to assess our profitability.
4
Efficiency ratio is computed by dividing Noninterest expense by Total revenue. Efficiency ratio-FTE is computed by dividing Noninterest expense by Total revenue-FTE.
5
We present Tangible efficiency ratio-FTE, which excludes 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 management to assess our efficiency and that of our lines of business.
6
We present Adjusted tangible efficiency ratio-FTE, which excludes $5 million and $210 million of insurance settlement benefits related to financial crisis-era related claims recognized during the three and nine months ended September 30, 2019, respectively, and $33 million and $92 million of Merger-related impacts recognized during the three and nine months ended September 30, 2019, respectively. We believe this measure is useful to investors because it removes the effect of unusual or infrequent items impacting the periods' results and is more reflective of normalized operations and results that are primarily client relationship and client transaction driven. Removing these items also allows investors to more easily compare our tangible efficiency to other companies in the industry that may not have had similar items impacting their results. Additional details on the Merger can be found in our 2018 Annual Report on Form 10-K.
7
We present certain capital information on a tangible basis, including the ratio of Tangible common equity to tangible assets, Tangible equity, and Tangible common equity, which removes the after-tax impact of purchase accounting intangible assets. We believe these measures are useful to investors because, by removing the amount 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 position to other companies in the industry. These measures are utilized by management to analyze capital adequacy.
8
Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented. Refer to the “Capital Resources” section of this MD&A for additional regulatory capital information.
9
We present Adjusted diluted net income per average common share, which excludes $33 million and $92 million of Merger-related impacts recognized during the three and nine months ended September 30, 2019, respectively. We believe this measure is useful to investors because it removes the effect of unusual or infrequent Merger-related impacts included in the periods' results and is more reflective of normalized operations and results that are primarily client relationship and client transaction driven. Removing these Merger-related impacts also allows investors to more easily compare our results to other companies in the industry that may not have had similar items impacting their results. Additional details on these items and the Merger can be found in the “Noninterest Expense” section of this MD&A and our 2018 Annual Report on Form 10-K.
10
Net of deferred taxes of $163 million and $160 million at September 30, 2019 and 2018, respectively.
11
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.
4 Efficiency ratio is computed by dividing noninterest expense by total revenue. Efficiency ratio-FTE is computed by dividing noninterest expense by total revenue-FTE.
5 We present tangible efficiency ratio-FTE, which excludes 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 management to assess our efficiency and that of our lines of business.

6 We present certain capital information on a tangible basis, including the ratio of tangible common equity to tangible assets, tangible equity, and tangible common equity, which removes the after-tax impact of purchase accounting intangible assets. We believe these measures are useful to investors because, by removing the amount 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 position to other companies in the industry. These measures are utilized by management to analyze capital adequacy.
7 Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented. Refer to the "Capital Resources" section of this MD&A for additional regulatory capital information.
8 Net of deferred taxes of $160 million and $254 million at September 30, 2018 and 2017, respectively.
9 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.




Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the “Enterprise Risk Management” section in Part I, Item 2 MD&A, inof this Form 10-Q, which is incorporated herein by reference.






Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management 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, 2018.2019. 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
 
CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at September 30, 2018.2019.


Changes in Internal Control over Financial Reporting
Effective January 1, 2018,2019, the Company adopted several new accounting standardsASC Topic 842, Leases, and implemented relevant changes to its control activities and processes to monitor and maintain appropriate internal controls over financial reporting. There were no other changes to the Company’s internal control over financial reporting during the nine months ended September 30, 20182019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Refer to the Company's 20172018 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 17,18, “Contingencies,” to the Consolidated Financial Statements in Part I, Item 1 of 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 20172018 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 information set forth in this report, factors discussed in Part I, Item 1A., “Risk Factors,” in the Company's 20172018 Annual Report on Form 10-K, and in Part II, Item 1A., “Risk Factors,” in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2018, which could materially affect the Company's business, financial condition, or future results, should be carefully considered.
Additionally, we update the “Risk Factors” sections contained in the Company's 2017 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the period ended March 31, 2018 by replacing the existing risk factor, “Our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business and disrupt business continuity,” with the following risk factor:

Our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business and disrupt business continuity.
We depend on our ability to process, record, and monitor a large number of client transactions and to communicate with clients and other institutions on a continuous basis. As client, industry, public, and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns, whether as a result of events beyond our control or otherwise.
Our business, financial, accounting, data processing, or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be sudden increases in client transaction volume; electrical or telecommunications


outages; natural disasters such as earthquakes, tornadoes, floods, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; occurrences of employee error, fraud, theft, or malfeasance; disruptions caused by technology implementation, including hardware deployment and software updates; and, as described below, cyber-attacks.
Although we have business continuity plans and other safeguards in place, our operations and communications may be adversely affected by significant and widespread disruption to our systems and infrastructure that support our businesses and clients. While we continue to evolve and modify our business continuity plans, there can be no assurance in an escalating threat environment that they will be effective in avoiding disruption and business impacts. Our insurance may not be adequate to compensate us for all resulting losses, and the cost to obtain adequate coverage may increase for us or the industry.
Security risks for financial institutions such as ours have dramatically increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication, resources, and activities of hackers, terrorists, activists, industrial spies, insider bad actors, organized crime, and other external parties, including nation state actors. In addition, to access our products and services, clients may use devices or software that are beyond our control environment, which may provide additional avenues for attackers to gain access to confidential information. Although we have information security procedures and controls in place, our technologies, systems, networks, and clients' devices and software may become the target of cyber-attacks, information security breaches, or information theft that could result in the unauthorized release, gathering, monitoring, misuse, loss, change, or destruction of our or our clients' confidential, proprietary and other information (including personal identifying information of individuals), or otherwise disrupt our or our clients' or other third parties' business operations. Other U.S. financial institutions and financial service companies have

reported breaches in the security of their websites or other systems, including attempts to shut down access to their networks and systems in an attempt to extract compensation from them to regain control. Financial institutions, including SunTrust, have experienced distributed denial-of-service attacks, a sophisticated and targeted attack intended to disable or degrade internet service or to sabotage systems.
We and others in our industry are regularly the subject of attempts by attackers to gain unauthorized access to our networks, systems, and data, or to obtain, change, or destroy confidential data (including personal identifying information of individuals) through a variety of means, including computer viruses, malware, and phishing. These attacks may result in unauthorized individuals obtaining access to our confidential information or that of our clients, or otherwise accessing, damaging, or disrupting our systems or infrastructure.
We are continuously developing and enhancing our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access. This continued development and enhancement will require us to expend additional resources, including to investigate and remediate any information security vulnerabilities that may be detected. Despite our ongoing investments in security resources, talent, and business practices, we are unable to assure that any security measures will be effective.
If our systems and infrastructure were to be breached, damaged, or disrupted, or if we were to experience a loss of our confidential information or that of our clients, we could be subject to serious negative consequences, including disruption of our operations, damage to our reputation, a loss of trust in us on the part of our clients, vendors or other counterparties, client attrition, reimbursement or other costs, increased compliance costs, significant litigation exposure and legal liability, or regulatory fines, penalties or intervention. Any of these could materially and adversely affect our results of operations, our financial condition, and/or our share price.





Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities::
    Table 21
Issuer Purchases of Equity SecuritiesIssuer Purchases of Equity Securities   Table 18
 Common Stock 1, 2
 Common Stock 1, 2
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)
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 - 314,550,359
 $68.03 4,550,359
 $3504,578,864
 $54.60 4,578,864
 $500
February 1 - 28287,254
   71.08 287,254
   330—
 — —
   500
March 1 - 31—
 — —
   330—
 — —
   500
Total during first quarter of 20184,837,613
 68.22 4,837,613
   330
Total during first quarter of 20194,578,864
 54.60 4,578,864
   500
        
April 1 - 304,910,576
   67.20 4,910,576
 ——
 — —
   500
May 1 - 31—
 — —
 ——
 — —
   500
June 1 - 30—
 — —
 ——
 — —
   500
Total during second quarter of 20184,910,576
   67.20 4,910,576
 —
Total during second quarter of 2019—
 — —
   500
        
July 1 - 314,487,600
   69.90 4,487,600
   1,686—
 — —
 —
August 1 - 312,556,079
   72.88 2,556,079
   1,500—
 — —
 —
September 1 - 30—
 — —
   1,500—
 — —
 —
Total during third quarter of 20187,043,679
   70.99 7,043,679
   1,500
Total during third quarter of 2019—
 — —
 —
        
Total year-to-date 201816,791,868
 $69.08 16,791,868
 $1,500
Total year-to-date 20194,578,864
 $54.60 4,578,864
 $—
1 The principal market in which SunTrust common stock is traded is the NYSE (trading symbol “STI”).
2 During the three and nine months ended September 30, 2018,2019, 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 that the participant already owns. SunTrust considers any such shares 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.


On June 28, 2018, the Company announced that the Federal Reserve had no objections to the repurchase of up to $2.0 billion of the Company's outstanding common stock to be completed between July 1, 2018 and June 30, 2019, as part of the Company's 2018 capital plan submitted in connection with the 2018 CCAR. During the thirdfirst quarter of 2018,2019, the Company repurchased $500$250 million of its outstanding common stock at market value as part of thisthe publicly announced 2018 capital plan. At September 30, 2018,plan, pursuant to an SEC Rule 10b5-1 repurchase plan entered into on November 6, 2018. During the second quarter of 2019, the Company had $1.5 billion$500 million of remainingunused common stock repurchase capacity availableremaining under its 2018 capital plan (reflected in the table above)., which effectively expired on June 30, 2019 as the Company did not utilize this remaining share repurchase capacity in view of the Merger.
At September 30, 2018, a total of 387,950 Series A and B warrantsIn April 2019, the Company submitted certain required schedules to purchasethe Federal Reserve to support the Company's common stock remained outstanding. The Series A and B warrants have expiration dates2019 internal capital plan, which did not include a share repurchase plan in view of December 31, 2018 and November 14, 2018, respectively.the Merger.
 
In the first quarter of 2018, the Company redeemed all 4,500 issued and outstanding shares of its Series E Preferred Stock in accordance with the terms of the Series E Preferred Stock. The Company did not repurchase any shares of its Series A Preferred Stock, Series B Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, or Series H Preferred Stock during the first nine months of 2018,2019, and at September 30, 2018,2019, there was no unused Board authority to repurchase any shares of its Series A Preferred Stock, Series B Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, or Series H Preferred Stock.
Refer to the Company's 20172018 Annual Report on Form 10-K for additional information regarding the Company's equity securities.










Item 3.DEFAULTS UPON SENIOR SECURITIES
None.




Item 4.MINE SAFETY DISCLOSURES
Not applicable.




Item 5.OTHER INFORMATION
(a) None.
(b) Effective October 15, 2018, the Board of Directors of the Company approved and adopted an amendment and restatement of the Company's Bylaws (as so amended and restated, the "Bylaws") to implement proxy access and make certain other changes. A new Section 4 has been added to Article II of the Bylaws to permit a shareholder, or a group of up to twenty shareholders, owning three percent or more of the Company’s outstanding common stock continuously for at least three years, to nominate and include in the Company’s annual meeting proxy materials director nominees constituting up to the greater of two individuals or twenty percent of the Board, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the Bylaws. The proxy access provision will first be available to shareholders in connection with the Company’s 2019 Annual Meeting of Shareholders. The foregoing summary is not complete and is subject to, and qualified in its entirety by, the full text of the Bylaws, which are included as Exhibit 3.2 to this Form 10-Q.



Item 6.EXHIBITS
Exhibit NumberDescription
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 (i) Articles of Amendment dated December 13, 2012, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed December 20, 2012, (ii) the Articles of Amendment dated November 6, 2014, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed November 7, 2014, (iii) the Articles of Amendment dated May 2, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed May 2, 2017, and (iv) the Articles of Amendment dated November 13, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed November 14, 2017.

*
3.2
Bylaws of the Registrant, as amended and restated on October 15, 2018, incorporated by reference to Exhibit 3.2 to the registrant's Current Report on Form 8-K filed October 15, 2018.
*
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.
**
101.1Interactive Data File.**
Exhibit Number Description of Exhibit Location
2 
Agreement and Plan of Merger, dated February 7, 2019, by and between registrant and BB&T Corporation, incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed February 13, 2019, as amended by the First Amendment to Agreement and Plan of Merger by and between registrant and BB&T Corporation, dated as of June 14, 2019, incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed June 14, 2019.
 (1)
     
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 (i) Articles of Amendment dated December 13, 2012, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed December 20, 2012, (ii) the Articles of Amendment dated November 6, 2014, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed November 7, 2014, (iii) the Articles of Amendment dated May 1, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed May 2, 2017, and (iv) the Articles of Amendment dated November 13, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed November 14, 2017.
 (1)
     
3.2 
Bylaws of the Registrant, as amended and restated on October 15, 2018, incorporated by reference to Exhibit 3.2 to the registrant's Current Report on Form 8-K filed October 15, 2018.
 (1)
     
31.1
 
Certification of Chairman and Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 (2)
     
31.2
 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 (2)
     
32.1
 
Certification of Chairman and Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (3)
     
32.2
 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (3)
     
101 
Interactive Data File in Inline XBRL format, embedded within the Inline XBRL document of this Report.
 (2)
     
104 
Cover Page Interactive Data File in Inline XBRL format, included in Exhibit 101 to this Report.
 (2)


*(1)incorporatedIncorporated by reference
**(2)filedFiled herewith
(3)Furnished herewith


  
SIGNATURE
Pursuant to the requirements of the Securities 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)
    
Date:November 2, 2018October 31, 2019 
By: /s/ R. Ryan Richards
   
R. Ryan Richards,
Senior Vice President and Controller
(on behalf of the registrant and as Principal Accounting Officer)
    






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