Document




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


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016

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

Georgia
 
58-1575035
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia 30308
(Address of principal executive offices) (Zip Code)
(800) 786-8787
(Registrant’s telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes  þ    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ                    Accelerated filer  ¨        
Non-accelerated filer  ¨                    Smaller reporting company  ¨

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

At July 28, 2016, 495,738,819 shares of the registrant’s common stock, $1.00 par value, were outstanding.








TABLE OF CONTENTS


 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




GLOSSARY OF DEFINED TERMS

ABS — Asset-backed securities.
ACH — Automated clearing house.
AFS — Available for sale.
AIP — Annual Incentive Plan.
ALCO — Asset/Liability Committee.
ALM — Asset/Liability Management.
ALLL — Allowance for loan and lease losses.
AOCI — Accumulated other comprehensive income.
APIC — Additional paid-in capital.
ASC — Accounting Standards Codification.
ASU — Accounting Standards Update.
ATE — Additional termination event.
ATM — Automated teller machine.
Bank — SunTrust Bank.
Basel III — the Third Basel Accord, a comprehensive set of reform measures developed by the BCBS.
BCBS — Basel Committee on Banking Supervision.
Board — The Company’s Board of Directors.
bps — Basis points.
BRC — Board Risk Committee.
CCAR — Comprehensive Capital Analysis and Review.
CCB — Capital conservation buffer.
CD — Certificate of deposit.
CDR — Conditional default rate.
CDS — Credit default swaps.
CECL — Current expected credit loss.
CEO — Chief Executive Officer.
CET1 — Common Equity Tier 1 Capital.
CFO — Chief Financial Officer.
CIB — Corporate and investment banking.
C&I — Commercial and industrial.
Class A shares — Visa Inc. Class A common stock.
Class B shares — Visa Inc. Class B common stock.
CLO — Collateralized loan obligation.
Company — SunTrust Banks, Inc.
CP — Commercial paper.
CPR — Conditional prepayment rate.
CRE — Commercial real estate.
CRO — Chief Risk Officer.
CSA — Credit support annex.
CVA — Credit valuation adjustment.
DDA — Demand deposit account.
DOJ — Department of Justice.
DTA — Deferred tax asset.
DVA — Debit valuation adjustment.
EPS — Earnings per share.
ER — Enterprise Risk.
ERISA — Employee Retirement Income Security Act of 1974.
Exchange Act — Securities Exchange Act of 1934.
Fannie Mae — Federal National Mortgage Association.
Freddie Mac — Federal Home Loan Mortgage Corporation.
FDIC — Federal Deposit Insurance Corporation.
Federal Reserve — Federal Reserve System.
Fed funds — Federal funds.
FHA — Federal Housing Administration.
FHLB — Federal Home Loan Bank.
 
FICO — Fair Isaac Corporation.
Fitch — Fitch Ratings Ltd.
FRB — Federal Reserve Board.
FTE — Fully taxable-equivalent.
FVO — Fair value option.
GenSpring — GenSpring Family Offices, LLC.
Ginnie Mae — Government National Mortgage Association.
GSE — Government-sponsored enterprise.
HAMP — Home Affordable Modification Program.
HUD — U.S. Department of Housing and Urban Development.
IPO — Initial public offering.
IRLC — Interest rate lock commitment.
ISDA — International Swaps and Derivatives Association.
LCR — Liquidity coverage ratio.
LGD — Loss given default.
LHFI — Loans held for investment.
LHFS — Loans held for sale.
LIBOR — London InterBank Offered Rate.
LOCOM — Lower of cost or market.
LTI — Long-term incentive.
LTV— Loan to value.
MasterCard — MasterCard International.
MBS — Mortgage-backed securities.
MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Moody’s — Moody’s Investors Service.
MRA Master Repurchase Agreement.
MRM Market Risk Management.
MRMG — Model Risk Management Group.
MSR — Mortgage servicing right.
MVE — Market value of equity.
NOW — Negotiable order of withdrawal account.
NPA — Nonperforming asset.
NPL — Nonperforming loan.
OCI — Other comprehensive income.
OREO — Other real estate owned.
OTC — Over-the-counter.
OTTI — Other-than-temporary impairment.
Parent Company — SunTrust Banks, Inc. (the parent Company of SunTrust Bank and other subsidiaries).
PD — Probability of default.
PWM — Private Wealth Management.
ROA — Return on average total assets.
ROE — Return on average common shareholders’ equity.
ROTCE — Return on average tangible common shareholders' equity.
RSU — Restricted stock unit.
RWA — Risk-weighted assets.
S&P — Standard and Poor’s.
SBA — Small Business Administration.
SEC — U.S. Securities and Exchange Commission.
STCC — SunTrust Community Capital, LLC.
STIS — SunTrust Investment Services, Inc.
STM — SunTrust Mortgage, Inc.
STRH — SunTrust Robinson Humphrey, Inc.
SunTrust — SunTrust Banks, Inc.


i


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



ii




PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.



1




Item 1.
FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)
2016
 
2015
 
2016
 
2015
Interest Income
 
 
 
 
 
 
 
Interest and fees on loans

$1,222

 

$1,115

 

$2,424

 

$2,206

Interest and fees on loans held for sale
18

 
23

 
37

 
45

Interest and dividends on securities available for sale
161

 
137

 
324

 
277

Trading account interest and other
23

 
22

 
49

 
41

Total interest income
1,424

 
1,297

 
2,834

 
2,569

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
63

 
55

 
121

 
110

Interest on long-term debt
64

 
67

 
123

 
136

Interest on other borrowings
9

 
8

 
21

 
16

Total interest expense
136

 
130

 
265

 
262

Net interest income
1,288

 
1,167

 
2,569

 
2,307

Provision for credit losses
146

 
26

 
246

 
82

Net interest income after provision for credit losses
1,142

 
1,141

 
2,323

 
2,225

Noninterest Income
 
 
 
 
 
 
 
Service charges on deposit accounts
162


156

 
315

 
308

Other charges and fees
104


99

 
197

 
188

Card fees
83

 
84

 
160

 
164

Investment banking income
126


145

 
225

 
242

Trading income
34

 
54

 
89

 
109

Trust and investment management income
75


84

 
150

 
168

Retail investment services
72


80

 
141

 
152

Mortgage production related income
111

 
76

 
171

 
159

Mortgage servicing related income
52

 
30

 
114

 
73

Gain on sale of premises
52

 

 
52

 

Net securities gains
4


14

 
4

 
14

Other noninterest income
23


52

 
62

 
115

Total noninterest income
898

 
874

 
1,680

 
1,692

Noninterest Expense
 
 
 
 
 
 
 
Employee compensation
669

 
653

 
1,307

 
1,285

Employee benefits
94

 
103

 
229

 
242

Outside processing and software
202

 
204

 
400

 
394

Net occupancy expense
78

 
85

 
163

 
169

Equipment expense
42

 
42

 
82

 
82

Marketing and customer development
38

 
34

 
82

 
61

Regulatory assessments
44

 
35

 
80

 
72

Operating losses
25

 
16

 
50

 
30

Credit and collection services
18

 
25

 
30

 
43

Amortization
11

 
7

 
21

 
13

Other noninterest expense
124

 
124

 
219

 
217

Total noninterest expense
1,345

 
1,328

 
2,663

 
2,608

Income before provision for income taxes
695

 
687

 
1,340

 
1,309

Provision for income taxes
201

 
202

 
396

 
393

Net income including income attributable to noncontrolling interest
494

 
485

 
944

 
916

Net income attributable to noncontrolling interest
2

 
2

 
5

 
4

Net income

$492

 

$483

 

$939

 

$912

Net income available to common shareholders

$475

 

$467

 

$906

 

$877

 
 
 
 
 
 
 
 
Net income per average common share:
 
 
 
 
 
 
 
Diluted

$0.94

 

$0.89

 

$1.78

 

$1.67

Basic
0.95

 
0.90

 
1.80

 
1.69

Dividends declared per common share
0.24

 
0.24

 
0.48

 
0.44

Average common shares - diluted
505,633

 
522,479

 
508,012

 
524,646

Average common shares - basic
501,374

 
516,968

 
503,428

 
518,983



See accompanying Notes to Consolidated Financial Statements (unaudited).

2


SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income

 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions) (Unaudited)
2016
 
2015
 
2016
 
2015
Net income

$492

 

$483

 

$939

 

$912

Components of other comprehensive income/(loss):
 
 
 
 
 
 
 
Change in net unrealized gains/(losses) on securities available for sale,
net of tax of $81, ($117), $246 and ($64), respectively
136

 
(201
)
 
415

 
(115
)
Change in net unrealized gains/(losses) on derivative instruments,
net of tax of $43, ($20), $133, and $7, respectively
73

 
(34
)
 
223

 
10

Change in credit risk adjustment on long-term debt,
net of tax of $0, $0, ($1), and $0, respectively 1

 

 
(2
)
 

Change related to employee benefit plans,
net of tax of $2, ($2), $37, and ($45), respectively
3

 
6

 
62

 
(67
)
Total other comprehensive income/(loss), net of tax
212

 
(229
)
 
698

 
(172
)
Total comprehensive income

$704

 

$254

 

$1,637

 

$740

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



See accompanying Notes to Consolidated Financial Statements (unaudited).

3


SunTrust Banks, Inc.
Consolidated Balance Sheets
 
June 30,
 
December 31,
(Dollars in millions and shares in thousands, except per share data)
2016
 
2015
Assets
(Unaudited)
 
 
Cash and due from banks

$4,134

 

$4,299

Federal funds sold and securities borrowed or purchased under agreements to resell
1,107

 
1,277

Interest-bearing deposits in other banks
24

 
23

Cash and cash equivalents
5,265

 
5,599

Trading assets and derivative instruments 1
6,850

 
6,119

Securities available for sale
29,336

 
27,825

Loans held for sale ($2,176 and $1,494 at fair value at June 30, 2016 and December 31, 2015, respectively)
2,468

 
1,838

Loans 2 ($246 and $257 at fair value at June 30, 2016 and December 31, 2015, respectively)
141,656

 
136,442

Allowance for loan and lease losses
(1,774
)
 
(1,752
)
Net loans
139,882

 
134,690

Premises and equipment, net
1,474

 
1,502

Goodwill
6,337

 
6,337

Other intangible assets (MSRs at fair value: $1,061 and $1,307 at June 30, 2016 and December 31, 2015, respectively)
1,075

 
1,325

Other assets
6,205

 
5,582

Total assets

$198,892

 

$190,817

 
 
 
 
Liabilities
 
 
 
Noninterest-bearing deposits

$42,466

 

$42,272

Interest-bearing deposits (CDs at fair value: $49 and $0 at June 30, 2016 and December 31, 2015, respectively)
110,285

 
107,558

Total deposits
152,751

 
149,830

Funds purchased
1,352

 
1,949

Securities sold under agreements to repurchase
1,622

 
1,654

Other short-term borrowings
1,883

 
1,024

Long-term debt 3 ($970 and $973 at fair value at June 30, 2016 and December 31, 2015, respectively)
12,264

 
8,462

Trading liabilities and derivative instruments
1,245

 
1,263

Other liabilities
3,311

 
3,198

Total liabilities
174,428

 
167,380

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

 
1,225

Common stock, $1.00 par value
550

 
550

Additional paid-in capital
9,003

 
9,094

Retained earnings
15,353

 
14,686

Treasury stock, at cost, and other 4
(1,900
)
 
(1,658
)
Accumulated other comprehensive income/(loss), net of tax
233

 
(460
)
Total shareholders’ equity
24,464

 
23,437

Total liabilities and shareholders’ equity

$198,892

 

$190,817

 
 
 
 
Common shares outstanding 5
501,412

 
508,712

Common shares authorized
750,000

 
750,000

Preferred shares outstanding
12

 
12

Preferred shares authorized
50,000

 
50,000

Treasury shares of common stock
48,509

 
41,209

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

$1,282

 

$1,377

2 Includes loans of consolidated VIEs
227

 
246

3 Includes debt of consolidated VIEs
240

 
259

4 Includes noncontrolling interest
103

 
108

5 Includes restricted shares
49

 
1,334



See accompanying Notes to Consolidated Financial Statements (unaudited).

4


SunTrust Banks, Inc.
Consolidated Statements of Shareholders’ Equity
(Dollars and shares in millions, except per share data) (Unaudited)
Preferred Stock
 
Common Shares Outstanding
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
and Other 1
 
Accumulated Other Comprehensive (Loss)/Income
 
Total
Balance, January 1, 2015

$1,225

 
525

 

$550

 

$9,089

 

$13,295

 

($1,032
)
 

($122
)
 

$23,005

Net income

 

 

 

 
912

 

 

 
912

Other comprehensive loss

 

 

 

 

 

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

 

 

 

 
(229
)
 

 

 
(229
)
Preferred stock dividends 2

 

 

 

 
(32
)
 

 

 
(32
)
Repurchase of common stock

 
(7
)
 

 

 

 
(290
)
 

 
(290
)
Exercise of stock options and stock compensation expense

 

 

 
(14
)
 

 
22

 

 
8

Restricted stock activity

 

 

 
5

 
(2
)
 
7

 

 
10

Amortization of restricted stock compensation

 

 

 

 

 
9

 

 
9

Issuance of stock for employee benefit plans and other

 

 

 

 

 
2

 

 
2

Balance, June 30, 2015

$1,225

 
518

 

$550

 

$9,080

 

$13,944

 

($1,282
)
 

($294
)
 

$23,223

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016

$1,225

 
509

 

$550

 

$9,094

 

$14,686

 

($1,658
)
 

($460
)
 

$23,437

Cumulative effect of credit risk adjustment 3

 

 

 

 
5

 

 
(5
)
 

Net income

 

 

 

 
939

 

 

 
939

Other comprehensive income

 

 

 

 

 

 
698

 
698

Change in noncontrolling interest

 

 

 

 

 
(5
)
 

 
(5
)
Common stock dividends, $0.48 per share

 

 

 

 
(241
)
 

 

 
(241
)
Preferred stock dividends 2

 

 

 

 
(33
)
 

 

 
(33
)
Repurchase of common stock

 
(9
)
 

 

 

 
(326
)
 

 
(326
)
Repurchase of common stock warrants

 

 

 
(24
)
 

 

 

 
(24
)
Exercise of stock options and stock compensation expense 4

 

 

 
(22
)
 

 
33

 

 
11

Restricted stock activity 4

 
1

 

 
(45
)
 
(3
)
 
54

 

 
6

Amortization of restricted stock compensation

 

 

 

 

 
2

 

 
2

Balance, June 30, 2016

$1,225

 
501

 

$550

 

$9,003

 

$15,353

 

($1,900
)
 

$233

 

$24,464

1 At June 30, 2016, includes ($2,003) million for treasury stock, $0 million for the compensation element of restricted stock, and $103 million for noncontrolling interest.
At June 30, 2015, includes ($1,379) million for treasury stock, ($11) million for the compensation element of restricted stock, and $108 million for noncontrolling interest.
2 For the six months ended June 30, 2016, dividends were $2,033 per share for both Perpetual Preferred Stock Series A and B, $2,938 per share for Perpetual Preferred Stock Series E, and $2,813 per share for Perpetual Preferred Stock Series F.
For the six months ended June 30, 2015, dividends were $2,022 per share for both Perpetual Preferred Stock Series A and B, $2,938 per share for Perpetual Preferred Stock Series E, and $3,406 per share for Perpetual Preferred Stock Series F.
3 Related to the Company's early adoption of the ASU 2016-01 provision related to changes in instrument-specific credit risk, beginning January 1, 2016. See Note 1, "Significant Accounting Policies," and Note 17, "Accumulated Other Comprehensive Income/(Loss)," for additional information.
4 Includes a ($4) million net reclassification of excess tax benefits from additional paid-in capital to provision for income taxes, related to the Company's early adoption of ASU 2016-09. See Note 1, "Significant Accounting Policies," and Note 11, "Employee Benefit Plans," for additional information.


See accompanying Notes to Consolidated Financial Statements (unaudited).

5


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 
Six Months Ended June 30
(Dollars in millions) (Unaudited)
2016
 
2015
Cash Flows from Operating Activities
 
 
 
Net income including income attributable to noncontrolling interest

$944

 

$916

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
349

 
404

Origination of mortgage servicing rights
(110
)
 
(117
)
Provisions for credit losses and foreclosed property
249

 
87

Stock-based compensation
56

 
49

Excess tax benefits from stock-based compensation
(14
)
 
(17
)
Net securities gains
(4
)
 
(14
)
Net gain on sale of loans held for sale, loans, and other assets
(241
)
 
(114
)
Net (increase)/decrease in loans held for sale
(472
)
 
191

Net increase in trading assets
(372
)
 
(220
)
Net increase in other assets 1
(61
)
 
(310
)
Net decrease in other liabilities 1
(345
)
 
(45
)
Net cash (used in)/provided by operating activities
(21
)
 
810

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Proceeds from maturities, calls, and paydowns of securities available for sale
2,283

 
3,194

Proceeds from sales of securities available for sale

 
1,477

Purchases of securities available for sale
(3,400
)
 
(5,302
)
Net increase in loans, including purchases of loans
(5,777
)
 
(894
)
Proceeds from sales of loans
278

 
1,886

Purchases of mortgage servicing rights
(75
)
 
(112
)
Capital expenditures
(66
)
 
(36
)
Payments related to acquisitions, including contingent consideration
(23
)
 
(30
)
Proceeds from the sale of other real estate owned and other assets
118

 
126

Net cash (used in)/provided by investing activities
(6,662
)
 
309

 
 
 
 
Cash Flows from Financing Activities
 
 
 
Net increase in total deposits
2,921

 
4,370

Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
230

 
(3,069
)
Proceeds from issuance of long-term debt and other
4,892

 
1,195

Repayments of long-term debt
(1,034
)
 
(3,987
)
Repurchase of common stock
(326
)
 
(290
)
Repurchase of common stock warrants
(24
)
 

Common and preferred dividends paid
(274
)
 
(261
)
Taxes paid related to net share settlement of equity awards 1
(46
)
 
(31
)
Proceeds from exercise of stock options 1
10

 
13

Net cash provided by/(used in) financing activities
6,349

 
(2,060
)
 
 
 
 
Net decrease in cash and cash equivalents
(334
)
 
(941
)
Cash and cash equivalents at beginning of period
5,599

 
8,229

Cash and cash equivalents at end of period

$5,265

 

$7,288

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

$10

 

$651

Loans transferred from loans to loans held for sale
162

 
1,696

Loans transferred from loans and loans held for sale to other real estate owned
29

 
35

Non-cash impact of debt assumed by purchaser in lease sale
74

 
190

1 Related to the Company's early adoption of ASU 2016-09, certain prior period amounts have been retrospectively reclassified between operating activities and financing activities. See Note 1, "Significant Accounting Policies," for additional information.


See accompanying Notes to Consolidated Financial Statements (unaudited).

6

Notes to Consolidated Financial Statements (Unaudited)

 
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The unaudited Consolidated Financial Statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete, consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes; actual results
 
could vary from those estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
These interim Consolidated Financial Statements should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K. There have been no significant changes to the Company’s accounting policies as disclosed in the 2015 Annual Report on Form 10-K.
The Company evaluated events that occurred subsequent to June 30, 2016, and there were no material events that would require recognition in the Company's Consolidated Financial Statements or disclosure in the accompanying Notes for the three and six months ended June 30, 2016.


Recently Issued Accounting Pronouncements
The following table summarizes ASUs recently issued by the Financial Accounting Standards Board ("FASB") that could have a material effect on the Company's financial statements:
Standard
Description
Required Date of Adoption
Effect on the Financial Statements or Other Significant Matters
Standards Adopted (or partially adopted) in 2016
 
 
ASU 2015-02, Amendments to the Consolidation Analysis
The ASU rescinds the indefinite deferral of previous amendments to ASC Topic 810, Consolidation, for certain entities and amends components of the consolidation analysis under ASC Topic 810, including evaluating limited partnerships and similar legal entities, evaluating fees paid to a decision maker or service provider as a variable interest, the effects of fee arrangements and/or related parties on the primary beneficiary determination and investment fund specific matters. The ASU may be adopted either retrospectively or on a modified retrospective basis.

January 1, 2016
The Company adopted this ASU on a modified retrospective basis beginning January 1, 2016. The adoption of this standard had no impact to the Consolidated Financial Statements.
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities
The ASU amends ASC Topic 825, Financial Instruments-Overall, and addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require investments in equity securities to be measured at fair value through net income, unless they qualify for a practicability exception, and require fair value changes arising from changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option to be recognized in other comprehensive income. With the exception of disclosure requirements that will be adopted prospectively, the ASU must be adopted on a modified retrospective basis.
January 1, 2018

Early adoption is permitted beginning January 1, 2016 or 2017 for the provision related to changes in instrument-specific credit risk for financial liabilities under the FVO.

The Company early adopted the provision related to changes in instrument-specific credit risk beginning January 1, 2016, which resulted in an immaterial, cumulative effect adjustment from retained earnings to AOCI. The Company is evaluating the impact of the remaining provisions of this ASU on the Consolidated Financial Statements and related disclosures; however, the impact is not expected to be material.

7

Notes to Consolidated Financial Statements (Unaudited), continued



Standard
Description
Required Date of Adoption
Effect on the Financial Statements or Other Significant Matters
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
The ASU amends ASC Topic 718, Compensation-Stock Compensation, which simplifies several aspects of the accounting for employee share-based payments transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Adoption methods are specific to the component of the ASU, ranging from a retrospective and modified retrospective basis to a prospective basis.
January 1, 2017

Early adoption is permitted.
The Company early adopted the ASU on April 1, 2016 with an effective date of January 1, 2016, which resulted in a reclassification of $4 million from APIC to provision for income taxes, representing excess tax benefits previously recognized in APIC during the first quarter of 2016. During the second quarter of 2016 the Company recognized a benefit of $6 million in provision for income taxes for excess tax benefits that occurred between April 1, 2016 and June 30, 2016. The early adoption favorably impacted both basic and diluted EPS by $0.01 and $0.02 per share for the three and six months ended June 30, 2016, respectively.

The Company retrospectively reclassified $17 million of excess tax benefits from financing activities to operating activities in the Consolidated Statements of Cash Flows and retrospectively reclassified $31 million of taxes paid related to net share settlement of equity awards from operating activities to financing activities. The net impact on the Consolidated Statements of Cash Flows was immaterial.

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

The Company elected to retain its existing accounting policy election to estimate award forfeitures.

Standards Not Yet Adopted
 
 
ASU 2014-09, Revenue from Contracts with Customers

ASU 2016-08, Principal versus Agent Considerations

ASU 2016-10, Identifying Performance Obligations and Licensing

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

These ASUs supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the ASUs is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASUs may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts, with remaining performance obligations as of the effective date.
January 1, 2018

Early adoption is permitted beginning January 1, 2017.
The Company is evaluating the alternative methods of adoption and the anticipated effects on the Consolidated Financial Statements and related disclosures.

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

January 1, 2019

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

8

Notes to Consolidated Financial Statements (Unaudited), continued



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

January 1, 2017

Early application is permitted.
This ASU will not impact the Consolidated Financial Statements and related disclosures until there is an applicable increase in investment or change in influence resulting in a transition to the equity method.
ASU 2016-13, Measurement of Credit Losses on Financial Instruments
The ASU amends ASC Topic 326, Financial Instruments-Credit Losses, to replace the incurred loss impairment methodology with a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend credit. For this purpose, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary prepayments and considering available information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses reflects the portion of the amortized cost basis that the entity does not expect to collect. Additional quantitative and qualitative disclosures are required upon adoption.

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

January 1, 2020

Early adoption is permitted beginning January 1, 2019.
The Company is evaluating the impact the ASU will have on the Company's Consolidated Financial Statements and related disclosures.



NOTE 2 - FEDERAL FUNDS SOLD AND SECURITIES FINANCING ACTIVITIES
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Fed funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions)
June 30, 2016
 
December 31, 2015
Fed funds sold

$5

 

$38

Securities borrowed
332

 
277

Securities purchased under agreements to resell
770

 
962

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

$1,107

 

$1,277

Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which the securities will be
 
subsequently resold. Securities borrowed are primarily collateralized by corporate securities. The Company borrows securities and purchases securities under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral values daily and calls for additional collateral to be provided as warranted under the respective agreements. At June 30, 2016 and December 31, 2015, the total market value of collateral held was $1.1 billion and $1.2 billion, of which $215 million and $73 million was repledged, respectively.



9

Notes to Consolidated Financial Statements (Unaudited), continued



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

$3

 

$—

 

$3

 

$112

 

$—

 

$112

Federal agency securities
164

 

 
164

 
319

 

 
319

MBS - agency
993

 
13

 
1,006

 
837

 
23

 
860

CP
116

 

 
116

 
49

 

 
49

Corporate and other debt securities
239

 
94

 
333

 
242

 
72

 
314

Total securities sold under agreements to repurchase

$1,515

 

$107

 

$1,622

 

$1,559

 

$95

 

$1,654


For these securities sold under agreements to repurchase, the Company would be obligated to provide additional collateral in the event of a significant decline in fair value of the collateral pledged. This risk is managed by monitoring the liquidity and credit quality of the collateral, as well as the maturity profile of the transactions.

Netting of Securities - Repurchase and Resell Agreements
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar agreements are discussed in Note 13, "Derivative Financial Instruments." The following table presents the
 
Company's securities borrowed or purchased under agreements to resell and securities sold under agreements to repurchase that are subject to MRAs. At June 30, 2016 and December 31, 2015, there were no such transactions subject to legally enforceable MRAs that were eligible for balance sheet netting.
Financial instrument collateral received or pledged related to exposures subject to legally enforceable MRAs are not netted on the Consolidated Balance Sheets, but are presented in the following table as a reduction to the net amount reflected on the Consolidated Balance Sheets to derive the held/pledged financial instruments. The collateral amounts held/pledged are limited for presentation purposes to the related recognized asset/liability balance for each counterparty, and accordingly, do not include excess collateral received/pledged.

(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
June 30, 2016
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,102

 

$—

 

$1,102

1 

$1,092

 

$10

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,622

 

 
1,622

 
1,622

 

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

$1,239

 

$—

 

$1,239

1 

$1,229

 

$10

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

 

 
1,654

 
1,654

 

1 Excludes $5 million and $38 million of Fed funds sold, which are not subject to a master netting agreement at June 30, 2016 and December 31, 2015, respectively.



10

Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 3 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS

The fair values of the components of trading assets and liabilities and derivative instruments were as follows:
(Dollars in millions)
June 30, 2016
 
December 31, 2015
Trading Assets and Derivative Instruments:
 
 
 
U.S. Treasury securities

$531

 

$538

Federal agency securities
396

 
588

U.S. states and political subdivisions
54

 
30

MBS - agency
826

 
553

CLO securities
3

 
2

Corporate and other debt securities
499

 
468

CP
139

 
67

Equity securities
53

 
66

Derivative instruments 1
1,669

 
1,152

Trading loans 2
2,680

 
2,655

Total trading assets and derivative instruments

$6,850

 

$6,119

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

$473

 

$503

MBS - agency
3

 
37

Corporate and other debt securities
311

 
259

Derivative instruments 1
458

 
464

Total trading liabilities and derivative instruments

$1,245

 

$1,263

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

Various trading and derivative instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements executed through the Bank and/or the Company's broker/dealer subsidiary. The Company manages the potential market volatility associated with trading instruments with appropriate risk management strategies. The size, volume, and nature of the trading products and derivative instruments can vary based on economic conditions as well as client-specific and Company-specific asset or liability positions. Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative contracts, and other similar financial instruments. Other trading-related activities include acting as a market maker for certain debt and
 
equity security transactions, derivative instrument transactions, and foreign exchange transactions. The Company also uses derivatives to manage its interest rate and market risk from non-trading activities. The Company has policies and procedures to manage market risk associated with client trading and non-trading activities, and assumes a limited degree of market risk by managing the size and nature of its exposure. For valuation assumptions and additional information related to the Company's trading products and derivative instruments, see Note 13, “Derivative Financial Instruments,” and the “Trading Assets and Derivative Instruments and Securities Available for Sale” section of Note 14, “Fair Value Election and Measurement.”


Pledged trading assets are presented in the following table:
(Dollars in millions)
June 30, 2016
 
December 31, 2015
Pledged trading assets to secure repurchase agreements 1


$821

 

$986

Pledged trading assets to secure derivative agreements

467

 
393

Pledged trading assets to secure other arrangements

40

 
40

1 Repurchase agreements secured by collateral totaled $787 million and $950 million at June 30, 2016 and December 31, 2015, respectively.



11

Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 4SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
 
June 30, 2016
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$4,273

 

$168

 

$—

 

$4,441

Federal agency securities
361

 
11

 

 
372

U.S. states and political subdivisions
164

 
11

 

 
175

MBS - agency
22,800

 
727

 
3

 
23,524

MBS - non-agency residential
82

 
1

 

 
83

ABS
9

 
2

 

 
11

Corporate and other debt securities
35

 
1

 

 
36

Other equity securities 1
694

 
1

 
1

 
694

Total securities AFS

$28,418

 

$922

 

$4

 

$29,336

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

$3,460

 

$3

 

$14

 

$3,449

Federal agency securities
402

 
10

 
1

 
411

U.S. states and political subdivisions
156

 
8

 

 
164

MBS - agency
22,877

 
397

 
150

 
23,124

MBS - non-agency residential
92

 
2

 

 
94

ABS
11

 
2

 
1

 
12

Corporate and other debt securities
37

 
1

 

 
38

Other equity securities 1
533

 
1

 
1

 
533

Total securities AFS

$27,568

 

$424

 

$167

 

$27,825

1 At June 30, 2016, the fair value of other equity securities was comprised of the following: $202 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $84 million of mutual fund investments, and $6 million of other.
At December 31, 2015, the fair value of other equity securities was comprised of the following: $32 million of FHLB of Atlanta stock, $402 million of Federal Reserve Bank of Atlanta stock, $93 million of mutual fund investments, and $6 million of other.

The following table presents interest and dividends on securities AFS:
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Taxable interest

$156

 

$126

 

$315

 

$254

Tax-exempt interest
2

 
2

 
3

 
4

Dividends
3

 
9

 
6

 
19

Total interest and dividends on securities AFS

$161

 

$137

 

$324

 

$277


Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $4.6 billion and $3.2 billion at June 30, 2016 and December 31, 2015, respectively.


12

Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents the amortized cost, fair value, and weighted average yield of investments in debt securities AFS at June 30, 2016, by remaining contractual maturity, with the exception of MBS and ABS, which are based on estimated average life. Receipt of cash flows may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
 
Distribution of Remaining Maturities
(Dollars in millions)
Due in 1 Year or Less
 
Due After 1 Year through 5 Years
 
Due After 5 Years through 10 Years
 
Due After 10 Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,646

 

$2,627

 

$—

 

$4,273

Federal agency securities
145

 
91

 
13

 
112

 
361

U.S. states and political subdivisions
26

 
16

 
89

 
33

 
164

MBS - agency
2,174

 
9,671

 
10,498

 
457

 
22,800

MBS - non-agency residential

 
82

 

 

 
82

ABS
1

 
8

 

 

 
9

Corporate and other debt securities

 
35

 

 

 
35

Total debt securities AFS

$2,346

 

$11,549

 

$13,227

 

$602

 

$27,724

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,685

 

$2,756

 

$—

 

$4,441

Federal agency securities
146

 
98

 
13

 
115

 
372

U.S. states and political subdivisions
26

 
17

 
98

 
34

 
175

MBS - agency
2,285

 
10,009

 
10,761

 
469

 
23,524

MBS - non-agency residential

 
83

 

 

 
83

ABS
1

 
10

 

 

 
11

Corporate and other debt securities

 
36

 

 

 
36

Total debt securities AFS

$2,458

 

$11,938

 

$13,628

 

$618

 

$28,642

 Weighted average yield 1
2.50
%
 
2.40
%
 
2.56
%
 
3.04
%
 
2.50
%
1 Weighted average yields are based on amortized cost.

Securities AFS in an Unrealized Loss Position
The Company held certain investment securities AFS where amortized cost exceeded fair value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market prices of securities fluctuate. At June 30, 2016, the Company did not intend to sell these securities nor was it more-likely-than-not that
 
the Company would be required to sell these securities before their anticipated recovery or maturity. The Company reviewed its portfolio for OTTI in accordance with the accounting policies described in Note 1, "Significant Accounting Policies," of the Company's 2015 Annual Report on Form 10-K.


Securities AFS in an unrealized loss position at period end are presented in the following tables.
 
June 30, 2016
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
2
 
Fair
Value
 
Unrealized
Losses
2
 
Fair
Value
 
Unrealized
Losses
2
Temporarily impaired securities AFS:
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities

$—

 

$—

 

$3

 

$—

 

$3

 

$—

MBS - agency
438

 
1

 
398

 
2

 
836

 
3

ABS

 

 
6

 

 
6

 

Other equity securities
4

 
1

 

 

 
4

 
1

Total temporarily impaired securities AFS
442

 
2


407


2


849


4

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - non-agency residential
48

 

 

 

 
48

 

ABS
1

 

 

 

 
1

 

Total OTTI securities AFS
49

 

 

 

 
49

 

Total impaired securities AFS

$491

 

$2

 

$407

 

$2

 

$898

 

$4



13

Notes to Consolidated Financial Statements (Unaudited), continued



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

$2,169

 

$14

 

$—

 

$—

 

$2,169

 

$14

Federal agency securities
75

 

 
34

 
1

 
109

 
1

MBS - agency
11,434

 
114

 
958

 
36

 
12,392

 
150

ABS

 

 
7

 
1

 
7

 
1

Other equity securities
3

 
1

 

 

 
3

 
1

Total temporarily impaired securities AFS
13,681

 
129

 
999

 
38

 
14,680

 
167

OTTI securities AFS 1:
 
 
 
 
 
 
 
 
 
 
 
ABS
1

 

 

 

 
1

 

Total OTTI securities AFS
1

 

 

 

 
1

 

Total impaired securities AFS

$13,682

 

$129

 

$999

 

$38

 

$14,681

 

$167

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

At June 30, 2016, temporarily impaired securities AFS that have been in an unrealized loss position for twelve months or longer included agency MBS, federal agency securities, and one ABS collateralized by 2004 vintage home equity loans. The temporarily impaired ABS conti