SUNTRUST BANKS INC, 10-Q filed on 11/7/2014
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2014
Oct. 31, 2014
Entity Registrant Name
SUNTRUST BANKS INC 
 
Entity Central Index Key
0000750556 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q3 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
521,456,462 
Entity Well-known Seasoned Issuer
Yes 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Consolidated Statements of Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Interest Income
 
 
 
 
Interest and fees on loans
$ 1,152 
$ 1,148 
$ 3,464 
$ 3,474 
Interest and fees on loans held for sale
30 
30 
61 
90 
Interest and Dividend Income, Securities, Available-for-sale
153 
143 
456 
429 
Trading account interest and other
18 
18 
55 
52 
Total interest income
1,353 
1,339 
4,036 
4,045 
Interest Expense
 
 
 
 
Interest on deposits
54 
70 
180 
224 
Interest Expense, Long-term Debt
74 
52 
198 
156 
Interest on other borrowings
10 
29 
25 
Total interest expense
138 
131 
407 
405 
Net, interest income
1,215 
1,208 
3,629 
3,640 
Provision for Loan, Lease, and Other Losses
93 1
95 1
268 1
453 1
Interest Income (Expense), after Provision for Loan Loss
1,122 
1,113 
3,361 
3,187 
Noninterest Income
 
 
 
 
Service charges on deposit accounts
169 
168 
483 
492 
Fees and Commissions, Other
95 
91 
274 
277 
Fees and Commissions, Credit and Debit Cards
81 
77 
239 
231 
Fees and Commissions, Fiduciary and Trust Activities
93 
133 
339 
387 
Investment Advisory, Management and Administrative Fees
76 
68 
224 
198 
Investment Banking Revenue
88 
99 
296 
260 
Trading Gain (Loss)
46 
33 
141 
124 
Servicing Fees, Net
44 
11 
143 
50 
Fees and Commissions, Mortgage Banking
45 
(10)
140 
282 
Gain (Loss) on Disposition of Business
105 
Gain (Loss) on Sale of Securities, Net
(9)2
2
(11)2
2
Noninterest Income, Other Operating Income
52 
10 
155 
98 
Total noninterest income
780 
680 
2,528 
2,401 
Noninterest Expense
 
 
 
 
Employee compensation
649 
611 
1,967 
1,856 
Other Labor-related Expenses
81 
71 
326 
322 
Outside processing and software
184 
190 
535 
555 
Net occupancy expense
84 
86 
254 
261 
Equipment Expense
41 
45 
127 
136 
Federal Deposit Insurance Corporation Premium Expense
29 
45 
109 
140 
Marketing and Advertising Expense
35 
34 
91 
95 
Credit and collection services
21 
139 
67 
224 
Operating losses
29 
350 
268 
461 
Amortization of Intangible Assets and Impairment of Goodwill
14 
18 
Other Noninterest Expense
(99)3
(153)3
(376)3
(402)3
Noninterest Expense
1,259 
1,730 
4,134 
4,470 
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Extraordinary Items, Noncontrolling Interest
643 
63 
1,755 
1,118 
Income Tax Expense (Benefit)
67 3
(133)3
364 3
184 3
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
576 
196 
1,391 
934 
Net Income (Loss) Attributable to Noncontrolling Interest
11 
16 
Net Income (Loss) Attributable to Parent
576 
189 
1,380 
918 
Net Income (Loss) Available to Common Stockholders, Basic
$ 563 
$ 179 
$ 1,343 
$ 884 
Earnings Per Share, Diluted
$ 1.06 
$ 0.33 
$ 2.51 
$ 1.64 
Earnings Per Share, Basic
$ 1.07 
$ 0.33 
$ 2.54 
$ 1.65 
Common Stock, Dividends, Per Share, Declared
$ 0.20 
$ 0.10 
$ 0.50 
$ 0.25 
Weighted Average Number of Shares Outstanding, Diluted
533,230 
538,850 
535,222 
539,488 
Weighted Average Number of Shares Outstanding, Basic
527,402 
533,829 
529,429 
534,887 
Consolidated Statements of Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
$ 0 
$ 0 
$ 1 
$ 1 
Mortgage-backed Securities, Issued by Private Enterprises [Member]
 
 
 
 
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities
1
1
1
1
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net, Available-for-sale Securities
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Loss, before Tax, Including Portion Attributable to Noncontrolling Interest, Available-for-sale Securities
$ 0 
$ 0 
$ 1 
$ 1 
Consolidated Statements of Comprehensive Income Consolidated Statement of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Net Income (Loss) Attributable to Parent
$ 576 
$ 189 
$ 1,380 
$ 918 
Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
(37)
(11)
246 
(466)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Net of Tax
(82)
(26)
(168)
(189)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
34 
30 
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent
(118)
(33)
112 
(625)
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
$ 458 
$ 156 
$ 1,492 
$ 293 
Consolidated Statements of Comprehensive Income Consolidated Statement of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax
$ (21)
$ (7)
$ 144 
$ (272)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax
(48)
(15)
(98)
(111)
Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net Unamortized Gain (Loss) Arising During Period, Tax
$ 1 
$ 3 
$ 20 
$ 18 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Assets
 
 
Cash and Due from Banks
$ 7,178 
$ 4,258 
Federal Funds Sold and Securities Purchased under Agreements to Resell
1,125 
983 
Interest-bearing Deposits in Banks and Other Financial Institutions
22 
22 
Cash and cash equivalents
8,325 
5,263 
Trading assets
5,782 
5,040 
Available-for-sale Securities
26,162 
22,542 
Loans Held for Sale
1,739 1 2
1,699 1
Loans held for investment
132,151 3
127,877 3
Loans and Leases Receivable, Allowance
(1,968)
(2,044)
Net loans
130,183 
125,833 
Premises and equipment
1,504 
1,565 
Goodwill
6,337 
6,369 
Intangible Assets, Net (Excluding Goodwill)
1,320 
1,334 
Other real estate owned
112 
170 
Other Assets
5,354 
5,520 
Total assets
186,818 
175,335 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
42,542 
38,800 
Interest-bearing Deposit Liabilities
93,965 
90,959 
Total deposits
136,507 
129,759 
Funds purchased
1,000 
1,192 
Securities Sold under Agreements to Repurchase
2,089 4
1,759 4
Other Short-term Borrowings
7,283 
5,788 
Long-term Debt
12,942 5
10,700 5
Trading liabilities
1,231 
1,181 
Other Liabilities
3,497 
3,534 
Total liabilities
164,549 
153,913 
Preferred Stock, Value, Outstanding
725 
725 
Common Stock, Value, Outstanding
550 
550 
Additional paid in capital
9,090 
9,115 
Retained earnings
13,020 
11,936 
Treasury stock, at cost, and other
(939)6
(615)6
Accumulated Other Comprehensive Income (Loss), Net of Tax
(177)
(289)
Total shareholders' equity
22,269 
21,422 
Total liabilities and shareholders' equity
186,818 
175,335 
Common Stock, Shares, Outstanding
527,358 7
536,097 7
Common shares authorized
750,000 
750,000 
Preferred Stock, Shares Outstanding
Preferred Stock, Shares Authorized
50,000 
50,000 
Treasury shares of common stock
22,563 
13,824 
Treasury Stock and Other
 
 
Liabilities and Shareholders' Equity
 
 
Total shareholders' equity
(939)8
(615)8
Stockholders' Equity Attributable to Noncontrolling Interest
103 
119 
Variable Interest Entity, Primary Beneficiary [Member]
 
 
Assets
 
 
Loans Held for Sale
261 
Loans held for investment
298 
327 
Liabilities and Shareholders' Equity
 
 
Long-term Debt
$ 312 
$ 597 
Restricted Stock [Member]
 
 
Liabilities and Shareholders' Equity
 
 
Common Stock, Shares, Outstanding
2,993 
3,984 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Sep. 30, 2014
Dec. 31, 2013
Loans Held-for-sale, Fair Value Disclosure
$ 1,560 
$ 1,378 
Loans Receivable, Fair Value Disclosure
284 
302 
Servicing Asset at Fair Value, Amount
1,305 
1,300 
Deposits, Fair Value Disclosure
87 
764 
Long-term Debt, Fair Value
1,293 
1,556 
Common stock, par value
$ 1.00 
$ 1.00 
Loans Receivable Held-for-sale, Net
1,739 1 2
1,699 1
Loans held for investment
132,151 3
127,877 3
Long-term Debt
12,942 4
10,700 4
Common Stock, Shares, Outstanding
527,358 5
536,097 5
Variable Interest Entity, Primary Beneficiary [Member]
 
 
Long-term Debt, Fair Value
256 
Loans Receivable Held-for-sale, Net
261 
Loans held for investment
298 
327 
Long-term Debt
312 
597 
Treasury Stock and Other
 
 
Stockholders' Equity Attributable to Noncontrolling Interest
103 
119 
Residential Portfolio Segment [Member]
 
 
Loans Receivable, Fair Value Disclosure
284 
302 
Loans held for investment
$ 39,222 
$ 43,190 
Restricted Stock [Member]
 
 
Common Stock, Shares, Outstanding
2,993 
3,984 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions, except Share data, unless otherwise specified
Total
USD ($)
Preferred Stock [Member]
USD ($)
Common Stock [Member]
USD ($)
Additional Paid-in Capital [Member]
USD ($)
Retained Earnings [Member]
USD ($)
Treasury Stock and Other
USD ($)
Accumulated Other Comprehensive Income (Loss) [Member]
USD ($)
Common Stock [Member]
Ridgeworth Capital Management [Member]
USD ($)
Ridgeworth Capital Management [Member]
Additional Paid-in Capital [Member]
USD ($)
Ridgeworth Capital Management [Member]
Treasury Stock and Other
USD ($)
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, beginning of period at Dec. 31, 2012
$ 20,985 
$ 725 
$ 550 
$ 9,174 
$ 10,817 
$ (590)1
$ 309 2
 
 
 
 
Common Stock, Shares, Outstanding, beginning of period at Dec. 31, 2012
 
 
539,000,000 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Parent
918 
 
 
 
918 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
(625)
 
 
 
 
 
(625)2
 
 
 
 
Noncontrolling Interest, Period Increase (Decrease)
 
 
 
 
1
 
 
 
 
 
Dividends, Common Stock, Cash
(134)
 
 
 
(134)
 
 
 
 
 
 
Dividends, Preferred Stock, Cash3
(28)
 
 
 
(28)
 
 
 
 
 
 
Treasury Stock, Shares, Acquired
 
 
 
 
 
 
 
(3,000,000)
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(100)
 
 
 
 
(100)1
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
 
 
 
 
 
 
 
1,000,000 
 
 
 
Stock Issued During Period, Value, Stock Options Exercised
16 
 
 
(24)
 
40 1
 
 
 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
 
 
 
 
 
 
 
1,000,000 
 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
 
 
(35)
 
40 1
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
24 
 
 
 
 
24 1
 
 
 
 
 
Stock Issued During Period, Value, Employee Benefit Plan
 
 
 
1
 
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, end of period at Sep. 30, 2013
21,070 
725 
550 
9,117 
11,573 
(579)1
(316)2
 
 
 
 
Common Stock, Shares, Outstanding, end of period at Sep. 30, 2013
 
 
538,000,000 
 
 
 
 
 
 
 
 
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, beginning of period at Dec. 31, 2013
21,422 
725 
550 
9,115 
11,936 
(615)1
(289)2
 
 
 
 
Common Stock, Shares, Outstanding, beginning of period at Dec. 31, 2013
536,097,000 4
 
536,000,000 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to Parent
1,380 
 
 
 
1,380 
 
 
 
 
 
 
Other Comprehensive Income (Loss), Net of Tax
112 
 
 
 
 
 
112 2
 
 
 
 
Dividends, Common Stock, Cash
(266)
 
 
 
(266)
 
 
 
 
 
 
Dividends, Preferred Stock, Cash3
(28)
 
 
 
(28)
 
 
 
 
 
 
Treasury Stock, Shares, Acquired
 
 
 
 
 
 
 
(9,000,000)
 
 
 
Treasury Stock, Value, Acquired, Cost Method
(348)
 
 
 
 
(348)1
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
 
 
 
 
 
 
 
 
 
 
Stock Issued During Period, Value, Stock Options Exercised
 
 
(14)
 
15 1
 
 
 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
 
 
 
 
 
 
 
 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Net of Forfeitures
12 
 
 
13 
(2)
1
 
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Restricted Stock Unit or Restricted Stock Award, Requisite Service Period Recognition
21 
 
 
 
 
21 1
 
 
 
 
 
Stock Issued During Period, Value, Employee Benefit Plan
 
 
(1)
 
1
 
 
(39)
(23)
(16)1
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, end of period at Sep. 30, 2014
$ 22,269 
$ 725 
$ 550 
$ 9,090 
$ 13,020 
$ (939)1
$ (177)2
 
 
 
 
Common Stock, Shares, Outstanding, end of period at Sep. 30, 2014
527,358,000 4
 
527,000,000 
 
 
 
 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Common stock dividends, per share
$ 0.50 
$ 0.25 
Treasury Stock, Value
$ (939)1
 
Accumulated Other Comprehensive Income (Loss), Available-for-sale Securities Adjustment, Net of Tax
169 
54 
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax
111 
342 
Accumulated Other Comprehensive Income (Loss), Pension and Other Postretirement Benefit Plans, Net of Tax
(457)
(712)
Treasury Stock and Other
 
 
Stockholders' Equity Attributable to Parent
(1,015)
(636)
Deferred Compensation Equity
(27)
(59)
Stockholders' Equity Attributable to Noncontrolling Interest
$ 103 
$ 116 
Series A Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 3,044 
$ 3,044 
Series B Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 3,044 
$ 3,044 
Series E Preferred Stock [Member]
 
 
Preferred Stock, Dividends, Per Share, Cash Paid
$ 4,406 
$ 4,325 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash Flows from Operating Activities:
 
 
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
$ 1,391 
$ 934 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Gain (Loss) on Disposition of Business
(105)
Depreciation, Amortization and Accretion, Net
504 
542 
Origination of Mortgage Servicing Rights (MSRs)
(137)
(302)
Provisions for credit losses and foreclosed property
286 
495 
Mortgage repurchase provision
12 
102 
Stock Option Compensation And Amortization Of Restricted Stock Compensation
41 
40 
Gain (Loss) on Sale of Securities, Net
(11)1
1
Net gain on sale of assets
(239)
(169)
Net decrease/(increase) in loans held for sale
(139)
1,200 
Net (increase)/decrease in other assets
(899)
(95)
Increase (Decrease) in Other Operating Liabilities
(163)
(160)
Net Cash Provided by (Used in) Operating Activities
563 
2,585 
Cash Flows from Investing Activities:
 
 
Proceeds from Maturities, Prepayments and Calls of Available-for-sale Securities
2,788 
4,672 
Proceeds from sales of securities available for sale
793 
529 
Purchases of securities available for sale
(6,986)
(6,744)
Proceeds from sales of trading securities
59 
Proceeds from (payments for) Originations and Purchases of Loans Held-for-investment
(7,698)
(4,525)
Proceeds from sales of loans
3,029 
730 
Servicing Assets at Fair Value, Purchased
(109)
Capital expenditures
(96)
(104)
Payments related to acquisitions, including contingent consideration
11 
Proceeds from Divestiture of Businesses
193 
Proceeds from Sale of Other Real Estate
279 
403 
Net cash (used in)/provided by investing activities
(7,759)
(5,042)
Cash Flows from Financing Activities:
 
 
Net (decrease)/increase in total deposits
6,748 
(3,433)
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
1,633 
1,493 
Proceeds from Issuance of Long-term Debt
2,574 
747 
Repayment of long-term debt
(67)
(77)
Payments for Repurchase of Common Stock
(348)
(100)
Common and preferred dividends paid
(294)
(162)
Stock option activity
12 
18 
Net cash provided by/(used in) financing activities
10,258 
(1,514)
Net (decrease)/increase in cash and cash equivalents
3,062 
(3,971)
Cash and cash equivalents at beginning of period
5,263 
8,257 
Cash and cash equivalents at end of period
8,325 
4,286 
Supplemental Disclosures:
 
 
Transfer of Loans Held-for-sale to Portfolio Loans
39 
28 
Loans transferred from loans to loans held for sale
3,183 
200 
Transfer to Other Real Estate
113 
197 
non-cash impact of deconsolidated assets
$ 282 
$ 0 
Acquisitions/Dispositions Acquisitions/Dispositions (Notes)
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
NOTE 2 - ACQUISITIONS/DISPOSITIONS
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
2014
 
Date
 
Cash
Received
 
Goodwill
 
Other
Intangibles
 
Gain
Sale of RidgeWorth
 
5/30/2014
 

$193

 

($40
)
 

($9
)
 

$105

On May 30, 2014, the Company completed the sale of RidgeWorth, its asset management subsidiary with approximately $49.1 billion in assets under management, to an investor group led by a private equity fund managed by Lightyear Capital LLC. The Company received cash proceeds of $193 million, removed $96 million in net assets and $23 million in noncontrolling interests, and recognized a pre-tax gain of $105 million in connection with the sale, net of transaction-related expenses.
The Company’s results for the nine months ended September 30, 2014, included income before provision for income taxes related to RidgeWorth, excluding the gain on sale, of $22 million, comprised of $81 million of revenue and $59 million of expense.
The Company’s results for the nine months ended September 30, 2013, included income before provision for income taxes related to RidgeWorth of $49 million, comprised of $145 million of revenue and $96 million of expense.
For the year ended December 31, 2013, the Company’s income before provision for income taxes included $64 million related to RidgeWorth, comprised of $194 million of revenue and $130 million of expense. The financial results of RidgeWorth, including the gain on sale, are reflected in the Corporate Other segment.
There were no other material acquisitions or dispositions during the three and nine months ended September 30, 2014 and 2013.
Significant Accounting Policies
Significant Accounting Policies [Text Block]
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The Company evaluated subsequent events through the date its financial statements were issued.

These financial statements should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K. There have been no significant changes to the Company’s accounting policies as disclosed in the Company’s 2013 Annual Report on Form 10-K.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In January 2014, the FASB issued ASU 2014-01, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)." The ASU allows the use of the proportional amortization method for investments in qualified affordable housing projects if certain conditions are met. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other tax benefits received and the net investment performance is recognized in the income statement as a component of income tax expense. The ASU provides for a practical expedient, which allows for amortization of the investment in proportion to only the tax credits if it produces a measurement that is substantially similar to the measurement that would result from using both tax credits and other tax benefits. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. As early adoption is permitted, the Company adopted this ASU effective January 1, 2014, utilizing the practical expedient method. The standard is required to be applied retrospectively; therefore prior period amounts included in noninterest expense prior to adoption have been reclassified. During the three and nine months ended September 30, 2013, $13 million and $33 million, respectively, of investment amortization expense was included in other noninterest expense in the Consolidated Statements of Income which was reclassified to income tax expense upon adoption. There has been no other impact on the Company's financial position, results of operations, or EPS.

In January 2014, the FASB issued ASU 2014-04, "Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)." The ASU clarifies that a creditor is considered to have received physical possession, resulting from an in substance repossession or foreclosure, of residential real estate property collateralizing a consumer mortgage loan upon the occurrence of either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. The adoption of this ASU is not expected to have a significant impact on the Company's financial position, results of operations, or EPS.

In April 2014, the FASB issued ASU 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):  Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The ASU changes the requirements for reporting discontinued operations. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. Early adoption is permitted only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. The Company will adopt the ASU at the beginning of 2015. The adoption is not expected to have an impact on the Company's financial position, results of operations, or EPS.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU is effective for fiscal years and interim periods beginning after December 15, 2016 and early adoption is not permitted. The Company is continuing to evaluate the impact of the ASU.

In June 2014, the FASB issued ASU 2014-11, "Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." The ASU changes the accounting for repurchase-to-maturity transactions from sale to secured borrowing accounting. Also, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. Additional disclosures are required for all types of repurchase agreements. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014 and early adoption is not permitted. Adoption of the ASU will not have a significant impact on the Company's financial position, results of operations, or EPS.

In June 2014, the FASB issued ASU 2014-12, "Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period shall be treated as a performance condition. Under existing guidance in Topic 718, a performance target that falls under the scope of this amendment should not be reflected in estimating the grant-date fair value of the award; but rather compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. Adoption of the ASU will not have a significant impact on the Company's financial position, results of operations, or EPS.

In August 2014, the FASB issued ASU 2014-13, "Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force)." The ASU allows measurement of financial assets and financial liabilities of in-scope consolidated collateralized financing entities using either the measurement alternative included in the ASU or Topic 820 on fair value measurement. The measurement alternative in this ASU allows for measurement of both the financial assets and the financial liabilities of a consolidated collateralized financing entity using the more observable of the fair value of the financial assets or the fair value of the financial liabilities. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. Adoption of the ASU is not expected to impact the Company's financial position, results of operations, or EPS.

In August 2014, the FASB issued ASU 2014-14, "Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)." The ASU requires that a guaranteed mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the guaranteed amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The ASU is effective for fiscal years and interim periods beginning after December 15, 2014. The Company is already accounting for government guaranteed mortgage loans using this approach upon foreclosure; therefore, adoption of the ASU will not have an impact on the Company's financial position, results of operations, or EPS.

In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." The ASU requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. In the event there is substantial doubt, the ASU requires disclosure of the relevant facts and circumstances. The ASU is effective for fiscal years and interim periods ending after December 15, 2016. Adoption of the ASU will not have an impact on the Company's financial position, results of operations, or EPS.

On November 3, 2014, the FASB issued ASU 2014-16, "Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force)." The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. The Company is currently evaluating the impact of the ASU.
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Repurchase Agreements, Resale Agreements, Securities Borrowed, and Securities Loaned Disclosure [Text Block]
NOTE 3 - FEDERAL FUNDS SOLD AND SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Fed funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions)
September 30, 2014
 
December 31, 2013
Fed funds sold

$14

 

$75

Securities borrowed or purchased
251

 
184

Resell agreements
860

 
724

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

$1,125

 

$983


Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which securities will be subsequently resold. Securities borrowed are primarily collateralized by corporate securities. The Company takes possession of all securities purchased under agreements to resell and securities borrowed and performs the appropriate margin evaluation on the acquisition date based on market volatility, as necessary. It is the Company's policy to obtain possession of collateral with a fair value between 95% to 110% of the principal amount loaned under resale and securities borrowing agreements. At September 30, 2014 and December 31, 2013, the total market value of collateral held was $1.1 billion and $913 million, of which $211 million and $234 million was repledged, respectively.

At September 30, 2014 and December 31, 2013, the Company had $1.0 billion and $731 million of trading assets pledged to secure $992 million and $717 million of repurchase agreements, respectively.

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 12, "Derivative Financial Instruments." Securities purchased under agreements to resell and securities sold under agreements to repurchase are governed by a MRA. Under the terms of the MRA, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted. These amounts are limited to the contract asset/liability balance, and accordingly, do not include excess collateral received/pledged.

The following table presents the Company's eligible securities borrowed or purchased under agreements to resell and securities sold under agreements to repurchase at September 30, 2014 and December 31, 2013:
(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial Instruments
 
Net
Amount
September 30, 2014
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$1,111

 

$—

 

$1,111

1,2 

$1,103

 

$8

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
2,089

 

 
2,089

1 
2,089

 

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Securities borrowed or purchased under agreements to resell

$908

 

$—

 

$908

1,2 

$899

 

$9

Financial liabilities:
 
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
1,759

 

 
1,759

1 
1,759

 


1 None of the Company's repurchase or reverse repurchase transactions met the right of setoff criteria for net balance sheet presentation at September 30, 2014 and December 31, 2013.
2 Excludes $14 million and $75 million of Fed funds sold which are not subject to a master netting agreement at September 30, 2014 and December 31, 2013, respectively.

Securities Available for Sale
Securities Available for Sale
NOTE 4 – SECURITIES AVAILABLE FOR SALE
Securities Portfolio Composition
 
September 30, 2014
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$1,007

 

$6

 

$2

 

$1,011

Federal agency securities
986

 
15

 
31

 
970

U.S. states and political subdivisions
228

 
9

 

 
237

MBS - agency
22,508

 
501

 
198

 
22,811

MBS - private
129

 
3

 

 
132

ABS
19

 
2

 

 
21

Corporate and other debt securities
38

 
3

 

 
41

Other equity securities 1
937

 
2

 

 
939

Total securities AFS

$25,852

 

$541

 

$231

 

$26,162

 
 
 
 
 
 
 
 
 
December 31, 2013
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
U.S. Treasury securities

$1,334

 

$6

 

$47

 

$1,293

Federal agency securities
1,028

 
13

 
57

 
984

U.S. states and political subdivisions
232

 
7

 
2

 
237

MBS - agency
18,915

 
421

 
425

 
18,911

MBS - private
155

 
1

 
2

 
154

ABS
78

 
2

 
1

 
79

Corporate and other debt securities
39

 
3

 

 
42

Other equity securities 1
841

 
1

 

 
842

Total securities AFS

$22,622

 

$454

 

$534

 

$22,542

1 At September 30, 2014, other equity securities comprised the following: $421 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $109 million in mutual fund investments, and $7 million of other. At December 31, 2013, other equity securities comprised the following: $336 million in FHLB of Atlanta stock, $402 million in Federal Reserve Bank stock, $103 million in mutual fund investments, and $1 million of other.
The following table presents interest and dividends on securities AFS:
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Taxable interest

$142

 

$132

 

$421

 

$397

Tax-exempt interest
2

 
3

 
8

 
8

Dividends
9

 
8

 
27

 
24

Total interest and dividends

$153

 

$143

 

$456

 

$429



Securities AFS pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $7.8 billion and $11.0 billion at September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, $370 million of securities AFS at fair value were pledged against repurchase arrangements under which the secured party has possession of the collateral and has the right to sell or repledge that collateral. At December 31, 2013, there were no securities AFS pledged under secured borrowing arrangements under which the secured party has possession of the collateral and would customarily sell or repledge that collateral, other than in an event of default by the Company.

The amortized cost and fair value of investments in debt securities at September 30, 2014, by estimated average life, are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

 
Distribution of Maturities
(Dollars in millions)
1 Year
or Less
 
1-5
Years
 
5-10
Years
 
After 10
Years
 
Total
Amortized Cost:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,007

 

$—

 

$—

 

$1,007

Federal agency securities
75

 
239

 
531

 
141

 
986

U.S. states and political subdivisions
60

 
44

 
101

 
23

 
228

MBS - agency
2,349

 
9,020

 
6,919

 
4,220

 
22,508

MBS - private
5

 
124

 

 

 
129

ABS
14

 
3

 
2

 

 
19

Corporate and other debt securities
5

 
33

 

 

 
38

Total debt securities

$2,508

 

$10,470

 

$7,553

 

$4,384

 

$24,915

Fair Value:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$—

 

$1,011

 

$—

 

$—

 

$1,011

Federal agency securities
75

 
250

 
506

 
139

 
970

U.S. states and political subdivisions
60

 
47

 
105

 
25

 
237

MBS - agency
2,490

 
9,203

 
6,956

 
4,162

 
22,811

MBS - private
5

 
127

 

 

 
132

ABS
14

 
5

 
2

 

 
21

Corporate and other debt securities
5

 
36

 

 

 
41

Total debt securities

$2,649

 

$10,679

 

$7,569

 

$4,326

 

$25,223

 Weighted average yield 1
2.47
%
 
2.46
%
 
2.89
%
 
3.09
%
 
2.70
%
1Average yields are based on amortized cost and presented on a FTE basis.

Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair market value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market price of securities fluctuates. The Company reviewed its portfolio for OTTI in accordance with the accounting policies described in the Company's 2013 Annual Report on Form 10-K and, at September 30, 2014, 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. At September 30, 2014, the Company had no OTTI for securities in an unrealized loss position.
 
September 30, 2014
 
Less than twelve months
 
Twelve months or longer
 
Total
(Dollars in millions)
Fair
Value
 
Unrealized
Losses
2
 
Fair
Value
 
Unrealized
Losses
2
 
Fair
Value
 
Unrealized  
Losses
2
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$385

 

$2

 

$—

 

$—

 

$385

 

$2

Federal agency securities
8

 

 
615

 
31

 
623

 
31

MBS - agency
4,259

 
14

 
5,804

 
184

 
10,063

 
198

ABS

 

 
14

 

 
14

 

Total temporarily impaired securities

$4,652

 

$16

 

$6,433

 

$215

 

$11,085

 

$231


 
December 31, 2013
 
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
Temporarily impaired securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities

$1,036

 

$47

 

$—

 

$—

 

$1,036

 

$47

Federal agency securities
398

 
29

 
264

 
28

 
662

 
57

U.S. states and political subdivisions
12

 

 
20

 
2

 
32

 
2

MBS - agency
9,173

 
358

 
618

 
67

 
9,791

 
425

ABS

 

 
13

 
1

 
13

 
1

Total temporarily impaired securities
10,619

 
434

 
915

 
98

 
11,534

 
532

OTTI securities 1:
 
 
 
 
 
 
 
 
 
 
 
MBS - private
105

 
2

 

 

 
105

 
2

Total OTTI securities
105

 
2

 

 

 
105

 
2

Total impaired securities

$10,724

 

$436

 

$915

 

$98

 

$11,639

 

$534

1 Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.
2 Securities with unrealized losses less than $0.5 million are shown as zero.

At September 30, 2014, unrealized losses on securities that have been in a temporarily impaired position for longer than twelve months included federal agency securities, agency MBS, and one ABS collateralized by 2004 vintage home equity loans. Unrealized losses on federal agency securities and agency MBS securities are due to an increase in market interest rates. The ABS continues to receive timely principal and interest payments, and is evaluated quarterly for credit impairment. Cash flow analysis shows that the underlying collateral can withstand highly stressed loss assumptions without incurring a credit loss.

The portion of unrealized losses on OTTI securities that relates to factors other than credit is recorded in AOCI. Losses related to credit impairment on these securities are determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods.

Realized Gains and Losses and Other-than-Temporarily Impaired Securities
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Gross realized gains

$3



$—

 

$3

 

$4

Gross realized losses
(12
)
 

 
(13
)
 
(1
)
OTTI losses recognized in earnings

 

 
(1
)
 
(1
)
Net securities (losses)/gains

($9
)
 

$—

 

($11
)
 

$2


Credit impairment that is determined through the use of models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. If, based on this analysis, the security is in an unrealized loss position and the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the nine months ended September 30, 2014, all OTTI recognized in earnings related to one private MBS collateralized by residential mortgage loans securitized in 2007.

The Company continues to reduce existing exposure to this security primarily through paydowns. In certain instances, the amount of impairment losses recognized in earnings includes credit losses on debt securities that exceeds the total unrealized losses, and as a result, the securities may have unrealized gains in AOCI relating to factors other than credit.

There was no credit impairment recognized on securities during the three months ended September 30, 2014 and 2013. The security that gave rise to credit impairments recognized during the nine months ended September 30, 2014 consisted of private MBS with a fair value of approximately $19 million at September 30, 2014. The securities that gave rise to credit impairments recognized during the nine months ended September 30, 2013 consisted of private MBS and ABS with a combined fair value of approximately $23 million at September 30, 2013. Credit impairments recognized on securities during the nine months ended September 30, 2014 and 2013, are shown below.
 
 
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
OTTI 1

$—

 

$—

Portion of gains recognized in OCI (before taxes)
1

 
1

Net impairment losses recognized in earnings

$1

 

$1

1 The initial OTTI amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount includes additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position.
 
The following is a rollforward of credit losses recognized in earnings for the three and nine months ended September 30, 2014 and 2013, related to securities for which the Company does not intend to sell and it is not more-likely-than-not that the Company will be required to sell as of the end of each period presented. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value when there has been a decline in expected cash flows.
 
Three Months Ended September 30
 
Nine Months Ended September 30
(Dollars in millions)
2014
 
2013
 
2014
 
2013
Balance, beginning of period

$25

 

$32

 

$25

 

$31

Additions:
 
 
 
 
 
 
 
OTTI credit losses on previously impaired securities

 

 
1

 
1

Reductions:
 
 
 
 
 
 
 
Increases in expected cash flows recognized over the remaining life of the securities

 
(1
)
 
(1
)
 
(1
)
Balance, end of period

$25

 

$31

 

$25

 

$31


The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS and ABS for the nine months ended September 30:
 
  2014 1
 
2013
Default rate
2%
 
2 - 9%
Prepayment rate
16%
 
7 - 21%
Loss severity
46%
 
46 - 74%

1 During the nine months ended September 30, 2014, all OTTI recognized in earnings related to one private MBS security.

Assumption ranges represent the lowest and highest lifetime average estimates of each security for which credit losses were recognized in earnings. Ranges may vary from period to period as the securities for which credit losses are recognized vary. Additionally, severity may vary widely when losses are few and large.
Loans
Loans
NOTE 5 - LOANS
Composition of Loan Portfolio
The composition of the Company's loan portfolio is shown in the following table:
(Dollars in millions)
September 30,
2014
 
December 31, 2013
Commercial loans:
 
 
 
C&I

$63,140

 

$57,974

CRE
6,704

 
5,481

Commercial construction
1,250

 
855

Total commercial loans
71,094

 
64,310

Residential loans:
 
 
 
Residential mortgages - guaranteed
651

 
3,416

Residential mortgages - nonguaranteed 1
23,718

 
24,412

Home equity products
14,389

 
14,809

Residential construction
464

 
553

Total residential loans
39,222

 
43,190

Consumer loans:
 
 
 
Guaranteed student loans
5,314

 
5,545

Other direct
4,110

 
2,829

Indirect
11,594

 
11,272

Credit cards
817

 
731

Total consumer loans
21,835

 
20,377

LHFI

$132,151

 

$127,877

LHFS 2

$1,739

 

$1,699

1 Includes $284 million and $302 million of loans carried at fair value at September 30, 2014 and December 31, 2013, respectively.
2 Includes $1.6 billion and $1.4 billion of LHFS carried at fair value at September 30, 2014 and December 31, 2013, respectively.

At September 30, 2014 and December 31, 2013, the Company had $57.1 billion and $56.4 billion, respectively, of net eligible loan collateral pledged to the Federal Reserve Discount Window or the FHLB of Atlanta to support available borrowing capacity.

During the three months ended September 30, 2014 and 2013, the Company transferred $362 million and $56 million in LHFI to LHFS, and $19 million and $11 million in LHFS to LHFI, respectively. Additionally, during the three months ended September 30, 2014 and 2013, the Company sold $2.3 billion and $99 million in loans and leases for gains of $40 million and less than $1 million, respectively.

During the nine months ended September 30, 2014 and 2013, the Company transferred $3.2 billion and $200 million in LHFI to LHFS, and $39 million and $28 million in LHFS to LHFI, respectively. Additionally, during the nine months ended September 30, 2014 and 2013, the Company sold $3.0 billion and $761 million in loans and leases for gains of $71 million and $7 million, respectively.

Credit Quality Evaluation
The Company evaluates the credit quality of its loan portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of PD and LGD ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analyses, and/or qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of Pass or Criticized. The Company's risk rating system is granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs, whereas, Criticized assets have higher PDs. The granularity in Pass ratings assists in the establishment of pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Adversely Classified, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Accruing Criticized (which includes Special Mention and a portion of Adversely Classified) and Nonaccruing Criticized (which includes a portion of Adversely Classified and Doubtful and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will collect all amounts due from those where full collection is less certain.
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.
For consumer and residential loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.
For government-guaranteed loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At September 30, 2014 and December 31, 2013, 30% and 82%, respectively, of the guaranteed residential loan portfolio was current with respect to payments. The decline in the percentage of current loans in LHFI is solely due to approximately $2.0 billion in accruing current guaranteed residential loans which were sold in the third quarter of 2014. At September 30, 2014 and December 31, 2013, 82% and 81%, respectively, of the guaranteed student loan portfolio was current with respect to payments. Loss exposure to the Company on these loans is mitigated by the government guarantee.
LHFI by credit quality indicator are shown in the tables below:
 
Commercial Loans
 
C&I
 
CRE
 
Commercial construction
(Dollars in millions)
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
Risk rating:
 
 
 
 
 
 
 
 
 
 
 
Pass

$61,748

 

$56,443

 

$6,513

 

$5,245

 

$1,220

 

$798

Criticized accruing
1,214

 
1,335

 
159

 
197

 
21

 
45

Criticized nonaccruing
178

 
196

 
32

 
39

 
9

 
12

Total

$63,140

 

$57,974

 

$6,704

 

$5,481

 

$1,250

 

$855

 
Residential Loans 1
 
Residential mortgages -
nonguaranteed
 
Home equity products
 
Residential construction
(Dollars in millions)
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$18,828

 

$19,100

 

$11,495

 

$11,661

 

$366

 

$423

620 - 699
3,501

 
3,652

 
2,049

 
2,186

 
75

 
90

Below 620 2
1,389

 
1,660

 
845

 
962

 
23

 
40

Total

$23,718

 

$24,412

 

$14,389

 

$14,809

 

$464

 

$553

 
Consumer Loans 3
 
Other direct
 
Indirect
 
Credit cards
(Dollars in millions)
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
 
September 30,
2014
 
December 31, 2013
Current FICO score range:
 
 
 
 
 
 
 
 
 
 
 
700 and above

$3,563

 

$2,370

 

$8,526

 

$8,420

 

$575

 

$512

620 - 699
477

 
397

 
2,409

 
2,228

 
194

 
176

Below 620 2
70

 
62

 
659

 
624

 
48

 
43

Total

$4,110

 

$2,829

 

$11,594

 

$11,272

 

$817

 

$731


1 Excludes $651 million and $3.4 billion at September 30, 2014 and December 31, 2013, respectively, of guaranteed residential loans. At September 30, 2014 and December 31, 2013, the majority of these loans had FICO scores of 700 and above.
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