0000750556 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2018-12-31



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




FORM 10-Q




QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018March 31, 2019


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)



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

Title of Each ClassTrading Symbol(s)Name of Exchange on Which Registered
Common StockSTINew York Stock Exchange
Depositary Shares, Each Representing a 1/4000th Interest in a Share of Perpetual Preferred Stock, Series A
STI PRANew York Stock Exchange
5.853% Fixed-to-Floating Rate Normal Preferred Purchase Securities of SunTrust Preferred Capital I (representing interests in shares of Perpetual Preferred Stock, Series B)STI/PRINew York Stock Exchange

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerþAccelerated filer¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
  Emerging growth company¨



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


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

At October 31, 2018, 449,285,214April 30, 2019, 443,825,510 shares of the registrant’s common stock, $1.00 par value, were outstanding.


TABLE OF CONTENTS

TABLE OF CONTENTS
 Section  Page 
 
GLOSSARY OF DEFINED TERMS
i
 
 
Important Cautionary Statement About Forward-Looking Statements
 
PART I - FINANCIAL INFORMATION
1
 
     
 
Item 1.
Financial Statements (Unaudited)
2PART I - FINANCIAL INFORMATION
 
Consolidated Statements of Income
2
Consolidated Statements of Comprehensive Income
3
 
 
Item 1.
Consolidated Balance SheetsFinancial Statements (Unaudited)
4
 
  
Consolidated Statements of Shareholders’ EquityIncome
4
Consolidated Statements of Comprehensive Income
5
 
  
Consolidated Statements of Cash FlowsBalance Sheets
6
 
  
Notes to Consolidated Financial Statements (Unaudited)of Shareholders’ Equity
7
 
  
Note 1 - Significant Accounting PoliciesConsolidated Statements of Cash Flows
78
 
  
Notes to Consolidated Financial Statements (Unaudited)
9
Note 1 - Significant Accounting Policies
9
Note 2 - Revenue Recognition
11
Note 3 - Federal Funds Sold and Securities Financing Activities
12
 
  
Note 3 - Federal Funds Sold and Securities Financing Activities
17
Note 4 - Trading Assets and Liabilities and Derivative Instruments
13
Note 5 - Investment Securities
14
Note 6 - Loans
18
 
  
Note 57 - Investment SecuritiesAllowance for Credit Losses
1925
 
  
Note 68 - LoansGoodwill and Other Intangible Assets
2326
 
  
Note 79 - Allowance for Credit LossesOther Assets
3129
 
  
Note 810 - Goodwill and Other Intangible AssetsLeases
3230
 
  
Note 9 - Other Assets
35
Note 1011 - Certain Transfers of Financial Assets and Variable Interest Entities
33
Note 12 - Net Income Per Common Share
36
 
  
Note 1113 - Net Income Per Common ShareTaxes
3936
 
  
Note 1214 - Income TaxesEmployee Benefit Plans
3937
 
  
Note 1315 - Employee Benefit PlansGuarantees
38
Note 16 - Derivative Financial Instruments
40
 
  
Note 1417 - GuaranteesFair Value Election and Measurement
4148
 
  
Note 1518 - Derivative Financial InstrumentsContingencies
4358
 
  
Note 1619 - Fair Value Election and MeasurementBusiness Segment Reporting
5159
 
  
Note 1720 - ContingenciesAccumulated Other Comprehensive Loss
6562
 
 
Note 18 - Business Segment ReportingItem 2.
67Management’s Discussion and Analysis of Financial Condition and Results of Operation
63
 
 
Note 19 - Accumulated Other Comprehensive LossItem 3.
71Quantitative and Qualitative Disclosures About Market Risk
90
Item 4.
Controls and Procedures
90
 
     
 
Item 2.PART II - OTHER INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of Operation
7390
 
 
Item 3.1.
Quantitative and Qualitative Disclosures About Market RiskLegal Proceedings
10590
 
 
Item 4.1A.
Controls and ProceduresRisk Factors
90
Item 2.
105Unregistered Sales of Equity Securities and Use of Proceeds
91
Item 3.
Defaults Upon Senior Securities
92
Item 4.
Mine Safety Disclosures
92
Item 5.
Other Information
92
Item 6.
Exhibits
92
 
     
 
PART II - OTHER INFORMATIONSIGNATURE
10593
 
     
Item 1.
Legal Proceedings
105
Item 1A.
Risk Factors
105
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
107
Item 3.
Defaults Upon Senior Securities
108
Item 4.
Mine Safety Disclosures
108
Item 5.
Other Information
108
Item 6.
Exhibits
108
SIGNATURE
109
 





GLOSSARY OF DEFINED TERMS


2017 Tax Act — Tax Cuts and Jobs Act of 2017.
ABS — Asset-backed securities.
ACH — Automated clearing house.
AFS — Available for sale.
AIP — Annual Incentive Plan.
ALCO — Asset/Liability Committee.
ALM — Asset/Liability management.
ALLL — Allowance for loan and lease losses.
AOCI — Accumulated other comprehensive income.
ASC — Accounting Standards Codification.
ASU— Accounting Standards Update.
ATE — Additional termination event.
ATM — Automated teller machine.
Bank — SunTrust Bank.
Basel III — the Third Basel Accord, a comprehensive set of reform measures developed by the BCBS.
BB&T — BB&T Corporation.
BCBS — Basel Committee on Banking Supervision.
BHC— Bank holding company.
Board — the Company’s Board of Directors.
bps — Basis points.
CCAR — Comprehensive Capital Analysis and Review.
CCB — Capital conservation buffer.
CD — Certificate of deposit (time deposit).deposit.
CDR — Conditional default rate.
CDS — Credit default swaps.
CEO — Chief Executive Officer.
CET1 — Common Equity Tier 1 Capital.
CFO — Chief Financial Officer.
CIB — Corporate and investment banking.
C&I — Commercial and industrial.
Class A shares — Visa Inc. Class A common stock.
Class B shares — Visa Inc. Class B common stock.
CME — Chicago Mercantile Exchange.
Company — SunTrust Banks, Inc.
CP — Commercial paper.
CPI — Consumer Price Index.
CPR — Conditional prepayment rate.
CRE — Commercial real estate.
CSA — Credit support annex.
CVA — Credit valuation adjustment.
DDA — Demand deposit account.
Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
DOJ — Department of Justice.
DTA — Deferred tax asset.
DTL — Deferred tax liability.
DVA — Debit valuation adjustment.
EGRRCPA— Economic Growth, Regulatory Relief, and Consumer Protection Act.
EPS — Earnings per share.
ER — Enterprise Risk.
ERISA — Employee Retirement Income Security Act of 1974.
Exchange Act — Securities Exchange Act of 1934.
Fannie Mae — Federal National Mortgage Association.
FASB — Financial Accounting Standards Board.
Freddie Mac — Federal Home Loan Mortgage Corporation.
FDIC — Federal Deposit Insurance Corporation.
Federal Reserve — Federal Reserve System.
Fed Funds — Federal funds.
FHA — Federal Housing Administration.
FHLB — Federal Home Loan Bank.
FICO — Fair Isaac Corporation.
Fitch — Fitch Ratings Ltd.
FRB — Federal Reserve Board (Board of Governors of the Federal Reserve System.System).
FTE — Fully taxable-equivalent.
FVO — Fair value option.
Ginnie Mae — Government National Mortgage Association.
GSE — Government-sponsored enterprise.
HAMP — Home Affordable Modification Program.
HUD — U.S. Department of Housing and Urban Development.
IPO — Initial public offering.
IRLC — Interest rate lock commitment.
ISDA — International Swaps and Derivatives Association.
LCH— LCH.Clearnet Limited.
LCR — Liquidity coverage ratio.
LGD — Loss given default.
LHFI — Loans held for investment.
LHFS — Loans held for sale.
LIBOR — London InterBankInterbank Offered Rate.
LOCOM — Lower of cost or market.
LTI — Long-term incentive.
LTV— Loan to value.
Mastercard — Mastercard International.
MBS — Mortgage-backed securities.
MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Merger — the Company's proposed merger with BB&T that was announced on February 7, 2019.
Moody’s — Moody’s Investors Service.
MRA —Master Repurchase Agreement.
MRM —Market Risk Management.
MSR — Mortgage servicing right.
MVE — Market value of equity.
NCF — National Commerce Financial Corporation.
NOL — Net operating loss.
NOW — Negotiable order of withdrawal account.
NPA — Nonperforming asset.
NPL — Nonperforming loan.
NPR — Notice of proposed rulemaking.
NSFR— Net stable funding ratio.
NYSE — New York Stock Exchange.
OCC — Office of the Comptroller of the Currency.
OCI — Other comprehensive income.
OREO — Other real estate owned.
OTC — Over-the-counter.
OTTI — Other-than-temporary impairment.
PAC — Premium Assignment Corporation.
Parent Company — SunTrust Banks, Inc. (the parent Company of SunTrust Bank and other subsidiaries).
PD — Probability of default.
Pillar — substantially all of the assets of the operating subsidiaries of Pillar Financial, LLC.
PPNR — Pre-provision net revenue.
PWM — Private Wealth Management.
REIT— Real estate investment trust.
ROA — Return on average total assets.
ROE — Return on average common shareholders’ equity.
ROTCE — Return on average tangible common shareholders' equity.
RSU — Restricted stock unit.
RWA — Risk-weighted assets.


i


S&P — Standard and Poor’s.
SBA — Small Business Administration.
SEC — U.S. Securities and Exchange Commission.
STAS — SunTrust Advisory Services, Inc.
STCC— SunTrust Community Capital, LLC.
STIS — SunTrust Investment Services, Inc.
STM — SunTrust Mortgage, Inc.
STRH — SunTrust Robinson Humphrey, Inc.
SunTrust — SunTrust Banks, Inc.
TDR — Troubled debt restructuring.
TRS — Total return swaps.
U.S. — United States.
U.S. GAAP — Generally Accepted Accounting Principles in the U.S.
 
U.S. Treasury — the U.S. Department of the Treasury.
UPB — Unpaid principal balance.
UTB — Unrecognized tax benefit.VA —Veterans Administration.
VA — U.S. Department of Veterans Affairs.
VAR — Value —Value at risk.
VI — Variable interest.
VIE — Variable interest entity.
Visa — the Visa, U.S.A. Inc. card association or its affiliates, collectively.
Visa Counterparty — a financial institution that purchased the Company's Visa Class B shares.






ii


Important Cautionary Statement About Forward-Looking Statements

This Quarterly Report contains forward-looking statements. Statements regarding: (i) future impacts of ASUs not yet adopted; (ii) future levels of net interest margin, Merger-related costs, efficiency ratios, the net charge-offs to total average LHFI ratio, the ALLL to period-end LHFI ratio, the provision for loan losses, capital ratios, our effective tax rate, and deposit costs; (iii) the amount and timing of our tangible efficiency target and progress; (iv) future trends or increases in deposit costs; (v) our intentions with respect to future share repurchases and preferred stock issuances; (vi) growth opportunities in our Wholesale segment; (vii) the Merger and the potential effects of the Merger on our business and operations upon or prior to the consummation thereof; (viii) the synergies and corresponding benefits expected to be realized from the Merger, including increased capacity to invest in talent, technology, and innovation; (ix) information regarding the combined business and operations of SunTrust and BB&T following the Merger, if consummated; (x) the possibility of purchasing additional interest rate swaps or terminating existing swaps; (xi) future changes in the size and composition of the investment securities portfolio; (xii) the estimated impacts of proposed regulatory capital rules or changes in banking laws, rules, or regulations; and (xiii) our future credit ratings and outlook, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “target,” “forecast,” “future,” “strategy,” “goal,” “initiative,” “plan,” “propose,” “opportunity,” “potentially,” “probably,” “project,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Such statements are based upon the current beliefs and expectations of management and on information currently available to management. They speak as of the date hereof, and we do not assume any obligation to update the statements made herein or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.
Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A, “Risk Factors,” in our 2018 Annual Report on Form 10-K. Such factors include: failure to complete the Merger could negatively impact our stock price and our future business and financial results; we will be subject to uncertainties while the Merger is pending, which could adversely affect our business; the Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed; because the market price of BB&T Common Stock may fluctuate, our shareholders cannot be certain of the precise value of the merger consideration they may receive in the Merger; our ability to complete the Merger is subject to the receipt of approval from various federal and state regulatory agencies, which may impose conditions that could adversely affect us or cause the Merger to be abandoned;
shareholder litigation could prevent or delay the closing of the Merger or otherwise negatively impact our business and operations; current or future legislation or regulation could require us to change our business practices, reduce revenue, impose additional costs, or otherwise adversely affect business operations or competitiveness; we are subject to stringent capital adequacy and liquidity requirements and our failure to meet these would adversely affect our financial condition; the monetary and fiscal policies of the federal government and its agencies could have a material adverse effect on our earnings; our financial results have been, and may continue to be, materially affected by general economic conditions, and a deterioration of economic conditions or of the financial markets may materially adversely affect our lending activity or other businesses, as well as our financial condition and results; changes in market interest rates or capital markets could adversely affect our revenue and expenses, the value of assets and obligations, as well as the availability and cost of capital and liquidity; interest rates on our outstanding and future financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses, and the value of those financial instruments; our earnings may be affected by volatility in mortgage production and servicing revenues, and by changes in carrying values of our servicing assets and mortgages held for sale due to changes in interest rates; disruptions in our ability to access global capital markets and other sources of wholesale funding may adversely affect our capital resources and liquidity; we are subject to credit risk; we may have more credit risk and higher credit losses to the extent that our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; we rely on the mortgage secondary market and GSEs for some of our liquidity; loss of customer deposits could increase our funding costs; any reduction in our credit rating could increase the cost of our funding from the capital markets; we are subject to litigation, and our expenses related to this litigation may adversely affect our results; we may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations; we are subject to certain risks related to originating and selling mortgages, and may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, or borrower fraud, and this could harm our liquidity, results of operations, and financial condition; we face risks as a servicer of loans; consumers and small businesses may decide not to use banks to complete their financial transactions, which could affect our revenue; we have businesses other than banking which subject us to a variety of risks; negative public opinion could damage our reputation and adversely impact business and revenues; we may face more intense scrutiny of our sales, training, and incentive compensation practices; we rely on other companies to provide key components of our business infrastructure; competition in the financial services industry is intense and we could lose business or suffer margin declines as a result; we continually encounter technological change and must effectively develop and implement new technology; maintaining or increasing


market share depends on market acceptance and regulatory approval of new products and services; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we depend on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer; we may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of changes in the marketplace, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategies; our framework for managing risks may not be effective in mitigating risk and loss to us; our controls and procedures may not prevent or detect all errors or acts of fraud; we are at risk of increased losses from fraud; our operational or communications systems or infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business or disrupt business continuity; a disruption, breach, or failure in the operational systems or

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






PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and nine months ended September 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018.2019.







Item 1.FINANCIAL STATEMENTS (UNAUDITED)
SunTrust Banks, Inc.
Consolidated Statements of Income
 Three Months Ended March 31
(Dollars in millions and shares in thousands, except per share data) (Unaudited)2019 2018
Interest Income   
Interest and fees on loans held for investment
$1,697
 
$1,398
Interest and fees on loans held for sale13
 21
Interest on securities available for sale221
 206
Trading account interest and other56
 43
Total interest income1,987
 1,668
Interest Expense   
Interest on deposits249
 131
Interest on long-term debt125
 74
Interest on other borrowings69
 22
Total interest expense443
 227
Net interest income1,544
 1,441
Provision for credit losses153
 28
Net interest income after provision for credit losses1,391
 1,413
Noninterest Income   
Service charges on deposit accounts137
 146
Other charges and fees 1
87
 85
Card fees82
 81
Investment banking income 1
130
 133
Trading income60
 42
Mortgage related income 2
100
 90
Trust and investment management income71
 75
Retail investment services69
 72
Commercial real estate related income24
 23
Net securities gains/(losses)—
 1
Other noninterest income24
 48
Total noninterest income784
 796
Noninterest Expense   
Employee compensation676
 707
Employee benefits148
 146
Outside processing and software238
 206
Net occupancy expense102
 94
Merger-related costs45
 —
Equipment expense42
 40
Marketing and customer development41
 41
Operating losses22
 6
Regulatory assessments19
 41
Amortization15
 15
Other noninterest expense141
 121
Total noninterest expense1,489
 1,417
Income before provision for income taxes686
 792
Provision for income taxes104
 147
Net income including income attributable to noncontrolling interest582
 645
Less: Net income attributable to noncontrolling interest2
 2
Net income580
 643
Less: Preferred stock dividends26
 31
Net income available to common shareholders
$554
 
$612
Net income per average common share:   
Diluted
$1.24
 
$1.29
Basic1.25
 1.31
Dividends declared per common share0.50
 0.40
Average common shares outstanding - diluted446,662
 473,620
Average common shares outstanding - basic443,566
 468,723

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

154
 433
 453
Other charges and fees 2
89

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

—
 1
 1
Other noninterest income21

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

2 Beginning with the 2018 Form 10-K, the Company began presenting Mortgage production related income and Mortgage servicing related income as a single line item on the Consolidated Statements of Income titled Mortgage related income. Prior periods have been conformed to this updated presentation for comparability.
See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income


 Three Months Ended March 31
(Dollars in millions) (Unaudited)2019 2018
Net income
$580
 
$643
Components of other comprehensive income/(loss):   
Change in net unrealized gains/(losses) on securities available for sale,
net of tax of $116 and ($130), respectively
377
 (425)
Change in net unrealized gains/(losses) on derivative instruments,
net of tax of $24 and ($38), respectively
76
 (124)
Change in net unrealized (losses)/gains on brokered time deposits,
net of tax of $0 and $0, respectively
(1) 1
Change in credit risk adjustment on long-term debt,
net of tax of $0 and $1, respectively
(1) 2
Change related to employee benefit plans,
net of tax of $2 and $1, respectively
3
 (2)
Total other comprehensive income/(loss), net of tax454
 (548)
Total comprehensive income
$1,034
 
$95

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




See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Balance Sheets
 March 31, December 31,
(Dollars in millions and shares in thousands, except per share data)2019 2018
Assets(Unaudited)  
Cash and due from banks
$4,521
 
$5,791
Federal funds sold and securities borrowed or purchased under agreements to resell1,386
 1,679
Interest-bearing deposits in other banks25
 25
Cash and cash equivalents5,932
 7,495
Trading assets and derivative instruments 1
6,259
 5,506
Securities available for sale 2
31,853
 31,442
Loans held for sale ($1,059 and $1,178 at fair value at March 31, 2019 and December 31, 2018, respectively)1,781
 1,468
Loans held for investment 3 ($134 and $163 at fair value at March 31, 2019 and December 31, 2018, respectively)
155,233
 151,839
Allowance for loan and lease losses(1,643) (1,615)
Net loans held for investment153,590
 150,224
Premises, property, and equipment, net1,997
 2,024
Goodwill6,331
 6,331
Other intangible assets (Residential MSRs at fair value: $1,883 and $1,983 at March 31, 2019 and December 31, 2018, respectively)1,963
 2,062
Other assets ($85 and $95 at fair value at March 31, 2019 and December 31, 2018, respectively)10,719
 8,991
Total assets
$220,425
 
$215,543
    
Liabilities   
Noninterest-bearing deposits
$40,345
 
$40,770
Interest-bearing deposits ($473 and $403 at fair value at March 31, 2019 and December 31, 2018, respectively)121,807
 121,819
Total deposits162,152
 162,589
Funds purchased1,169
 2,141
Securities sold under agreements to repurchase1,962
 1,774
Other short-term borrowings7,259
 4,857
Long-term debt 4 ($296 and $289 at fair value at March 31, 2019 and December 31, 2018, respectively)
17,395
 15,072
Trading liabilities and derivative instruments1,609
 1,604
Other liabilities4,056
 3,226
Total liabilities195,602
 191,263
Shareholders’ Equity   
Preferred stock, no par value2,025
 2,025
Common stock, $1.00 par value553
 553
Additional paid-in capital8,938
 9,022
Retained earnings19,882
 19,522
Treasury stock, at cost, and other 5
(5,609) (5,422)
Accumulated other comprehensive loss, net of tax
(966) (1,420)
Total shareholders’ equity24,823
 24,280
Total liabilities and shareholders’ equity
$220,425
 
$215,543
    
Common shares outstanding 6
443,713
 446,888
Common shares authorized750,000
 750,000
Preferred shares outstanding20
 20
Preferred shares authorized50,000
 50,000
Treasury shares of common stock109,071
 105,896
    
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral

$1,382
 
$1,442
2 Includes securities AFS pledged as collateral where counterparties have the right to sell or repledge the collateral
210
 222
3 Includes loans held for investment of consolidated VIEs
147
 153
4 Includes debt of consolidated VIEs
156
 161
5 Includes noncontrolling interest
101
 103
6 Includes restricted shares
7
 7

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

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




See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Shareholders’ Equity
(Dollars and shares in millions, except per share data) (Unaudited)Preferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
Treasury Stock
and Other 1
 Accumulated Other Comprehensive Loss TotalPreferred Stock Common Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings 
 Treasury 1
Stock and Other
 Accumulated Other Comprehensive Loss Total
Balance, January 1, 2017
$1,225
 491
 
$550
 
$9,010
 
$16,000
 
($2,346) 
($821) 
$23,618
Net income—
 —
 —
 —
 1,533
 —
 —
 1,533
Other comprehensive income—
 —
 —
 —
 —
 —
 86
 86
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $0.92 per share—
 —
 —
 —
 (443) —
 —
 (443)
Preferred stock dividends 2
—
 —
 —
 —
 (65) —
 —
 (65)
Issuance of preferred stock, Series G750
 —
 —
 (7) —
 —
 —
 743
Repurchase of common stock—
 (17) —
 —
 —
 (984) —
 (984)
Exercise of stock options and stock compensation expense—
 1
 —
 (14) —
 27
 —
 13
Restricted stock activity—
 1
 —
 (4) (4) 31
 —
 23
Balance, September 30, 2017
$1,975
 476
 
$550
 
$8,985
 
$17,021
 
($3,274) 
($735) 
$24,522
               
Balance, January 1, 2018
$2,475
 471
 
$550
 
$9,000
 
$17,540
 
($3,591) 
($820) 
$25,154

$2,475
 471
 
$550
 
$9,000
 
$17,540
 
($3,591) 
($820) 
$25,154
Cumulative effect adjustment related to ASU adoptions 3
—
 —
 —
 —
 144
 —
 (154) (10)
Cumulative effect of adjustment related to ASU adoptions 2
—
 —
 —
 —
 144
 —
 (154) (10)
Net income—
 —
 —
 —
 2,117
 —
 —
 2,117
—
 —
 —
 —
 643
 —
 —
 643
Other comprehensive loss—
 —
 —
 —
 —
 —
 (900) (900)—
 —
 —
 —
 —
 —
 (548) (548)
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $1.30 per share—
 —
 —
 —
 (603) —
 —
 (603)
Preferred stock dividends 2
—
 —
 —
 —
 (81) —
 —
 (81)
Common stock dividends, $0.40 per share—
 —
 —
 —
 (187) —
 —
 (187)
Preferred stock dividends 3
—
 —
 —
 —
 (31) —
 —
 (31)
Redemption of preferred stock, Series E(450) —
 —
 —
 —
 —
 —
 (450)(450) —
 —
 —
 —
 —
 —
 (450)
Repurchase of common stock—
 (17) —
 —
 —
 (1,160) —
 (1,160)—
 (5) —
 —
 —
 (330) —
 (330)
Exercise of stock options and stock compensation expense—
 1
 —
 —
 —
 36
 —
 36
—
 1
 —
 —
 —
 32
 —
 32
Exercise of stock warrants—
 3
 3
 (3) —
 —
 —
 —
—
 2
 2
 —
 —
 —
 —
 2
Restricted stock activity—
 1
 —
 4
 (6) 40
 —
 38
—
 1
 —
 (40) (2) 38
 —
 (4)
Balance, September 30, 2018
$2,025
 459
 
$553
 
$9,001
 
$19,111
 
($4,677) 
($1,874) 
$24,139
Balance, March 31, 2018
$2,025
 470
 
$552
 
$8,960
 
$18,107
 
($3,853) 
($1,522) 
$24,269
               
Balance, January 1, 2019
$2,025
 447
 
$553
 
$9,022
 
$19,522
 
($5,422) 
($1,420) 
$24,280
Cumulative effect adjustment related to ASU adoption 4
—
 —
 —
 —
 31
 —
 —
 31
Net income—
 —
 —
 —
 580
 —
 —
 580
Other comprehensive income—
 —
 —
 —
 —
 —
 454
 454
Change in noncontrolling interest—
 —
 —
 —
 —
 (2) —
 (2)
Common stock dividends, $0.50 per share—
 —
 —
 —
 (222) —
 —
 (222)
Preferred stock dividends 3
—
 —
 —
 —
 (26) —
 —
 (26)
Repurchase of common stock—
 (4) —
 —
 —
 (250) —
 (250)
Exercise of stock options and stock compensation expense—
 —
 —
 (1) —
 3
 —
 2
Restricted stock activity—
 1
 —
 (83) (3) 62
 —
 (24)
Balance, March 31, 2019
$2,025
 444
 
$553
 
$8,938
 
$19,882
 
($5,609) 
($966) 
$24,823
1At September 30, 2018,March 31, 2019, includes ($4,777)5,710) million for treasury stock, less than ($1) million for the compensation element of restricted stock and $101 million for noncontrolling interest.
At September 30, 2017,March 31, 2018, includes ($3,374)3,953) million for treasury stock, less than ($1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest.
2 Related to the Company’s adoption of ASU 2014-09, ASU 2016-01, ASU 2017-12, and ASU 2018-02 on January 1, 2018. See Note 1, “Significant Accounting Policies,” to the Company's 2018 Annual Report on Form 10-K for additional information.
3 For the ninethree months ended September 30,March 31, 2019, dividends were $1,000 per share for both Series A and B Preferred Stock, $1,406 per share for Series F Preferred Stock, $1,263 per share for Series G Preferred Stock, and $1,281 per share for Series H Preferred Stock.
For the three months ended March 31, 2018, dividends were $3,044$1,000 per share for both Series A and B Preferred Stock, $1,469 per share for Series E Preferred Stock, $4,219$1,406 per share for Series F Preferred Stock, $3,788$1,038 per share for Series G Preferred Stock, and $4,285$1,281 per share for Series H Preferred Stock.
For the nine months ended September 30, 2017, dividends were $3,044 per share for both Series A and B Preferred Stock, $4,406 per share for Series E Preferred Stock, $4,219 per share for Series F Preferred Stock, and $2,090 per share for Series G Preferred Stock.
34 Related to the Company'sCompany’s adoption of ASU 2014-09, ASU 2016-01, ASU 2017-12, and ASU 2018-02 2016-02 on January 1, 2018.2019. See Note 1, "Significant“Significant Accounting Policies,"” for additional information.




See accompanying Notes to Consolidated Financial Statements (unaudited).


SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 Three Months Ended March 31
(Dollars in millions) (Unaudited)2019 2018
Cash Flows from Operating Activities:   
Net income including income attributable to noncontrolling interest
$582
 
$645
Adjustments to reconcile net income to net cash used in operating activities:   
Depreciation, amortization, and accretion172
 175
Origination of servicing rights(67) (80)
Provisions for credit losses and foreclosed property156
 30
Stock-based compensation37
 56
Net securities (gains)/losses—
 (1)
Net (gains)/losses on sale of loans held for sale, loans, and other assets(46) 11
Net increase in loans held for sale(265) (100)
Net increase in trading assets and derivative instruments(753) (182)
Net increase in other assets 1
(354) (644)
Net decrease in other liabilities(285) (110)
Net cash used in operating activities(823) (200)
Cash Flows from Investing Activities:   
Proceeds from maturities, calls, and paydowns of securities available for sale853
 858
Proceeds from sales of securities available for sale111
 1,663
Purchases of securities available for sale(962) (2,689)
Net (increase)/decrease in loans and leases, including purchases 1
(3,625) 413
Proceeds from sales of loans and leases40
 36
Net cash paid for servicing rights(1) (60)
Capital expenditures(81) (67)
Proceeds from the sale of other real estate owned and other assets29
 52
Other investing activities8
 3
Net cash (used in)/provided by investing activities(3,628) 209
Cash Flows from Financing Activities:   
Net (decrease)/increase in total deposits(437) 1,599
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings1,618
 (1,209)
Proceeds from issuance of long-term debt2,264
 1,311
Repayments of long-term debt(35) (333)
Repurchase of preferred stock—
 (450)
Repurchase of common stock(250) (330)
Common and preferred stock dividends paid(225) (197)
Taxes paid related to net share settlement of equity awards(49) (42)
Proceeds from exercise of stock options2
 34
Net cash provided by financing activities2,888
 383
Net (decrease)/increase in cash and cash equivalents(1,563) 392
Cash and cash equivalents at beginning of period7,495
 6,912
Cash and cash equivalents at end of period
$5,932
 
$7,304
    
Supplemental Disclosures:   
Loans transferred from loans held for sale to loans held for investment4
 6
Loans transferred from loans held for investment to loans held for sale614
 204
Loans transferred from loans held for investment to other real estate owned10
 19

SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
 Nine Months Ended September 30
(Dollars in millions) (Unaudited)2018 2017
Cash Flows from Operating Activities:   
Net income including income attributable to noncontrolling interest
$2,124
 
$1,540
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization, and accretion535
 540
Origination of servicing rights(260) (262)
Provisions for credit losses and foreclosed property130
 336
Stock-based compensation118
 121
Net securities gains(1) (1)
Net gains on sale of loans held for sale, loans, and other assets(83) (183)
Net decrease in loans held for sale382
 1,488
Net increase in trading assets and derivative instruments(818) (272)
Net increase in other assets 1
(1,713) (835)
Net increase/(decrease) in other liabilities478
 (267)
Net cash provided by operating activities892
 2,205
Cash Flows from Investing Activities:   
Proceeds from maturities, calls, and paydowns of securities available for sale2,840
 3,169
Proceeds from sales of securities available for sale2,047
 1,486
Purchases of securities available for sale(5,534) (5,344)
Net increase in loans, including purchases of loans(4,566) (1,839)
Proceeds from sales of loans and leases199
 520
Net cash paid for servicing rights(73) —
Payments for bank-owned life insurance policy premiums 1
(201) (127)
Proceeds from the settlement of bank-owned life insurance 1
8
 3
Capital expenditures(170) (233)
Proceeds from the sale of other real estate owned and other assets148
 183
Other investing activities 1
1
 9
Net cash used in investing activities(5,301) (2,173)
Cash Flows from Financing Activities:   
Net (decrease)/increase in total deposits(402) 2,339
Net increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings3,159
 685
Proceeds from issuance of long-term debt5,111
 2,623
Repayments of long-term debt(484) (3,073)
Proceeds from the issuance of preferred stock—
 743
Repurchase of preferred stock(450) —
Repurchase of common stock(1,160) (984)
Common and preferred stock dividends paid(664) (485)
Taxes paid related to net share settlement of equity awards(44) (38)
Proceeds from exercise of stock options36
 13
Net cash provided by financing activities5,102
 1,823
Net increase in cash and cash equivalents693
 1,855
Cash and cash equivalents at beginning of period6,912
 6,423
Cash and cash equivalents at end of period
$7,605
 
$8,278
    
Supplemental Disclosures:   
Loans transferred from loans held for sale to loans held for investment
$23
 
$16
Loans transferred from loans held for investment to loans held for sale449
 218
Loans transferred from loans held for investment and loans held for sale to other real estate owned44
 43
Non-cash impact of debt assumed by purchaser in lease sale—
 9
1 Related Pursuant to the Company'sCompany’s adoption of ASU 2016-15, certain 2016-02 on January 1, 2019, it began including the interest portion of lessee payments received from sales-type and direct financing leases, which totaled $34 million for the three months ended March 31, 2019, within operating activities, with the principal portion of lessee payments remaining within investing activities. For periods prior period amounts have beento January 1, 2019, interest payments were not retrospectively reclassified between operating activities and remain within investing activities. See Note 1, "Significant“Significant Accounting Policies,"” for additional information.


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




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

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

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

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

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

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



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

financial statements.
Subsequent Events
The Company evaluated events that occurred between September 30, 2018March 31, 2019 and the date the accompanying financial statements were issued, and there were no material events, other than those already discussed in this Form 10-Q, that would require recognition in the Company'sCompany’s Consolidated Financial Statements or disclosure in the accompanying Notes.


Accounting Pronouncements
The following table summarizes ASUs issued by the FASB that were adopted during the current yearthree months ended March 31, 2019 or not yet adopted as of September 30, 2018,March 31, 2019, that could have a material effect on the Company'sCompany’s financial statements:
StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Adopted in 20182019
ASU 2014-09, 2016-02, Leases (Topic 842) and subsequent related ASUs
These ASUs create and amend ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. ASC Topic 842 requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. These ASUs do not make significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606). Furthermore, there are several new qualitative and subsequent related ASUs
These ASUs comprise ASC Topic 606, Revenue from Contracts with Customers, which supersedequantitative disclosures required for lessees and lessors, including updated guidance around the revenue recognition requirements in ASC Topic 605, Revenue Recognition,presentation of certain cash receipts on the Company’s Consolidated Statements of Cash Flows.

Upon transition, lessees and most industry-specific guidance throughoutlessors have the Industry Topicsoption to either:
(i) Recognize and measure leases at the beginning of the ASC. The core principleearliest period presented using a modified retrospective transition approach; or
(ii) Apply a modified retrospective transition approach as of these ASUs is that an entity should recognize revenue to depict the transferdate 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.adoption.

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

Furthermore, effective January 1, 2019, the Company prospectively changed theits presentation of certain typescash receipts related to sales-type and direct financing leases in which it is the lessor on its Consolidated Statements of revenueCash Flows. Specifically, the Company began including on its Consolidated Statements of Cash Flows the interest portion of lessee payments received from sales-type and expenses, such as underwriting revenuedirect financing leases within investment banking income which is shown on a gross basis,operating activities, with the principal portion remaining within investing activities. For periods prior to the date of adoption, interest payments were not retrospectively reclassified and certain cash promotions and card network expenses, which were reclassified from noninterest expense to service charges on deposit accounts, card fees, and other charges and fees. The net quantitative impact of these presentation changes decreased both revenue and expenses by $9 million and $16 million forremain within investing activities. For the three and nine months ended September 30, 2018, respectively; however,March 31, 2019, the Company included $34 million of interest payments received related to these presentation changes did not have an impactsales-type and direct financing leases within operating activities on net income. Prior period balances have not been restated to reflect these presentation changes. See Note 2, “Revenue Recognition,” forits Consolidated Statements of Cash Flows.

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



Notes to Consolidated Financial Statements (Unaudited), continued






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

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

Early adoption was permitted for the provision related to changes in instrument-specific credit risk for financial liabilities under the FVO.

The Company early adopted the provision related to changes in instrument-specific credit risk beginning January 1, 2016, which resulted in an immaterial cumulative effect adjustment from retained earnings to AOCI. See Note 1, “Significant Accounting Policies,” to the Company's 2016 Annual Report on Form 10-K for additional information regarding the early adoption of this provision.

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

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

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

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

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

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

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

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



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

January 1, 2019

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

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

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

January 1, 2019

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

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

January 1, 2020

Early adoption is permitted.

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

Notes to Consolidated Financial Statements (Unaudited), continued



StandardDescriptionRequired Date of AdoptionEffect on the Financial Statements or Other Significant Matters
Standards Not Yet Adopted
ASU 2016-02, Leases (ASC Topic 842) and subsequent related ASUs
This ASU creates ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. ASC Topic 842 requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. The ASU does not make significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers. There are several new qualitative and quantitative disclosures required.

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

January 1, 2019

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

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

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

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and subsequent related ASUs
This ASU addsThese ASUs create and amend ASC Topic 326, Financial Instruments - Credit Losses, to replacewhich replaces the incurred loss impairment methodology with a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend credit. For this purpose, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary prepayments and considering available information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is deducted from the amortized cost basis of the financial assets to reflect the net amount expected to be collected on the financial assets. Additional quantitative and qualitative disclosures are required upon adoption. The change to the allowance for credit losses at the time of the adoption will be made with a cumulative effect adjustment to Retainedretained earnings.

The
Although the current expected credit loss modelmethodology does not apply to AFS debt securities; however,securities, the ASU requiresdoes require entities to record an allowance when recognizing credit losses for AFS securities, rather than recording a direct write-down of the carrying amount.


January 1, 2020



Early adoption is permitted beginning January 1, 2019.
The Company has formed a cross-functional team to oversee the implementation of this ASU. A detailed implementation plan has been developed and substantial progress has been made on the identification and staging of data, development and validation of models, refinement of economic forecasting processes, and documentation of accounting policy decisions. Additionally, a new credit loss platformforecasting process is being implemented to host data and run models in a controlled, automated environment.implemented. In conjunction with this implementation, the Company is reviewing business processes and evaluating potential changesmodifying the internal control environment, as appropriate. The Company plans to perform parallel runs of its new methodology beginning in the control environment.second quarter of 2019, prior to adoption of the ASU.


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


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


January 1, 2020


Early adoption is permitted.
Based on the Company'sCompany’s most recent annualqualitative goodwill impairment testassessment performed as of October 1, 2017,2018, there were no reporting units for which it was more-likely-than-not that the carrying amount of thea reporting unit exceeded its respective fair value; therefore, this ASU would not currently have an impact on the Company'sCompany’s Consolidated Financial Statements or related disclosures. However, if upon thesubsequent to adoption, date, which is expected to occur on January 1, 2020, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge for the amount that the carrying value exceeds the fair value.
Notes to Consolidated Financial Statements (Unaudited), continued



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

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

December 31, 2020

Early adoption is permitted.

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

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


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


January 1, 2020


Early adoption is permitted.


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








Notes to Consolidated Financial Statements (Unaudited), continued



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

Notes to Consolidated Financial Statements (Unaudited), continued



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


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

Notes to Consolidated Financial Statements (Unaudited), continued



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


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


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



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

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

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

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

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



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

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

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

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

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

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

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

 Three Months Ended March 31, 2019
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$104
 
$33
 
$—
 
$137
Other charges and fees 3
27
 4
 56
 87
Card fees55
 26
 1
 82
Investment banking income—
 72
 58
 130
Trading income—
 —
 60
 60
Mortgage related income—
 —
 100
 100
Trust and investment management income71
 —
 —
 71
Retail investment services 4
69
 —
 —
 69
Commercial real estate related income—
 —
 24
 24
Net securities gains/(losses)—
 —
 —
 —
Other noninterest income6
 —
 18
 24
Total noninterest income
$332
 
$135
 
$317
 
$784

1
Consumer total noninterest income and Wholesale total noninterest income exclude $114 million and $229 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes ($26) million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
4
The Company recognized $11 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in periods prior to March 31, 2019.

 Three Months Ended March 31, 2018
(Dollars in millions)
 Consumer 1
 
 Wholesale 1
 
  Out of Scope 1, 2
 Total
Noninterest income       
Service charges on deposit accounts
$104
 
$42
 
$—
 
$146
Other charges and fees 3, 4
28
 3
 54
 85
Card fees54
 26
 1
 81
Investment banking income 3
—
 86
 47
 133
Trading income—
 —
 42
 42
Mortgage related income—
 —
 90
 90
Trust and investment management income75
 —
 —
 75
Retail investment services 5
71
 1
 —
 72
Commercial real estate related income—
 —
 23
 23
Net securities gains/(losses)—
 —
 1
 1
Other noninterest income6
 —
 42
 48
Total noninterest income
$338
 
$158
 
$300
 
$796

1
Consumer total noninterest income and Wholesale total noninterest income exclude $112 million and $182 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, "Business Segment Reporting." Out of scope total noninterest income includes these amounts and also includes $6 million of Corporate Other noninterest income that is not subject to ASC Topic 606.
2
The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Company's Consolidated Statements of Income.
3
Beginning July 1, 2018, the Company began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability.
4
The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods.
5
The Company recognized $13 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in periods prior to March 31, 2018.


Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 3 - FEDERAL FUNDS SOLD AND SECURITIES FINANCING ACTIVITIES
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Fed Funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions)March 31, 2019 December 31, 2018
Fed funds sold
$—
 
$42
Securities borrowed468
 394
Securities purchased under agreements to resell918
 1,243
Total Fed funds sold and securities borrowed or purchased under agreements to resell
$1,386
 
$1,679
(Dollars in millions)September 30, 2018 December 31, 2017
Fed funds sold
$46
 
$65
Securities borrowed429
 298
Securities purchased under agreements to resell899
 1,175
Total Fed funds sold and securities borrowed or purchased under agreements to resell
$1,374
 
$1,538

Securities purchased under agreements to resell are primarily collateralized by U.S. government or agency securities and are carried at the amounts at which the securities will be subsequently resold, plus accrued interest. Securities borrowed are primarily collateralized by corporate securities. The Company borrows securities and purchases securities under agreements to resell as part of its securities financing activities. On the acquisition date of these securities, the Company and the
 
related counterparty agree on the amount of collateral required to secure the principal amount loaned under these arrangements. The Company monitors collateral values daily and calls for additional collateral to be provided as warranted under the respective agreements. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the total market value of collateral held was $1.3$1.4 billion and $1.5$1.6 billion, of which $112$56 million and $177$108 million was repledged, respectively.


Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Company’s related activity, by collateral type and remaining contractual maturity:
 March 31, 2019 December 31, 2018
(Dollars in millions)Overnight and Continuous Up to 30 days 30-90 days Total Overnight and Continuous Up to 30 days 30-90 days Total
U.S. Treasury securities
$110
 
$—
 
$—
 
$110
 
$197
 
$7
 
$—
 
$204
Federal agency securities159
 8
 —
 167
 112
 10
 —
 122
MBS - agency993
 81
 8
 1,082
 881
 35
 —
 916
CP49
 —
 —
 49
 78
 —
 —
 78
Corporate and other debt securities418
 64
 72
 554
 216
 158
 80
 454
Total securities sold under agreements to repurchase
$1,729
 
$153
 
$80
 
$1,962
 
$1,484
 
$210
 
$80
 
$1,774

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


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


Netting of Securities - Repurchase and Resell Agreements
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's derivatives that are subject to enforceable master netting agreements or similar agreements are discussed in Note 15, "Derivative16, “Derivative Financial Instruments."”
The following table presents the Company's securities borrowed or purchased under agreements to resell and securities
sold under agreements to repurchase that are subject to MRAs. Generally, MRAs require collateral to exceed the asset or liability recognized on the balance sheet. Transactions subject to these agreements are treated as collateralized financings, and those with a single counterparty are permitted to be presented net on the Company's Consolidated Balance Sheets, provided certain criteria are met that permit balance sheet netting. At September 30, 2018March 31, 2019 and December 31, 2017,2018, there were no such transactions subject to legally enforceable MRAs that were eligible for balance sheet netting. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs. While these agreements are typically over-collateralized, the amount of collateral presented in this table is limited to the amount of the related recognized asset or liability for each counterparty.
Notes to Consolidated Financial Statements (Unaudited), continued






(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged Financial
Instruments
 
Net
Amount
March 31, 2019         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,386
 
$—
 
$1,386
1 

$1,368
 
$18
Financial liabilities:         
Securities sold under agreements to repurchase1,962
 —
 1,962
 1,960
 2
          
December 31, 2018         
Financial assets:         
Securities borrowed or purchased under agreements to resell
$1,637
 
$—
 
$1,637
1 

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

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

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

$1,462
 
$11
Financial liabilities:         
Securities sold under agreements to repurchase1,503
 —
 1,503
 1,503
 —
1 Excludes $46 million$0 and $65$42 million of Fed Funds sold, which are not subject to a master netting agreement at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.




NOTE 4 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS


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

$258
 
$262
Federal agency securities507
 395
281
 188
U.S. states and political subdivisions91
 61
33
 54
MBS - agency743
 700
814
 860
Corporate and other debt securities820
 655
889
 700
CP408
 118
283
 190
Equity securities67
 56
71
 73
Derivative instruments 1
622
 802
1,028
 639
Trading loans 2
2,171
 2,149
2,602
 2,540
Total trading assets and derivative instruments
$5,676
 
$5,093

$6,259
 
$5,506
      
Trading Liabilities and Derivative Instruments:      
U.S. Treasury securities
$742
 
$577

$873
 
$801
MBS - agency3
 3
Corporate and other debt securities411
 289
456
 385
Equity securities12
 9
13
 5
Derivative instruments 1
698
 408
264
 410
Total trading liabilities and derivative instruments
$1,863
 
$1,283

$1,609
 
$1,604
1 Amounts include the impact of offsetting cash collateral received from and paid to the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists.
2 Includes loans related to TRS.


Various trading and derivative instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements executed through the Bank and/or STRH, a broker/dealer subsidiary of the Company. The Company manages the potential market volatility associated with trading instruments by using appropriate risk management strategies. The size, volume, and nature of the trading products and derivative instruments can vary based on economic conditions as well as client-specific and Company-specific asset or liability positions.
Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative contracts, and other similar financial instruments. Other trading-
 
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 15,16, “Derivative Financial Instruments,” and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 16,17, “Fair Value Election and Measurement.Measurement,” and the Company's 2018 Annual Report on Form 10-K.
Notes to Consolidated Financial Statements (Unaudited), continued






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

$1,284
 
$1,016

$1,337
 
$1,418
Pledged trading assets to secure certain derivative agreements76
 72
43
 22
Pledged trading assets to secure other arrangements40
 41
40
 40
1 Repurchase agreements secured by collateral totaled $1.2$1.3 billion and $975 million$1.4 billion at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.






NOTE 5 – INVESTMENT SECURITIES
Investment Securities Portfolio Composition
 March 31, 2019
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$4,279
 
$4
 
$24
 
$4,259
Federal agency securities143
 1
 2
 142
U.S. states and political subdivisions594
 6
 7
 593
MBS - agency residential23,149
 207
 146
 23,210
MBS - agency commercial2,641
 20
 37
 2,624
MBS - non-agency commercial1,009
 7
 4
 1,012
Corporate and other debt securities13
 —
 —
 13
Total securities AFS
$31,828
 
$245
 
$220
 
$31,853
        
 
 December 31, 2018 
(Dollars in millions)Amortized
Cost		 Unrealized
Gains		 Unrealized
Losses		 Fair
Value
Securities AFS:       
U.S. Treasury securities
$4,277
 
$—
 
$66
 
$4,211
Federal agency securities221
 2
 2
 221
U.S. states and political subdivisions606
 4
 21
 589
MBS - agency residential23,161
 128
 425
 22,864
MBS - agency commercial2,688
 8
 69
 2,627
MBS - non-agency commercial943
 —
 27
 916
Corporate and other debt securities14
 —
 —
 14
Total securities AFS
$31,910
 
$142
 
$610
 
$31,442

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

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



The following table presents interest on securities AFS:
 Three Months Ended March 31
(Dollars in millions)2019 2018
Taxable interest
$217
 
$201
Tax-exempt interest4
 5
Total interest on securities AFS
$221
 
$206

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

$212
 
$191
 
$628
 
$560

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

Notes to Consolidated Financial Statements (Unaudited), continued



Investment securities pledged to secure public deposits, repurchase agreements, trusts, certain derivative agreements, and other funds had a fair value of $3.4 billion and $4.3$3.3 billion at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018.

Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents the amortized cost, fair value, and weighted average yield of the Company's investment
securities at September 30, 2018,March 31, 2019, by remaining contractual maturity, with the exception of MBS, which are based on estimated average life. Receipt of cash flows may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Distribution of Remaining MaturitiesDistribution of Remaining Maturities
(Dollars in millions)Due in 1 Year or Less Due After 1 Year through 5 Years Due After 5 Years through 10 Years Due After 10 Years TotalDue in 1 Year or Less Due After 1 Year through 5 Years Due After 5 Years through 10 Years Due After 10 Years Total
Amortized Cost:                  
Securities AFS:                  
U.S. Treasury securities
$15
 
$2,695
 
$1,565
 
$—
 
$4,275

$649
 
$2,312
 
$1,318
 
$—
 
$4,279
Federal agency securities113
 28
 8
 75
 224
39
 33
 4
 67
 143
U.S. states and political subdivisions3
 72
 25
 521
 621
1
 91
 44
 458
 594
MBS - agency residential1,619
 6,488
 14,736
 269
 23,112
1,494
 3,800
 17,081
 774
 23,149
MBS - agency commercial1
 467
 1,937
 308
 2,713
—
 646
 1,672
 323
 2,641
MBS - non-agency commercial—
 12
 931
 —
 943
—
 12
 976
 21
 1,009
Corporate and other debt securities—
 14
 —
 —
 14
—
 13
 —
 —
 13
Total securities AFS
$1,751
 
$9,776
 
$19,202
 
$1,173
 
$31,902

$2,183
 
$6,907
 
$21,095
 
$1,643
 
$31,828
Fair Value:                  
Securities AFS:                  
U.S. Treasury securities
$15
 
$2,615
 
$1,503
 
$—
 
$4,133

$645
 
$2,295
 
$1,319
 
$—
 
$4,259
Federal agency securities114
 28
 8
 73
 223
39
 33
 4
 66
 142
U.S. states and political subdivisions3
 75
 25
 499
 602
1
 95
 45
 452
 593
MBS - agency residential1,674
 6,341
 14,230
 260
 22,505
1,544
 3,809
 17,086
 771
 23,210
MBS - agency commercial1
 448
 1,859
 294
 2,602
—
 639
 1,669
 316
 2,624
MBS - non-agency commercial—
 12
 893
 —
 905
—
 12
 979
 21
 1,012
Corporate and other debt securities—
 14
 —
 —
 14
—
 13
 —
 —
 13
Total securities AFS
$1,807
 
$9,533
 
$18,518
 
$1,126
 
$30,984

$2,229
 
$6,896
 
$21,102
 
$1,626
 
$31,853
Weighted average yield 1
3.22% 2.38% 2.94% 3.12% 2.79%2.78% 2.36% 3.01% 3.08% 2.86%
1 Weighted average yields are based on amortized cost and presented on an FTE basis.




Notes to Consolidated Financial Statements (Unaudited), continued






Investment Securities in an Unrealized Loss Position
The Company held certain investment securities where amortized cost exceeded fair value, resulting in unrealized loss positions. Market changes in interest rates and credit spreads may result in temporary unrealized losses as the market prices of securities fluctuate. At September 30, 2018,March 31, 2019, the Company did not intend to sell these securities nor was it more-likely-than-not that
 
that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company reviewed its portfolio for OTTI in accordance with the accounting policies described in Note 1, "Significant Accounting Policies," to the Company's 20172018 Annual Report on Form 10-K.


Investment securities in an unrealized loss position at period end are presented in the following tables:
September 30, 2018March 31, 2019
Less than twelve months Twelve months or longer TotalLess than twelve months Twelve months or longer Total
(Dollars in millions)Fair
Value		 
Unrealized
Losses 1
 Fair
Value		 
Unrealized
Losses 1
 Fair
Value		 
Unrealized
Losses 1
Fair
Value		 
 Unrealized 1
Losses
 Fair
Value		 
 Unrealized 1
Losses
 Fair
Value		 
 Unrealized 1
Losses
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$2,554
 
$77
 
$1,579
 
$65
 
$4,133
 
$142

$—
 
$—
 
$2,646
 
$24
 
$2,646
 
$24
Federal agency securities16
 —
 62
 3
 78
 3
5
 —
 61
 2
 66
 2
U.S. states and political subdivisions210
 7
 280
 15
 490
 22
—
 —
 433
 7
 433
 7
MBS - agency residential10,347
 276
 8,772
 442
 19,119
 718
1
 —
 13,125
 146
 13,126
 146
MBS - agency commercial1,029
 25
 1,519
 87
 2,548
 112
19
 —
 1,723
 37
 1,742
 37
MBS - non-agency commercial781
 30
 124
 8
 905
 38
21
 —
 370
 4
 391
 4
Corporate and other debt securities—
 —
 9
 —
 9
 —
—
 —
 7
 —
 7
 —
Total temporarily impaired securities AFS14,937
 415

12,345

620

27,282

1,035
46
 —

18,365

220

18,411

220
OTTI securities AFS 2:
                      
Total OTTI securities AFS—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
Total impaired securities AFS
$14,937
 
$415
 
$12,345
 
$620
 
$27,282
 
$1,035

$46
 
$—
 
$18,365
 
$220
 
$18,411
 
$220
1 Unrealized losses less than $0.5 million are presented as zero within the table.
2 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings.


December 31, 2017 1
December 31, 2018
Less than twelve months Twelve months or longer TotalLess than twelve months Twelve months or longer Total
(Dollars in millions)
Fair
Value
 
Unrealized
 Losses 2
 
Fair
Value
 
Unrealized
 Losses 2
 
Fair
Value
 
Unrealized
 Losses 2
Fair
Value
 
 Unrealized 1
Losses
 
Fair
Value
 
 Unrealized 1
Losses
 
Fair
Value
 
 Unrealized 1
Losses
Temporarily impaired securities AFS:                      
U.S. Treasury securities
$1,993
 
$12
 
$841
 
$20
 
$2,834
 
$32

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

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


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




Notes to Consolidated Financial Statements (Unaudited), continued






Realized Gains and Losses and Other-Than-Temporarily Impaired Securities
Net securities gains or losses are comprised of gross realized gains, gross realized losses, and OTTI credit losses recognized in earnings.
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017
Gross realized gains
$—
 
$1
 
$7
 
$2
Gross realized losses—
 (1) (6) (1)
OTTI credit losses recognized in earnings—
 —
 —
 —
Net securities gains
$—
 
$—
 
$1
 
$1

For both the three months ended March 31, 2019 and 2018, gross realized gains and gross realized losses were immaterial, and there were no OTTI credit losses recognized in earnings.
Investment securities in an unrealized loss position are evaluated quarterly for other-than-temporary credit impairment, which is determined using cash flow analyses that take into account security specific collateral and transaction structure. Future expected credit losses are determined using various assumptions, the most significant of which include default rates, prepayment rates, and loss severities. If, based on this analysis, a security is in an unrealized loss position and the Company does not expect to recover the entire amortized cost basis of the security, the
expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. Credit losses on the OTTI security are recognized in earnings and reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis
of the security. Subsequent credit losses may be recorded on OTTI securities without a corresponding further decline in fair value when there has been a decline in expected cash flows. See Note 1, "Significant Accounting Policies," to the Company's 20172018 Annual Report on Form 10-K for additional information regarding the Company's accounting policy on securities AFS and related impairments.
The Company seeks to reduce its exposure on any existing OTTI securities primarily through paydowns. In certain instances, the amount of credit losses recognized in earnings on a debt security exceeds the total unrealized losses on the security, which may result in unrealized gains relating to factors other than credit recorded in AOCI, net of tax.
During the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, there were no credit impairment losses recognized on securities AFS held at the end of eachthe period. During the nine months ended September 30, 2018, the Company sold securities AFS that had accumulated OTTI credit losses of $23 million and recognized an associated gain on sale of $6 million in Net securities gains on the Consolidated Statements of Income. The accumulated balance of OTTI credit losses recognized in earnings on securities AFS held at period end was zero and $22$23 million at September 30,March 31, 2019 and 2018, and 2017, respectively.




Notes to Consolidated Financial Statements (Unaudited), continued






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

$68,203
 
$66,356

$73,278
 
$71,137
CRE6,618
 5,317
7,889
 7,265
Commercial construction3,137
 3,804
2,562
 2,538
Total commercial LHFI77,958
 75,477
83,729
 80,940
Consumer loans:      
Residential mortgages - guaranteed452
 560
467
 459
Residential mortgages - nonguaranteed 2
28,187
 27,136
28,461
 28,836
Residential home equity products9,669
 10,626
9,167
 9,468
Residential construction197
 298
167
 184
Guaranteed student7,039
 6,633
7,308
 7,229
Other direct10,100
 8,729
11,029
 10,615
Indirect12,010
 12,140
13,268
 12,419
Credit cards1,603
 1,582
1,637
 1,689
Total consumer LHFI69,257
 67,704
71,504
 70,899
LHFI
$147,215
 
$143,181

$155,233
 
$151,839
LHFS 3

$1,961
 
$2,290

$1,781
 
$1,468
1 Includes $3.8 billion and $3.7$4.1 billion of leasesales-type and direct financing leases at both March 31, 2019 and $838December 31, 2018, and $786 million and $778$796 million of installment loans at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
2 Includes $168$134 million and $196$163 million of LHFI measured at fair value at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
3 Includes $1.8$1.1 billion and $1.6$1.2 billion of LHFS measured at fair value at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
During
Loan Purchases, Sales, and Transfers
 Three Months Ended March 31
(Dollars in millions)2019 2018
Non-routine purchases of LHFI 1, 2:
   
Consumer loans
$173
 
$—
Routine purchases of LHFI 2, 3:
   
Consumer loans445
 475
Loan sales 4, 5:
   
Commercial loans40
 36
Transfers of loans from:   
LHFI to LHFS614
 204
LHFS to LHFI4
 6
LHFI to OREO10
 19
1 Purchases are episodic in nature and are conducted based on specific business strategies.
2 Represents UPB of loans purchased.
3 Purchases are routine in nature and are conducted in the three months ended September 30, 2018 and 2017, the Company transferred $122 million and $91 millionnormal course of LHFI to LHFS, and $5 million and $6 million of LHFS to LHFI, respectively. In addition tobusiness.
4 Excludes sales of residential and commercial mortgage LHFS conducted in the normal course of business, the Company sold $14 million and $285 million of loans and leases duringbusiness.
5 Net gain on loan sales was immaterial for the three months ended September 30, 2018March 31, 2019 and 2017, respectively, at a price approximating their recorded investment.2018.
During the nine months ended September 30, 2018
At March 31, 2019 and 2017, the Company transferred $449 million and $218 million of LHFI to LHFS, and transferred $23 million and $16 million of LHFS to LHFI, respectively. In addition to sales of residential and commercial mortgage LHFS in the normal course of business, the Company sold $187 million and $513 million of loans and leases during the nine months ended September 30, 2018 and 2017, respectively, at a price approximating their recorded investment.
During the three months ended September 30, 2018 and 2017, the Company purchased $433 million and $333 million, respectively, of guaranteed student loans. During the three months ended September 30,December 31, 2018, the Company purchased $213 million of consumer indirect loans. No consumer indirect loans were purchased during the three months ended September 30, 2017. During each of the nine months ended September 30, 2018 and 2017, the Company purchased $1.4 billion of guaranteed student loans, and purchased $229 million and $99 million, respectively, of consumer indirect loans.
At September 30, 2018 and December 31, 2017, the Company had $26.1$30.2 billion and $24.3$28.1 billion of net eligible loan collateral pledged to the Federal Reserve discount window to support $19.8
$22.6 billion and $18.2$21.3 billion of available, unused borrowing capacity, respectively.
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had $39.4$39.8 billion and $38.0$39.2 billion of net eligible loan collateral pledged to the FHLB of Atlanta to support $31.5$32.1 billion and $30.5$31.0 billion of available borrowing capacity, respectively. The available FHLB borrowing capacity at September 30, 2018March 31, 2019 was used to support $3.0$8.3 billion of long-term debt and $4.3$4.2 billion of letters of credit issued on the Company's behalf. At December 31, 2017,2018, the available FHLB borrowing capacity was used to support $4 million$5.0 billion of long-term debt and $6.7$5.8 billion of letters of credit issued on the Company's behalf.
Credit Quality Evaluation
The Company evaluates the credit quality of its loanLHFI portfolio by employing a dual internal risk rating system, which assigns both PD and LGD ratings to derive expected losses. Assignment of these ratings are predicated upon numerous factors, including consumer credit risk scores, rating agency information, borrower/guarantor financial capacity, LTV ratios, collateral type, debt service coverage ratios, collection experience, other internal metrics/analyses, and/or qualitative assessments.
For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is an individual loan’s risk assessment expressed according to the broad regulatory agency classifications of Pass or Criticized. The Company conforms to the following regulatory classifications for Criticized assets: Other Assets Especially Mentioned (or Special Mention), Substandard, Doubtful, and Loss. However, for the purposes of disclosure, management believes the most meaningful distinction within the Criticized categories is between Criticized accruing (which includes Special Mention and a portion of Substandard) and Criticized nonaccruing (which includes a portion of Substandard as well as Doubtful and Loss). This distinction identifies those relatively higher risk loans for which there is a basis to believe that the Company will not collect all amounts due under those loan agreements. The Company's risk rating system is more granular, with multiple risk ratings in both the Pass and Criticized categories. Pass ratings reflect relatively low PDs,PDs; whereas, Criticized assets have higher PDs. The granularity in Pass ratings assists in establishing pricing, loan structures, approval requirements, reserves, and ongoing credit management requirements. Commercial risk ratings are refreshed at least annually, or more frequently as appropriate, based upon considerations such as market conditions, borrower characteristics, and portfolio trends. Additionally, management routinely reviews portfolio risk ratings, trends, and concentrations to support risk identification and mitigation activities. As reflected in the following risk rating table, the increases in Pass and Criticized accruing C&I loans at March 31, 2019 compared to December 31, 2018, were due to loan growth and normal variability in the portfolio. Criticized nonaccruing C&I loans remained low relative to accruing loans.
For consumer loans, the Company monitors credit risk based on indicators such as delinquencies and FICO scores. The Company believes that consumer credit risk, as assessed by the industry-wide FICO scoring method, is a relevant credit quality indicator. Borrower-specific FICO scores are obtained at origination as part of the Company’s formal underwriting
Notes to Consolidated Financial Statements (Unaudited), continued






origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.
For guaranteed loans, the Company monitors the credit quality based primarily on delinquency status, as it is a more relevant indicator of credit quality due to the government guarantee. At both September 30, 2018March 31, 2019 and December 31, 2017,2018, 30% and
 
28%27%, respectively, of guaranteed residential mortgages were current with respect to payments. At September 30, 2018March 31, 2019 and December 31, 2017, 74%2018, 73% and 75%72%, respectively, of guaranteed student loans were current with respect to payments. The Company's loss exposure on guaranteed residential mortgages and student loans is mitigated by the government guarantee.


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

$71,078
 
$69,095
 
$7,761
 
$7,165
 
$2,543
 
$2,459
Criticized accruing1,723
 1,595
 157
 167
 99
 33
2,003
 1,885
 126
 98
 19
 79
Criticized nonaccruing256
 215
 43
 24
 —
 1
197
 157
 2
 2
 —
 —
Total
$68,203
 
$66,356
 
$6,618
 
$5,317
 
$3,137
 
$3,804

$73,278
 
$71,137
 
$7,889
 
$7,265
 
$2,562
 
$2,538




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

$25,541
 
$25,764
 
$7,761
 
$8,060
 
$137
 
$151
620 - 6992,499
 2,721
 1,046
 1,242
 27
 50
2,288
 2,367
 1,003
 1,015
 24
 27
Below 620 2
720
 813
 415
 438
 7
 8
632
 705
 403
 393
 6
 6
Total
$28,187
 
$27,136
 
$9,669
 
$10,626
 
$197
 
$298

$28,461
 
$28,836
 
$9,167
 
$9,468
 
$167
 
$184


 Other Direct Indirect Credit Cards
(Dollars in millions)March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
Current FICO score range:           
700 and above
$9,990
 
$9,642
 
$10,008
 
$9,315
 
$1,101
 
$1,142
620 - 699996
 935
 2,449
 2,395
 411
 420
Below 620 2
43
 38
 811
 709
 125
 127
Total
$11,029
 
$10,615
 
$13,268
 
$12,419
 
$1,637
 
$1,689

 Other Direct Indirect Credit Cards
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Current FICO score range:           
700 and above
$9,197
 
$7,929
 
$8,967
 
$9,094
 
$1,084
 
$1,088
620 - 699866
 757
 2,321
 2,344
 401
 395
Below 620 2
37
 43
 722
 702
 118
 99
Total
$10,100
 
$8,729
 
$12,010
 
$12,140
 
$1,603
 
$1,582
1 Excludes $7.0$7.3 billion and $6.6$7.2 billion of guaranteed student loans and $452$467 million and $560$459 million of guaranteed residential mortgages at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, for which there was nominal risk of principal loss due to the government guarantee.
2 For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.
Notes to Consolidated Financial Statements (Unaudited), continued








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


September 30, 2018March 31, 2019
Accruing    Accruing    
(Dollars in millions)Current 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 TotalCurrent 
30-89 Days
Past Due
 
90+ Days
Past Due
 
 Nonaccruing 1
 Total
Commercial loans:                  
C&I
$67,897
 
$40
 
$10
 
$256
 
$68,203

$73,016
 
$49
 
$16
 
$197
 
$73,278
CRE6,572
 2
 1
 43
 6,618
7,885
 2
 —
 2
 7,889
Commercial construction3,137
 —
 —
 —
 3,137
2,561
 1
 —
 —
 2,562
Total commercial LHFI77,606
 42
 11
 299
 77,958
83,462
 52
 16
 199
 83,729
Consumer loans:               ��  
Residential mortgages - guaranteed127
 38
 287
 —
3 
452
141
 35
 291
 —
3 
467
Residential mortgages - nonguaranteed 2
27,880
 73
 9
 225
 28,187
28,215
 50
 18
 178
 28,461
Residential home equity products9,449
 70
 1
 149
 9,669
8,983
 60
 —
 124
 9,167
Residential construction185
 1
 2
 9
 197
158
 —
 1
 8
 167
Guaranteed student5,175
 711
 1,153
 —
3 
7,039
5,350
 648
 1,310
 —
3 
7,308
Other direct10,050
 39
 4
 7
 10,100
10,970
 47
 4
 8
 11,029
Indirect11,905
 99
 —
 6
 12,010
13,183
 79
 1
 5
 13,268
Credit cards1,573
 15
 15
 —
 1,603
1,603
 16
 18
 —
 1,637
Total consumer LHFI66,344
 1,046
 1,471
 396
 69,257
68,603
 935
 1,643
 323
 71,504
Total LHFI
$143,950
 
$1,088
 
$1,482
 
$695
 
$147,215

$152,065
 
$987
 
$1,659
 
$522
 
$155,233
1 Includes nonaccruing LHFI past due 90 days or more of $348$296 million. Nonaccruing LHFI past due fewer than 90 days include nonaccrual loansLHFI modified in TDRs, performing second lien loansLHFI where the first lien loan is nonperforming, and certain energy-related commercial loans.LHFI.
2 Includes $168$134 million of loansLHFI measured at fair value, the majority of which were accruing current.
3 Guaranteed loansLHFI are not placed on nonaccruingnonaccrual status regardless of delinquency status because collection of principal and interest is reasonably assured by the government. 




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

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

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


Notes to Consolidated Financial Statements (Unaudited), continued








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


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

$88
 
$69
 
$—
 
$132
 
$79
 
$—
CRE21
 20
 —
 —
 —
 —
—
 —
 —
 10
 —
 —
Total commercial LHFI with no ALLL recorded72
 52
 —
 38
 35
 —
88
 69
 —
 142
 79
 —
Consumer loans:                      
Residential mortgages - nonguaranteed483
 378
 —
 458
 363
 —
376
 299
 —
 501
 397
 —
Residential construction12
 6
 —
 15
 9
 —
8
 4
 —
 12
 7
 —
Total consumer LHFI with no ALLL recorded495
 384
 —
 473
 372
 —
384
 303
 —
 513
 404
 —
                      
Impaired LHFI with an ALLL recorded:                      
Commercial loans:                      
C&I189
 165
 26
 127
 117
 19
205
 191
 39
 81
 70
 13
CRE25
 21
 2
 21
 21
 2
Total commercial LHFI with an ALLL recorded214
 186
 28
 148
 138
 21
205
 191
 39
 81
 70
 13
Consumer loans:                      
Residential mortgages - nonguaranteed1,049
 1,027
 101
 1,133
 1,103
 113
594
 589
 58
 1,006
 984
 96
Residential home equity products873
 821
 49
 953
 895
 54
826
 779
 45
 849
 799
 44
Residential construction83
 81
 6
 93
 90
 7
76
 73
 5
 79
 76
 6
Other direct57
 57
 1
 59
 59
 1
56
 56
 —
 57
 57
 1
Indirect131
 131
 6
 123
 122
 7
134
 133
 5
 133
 133
 5
Credit cards29
 8
 1
 26
 7
 1
31
 9
 2
 30
 9
 2
Total consumer LHFI with an ALLL recorded2,222
 2,125
 164
 2,387
 2,276
 183
1,717
 1,639
 115
 2,154
 2,058
 154
Total impaired LHFI
$3,003
 
$2,747
 
$192
 
$3,046
 
$2,821
 
$204

$2,394
 
$2,202
 
$154
 
$2,890
 
$2,611
 
$167
1 Carrying value reflects charge-offs that have been recognized plus other amounts that have been applied to adjust the net book balance.




Included in the impaired LHFI carrying values above at September 30, 2018March 31, 2019 and December 31, 20172018 were $1.8 billion and $2.3 billion, and $2.4 billionrespectively, of accruing TDRs held for investment, of which 97% and 96% were current, respectively.current. See Note 1, “Significant Accounting
Policies,” to the Company's 20172018 Annual Report on Form 10-K, for further information regarding the Company’s loan impairment policy.


Notes to Consolidated Financial Statements (Unaudited), continued










Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 2017 2018 20172019 2018
(Dollars in millions)
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
Average
Carrying
Value
 
 Interest 1
Income
Recognized
 
Average
Carrying
Value
 
 Interest 1
Income
Recognized
Impaired LHFI with no ALLL recorded:Impaired LHFI with no ALLL recorded:      Impaired LHFI with no ALLL recorded:      
Commercial loans:                      
C&I
$44
 
$—
 
$70
 
$—
 
$45
 
$1
 
$81
 
$—

$76
 
$1
 
$20
 
$—
CRE20
 —
 —
 —
 20
 —
 —
 —
—
 —
 21
 —
Total commercial LHFI with no ALLL recorded64
 —
 70
 —
 65
 1
 81
 —
76
 1
 41
 —
Consumer loans:                      
Residential mortgages - nonguaranteed381
 4
 364
 4
 386
 11
 361
 11
300
 4
 353
 4
Residential construction7
 —
 9
 —
 7
 —
 9
 —
4
 —
 6
 —
Total consumer LHFI with no ALLL recorded388
 4
 373
 4
 393
 11
 370
 11
304
 4
 359
 4
                      
Impaired LHFI with an ALLL recorded:Impaired LHFI with an ALLL recorded:                   
Commercial loans:                      
C&I177
 —
 150
 —
 176
 3
 145
 2
190
 —
 149
 1
CRE21
 —
 —
 —
 22
 —
 —
 —
—
 —
 25
 —
Total commercial LHFI with an ALLL recorded198
 —
 150
 —
 198
 3
 145
 2
190
 —
 174
 1
Consumer loans:                      
Residential mortgages - nonguaranteed1,027
 13
 1,135
 14
 1,031
 39
 1,146
 45
617
 13
 1,093
 12
Residential home equity products824
 9
 890
 8
 833
 27
 901
 24
781
 9
 873
 9
Residential construction80
 1
 96
 2
 82
 4
 98
 4
74
 1
 90
 1
Other direct57
 1
 58
 1
 58
 3
 59
 3
55
 1
 57
 1
Indirect134
 2
 120
 2
 141
 5
 128
 4
136
 2
 131
 2
Credit cards8
 —
 6
 —
 8
 1
 6
 1
9
 —
 7
 —
Total consumer LHFI with an ALLL recorded2,130
 26
 2,305
 27
 2,153
 79
 2,338
 81
1,672
 26
 2,251
 25
Total impaired LHFI
$2,780
 
$30
 
$2,898
 
$31
 
$2,809
 
$94
 
$2,934
 
$94

$2,242
 
$31
 
$2,825
 
$30
1 Of the interest income recognized during each of the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, cash basis interest income was immaterial.


Notes to Consolidated Financial Statements (Unaudited), continued








NPAs are presented in the following table:


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

$197
 
$157
CRE43
 24
2
 2
Commercial construction—
 1
Consumer NPLs:      
Residential mortgages - nonguaranteed225
 206
178
 204
Residential home equity products149
 203
124
 138
Residential construction9
 11
8
 11
Other direct7
 7
8
 7
Indirect6
 7
5
 7
Total nonaccrual loans/NPLs 1
695
 674
Total nonaccrual LHFI/NPLs 1
522
 526
OREO 2
52
 57
53
 54
Other repossessed assets7
 10
9
 9
Nonperforming LHFS64
 —
Total NPAs
$754
 
$741

$648
 
$589
1Nonaccruing restructured loansLHFI are included in total nonaccrual loans/LHFI/NPLs.
2 Does not include foreclosed real estate related to loans insured by the FHA or guaranteed by the VA. Proceeds due from the FHA and the VA are recorded as a receivable in Other assets in the Consolidated Balance Sheets until the property is conveyed and the funds are received. The receivable related to proceeds due from the FHA and the VA totaled $49 million and $45$50 million at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018.






The Company's recorded investment of nonaccruing loansLHFI secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2018March 31, 2019 and December 31, 20172018 was $89$86 million and $73$93 million, respectively. The Company's recorded investment of accruing loansLHFI secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2018March 31, 2019 and December 31, 20172018 was $108$107 million and $101$110 million, of which $100$99 million and $97$103 million were insured by the FHA or guaranteed by the VA, respectively.
 
At September 30, 2018,March 31, 2019, OREO included $49 million of foreclosed residential real estate properties and $2 million of foreclosed commercial real estate properties, with the remaining $1$2 million related to land.
At December 31, 2017,2018, OREO included $51$50 million of foreclosed residential real estate properties and $4$2 million of foreclosed commercial real estate properties, with the remaining $2 million related to land.



Notes to Consolidated Financial Statements (Unaudited), continued







Restructured Loans
A TDR is a loan for which the Company has granted an economic concession to a borrower in response to financial difficulty experienced by the borrower, which the Company would not have considered otherwise. When a loan is modified under the terms of a TDR, the Company typically offers the borrower an extension of the loan maturity date and/or a reduction in the original contractual interest rate. In limited situations, the Company may offer to restructure a loan in a manner that
 
ultimately results in the forgiveness of a contractually specified principal balance.
At both September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had an immaterial amount of commitments to lend additional funds to debtors whose terms have been modified in a TDR. The number and carrying value of loans modified under the terms of a TDR, by type of modification, are presented in the following tables:

Three Months Ended September 30, 2018 1
Three Months Ended March 31, 2019 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions TotalNumber of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:              
C&I47
 
$—
 
$16
 
$16
34
 
$1
 
$56
 
$57
Consumer loans:              
Residential mortgages - nonguaranteed48
 3
 7
 10
31
 1
 4
 5
Residential home equity products130
 1
 11
 12
84
 1
 6
 7
Other direct141
 —
 2
 2
140
 —
 2
 2
Indirect559
 —
 14
 14
568
 —
 15
 15
Credit cards345
 1
 —
 1
439
 2
 —
 2
Total TDR additions1,270
 
$5
 
$50
 
$55
1,296
 
$5


$83
 
$88
1 Includes loans modified under the terms of a TDR that were charged-off during the period.


 
Three Months Ended March 31, 2018 1
(Dollars in millions)Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total
Commercial loans:       
C&I46
 
$—
 
$56
 
$56
Consumer loans:       
Residential mortgages - nonguaranteed61
 9
 8
 17
Residential home equity products136
 —
 13
 13
Other direct114
 —
 1
 1
Indirect778
 —
 20
 20
Credit cards308
 1
 1
 2
Total TDR additions1,443
 
$10
 
$99
 
$109

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

Notes to Consolidated Financial Statements (Unaudited), continued



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

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


TDRs that defaulted during the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, which were first modified within the previous 12twelve months, were immaterial. The majority of loans that were modified under the terms of a TDR and subsequently became 90 days or more delinquent have remained on nonaccrual status since the time of delinquency.


Concentrations of Credit Risk
The Company does not have a significant concentration of credit risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the majority of the Company's LHFI portfolio represents borrowers that reside in Florida, Georgia, Virginia, Maryland, and North Carolina. The Company’s cross-border outstanding loans totaled $1.4$2.0 billion and $1.8 billion at both September 30, 2018March 31, 2019 and December 31, 2017.2018, respectively.
 
With respect to collateral concentration, the Company's recorded investment in residential real estate secured LHFI totaled $38.5$38.3 billion at September 30, 2018March 31, 2019 and represented 26%25% of total LHFI. At December 31, 2017,2018, the Company's recorded investment in residential real estate secured LHFI totaled $38.6$38.9 billion and represented 27%26% of total LHFI. Additionally, at September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had commitments to extend credit on home equity lines of $10.2$10.5 billion and $10.1$10.3 billion, and had residential mortgage commitments outstanding of $3.8$3.1 billion and $3.0$2.7 billion, respectively. At both September 30, 2018March 31, 2019 and December 31, 2017,2018, 1% of the Company's LHFI secured by residential real estate was insured by the FHA or guaranteed by the VA.


Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 7 - ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the unfunded commitments reserve. Activity in the allowance for credit losses by loanLHFI segment is presented in the following tables:
 Three Months Ended March 31, 2019
(Dollars in millions)Commercial Consumer Total
ALLL, beginning of period
$1,080
 
$535
 
$1,615
Provision for loan losses84
 72
 156
Loan charge-offs(33) (92) (125)
Loan recoveries5
 23
 28
Other 1
—
 (31) (31)
ALLL, end of period1,136
 507
 1,643
      
Unfunded commitments reserve, beginning of period 2
69
 —
 69
Benefit for unfunded commitments(3) —
 (3)
Unfunded commitments reserve, end of period 2
66
 —
 66
      
Allowance for credit losses, end of period
$1,202
 
$507
 
$1,709

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


 Three Months Ended March 31, 2018
(Dollars in millions)Commercial Consumer Total
ALLL, beginning of period
$1,101
 
$634
 
$1,735
(Benefit)/provision for loan losses(16) 54
 38
Loan charge-offs(23) (83) (106)
Loan recoveries6
 21
 27
ALLL, end of period1,068
 626
 1,694
      
Unfunded commitments reserve, beginning of period 1
79
 —
 79
Benefit for unfunded commitments(10) —
 (10)
Unfunded commitments reserve, end of period 1
69
 —
 69
      
Allowance for credit losses, end of period
$1,137
 
$626
 
$1,763

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


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


Notes to Consolidated Financial Statements (Unaudited), continued






The Company’s LHFI portfolio and related ALLL are presented in the following tables:
 March 31, 2019
 Commercial Loans Consumer Loans Total
(Dollars in millions)
Carrying
Value
 
Related
ALLL
 
Carrying
Value
 Related
ALLL		 
Carrying
Value
 Related
ALLL
LHFI evaluated for impairment:           
Individually evaluated
$260
 
$39
 
$1,942
 
$115
 
$2,202
 
$154
Collectively evaluated83,469
 1,097
 69,428
 392
 152,897
 1,489
Total evaluated83,729
 1,136
 71,370
 507
 155,099
 1,643
LHFI measured at fair value—
 —
 134
 —
 134
 —
Total LHFI
$83,729
 
$1,136
 
$71,504
 
$507
 
$155,233
 
$1,643

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


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

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






NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company conducts a qualitative goodwill impairment testassessment at the reporting unit level at least annually,quarterly, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The Company performed a qualitative goodwill assessment for the Consumer and Wholesale reporting units in the first quarter of 2019, and concluded that a quantitative goodwill impairment test was not necessary for either reporting
unit as it was more-likely-than-not that the fair value of both reporting units were greater than their respective carrying amounts. See Note 1, "Significant“Significant Accounting Policies,"” to the Company's 20172018 Annual Report on Form 10-K for additional information regardingand the Company'sCompany’s goodwill accounting policy.
In the first, second, and third quarters of 2018, the Company performed qualitative goodwill assessments on its Consumer and Wholesale reporting units, considering changes in key assumptions as well as other events and circumstances occurring since the most recent annual goodwill impairment test performed as of October 1, 2017. The Company concluded, based on the totality of factors observed, that it is not more-likely-than-not
that the fair values of its reportable segments are less than their respective carrying values. Accordingly, goodwill was not required to be quantitatively tested for impairment during the nine months ended September 30, 2018.
In the second quarter of 2018, certain business banking clients were transferred from the Wholesale segment to the Consumer segment, resulting in the reallocation of $128 million in goodwill. See Note 18, "Business Segment Reporting," for additional information. The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2018 are presented in the following table. There were no material changes in the carrying amount of goodwill by reportable segment for the ninethree months ended September 30, 2017.March 31, 2019 and 2018.

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

Notes to Consolidated Financial Statements (Unaudited), continued






Other Intangible Assets
Changes in the carrying amount of other intangible assets are presented in the following table:
(Dollars in millions)Residential MSRs - Fair Value Commercial Mortgage Servicing Rights and Other TotalResidential MSRs - Fair Value Commercial Mortgage Servicing Rights and Other Total
Balance, January 1, 2019
$1,983
 
$79
 
$2,062
Amortization 1
—
 (3) (3)
Servicing rights originated63
 4
 67
Changes in fair value:    
Due to changes in inputs and assumptions 2
(110) —
 (110)
Other changes in fair value 3
(52) —
 (52)
Servicing rights sold(1) —
 (1)
Balance, March 31, 2019
$1,883
 
$80
 
$1,963
     
Balance, January 1, 2018
$1,710
 
$81
 
$1,791

$1,710
 
$81
 
$1,791
Amortization 1
—
 (13) (13)—
 (5) (5)
Servicing rights originated250
 10
 260
76
 4
 80
Servicing rights purchased89
 —
 89
74
 —
 74
Changes in fair value:    
    

Due to changes in inputs and assumptions 2
198
 —
 198
111
 —
 111
Other changes in fair value 3
(183) —
 (183)(55) —
 (55)
Servicing rights sold(2) —
 (2)
Balance, September 30, 2018
$2,062
 
$78
 
$2,140
     
Balance, January 1, 2017
$1,572
 
$85
 
$1,657
Amortization 1
—
 (16) (16)
Servicing rights originated252
 10
 262
Changes in fair value:    

Due to changes in inputs and assumptions 2
(27) —
 (27)
Other changes in fair value 3
(168) —
 (168)
Servicing rights sold(1) —
 (1)
Other 4
—
 (1) (1)
Balance, September 30, 2017
$1,628
 
$78
 
$1,706
Balance, March 31, 2018
$1,916
 
$80
 
$1,996
1 Does not include expense associated with community development investments. See Note 10, "Certain11, “Certain Transfers of Financial Assets and Variable Interest Entities,"” for additional information.
2 Primarily reflects changes in option adjusted spreads and prepayment speed assumptions, due to changes in interest rates.
3 Represents changes due to the collection of expected cash flows, net of accretion due to the passage of time.
4 Represents measurement period adjustment on other intangible assets acquired previously in the Pillar acquisition.



The gross carrying value and accumulated amortization of other intangible assets are presented in the following table:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in millions)Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying ValueGross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
Amortized other intangible assets 1:
                      
Commercial mortgage servicing rights
$89
 
($25) 
$64
 
$79
 
($14) 
$65

$99
 
($32) 
$67
 
$95
 
($29) 
$66
Other19
 (17) 2
 32
 (28) 4
6
 (5) 1
 6
 (5) 1
Unamortized other intangible assets:                      
Residential MSRs2,062
 —
 2,062
 1,710
 —
 1,710
1,883
 —
 1,883
 1,983
 —
 1,983
Other12
 —
 12
 12
 —
 12
12
 —
 12
 12
 —
 12
Total other intangible assets
$2,182
 
($42) 
$2,140
 
$1,833
 
($42) 
$1,791

$2,000
 
($37) 
$1,963
 
$2,096
 
($34) 
$2,062
1 Excludes other intangible assets that are indefinite-lived, carried at fair value, or fully amortized.



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


Residential Mortgage Servicing Rights
Income earned by the Company on its residential MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs, and is presented in the following table.
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 2017 2018 2017
Income from residential MSRs 1

$108
 
$100
 
$322
 
$301
 Three Months Ended March 31
(Dollars in millions)2019 2018
Income from residential MSRs 1

$111
 
$107
1 Recognized in Mortgage servicing related income in the Consolidated Statements of Income.


Notes to Consolidated Financial Statements (Unaudited), continued



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

$138,793
 
$140,801

Notes to Consolidated Financial Statements (Unaudited), continued



No MSRs on residential loans were purchased during the three months ended March 31, 2019. The Company purchased MSRs on residential loans with a UPB of $7.0$5.9 billion during the ninethree months ended September 30, 2018; $5.9 billion of which are reflected inMarch 31, 2018. During the UPB amounts above and the transfer of servicing for the remainder is scheduled for the fourth quarter of 2018. No MSRs on residential loans were purchased during the ninethree months ended September 30, 2017. During the nine months ended September 30,March 31, 2019 and 2018, and 2017, the Company sold MSRs on residential loans, at a price approximating their fair value, with a UPB of $781$518 million and $350$102 million, respectively.
The Company measures the fair value of its residential MSRs using a valuation model that calculates the present value of estimated future net servicing income using prepayment projections, spreads, and other assumptions. The Consumer Valuation Committee reviews and approves all significant assumption changes at least annually, drawing upon various market and empirical data sources. Changes to valuation model inputs are reflected in the periods'periods’ results. See Note 16,17, “Fair Value Election and Measurement,” for further information regarding the Company'sCompany’s residential MSR valuation methodology.
A summary of the significant unobservable inputs used to estimate the fair value of the Company’s residential MSRs and the uncertainty of the fair values in response to 10% and 20% adverse changes in those inputs at the reporting date are presented in the following table.
(Dollars in millions)March 31, 2019 December 31, 2018
Fair value of residential MSRs
$1,883
 
$1,983
Prepayment rate assumption (annual)13% 13%
Decline in fair value from 10% adverse change
$99
 
$96
Decline in fair value from 20% adverse change188
 183
Option adjusted spread (annual)2% 2%
Decline in fair value from 10% adverse change
$40
 
$44
Decline in fair value from 20% adverse change78
 86
Weighted-average life (in years)5.2
 5.5
Weighted-average coupon4.0% 4.0%
(Dollars in millions)September 30, 2018 December 31, 2017
Fair value of residential MSRs
$2,062
 
$1,710
Prepayment rate assumption (annual)12% 13%
Decline in fair value from 10% adverse change
$91
 
$85
Decline in fair value from 20% adverse change173
 160
Option adjusted spread (annual)3% 4%
Decline in fair value from 10% adverse change
$52
 
$47
Decline in fair value from 20% adverse change100
 90
Weighted-average life (in years)5.8
 5.4
Weighted-average coupon4.0% 3.9%

Residential MSR uncertainties are hypothetical and should be used with caution. Changes in fair value based on variations in assumptions generally cannot be extrapolated because (i) the relationship of the change in an assumption to the change in fair value may not be linear and (ii) changes in one assumption may result in changes in another, which might magnify or counteract the uncertainties. The uncertainties do not reflect the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 15,16, “Derivative Financial Instruments,” for further information regarding these hedging activities.
Commercial Mortgage Servicing Rights
Income earned by the Company on its commercial mortgage servicing rights is derived primarily from contractually specified
servicing fees and other ancillary fees. The Company also earns income from subservicing certain third party commercial mortgages for which the Company does not record servicing
rights. The following table presents the Company'sCompany’s income earned from servicing commercial mortgages.
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
(Dollars in millions)2018 2017 2018 20172019 2018
Income from commercial mortgage servicing rights 1

$5
 
$6
 
$20
 
$17

$6
 
$7
Income from subservicing third party commercial mortgages 1
3
 3
 9
 11
3
 3
1 Recognized in Commercial real estate related income in the Consolidated Statements of Income.

The UPB of commercial mortgage loans serviced for third parties is presented in the following table:
(Dollars in millions)March 31, 2019 December 31, 2018
UPB of commercial mortgages subserviced for third parties
$29,195
 
$28,140
UPB of loans underlying commercial mortgage servicing rights6,585
 6,399
Total UPB of commercial mortgages serviced for third parties
$35,780
 
$34,539

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


No commercial mortgage servicing rights were purchased or sold during the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018.
Commercial mortgage servicing rights are accounted for at amortized cost and are monitored for impairment on an ongoing basis. The Company calculates the fair value of commercial servicing rights based on the present value of estimated future net servicing income, considering prepayment projections and other assumptions. Impairment, if any, is recognized when the carrying value of the servicing asset exceeds the fair value at the measurement date. The amortized cost of the Company'sCompany’s commercial mortgage servicing rights was $64$67 million and $65$66 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
A summary of the significant unobservable inputs used to estimate the fair value of the Company’s commercial mortgage servicing rights and the uncertainty of the fair values in response to 10% and 20% adverse changes in those inputs at the reporting date, are presented in the following table.
(Dollars in millions)March 31, 2019 December 31, 2018
Fair value of commercial mortgage servicing rights
$78
 
$77
Discount rate (annual)12% 12%
Decline in fair value from 10% adverse change
$3
 
$3
Decline in fair value from 20% adverse change6
 6
Prepayment rate assumption (annual)6% 5%
Decline in fair value from 10% adverse change
$1
 
$1
Decline in fair value from 20% adverse change2
 2
Weighted-average life (in years)8.2
 8.1
Float earnings rate (annual)1.1% 1.1%
(Dollars in millions)September 30, 2018 December 31, 2017
Fair value of commercial mortgage servicing rights
$77
 
$75
Discount rate (annual)12% 12%
Decline in fair value from 10% adverse change
$3
 
$3
Decline in fair value from 20% adverse change6
 6
Prepayment rate assumption (annual)6% 7%
Decline in fair value from 10% adverse change
$1
 
$1
Decline in fair value from 20% adverse change2
 2
Weighted-average life (in years)7.8
 7.0
Float earnings rate (annual)1.1% 1.1%

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






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

$65
 
$79
Other equity 3
27
 7
Other equity20
 16
Nonmarketable equity securities:      
Federal Reserve Bank stock 2
403
 403
FHLB stock 2
142
 15
Other equity 3
50
 26
Lease assets2,110
 1,528
Tax credit investments 4
1,583
 1,272
Federal Reserve Bank stock403
 403
FHLB stock366
 227
Other equity68
 68
Tax credit investments 2
1,767
 1,722
Bank-owned life insurance1,619
 1,411
1,636
 1,627
Lease assets:   
Operating lease right-of-use assets 3
1,164
 —
Underlying lessor assets
subject to operating leases, net 3
1,146
 1,205
Build-to-suit lease assets774
 735
Accrued income1,059
 880
1,163
 1,106
Accounts receivable669
 2,201
854
 602
Pension assets, net518
 464
479
 484
Prepaid expenses248
 319
251
 231
OREO52
 57
53
 54
Other887
 786
510
 432
Total other assets
$9,432
 
$9,418

$10,719
 
$8,991
1 EquityDoes not include equity securities held for trading purposes are classified inas Trading assets and derivative instruments or Trading liabilities and derivative instruments on the Company'sCompany’s Consolidated Balance Sheets.
2 Beginning January 1, 2018, the Company reclassified equity securities previously presented in Securities available for sale to Other assets on the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability.
3 During the second quarter of 2018, the Company reclassified $22 million of equity securities from nonmarketable to marketable equity securities due to readily determinable fair value information observed in active markets.
4 See Note 10, "Certain4, “Trading Assets and Liabilities and Derivative Instruments,” for more information.
2 See Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities,"” for additional information.
3 See Note 10, “Leases,” for additional information.
Equity Securities Not Classified as Trading Assets or Liabilities
Equity securities with readily determinable fair values (marketable) that are not held for trading purposes are recorded at fair value and include mutual fund investments and other publicly traded equity securities.
Equity securities without readily determinable fair values (nonmarketable) that are not held for trading purposes include Federal Reserve Bank of Atlanta and FHLB of Atlanta capital stock, both held at cost, as well as other equity securities that the Company elected to account for under the measurement alternative, pursuant to its adoption of ASU 2016-01 on January 1, 2018.alternative. See the “Equity Securities” and “Accounting Pronouncements” sections of Note 1, “Significant Accounting Policies,” to the Company's 2018 Annual Report on Form 10-K for additional information on the Company's adoption of ASU 2016-01 andCompany’s accounting policy for policy updates related to equity securities.

 
The following table summarizes net gains/(losses) foron equity securities not classified as trading assets:
 Three Months Ended March 31
(Dollars in millions)2019 2018
Net gains on marketable equity securities 1

$4
 
$1
Net gains/(losses) on nonmarketable equity securities:   
Remeasurement losses and impairment—
 —
Remeasurement gains 1
—
 23
Less: Net realized gains on sale—
 —
Total net unrealized gains on non-trading equity securities
$4
 
$24

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

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




Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 10 - LEASES

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

Lessee Accounting
The Company's right-of-use assets, lease liabilities, and associated balance sheet classifications are presented in the following table:
(Dollars in millions)ClassificationMarch 31, 2019
Assets:
Operating lease right-of-use assetsOther assets
$1,164
Finance lease right-of-use assetsPremises, property, and equipment, net14
Total right-of-use assets
$1,178
Liabilities:
Operating leasesOther liabilities
$1,238
Finance leasesLong-term debt16
Total lease liabilities
$1,254


The Company leases certain assets, consisting primarily of real estate, and assesses at contract inception whether a contract is, or contains, a lease. A right-of-use asset and lease liability is recorded on the balance sheet for all leases except those with an original lease term of twelve months or less.
The Company's leases typically have lease terms between five years and ten years, with the longest lease term having an expiration date in 2081. Most of these leases include one or more renewal options for five years or less, and certain leases also include lessee termination options. At lease commencement, the Company assesses whether it is reasonably certain to exercise a renewal option, or reasonably certain not to exercise a termination option, by considering various economic factors. Options that are reasonably certain of being exercised are factored into the determination of the lease term, and related payments are included in the calculation of the right-of-use asset and lease liability.
The Company uses its incremental borrowing rate to calculate the present value of lease payments when the interest
rate implicit in a lease is not disclosed. Variable lease payments that are linked to a certain rate or index, such as the CPI, are included in the present value of lease payments and measured using the prevailing rate or index at lease commencement, with changes in the associated rate or index recognized in earnings during the period in which the change occurs. The right-of-use asset and lease liability are not remeasured as a result of any subsequent change in the index or rate unless remeasurement is required for another reason. Variable lease payments that are not linked to a certain rate or index are comprised primarily of operating costs. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component for all of its real estate leases.
At March 31, 2019, the Company had operating leases that had not yet commenced with undiscounted cash flows totaling less than $100 million. Leases that do not commence until a future date generally include executed ground and office space leases where construction is underway and the Company does not control the underlying asset during the construction.


The components of total lease cost and other supplemental lease information are presented in the following tables:
(Dollars in millions)Three Months Ended March 31, 2019
Components of total lease cost:
Operating lease cost
$52
Finance lease cost:
Amortization of right-of-use assets1
Variable lease cost8
Less: Sublease income(1)
Total lease cost, net
$60


Notes to Consolidated Financial Statements (Unaudited), continued



(Dollars in millions)Three Months Ended March 31, 2019
Supplemental lease information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$49
Financing cash flows from finance leases1
Lease liabilities arising from obtaining right-of-use assets (subsequent to adoption):
Operating leases19

Weighted average remaining lease terms and discount rates are presented in the following table:
(Dollars in millions)March 31, 2019
Weighted-average remaining lease term (in years):
Operating leases8.3
Finance leases4.6
Weighted-average discount rate (annual):
Operating leases3.3%
Finance leases3.9



The following table presents a maturity analysis of the Company's operating and finance lease liabilities at March 31, 2019:
(Dollars in millions)Operating Leases Finance Leases Total
Year 1
$185
 
$5
 
$190
Year 2191
 3
 194
Year 3180
 3
 183
Year 4163
 4
 167
Year 5142
 1
 143
Thereafter573
 1
 574
Total lease payments1,434
 17
 1,451
Less: Imputed interest(196) (1) (197)
Present value of lease liabilities
$1,238
 
$16
 
$1,254



Lessor Accounting
The Company’s two primary lessor businesses are equipment financing and structured real estate. In addition, the Company is the lessor in circumstances where a portion of its corporate owned real estate is leased to other tenants.
Payment terms are typically fixed; however, some agreements contain variable lease payments linked to an index or rate, such as the CPI or LIBOR. In certain agreements, lease payments increase based on a fixed percentage after a set duration of time. Variable lease payments that are based on an index or rate are included in the net lease investment for sales-type or direct financing leases, and are included in lease receivables for operating leases using the prevailing index or rate at lease commencement. The Company has elected to exclude its sales tax collection and remission activity from being reported as lease revenue with an associated expense.
The Company’s leases generally do not contain non-lease components. If a lease does contain non-lease components, the Company has elected not to separate lease and non-lease components for each class of underlying asset in which it is the lessor, when the timing and patterns of revenue recognition for the components are the same, and the lease component, if
accounted for separately, would be classified as an operating lease.

Equipment Financing
The Company finances various types of essential-use business equipment, such as transportation and construction equipment, under operating, sales-type, and direct financing leases. Lease terms are generally noncancelable and range between three years and fifteen years. Most lease agreements contain renewal options that range from one month to three years, and are generally reset at the effective fair market value at time of renewal. Certain lease agreements also include an option to purchase the lease asset at least twelve months prior to the end of the lease term.
The Company evaluates various inputs when estimating the amount it expects to derive from the underlying asset following the end of the lease term, including but not limited to, appraisals and inputs from third party sources, and historical portfolio experience. The Company manages residual risk on an individual lease basis, and in certain cases, obtains lessee residual value guarantees or enters into remarketing agreements in the event of lessee default or lease termination. The Company performs a
Notes to Consolidated Financial Statements (Unaudited), continued



review of residual risk annually and obtains a third party appraisal for the majority of leased assets. At March 31, 2019, the carrying amount of residual assets covered by residual value guarantees was $110 million.

Structured Real Estate
The Company offers structured real estate arrangements, including build-to-suit arrangements, whereby real property is leased to corporate clients under operating, sales-type, and direct financing leases. These leases typically have noncancelable terms that range between fifteen years and twenty years as well as multiple renewal options that can extend a lease up to an additional twenty years. These leases generally do not have termination or purchase options.
When a lease asset is acquired, the amount the Company expects to derive from the underlying asset is estimated using property appraisal values and assumptions regarding the economic life of the asset. The Company manages residual risk through continuous monitoring of the associated asset and credit quality of the lessee, which may include site visits to view the property and surrounding area. In certain cases, the Company may obtain third party residual value guarantees. In most instances, there are no lessee residual value guarantees. Assets are reviewed at least annually for impairment. At March 31, 2019, the carrying amount of residual assets covered by residual value guarantees was $29 million.


The components of total lease income are presented in the following table:
(Dollars in millions)Three Months Ended March 31, 2019
Interest income from sales-type and direct financing leases
$37
Lease income relating to lease payments - operating leases53
Lease income relating to variable lease payments not included in the measurement of the lease receivable2
Total lease income
$92



Components of the Company's net investment in sales-type and direct financing leases are presented in the following table:
(Dollars in millions)March 31, 2019
Carrying amount of lease receivables3,900
Unguaranteed residual assets184
Net investment in sales-type and direct financing lease assets 1

$4,084

1 Included in Loans held for sale and Loans held for investment on the Company's Consolidated Balance Sheets.


The following table presents a maturity analysis of the Company's sales-type and direct financing lease receivables at March 31, 2019:
(Dollars in millions)Sales-Type and Direct Financing Leases
Year 1
$805
Year 2693
Year 3663
Year 4428
Year 5352
Thereafter1,430
Total lease receivables4,371
Less: Reconciling items 1
(471)
Present value of lease receivables
$3,900

1 Primarily comprised of interest and guaranteed residual assets.


Notes to Consolidated Financial Statements (Unaudited), continued



The following table presents a maturity analysis of the Company's operating lease payments to be received at March 31, 2019:
(Dollars in millions)Operating Leases
Year 1
$183
Year 2162
Year 3133
Year 4105
Year 5100
Thereafter287
Total lease payments to be received
$970



Underlying lessor assets subject to operating leases at March 31, 2019 consisted of the following:
(Dollars in millions)
Useful life
(in years)
March 31, 2019
Underlying lessor assets subject to operating leases: 1
Real estate 2
15 - 20
$178
Equipment2 - 301,532
Total underlying lessor assets subject to operating leases1,710
Less: Accumulated depreciation and amortization(564)
Underlying lessor assets subject to operating leases, net 3

$1,146

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


Depreciation expense on underlying assets subject to operating leases for the three months ended March 31, 2019 totaled $36 million.


NOTE 1011 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
The Company has transferred loans and securities in sale or securitization transactions for which the Company retains certain beneficial interests, servicing rights, and/or recourse. These transfers of financial assets include certain residential mortgage loans, guaranteed student loans, and commercial loans, as discussed in the following section, "Transfers of Financial Assets." Cash receipts on beneficial interests held related to these transfers were immaterial for each ofboth the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.
When a transfer or other transaction occurs with a VIE, the Company first determines whether it has a VI in the VIE. A VI is typically in the form of securities representing retained interests in transferred assets and, at times, servicing rights, and for commercial mortgage loans sold to Fannie Mae, the loss share guarantee. See Note 14,15, “Guarantees,” for further discussion of the Company's loss share guarantee. When determining whether to consolidate the VIE, the Company evaluates whether it is a primary beneficiary which has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE, and (ii) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
To determine whether a transfer should be accounted for as a sale or a secured borrowing, the Company evaluates whether: (i) the transferred assets are legally isolated, (ii) the transferee has the right to pledge or exchange the transferred assets, and
(iii) the Company has relinquished effective control of the transferred assets. If all three conditions are met, then the transfer is accounted for as a sale.
Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide. No events occurred during the ninethree months ended September 30, 2018March 31, 2019 that changed the Company’s previous conclusions regarding whether it is the primary beneficiary of the VIEs described herein. Furthermore, no events occurred during the ninethree months ended September 30, 2018March 31, 2019 that changed the Company’s sale conclusion with regards to previously transferred residential mortgage loans, guaranteed student loans, or commercial loans.
Transfers of Financial Assets
The following discussion summarizes transfers of financial assets to entities for which the Company has retained some level of continuing involvement.
Consumer Loans
Residential Mortgage Loans
The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and Freddie Mac securitization transactions, whereby the loans are
Notes to Consolidated Financial Statements (Unaudited), continued



exchanged for cash or securities that are readily redeemable for cash, and servicing rights are retained.
The Company sold residential mortgage loans to Ginnie Mae, Fannie Mae, and Freddie Mac, which resulted in pre-tax net gains of $46$49 million and $53pre-tax net losses of $13 million for the three and nine
months ended September 30,March 31, 2019 and 2018, and pre-tax net gains of $73 million and $152 million for the three and nine months ended September 30, 2017, respectively. Net gains/losses on the sale of residential mortgage LHFS are recorded at inception of the associated IRLCs and reflect the change in value of the loans resulting from changes in interest rates from the time the Company enters into the related IRLCs with borrowers until the loans are sold, but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 15,16, "Derivative Financial Instruments," for further discussion of the Company's hedging activities. The Company has made certain representations and warranties with respect to the transfer of these loans. See Note 14,15, “Guarantees,” for additional information regarding representations and warranties.
In a limited number of securitizations, the Company has received securities in addition to cash in exchange for the transferred loans, while also retaining servicing rights. The securities received are measured at fair value and classified as securities AFS. During the second quarter of 2018, the Company sold the majority of these securities for a net gain of $6 million, recognized in Net securities gains on the Consolidated Statements of Income for the nine months ended September 30, 2018. The fair value of retained securities was immaterial at September 30, 2018 and totaled $22 million at December 31, 2017.
The Company evaluates securitization entities in which it has a VI for potential consolidation under the VIE consolidation model. Notwithstanding the Company's role as servicer, the Company typically does not have power over the securitization entities as a result of rights held by the master servicer. In certain transactions, the Company does have power as the servicer, but does not have an obligation to absorb losses, or the right to receive benefits, that could potentially be significant. In all such cases, the Company does not consolidate the securitization entity. Due to the aforementioned sale of securities AFS in the second quarter of 2018, the Company’s remaining VI in the securitization entity was immaterial at September 30, 2018. Assets of the unconsolidated entities in which the Company has a VI totaled $147 million at December 31, 2017.
The Company’s maximum exposure to loss related to these unconsolidated residential mortgage loan securitizations is comprised of the loss of value of any interests it retains, which was immaterial at September 30, 2018 and totaled $22 million at December 31, 2017, as well as any repurchase obligations or other losses it incurs as a result of any guarantees related to these securitizations, which is discussed further in Note 14, “Guarantees.”
Guaranteed Student Loans
The Company has securitized government-guaranteed student loans through a transfer of loans to a securitization entity and retained the residual interest in the entity. The Company concluded that this entity should be consolidated because the Company has (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses, and the right to receive benefits, that could potentially be significant. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company’s Consolidated
Notes to Consolidated Financial Statements (Unaudited), continued



Balance Sheets reflected $171$159 million and $192$165 million of assets held by the securitization entity and $168$156 million and $189$161 million of debt issued by the entity, respectively, inclusive of related accrued interest.
To the extent that the securitization entity incurs losses on its assets, the securitization entity has recourse to the guarantor
of the underlying loan, which is backed by the Department of Education up to a maximum guarantee of 98%, or in the event of death, disability, or bankruptcy, 100%. When not fully guaranteed, losses reduce the amount of available cash payable to the Company as the owner of the residual interest. To the extent that losses result from a breach of servicing responsibilities, the Company, which functions as the master servicer, may be required to repurchase the defaulted loan(s) at par value. If the breach was caused by the subservicer, the Company would seek reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related to the securitization entity would arise from a breach of its servicing responsibilities. To date, loss claims filed with the guarantor that have been denied due to servicing errors have either been, or are in the process of being cured, or reimbursement has been
provided to the Company by the subservicer, or in limited cases, absorbed by the Company.
Commercial Loans
The Company originates and sells certain commercial mortgage loans to Fannie Mae and Freddie Mac, originates FHA insured loans, and issues and sells Ginnie Mae commercial MBS secured by FHA insured loans. The Company transferred commercial loans to these Agencies and GSEs, which resulted in pre-tax net gains of $8$7 million and $22$9 million for the three and nine months ended September 30,March 31, 2019 and 2018, and pre-tax net gains of $9 million and $33 million for the three and nine months ended September 30, 2017, respectively. The loans are exchanged for cash or securities that are readily redeemable for cash, with servicing rights retained. The Company has made certain representations and warranties with respect to the transfer of these loans and has entered into a loss share guarantee related to certain loans transferred to Fannie Mae. See Note 14,15, “Guarantees,” for additional information regarding the commercial mortgage loan loss share guarantee.


The Company's total managed loans, including the LHFI portfolio and other transferred loans (securitized and unsecuritized), are presented in the following table by portfolio balance and delinquency status (accruing loans 90 days or more past due and all nonaccrual loans) at September 30, 2018March 31, 2019 and December 31, 2017,2018, as well as the related net charge-offs for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.
 Portfolio Balance Past Due and Nonaccrual Net Charge-offs 
 March 31,
2019		 December 31, 2018 March 31,
2019		 December 31, 2018 Three Months Ended March 31 
(Dollars in millions) 2019 2018 
LHFI portfolio:            
Commercial
$83,729
 
$80,940
 
$215
 
$175
 
$28
 
$17
 
Consumer71,504
 70,899
 1,966
 2,003
 69
 62
 
Total LHFI portfolio155,233
 151,839
 2,181
 2,178
 97
 79
 
Managed securitized loans:            
Commercial 1
6,585
 6,399
 —
 —
 —
 —
 
Consumer138,299
 139,809
 148
 146
 —
2 
2
2 
Total managed securitized loans144,884
 146,208
 148
 146
 —
 2
 
Managed unsecuritized loans 3
607
 1,134
 79
 152
 —
 —
 
Total managed loans
$300,724
 
$299,181
 
$2,408
 
$2,476
 
$97
 
$81
 

 Portfolio Balance Past Due and Nonaccrual Net Charge-offs 
 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 Three Months Ended September 30 Nine Months Ended September 30 
(Dollars in millions) 2018 2017 2018 2017 
LHFI portfolio:                
Commercial
$77,958
 
$75,477
 
$310
 
$247
 
$42
 
$22
 
$76
 
$90
 
Consumer69,257
 67,704
 1,867
 1,832
 46
 56
 164
 171
 
Total LHFI portfolio147,215
 143,181
 2,177
 2,079
 88
 78
 240
 261
 
Managed securitized loans:                
Commercial 1
6,039
 5,760
 —
 —
 —
 —
 —
 —
 
Consumer138,747
 134,160
 226
 171
 1
2 
3
2 
5
2 
7
2 
Total managed securitized loans144,786
 139,920
 226
 171
 1
 3
 5
 7
 
Managed unsecuritized loans 3
1,380
 2,200
 190
 340
 —
 —
 —
 —
 
Total managed loans
$293,381
 
$285,301
 
$2,593
 
$2,590
 
$89
 
$81
 
$245
 
$268
 
1 Comprised of commercial mortgages sold through Fannie Mae, Freddie Mac, and Ginnie Mae securitizations, whereby servicing has been retained by the Company.
2 Amounts associated with $429$347 million and $602$387 million of managed securitized loans at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Net charge-off data is not reported to the Company for the remaining balance of $138.3$138.0 billion and $133.6$139.4 billion of managed securitized loans at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
3 Comprised of unsecuritized loans the Company originated and sold to private investors with servicing rights retained. Net charge-offs on these loans are not presented in the table as the data is not reported to the Company by the private investors that own these related loans.


Notes to Consolidated Financial Statements (Unaudited), continued






Other Variable Interest Entities
In addition to exposure to VIEs arising from transfers of financial assets, the Company also has involvement with VIEs from other business activities.
Tax Credit Investments
The following table providespresents information related to the Company's investments in tax credit VIEs that it does not consolidate:
Community Development Investments Renewable Energy PartnershipsCommunity Development Investments Renewable Energy Partnerships
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
Carrying value of investments 1

$1,515
 
$1,272
 
$68
 
$—

$1,686
 
$1,636
 
$81
 
$86
Maximum exposure to loss related to investments 2
2,173
 1,905
 165
 —
2,262
 2,207
 81
 138
1 
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the carrying value of community development investments excludes $67$69 million and $59$68 million of investments in funds that do not qualify for tax credits, respectively.
2 
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company's maximum exposure to loss related to community development investments includes $484$503 million and $354$422 million of loans and $648$579 million and $627$639 million of unfunded equity commitments, respectively. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company's maximum exposure to loss related to renewable energy partnerships includes $97$0 and $52 million and $0 of unfunded equity commitments, respectively.



Community Development Investments
The Company invests in multi-family affordable housing partnership developments and other community development entities as a limited partner and/or a lender. The carrying value of these investments is recorded in Other assets on the Company’s Consolidated Balance Sheets. The Company receives tax credits for its limited partner investments, which are recorded in Provision for income taxes in the Company's Consolidated Statements of Income. Amortization recognized on qualified affordable housing partnerships is recorded in the Provision for income taxes, net of the related tax benefits, in the Company's Consolidated Statements of Income. Amortization recognized on other community development investments is recorded in Amortization in the Company's Consolidated Statements of Income. The Company has determined that the majority of the related partnerships are VIEs.
 
The Company has concluded that it is not the primary beneficiary of these investments when it invests as a limited partner and there is a third party general partner. The general partner, or an affiliate of the general partner, often provides guarantees to the limited partner, which protects the Company from construction and operating losses and tax credit allocation deficits. The Company’s maximum exposure to loss would result from the loss of its limited partner investments, net of liabilities, along with loans or interest rate swap exposures related to these investments as well as unfunded equity commitments that the Company is required to fund if certain conditions are met.
The following table presents tax credits and amortization associated with the Company’s investments in community development investments.investments:
 Tax Credits Amortization
 Three Months Ended March 31 Three Months Ended March 31
(Dollars in millions)2019 2018 2019 2018
Qualified affordable housing partnerships
$33
 
$30
 
$35
 
$32
Other community development investments18
 18
 15
 14

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




Renewable Energy Partnerships
In the second quarter of 2018, the Company began investing in entities that promote renewable energy sources as a limited partner. The carrying value of these renewable energy partnership investments is recorded in Other assets on the Company’s Consolidated Balance Sheets, and the associated tax credits received for these investments are recorded as a reduction to the carrying value of these investments. The Company has determined that these renewable energy tax credit partnerships are VIEs.
The Company has concluded that it is not the primary beneficiary of these VIEs because it does not have the power to direct the activities that most significantly impact the VIEs' financial performance and therefore, it is not required to consolidate these VIEs. The Company’s maximum exposure to loss related to these investments is comprised of its equity investments in these partnerships and any additional unfunded equity commitments.
 
Total Return Swaps
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the outstanding notional amount of the Company's VIE-facing TRS contracts totaled $1.9$2.2 billion and $1.7$2.0 billion, and related loans outstanding to VIEs totaled $1.9$2.2 billion and $1.7$2.0 billion, respectively. These financings were measured at fair value and classified within Trading assets and derivative instruments on the Consolidated Balance Sheets. The Company entered into client-facing TRS contracts of the same outstanding notional amounts. The notional amounts of the TRS contracts with VIEs represent the Company’s maximum exposure to loss, although this exposure has been mitigated via the TRS contracts with clients. For additional information on the Company’s TRS contracts and its involvement with these VIEs, see Note 15,16, “Derivative Financial Instruments,” as well as Note 10,12, "Certain Transfers of Financial Assets and Variable Interest Entities," to the Company's 20172018 Annual Report on Form 10-K.
Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1112 – NET INCOME PER COMMON SHARE
Reconciliations of net income to net income available to common shareholders and average basic common shares outstanding to
average diluted common shares outstanding are presented in the following table.
Equivalent shares of less than 1 million related to common stock options and warrants outstanding at September 30, 2017 were excluded from the computations of diluted net income per average common share because they would have been anti-dilutive.
 Three Months Ended March 31
(Dollars and shares in millions, except per share data)2019 2018
Net income
$580
 
$643
Less:   
Preferred stock dividends(26) (31)
Net income available to common shareholders
$554
 
$612
    
Average common shares outstanding - basic443.6
 468.7
Add dilutive securities:   
RSUs2.6
 2.8
Common stock warrants, options, and restricted stock0.5
 2.1
Average common shares outstanding - diluted446.7
 473.6
    
Net income per average common share - diluted
$1.24
 
$1.29
Net income per average common share - basic1.25
 1.31


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



NOTE 1213 - INCOME TAXES
For the three months ended September 30,March 31, 2019 and 2018, and 2017, the provision for income taxes was $95$104 million and $225$147 million, representing effective tax rates of 11%15% and 29%, respectively. For the nine months ended September 30, 2018 and 2017, the provision for income taxes was $412 million and $606 million, representing effective tax rates of 16% and 28%19%, respectively. The effective tax rate for the ninethree months ended September 30, 2018March 31, 2019 was favorably impacted by a$17 million of net $71 million discrete income tax benefit,benefits related primarily to stock-based compensation and state income tax true-ups, while the effective tax rate for the ninethree months ended September 30, 2017March 31, 2018 was favorably impacted by a net $26$4 million discrete income tax benefit related primarily to share-based compensation.
The $71 millionof net discrete income tax benefit for the nine months ended September 30, 2018 was driven by a $55 million tax benefit for the income tax effects of the 2017 Tax Act, a $22 million tax benefit for share-based compensation, and an $8 million tax benefit related to the release of certain UTBs due to the expiration of the applicable statute of limitation. These income tax benefits were offset partially by a $14 million discrete tax expense resulting from the merger of the Company's STM and Bank legal entities, which includes the $35 million discrete tax expense in the first quarter of 2018 related to the increase in the valuation allowance recorded for STM's state carryforwards and a $21 million discrete tax benefit in the third quarter of 2018 related to the net adjustment of STM’s state DTAs and DTLs upon completion of the merger. The $55 million adjustment forbenefits.
 
the income tax effects of the 2017 Tax Act reflects the final adjustment to the Company's December 31, 2017 DTAs and DTLs at the reduced federal corporate income tax rate of 21%. This adjustment completed the Company's accounting for the income tax effects of the 2017 Tax Act.
At September 30, 2018 and December 31, 2017, the Company had a valuation allowance against its state carryforwards and certain state DTAs of $89 million and $143 million, respectively. This decrease in the valuation allowance was due primarily to the reversal of the valuation allowance that was recorded against certain of STM's pre-merger state NOL carryforwards that could not be carried forward by the Bank after the merger. The reversal of the valuation allowance was offset by the write-off of the related state NOL carryforwards. See Note 18, “Business Segment Reporting,” for additional information regarding the merger of STM and the Bank.
The provision for income taxes includes both federal and state income taxes and differs from the provision using statutory rates due primarily to favorable permanent tax items such as interest income from lending to tax-exempt entities, tax credits, and amortization expense related to qualified affordable housing investment costs. The Company calculated the provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete items that occurred during the period.



Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1314 - EMPLOYEE BENEFIT PLANS
The Company sponsors various compensation and benefit programs to attract and retain talent. Aligned with a pay for performance culture, the Company's plans and programs include short-term incentives, AIP, and various LTI plans. See Note 15,17,
 
"“Employee Benefit Plans,"” to the Company's 20172018 Annual Report on Form 10-K for additional information regarding the Company's employee benefit plans.

Stock-based compensation expense recognized in Employee compensation in the Consolidated Statements of Income consisted of the following:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
(Dollars in millions)2018 2017 2018 20172019 2018
RSUs
$21
 
$14
 
$82
 
$64

$25
 
$39
Phantom stock units 1
10
 17
 36
 57
12
 17
Total stock-based compensation expense
$31
 
$31
 
$118
 
$121

$37
 
$56
          
Stock-based compensation tax benefit 2

$8
 
$12
 
$28
 
$46

$9
 
$13
1 Phantom stock units are settled in cash. DuringThe Company paid $44 million and $75 million during the three and nine months ended September 30,March 31, 2019 and 2018, the Company paid $1 million and $76 million, respectively, related to these share-based liabilities. During the three and nine months ended September 30, 2017, the Company paid $2 million and $79 million, respectively, related to these share-based liabilities.
2 Does not include excess tax benefits or deficiencies recognized in the Provision for income taxes in the Consolidated Statements of Income.




Components of net periodic benefit related to the Company's pension and other postretirement benefits plans are presented in the following table and are recognized in Employee benefits in the Consolidated Statements of Income:
Pension Benefits 1
 Other Postretirement BenefitsThree Months Ended March 31
Three Months Ended September 30 Nine Months Ended September 30 Three Months Ended September 30 Nine Months Ended September 30
Pension Benefits 1
 Other Postretirement Benefits
(Dollars in millions)2018 2017 2018 2017 2018 2017 2018 20172019 2018 2019 2018
Service cost
$1
 
$1
 
$4
 
$4
 
$—
 
$—
 
$—
 
$—

$1
 
$1
 
$—
 
$—
Interest cost23
 24
 68
 71
 —
 —
 1
 1
24
 23
 —
 —
Expected return on plan assets(47) (49) (140) (146) (1) (1) (4) (4)(37) (47) (1) (1)
Amortization of prior service credit—
 —
 —
 —
 (2) (1) (5) (4)—
 —
 (2) (2)
Amortization of actuarial loss6
 6
 17
 18
 —
 —
 —
 —
6
 6
 —
 —
Net periodic benefit
($17) 
($18) 
($51) 
($53) 
($3) 
($2) 
($8) 
($7)
($6) 
($17) 
($3) 
($3)
1 Administrative fees are recognized in service cost for each of the periods presented.




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

Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1415 – GUARANTEES
The Company has undertaken certain guarantee obligations in the ordinary course of business. The issuance of a guarantee imposes an obligation for the Company to stand ready to perform and make future payments should certain triggering events occur. Payments may be in the form of cash, financial instruments, other assets, shares of stock, or through provision of the Company’s services. The following is a discussion of the guarantees that the Company has issued at September 30, 2018.March 31, 2019. The Company has also entered into certain contracts that are similar to guarantees, but that are accounted for as derivative instruments as discussed in Note 15,16, “Derivative Financial Instruments.”


Letters of Credit
Letters of credit are conditional commitments issued by the Company, generally to guarantee the performance of a client to a third party in borrowing arrangements, such as CP, bond financing, or similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients but may be reduced by selling participations to third parties. The Company issues letters of credit that are classified as financial standby, performance standby, or commercial letters of credit; however, commercial letters of credit are considered guarantees of funding and are not subject to the disclosure requirements of guarantee obligations.
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the maximum potential exposure to loss related to the Company'sCompany’s issued letters of credit was $3.1$2.8 billion and $2.6$2.9 billion, respectively. The Company’s outstanding letters of credit generally have a term of more than one year. Some standby letters of credit are designed to be drawn upon in the normal course of business and others are drawn upon only in circumstances of dispute or default in the underlying transaction to which the Company is not a party. In all cases, the Company is entitled to reimbursement from the client. If a letter of credit is drawn upon and reimbursement is not provided by the client, the Company may take possession of the collateral securing the letter of credit, where applicable.
The Company monitors its credit exposure under standby letters of credit in the same manner as it monitors other extensions of credit in accordance with its credit policies. Consistent with the methodologies used for all commercial borrowers, an internal assessment of the PD and loss severity in the event of default is performed. The Company'sCompany’s credit risk management for letters of credit leverages the risk rating process to focus greater visibility on higher risk and higher dollar letters of credit. The allowance associated with letters of credit is a component of the unfunded commitments reserve recorded in Other liabilities on the Consolidated Balance Sheets and is included in the allowance for credit losses as disclosed in Note 7, “Allowance for Credit Losses.” Additionally, unearned fees relating to letters of credit are recorded in Other liabilities on the Consolidated Balance Sheets. The net carrying amount of unearned fees was immaterial at both September 30, 2018March 31, 2019 and December 31, 2017.2018.


 
Loan Sales and Servicing
The Company originates and purchases residential mortgage loans, a portion of which are sold to outside investors in the normal course of business through a combination of whole loan sales to GSEs, Ginnie Mae, and non-agency investors. The Company also originates and sells certain commercial mortgage loans to Fannie Mae and Freddie Mac, originates FHA insured loans, and issues and sells Ginnie Mae commercial MBS secured by FHA insured loans.
When loans are sold, representations and warranties regarding certain attributes of the loans are made to third party purchasers. Subsequent to the sale, if a material underwriting deficiency or documentation defect is discovered, the Company may be obligated to repurchase the loan or to reimburse an investor for losses incurred (make whole requests), if such deficiency or defect cannot be cured by the Company within the specified period following discovery. These representations and warranties may extend through the life of the loan. In addition to representations and warranties related to loan sales, the Company makes representations and warranties that it will service the loans in accordance with investor servicing guidelines and standards, which may include (i) collection and remittance of principal and interest, (ii) administration of escrow for taxes and insurance, (iii) advancing principal, interest, taxes, insurance, and collection expenses on delinquent accounts, and (iv) loss mitigation strategies, including loan modifications and foreclosures.
The following table summarizes the changes in the Company’s reserve for residential mortgage loan repurchases:
 Three Months Ended March 31
(Dollars in millions)2019 2018
Balance, beginning of period
$26
 
$39
Repurchase (benefit)/provision(2) —
Balance, end of period
$24
 
$39

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


A significant degree of judgment is used to estimate the mortgage repurchase liability as the estimation process is inherently uncertain and subject to imprecision. The Company believes that its reserve appropriately estimates incurred losses based on its current analysis and assumptions. While the mortgage repurchase reserve includes the estimated cost of settling claims related to required repurchases, the Company'sCompany’s estimate of losses depends on its assumptions regarding GSE and other counterparty behavior, loan performance, home prices, and other factors. The liability is recorded in Other liabilities on the Consolidated Balance Sheets, and the related repurchase provision/(benefit)/provision is recognized in Mortgage production related income in the Consolidated Statements of Income. See Note 17, "Contingencies,"18, “Contingencies,” for additional information on current legal matters related to loan sales.
Notes to Consolidated Financial Statements (Unaudited), continued






The following table summarizes the carrying value of the Company'sCompany’s outstanding repurchased residential mortgage loans:
(Dollars in millions)March 31, 2019 December 31, 2018
Outstanding repurchased residential mortgage loans:
Performing LHFI
$181
 
$183
Nonperforming LHFI12
 16
Total carrying value of outstanding repurchased residential mortgages
$193
 
$199
(Dollars in millions)September 30, 2018 December 31, 2017
Outstanding repurchased residential mortgage loans:
Performing LHFI
$189
 
$203
Nonperforming LHFI17
 16
Total carrying value of outstanding repurchased residential mortgages
$206
 
$219

Residential mortgage loans sold to Ginnie Mae are insured by the FHA or are guaranteed by the VA. As servicer, the Company may elect to repurchase delinquent loans in accordance with Ginnie Mae guidelines; however, the loans continue to be insured. The Company may also indemnify the FHA and VA for losses related to loans not originated in accordance with their guidelines.
Commercial Mortgage Loan Loss Share Guarantee
In connection with the acquisition of Pillar, the Company assumed a loss share obligation associated with the terms of a master loss sharing agreement with Fannie Mae for multi-family commercial mortgage loans that were sold by Pillar to Fannie Mae under Fannie Mae’s delegated underwriting and servicing program. Upon the acquisition of Pillar, the Company entered into a lender contract amendment with Fannie Mae for multi-family commercial mortgage loans that Pillar sold to Fannie Mae prior to acquisition and that the Company sold to Fannie Mae subsequent to acquisition, whereby the Company bears a risk of loss of up to one-third of the incurred losses resulting from borrower defaults. The breach of any representation or warranty related to a loan sold to Fannie Mae could increase the Company'sCompany’s level of risk-sharing associated with the loan. The outstanding UPB of loans sold subject to the loss share guarantee was $3.4$3.6 billion and $3.5 billion at both September 30, 2018March 31, 2019 and December 31, 2017.2018, respectively. The maximum potential exposure to loss was $978 million$1.1 billion and $962 million$1.0 billion at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Using probability of default and severity of loss estimates, the Company'sCompany’s loss share liability was $12$6 million and $11$5 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and is recorded in Other liabilities on the Consolidated Balance Sheets.
Visa
The Company executes credit and debit transactions through Visa and Mastercard. The Company is a defendant, along with Visa and Mastercard (the “Card Associations”), as well as other banks, in one of several antitrust lawsuits challenging the practices of the Card Associations (the “Litigation”). The Company entered into judgment and loss sharing agreements with Visa and certain other banks in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to the Litigation. Additionally, in connection with Visa'sVisa’s restructuring in 2007, shares of Visa common stock were issued to its financial institution members and the Company received its proportionate number of shares of Visa Inc. common stock, which were subsequently converted to Class B shares of Visa Inc. upon completion of Visa’s IPO in
2008. A provision of the original Visa By-Laws, which was
restated in Visa'sVisa’s certificate of incorporation, contains a general indemnification provision between a Visa member and Visa that explicitly provides that each member'smember’s indemnification obligation is limited to losses arising from its own conduct and the specifically defined Litigation. While the district court approved a class action settlement of the Litigation in 2012 that settled the claims of both a damages class and an injunctive relief class, the U.S. Court of Appeals for the Second Circuit reversed the district court'scourt’s approval of the settlement on June 30, 2016. The U.S. Supreme Court denied plaintiffs'plaintiffs’ petition for certiorari on March 27, 2017, and the case returned to the district court for further action. Since being remanded to the district court, plaintiffs have pursued two separate class actions—one class action seeking damages that names, among others, the Company as a defendant, and one class action seeking injunctive relief that does not name the Company as a defendant, but for which the Company could bear some responsibility under the judgment and loss sharing agreement described above. An agreement to resolve the claims ofwas reached and the damages class has been filed withsettlement was preliminarily approved by the district court and is awaiting court approval.on January 24, 2019.
Agreements associated with Visa'sVisa’s IPO have provisions that Visa will fund a litigation escrow account, established for the purpose of funding judgments in, or settlements of, the Litigation. If the escrow account is insufficient to cover the Litigation losses, then Visa will issue additional Class A shares (“loss shares”). The proceeds from the sale of the loss shares would then be deposited in the escrow account. The issuance of the loss shares will cause a dilution of Visa'sVisa’s Class B shares as a result of an adjustment to lower the conversion factor of the Class B shares to Class A shares. Visa U.S.A.'s’s members are responsible for any portion of the settlement or loss on the Litigation after the escrow account is depleted and the value of the Class B shares is fully diluted.
In May 2009, the Company sold its 3.2 million Class B shares to the Visa Counterparty and entered into a derivative with the Visa Counterparty. Under the derivative, the Visa Counterparty is compensated by the Company for any decline in the conversion factor as a result of the outcome of the Litigation. Conversely, the Company is compensated by the Visa Counterparty for any increase in the conversion factor. The amount of payments made or received under the derivative is a function of the 3.2 million shares sold to the Visa Counterparty, the change in conversion rate, and Visa’s share price. The Visa Counterparty, as a result of its ownership of the Class B shares, is impacted by dilutive adjustments to the conversion factor of the Class B shares caused by the Litigation losses. Additionally, the Company will make periodic payments based on the notional of the derivative and a fixed rate until the date on which the Litigation is settled. The fair value of the derivative is estimated based on unobservable inputs consisting of management'smanagement’s estimate of the probability of certain litigation scenarios and the timing of the resolution of the Litigation due in large part to the aforementioned decision by the U.S. Court of Appeals for the Second Circuit.Litigation. The fair value of the derivative liability was $7 million and $15 million at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018. The fair value of the derivative is estimated based on the Company'sCompany’s expectations regarding the resolution of the Litigation. The ultimate impact to the Company could be significantly different based on the Litigation outcome.

Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1516 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into various derivative financial instruments, both in a dealer capacity to facilitate client transactions and as an end user as a risk management tool. The Company generally manages the risk associated with these derivatives within the established MRM and credit risk management frameworks. Derivatives may be used by the Company to hedge various economic or client-related exposures. In such instances, derivative positions are typically monitored using a VAR methodology, with exposures reviewed daily. Derivatives are also used as a risk management tool to hedge the Company’s balance sheet exposure to changes in identified cash flow and fair value risks, either economically or in accordance with hedge accounting provisions. The Company’s Corporate Treasury function is responsible for employing the various hedge strategies to manage these objectives. The Company enters into IRLCs on residential and commercial mortgage loans that are accounted for as freestanding derivatives. Additionally, certain contracts containing embedded derivatives are measured, in their entirety, at fair value. All derivatives, including both freestanding as well asand any embedded derivatives that the Company bifurcates from the host contracts, are measured at fair value in the Consolidated Balance Sheets in Trading assets and derivative instruments and Trading liabilities and derivative instruments. The associated gains and losses are either recognized in AOCI, net of tax, or within the Consolidated Statements of Income, depending upon the use and designation of the derivatives.


Credit and Market Risk Associated with Derivative Instruments
Derivatives expose the Company to risk that the counterparty to the derivative contract does not perform as expected. The Company manages its exposure to counterparty credit risk associated with derivatives by entering into transactions with counterparties with defined exposure limits based on their credit quality and in accordance with established policies and procedures. All counterparties are reviewed regularly as part of the Company’s credit risk management practices and appropriate action is taken to adjust the exposure limits to certain counterparties as necessary. The Company’s derivative transactions are generally governed by ISDA agreements or other legally enforceable industry standard master netting agreements. In certain cases and depending on the nature of the underlying derivative transactions, bilateral collateral agreements are also utilized. Furthermore, the Company and its subsidiaries are subject to OTC derivative clearing requirements, which require certain derivatives to be cleared through central clearing houses, such as LCH and the CME. These clearing houses require the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. Effective January 3, 2017, the CME amended its rulebook to legally characterize variation margin cash payments for cleared OTC derivatives as settlement rather than as collateral. Consistent with the CME's amended requirements, LCH amended its rulebook effective January 16, 2018, to legally characterize variation margin cash payments for cleared OTC derivatives as settlement rather than as collateral. As a result, in the first quarter of 2018, the Company began reducing the corresponding derivative asset and liability balances for LCH-
 
cleared OTC derivatives to reflect the settlement of those positions via the exchange of variation margin.
When the Company has more than one outstanding derivative transaction with a single counterparty, and there exists a legal right of offset with that counterparty, the Company considers its exposure to the counterparty to be the net fair value of its derivative positions with that counterparty. If the net fair value is positive, then the corresponding asset value also reflects cash collateral held. At September 30, 2018,March 31, 2019, the economic exposure of these net derivative asset positions was $404$736 million, reflecting $889 million$1.1 billion of net derivative gains, adjusted for cash and other collateral of $485$404 million that the Company held in relation to these positions. At December 31, 2017,2018, the economic exposure of net derivative asset positions was $541 million, reflecting $940$891 million of net derivative gains, adjusted for cash and other collateral held of $399$350 million.
Derivatives also expose the Company to market risk arising from the adverse effects that changes in market factors, such as interest rates, currency rates, equity prices, commodity prices, or implied volatility, may have on the value of the Company's derivatives. The Company manages this risk by establishing and monitoring limits on the types and degree of risk that may be undertaken. The Company measures its market risk exposure using a VAR methodology for derivatives designated as trading instruments. Other tools and risk measures are also used to actively manage risk associated with derivatives including scenario analysis and stress testing.
Derivative instruments are priced using observable market inputs at a mid-market valuation point and take into consideration appropriate valuation adjustments for collateral, market liquidity, and counterparty credit risk. For purposes of determining fair value adjustments to its OTC derivative positions, the Company takes into consideration the credit profile and likelihood of default by counterparties, and itself,the CVA, the Company’s own credit risk, the DVA, as well as itsthe Company's net exposure, which considers legally enforceable master netting agreements and collateral along with remaining maturities. TheIn determining the CVA, the expected loss of each counterparty is estimated using market-based views of counterparty default probabilities observed in the single-name CDS market, when available and of sufficient liquidity. When single-name CDS market data is not available or not of sufficient liquidity, the probability of default is estimated using a combination of the Company'sCompany’s internal risk rating system and sector/rating based CDS data.
For purposes of estimating the Company’s own credit risk on derivative liability positions, the DVA, the Company uses probabilities of default from observable, sector/rating based CDS data. The net fair value of the Company's derivative contracts were adjusted by an immaterial amount for estimates of counterparty credit risk and its own credit risk at both September 30, 2018 and December 31, 2017. For additional information on the Company'sCompany’s fair value measurements, see Note 16, "Fair17, “Fair Value Election and Measurement."”
Currently, the industry standard master netting agreements governing the majority of the Company's derivative transactions with counterparties contain bilateral events of default and acceleration provisions related to the creditworthiness of the Bank and the counterparty. Should the Bank be in default under any of these provisions, the Bank’s counterparties would be
Notes to Consolidated Financial Statements (Unaudited), continued



permitted to close out transactions with the Bank on a net basis, at amounts that would approximate the fair values of the
Notes to Consolidated Financial Statements (Unaudited), continued



derivatives, resulting in a single sum due by one party to the other. The counterparties would have the right to apply any collateral posted by the Bank against any net amount owed by the Bank. Additionally, certain of the Company’s derivative liability positions, totaling $1.0$1.3 billion and $1.1 billion$589 million in fair value at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, contain provisions conditioned on downgrades of the Bank’s credit rating. These provisions, if triggered, would either give rise to an ATE that permits the counterparties to close-out net and apply collateral or, where a CSA is present, require the Bank to post additional collateral.
At September 30, 2018,March 31, 2019, the Bank held senior long-term debt credit ratings of Baal/A-/A- from Moody’s, S&P, and Fitch, respectively. At September 30, 2018,March 31, 2019, ATEs have been triggered for less than $1 million in fair value liabilities. The maximum additional liability that could be triggered from ATEs was approximately $18$13 million at September 30, 2018.March 31, 2019. At September 30, 2018, $1.0March 31, 2019, $1.3 billion in fair value of derivative liabilities were subject to CSAs, against which the Bank has posted $918$786 million in collateral, primarily in the form of cash.
Pursuant to the terms of the CSA, the Bank would be required to post additional
collateral of approximately $2$1 million against these contracts if the Bank were downgraded to Baa2/BBB+. Further downgrades to Baa3/BBB and Ba1/BBB- would require the Bank to post an additional $3$2 million and $2$7 million of collateral, respectively. Any downgrades below Ba2/BB+ do not contain predetermined collateral posting levels.
Notional and Fair Value of Derivative Positions
The following table presents the Company’s derivative positions at September 30, 2018March 31, 2019 and December 31, 2017.2018. The notional amounts in the table are presented on a gross basis at September 30, 2018March 31, 2019 and December 31, 2017.2018. Gross positive and gross negative fair value amounts associated with respective notional amounts are presented without consideration of any netting agreements, including collateral arrangements. Net fair value derivative amounts are adjusted on an aggregate basis, where applicable, to take into consideration the effects of legally enforceable master netting agreements, including any cash collateral received or paid, and are recognized in Trading assets and derivative instruments or Trading liabilities and derivative instruments on the Consolidated Balance Sheets.
Notes to Consolidated Financial Statements (Unaudited), continued








 March 31, 2019 December 31, 2018
   Fair Value   Fair Value
(Dollars in millions)
Notional
Amounts
 Asset Derivatives Liability Derivatives 
Notional
Amounts
 Asset Derivatives Liability Derivatives
Derivative instruments designated in hedging relationships          
Cash flow hedges: 1
           
Interest rate contracts hedging floating rate LHFI
$9,775
 
$1
 
$2
 
$10,500
 
$1
 
$2
Subtotal9,775
 1
 2
 10,500
 1
 2
Fair value hedges: 2
           
Interest rate contracts hedging fixed rate debt10,305
 2
 1
 9,550
 1
 1
Interest rate contracts hedging brokered time deposits—
 —
 —
 59
 —
 —
Subtotal10,305
 2
 1
 9,609
 1
 1
            
Derivative instruments not designated as hedging instruments 3
          
Interest rate contracts hedging:           
Residential MSRs 4
37,832
 70
 10
 28,011
 54
 10
LHFS, IRLCs 5
3,049
 6
 20
 4,891
 18
 38
LHFI183
 —
 —
 159
 —
 —
Trading activity 6
128,285
 959
 604
 127,286
 771
 687
Foreign exchange rate contracts hedging loans and trading activity9,089
 112
 102
 9,824
 129
 119
Credit contracts hedging:           
LHFI927
 —
 23
 830
 —
 14
Trading activity 7
4,434
 37
 34
 4,058
 97
 95
Equity contracts hedging trading activity 6
34,301
 1,873
 1,953
 34,471
 1,447
 1,644
Other contracts:           
IRLCs and other 8
1,829
 23
 11
 1,393
 20
 15
Commodity derivatives2,078
 45
 44
 2,020
 93
 91
Subtotal222,007
 3,125
 2,801
 212,943
 2,629
 2,713
            
Total derivative instruments
$242,087
 
$3,128
 
$2,804
 
$233,052
 
$2,631
 
$2,716
            
Total gross derivative instruments (before netting)  
$3,128
 
$2,804
   
$2,631
 
$2,716
Less: Legally enforceable master netting agreements  (1,709) (1,709)   (1,654) (1,654)
Less: Cash collateral received/paid  (391) (831)   (338) (652)
Total derivative instruments (after netting)  
$1,028
 
$264
   
$639
 
$410
 September 30, 2018 December 31, 2017
   Fair Value   Fair Value
(Dollars in millions)
Notional
 Amounts
 Asset Derivatives Liability Derivatives 
Notional
Amounts
 Asset Derivatives Liability Derivatives
Derivative instruments designated in hedging relationships          
Cash flow hedges: 1
           
Interest rate contracts hedging floating rate LHFI
$12,900
 
$2
 
$1
 
$14,200
 
$2
 
$252
Subtotal12,900
 2
 1
 14,200
 2
 252
Fair value hedges: 2
           
Interest rate contracts hedging fixed rate debt7,705
 2
 —
 5,920
 1
 58
Interest rate contracts hedging brokered time deposits60
 —
 —
 60
 —
 —
Subtotal7,765
 2
 —
 5,980
 1
 58
            
Derivative instruments not designated as hedging instruments 3
          
Interest rate contracts hedging:           
Residential MSRs 4
25,690
 18
 20
 42,021
 119
 119
LHFS, IRLCs 5
5,485
 15
 4
 7,590
 9
 6
LHFI183
 —
 —
 175
 2
 2
Trading activity 6
127,059
 595
 894
 126,366
 1,066
 946
Foreign exchange rate contracts hedging loans and trading activity7,418
 106
 91
 7,058
 110
 102
Credit contracts hedging:           
LHFI825
 —
 23
 515
 —
 11
Trading activity 7
3,869
 25
 23
 3,454
 15
 12
Equity contracts hedging trading activity 6
37,362
 2,384
 2,648
 38,907
 2,499
 2,857
Other contracts:           
IRLCs and other 8
1,886
 13
 9
 2,017
 18
 16
Commodity derivatives1,678
 118
 116
 1,422
 63
 61
Subtotal211,455
 3,274
 3,828
 229,525
 3,901
 4,132
            
Total derivative instruments
$232,120
 
$3,278
 
$3,829
 
$249,705
 
$3,904
 
$4,442
            
Total gross derivative instruments (before netting)  
$3,278
 
$3,829
   
$3,904
 
$4,442
Less: Legally enforceable master netting agreements  (2,185) (2,185)   (2,731) (2,731)
Less: Cash collateral received/paid  (471) (946)   (371) (1,303)
Total derivative instruments (after netting)  
$622
 
$698
   
$802
 
$408

1 
See “Cash Flow Hedging” in this Note for further discussion.
2 
See “Fair Value Hedging” in this Note for further discussion.
3 
See “Economic Hedging Instruments and Trading Activities” in this Note for further discussion.
4 
Notional amounts include $5.6$1.9 billion and $16.6 billion$921 million related to interest rate futures at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
5 
Notional amounts include $302$65 million and $190$116 million related to interest rate futures at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table.
6 
Notional amounts include $4.9$1.5 billion and $9.8$1.2 billion related to interest rate futures at September 30, 2018March 31, 2019 and December 31, 2017,2018, and $274$268 million and $1.2 billion$136 million related to equity futures at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. Notional amounts also include amounts related to interest rate swaps hedging fixed rate debt.
7 
Notional amounts include $7$8 million and $4$6 million from purchased credit risk participation agreements at September 30, 2018March 31, 2019 and December 31, 2017,2018, and $33$35 million and $11$33 million from written credit risk participation agreements at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. These notional amounts are calculated as the notional of the derivative participated adjusted by the relevant RWA conversion factor.
8 
Notional amounts include $41 million and $49 million related to the Visa derivative liability at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018. See Note 14,15, "Guarantees" for additional information.




Notes to Consolidated Financial Statements (Unaudited), continued






Netting of Derivative Instruments
The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company's securities borrowed or purchased under agreements to resell, and securities sold under agreements to repurchase, that are subject to enforceable master netting agreements or similar agreements, are discussed in Note 3, "Federal“Federal Funds Sold and Securities Financing Activities."” The Company enters into ISDA or other legally enforceable industry standard master netting agreements with derivative counterparties. Under the terms of the master netting agreements, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the nondefaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed.
 
The following tables present total gross derivative instrument assets and liabilities at September 30, 2018March 31, 2019 and December 31, 2017,2018, which are adjusted to reflect the effects of legally enforceable master netting agreements and cash collateral received or paid when calculating the net amount reported in the Consolidated Balance Sheets. Also included in the tables are financial instrument collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and customer cash collateral held at third party custodians. These amounts are not offset on the Consolidated Balance Sheets but are shown as a reduction to total derivative instrument assets and liabilities to derive net derivative assets and liabilities. These amounts are limited to the derivative asset/liability balance, and accordingly, do not include excess collateral received/pledged.
(Dollars in millions)
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged
Financial
Instruments
 
Net
Amount
Gross
Amount
 
Amount
Offset
 
Net Amount
Presented in
Consolidated
Balance Sheets
 
Held/Pledged
Financial
Instruments
 
Net
Amount
September 30, 2018         
March 31, 2019         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$2,940
 
$2,525
 
$415
 
$14
 
$401

$2,720
 
$1,976
 
$744
 
$13
 
$731
Derivatives not subject to master netting arrangement or similar arrangement14
 —
 14
 —
 14
24
 —
 24
 —
 24
Exchange traded derivatives324
 131
 193
 —
 193
384
 124
 260
 —
 260
Total derivative instrument assets
$3,278
 
$2,656
 
$622
1 

$14
 
$608

$3,128
 
$2,100
 
$1,028
1 

$13
 
$1,015
                  
Derivative instrument liabilities:                  
Derivatives subject to master netting arrangement or similar arrangement
$3,587
 
$3,000
 
$587
 
$58
 
$529

$2,599
 
$2,416
 
$183
 
$30
 
$153
Derivatives not subject to master netting arrangement or similar arrangement111
 —
 111
 —
 111
81
 —
 81
 —
 81
Exchange traded derivatives131
 131
 —
 —
 —
124
 124
 —
 —
 —
Total derivative instrument liabilities
$3,829
 
$3,131
 
$698
2 

$58
 
$640

$2,804
 
$2,540
 
$264
2 

$30
 
$234
                  
December 31, 2017         
December 31, 2018         
Derivative instrument assets:                  
Derivatives subject to master netting arrangement or similar arrangement
$3,491
 
$2,923
 
$568
 
$28
 
$540

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

$28
 
$774

$2,631
 
$1,992
 
$639
1 

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

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

$27
 
$381

$2,716
 
$2,306
 
$410
2 

$14
 
$396
1 At September 30, 2018, $622 million,March 31, 2019, $1.0 billion, net of $471$391 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2017, $8022018, $639 million, net of $371$338 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Company's Consolidated Balance Sheets.
2 At September 30, 2018, $698March 31, 2019, $264 million, net of $946$831 million offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets. At December 31, 2017, $4082018, $410 million, net of $1.3 billion$652 million offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Company's Consolidated Balance Sheets.
Notes to Consolidated Financial Statements (Unaudited), continued






Fair Value and Cash Flow Hedging Instruments
Fair Value Hedging
The Company enters into interest rate swap agreements as part of its risk management objectives for hedging exposure to changes in fair value due to changes in interest rates. These hedging arrangements convert certain fixed rate long-term debt and CDs to floating rates. Subsequent to the adoption of ASU 2017-12,For all designated fair value hedge relationships, changes in the fair value of the hedging instrument attributable to the hedged risk are recognized in the same income statement line as the earnings impact from the hedged item. There were no components of derivative gains or losses excluded in the Company’s assessment of hedge effectiveness related to the fair value hedges. For additional information on the Company's adoption of ASU 2017-12 and related policy updates, see Note 1, “Significant Accounting Policies.”
    
Cash Flow Hedging
The Company utilizes a comprehensive risk management strategy to monitor sensitivity of earnings to movements in interest rates. Specific types of funding and principal amounts hedged are determined based on prevailing market conditions and the shape of the yield curve. In conjunction with this strategy, the Company may employ various interest rate derivatives as risk management tools to hedge interest rate risk from recognized assets and liabilities or from forecasted transactions. The terms and notional amounts of derivatives are determined based on management’s assessment of future interest rates, as well as other factors.
The Company enters into interest rate swaps designated as cash flow hedging instruments to hedge its exposure to benchmark
contractually specified interest rate risk associated with floating rate loans. For the three and nine months ended September 30,March 31, 2019, the amount of pre-tax gain recognized in OCI on derivative instruments was $61 million. For the three months ended March 31, 2018, the amount of pre-tax loss recognized in OCI on derivative instruments was $48 million and $274 million, respectively. For the three and nine months ended September 30, 2017, the amount of pre-tax gain recognized in OCI on derivative instruments was $10 million and $61 million, respectively.$165 million. At September 30, 2018,March 31, 2019, the maturities for hedges of floating rate loans ranged from less than one year to seven years, with the weighted average being 3.12.6 years. At December 31, 2017,2018, the maturities for hedges of floating rate loans ranged from less than one year to five years, with the weighted average being 3.62.5 years. These hedges have been highly effective in offsetting the designated risks. At September 30, 2018, $135March 31, 2019, $186 million of deferred net pre-tax losses on derivative instruments designated as cash flow hedges on floating rate loans recognized in AOCI are expected to be reclassified into net interest income during the next twelve months. The amount to be reclassified into income incorporates the impact from both active and terminated cash flow hedges, including the net interest income earned on the active hedges, assuming no changes in LIBOR. The Company may choose to terminate or de-designate a hedging relationship due to a change in the risk management objective for that specific hedge item, which may arise in conjunction with an overall balance sheet management strategy.
 
Notes to Consolidated Financial Statements (Unaudited), continued






Pursuant to the adoption of ASU 2017-12, theThe following table presents gains and losses on derivatives in fair value and cash flow hedging relationships by contract type and by income statement line item for the three and nine months ended September 30,March 31, 2019 and 2018. For the three and nine months ended September 30, 2017 the amounts presented below were not conformed to the new hedge accounting guidance. The table does not disclose the financial impact of the activities that these derivative instruments are intended to hedge.
Net Interest Income 
Noninterest
Income
  Net Interest Income  
(Dollars in millions)Interest and fees on LHFI Interest on Long-term Debt Interest on Deposits Trading Income TotalInterest and fees on LHFI Interest on Long-term Debt Total
Three Months Ended September 30, 2018         
Three Months Ended March 31, 2019     
Interest income/(expense), including the effects of fair value and cash flow hedges
$1,549
 
($95) 
($193) 
$42
 
$1,303

$1,697
 
($125) 
$1,572
              
(Loss)/gain on fair value hedging relationships:              
Interest rate contracts:              
Amounts related to interest settlements on derivatives
$—
 
($2) 
$—
 
$—
 
($2)
$—
 
($4) 
($4)
Recognized on derivatives—
 (33) —
 —
 (33)—
 66
 66
Recognized on hedged items—
 31
1 
—
 —
 31
—
 (71)
1 
(71)
Net expense recognized on fair value hedges
$—
 
($4) 
$—
 
$—
 
($4)
$—
 
($9) 
($9)
              
Loss on cash flow hedging relationships:              
Interest rate contracts:              
Amount of pre-tax loss reclassified from AOCI into income
($22)
2 

$—
 
$—
 
$—
 
($22)
($39)
2 

$—
 
($39)
Net expense recognized on cash flow hedges
($22) 
$—
 
$—
 
$—
 
($22)
($39) 
$—
 
($39)
              
Nine Months Ended September 30, 2018         
Interest income/(expense), including the effects of fair value and cash flow hedges
$4,424
 
($252) 
($484) 
$137
 
$3,825
         
(Loss)/gain on fair value hedging relationships:         
Interest rate contracts:         
Amounts related to interest settlements on derivatives
$—
 
($1) 
$—
 
$—
 
($1)
Recognized on derivatives—
 (130) —
 —
 (130)
Recognized on hedged items—
 124
1 
—
 —
 124
Net expense recognized on fair value hedges
$—
 
($7) 
$—
 
$—
 
($7)
         
Loss on cash flow hedging relationships:         
Interest rate contracts:         
Amount of pre-tax loss reclassified from AOCI into income
($39)
2 

$—
 
$—
 
$—
 
($39)
Net expense recognized on cash flow hedges
($39) 
$—
 
$—
 
$—
 
($39)
         
Three Months Ended September 30, 2017         
Three Months Ended March 31, 2018     
Interest income/(expense), including the effects of fair value and cash flow hedges
$1,382
 
($76) 
($111) 
$51
 
$1,246

$1,398
 
($74) 
$1,324
              
Gain/(loss) on fair value hedging relationships:              
Interest rate contracts:              
Amounts related to interest settlements on derivatives
$—
 
$3
 
$—
 
$—
 
$3

$—
 
$3
 
$3
Recognized on derivatives—
 —
 —
 (3) (3)—
 (72) (72)
Recognized on hedged items—
 —
 —
 3
 3
—
 69
1 
69
Net income recognized on fair value hedges
$—
 
$3
 
$—
 
$—
 
$3
Net income/(expense) recognized on fair value hedges
$—
 
$—
 
$—
              
Gain on cash flow hedging relationships:         
Loss on cash flow hedging relationships:     
Interest rate contracts:              
Amount of pre-tax gain reclassified from AOCI into income
$13
2 

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

$—
 
$—
 
$—
 
$81
Net income recognized on cash flow hedges
$81
 
$—
 
$—
 
$—
 
$81
Amount of pre-tax loss reclassified from AOCI into income
($1)
2 

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




The following table presents the carrying amount of hedged liabilities on the Consolidated Balance Sheets in fair value hedging relationships and the associated cumulative basis adjustment related to the application of hedge accounting:
  Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities  Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Liabilities
(Dollars in millions)Carrying Amount of Hedged Liabilities Hedged Items Currently Designated Hedged Items No Longer DesignatedCarrying Amount of Hedged Liabilities Hedged Items Currently Designated Hedged Items No Longer Designated
September 30, 2018     
March 31, 2019     
Long-term debt
$9,233
 
$54
 
($114)
     
December 31, 2018     
Long-term debt
$6,495
 
($170) 
($73)
$8,411
 
($10) 
($120)
Brokered time deposits29
 —
 —
29
 —
 —




Notes to Consolidated Financial Statements (Unaudited), continued



Economic Hedging Instruments and Trading Activities
In addition to designated hedge accounting relationships, the Company also enters into derivatives as an end user to economically hedge risks associated with certain non-derivative and derivative instruments, along with entering into derivatives in a trading capacity with its clients.
The primary risks that the Company economically hedges are interest rate risk, foreign exchange risk, and credit risk. The Company mitigates these risks by entering into offsetting derivatives either on an individual basis or collectively on a macro basis.
The Company utilizes interest rate derivatives as economic hedges related to:
Residential MSRs. The Company hedges these instruments with a combination of interest rate derivatives, including forward and option contracts, futures, and forward rate agreements.
Residential mortgage IRLCs and LHFS. The Company hedges these instruments using forward and option contracts, futures, and forward rate agreements.
•
Residential MSRs. The Company hedges these instruments with a combination of interest rate derivatives, including forward and option contracts, futures, and forward rate agreements.
•
Residential mortgage IRLCs and LHFS. The Company hedges these instruments using forward and option contracts, futures, and forward rate agreements.
 
The Company is exposed to volatility and changes in foreign exchange rates associated with certain commercial loans. To hedge against this foreign exchange rate risk, the Company enters into foreign exchange rate contracts that provide for the future receipt and delivery of foreign currency at previously agreed-upon terms.
The Company enters into CDS to hedge credit risk associated with certain loans held within its Wholesale segment. The Company accounts for these contracts as derivatives, and accordingly, recognizes these contracts at fair value, with changes in fair value recognized in Other noninterest income in the Consolidated Statements of Income.
Trading activity primarily includes interest rate swaps, equity derivatives, CDS, futures, options, foreign exchange rate contracts, and commodity derivatives. These derivatives are entered into in a dealer capacity to facilitate client transactions, or are utilized as a risk management tool by the Company as an end user (predominantly in certain macro-hedging strategies).


The impacts of derivative instruments used for economic hedging or trading purposes on the Consolidated Statements of Income are presented in the following table:
 Classification of Gain/(Loss) Recognized in Income on Derivatives Amount of Gain/(Loss) Recognized in Income on Derivatives During the Three Months Ended March 31
(Dollars in millions) 2019 2018
Derivative instruments not designated as hedging instruments:    
Interest rate contracts hedging:     
Residential MSRsMortgage related income 
$113
 
($93)
LHFS, IRLCsMortgage related income (19) 46
LHFIOther noninterest income (1) 2
Trading activityTrading income 14
 9
Foreign exchange rate contracts hedging loans and trading activityTrading income 5
 (2)
Credit contracts hedging:     
LHFIOther noninterest income (10) 1
Trading activityTrading income 6
 6
Equity contracts hedging trading activityTrading income 18
 1
Other contracts:     
IRLCs and otherMortgage related income;
Commercial real estate related income		 33
 (6)
Total  
$159
 
($36)
 Classification of (Loss)/Gain Recognized in Income on Derivatives Amount of (Loss)/Gain Recognized in Income on Derivatives During the Three Months Ended September 30 Amount of (Loss)/Gain Recognized in Income on Derivatives During the Nine Months Ended September 30
(Dollars in millions) 2018 2017 2018 2017
Derivative instruments not designated as hedging instruments:        
Interest rate contracts hedging:         
Residential MSRsMortgage servicing related income 
($54) 
$17
 
($210) 
$41
LHFS, IRLCsMortgage production related income 10
 (20) 57
 (57)
LHFIOther noninterest income 1
 —
 3
 (1)
Trading activityTrading income 18
 11
 48
 33
Foreign exchange rate contracts hedging loans and trading activityTrading income 9
 (10) 49
 (43)
Credit contracts hedging:         
LHFIOther noninterest income (5) (1) (5) (3)
Trading activityTrading income 5
 8
 16
 19
Equity contracts hedging trading activityTrading income 6
 (1) 8
 (1)
Other contracts:         
IRLCs and otherMortgage production related income,
Commercial real estate related income		 19
 49
 39
 154
Commodity derivativesTrading income —
 —
 —
 1
Total  
$9
 
$53
 
$5
 
$143


Notes to Consolidated Financial Statements (Unaudited), continued






Credit Derivative Instruments
As part of the Company's trading businesses, the Company enters into contracts that are, in form or substance, written guarantees; specifically, CDS, risk participations, and TRS. The Company accounts for these contracts as derivatives, and accordingly, records these contracts at fair value, with changes in fair value recognized in Trading income in the Consolidated Statements of Income.
At September 30, 2018, there were no purchased CDS contracts designated as trading instruments. At December 31, 2017, the gross notional amount of purchased CDS contracts designated as trading instruments was $5 million. The fair value of purchased CDS was immaterial at December 31, 2017.
The Company has also entered into TRS contracts on loans. The Company’s TRS business consists of matched trades, such that when the Company pays depreciation on one TRS, it receives the same amount on the matched TRS. To mitigate its credit risk, the Company typically receives initial cash collateral from the counterparty upon entering into the TRS and is entitled to additional collateral if the fair value of the underlying reference assets deteriorates. There were $1.9$2.2 billion and $1.7$2.0 billion of outstanding TRS notional balances at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The fair values of these TRS assets and liabilities at September 30, 2018March 31, 2019 were $25$37 million and $23$34 million, respectively, and related cash collateral held at September 30, 2018March 31, 2019 was $486$592 million. The fair values of the TRS assets and liabilities at December 31, 20172018 were $15$97 million and $13$94 million, respectively, and related cash collateral held at December 31, 20172018 was $368$601 million. For additional information on the Company'sCompany’s TRS contracts, see Note 10, "Certain11, “Certain Transfers of Financial Assets and Variable Interest
Entities,"” to the Consolidated Financial Statements in this Form 10-Q, as well as Note 16, "Fair20, “Fair Value Election and Measurement."Measurement,” to the Company’s 2018 Annual Report on Form 10-K.
The Company writes risk participations, which are credit derivatives, whereby the Company has guaranteed payment to a dealer counterparty in the event the counterparty experiences a loss on a derivative, such as an interest rate swap, due to a failure to pay by the counterparty’s customer (the “obligor”) on that derivative. The Company manages its payment risk on its risk participations by monitoring the creditworthiness of the obligors, which are all corporations or partnerships, through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. To date, no material losses have been incurred related to the Company’s written risk participations. At September 30, 2018,March 31, 2019, the remaining terms on these risk participations generally ranged from less than one year to 1110 years, with a weighted average term on the maximum estimated exposure of 6.4 years. At December 31, 2017,2018, the remaining terms on these risk participations generally ranged from less than one year to nine10 years, with a weighted average term on the maximum estimated exposure of 5.55.9 years. The Company’s maximum estimated exposure to written risk participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $230$234 million and $55$217 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The fair values of the written risk participations were immaterial at both September 30, 2018March 31, 2019 and December 31, 2017.2018.


Notes to Consolidated Financial Statements (Unaudited), continued








NOTE 1617 - FAIR VALUE ELECTION AND MEASUREMENT
The Company measures certain assets and liabilities at fair value, which are classified as level 1, 2, or 3 within the fair value hierarchy, as shown below, on the basis of whether the measurement employs observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions, taking into account information about market participant assumptions that is readily available.
•
Level 1: Quoted prices for identical instruments in active markets
•
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
•
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
Level 1: Quoted prices for identical instruments in active markets
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company’s recurring fair value measurements are based on either a requirement to measure such assets and liabilities at fair value or on the Company’s election to measure certain financial assets and liabilities at fair value. Assets and liabilities that are required to be measured at fair value on a recurring basis include trading securities, derivative instruments, securities AFS, and derivative financial instruments.certain other equity securities. Assets and liabilities that the Company has elected to measure at fair value on a recurring basis include itstrading loans, certain LHFS and LHFI, residential MSRs, trading loans, and certain LHFS, LHFI, brokered time deposits, and certain structured notes and fixed rate issuances included in long-term debt issuances.debt.
The Company elects to measure certain assets and liabilities at fair value to better align its financial performance with the economic value of actively traded or hedged assets or liabilities. The use of fair value also enables the Company to mitigate non-economic earnings volatility caused from financial assets and liabilities being measured using different bases of accounting, as well as to more accurately portray the active and dynamic management of the Company’s balance sheet.
The Company uses various valuation techniques and assumptions in estimating fair value. The assumptions used to
estimate the value of an instrument have varying degrees of
impact to the overall fair value of an asset or liability. This process involves gathering multiple sources of information, including broker quotes, values provided by pricing services, trading activity in other identical or similar securities, market indices, and pricing matrices. When observable market prices for the asset or liability are not available, the Company employs various modeling techniques, such as discounted cash flow analyses, to estimate fair value. Models used to produce material financial reporting information are validated prior to use and following any material change in methodology. Their performance is monitored at least quarterly, and any material deterioration in model performance is escalated.
The Company has formal processes and controls in place to support the appropriateness of its fair value estimates. For fair values obtained from a third party, or those that include certain trader estimates of fair value, there is an independent price validation function that provides oversight for these estimates. For level 2 instruments and certain level 3 instruments, the validation generally involves evaluating pricing received from two or more third party pricing sources that are widely used by market participants. The Company evaluates this pricing information from both a qualitative and quantitative perspective and determines whether any pricing differences exceed acceptable thresholds. If thresholds are exceeded, the Company assesses differences in valuation approaches used, which may include contacting a pricing service to gain further insight into the valuation of a particular security or class of securities to resolve the pricing variance, which could include an adjustment to the price used for financial reporting purposes.
The Company classifies instruments within level 2 in the fair value hierarchy when it determines that external pricing sources estimated fair value using prices for similar instruments trading in active markets. A wide range of quoted values from pricing sources may imply a reduced level of market activity and indicate that significant adjustments to price indications have been made. In such cases, the Company evaluates whether the asset or liability should be classified as level 3.
Determining whether to classify an instrument as level 3 involves judgment and is based on a variety of subjective factors, including whether a market is inactive. A market is considered inactive if significant decreases in the volume and level of activity for the asset or liability have been observed.


Notes to Consolidated Financial Statements (Unaudited), continued






Recurring Fair Value Measurements
The following tables present certain information regarding assets and liabilities measured at fair value on a recurring basis and the changes in fair value for those specific financial instruments for which fair value has been elected. For a discussion of the
valuation techniques and inputs used in estimating fair value for assets and liabilities measured at fair value on a recurring basis, see Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K.
September 30, 2018March 31, 2019
Fair Value Measurements    Fair Value Measurements    
(Dollars in millions)Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Level 1 Level 2 Level 3 
Netting
 Adjustments 1
 
Assets/Liabilities
at Fair Value
Assets                  
Trading assets and derivative instruments:                  
U.S. Treasury securities
$247
 
$—
 
$—
 
$—
 
$247

$258
 
$—
 
$—
 
$—
 
$258
Federal agency securities—
 507
 —
 —
 507
—
 281
 —
 —
 281
U.S. states and political subdivisions—
 91
 —
 —
 91
—
 33
 —
 —
 33
MBS - agency—
 743
 —
 —
 743
—
 814
 —
 —
 814
Corporate and other debt securities—
 820
 —
 —
 820
—
 889
 —
 —
 889
CP—
 408
 —
 —
 408
—
 283
 —
 —
 283
Equity securities67
 —
 —
 —
 67
71
 —
 —
 —
 71
Derivative instruments324
 2,942
 12
 (2,656) 622
384
 2,721
 23
 (2,100) 1,028
Trading loans—
 2,171
 —
 —
 2,171
Trading loans 2
—
 2,602
 —
 —
 2,602
Total trading assets and derivative instruments638
 7,682
 12
 (2,656) 5,676
713
 7,623
 23
 (2,100) 6,259
                  
Securities AFS:                  
U.S. Treasury securities4,133
 —
 —
 —
 4,133
4,259
 —
 —
 —
 4,259
Federal agency securities—
 223
 —
 —
 223
—
 142
 —
 —
 142
U.S. states and political subdivisions—
 602
 —
 —
 602
—
 593
 —
 —
 593
MBS - agency residential—
 22,505
 —
 —
 22,505
—
 23,210
 —
 —
 23,210
MBS - agency commercial—
 2,602
 —
 —
 2,602
—
 2,624
 —
 —
 2,624
MBS - non-agency commercial—
 905
 —
 —
 905
—
 1,012
 —
 —
 1,012
Corporate and other debt securities—
 14
 —
 —
 14
—
 13
 —
 —
 13
Total securities AFS 2
4,133
 26,851
 —
 —
 30,984
Total securities AFS4,259
 27,594
 —
 —
 31,853

                  
LHFS—
 1,822
 —
 —
 1,822
—
 1,059
 —
 —
 1,059
LHFI—
 —
 168
 —
 168
—
 —
 134
 —
 134
Residential MSRs—
 —
 2,062
 —
 2,062
—
 —
 1,883
 —
 1,883
Other assets 2
92
 —
 —
 —
 92
Other assets85
 —
 —
 —
 85
                  
Liabilities                  
Trading liabilities and derivative instruments:                  
U.S. Treasury securities742
 —
 —
 —
 742
873
 —
 —
 —
 873
MBS - agency—
 3
 —
 —
 3
Corporate and other debt securities—
 411
 —
 —
 411
—
 456
 —
 —
 456
Equity securities12
 —
 —
 —
 12
13
 —
 —
 —
 13
Derivative instruments132
 3,688
 9
 (3,131) 698
124
 2,673
 7
 (2,540) 264
Total trading liabilities and derivative instruments886
 4,099
 9
 (3,131) 1,863
1,010
 3,132
 7
 (2,540) 1,609
                  
Brokered time deposits—
 384
 —
 —
 384
—
 473
 —
 —
 473
Long-term debt—
 235
 —
 —
 235
—
 296
 —
 —
 296

1 Amounts represent offsetting cash collateral received from, and paid to, the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists. See Note 15, "Derivative16, “Derivative Financial Instruments,"” for additional information.
2Beginning January 1, 2018, At March 31, 2019, includes $2.2 billion of loans related to the Company reclassified equity securities previously presentedCompany’s TRS business, $91 million of loans related to the Company’s loan sales and trading business held in Securities available for sale to Other assets oninventory, and $309 million of loans backed by the Consolidated Balance Sheets. Reclassifications have been made to previously reported amounts for comparability. See Note 9, "Other Assets," for additional information.SBA held in inventory.


Notes to Consolidated Financial Statements (Unaudited), continued









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

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


Notes to Consolidated Financial Statements (Unaudited), continued






The following tables present the difference between fair value and the aggregate UPB for which the FVO has been elected for certain trading loans, LHFS, LHFI, brokered time deposits, and long-term debt instruments.
(Dollars in millions)
Fair Value at
March 31, 2019
 
Aggregate UPB at
March 31, 2019
 
Fair Value
Over/(Under)
Unpaid Principal
Assets:     
Trading loans
$2,602
 
$2,540
 
$62
LHFS:     
Accruing1,059
 1,024
 35
LHFI:     
Accruing130
 132
 (2)
Nonaccrual4
 5
 (1)

Liabilities:
     
Brokered time deposits473
 475
 (2)
Long-term debt296
 292
 4
      
(Dollars in millions)
Fair Value at
December 31, 2018
 
Aggregate UPB at
December 31, 2018
 

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

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

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

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

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

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



Notes to Consolidated Financial Statements (Unaudited), continued






The following tables present the changes in fair value of financial instruments for which the FVO has been elected. The tables do not reflect the change in fair value attributable to related economic hedges that the Company uses to mitigate market-related risks associated with the financial instruments. Generally, changes in the fair value of economic hedges are recognized in Trading income, Mortgage production related income, Mortgage
 
servicingTrading income, Mortgage related income, Commercial real estate related income, or Other noninterest income as appropriate, and are designed to partially offset the change in fair value of the financial instruments referenced in the tables below. The Company’s economic hedging activities are deployed at both the instrument and portfolio level.


Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
Fair Value Gain/(Loss) for the Three Months Ended
March 31, 2019 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income 
Mortgage Production Related
 Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
 
Trading
Income
 
Mortgage
Production
Related
Income 1
 
Mortgage
Servicing
Related
Income
 
Other
Noninterest
Income
 
Total
Changes in
Fair Values
Included in
 Earnings 2
Trading
Income
 
Mortgage
Related
Income 1
 
Other
Noninterest
Income
 
Total
Changes in
Fair Values
Included in
 Earnings 2
Assets:                          
Trading loans
$3
 
$—
 
$—
 
$—
 
$3
 
$10
 
$—
 
$—
 
$—
 
$10
LHFS—
 5
 —
 —
 5
 —
 (3) —
 —
 (3)
Trading loans 3

$7
 
$—
 
$—
 
$7
LHFS 4
—
 15
 —
 15
LHFI—
 —
 —
 (1) (1) —
 —
 —
 (4) (4)—
 —
 2
 2
Residential MSRs—
 3
 (11) —
 (8) —
 7
 15
 —
 22
—
 (160) —
 (160)
Liabilities:                          
Brokered time deposits(4) —
 —
 —
 (4) 6
 —
 —
 —
 6
(12) —
 —
 (12)
Long-term debt1
 —
 —
 —
 1
 6
 —
 —
 —
 6
(7) —
 —
 (7)
1 Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30,March 31, 2019, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three months ended March 31, 2019 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in Interest income or Interest expense in the Consolidated Statements of Income.
3 Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk for three months ended March 31, 2019.
4 Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for the three months ended March 31, 2019.

 
Fair Value Gain/(Loss) for the Three Months Ended
March 31, 2018 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading
Income		 
Mortgage
Related
Income 1
 Other
Noninterest
Income		 
Total
Changes in
Fair Values
Included in
Earnings 2
Assets:       
Trading loans 3

$2
 
$—
 
$—
 
$2
LHFS 4
—
 (13) —
 (13)
LHFI—
 —
 (2) (2)
Residential MSRs—
 59
 —
 59
Liabilities:       
Brokered time deposits7
 —
 —
 7
Long-term debt3
 —
 —
 3
1 Income related to LHFS does not include income from IRLCs. For the three months ended March 31, 2018, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three and nine months ended September 30,March 31, 2018 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in Interest income or Interest expense in the Consolidated Statements of Income.


 
Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2017 for Items Measured at Fair Value
Pursuant to Election of the FVO
 
Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2017 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)Trading Income 
Mortgage Production Related
 Income 1
 Mortgage Servicing Related Income Other Noninterest Income 
Total Changes in Fair Values Included in Earnings 2
 Trading
Income		 
Mortgage
Production
Related
Income 1
 Mortgage
Servicing
Related
Income		 Other
Noninterest
Income		 
Total
Changes in
Fair Values
Included in
Earnings 2
Assets:                   
Trading loans
$8
 
$—
 
$—
 
$—
 
$8
 
$16
 
$—
 
$—
 
$—
 
$16
LHFS—
 21
 —
 —
 21
 —
 44
 —
 —
 44
LHFI—
 —
 —
 —
 —
 —
 —
 —
 1
 1
Residential MSRs—
 1
 (70) —
 (69) —
 3
 (195) —
 (192)
Liabilities:                   
Brokered time deposits—
 —
 —
 —
 —
 2
 —
 —
 —
 2
Long-term debt5
 —
 —
 —
 5
 16
 —
 —
 —
 16
1 3Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2017, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM.
2 Changes in fair value for the three and nine months ended September 30, 2017 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in Interest income or Interest expense in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements (Unaudited), continued



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

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

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

Federal Agency Securities
The Company includes in this classification securities issued by federal agencies and GSEs. Agency securities consist of debt obligations issued by HUD, FHLB, and other agencies, as well as securities collateralized by loans that are guaranteed by the SBA, and thus, are backed by the full faith and credit of the U.S. government. For SBA instruments, the Company estimates fair value based on pricing from observable trading activity for similar securities or from a third party pricing service. Accordingly, these instruments are classified as level 2.
U.S. States and Political Subdivisions
The Company’s investments in U.S. states and political subdivisions (collectively “municipals”) include obligations of county and municipal authorities and agency bonds, which are general obligations of the municipality or are supported by a specified revenue source. Holdings are geographically dispersed, with no significant concentrations in any one state or municipality. Additionally, all AFS municipal obligations classified as level 2 are highly rated or are otherwise collateralized by securities backed by the full faith and credit of the federal government.
MBS – Agency
Agency MBS includes pass-through securities and collateralized mortgage obligations issued by GSEs and U.S. government agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae. Each security contains a guarantee by the issuing GSE or agency. For agency MBS, the Company estimates fair value based on pricing from observable trading activity for similar securities or from a third party pricing service; accordingly, the Company classified these instruments as level 2.
MBS – Non-Agency
Non-agency residential MBS includes purchased interests in third party securitizations, as well as retained interests in Company-sponsored securitizations of 2006 and 2007 vintage residential mortgages (including both prime jumbo fixed rate collateral and floating rate collateral). At the time of purchase or origination, these securities had high investment grade ratings; however, they have experienced deterioration in credit quality leading to downgrades to non-investment grade levels. The
Company obtains pricing for these securities from an independent pricing service. The Company evaluates third party pricing to determine the reasonableness of the information relative to changes in market data, such as any recent trades, information received from market participants and analysts, and/or changes in the underlying collateral performance. At December 31, 2017, the Company classified non-agency residential MBS as level 3.
Non-agency commercial MBS consists of purchased interests in third party securitizations. These interests have high investment grade ratings, and the Company obtains pricing for these securities from an independent pricing service. The Company has classified these non-agency commercial MBS as level 2, as the third party pricing service relies on observable data for similar securities in active markets.
Asset-Backed Securities
ABS classified as securities AFS includes purchased interests in third party securitizations collateralized by home equity loans. At December 31, 2017, the Company classified ABS as level 3.
Corporate and Other Debt Securities
Corporate debt securities are comprised predominantly of senior and subordinate debt obligations of domestic corporations and are classified as level 2. Other debt securities classified as AFS include bonds that are redeemable with the issuer at par. At September 30, 2018 and December 31, 2017, the Company classified other debt securities AFS as level 2 and level 3, respectively.
Commercial Paper
The Company acquires CP that is generally short-term in nature (maturity of less than 30 days) and highly rated. The Company estimates the fair value of this CP based on observable pricing from executed trades of similar instruments; as such, CP is classified as level 2.
Equity Securities
The Company estimates the fair value of its equity securities classified as trading assets based on quoted prices observed in active markets; accordingly, these investments are classified as level 1.

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



The Company's derivative instruments classified as level 2 are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. See Note 15, “Derivative Financial Instruments,” for additional information on the Company's derivative instruments.
The Company's derivative instruments classified as level 3 include IRLCs that satisfy the criteria to be treated as derivative financial instruments. The fair value of IRLCs on LHFS, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These “pull-through” rates are based on the Company’s historical data and reflect the Company’s best estimate of the likelihood that a commitment will result in a closed loan. As pull-through rates increase, the fair value of IRLCs also increases. Servicing value is included in the fair value of IRLCs, and the fair value of servicing is determined by projecting cash flows, which are then discounted to estimate an expected fair value. The fair value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. Because these inputs are not transparent in market trades, IRLCs are considered to be level 3 assets. During the three and nine months ended September 30, 2018, the Company transferred $26 million and $43 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed. During the three and nine months ended September 30, 2017, the Company transferred $51 million and $157 million, respectively, of net IRLC assets out of level 3, as the associated loans were closed.
Trading Loans
The Company engages in certain businesses whereby electing to measure loans at fair value for financial reporting aligns with the underlying business purpose. Specifically, loans included within this classification include trading loans that are (i) made or acquired in connection with the Company’s TRS business, (ii) part of the loan sales and trading business within the Company’s Wholesale segment, or (iii) backed by the SBA. See Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities," and Note 15, “Derivative Financial Instruments,” for further discussion of this business. All of these loans are classified as level 2 due to the nature of market data that the Company uses to estimate fair value.
The loans made in connection with the Company’s TRS business are short-term, senior demand loans supported by a pledge agreement granting first priority security interest to the Bank in all the assets held by the borrower, a VIE with assets comprised primarily of corporate loans. While these TRS-related loans do not trade in the market, the Company believes that the par amount of the loans approximates fair value and no unobservable assumptions are used by the Company to value these loans. At September 30, 2018 and December 31, 2017, the Company had $1.9 billion and $1.7 billion, respectively, of these short-term loans outstanding, measured at fair value.
The loans from the Company’s sales and trading business are commercial and corporate leveraged loans that are either traded in the market or for which similar loans trade. The Company elected to measure these loans at fair value since they
are actively traded. For each of the three and nine months ended September 30, 2018 and 2017, the Company recognized Includes an immaterial amount of gains/(losses)gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk. The Company is able to obtain fair value estimatesrisk for substantially all of these loans through a third party valuation service that is broadly used by market participants. While most of the loans are traded in the market, the Company does not believe that trading activity qualifies the loans as level 1 instruments, as the volume and level of trading activity is subject to variability and the loans are not exchange-traded. At September 30, 2018 and Decemberthree months ended March 31, 2017, $65 million and $48 million, respectively, of loans related to the Company’s trading business were held in inventory.2018.
SBA loans are similar to SBA securities discussed herein under “Federal agency securities,” except for their legal form. In both cases, the Company trades instruments that are fully guaranteed by the U.S. government as to contractual principal and interest and there is sufficient observable trading activity upon which to base the estimate of fair value. As these SBA loans are fully guaranteed, the changes in fair value are attributable to factors other than instrument-specific credit risk. At September 30, 2018 and December 31, 2017, the Company held $182 million and $368 million of SBA loans in inventory, respectively.
Loans Held for Sale and Loans Held for Investment
Residential Mortgage LHFS
The Company values certain newly-originated residential mortgage LHFS at fair value based upon defined product criteria. The Company chooses to fair value these residential mortgage LHFS to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. Any origination fees are recognized within Mortgage production related income in the Consolidated Statements of Income when earned at the time of closing. The servicing value is included in the fair value of the loan and is initially recognized at the time the Company enters into IRLCs with borrowers. The Company employs derivative instruments to economically hedge changes in interest rates and the related impact on servicing value in the fair value of the loan. The mark-to-market adjustments related to LHFS and the associated economic hedges are captured in Mortgage production related income.
LHFS classified as level 2 are primarily agency loans which trade in active secondary markets and are priced using current market pricing for similar securities, adjusted for servicing, interest rate risk, and credit risk. Non-agency residential mortgage LHFS are also included in level 2.
For residential mortgages that the Company has elected to measure at fair value, the Company recognized4 Includes an immaterial amount of gains/(losses)gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for each of the three and nine months ended September 30, 2018 and 2017. In addition to borrower-specific credit risk, there are other more significant variables that drive changes in the fair values of the loans, including interest rates and general market conditions.March 31, 2018.





Notes to Consolidated Financial Statements (Unaudited), continued





Commercial Mortgage LHFS
The Company values certain commercial mortgage LHFS at fair value based upon observable current market prices for similar loans. These loans are generally transferred to agencies within 90 days of origination. The Company had commitments from agencies to purchase these loans at September 30, 2018 and December 31, 2017; therefore, they are classified as level 2. Origination fees are recognized within Commercial real estate related income in the Consolidated Statements of Income when earned at the time of closing. To mitigate the effect of interest rate risk inherent in entering into IRLCs with borrowers, the Company enters into forward contracts with investors at the same time that it enters into IRLCs with borrowers. The mark-to-market adjustments related to commercial mortgage LHFS, IRLCs, and forward contracts are recognized in Commercial real estate related income. For commercial mortgages that the Company has elected to measure at fair value, the Company recognized no gains/(losses) in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for each of the three and nine months ended September 30, 2018 and 2017.
LHFI
LHFI classified as level 3 includes predominantly mortgage loans that are not marketable, largely due to the identification of loan defects. The Company chooses to measure these mortgage LHFI at fair value to better align reported results with the underlying economic changes in value of the loans and any related hedging instruments. The Company values these loans using a discounted cash flow approach based on assumptions that are generally not observable in current markets, such as prepayment speeds, default rates, loss severity rates, and discount rates. Level 3 LHFI also includes mortgage loans that are valued using collateral based pricing. Changes in the applicable housing price index since the time of the loan origination are considered and applied to the loan's collateral value. An additional discount representing the return that a buyer would require is also considered in the overall fair value.
Residential Mortgage Servicing Rights
The Company records residential MSR assets at fair value using a discounted cash flow approach. The fair values of residential MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs, and underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from independent third parties based on their review of the servicing portfolio, and comparisons to market transactions. Because these inputs are not transparent in market trades, residential MSRs are classified as level 3 assets. For additional information see Note 8, "Goodwill and Other Intangible Assets."
Other Assets
The Company estimates the fair value of its mutual fund investments and other equity securities with readily determinable fair values based on quoted prices observed in active markets; therefore, these investments are classified as level 1. During the second quarter of 2018, the Company reclassified $22 million of nonmarketable equity securities to
marketable equity securities due to newly available, readily determinable fair value information observed in active markets.
Liabilities
Trading Liabilities and Derivative Instruments
Trading liabilities are comprised primarily of derivative contracts, including IRLCs that satisfy the criteria to be treated as derivative financial instruments, as well as various contracts (primarily U.S. Treasury securities, corporate and other debt securities) that the Company uses in certain of its trading businesses. The Company's valuation methodologies for these derivative contracts and securities are consistent with those discussed within the corresponding sections herein under “Trading Assets and Derivative Instruments and Investment Securities.”
During the second quarter of 2009, in connection with its sale of Visa Class B shares, the Company entered into a derivative contract whereby the ultimate cash payments received or paid, if any, under the contract are based on the ultimate resolution of the Litigation involving Visa. The fair value of the derivative is estimated based on the Company’s expectations regarding the ultimate resolution of that Litigation. The significant unobservable inputs used in the fair value measurement of the derivative involve a high degree of judgment and subjectivity; accordingly, the derivative liability is classified as level 3. See Note 14, "Guarantees," for a discussion of the valuation assumptions.
Brokered Time Deposits
The Company has elected to measure certain CDs that contain embedded derivatives at fair value. This fair value election better aligns the economics of the CDs with the Company’s risk management strategies. The Company evaluated, on an instrument by instrument basis, whether a new issuance would be measured at fair value.
The Company has classified CDs measured at fair value as level 2 instruments due to the Company's ability to reasonably measure all significant inputs based on observable market variables. The Company employs a discounted cash flow approach based on observable market interest rates for the term of the CD and an estimate of the Bank's credit risk. For any embedded derivative features, the Company uses the same valuation methodologies as if the derivative were a standalone derivative, as discussed in the "Derivative Instruments" section above.
Long-Term Debt
The Company has elected to measure at fair value certain fixed rate issuances of public debt that are valued by obtaining price indications from a third party pricing service and utilizing broker quotes to corroborate the reasonableness of those marks. Additionally, information from market data of recent observable trades and indications from buy side investors, if available, are taken into consideration as additional support for the value. Due to the availability of this information, the Company classifies these debt issuances as level 2. The Company utilizes derivative instruments to convert interest rates on its fixed rate debt to floating rates. The Company elected to measure certain fixed rate debt issuances at fair value to align the accounting for the
Notes to Consolidated Financial Statements (Unaudited), continued



debt with the accounting for offsetting derivative positions, without having to apply complex hedge accounting.
The Company has elected to measure certain debt issuances that contain embedded derivatives at fair value. This fair value election better aligns the economics of the debt with the Company’s risk management strategies. The Company evaluated, on an instrument by instrument basis, whether a new issuance would be measured at fair value. The Company has classified these instruments measured at fair value as level 2
instruments due to the Company's ability to reasonably measure all significant inputs based on observable market variables. The Company employs a discounted cash flow approach based on observable market interest rates for the term of the debt and an estimate of the Parent Company's credit risk. For any embedded derivative features, the Company uses the same valuation methodologies that would be used if the derivative were a standalone derivative, as discussed in the "Derivative Instruments" section above.



The valuation technique and range, including weighted average, of the unobservable inputs associated with the Company'sCompany’s level 3 assets and liabilities are as follows:
  Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)
Fair value
September 30, 2018March 31, 2019
 Valuation Technique Unobservable Input 
Range
 (Weighted Average) 1
Assets       
Trading assets and derivative instruments:      
Derivative instruments, net 2


$316

 Internal model Pull through rate 40-100% (82%37-100% (81%)
 MSR value 28-17321-160 bps (116(112 bps)
LHFI162130

 Monte Carlo/Discounted cash flow Option adjusted spread 62-78462-250 bps (177(174 bps)
Conditional prepayment rate4-277-28 CPR (12(15 CPR)
Conditional default rate0-20-1 CDR (0.7(0.5 CDR)
64

Collateral based pricingAppraised value
NM 3
Residential MSRs2,0621,883

 Monte Carlo/Discounted cash flow Conditional prepayment rate 5-306-30 CPR (13 CPR)
 Option adjusted spread 0-113% (3%0-118% (2%)

1 Unobservable inputs were weighted by the relative fair value of the financial instruments.
2 Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company'sCompany’s sale of Visa shares. Refer to the "Trading“Trading Liabilities and Derivative Instruments"Instruments” section hereinin Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.
3 Not meaningful.
  Level 3 Significant Unobservable Input Assumptions
(Dollars in millions)
Fair value
December 31, 20172018
 Valuation Technique 
Unobservable Input1
 
Range
(Weighted Average) 21
Assets       
Trading assets and derivative instruments:      
Derivative instruments, net 32


$—13

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

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

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

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

1 For certain assets and liabilities where the Company utilizes third party pricing, the unobservable inputs and their ranges are not reasonably available, and therefore, have been noted as not applicable ("N/A").
2 Unobservable inputs were weighted by the relative fair value of the financial instruments.
32 Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Company'sCompany’s sale of Visa shares. Refer to the "Trading“Trading Liabilities and Derivative Instruments"Instruments” section hereinin Note 20, “Fair Value Election and Measurement,” to the Company's 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability.
43 Not meaningful.


Notes to Consolidated Financial Statements (Unaudited), continued






The following tables present a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (other than servicing rightsresidential MSRs which are disclosed in Note 8, “Goodwill and Other Intangible Assets”). Transfers into and out
 
of the fair value hierarchy levels are assumed to occur at the end of the period in which the transfer occurred. None of the transfers into or out of level 3 have been the result of using alternative valuation approaches to estimate fair values.


 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2019		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
March 31,
2019
Assets                   
Trading assets:                   
Derivative instruments, net
$13
 
$35
1 

$—
 
$—
 
$—
 
($1) 
($31)
2 

$—
 
$—
 
$16
                    
LHFI163
 2
3 
—
 —
 —
 (7) —
 1
 (25) 134

 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
July 1,
2018		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
September 30,
2018
Assets                   
Trading assets:                   
Derivative instruments, net
$3
 
$18
1 

$—
 
$—
 
$—
 
$8
 
($26) 
$—
 
$—
 
$3
                    
LHFI177
 —
2 
—
 —
 —
 (9) —
 —
 —
 168


 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2018		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
September 30,
2018
Assets                   
Trading assets:                   
Derivative instruments, net
$—
 
$36
1 

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

—
 —
 —
 (3) —
 —
 (69) —
                    
LHFI196
 (3)
2 
—
 —
 —
 (26) —
 1
 —
 168
1Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage production related income, amount related to commercial IRLCs is recognized in Commercial real estate related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $10 million and $7$22 million in earnings during the three and nine months ended September 30, 2018, respectively,March 31, 2019, related to changes in unrealized gains on net derivative instruments still held at September 30, 2018.March 31, 2019.
2During the three months ended March 31, 2019, the Company transferred $31 million of net IRLC assets out of level 3 as the associated loans were closed.
3 Amounts are generally included in Mortgage production related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $4$1 million in earnings during the three and nine months ended September 30, 2018, respectively,March 31, 2019, related to changes in unrealized lossesgains on LHFI still held at September 30, 2018.March 31, 2019.


Notes to Consolidated Financial Statements (Unaudited), continued
 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2018		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
March 31,
2018
Assets                   
Trading assets:                   
Derivative instruments, net
$—
 
($6)
1 

$—
 
$—
 
$—
 
$1
 
$6
2 

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

—
 —
 —
 (3) —
 —
 (69) —
                    
LHFI196
 (2)
3 
—
 —
 —
 (7) —
 1
 —
 188





 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
July 1,
2017		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
September 30,
2017
Assets                   
Trading assets:                   
Derivative instruments, net
$4
 
$52
1 

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


 
Fair Value Measurements
Using Significant Unobservable Inputs
(Dollars in millions)Beginning
Balance
January 1,
2017		 Included
in
Earnings		 OCI Purchases Sales Settlements Transfers to/from Other Balance Sheet Line Items Transfers
into
Level 3		 Transfers
out of
Level 3		 Fair Value
September 30,
2017
Assets                   
Trading assets:                   
Derivative instruments, net
$6
 
$157
1 

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

1
2 
—
 —
 (19) —
 —
 —
 75
                    
Residential LHFS12
 —
 —
 —
 (22) (1) (3) 17
 (2) 1
LHFI222
 1
3 
—
 —
 —
 (24) 3
 4
 —
 206
1 Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage production related income, amount related to commercial IRLCs is recognized in Commercial real estate related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $19 million and $17$16 million in earnings during the three and nine months ended September 30, 2017, respectively,March 31, 2018, related to changes in unrealized gains on net derivative instruments still held at September 30, 2017.March 31, 2018.
2 Amounts recognized in OCI are included in change inDuring the three months ended March 31, 2018, the Company transferred $6 million of net unrealized gains on securities AFS, netIRLC liabilities out of tax.level 3 as the associated loans were closed.
3 Amounts are generally included in Mortgage production related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $1$3 million in earnings during the three and nine months ended September 30, 2017, respectively,March 31, 2018, related to changes in unrealized gainslosses on LHFI still held at September 30, 2017.March 31, 2018.




Notes to Consolidated Financial Statements (Unaudited), continued






Non-recurring Fair Value Measurements
The following tables present gains and losses recognized on assets still held at period end, and measured at fair value on a non-recurring basis, for the three and nine months ended September 30, 2018March 31, 2019 and the year ended December 31, 2017.2018. Adjustments to fair value generally result from the application of LOCOM, or the
 
of LOCOM, or the measurement alternative, or through write-downs of individual assets. The tables do not reflect changes in fair value attributable to economic hedges the Company may have used to mitigate interest rate risk associated with LHFS.
   Fair Value Measurements Losses for the
Three Months Ended March 31, 2019
(Dollars in millions)March 31, 2019 Level 1 Level 2 Level 3 
LHFS
$74
 
$—
 
$10
 
$64
 
$—
LHFI66
 —
 —
 66
 —
OREO13
 —
 —
 13
 (2)
Other assets17
 —
 —
 17
 (3)
          
   Fair Value Measurements 
(Losses)/Gains for the
Year Ended
December 31, 2018
(Dollars in millions)December 31, 2018 Level 1 Level 2 Level 3 
LHFS
$47
 
$—
 
$47
 
$—
 
($1)
LHFI63
 —
 —
 63
 —
OREO19
 —
 —
 19
 (4)
Other assets67
 —
 47
 20
 24

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


Discussed below are the valuation techniques and inputs used in estimating fair values for assets measured at fair value on a non-recurring basis and classified as level 2 and/or 3.
Loans Held for Sale
At September 30, 2018March 31, 2019 and December 31, 2017,2018, LHFS classified as level 2 consisted of commercial loans that were valued using market prices and measured at LOCOM. During both the three months ended March 31, 2019 and the year ended December 31, 2018, the Company recognized an immaterial amount of impairment charges attributable to changes in the fair value of LHFS.
During the three months ended March 31, 2019, the Company transferred $64 million of C&I NPLs from LHFI to LHFS and recognized $16 million in charge-offs to reflect the loans’ estimated market value. There were no gains/(losses) recognized in earnings during the three and nine months ended September 30, 2018 or during the year ended DecemberMarch 31, 20172019, as the charge-offs related to these loans arewere a component of the ALLL.


Loans Held for Investment
At September 30, 2018March 31, 2019 and December 31, 2017,2018, LHFI classified as level 3 consisted primarily of consumer loans discharged in Chapter 7 bankruptcy that had not been reaffirmed by the borrower, as well as nonperforming CRE loans for which specific reserves had been recognized.borrower. Cash proceeds from the sale of the underlying collateral is the expected source of repayment for a majority of these loans. Accordingly, the fair value of these loans is derived from the estimated fair value of the underlying collateral, incorporating market data if available. Due to the lack of market data for similar assets, all of these loans are classified as level 3. There were no gains/(losses) recognized during the three and nine months ended September 30, 2018March 31, 2019 or during the year ended December 31, 2017,2018, as the charge-offs related to these loans are a component of the ALLL.


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


Other Assets
Other assets consist of equity investments, other repossessed assets, assets under operating leases where the Company is the lessor, branch properties, and land held for sale, and software.sale.
Pursuant to the adoption of ASU 2016-01 on January 1, 2018, theThe Company elected the measurement alternative for measuring certain equity securities without readily determinable fair values, which are adjusted based on any observable price changes in orderly transactions. These equity securities are classified as level 2 based on the valuation methodology and associated inputs. There were no remeasurement gains/(losses) recognized during the three months ended March 31, 2019 on these equity securities. During the three and nine monthsyear ended September 30,December 31, 2018, the Company recognized remeasurement gains of $7 million and $30 million on these equity securities, respectively.
Prior to the adoption of ASU 2016-01, equity investments were evaluated for potential impairment based on the expected remaining cash flows to be received from these assets discounted at a market rate that is commensurate with the expected risk, considering relevant company-specific valuation multiples, where applicable. Based on the valuation methodology and associated unobservable inputs, these investments are classified as level 3. During the year ended December 31, 2017, the Company recognized an immaterial amount of impairment charges on its equity investments.securities.
Other repossessed assets include repossessed personal property that is measured at fair value less cost to sell. These assets are classified as level 3 as their fair value is determined based on a variety of subjective, unobservable factors. There were no losses recognized in earnings by the Company on other repossessed assets during the three and nine months ended September 30, 2018March 31, 2019 or during the year ended December 31, 2017,
Notes to Consolidated Financial Statements (Unaudited), continued



2018, as the impairment charges on repossessed personal property were a component of the ALLL.
The Company monitors the fair value of assets under operating leases where the Company is the lessor and recognizes impairment on the leased asset to the extent the carrying value is not recoverable and is greater than its fair value. Fair value is determined using collateral specific pricing digests, external
Notes to Consolidated Financial Statements (Unaudited), continued



appraisals, broker opinions, recent sales data from industry equipment dealers, and the discounted cash flows derived from the underlying lease agreement. As market data for similar assets and lease arrangements is available and used in the valuation, these assets are considered level 2. During each ofNo impairment charges were recognized during the three and nine months ended September 30, 2018 andMarch 31, 2019 attributable to changes in the fair value of various personal property under operating leases. During the year ended December 31, 2017,2018, the Company recognized an immaterial amount of impairment charges attributable to changes in the fair value of various personal property under operating leases.
Branch properties are classified as level 3, as their fair value is based on property-specific appraisals and broker opinions. The
Company recognized an immaterial amount of impairment charges on
branch properties during the three and nine months ended September 30, 2018.March 31, 2019. During the year ended December 31, 2017,2018, the Company recognized impairment charges of $10$5 million on branch properties.
Land held for sale is recorded at the lesser of carrying value or fair value less cost to sell, and is considered level 3 as its fair value is determined based on property-specific appraisals and broker opinions. The Company recognized no impairment charges on land held for sale during the three and nine months ended September 30, 2018.March 31, 2019. During the year ended December 31, 2017,2018, the Company recognized an immaterial amount of impairment charges on land held for sale.
Software consisted primarily of external software licenses and internally developed software that were impaired and for which fair value was determined using a level 3 measurement. This resulted in impairment charges of $8 million during the nine months ended September 30, 2018, and $28 million during the year ended December 31, 2017. No impairment charges were recognized during the three months ended September 30, 2018.


Notes to Consolidated Financial Statements (Unaudited), continued






Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments are as follows:
 September 30, 2018 Fair Value Measurements March 31, 2019 Fair Value Measurements
(Dollars in millions)
Measurement
Category
 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
Measurement
Category
 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
Financial assets:                    
Cash and cash equivalentsAmortized cost 
$7,605
 
$7,605
 
$7,605
 
$—
 
$—
Amortized cost 
$5,932
 
$5,932
 
$5,932
 
$—
 
$—
Trading assets and derivative instrumentsFair value 5,676
 5,676
 638
 5,026
 12
Fair value 6,259
 6,259
 713
 5,523
 23
Securities AFSFair value 30,984
 30,984
 4,133
 26,851
 —
Fair value 31,853
 31,853
 4,259
 27,594
 —
LHFSAmortized cost 139
 142
 —
 110
 32
Amortized cost 722
 768
 —
 512
 256
Fair value 1,822
 1,822
 —
 1,822
 —
Fair value 1,059
 1,059
 —
 1,059
 —
LHFI, netAmortized cost 145,424
 144,480
 —
 —
 144,480
Amortized cost 153,456
 153,039
 —
 —
 153,039
Fair value 168
 168
 —
 —
 168
Fair value 134
 134
 —
 —
 134
Other 1
Amortized cost 545
 545
 —
 —
 545
Amortized cost 769
 769
 —
 —
 769
Fair value 92
 92
 92
 —
 —
Fair value 85
 85
 85
 —
 —
Financial liabilities:                    
Consumer and other time depositsAmortized cost 15,166
 14,889
 —
 14,889
 —
Amortized cost 16,108
 15,891
 —
 15,891
 —
Brokered time depositsAmortized cost 662
 738
 —
 738
 —
Amortized cost 587
 564
 —
 564
 —
Fair value 384
 384
 —
 384
 —
Fair value 473
 473
 —
 473
 —
Short-term borrowingsAmortized cost 7,940
 7,940
 —
 7,940
 —
Amortized cost 10,390
 10,390
 —
 10,390
 —
Long-term debtAmortized cost 14,054
 14,125
 —
 12,396
 1,729
Amortized cost 17,099
 17,244
 —
 15,538
 1,706
Fair value 235
 235
 —
 235
 —
Fair value 296
 296
 —
 296
 —
Trading liabilities and derivative instrumentsFair value 1,863
 1,863
 886
 968
 9
Fair value 1,609
 1,609
 1,010
 592
 7
1 Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values.


 December 31, 2017 Fair Value Measurements December 31, 2018 Fair Value Measurements
(Dollars in millions)Measurement Category 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
Measurement
Category
 
Carrying
Amount
 
Fair
Value
 Level 1 Level 2 Level 3
Financial assets:                    
Cash and cash equivalentsAmortized cost 
$6,912
 
$6,912
 
$6,912
 
$—
 
$—
Amortized cost 
$7,495
 
$7,495
 
$7,495
 
$—
 
$—
Trading assets and derivative instrumentsFair value 5,093
 5,093
 608
 4,469
 16
Fair value 5,506
 5,506
 521
 4,965
 20
Securities AFSFair value 30,947
 30,947
 4,331
 26,544
 72
Fair value 31,442
 31,442
 4,211
 27,231
 —
LHFSAmortized cost 713
 716
 —
 662
 54
Amortized cost 290
 291
 —
 261
 30
Fair value 1,577
 1,577
 —
 1,577
 —
Fair value 1,178
 1,178
 —
 1,178
 —
LHFI, netAmortized cost 141,250
 141,379
 —
 —
 141,379
Amortized cost 150,061
 148,167
 —
 —
 148,167
Fair value 196
 196
 —
 —
 196
Fair value 163
 163
 —
 —
 163
Other 1
Amortized cost 418
 418
 —
 —
 418
Amortized cost 630
 630
 —
 —
 630
Fair value 56
 56
 56
 —
 —
Fair value 95
 95
 95
 —
 —
Financial liabilities:                    
Consumer and other time depositsAmortized cost 12,076
 11,906
 —
 11,906
 —
Amortized cost 15,355
 15,106
 —
 15,106
 —
Brokered time depositsAmortized cost 749
 725
 —
 725
 —
Amortized cost 642
 615
 —
 615
 —
Fair value 236
 236
 —
 236
 —
Fair value 403
 403
 —
 403
 —
Short-term borrowingsAmortized cost 4,781
 4,781
 —
 4,781
 —
Amortized cost 8,772
 8,772
 —
 8,772
 —
Long-term debtAmortized cost 9,255
 9,362
 —
 8,304
 1,058
Amortized cost 14,783
 14,729
 —
 13,024
 1,705
Fair value 530
 530
 —
 530
 —
Fair value 289
 289
 —
 289
 —
Trading liabilities and derivative instrumentsFair value 1,283
 1,283
 769
 498
 16
Fair value 1,604
 1,604
 925
 672
 7
1 Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values.


Unfunded loan commitments and letters of credit are not included in the table above. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had $71.1$72.5 billion and $66.4$72.0 billion, respectively, of unfunded commercial loan commitments and letters of credit. A reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related unfunded commitments reserve, which was a combinedtotaled $68 million and
 
$74 million and $8472 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. No active trading market exists for these instruments, and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair values of consumer unfunded lending commitments which can generally be canceled by providing notice to the borrower.


Notes to Consolidated Financial Statements (Unaudited), continued






NOTE 1718 – CONTINGENCIES
Litigation and Regulatory Matters
In the ordinary course of business, the Company and its subsidiaries are parties to numerous civil claims and lawsuits and subject to regulatory examinations, investigations, and requests for information. Some of these matters involve claims for substantial amounts. The Company’s experience has shown that the damages alleged by plaintiffs or claimants are often overstated, based on unsubstantiated legal theories, unsupported by facts, and/or bear no relation to the ultimate award that a court might grant. Additionally, the outcome of litigation and regulatory matters and the timing of ultimate resolution are inherently difficult to predict. These factors make it difficult for the Company to provide a meaningful estimate of the range of reasonably possible outcomes of claims in the aggregate or by individual claim. However, on a case-by-case basis, reserves are established for those legal claims in which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. The Company's financial statements at September 30, 2018March 31, 2019 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved.
For a limited number of legal matters in which the Company is involved, the Company is able to estimate a range of reasonably possible losses in excess of related reserves, if any. Management currently estimates these losses to range from $0 to approximately $160$150 million. This estimated range of reasonably possible losses represents the estimated possible losses over the life of such legal matters, which may span a currently indeterminable number of years, and is based on information available at September 30, 2018.March 31, 2019. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from this estimate. Those matters for which an estimate is not possible are not included within this estimated range; therefore, this estimated range does not represent the Company’s maximum loss exposure. Based on current knowledge, it is the opinion of management that liabilities arising from legal claims in excess of the amounts currently reserved, if any, will not have a material impact on the Company’s financial condition, results of operations, or cash flows. However, in light of the significant uncertainties involved in these matters and the large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s financial condition, results of operations, or cash flows for any given reporting period.
The following is a description of certain litigation and regulatory matters:
Card Association Antitrust Litigation
The Company is a defendant, along with Visa and Mastercard, as well as several other banks, in several antitrust lawsuits challenging their practices. For a discussion regarding the Company’s involvement in this litigation matter, see Note 14,15, “Guarantees.”


Bickerstaff v. SunTrust Bank
This case was filed in the Fulton County State Court on July 12, 2010, and an amended complaint was filed on August 9, 2010.
Plaintiff asserts that all overdraft fees charged to his account which related to debit card and ATM transactions are actually interest charges and therefore subject to the usury laws of Georgia. Plaintiff has brought claims for violations of civil and criminal usury laws, conversion, and money had and received, and purports to bring the action on behalf of all Georgia citizens who incurred such overdraft fees within the four years before the complaint was filed where the overdraft fee resulted in an interest rate being charged in excess of the usury rate. On April 8, 2013, the plaintiff filed a motion for class certification and that motion was denied but the ruling was later reversed and remanded by the Georgia Supreme Court. On October 6, 2017, the trial court granted plaintiff's motion for class certification and the decision was affirmed by the Georgia Court of Appeals on March 6, 2019. The Bank filed an appeal ofa petition with the decisionGeorgia Supreme Court on November 3, 2017.April 15, 2019, asking the court to review the decision.
Mutual Funds ERISA Class Action
On March 11, 2011, the Company and certain officers, directors, and employees of the Company were named in a putative class action alleging that they breached their fiduciary duties under ERISA by offering certain STI Classic Mutual Funds as investment options in the Plan. The plaintiffs purport to represent all current and former Plan participants who held the STI Classic Mutual Funds in their Plan accounts from April 2002 through December 2010 and seek to recover alleged losses these Plan participants supposedly incurred as a result of their investment in the STI Classic Mutual Funds. This action is pending in the U.S. District Court for the Northern District of Georgia, Atlanta Division (the “District Court”). Subsequently, plaintiffs' counsel initiated a substantially similar lawsuit against the Company naming two new plaintiffs. On June 27, 2014, Brown, et al. v. SunTrust Banks, Inc., et al., another putative class action alleging breach of fiduciary duties associated with the inclusion of STI Classic Mutual Funds as investment options in the Plan,was filed in the U.S. District Court for the District of Columbia but then was transferred to the District Court.
After various appeals, the cases were remanded to the District Court. On March 25, 2016, a consolidated amended complaint was filed, consolidating all of these pending actions into one case. The Company filed an answer to the consolidated amended complaint on June 6, 2016. Subsequent to the closing of fact discovery, plaintiffs filed their second amended consolidated complaint on December 19, 2017 which among other things named five new defendants. On January 2, 2018, defendants filed their answer to the second amended consolidated complaint. Defendants' motion for partial summary judgment was filed on January 12, 2018, and on January 16, 2018 the plaintiffs filed for motion for class certification. Defendants' motion for partial summary judgment was granted by the District Court on May 2, 2018, which held that all claims prior to March 11, 2005 have been dismissed as well as dismissing three individual defendants from action. On June 27, 2018, the District Court granted the plaintiffs' motion for class certification. An additionalOn March 29, 2019, the District Court dismissed RidgeWorth Capital Management, Inc. from the lawsuit. A motion for partial summary judgment wasas to successor liability and a separate motion for summary judgment seeking dismissal of the remaining claims have been filed by the defendants on October 5, 2018.and are pending.
Notes to Consolidated Financial Statements (Unaudited), continued






Intellectual Ventures II v. SunTrust Banks, Inc. and SunTrust Bank
This action was filed in the U.S. District Court for the Northern District of Georgia on July 24, 2013. Plaintiff alleged that SunTrust violatesviolated five patents held by plaintiff in connection with SunTrust’s provision of online banking services and other systems and services. Plaintiff seeks damages for alleged patent infringement of an unspecified amount, as well as attorney’s fees and expenses. The matter was stayed on October 7, 2014 pending inter partes reviews of a number of the claims asserted against SunTrust. After completion of those reviews, plaintiff dismissed its claims regarding four of the five patents on August 1, 2017. On February 26, 2019, plaintiff dismissed all of its remaining claims.

United States Mortgage Servicing Settlement
In the second quarter of 2014, STM and the U.S., through the DOJ, HUD, and Attorneys General for several states, reached a final settlement agreement related to the National Mortgage Servicing Settlement. The settlement agreement became effective on September 30, 2014 when the court entered the Consent Judgment. Pursuant to the settlements, STM made $50 million in cash payments, provided $500 million of consumer relief, and implemented certain mortgage servicing standards. In an August 10, 2017 report, the independent Office of Mortgage Settlement Oversight ("OMSO"), appointed to review and certify compliance with the provisions of the settlement, confirmed that STM fulfilled its consumer relief commitments of the settlement. STM's mortgage servicing standard obligations concluded on March 31, 2018. On August 22, 2018, the OMSO issued its final compliance report confirming that STM completed its obligations under the settlement.

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


Millennium Lender Claim Trust v. STRH and SunTrust Bank, et al.
In August 2017, the Trustee of the Millennium Lender Claim Trust filed a suit in the New York State Court against STRH, SunTrustthe Bank, and other lenders of the $1.775 B Millennium Health LLC f/k/a Millennium Laboratories LLC (“Millennium”) syndicated loan. The Trustee alleges that the loan was actually a security and that defendants misrepresented or omitted to state material facts in the offering materials and communications provided concerning the legality of Millennium's sales, marketing, and billing practices and the known risks posed by a pending government investigation into the illegality of such practices. The Trustee brings claims for violation of the California Corporate Securities Law, the Massachusetts Uniform Securities Act, the Colorado Securities
Act, and the Illinois Securities Law, as well as negligent misrepresentation and seeks rescission of sales of securities as well as unspecified rescissory damages, compensatory damages, punitive damages, interest, and attorneys' fees and costs. The defendants have removed the case to the U.S. District Court for the Southern District of New York and Trustee's motion to remand the case back to state court was denied. The defendants filed a motion to dismiss the claims on April 12, 2019.
SunTrust and BB&TMerger Litigation
Following the Merger announcement, five civil actions were filed challenging, among other things, the adequacy of the disclosures contained in the preliminary proxy statement/prospectus filed by BB&T with the SEC in connection with the proposed transaction. Four of these suits were filed by purported SunTrust stockholders against SunTrust and its Board and assert claims under Sections 14(a) and 20(a) of the Exchange Act challenging the adequacy of the public disclosures made concerning the proposed transaction. One of these suits asserts a claim against BB&T under Section 20(a). The fifth suit was filed by a purported BB&T stockholder against BB&T and its board of directors and asserts claims under state law challenging, among other things, the adequacy of the public disclosures made concerning the proposed transaction. The plaintiffs in these actions seek, among other things, an injunction preventing consummation of the proposed transaction, rescission of the proposed transaction or damages in the event it is consummated, and the award of attorneys' fees and expenses. SunTrust believes the claims asserted in these actions are without merit.


Notes to Consolidated Financial Statements (Unaudited), continued



NOTE 1819 - BUSINESS SEGMENT REPORTING
The Company operates and measures business activity across two segments: Consumer and Wholesale, with functional activities included in Corporate Other.Other. The Company's business segment structure is based on the manner in which financial information is evaluated by management as well as the products and services provided or the type of client served. In the second quarter of 2018, certain business banking clients within Commercial Banking were transferred from the Wholesale segment to the Consumer segment to create greater consistency in delivering tailored solutions to business banking clients through the alignment of client coverage and client service in branches. Prior period business segment results were revised to conform with this updated business segment structure. Additionally, the transfer resulted in a reallocation of goodwill from Wholesale to Consumer, as disclosed in Note 8, "Goodwill and Other Intangible Assets."
The following is a description of the segments and their primary businesses at September 30, 2018.March 31, 2019.


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



The Wholesale segment is made up of three primary businesses and the Treasury & Payment Solutions product group:
•
CIB delivers comprehensive capital markets solutions, including advisory, capital-raising, and financial risk management, with the goal of serving the needs of both public and private companies in the Wholesale segment and PWM business. Investment Banking and Corporate Banking teams within CIB serve clients across the nation, offering a full suite of traditional banking and investment banking products and services to companies with annual revenues typically greater than $150 million. Investment Banking serves select industry segments including consumer and retail, energy, technology, financial services, healthcare, industrials, and media and communications. Corporate Banking serves clients across diversified industry sectors based on size, complexity, and frequency of capital markets issuance. CIB also includes the Company's Asset Finance Group, which offers a full complement of asset-based financing solutions such as securitizations, asset-based lending, equipment financing, and structured real estate arrangements.
•
Commercial Banking offers an array of traditional banking products, including lending, cash management, and investment banking solutions via CIB, to commercial clients (generally clients with revenues between $5 million and $250 million), including not-for-profit organizations, governmental entities, healthcare and aging services, and auto dealer financing (floor plan inventory financing). Local teams deliver these solutions along with the Company's industry expertise to commercial clients to help them achieve smart growth.
•
Commercial Real Estate provides a range of credit and deposit services as well as fee-based product offerings on a regional delivery basis to privately held developers, operators, and investors in commercial real estate properties through its National Banking Division. Commercial Real Estate also provides multi-family agency lending and servicing, advisory, and commercial mortgage brokerage services via its Agency Lending division. Additionally, Commercial Real Estate offers tailored financing and equity investment solutions for community development and affordable housing projects through STCC, with particular expertise in Low Income Housing Tax Credits and New Market Tax Credits. Real Estate Corporate and Investment Banking targets relationships with REITs and homebuilders, both publicly-traded and privately owned. The Investor Services Group offers loan administration, special servicing, valuation, and advisory services to third party clients.
•
Treasury & Payment Solutions provides business clients in the Wholesale segment with services required to manage their payments and receipts, combined with the ability to manage and optimize their deposits across all aspects of their business. Treasury & Payment Solutions operates all electronic and paper payment types, including card, wire transfer, ACH, check, and cash. It also provides clients the means to manage their accounts electronically online, both domestically and internationally.
CIB delivers comprehensive capital markets solutions, including advisory, capital raising, and financial risk management, with the goal of serving the needs of both public and private companies in the Wholesale segment and PWM business. Investment Banking and Corporate Banking teams within CIB serve clients across the nation, offering a full suite of traditional banking and investment banking products and services to companies with annual revenues typically greater than $150 million. Investment Banking serves select industry segments including consumer and retail, energy, technology, financial services, healthcare, industrials, and media and communications. Corporate Banking serves clients across diversified industry sectors based on size, complexity, and frequency of capital markets issuance. CIB also includes the Company's Asset Finance Group, which offers a full complement of asset-based financing solutions such as securitizations, asset-based lending, equipment financing, and structured real estate arrangements.
Commercial Banking offers an array of traditional banking products, including lending, cash management, and investment banking solutions via CIB, to commercial clients (generally clients with revenues between $5 million and $250 million), including not-for-profit organizations, governmental entities, healthcare and aging services, and auto dealer financing (floor plan inventory financing). Local teams deliver these solutions along with the Company's industry expertise to commercial clients to help them achieve smart growth.
Commercial Real Estate provides a range of credit and deposit services as well as fee-based product offerings to privately held real estate companies and institutional funds operating within the office, retail, multifamily, and industrial property sectors. Commercial Real Estate also provides multi-family agency lending and servicing, advisory, and commercial mortgage brokerage services via its Agency Lending division. Additionally, Commercial Real Estate offers tailored financing and equity investment

Notes to Consolidated Financial Statements (Unaudited), continued



solutions for community development and affordable housing projects through STCC, with particular expertise in Low Income Housing Tax Credits and New Market Tax Credits. The Institutional Property Group business targets relationships with REITs, pension fund advisors, private funds, homebuilders, and insurance companies and the Regional business focuses on private real estate owners and developers through a regional delivery structure. The Investor Services Group offers loan administration, special servicing, valuation, and advisory services to third party clients.
Treasury & Payment Solutions provides business clients in the Wholesale segment with services required to manage their payments and receipts, combined with the ability to manage and optimize their deposits across all aspects of their business. Treasury & Payment Solutions operates all electronic and paper payment types, including card, wire transfer, ACH, check, and cash. It also provides clients the means to manage their accounts electronically online, both domestically and internationally.

Corporate Other includes management of the Company’s investment securities portfolio, long-term debt, end user derivative instruments, short-term liquidity and funding activities, balance sheet risk management, and most real estate assets, as well as the Company's functional activities such as marketing, finance, ER,enterprise risk, legal, enterprise information services, and executive management, among others. Additionally, for all periods prior to January 1, 2018, the results of PAC were reported in the Wholesale segment and were reclassified to Corporate Other for enhanced comparability of the Wholesale segment results excluding PAC. See Note 2, "Acquisitions/Dispositions," in the Company's 2017 Annual Report on Form 10-K for additional information related to the sale of PAC in December 2017.
Because business segment results are presented based on management accounting practices, the transition to the consolidated results prepared under U.S. GAAP creates certain differences, which are reflected in reconciling items. Business segment reporting conventions are described below.
Net interest income-FTE – is reconciled from Net interest income and is grossed-up on an FTE basis to make income from tax-exempt assets comparable to other taxable
products. Segment results reflect matched maturity funds transfer pricing, which ascribes credits or charges based on the economic value or cost created by assets and liabilities of each segment. Differences between these credits and charges are captured as reconciling items.
Provision for credit losses – represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to each segment's quarterly change in the ALLL and unfunded commitments reserve balances.
Noninterest income – includes federal and state tax credits that are grossed-up on a pre-tax equivalent basis, related primarily to certain community development investments.
Provision for income taxes-FTE – is calculated using a blended income tax rate for each segment and includes reversals of the tax adjustments and credits described above. The difference between the calculated provision for income taxes at the segment level and the consolidated provision for income taxes is reported as reconciling items.
•
Net interest income-FTE – is reconciled from Net interest income and is grossed-up on an FTE basis to make income from tax-exempt assets comparable to other taxable products. Segment results reflect matched maturity funds transfer pricing, which ascribes credits or charges based on the economic value or cost created by assets and liabilities of each segment. Differences between these credits and charges are captured as reconciling items.
•
Provision for credit losses – represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to each segment's quarterly change in the ALLL and unfunded commitments reserve balances.
•
Noninterest income – includes federal and state tax credits that are grossed-up on a pre-tax equivalent basis, related primarily to certain community development investments.
•
Provision for income taxes-FTE – is calculated using a blended income tax rate for each segment and includes reversals of the tax adjustments and credits described above. The difference between the calculated provision for income taxes at the segment level and the consolidated provision for income taxes is reported as reconciling items.
The segment’s financial performance is comprised of direct financial results and allocations for various corporate functions that provide management an enhanced view of the segment’s financial performance. Internal allocations include the following:
Operational costs – expenses are charged to segments based on an activity-based costing process, which also allocates residual expenses to the segments. Generally, recoveries of these costs are reported in Corporate Other.
Support and overhead costs – expenses not directly attributable to a specific segment are allocated based on various drivers (number of equivalent employees, number of PCs/laptops, net revenue, etc.). Recoveries for these allocations are reported in Corporate Other.
•
Operational costs – expenses are charged to segments based on an activity-based costing process, which also allocates residual expenses to the segments. Generally, recoveries of these costs are reported in Corporate Other.
•
Support and overhead costs – expenses not directly attributable to a specific segment are allocated based on various drivers (number of equivalent employees, number of PCs/laptops, net revenue, etc.). Recoveries for these allocations are reported in Corporate Other.
The application and development of management reporting methodologies is an active process and undergoes periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the results disclosed for each segment, with no impact on consolidated results. If significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is revised, when practicable.

Notes to Consolidated Financial Statements (Unaudited), continued






Three Months Ended September 30, 2018Three Months Ended March 31, 2019
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 ConsolidatedConsumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:                  
Average LHFI
$75,414
 
$70,485
 
$96
 
$—
 
$145,995

$78,683
 
$75,488
 
$88
 
($1) 
$154,258
Average consumer and commercial deposits111,930
 47,773
 212
 (567) 159,348
112,245
 47,850
 259
 (433) 159,921
Average total assets86,112
 84,766
 35,612
 905
 207,395
88,033
 90,122
 37,822
 1,426
 217,403
Average total liabilities112,879
 54,284
 16,481
 (524) 183,120
113,180
 54,384
 25,720
 (347) 192,937
Average total equity—
 —
 —
 24,275
 24,275
—
 —
 —
 24,466
 24,466
Statements of Income:                  
Net interest income
$1,079
 
$550
 
($49) 
($68) 
$1,512

$1,076
 
$546
 
($78) 
$—
 
$1,544
FTE adjustment—
 22
 1
 (1) 22
—
 22
 1
 —
 23
Net interest income-FTE 1
1,079
 572
 (48) (69) 1,534
1,076
 568
 (77) —
 1,567
Provision for credit losses 2
36
 25
 —
 —
 61
83
 70
 —
 —
 153
Net interest income after provision for credit losses-FTE1,043
 547
 (48) (69) 1,473
993
 498
 (77) —
 1,414
Total noninterest income445
 373
 10
 (46) 782
446
 364
 19
 (45) 784
Total noninterest expense994
 433
 (38) (5) 1,384
1,017
 462
 14
 (4) 1,489
Income before provision for income taxes-FTE494
 487
 —
 (110) 871
422
 400
 (72) (41) 709
Provision for income taxes-FTE 3
113
 115
 (52) (59) 117
96
 95
 (24) (40) 127
Net income including income attributable to noncontrolling interest381
 372
 52
 (51) 754
326
 305
 (48) (1) 582
Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Less: Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$381
 
$372
 
$50
 
($51) 
$752

$326
 
$305
 
($50) 
($1) 
$580
1 Presented on a matched maturity funds transfer price basis for the segments.
2 Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances.
3 Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals.




 
 Three Months Ended March 31, 2018 1
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$74,840
 
$68,000
 
$84
 
($4) 
$142,920
Average consumer and commercial deposits109,469
 49,687
 197
 (184) 159,169
Average total assets84,272
 81,726
 35,680
 2,454
 204,132
Average total liabilities110,341
 55,499
 13,864
 (177) 179,527
Average total equity—
 —
 —
 24,605
 24,605
Statements of Income:         
Net interest income
$998
 
$514
 
($30) 
($41) 
$1,441
FTE adjustment—
 20
 1
 (1) 20
Net interest income-FTE 2
998
 534
 (29) (42) 1,461
Provision/(benefit) for credit losses 3
58
 (30) —
 —
 28
Net interest income after provision/(benefit) for credit losses-FTE940
 564
 (29) (42) 1,433
Total noninterest income450
 340
 38
 (32) 796
Total noninterest expense1,001
 450
 (29) (5) 1,417
Income before provision for income taxes-FTE389
 454
 38
 (69) 812
Provision for income taxes-FTE 4
87
 107
 16
 (43) 167
Net income including income attributable to noncontrolling interest302
 347
 22
 (26) 645
Less: Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$302
 
$347
 
$20
 
($26) 
$643
 
 Three Months Ended September 30, 2017 1, 2
(Dollars in millions)Consumer Wholesale Corporate Other Reconciling
Items		 Consolidated
Balance Sheets:         
Average LHFI
$74,742
 
$68,568
 
$1,399
 
($3) 
$144,706
Average consumer and commercial deposits109,774
 49,515
 189
 (59) 159,419
Average total assets84,345
 82,573
 36,286
 2,534
 205,738
Average total liabilities110,713
 55,054
 15,406
 (8) 181,165
Average total equity—
 —
 —
 24,573
 24,573
Statements of Income:         
Net interest income
$999
 
$511
 
($5) 
($75) 
$1,430
FTE adjustment—
 36
 1
 —
 37
Net interest income-FTE 3
999
 547
 (4) (75) 1,467
Provision/(benefit) for credit losses 4
140
 (19) —
 (1) 120
Net interest income after provision/(benefit) for credit losses-FTE859
 566
 (4) (74) 1,347
Total noninterest income482
 397
 19
 (52) 846
Total noninterest expense927
 421
 48
 (5) 1,391
Income before provision for income taxes-FTE414
 542
 (33) (121) 802
Provision for income taxes-FTE 5
150
 201
 (18) (71) 262
Net income including income attributable to noncontrolling interest264
 341
 (15) (50) 540
Net income attributable to noncontrolling interest—
 —
 2
 —
 2
Net income
$264
 
$341
 
($17) 
($50) 
$538

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

Notes to Consolidated Financial Statements (Unaudited), continued



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



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






NOTE 1920 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the components of AOCI, net of tax, are presented in the following table:
(Dollars in millions)Securities AFS Derivative Instruments Brokered Time Deposits Long-Term Debt Employee Benefit Plans Total
Three Months Ended March 31, 2019           
Balance, beginning of period
($357) 
($368) 
$1
 
($1) 
($695) 
($1,420)
Net unrealized gains/(losses) arising during the period377
 46
 (1) (1) —
 421
Amounts reclassified to net income—
 30
 —
 —
 3
 33
Other comprehensive income/(loss), net of tax377
 76
 (1) (1) 3
 454
Balance, end of period
$20
 
($292) 
$—
 
($2) 
($692) 
($966)
            
Three Months Ended March 31, 2018           
Balance, beginning of period
($1) 
($244) 
($1) 
($4) 
($570)

($820)
Cumulative effect adjustment related to ASU adoption 1
30
 (56) —
 (1) (127) (154)
Net unrealized (losses)/gains arising during the period(424) (125) 1
 2
 (5) (551)
Amounts reclassified to net income(1) 1
 —
 —
 3
 3
Other comprehensive (loss)/income, net of tax(425) (124) 1
 2
 (2) (548)
Balance, end of period
($396) 
($424) 
$—
 
($3) 
($699) 
($1,522)

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

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


Notes to Consolidated Financial Statements (Unaudited), continued




Reclassifications from AOCI to Net income, and the related tax effects, are presented in the following table:
(Dollars in millions) Three Months Ended March 31Impacted Line Item in the Consolidated Statements of Income
Details About AOCI Components 2019 2018 
Securities AFS:      
Net realized (gains)/losses on securities AFS 
$—
 
($1) Net securities gains/(losses)
Tax effect —
 —
 Provision for income taxes
  —
 (1)  
Derivative Instruments:      
Net realized losses on cash flow hedges 39
 1
 Interest and fees on loans held for investment
Tax effect (9) —
 Provision for income taxes
  30
 1
  
Employee Benefit Plans:      
Amortization of prior service credit (2) (2) Employee benefits
Amortization of actuarial loss 6
 6
 Employee benefits
  4
 4
  
Tax effect (1) (1) Provision for income taxes
  3
 3
  
       
Total reclassifications from AOCI to net income 
$33
 
$3
  

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



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


Important Cautionary Statement About Forward-Looking Statements
This Quarterly Report contains forward-looking statements. Statements regarding: (i) 2018 on track to be the seventh consecutive year of growth in EPS, improved efficiency, and higher capital returns; (ii) future levels of net interest margin, noninterest income, the tangible efficiency ratio, share repurchases, the net charge-offs to total average LHFI ratio, the ALLL to period-end LHFI ratio, the NPLs to period-end LHFI ratio, and the provision for loan losses; (iii) the pace of expansion in our net interest margin; (iv) the timing of our tangible efficiency ratio goals; (v) continued migration towards higher cost deposit products; (vi) future trends or increases in deposit costs; (vii) our access to alternative funding sources; (viii) potential acceleration of share repurchases; (ix) the possible purchase of additional, or termination of existing, interest rate swaps; (x) the amount and timing of pre-tax deferred losses that will be reclassified from AOCI into net income related to the termination and settlement of the NCF pension plan; (xi) growth opportunities in our Wholesale segment; (xii) future changes in the size and composition of the securities AFS portfolio; (xiii) our flexibility to use our securities AFS portfolio to manage our interest rate risk profile; (xiv) the estimated impact of proposed regulatory capital rules and changes in banking laws, rules, and regulations; (xv) the impact of a gradual shift in interest rates on our MVE; and (xvi) future credit ratings and outlook, are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believe,” “expect,” “anticipate,” “estimate,” “intend,” “target,” “forecast,” “future,” “strategy,” “goal,” “initiative,” “plan,” “opportunity,” “potentially,” “probably,” “project,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Such statements are based upon the current beliefs and expectations of management and on information currently available to management. They speak as of the date hereof, and we do not assume any obligation to update the statements made herein or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.
Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, Item 1A., “Risk Factors,” in our 2017 Annual Report on Form 10-K and in Part II, Item 1A., “Risk Factors,” in our Quarterly Report on Form 10-Q for the period ended March 31, 2018, and also include risks discussed in this Quarterly Report and in other periodic 2018 reports that we filed with the SEC. Such factors include: current and future legislation and regulation could require us to change our business practices, reduce revenue, impose additional costs, or otherwise adversely affect business operations or competitiveness; we are subject to stringent capital adequacy and liquidity requirements and our failure to meet these would adversely affect our financial condition; the monetary and
fiscal policies of the federal government and its agencies could have a material adverse effect on our earnings; our financial results have been, and may continue to be, materially affected by general economic conditions, and a deterioration of economic conditions or of the financial markets may materially adversely affect our lending and other businesses and our financial results and condition; changes in market interest rates or capital markets could adversely affect our revenue and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; interest rates on our outstanding financial instruments might be subject to change based on regulatory developments, which could adversely affect our revenue, expenses, and the value of those financial instruments; our earnings may be affected by volatility in mortgage production and servicing revenues, and by changes in carrying values of our servicing assets and mortgages held for sale due to changes in interest rates; disruptions in our ability to access global capital markets may adversely affect our capital resources and liquidity; we are subject to credit risk; we may have more credit risk and higher credit losses to the extent that our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; we rely on the mortgage secondary market and GSEs for some of our liquidity; loss of customer deposits could increase our funding costs; any reduction in our credit rating could increase the cost of our funding from the capital markets; we are subject to litigation, and our expenses related to this litigation may adversely affect our results; we may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations; we are subject to certain risks related to originating and selling mortgages, and may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, or borrower fraud, and this could harm our liquidity, results of operations, and financial condition; we face risks as a servicer of loans; consumers and small businesses may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking which subject us to a variety of risks; negative public opinion could damage our reputation and adversely impact business and revenues; we may face more intense scrutiny of our sales, training, and incentive compensation practices; we rely on other companies to provide key components of our business infrastructure; competition in the financial services industry is intense and we could lose business or suffer margin declines as a result; we continually encounter technological change and must effectively develop and implement new technology; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we depend on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer; we may not be able to hire or retain additional qualified personnel and recruiting and

compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategies; our framework for managing risks may not be effective in mitigating risk and loss to us; our controls and procedures may not prevent or detect all errors or acts of fraud; we are at risk of increased losses from fraud; our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business and disrupt business continuity; a disruption, breach, or failure in the operational systems and infrastructure of our third party vendors and other service providers, including as a result of cyber-attacks, could adversely affect our business; natural disasters and other catastrophic events could have a material adverse impact on our operations
or our financial condition and results; the soundness of other financial institutions could adversely affect us; we depend on the accuracy and completeness of information about clients and counterparties; our accounting policies and processes are critical to how we report our financial condition and results of operation, and they require management to make estimates about matters that are uncertain; depressed market values for our stock and adverse economic conditions sustained over a period of time may require us to write down all or some portion of our goodwill; our stock price can be volatile; we might not pay dividends on our stock; our ability to receive dividends from our subsidiaries or other investments could affect our liquidity and ability to pay dividends; and certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect.


INTRODUCTION
We are a leading provider of financial services, with our headquarters located in Atlanta, Georgia. We are an organization driven by our Company purpose of Lighting the Way to Financial Well-Being — helping instill a sense of confidence in the financial circumstances of clients, communities, teammates, and shareholdersowners is at the center of everything we do. Our principal subsidiary, SunTrust Bank, offers a full line of financial services for consumers, businesses, corporations, institutions, and not-for-profit entities, both through its branches (located primarily in Florida, Georgia, Virginia, North Carolina, Tennessee, Maryland, South Carolina, and the District of Columbia) and through other digital and national delivery channels. In addition to deposit, credit, mortgage banking, and trust and investment services offered by the Bank, our other subsidiaries provide capital markets, securities brokerage, investment banking, and wealth management services. We operate two business segments: Consumer and Wholesale, with functional activities included in Corporate Other.Other. See Note 18,19, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q for a description of our business segments.
This MD&A is intended to assist readers in their analysis of the accompanying Consolidated Financial Statements and supplemental financial information. It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements in Part I, Item 1
of this Form 10-Q, as well as with the other information contained in this document and in our 20172018 Annual Report on Form 10-K. When we refer to “SunTrust,” “the Company,” “we,” “our,” and “us” in this report, we mean SunTrust Banks, Inc. and its consolidated subsidiaries.
In this MD&A, consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax exempttax-exempt income on a tax equivalent basis, we present net interest income, net interest margin, total revenue, and efficiency ratios on an FTE basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 21% for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe the FTE basis is the preferred industry measurement basis for net interest income, net interest margin, total revenue, and efficiency ratios, and that it enhances comparability of net interest income and total revenue arising from taxable and tax-exempt sources. Additionally, we present other non-U.S. GAAP metrics to assist investors in understanding management’s view of particular financial measures, as well as to align presentation of these financial measures with peers in the industry who may also provide a similar presentation. Reconcilements for all non-U.S. GAAP measures are provided in Table 20.16.



EXECUTIVE OVERVIEW
Financial Performance
Aided by a favorable operating environment, weWe delivered 47% year-over-year diluted EPS growth, reflecting ongoing efficiency improvements, solidimproved profitability and strong loan growth higher capital return, and continued strong credit quality. Our sustained performance in these areas and our momentum going into the fourthfirst quarter indicateof 2019, reflecting the investments that we are on track to realizehave made in our seventh consecutive year ofadvice-driven model for corporate, commercial, and CRE clients as well as our ongoing investments in digital consumer lending. These investments, together with our diversified business model and continuous improvement in efficiency, yielded 3% year-over-year growth in earnings (excluding Merger-related costs). Diluted EPS improved efficiency, and higher capital returns. for the first quarter of 2019 was $1.24, which included $(0.09) per share in Merger-related costs. This compares to $1.29 per average common diluted share for the first quarter of 2018.
Total revenue for the thirdfirst quarter of 2019 increased 4% compared to the first quarter of 2018, was down 1% sequentially and stable year-over-year, as lower noninterest income was largely offset by higher net interest income was partially offset by lower noninterest income.
Net interest income was $1.5 billion forincreased 7% relative to the thirdfirst quarter of 2018 an increase of 2% sequentiallydue to net interest margin expansion and 5% relative to the third quarter of 2017, driven by growth in average earning assets, relative to both comparative periodsoffset partially by an increase in average interest-bearing liabilities and netassociated funding costs. Net interest margin expansion year-over-year. Our net interest margin decreased onefor the first quarter of 2019 increased three basis point sequentially and increased 12 basis points, to 3.27%, compared to the thirdfirst quarter of 2017.2018. The year-over-year increase was driven primarily by higheran increase in average earning asset yields arising from higher benchmark interest rates, favorable mix shift in the LHFI and securities AFS portfolios,earning assets, and lower premium amortization expense, offset partially by higher rates paid on average interest-bearing liabilities.funding costs. Looking to the fourthsecond quarter of 2018,2019, we expect net interest margin to increase between zero anddecline by two to three basis points comparedrelative to the thirdfirst quarter of 2018, largely as a result of the September 2018 Fed Funds rate2019, given our expectation that funding costs will continue to increase. See additional discussion related to revenue, noninterest income, and net interest income and margin in the "Noninterest Income" and "Net Interest Income/Margin" sectionssection of this MD&A. Also in this MD&A, see Table 12,11, "Net Interest Income Asset Sensitivity," for an analysis of potential changes in net interest income due to instantaneous moves in benchmark interest rates.
Noninterest income decreased 6% sequentially and 8%$12 million, or 2%, compared to the thirdfirst quarter of 2017. The sequential decrease was due2018, driven primarily toby lower capital markets-relatedother noninterest income, other noninterestwealth-related income, and client transaction-related fees, which was offset partiallylargely by higher commercial real estatecapital markets and mortgage related incomeincome. See additional discussion related to revenue and wealth management-related income. Year-over-year, the decrease in noninterest income was driven by lower mortgage and capital markets-related income as well as lower client transaction-related fees. We expect noninterest income in the fourth quarter"Noninterest Income" section of 2018 to increase relative to the third quarter of 2018, given our solid capital markets pipelines and seasonally higher fee income in certain categories, including mortgage servicing and commercial real estate related income.this MD&A.
Noninterest expense decreased $6 million compared to the prior quarter and $7increased $72 million, or 1%5%, compared to the thirdfirst quarter of 2017. The sequential decrease was2018, driven largelyprimarily by lower employee compensation$45 million of Merger-related costs and benefits, other noninterest expense, net occupancy expense, and equipment expense, offset partially by higher outside processing and software expenses, offset partially by lower personnel expenses and regulatory assessments. For the remainder of 2019, we expect additional Merger-related costs and marketing and customer development costs. The decrease comparedon a standalone basis of approximately $10 million each quarter. Our effective tax rate for the first quarter of 2019 was 15%, which was slightly lower than our normal effective tax rate due primarily to the thirdtypical first quarter income tax benefit related to stock-based compensation in addition to a discrete tax benefit related to state income tax true-ups. For the remainder of 2017 was due to reductions in most expense categories, offset largely by higher outside processing and software expense in the current quarter as well as the favorable resolution of several legal matters in the third quarter of 2017.
Separately, in accordance with our previously announced decision to terminate a pension plan that we acquired as part of the NCF acquisition in 2004,2019, we expect our effective tax rate to reclassifybe approximately $61 million of pre-tax deferred losses from AOCI into net income upon settlement of the pension plan in the fourth quarter of 2018. 18%, absent unusual items.

See additional discussion related to noninterest expense in the "Noninterest Expense" section of this MD&A.
For the thirdfirst quarter of 2018,2019, our efficiency and tangible efficiency ratios were 59.8%63.4% and 58.9%62.7%, respectively, which represent slight increases compared to 62.8% and 62.1% for the prior quartersame period in 2018, respectively. Our current year efficiency ratios were negatively impacted by $45 million of 59.4% and 58.7%, and improvements compared toMerger-related costs recognized during the thirdfirst quarter of 2017 ratios2019; when excluding the impact of 60.1% and 59.2%, respectively. Giventhese costs, our adjusted tangible efficiency ratio improved to 60.8% for the progressfirst quarter of 2019. On a standalone basis, we have made, we areremain on track to achieve our full-year tangible efficiency ratio goalpreviously disclosed medium-term target of below 60% by 2019.between 56% and 58%. We remainare focused on continuing to create capacityrationalizing expenses in four primary areas: staffing, leveraging technology, third parties, and real estate. Our continued progress in each of these areas enables us to invest in revenue growth opportunities and client-friendly technology, and talent given the compelling opportunitieswhich gives us good momentum as we have to invest in growth, which we believe will create the most long-term value forhead into our clients and our shareholders.Merger. See Table 20,16, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information regarding, and a reconciliationreconciliations of, our tangible and adjusted tangible efficiency ratio.ratios.
OverallOur asset quality wasmetrics were strong during the thirdfirst quarter and first nine months of 2018,2019, evidenced by our 0.24% annualized0.26% net charge-offs to total average LHFI ratio and 0.47% NPL0.34% NPLs to period-end LHFI ratio. In addition, our ALLL to period-end LHFI ratio (excluding loans measured at fair value) decreased four basis points sequentially due primarily to improved economic and credit conditions. These low levels reflect the relative strength we are seeing across our LHFI portfolio, particularly in C&I, CRE, and residential mortgages, though we recognize that there could be normalization and variability moving forward. WeLooking to the remainder of 2019, we expect to operate within an annualizeda net charge-offs to total average LHFI ratio of between 25 and 30 basis points for the fourth quarter of 2018.points. Additionally, we expect the ALLL to period-end LHFI ratio to stabilize,remain relatively stable, which would result in a provision for loan losses that modestly exceeds net charge-offs, given loan growth. See additional discussion of our credit and asset quality, in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A.
Average LHFI grew 1% both sequentiallyfor the first quarter of 2019 totaled $154.3 billion, up $11.3 billion, or 8%, compared to the first quarter of 2018, driven primarily by increases in C&I, CRE, consumer direct, nonguaranteed residential mortgages, consumer indirect, and year-over-year as improved lending trends continued.guaranteed student loans. These increases were driven largely by growth in CRE, consumer direct, and nonguaranteed residential mortgages, offset partially by a declinedeclines in residentialaverage commercial construction loans and home equity products. See additional loan discussions in the “Loans,” “Nonperforming Assets,” and "Net Interest Income/Margin" sections of this MD&A.
Average consumer and commercial deposits remained stable sequentiallyincreased slightly compared to the first quarter of 2018 as growth in NOW accounts and year-over-year.time deposits were offset largely by declines in money market accounts and noninterest-bearing deposits. Our clients continue to migrate from lower-cost deposits to CDs, in partlargely due to higher rates and our targeted strategy that allows usis designed to retain our existing depositors and capture new market share, while also managing our asset sensitivity profile. We believe this is an effective strategy and we expect this migration towards CDs to continue as interest rates rise.share. Rates paid on our interest-bearing consumer and commercial deposits increased compared toby nine basis points sequentially, which was one basis point lower than the prior quarter and the third quarter of 2017 in response to rising benchmark interest rates, the move towards higher-cost deposits, and the pickup in

lending activity.increase. We expect deposit costs to continue to trend upwards, withbut not by as much as in prior quarters given the expectation of a relatively stable short-term interest rate environment. This upward trajectory will also be influenced by the absolute level of interest rates, the pace of interest rate increases,competitive environment and our loan growth. We remain focused on maximizinginvesting in products and capabilities that enhance the value proposition of deposits for our clients,client experience, outside of
rate paid. Our access to alternative funding is strong should deposit growth prove to be slower than expected. See additional discussion regarding average deposits in the "Net Interest Income/Margin" section of this MD&A.
Capital and Liquidity
Our capital ratios continue to be well above regulatory requirements. The CET1 ratio decreased slightly to 9.60%was 9.09% at September 30, 2018,March 31, 2019, a 1412 basis point decline compared to December 31, 2017,2018, driven primarily by growth in risk weighted assets, offset partially by an increase in retained earnings. OurThe Tier 1 capital and Total capital ratios also declined compared to December 31, 2017,2018, due to the impactaforementioned impacts to our CET1 ratio. Going forward, we expect our capital ratios to trend upward given the suspension of our redemptionshare repurchases in anticipation of all outstanding shares of Series E Preferred Stockthe Merger. This will result in a share count that is relatively stable until the first quarter of 2018. Merger closes.
Our book value and tangible book value per common share both remained relatively stableincreased by 3% and 4%, respectively, compared to December 31, 2017, as higher accumulated other comprehensive loss was offset largely2018, driven primarily by growth in retained earnings.earnings and a decrease in accumulated other comprehensive loss. See additional details related to our capital in the “Capital Resources” section of this MD&A and in Note 13,15, "Capital," to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K.10-K and in the “Capital Resources” section of this MD&A. Also see Table 20,16, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information regarding, and a reconciliation of, tangible book value per common share.
In June 2018, we announced capital plans in response toDuring the Federal Reserve's review of and non-objection to our 2018 capital plan submitted in conjunction with the 2018 CCAR. Accordingly, during the thirdfirst quarter of 2018,2019, we increased our quarterly common stock dividend by 25% to $0.50 per common share. We also repurchased $500$250 million of our outstanding common stock during the third quarter of 2018 in conjunction withunder the 2018 capital plan.plan pursuant to an SEC Rule 10b5-1 repurchase plan entered into on November 6, 2018. At September 30, 2018,March 31, 2019, we had $1.5 billion$500 million of remaining common stock repurchase capacity available under the 2018 capital plan; however, we do not intend to utilize this remaining share repurchase capacity in view of the Merger. Relatedly, we will not be pursuing the preferred stock issuance that was contemplated in our original 2018 capital plan. We will repurchase a minimum of $500 million ofFor more information on the Merger, refer to our outstanding common stock in the fourth quarter of 2018. See2018 Annual Report on Form 10-K. For additional details related to our capital actions and share repurchases, inrefer to the “Capital Resources” section of this MD&A and in Part II, Item 2 of this Form 10-Q.
Business Segments Highlights
Consumer
OurNet interest income increased $78 million, or 8%, compared to the first quarter of 2018, as a result of continued loan growth and margin expansion. Noninterest income decreased $4 million, or 1%, compared to the first quarter of 2018, due primarily to lower fee income and changing consumer behaviors, which continue to drive a decline in service charges. Wealth management income was also negatively impacted by market conditions in the fourth quarter, which negatively impacted assets under management.
We continue to see positive lending momentum in Consumer driven by the investments across Consumer Lending, together withthat we have made in LightStream and our strategic partnerships, have collectively improved our growth, returns, and diversity.point-of-sale lending partnerships. Enhanced analytics, improved automation, new product offerings, partnership growth, and increased referrals have all been key contributorsfactors to our 38% year-over-year growth in LightStream.
The average balance of our LHFI portfolio increased $3.8 billion, or 5%, compared to the first quarter of 2018. In addition

to the aforementioned growth in LightStream and direct consumer lending. Thisoriginations, we experienced growth has beenin indirect auto where we were able to capture market share with improving returns. The increase in loans was offset partially by declines in home equity loan balances and certain lower return portfolios such as indirect auto.products.
Net interest income increased $21 million sequentially and $80 million compared to the third quarter of 2017, resulting from continued balance sheet growth and increased deposit spreads. The average balance of our LHFI portfolio was stable
sequentially andconsumer deposits increased 1%$2.8 billion, or 3%, compared to the thirdfirst quarter of 2017. Noninterest income decreased 2% sequentially and decreased 8% compared to the third quarter of 2017, due primarily to lower mortgage-related income.
2018. We continue to demonstrate positive underlying trends within PWM, as assets under management increased 3% sequentiallybenefit from our targeted CD offers and have refined our deposit product offerings to maximize the value proposition for our clients.
Our continuing efficiency actions are driving improvements in profitability. Our efficiency ratio improved 240 basis points year-over-year. Branch count is down 7% compared to the third quarter of 2017 and wealth management-related noninterest income increased 4% year-over-year. Our value proposition for our targeted client segments is resonating in the marketplace, continuing to drive growth in new clients and in deepening relationships with existing clients.
Our efficiency ratio was 65.3% for the thirdfirst quarter of 2018, compared to 62.6% for the third quarter of 2017. The increase was due primarily to the favorable resolution of a legal matter during the third quarter of 2017, which resulted in a $55 million discrete benefit. Our branch count is down 5%, which is largely enabled by our increasingincreased digital adoption rates andas part of our broader strategy to leverage technology toand enhance our efficiency. Ourefficiency while also improving the client experience. Improvements in our mobile and digital capabilities have received national recognitionenhanced our clients' ability to manage their mortgages and have made it easier for onlineclients to obtain new accounts and mobile banking and we remain committedproduct offerings. We continue to improving our client experience through allmigrate components of our delivery channels.
We completed the merger of our STM and Bank legal entities in the third quarter of 2018. This merger will simplify our organizational structure, enable operational efficiencies, and allow us to more fully serve the needs of our clients irrespective of whether they began their SunTrust relationship with a mortgage or another lending or deposit product. Subsequentdigital experience to the merger, mortgage operations have continued under the Bank’s charter. See Note 18, “Business Segment Reporting,” to the Consolidated Financial Statements in this Form 10-Q for additional information.cloud, which reduces operational cost and provides added reliability.


Wholesale
Our consistentadvice-driven, middle-market strategy within the Wholesale segment continues to drive good results. We saw solidThe quality of our people, the advice they deliver, and the way we work together gives us a competitive advantage within this business.
Net interest income increased $34 million, or 6%, compared to the first quarter of 2018, due primarily to broad-based growth across most loan products and client segments. Noninterest
income increased $24 million, or 7%, compared to the first quarter of 2018, due largely to higher trading income.
The average balance of our LHFI portfolio increased $7.5 billion, or 11%, compared to the first quarter of 2018. This loan growth across CIB, Commercial Banking, and Commercial Real Estate, reflectingis a reflection of our client'sclients' increased optimism inon the economy, which has led to slightlyresulted in higher utilization rates and increased mergers and acquisition activity. This growthstrong production levels. It is also reflectsa reflection of the investments we have made to meet a broader set of client needs, particularly within Commercial Real Estatecommercial real estate and aging services. Our loan growth did not come at the expense of risk or return discipline; our model is focused on leading with advice, not structure or price. This is evident in addition to our geographic expansion within Commercial Banking.
Total revenuelow net charge-off ratio, which was stable compared to10 basis points in the prior quarter and the thirdfirst quarter of 2017. Net interest income increased $16 million sequentially and $25 million compared to the third quarter of 2017. These increases2019.
We remain focused on investing in net interest income were due primarily to the aforementioned loan growth. Noninterest income decreased $15 million sequentially and $24 million compared to the third quarter of 2017. The primary driver of these declines is the timing of certain transactions, which were pushed into the fourth quarter of 2018. Notwithstanding these declines, our underlying momentum within capital markets is strong, with mergers and acquisition and equity-related income up 7% and capital market fees from Commercial Banking, Commercial Real Estate, and PWM clients up 37% year-to-date.technology, particularly in Treasury & Payment Solutions. We are still in the early stages of executing this component ofnow leveraging our strategy, butloan origination platform as well as other complementary products and platforms for onboarding Treasury & Payment Solutions products, which will make it easier for teammates to bring on new clients and will significantly improve our ability to add future capabilities.
Looking ahead, we are highly encouraged by our progress and believe we are uniquely positioned to succeed in this space, given our full set of capabilities and OneTeam approach.

Overall, while market conditions can create quarterly variability, our pipelines are strong and we continue to beremain optimistic about growth opportunities within the Wholesale segment as we bring our differentiated businessadvice-driven model attractsto clients fromin new and existing markets.

Additional information related to our business segments can be found in Note 18,19, "Business Segment Reporting," to the Consolidated Financial Statements in this Form 10-Q, and further discussion of our business segment results for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 can be found in the "Business Segment Results" section of this MD&A.




Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates PaidConsolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 1 Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid Table 1 
Three Months Ended (Decrease)/IncreaseThree Months Ended Increase/(Decrease)
September 30, 2018 September 30, 2017 March 31, 2019 March 31, 2018 
(Dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
ASSETS                              
LHFI: 1
                              
C&I
$67,632
 
$659
 3.87% 
$68,277
 
$583
 3.39% 
($645) 0.48

$72,450
 
$730
 4.08% 
$66,269
 
$588
 3.60% 
$6,181
 0.48
CRE6,418
 68
 4.19
 5,227
 47
 3.57
 1,191
 0.62
7,611
 85
 4.52
 5,201
 49
 3.84
 2,410
 0.68
Commercial construction3,300
 40
 4.76
 3,918
 38
 3.86
 (618) 0.90
2,559
 33
 5.31
 3,749
 40
 4.27
 (1,190) 1.04
Residential mortgages - guaranteed502
 3
 2.76
 512
 5
 3.57
 (10) (0.81)481
 4
 2.91
 637
 5
 3.12
 (156) (0.21)
Residential mortgages - nonguaranteed27,584
 268
 3.89
 26,687
 255
 3.82
 897
 0.07
28,588
 282
 3.95
 26,863
 254
 3.79
 1,725
 0.16
Residential home equity products9,632
 121
 4.97
 10,778
 120
 4.40
 (1,146) 0.57
9,180
 120
 5.31
 10,243
 116
 4.60
 (1,063) 0.71
Residential construction193
 2
 4.75
 333
 4
 4.68
 (140) 0.07
164
 2
 5.24
 261
 3
 4.47
 (97) 0.77
Consumer student - guaranteed6,912
 88
 5.05
 6,535
 73
 4.44
 377
 0.61
7,258
 94
 5.25
 6,655
 78
 4.76
 603
 0.49
Consumer other direct9,726
 135
 5.49
 8,426
 104
 4.91
 1,300
 0.58
10,792
 160
 6.01
 8,804
 110
 5.08
 1,988
 0.93
Consumer indirect11,770
 114
 3.86
 11,824
 105
 3.51
 (54) 0.35
12,984
 134
 4.18
 12,001
 108
 3.63
 983
 0.55
Consumer credit cards1,573
 46
 11.71
 1,450
 37
 10.32
 123
 1.39
1,647
 49
 11.90
 1,526
 43
 11.26
 121
 0.64
Nonaccrual 2
753
 5
 2.70
 739
 11
 5.90
 14
 (3.20)544
 4
 3.13
 711
 4
 2.25
 (167) 0.88
Total LHFI145,995
 1,549
 4.21
 144,706
 1,382
 3.79
 1,289
 0.42
154,258
 1,697
 4.46
 142,920
 1,398
 3.97
 11,338
 0.49
Securities AFS: 3
               
Securities AFS:               
Taxable30,927
 207
 2.68
 30,089
 187
 2.49
 838
 0.19
31,268
 217
 2.78
 30,849
 201
 2.61
 419
 0.17
Tax-exempt625
 5
 2.99
 504
 4
 2.99
 121
 —
598
 4
 2.99
 628
 5
 2.98
 (30) 0.01
Total securities AFS31,552
 212
 2.69
 30,593
 191
 2.49
 959
 0.20
31,866
 221
 2.77
 31,477
 206
 2.62
 389
 0.15
Fed funds sold and securities borrowed or purchased under agreements to resell1,426
 7
 1.79
 1,189
 3
 0.89
 237
 0.90
1,271
 7
 2.28
 1,334
 4
 1.18
 (63) 1.10
LHFS2,022
 22
 4.40
 2,477
 24
 3.89
 (455) 0.51
1,211
 13
 4.41
 2,025
 21
 4.12
 (814) 0.29
Interest-bearing deposits in other banks25
 —
 3.90
 25
 —
 1.88
 —
 2.02
25
 —
 5.69
 25
 —
 1.85
 —
 3.84
Interest earning trading assets4,789
 39
 3.18
 5,291
 31
 2.38
 (502) 0.80
4,950
 43
 3.47
 4,564
 34
 3.05
 386
 0.42
Other earning assets 3
535
 5
 3.79
 580
 4
 3.06
 (45) 0.73
Other earning assets804
 6
 2.95
 529
 5
 3.50
 275
 (0.55)
Total earning assets186,344
 1,834
 3.90
 184,861
 1,635
 3.51
 1,483
 0.39
194,385
 1,987
 4.15
 182,874
 1,668
 3.70
 11,511
 0.45
ALLL(1,665)     (1,748)     (83)  (1,638)     (1,726)     88
  
Cash and due from banks4,575
     5,023
     (448)  4,297
     5,329
     (1,032)  
Other assets18,192
     16,501
     1,691
  19,915
     17,256
     2,659
  
Noninterest earning trading assets and derivative instruments668
     948
     (280)  821
     772
     49
  
Unrealized (losses)/gains on securities AFS, net(719)     153
     (872)  (377)     (373)     (4)  
Total assets
$207,395
     
$205,738
     
$1,657
  
$217,403
     
$204,132
     
$13,271
  
LIABILITIES AND SHAREHOLDERS' EQUITY                              
Interest-bearing deposits:                              
NOW accounts
$45,345
 
$65
 0.57% 
$44,604
 
$37
 0.33% 
$741
 0.24

$48,282
 
$89
 0.74% 
$46,590
 
$45
 0.39% 
$1,692
 0.35
Money market accounts49,926
 73
 0.58
 53,278
 43
 0.32
 (3,352) 0.26
49,187
 92
 0.76
 50,543
 48
 0.39
 (1,356) 0.37
Savings6,658
 —
 0.02
 6,535
 —
 0.02
 123
 —
6,615
 —
 0.02
 6,587
 —
 0.02
 28
 —
Consumer time6,413
 17
 1.03
 5,675
 11
 0.76
 738
 0.27
6,747
 21
 1.29
 6,085
 13
 0.87
 662
 0.42
Other time8,357
 33
 1.55
 5,552
 16
 1.14
 2,805
 0.41
9,002
 42
 1.89
 7,026
 22
 1.25
 1,976
 0.64
Total interest-bearing consumer and commercial deposits116,699
 188
 0.64
 115,644
 107
 0.37
 1,055
 0.27
119,833
 244
 0.83
 116,831
 128
 0.44
 3,002
 0.39
Brokered time deposits1,041
 4
 1.54
 947
 3
 1.28
 94
 0.26
1,054
 4
 1.60
 1,006
 3
 1.35
 48
 0.25
Foreign deposits172
 1
 1.94
 295
 1
 1.13
 (123) 0.81
197
 1
 2.51
 51
 —
 1.42
 146
 1.09
Total interest-bearing deposits117,912
 193
 0.65
 116,886
 111
 0.38
 1,026
 0.27
121,084
 249
 0.84
 117,888
 131
 0.45
 3,196
 0.39
Funds purchased1,352
 7
 1.94
 1,689
 5
 1.15
 (337) 0.79
1,473
 9
 2.40
 876
 3
 1.45
 597
 0.95
Securities sold under agreements to repurchase1,638
 8
 1.85
 1,464
 4
 1.07
 174
 0.78
1,605
 9
 2.25
 1,595
 5
 1.39
 10
 0.86
Interest-bearing trading liabilities1,233
 10
 3.33
 912
 6
 2.84
 321
 0.49
Other short-term borrowings2,259
 9
 1.57
 1,797
 3
 0.56
 462
 1.01
7,144
 42
 2.35
 2,084
 6
 1.11
 5,060
 1.24
Long-term debt12,922
 95
 2.92
 11,204
 76
 2.70
 1,718
 0.22
15,955
 125
 3.19
 10,506
 74
 2.84
 5,449
 0.35
Interest-bearing trading liabilities1,201
 9
 3.13
 1,110
 8
 2.84
 91
 0.29
Total interest-bearing liabilities137,316
 322
 0.93
 133,952
 205
 0.61
 3,364
 0.32
148,462
 443
 1.21
 134,059
 227
 0.69
 14,403
 0.52
Noninterest-bearing deposits42,649
     43,775
     (1,126)  40,088
     42,338
     (2,250)  
Other liabilities2,465
     3,046
     (581)  3,976
     2,499
     1,477
  
Noninterest-bearing trading liabilities and derivative instruments690
     392
     298
  411
     631
     (220)  
Shareholders’ equity24,275
     24,573
     (298)  24,466
     24,605
     (139)  
Total liabilities and shareholders’ equity
$207,395
     
$205,738
     
$1,657
  
$217,403
     
$204,132
     
$13,271
  
Interest rate spread    2.97%     2.90%   0.07
    2.94%     3.01%   (0.07)
Net interest income 4
  
$1,512
     
$1,430
      
Net interest income-FTE 4, 5
  
$1,534
     
$1,467
      
Net interest margin 6
    3.22%     3.07%   0.15
Net interest margin-FTE 5, 6
    3.27
     3.15
   0.12
Net interest income 3
  
$1,544
     
$1,441
      
Net interest income-FTE 3, 4
  
$1,567
     
$1,461
      
Net interest margin 5
    3.22%     3.20%   0.02
Net interest margin-FTE 4, 5
    3.27
     3.24
   0.03
1 Interest income includes loan fees of $43$40 million and $45$39 million for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively.
2 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
3 Beginning January 1, 2018, we began presenting certain equity securities previously presented in Securities available for sale as Other earning assets. For periods prior to January 1, 2018, these equity securities have been reclassified to Other earning assets for comparability.
4 Derivative instruments employed to manage our interest rate sensitivity decreased net interest income by $22$48 million and $2 million for the three months ended September 30,March 31, 2019 and 2018, and increased net interest income by $16 million for the three months ended September 30, 2017.respectively.
54 See Table 20,16, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information and reconciliations of non-U.S. GAAP performance measures. Approximately 95% of the total FTE adjustment for both the three months ended September 30,March 31, 2019 and 2018 and 2017 was attributed to C&I loans.
65 Net interest margin is calculated by dividing annualized net interest income by average total earning assets.

Consolidated Daily Average Balances, Income/Expense, and Average Yields Earned/Rates Paid (continued)
 Nine Months Ended  
 September 30, 2018 September 30, 2017 (Decrease)/Increase
(Dollars in millions)
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Income/
Expense
 
Yields/
Rates
 
Average
Balances
 
Yields/
Rates
ASSETS               
LHFI: 1
               
C&I
$67,042
 
$1,880
 3.75% 
$68,822
 
$1,711
 3.32% 
($1,780) 0.43
CRE5,787
 175
 4.04
 5,141
 130
 3.38
 646
 0.66
Commercial construction3,534
 120
 4.53
 4,032
 109
 3.63
 (498) 0.90
Residential mortgages - guaranteed576
 13
 3.09
 537
 13
 3.19
 39
 (0.10)
Residential mortgages - nonguaranteed27,159
 780
 3.83
 26,234
 749
 3.81
 925
 0.02
Residential home equity products9,929
 356
 4.79
 11,117
 354
 4.26
 (1,188) 0.53
Residential construction223
 8
 4.81
 360
 12
 4.29
 (137) 0.52
Consumer student - guaranteed6,778
 249
 4.91
 6,426
 209
 4.36
 352
 0.55
Consumer other direct9,236
 365
 5.28
 8,100
 298
 4.92
 1,136
 0.36
Consumer indirect11,834
 330
 3.72
 11,322
 295
 3.48
 512
 0.24
Consumer credit cards1,541
 133
 11.47
 1,404
 105
 10.03
 137
 1.44
Nonaccrual 2
729
 15
 2.77
 781
 24
 4.04
 (52) (1.27)
Total LHFI144,368
 4,424
 4.10
 144,276
 4,009
 3.72
 92
 0.38
Securities AFS: 3
               
Taxable30,912
 614
 2.65
 30,037
 551
 2.45
 875
 0.20
Tax-exempt630
 14
 2.99
 380
 9
 3.01
 250
 (0.02)
Total securities AFS31,542
 628
 2.66
 30,417
 560
 2.45
 1,125
 0.21
Fed funds sold and securities borrowed or purchased under agreements to resell1,411
 16
 1.52
 1,221
 6
 0.63
 190
 0.89
LHFS2,055
 67
 4.35
 2,436
 70
 3.82
 (381) 0.53
Interest-bearing deposits in other banks25
 1
 2.70
 25
 —
 1.05
 —
 1.65
Interest earning trading assets4,677
 110
 3.16
 5,204
 89
 2.27
 (527) 0.89
Other earning assets 3
529
 15
 3.75
 601
 13
 3.00
 (72) 0.75
Total earning assets184,607
 5,261
 3.81
 184,180
 4,747
 3.45
 427
 0.36
ALLL(1,691)     (1,724)     (33)  
Cash and due from banks4,706
     5,158
     (452)  
Other assets17,678
     16,235
     1,443
  
Noninterest earning trading assets and derivative instruments650
     918
     (268)  
Unrealized (losses)/gains on securities AFS, net(580)     66
     (646)  
Total assets
$205,370
     
$204,833
     
$537
  
LIABILITIES AND SHAREHOLDERS' EQUITY               
Interest-bearing deposits:               
NOW accounts
$45,755
 
$162
 0.47% 
$44,595
 
$90
 0.27% 
$1,160
 0.20
Money market accounts50,102
 182
 0.49
 54,120
 114
 0.28
 (4,018) 0.21
Savings6,684
 1
 0.03
 6,530
 1
 0.02
 154
 0.01
Consumer time6,261
 45
 0.95
 5,573
 30
 0.72
 688
 0.23
Other time7,680
 81
 1.41
 4,830
 38
 1.06
 2,850
 0.35
Total interest-bearing consumer and commercial deposits116,482
 471
 0.54
 115,648
 273
 0.32
 834
 0.22
Brokered time deposits1,026
 11
 1.45
 931
 9
 1.28
 95
 0.17
Foreign deposits121
 2
 1.85
 563
 4
 0.86
 (442) 0.99
Total interest-bearing deposits117,629
 484
 0.55
 117,142
 286
 0.33
 487
 0.22
Funds purchased1,112
 15
 1.74
 1,242
 9
 0.97
 (130) 0.77
Securities sold under agreements to repurchase1,630
 20
 1.66
 1,583
 10
 0.85
 47
 0.81
Interest-bearing trading liabilities1,219
 28
 3.11
 968
 20
 2.70
 251
 0.41
Other short-term borrowings2,051
 22
 1.41
 1,852
 7
 0.54
 199
 0.87
Long-term debt11,635
 252
 2.89
 11,094
 216
 2.60
 541
 0.29
Total interest-bearing liabilities135,276
 821
 0.81
 133,881
 548
 0.55
 1,395
 0.26
Noninterest-bearing deposits42,677
     43,497
     (820)  
Other liabilities2,424
     2,961
     (537)  
Noninterest-bearing trading liabilities and derivative instruments669
     363
     306
  
Shareholders’ equity24,324
     24,131
     193
  
Total liabilities and shareholders’ equity
$205,370
     
$204,833
     
$537
  
Interest rate spread    3.00%     2.90%   0.10
Net interest income 4
  
$4,440
     
$4,199
      
Net interest income-FTE 4, 5
  
$4,505
     
$4,306
      
Net interest margin 6
    3.22%     3.05%   0.17
Net interest margin-FTE 5, 6
    3.26
     3.13
   0.13
1 Interest income includes loan fees of $121 million and $135 million for the nine months ended September 30, 2018 and 2017, respectively.
2 Income on consumer and residential nonaccrual loans, if recognized, is recognized on a cash basis.
3 Beginning January 1, 2018, we began presenting certain equity securities previously presented in Securities available for sale as Other earning assets. For periods prior to January 1, 2018, these equity securities have been reclassified to Other earning assets for comparability.
4 Derivative instruments employed to manage our interest rate sensitivity decreased net interest income by $43 million for the nine months ended September 30, 2018 and increased net interest income by $93 million for the nine months ended September 30, 2017.
5 See Table 20, "Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures," in this MD&A for additional information and reconciliations of non-U.S. GAAP performance measures. Approximately 95% of the total FTE adjustment for both the nine months ended September 30, 2018 and 2017 was attributed to C&I loans.
6 Net interest margin is calculated by dividing annualized net interest income by average total earning assets.


NET INTEREST INCOME/MARGIN (FTE)
Third Quarter of 2018
Net interest income was $1.5$1.6 billion forin the thirdfirst quarter of 2018,2019, an increase of $67$106 million, or 5%7%, compared to the thirdfirst quarter of 2017.2018. Net interest margin for the first quarter of 2019 increased 12three basis points, to 3.27%, compared to the thirdfirst quarter of 2017.2018. The increase was driven by a 3945 basis point increase in average earning asset yields as a result of higher benchmark interest rates, favorable mix shift, and lower premium amortization expense. Specifically, average LHFI yields increased 4249 basis points, driven by broad-based increases in yields across most loan categories, while yields on securities AFS increased 2015 basis points. These increases were offset partially by higher rates paid on average interest-bearing liabilities.funding costs.
Rates paid on average interest-bearing liabilities increased 3252 basis points compared to the thirdfirst quarter of 2017,2018, driven by increases in rates paid across all interest-bearing liability categories. The average rate paid on interest-bearing deposits increased 2739 basis points relative to the third quarter of 2017.points.
Looking to the fourthsecond quarter of 2018,2019, we expect net interest margin to increase between zero anddecline by two to three basis points comparedrelative to the thirdfirst quarter of 2018, largely as a result of the September 2018 Fed Funds rate2019, given our expectation that funding costs will continue to increase.
Average earning assets increased $1.5$11.5 billion, or 1%6%, compared to the thirdfirst quarter of 2017,2018, driven primarily by a $1.3an $11.3 billion, or 1%8%, increase in average LHFI, due primarily to growth in consumer direct and CRE loans, as well as by a $959 million, or 3%, increase in average securities AFS. These increases were offset partially by a $1.1 billion decline in home equity products and decreases in other earning asset categories, led by a $502an $814 million, or 9%, decrease in average interest earning trading assets and a $455 million, or 18%40%, decrease in average LHFS. See the “Loans” section in this MD&A for additional discussion regarding loan activity.
Average interest-bearing liabilities increased $3.4$14.4 billion, or 3%11%, compared to the thirdfirst quarter of 2017,2018, due primarily to increases in average long-term debt,across most consumer and commercial deposit categories, long-term debt, and short-term borrowings.borrowings, offset partially by a decline in money market accounts. Average interest-bearing consumer and commercial deposits increased $1.1$3.0 billion, or 1%3%, compared to the third quarter of 2017, due primarily to growth in average time deposits and NOW accounts in response to our targeted focus on CDs and certain corporate deposits. The continued movementCDs. Our clients continue to migrate from lower costlower-cost deposits to CDs, allows uslargely due to higher rates and our targeted strategy that is designed to retain our existing depositors and capture new market share, while also managing our asset sensitivity profile, and we expect this trend to continue as interest rates rise. These increases were offset largely by a decline in money market accounts.share.
Average long-term debt increased $1.7$5.4 billion, or 15%52%, compared to the third quarter of 2017, due primarily to our first quarter of 2018, issuances of $500 million of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under the Global Bank Note program, our second quarter of 2018 issuance of $850 million of 7-year fixed rate senior notes under the Parent Company SEC shelf registration, and our third quarter of 2018 issuances of $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes under the Global Bank Note program. The effect of these issuances was offset partially by terminations and maturities of senior notes
and long-term FHLB advances during the fourth quarter of 2017.in response to strong loan growth. See the "Borrowings"“Borrowings” section of this MD&A for additional information regarding our short-term borrowings and long-term debt.
We utilize interest rate swaps to manage interest rate risk. These instruments are primarily receive-fixed, pay-variable swaps that synthetically convert a portion of our commercial loan portfolio from floating rates, based on LIBOR, to fixed rates. At September 30, 2018,March 31, 2019, the outstanding notional balance of active swaps that qualified as cash flow hedges on variable rate commercial loans was $12.2$9.8 billion, compared to $12.1$10.3 billion at December 31, 2017,2018, respectively.
In addition to the income recognized from active swaps, we recognize interest income or expense from terminated swaps that were previously designated as cash flow hedges on variable rate commercial loans. Interest expense from our commercial loan swaps was $22$39 million during the thirdfirst quarter of 2018,2019, compared to income of $13$1 million during the thirdfirst quarter of 20172018 due primarily to an increase in LIBOR. As we manage our interest rate risk we may continue to purchase additional and/or terminate existing interest rate swaps.
Remaining swaps on commercial loans have maturities through 20252026 and have an average maturity of 3.12.6 years at September 30, 2018.March 31, 2019. The weighted average rate on the receive-fixed rate leg of the commercial loan swap portfolio was 1.71%1.75%, and the weighted average rate on the pay-variable leg was 2.26%2.50%, at September 30, 2018.March 31, 2019.

First Nine Months of 2018
Net interest income was $4.5 billion for the first nine months of 2018, an increase of $199 million, or 5%, compared to the first nine months of 2017. Net interest margin for the first nine months of 2018 increased 13 basis points, to 3.26%, compared to the first nine months of 2017. The increase was driven by a 38 basis point increase in average earning asset yields due to the same factors as discussed above for the third quarter of 2018.
Rates paid on average interest-bearing liabilities increased 26 basis points compared to the first nine months of 2017, driven by increases in rates paid across all interest-bearing liability categories. The average rate paid on interest-bearing deposits increased 22 basis points.
Average earning assets increased $427 million, compared to the first nine months of 2017, driven primarily by a $1.1 billion, or 4%, increase in average securities AFS, offset in part by a $527 million, or 10%, decrease in average interest earning trading assets and a $381 million, or 16%, decrease in average LHFS. See the "Loans" section in this MD&A for additional discussion regarding loan activity.
Average interest-bearing liabilities increased $1.4 billion, or 1%, compared to the first nine months of 2017, due primarily to increases across most consumer and commercial deposit categories as well as average long-term debt, offset largely by declines in money market accounts and foreign deposits. Average interest-bearing consumer and commercial deposits increased $834 million, or 1%, due primarily to the same factors as discussed above for the third quarter of 2018.



Foregone Interest
Foregone interest income from NPLs reduced net interest margin by one basis point and two basis points for the three and nine months ended September 30,March 31, 2019 and 2018, respectively. The effect of foregone interest income from NPLs on net interest margin was less than one basis point for both the three and nine months ended September 30, 2017. See additional discussion regarding our
credit quality in the “Loans,” “Allowance for Credit Losses,” and “Nonperforming Assets” sections of this MD&A. In addition, Table 1 in this MD&A contains more detailed information regarding average balances, yields earned, rates paid, and associated impacts on net interest income.





NONINTEREST INCOME                
          Table 2
     
Components of Noninterest Income    Table 2
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended March 31  
(Dollars in millions)2018 2017 % Change 2018 2017 % Change2019 2018 % Change
Service charges on deposit accounts
$144
 
$154
 (6)% 
$433
 
$453
 (4)%
$137
 
$146
 (6)%
Other charges and fees 1
89
 89
 —
 264
 270
 (2)87
 85
 2
Card fees75
 86
 (13) 241
 255
 (5)82
 81
 1
Total client transaction-related fee income306
 312
 (2)
     
Investment banking income 1
150
 169
 (11) 453
 501
 (10)130
 133
 (2)
Trading income42
 51
 (18) 137
 148
 (7)60
 42
 43
     
Mortgage servicing related income62
 54
 15
Mortgage production related income38
 36
 6
Mortgage related income100
 90
 11
     
Trust and investment management income80
 79
 1
 230
 229
 —
71
 75
 (5)
Retail investment services74
 69
 7
 219
 208
 5
69
 72
 (4)
Mortgage servicing related income43
 46
 (7) 138
 148
 (7)
Mortgage production related income40
 61
 (34) 118
 170
 (31)
Commercial real estate related income24
 17
 41
 66
 61
 8
24
 23
 4
Net securities gains—
 —
 —
 1
 1
 —
Net securities gains/(losses)—
 1
 (100)
Other noninterest income21
 25
 (16) 108
 76
 42
24
 48
 (50)
Total noninterest income
$782
 
$846
 (8)% 
$2,408
 
$2,520
 (4)%
$784
 
$796
 (2)%
1
Beginning July 1, 2018, we began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability. Capital market bridge fee income totaled $7 million and $3 million for the three months ended September 30, 2018 and 2017, and $12 million and $21 million for the nine months ended September 30, 2018 and 2017, respectively.

1 Beginning July 1, 2018, we began presenting bridge commitment fee income related to capital market transactions in Investment banking income on the Consolidated Statements of Income. For periods prior to July 1, 2018, this income was previously presented in Other charges and fees and has been reclassified to Investment banking income for comparability. Capital market bridge fee income totaled $2 million for the three months ended March 31, 2018.

Noninterest income decreased $64$12 million, or 8%2%, compared to the thirdfirst quarter of 2017 and decreased $112 million, or 4%, compared to the nine months ended September 30, 2017. These decreases were2018, driven primarily by lower mortgageother noninterest income, wealth-related income, and capital markets-related income as well as lower client transaction-related fees. The decrease compared to the nine months ended September 30, 2017 wasfees, offset partiallylargely by a $32 million, or 42%, increase in other noninteresthigher capital markets and mortgage related income.
Client transaction-related fee income, which includes service charges on deposit accounts, other charges and fees, and card fees, decreased $21$6 million, or 6%2%, compared to the third quarter of 2017 and decreased $40 million, or 4%, compared to the nine months ended September 30, 2017. These decreases were driven, in part, by a change in our process for recognizing card rewards expenses, which effectively resulted in four months of rewards expenses being recognized in the thirdfirst quarter of 2018, as well as the impact of our January 1, 2018 adoption of the revenue recognition accounting standard, which resulted in the netting of certain expense items against this income. The revenue recognition accounting standard decreaseddue primarily to lower client transaction-related fee income by $13 million and $28 million for the three and nine months ended September 30, 2018, respectively. See Note 1, "Significant Accounting Policies," to the Consolidated Financial Statements in this Form 10-Q for additional information regarding our adoption of this accounting standard.transaction activity.
Investment banking income decreased $19$3 million, or 2%, compared to the first quarter of 2018. This decrease was due primarily to declines in equity offerings and mergers and acquisitions, offset largely by higher syndicated and leveraged finance activity.
Trading income increased $18 million, or 43%, compared to the first quarter of 2018. This increase was due primarily to mark-to-market valuation gains on corporate bonds as well as increased client activity.
Mortgage related income increased $10 million, or 11%, compared to the thirdfirst quarter of 2017 and decreased $48 million, or 10%, compared to the nine months ended September 30, 2017. The decrease compared to the third quarter of 2017 was2018, driven primarily by lower loan syndication and investment grade bond origination activity. The decrease compared to the nine months ended September 30, 2017 was due primarily to decreased activityan increase in loan syndications, leveraged finance, mergers and acquisitions, and investment grade bond originations. The declines compared to both prior year periods were offset partially by strong deal flow activity in equity offerings as well as the impact of our January 1, 2018 adoption of the revenue recognition accounting standard. The revenue recognition accounting standard increased investment bankingservicing-related income by $4 million and $13 million for the three and nine months ended September 30, 2018, respectively.
Trading income decreased $9 million, or 18%, compared to the third quarter of 2017 and decreased $11 million, or 7%, compared to the nine months ended September 30, 2017. These decreases were due largely to lower fixed income sales and trading revenue.
Retail investment services income increased $5 million, or 7%, compared to the third quarter of 2017 and increased $11 million, or 5%, compared to the nine months ended September 30, 2017. These increases were driven primarily by growth in assets under management.

Mortgage servicing related income decreased $3 million, or 7%, compared to the third quarter of 2017 and decreased $10 million, or 7%, compared to the nine months ended September 30, 2017. These decreases were due to lowerincreased servicing fees, improved net hedge performance, and higher servicing asset decay, offset largely by higher servicing fee income.lower decay. The UPB of mortgage loans in the servicing portfolio was $170.5$169.3 billion at September 30, 2018,March 31, 2019, compared to $165.3$164.7 billion at September 30, 2017.March 31, 2018.
Mortgage production related income decreased $21 million, or 34%, compared to the third quarter of 2017Trust and decreased $52 million, or 31%, compared to the nine months ended September 30, 2017. These decreases were driven by lower gain on sale margins and reduced refinance activity as well as less favorable channel mix. Mortgage application volume decreased 1% and closed loan volume remained relatively stable compared to the third quarter of 2017. Compared to the nine months ended September 30, 2017, both mortgage application and closed loan volume decreased 3%.
Commercial real estate related income increased $7 million, or 41%, compared to the third quarter of 2017 and increased $5 million, or 8%, compared to the nine months ended September 30, 2017. These increases were due primarily to higher transactional activity in our agency lending business as well as higher tax credit-related income from our investments in affordable housing partnerships.
Other noninterestinvestment management income decreased $4 million, or 16%5%, compared to the thirdfirst quarter of 2017 and increased $322018, due primarily to lower trust fees arising from adverse market conditions toward the end of the fourth quarter of 2018.
Retail investment services income decreased $3 million, or 42%4%, compared to the nine months ended September 30, 2017. The decreasefirst quarter of 2018, due primarily to reduced client transaction activity and the aforementioned adverse market conditions.
Other noninterest income decreased $24 million, or 50%, compared to the thirdfirst quarter of 2017 was2018, driven primarily by mark-to-market adjustments on equity investments and a decrease in net gains on the sale of leases recognized in the current quarter. The increase compared to the nine months ended September 30, 2017 was due primarily to $16 million of mark-to-market net gains on equity investments recognized during the first nine months of 2018 as well as a $23 million remeasurement gain on an equity investment recognized in the first quarter of 2018, following our full adoption of the recognition and measurement of financial assets accounting standard on January 1, 2018. See Note 1, "Significant Accounting Policies," to the Consolidated Financial Statements in this Form 10-Q for additional information regarding our adoption of this accounting standard.
We expect noninterest income in the fourth quarter of 2018 to increase relative to the third quarter of 2018, given our solid capital markets pipelines and seasonally higher fee income in certain categories, including mortgage servicing and commercial real estate related income.





NONINTEREST EXPENSE                
          Table 3
     
Components of Noninterest Expense    Table 3
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended March 31  
(Dollars in millions)2018 2017 
% Change 1
 2018 2017 
% Change 1
2019 2018 
% Change 1
Employee compensation
$719
 
$725
 (1)% 
$2,141
 
$2,152
 (1)%
$676
 
$707
 (4)%
Employee benefits76
 81
 (6) 310
 302
 3
148
 146
 1
Total personnel expenses795
 806
 (1) 2,451
 2,454
 —
824
 853
 (3)
    

Outside processing and software234
 203
 15
 667
 612
 9
238
 206
 16
Net occupancy expense86
 94
 (9) 270
 280
 (4)102
 94
 9
Merger-related costs45
 —
 NM
Equipment expense42
 40
 5
Marketing and customer development45
 45
 —
 127
 129
 (2)41
 41
 —
Equipment expense40
 40
 —
 124
 123
 1
Operating losses22
 6
 NM
Regulatory assessments39
 47
 (17) 118
 143
 (17)19
 41
 (54)
Amortization19
 22
 (14) 51
 49
 4
15
 15
 —
Operating losses/(gains)18
 (34) NM
 40
 17
 NM
Other noninterest expense108
 168
 (36) 343
 436
 (21)141
 121
 17
Total noninterest expense
$1,384
 
$1,391
 (1)% 
$4,191
 
$4,243
 (1)%
$1,489
 
$1,417
 5 %
1
"NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.
1 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.


Noninterest expense decreased $7increased $72 million, or 1%5%, compared to the thirdfirst quarter of 20172018, driven primarily by $45 million of Merger-related costs and decreased $52 million, or 1%, compared to the nine months ended September 30, 2017. The decrease compared to the third quarter of 2017 was due to reductions in most expense categories, offset largely by higher outside processing and software expense in the current quarter as well as the favorable resolution of several legal matters in the third quarter of 2017. The decrease compared to the nine months ended September 30, 2017 was driven largely by lower other noninterest expense related to ongoing efficiency initiatives,expenses, offset partially by higher outside processinglower personnel expenses and software expense.regulatory assessments.
Personnel expenses decreased $11$29 million, or 1%3%, compared to the thirdfirst quarter of 2017 and decreased $3 million compared to the nine months ended September 30, 2017. The $11 million decrease compared to the third quarter of 2017 was2018, due primarily to lower compensation and benefit-relatedcontract labor costs in the currentfirst quarter offset partially by higher contract programming costs.of 2019.
Outside processing and software expense increased $31$32 million, or 15%16%, compared to the thirdfirst quarter of 2017 and increased $55 million, or 9%, compared to the nine months ended September 30, 2017. These increases were2018, driven primarily by higher software-related costs resulting from the amortization of new and upgraded technology assets.

Net occupancy expense decreasedincreased $8 million, or 9%, compared to the thirdfirst quarter of 20172018, driven primarily by higher rent expense and decreased $10 million, or 4%the absence of amortization of deferred gains on sale leaseback transactions following our adoption of ASC Topic 842, Leases, compared to the nine months ended September 30, 2017. These decreases were driven by lease termination gains recognized in the second and third quarters of 2018.
Regulatory assessments expense decreased $8 million, or 17%, compared to the third quarter of 2017 and decreased $25 million, or 17%, compared to the nine months ended September 30, 2017. These decreases were driven by lower FDIC insurance premiums as a result of our improved earnings profile and higher levels of unsecured debt.
Amortization expense decreased $3 million, or 14%, compared to the third quarter of 2017 and increased $2 million, or 4%, compared to the nine months ended September 30, 2017. The decrease compared to the third quarter of 2017 was driven by lower amortization expense on other intangible assets. The increase compared to the nine months ended September 30, 2017 was driven by an increase in our community development investments, which are amortized over the life of the related tax credits that these investments generate.January 1, 2019. See the "Community Development Investments" section of Note 10, "Certain Transfers of Financial Assets and Variable Interest Entities,"1, “Significant Accounting Policies,” to the Consolidated Financial Statements in this Form 10-Q for additional information regarding these investments.information.
Merger-related costs totaled $45 million in the first quarter of 2019. This represents a new income statement line item introduced to capture expenses associated with the Merger. These expenses were comprised of merger and acquisition advisory fees and legal costs. For the remainder of 2019, we expect additional Merger-related costs on a standalone basis of approximately $10 million each quarter.
Operating losses increased $52$16 million compared to the thirdfirst quarter of 2017 and increased $232018, driven primarily by a $10 million comparednet benefit recognized in the first quarter of 2018 related to the nine months ended September 30, 2017. These increases were due primarily to the favorable resolutionprogression of severalcertain legal matters in the third quarter of 2017, which resulted in $58 million of discrete benefits.matters.
Other noninterestRegulatory assessments expense decreased $60$22 million, or 36%54%, compared to the thirdfirst quarter of 2017 and decreased $93 million, or 21%, compared to2018, driven by the nine months ended September 30, 2017. These decreases were driven primarily by lower severance-related expenses and software writedowns in the current quarter.
Separately, in accordance with our previously announced decision to terminate a pension plan that we acquired as partcessation of the NCF acquisition in 2004, we expect to reclassify approximately $61 million of pre-tax deferred losses from AOCI into net income upon settlement of the pension planFDIC surcharge in the fourth quarter of 2018.

Other noninterest expense increased $20 million, or 17%, compared to the first quarter of 2018, driven primarily by higher branch closure-related costs.


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


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

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

$68,203
 
$66,356

$73,278
 
$71,137
 3 %
CRE6,618
 5,317
7,889
 7,265
 9
Commercial construction3,137
 3,804
2,562
 2,538
 1
Total commercial LHFI77,958
 75,477
83,729
 80,940
 3
Consumer loans:        
Residential mortgages - guaranteed452
 560
467
 459
 2
Residential mortgages - nonguaranteed 2
28,187
 27,136
28,461
 28,836
 (1)
Residential home equity products9,669
 10,626
9,167
 9,468
 (3)
Residential construction197
 298
167
 184
 (9)
Guaranteed student7,039
 6,633
7,308
 7,229
 1
Other direct10,100
 8,729
11,029
 10,615
 4
Indirect12,010
 12,140
13,268
 12,419
 7
Credit cards1,603
 1,582
1,637
 1,689
 (3)
Total consumer LHFI69,257
 67,704
71,504
 70,899
 1
LHFI
$147,215
 
$143,181

$155,233
 
$151,839
 2 %
LHFS 3

$1,961
 
$2,290

$1,781
 
$1,468
 21 %
1 Includes $3.8 billion and $3.7$4.1 billion of leasesales-type and direct financing leases at both March 31, 2019 and $838December 31, 2018 and $786 million and $778$796 million of installment loans at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
2 Includes $168$134 million and $196$163 million of LHFI measured at fair value at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
3 Includes $1.8$1.1 billion and $1.6$1.2 billion of LHFS measured at fair value at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.



Table 5 presents our LHFI portfolio by geography (based on the U.S. Census Bureau's classifications of U.S. regions):
         Table 5
LHFI Portfolio by GeographyLHFI Portfolio by Geography         Table 5
September 30, 2018March 31, 2019
Commercial LHFI Consumer LHFI Total LHFICommercial LHFI Consumer LHFI Total LHFI
(Dollars in millions)Balance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFIBalance % of Total Commercial Balance % of Total Consumer Balance % of Total LHFI
South region:                      
Florida
$13,035
 17% 
$13,250
 19% 
$26,285
 18%
$13,517
 16% 
$13,289
 19% 
$26,806
 17%
Georgia10,519
 13
 8,485
 12
 19,004
 13
11,022
 13
 8,473
 12
 19,495
 13
Virginia6,349
 8
 7,457
 11
 13,806
 9
6,412
 8
 7,570
 11
 13,982
 9
Maryland4,317
 6
 6,148
 9
 10,465
 7
4,672
 6
 6,216
 9
 10,888
 7
North Carolina4,667
 6
 5,354
 8
 10,021
 7
4,805
 6
 5,449
 8
 10,254
 7
Texas4,166
 5
 4,512
 7
 8,678
 6
5,018
 6
 5,031
 7
 10,049
 6
Tennessee4,248
 5
 2,938
 4
 7,186
 5
4,167
 5
 2,933
 4
 7,100
 5
South Carolina1,505
 2
 2,396
 3
 3,901
 3
1,704
 2
 2,420
 3
 4,124
 3
District of Columbia1,653
 2
 1,063
 2
 2,716
 2
1,975
 2
 1,112
 2
 3,087
 2
Other Southern states2,669
 3
 2,536
 4
 5,205
 4
2,342
 3
 2,695
 4
 5,037
 3
Total South region53,128
 68
 54,139
 78
 107,267
 73
55,634
 66
 55,188
 77
 110,822
 71
Northeast region:                      
New York5,184
 7
 1,226
 2
 6,410
 4
5,299
 6
 1,302
 2
 6,601
 4
Pennsylvania1,664
 2
 1,254
 2
 2,918
 2
1,750
 2
 1,343
 2
 3,093
 2
New Jersey1,427
 2
 731
 1
 2,158
 1
1,394
 2
 756
 1
 2,150
 1
Other Northeastern states2,691
 3
 948
 1
 3,639
 2
3,090
 4
 1,006
 1
 4,096
 3
Total Northeast region10,966
 14
 4,159
 6
 15,125
 10
11,533
 14
 4,407
 6
 15,940
 10
West region:                      
California4,349
 6
 3,463
 5
 7,812
 5
5,647
 7
 3,680
 5
 9,327
 6
Other Western states2,466
 3
 2,588
 4
 5,054
 3
2,767
 3
 2,936
 4
 5,703
 4
Total West region6,815
 9
 6,051
 9
 12,866
 9
8,414
 10
 6,616
 9
 15,030
 10
Midwest region:                      
Illinois1,903
 2
 1,074
 2
 2,977
 2
1,956
 2
 1,155
 2
 3,111
 2
Ohio792
 1
 763
 1
 1,555
 1
1,017
 1
 803
 1
 1,820
 1
Missouri914
 1
 460
 1
 1,374
 1
1,032
 1
 506
 1
 1,538
 1
Other Midwestern states2,084
 3
 2,534
 4
 4,618
 3
2,254
 3
 2,745
 4
 4,999
 3
Total Midwest region5,693
 7
 4,831
 7
 10,524
 7
6,259
 7
 5,209
 7
 11,468
 7
Foreign loans1,356
 2
 77
 —
 1,433
 1
1,889
 2
 84
 —
 1,973
 1
Total
$77,958
 100% 
$69,257
 100% 
$147,215
 100%
$83,729
 100% 
$71,504
 100% 
$155,233
 100%

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


Loans Held for Investment
LHFI totaled $147.2$155.2 billion at September 30, 2018,March 31, 2019, an increase of $4.0$3.4 billion from December 31, 2017,2018, driven largely by increases in C&I, consumer direct,indirect, CRE, nonguaranteed residential mortgages, and guaranteed studentconsumer direct loans, offset partially by decreases in nonguaranteed residential mortgages and residential home equity products, commercial construction, and consumer indirect loans.products.
Average LHFI for the thirdfirst quarter of 20182019 totaled $146.0$154.3 billion, up $1.8$11.3 billion, or 1%8%, compared to the priorfirst quarter of 2018, driven primarily by the same factors as discussed above related to the changeincreases in period end LHFI.C&I, CRE, consumer direct, nonguaranteed residential mortgages, consumer indirect, and guaranteed student loans. These increases were offset partially by declines in average commercial construction loans and home equity products. See Table 1 and the "Net Interest Income/Margin" section in this MD&A for more detailed information regarding average LHFI balances, yields earned, and associated impacts on net interest income.
Commercial loans increased $2.5$2.8 billion, or 3%, during the first nine monthsquarter of 2018,2019, driven by a $1.8$2.1 billion, or 3%, increase in C&I loans resulting from growth in a number of industry verticals and client segments. In addition, CRE loans also increased $1.3 billion,$624 million, or 24%9%, driven by portfolio diversification and increased loan production, offset partially by a $667 million, or 18%, decrease in commercial construction loans due to payoffs and paydowns.production.
 
Consumer loans increased $1.6 billion$605 million, or 1%, during the first nine monthsquarter of 2018,2019, driven by an $849 million, or 7%, increase in indirect loans and a $1.4 billion,$414 million, or 16%4%, increase in other direct a $1.1 billion, or 4%, increase in nonguaranteed residential mortgages, and a $406 million, or 6%, increase in guaranteed student loans. These increases were offset partially by a $957declines of $375 million, or 9%1%, decreasein nonguaranteed residential mortgages and $301 million, or 3%, in residential home equity products and a $130 million, or 1%, decline in indirect loans during the first nine months of 2018.products.
At September 30, 2018,March 31, 2019, 40% of our residential home equity product balance was in a first lien position and 60% was in a junior lien position. For residential home equity products in a junior lien position at September 30, 2018,March 31, 2019, we own or service 32% of the balance of loans that are senior to the home equity product.
Loans Held for Sale
LHFS decreased $329increased $313 million, or 14%21%, during the first nine monthsquarter of 2018,2019, due primarily to the transfer of $465 million of accruing TDRs from LHFI to LHFS, which were sold in the second quarter of 2019 for a net gain of $44 million. This increase was offset partially by loan sales exceeding mortgage production.production during the first quarter of 2019.

Asset Quality
Our asset quality metrics were strong during the thirdfirst quarter and first nine months of 2018,2019, evidenced by our low annualized net charge-offs to total average LHFI ratio and low NPLs to period-end LHFI ratio. These low levels reflect the relative strength across our LHFI portfolio, particularly in C&I, CRE, and residential mortgages, though we recognize that there could be normalization and variability moving forward. See the “Allowance for Credit Losses” and “Nonperforming Assets” sections of this MD&A for detailed information regarding our net charge-offs and NPLs.
NPAs increased $13$59 million, or 2%10%, during the first nine monthsquarter of 2018,2019, driven primarily by an increase in C&I and CRE borrower downgrades as well as the impact of hurricane-related forbearances,NPLs, offset largelypartially by charge-offs, paydowns,a decrease in nonguaranteed residential mortgages and the return to accrual status of certain nonperforming home equity products. Additionally, the $64 million increase in nonperforming LHFS was driven by our transfer of certain commercial NPLs from LHFI to LHFS during the first quarter of 2019. At both September 30, 2018March 31, 2019 and December 31, 2017,2018, the ratio of NPLs to period-end LHFI was 0.47%.0.34% and 0.35%, respectively.
Early stage delinquencies were 0.74%0.64% and 0.80%0.73% of total loans at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Early stage delinquencies, excluding government-guaranteed loans, were 0.24%0.21% and 0.32%0.27% at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The reductions in early
stage delinquencies resulted primarily from improvements in consumer loans.
For the third quarterfirst quarters of 2019 and 2018, net charge-offs totaled $88$97 million compared to $73and $79 million, inand the prior quarter and $78 million in the third quarter of 2017. The annualized net charge-offs to total average LHFI ratio was 0.24%0.26% and 0.21% for the third quarter of 2018 and 2017, respectively, and was 0.20% for the prior quarter. For the first nine months of 2018 and 2017, net charge-offs totaled $240 million and $261 million, and the annualized net charge-offs to total average LHFI ratio was 0.22% and 0.24%, respectively. The declineincrease in net charge-offs compared to the first nine monthsquarter of 20172018 was driven primarily by overall asset quality improvements and lowerhigher net charge-offs on commercial net charge-offs.LHFI.
WeLooking to the remainder of 2019, we expect to operate within an annualizeda net charge-offs to total average LHFI ratio of between 25 and 30 basis points for the fourth quarter of 2018.points. Additionally, we expect the ALLL to period-end LHFI ratio to stabilize,remain relatively stable, which would result in a provision for loan losses that modestly exceeds net charge-offs, given loan growth.




ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. A rollforward of our allowance for credit losses and summarized credit loss experience is shown in Table 6. See Note 1, "Significant“Significant Accounting Policies,"” and the "Critical“Critical Accounting Policies"Policies”
 
MD&A section of our 20172018 Annual Report on Form 10-K, as well as Note 7, "Allowance“Allowance for Credit Losses,"” to the Consolidated Financial Statements in this Form 10-Q for further information regarding our ALLL accounting policy, determination, and allocation.


Summary of Credit Losses ExperienceSummary of Credit Losses Experience Table 6
Summary of Credit Losses Experience Table 6
          
Three Months Ended September 30   Nine Months Ended September 30  Three Months Ended March 31  
(Dollars in millions)2018 2017 
% Change 4
 2018 2017 
% Change 4
2019 2018 
% Change 5
Allowance for Credit Losses                
Balance - beginning of period
$1,722
 
$1,803
 (4)% 
$1,814
 
$1,776
 2 %
$1,684
 
$1,814
 (7)%
Provision/(benefit) for unfunded commitments—
 1
 (100) (7) 6
 NM
Provision for loan losses:           
Benefit for unfunded commitments(3) (10) (70)
Provision/(benefit) for loan losses:     
Commercial LHFI36
 5
 NM
 37
 89
 (58)84
 (16) NM
Consumer LHFI25
 114
 (78) 91
 235
 (61)72
 54
 33
Total provision for loan losses61
 119
 (49) 128
 324
 (60)156
 38
 NM
Charge-offs:          
    
Commercial LHFI(51) (33) 55
 (95) (122) (22)(33) (23) 43
Consumer LHFI(71) (76) (7) (234) (235) —
(92) (83) 11
Total charge-offs(122) (109) 12
 (329) (357) (8)(125) (106) 18
Recoveries:                
Commercial LHFI9
 11
 (18) 19
 32
 (41)5
 6
 (17)
Consumer LHFI25
 20
 25
 70
 64
 9
23
 21
 10
Total recoveries34
 31
 10
 89
 96
 (7)28
 27
 4
Net charge-offs(88) (78) 13
 (240) (261) (8)(97) (79) 23
Other 1
(31) —
 NM
Balance - end of period
$1,695
 
$1,845
 (8)% 
$1,695
 
$1,845
 (8)%
$1,709
 
$1,763
 (3)%
Components:                
ALLL    

 
$1,623
 
$1,772
 (8)%
$1,643
 
$1,694
 (3)%
Unfunded commitments reserve 1
    

 72
 73
 (1)
Unfunded commitments reserve 2
66
 69
 (4)
Allowance for credit losses

 

 

 
$1,695
 
$1,845
 (8)%
$1,709
 
$1,763
 (3)%
Average LHFI
$145,995
 
$144,706
 1 % 
$144,368
 
$144,276
 — %
$154,258
 
$142,920
 8 %
Period-end LHFI outstanding      147,215
 144,264
 2
155,233
 142,618
 9
Ratios:                
ALLL to period-end LHFI 2
      1.10% 1.23% (11)%
ALLL to NPLs 3
      2.35x
 2.55x
 (8)
Net charge-offs to total average LHFI (annualized)0.24% 0.21% 14
 0.22% 0.24% (8)
ALLL to period-end LHFI 3
1.06% 1.19% (11)%
ALLL to NPLs 4
3.17x
 2.40x
 32
Net charge-offs to total average LHFI0.26% 0.22% 18
1Represents the allowance for restructured loans that were transferred from LHFI to LHFS during the period and subsequently sold in the second quarter of 2019.
2 The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets.
23 $168 $134 million and $206$188 million of LHFI measured at fair value at September 30,March 31, 2019 and 2018, and 2017, respectively, were excluded from period-end LHFI in the calculation, as no allowance is recorded for loans measured at fair value. We believe that this presentation more appropriately reflects the relationship between the ALLL and loans that attract an allowance.
34 $64 million and $3$5 million of NPLs measured at fair value at September 30,March 31, 2019 and 2018, and 2017, respectively, were excluded from NPLs in the calculation, as no allowance is recorded for NPLs measured at fair value. We believe that this presentation more appropriately reflects the relationship between the ALLL and NPLs that attract an allowance.calculation.
45 "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful.



Provision for Credit Losses
The total provision for credit losses includes the provision for loan losses and the provision/(benefit)/provision for unfunded commitments. The provision for loan losses is the result of a detailed analysis performed to estimate an appropriate and adequate ALLL. For the thirdfirst quarter of 2018,2019, the total provision for loan losses decreased $58increased $118 million compared to the thirdfirst quarter of 2017, due to elevated hurricane-related reserves in the third quarter of 2017 and improved economic and credit conditions resulting in a lower ALLL. For the first nine months of 2018, the total provision for loan losses decreased $196 million compared to the same period in 2017, driven primarily by a lower ALLL and lower net charge-offs.loan growth.
Our quarterly review processes to determine the level of reserves and provision are informed by trends in our LHFI portfolio (including historical loss experience, expected loss calculations, delinquencies, performing status, size and composition of the loan portfolio, and concentrations within the portfolio) combined with a view on economic conditions. In addition to internal credit quality metrics, the ALLL estimate is impacted by other indicators of credit risk associated with the portfolio, such as geopolitical and economic risks, and the increasing availability of credit and resultant higher levels of leverage for consumers and commercial borrowers.
















 
Allowance for Loan and Lease Losses
ALLL by Loan SegmentALLL by Loan Segment Table 7
ALLL by Loan Segment Table 7
(Dollars in millions)September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
ALLL:      
Commercial LHFI
$1,062
 
$1,101

$1,136
 
$1,080
Consumer LHFI561
 634
507
 535
Total
$1,623
 
$1,735

$1,643
 
$1,615
Segment ALLL as a % of total ALLL:
Commercial LHFI65% 63%69% 67%
Consumer LHFI35
 37
31
 33
Total100% 100%100% 100%
Segment LHFI as a % of total LHFI:
Commercial LHFI53% 53%54% 53%
Consumer LHFI47
 47
46
 47
Total100% 100%100% 100%


The ALLL decreased $112increased $28 million, or 6%2%, from December 31, 2017,2018, to $1.6 billion at September 30, 2018.March 31, 2019. The decreaseincrease was due primarily to a reduction in the amount ofloan growth and higher reserves held for hurricane-related losses and improved economic and credit conditions, offset partially by loan growth.associated with commercial loans. The ALLL to period-end LHFI ratio (excluding loans measured at fair value) decreased 11 basis points fromwas 1.06% at March 31, 2019, flat compared to December 31, 2017, to 1.10% at September 30, 2018. The ratio of the ALLL to NPLs (excluding NPLs measured at fair value) decreasedincreased to 2.35x3.17x at September 30, 2018,March 31, 2019, compared to 2.59x3.10x at December 31, 2017, due to a decrease2018, driven by an increase in the ALLL and an increase inlower levels of NPLs.




NONPERFORMING ASSETS


NPA and TDR Composition and Other Credit Data    Table 8
    Table 8
(Dollars in millions)September 30, 2018 December 31, 2017 % ChangeMarch 31, 2019 December 31, 2018 
% Change 3
NPAs:          
Commercial NPLs:          
C&I
$256
 
$215
 19 %
$197
 
$157
 25 %
CRE43
 24
 79
2
 2
 —
Commercial construction—
 1
 (100)
Total commercial NPLs299
 240
 25
199
 159
 25
Consumer NPLs:          
Residential mortgages - nonguaranteed225
 206
 9
178
 204
 (13)
Residential home equity products149
 203
 (27)124
 138
 (10)
Residential construction9
 11
 (18)8
 11
 (27)
Other direct7
 7
 —
8
 7
 14
Indirect6
 7
 (14)5
 7
 (29)
Total consumer NPLs396
 434
 (9)323
 367
 (12)
Total nonaccrual loans/NPLs 1

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

$522
 
$526
 (1)%
OREO 2

$52
 
$57
 (9)%
$53
 
$54
 (2)%
Other repossessed assets7
 10
 (30)9
 9
 —
Nonperforming LHFS64
 —
 NM
Total NPAs
$754
 
$741
 2 %
$648
 
$589
 10 %
Accruing LHFI past due 90 days or more
$1,482
 
$1,405
 5 %
$1,659
 
$1,652
 — %
Accruing LHFS past due 90 days or more2
 2
 —
2
 1
 100
TDRs:          
Accruing restructured loans
$2,327
 
$2,468
 (6)%
Nonaccruing restructured loans 1
345
 286
 21
Accruing restructured LHFI
$1,807
 
$2,339
 (23)%
Nonaccruing restructured LHFI 1
309
 291
 6
Ratios:          
NPLs to period-end LHFI0.47% 0.47% — %0.34% 0.35% (3)%
NPAs to period-end LHFI, OREO, and other repossessed assets0.51
 0.52
 (2)
NPAs to period-end LHFI, OREO, other repossessed assets, and nonperforming LHFS0.42
 0.39
 8
1Nonaccruing restructured loansLHFI are included in total nonaccrual loans/LHFI/NPLs.
2Does not include foreclosed real estate related to loans insured by the FHA or guaranteed by the VA. Proceeds due from the FHA and the VA are recorded as a receivable in Other assets in the Consolidated Balance Sheets until the property is conveyed and the funds are received. The receivable related to proceeds due from the FHA andor the VA totaled $49 million and $45$50 million at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018.

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



Problem loans or loans with potential weaknesses, such as nonaccrual loans, loans over 90 days past due and still accruing, and TDR loans held for investment, are disclosed in the NPA table above. Loans with known potential credit problems that may not otherwise be disclosed in this table include accruing criticized commercial loans, which are disclosed along with additional credit quality information in Note 6, “Loans,” to the Consolidated Financial Statements in this Form 10-Q. At September 30, 2018March 31, 2019 and December 31, 2017,2018, there were no known significant potential problem loans that are not otherwise disclosed. See the "Critical“Critical Accounting Policies"Policies” MD&A section of our 20172018 Annual Report on Form 10-K for additional information regarding our policy on loans classified as nonaccrual.
NPAs increased $13$59 million, or 2%10%, during the first nine monthsquarter of 2018.2019. The increase in NPAs was driven primarily by commercial borrower downgradesan increase in C&I NPLs during the first quarter of 2019, offset partially by decreases in nonguaranteed residential mortgages and hurricane-related forbearances on residential mortgage loans, offset largely by the return to accrual status of certain nonperforming home equity products.NPLs.


 
Nonperforming Loans
NPLs at September 30, 2018March 31, 2019 totaled $695$522 million, an increasea decrease of $21$4 million, or 3%1%, from December 31, 2017,2018, driven primarily by increasesa decline in C&I, CRE, and residential mortgageconsumer NPLs, offset largely by a decreasean increase in home equitycommercial NPLs. The ratio of NPLs to period-end LHFI was 0.47%0.34% and 0.35% at both September 30, 2018March 31, 2019 and December 31, 2017.2018, respectively.
Commercial NPLs increased $59$40 million, or 25%, during the first nine monthsquarter of 2018 driven by increases2019, due to an increase in C&I and CRE NPLs of $41 million, or 19%, and $19 million, or 79%, respectively, duedriven primarily toby borrower downgrades, offset partially by charge-offs and paydowns.downgrades.
Consumer NPLs decreased $38$44 million, or 9%12%, from December 31, 2017,2018, driven by a decline in nonguaranteed residential mortgages and the return to accrual status of certain home equity products, offset partially by an increase in residential mortgage NPLs due primarily to hurricane-related forbearances.products.
Interest income on consumer nonaccrual loans, if received, is recognized on a cash basis. Interest income on commercial nonaccrual loans is not generally recognized until after the principal amount has been reduced to zero. Interest income

recognized on nonaccrual loans (which includes out-of-period interest for certain commercial nonaccrual loans) totaled $5 million and $11$4 million for the third quarter of 2018 and 2017, and totaled $15 million and $24 million forboth the first nine monthsquarters of 20182019 and 2017, respectively.2018. If all such

loans had been accruing interest according to their original contractual terms, estimated interest income of $12$9 million and $11 million would have been recognized for the third quarterfirst quarters of 20182019 and 2017, and $34 million and $33 million for the first nine months of 2018, and 2017, respectively.


Other Nonperforming Assets
OREO decreased $5$1 million, or 9%2%, during the first nine monthsquarter of 20182019 to $52$53 million at September 30, 2018.March 31, 2019. Sales of OREO resulted in proceeds of $47$11 million and $46$15 million during the first nine monthsquarters of 20182019 and 2017,2018, resulting in net gains of $7$1 million and $8$3 million, respectively, inclusive of valuation reserves.
Most of our OREO properties are located in Florida, Georgia, Maryland, Virginia, and South Carolina.Virginia. Residential and commercial real estate properties comprised 93% and 4%, respectively, of total OREO at September 30, 2018,March 31, 2019, with the remainder related to land. Upon foreclosure, the values of these properties were re-evaluated and, if necessary, written down to their then-current estimated fair value less estimated costs to sell. Any further decreases in property values could result in additional losses as they are regularly revalued. See the "Non-recurring Fair Value Measurements" section within Note 16,17, "Fair Value Election and Measurement," to the Consolidated Financial Statements in this Form 10-Q for additional information.
Gains and losses on the sale of OREO are recorded in Other noninterest expense in the Consolidated Statements of Income. Sales of OREO and the related gains or losses are highly dependent on our disposition strategy. We are actively managing and disposing of these assets to minimize future losses and to maintain compliancecomply with regulatory requirements.
Accruing loans past due 90 days or more are included in LHFI and LHFS, and totaled $1.5 billion and $1.4$1.7 billion at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018. Of these, 97% and 98% were government-guaranteed at September 30, 2018both March 31, 2019 and December 31, 2017, respectively.2018. Accruing LHFI past due 90 days or more increased $77 million, or 5%,remained relatively
stable during the first nine monthsquarter of 2018, driven by a $1252019, as an $8 million, or 12%80%, increase in guaranteed student loans,nonguaranteed residential mortgages was offset partially by a $59$4 million, or 17%1%, decrease in guaranteed residential mortgages.

Restructured Loans
At September 30, 2018,March 31, 2019, our total TDR portfolio included in LHFI totaled $2.7$2.1 billion and was comprised of $2.5$2.0 billion, or 95%93%, of consumer loans (predominantly first and second lien residential mortgages and home equity lines of credit) and $128$140 million, or 5%7%, of commercial loans. Total TDRs held for investment decreased $82$514 million, or 20%, from December 31, 2017, as2018, due to a $141$532 million, or 6%23%, decrease in accruing TDRs, was offset partially by a $59an $18 million, or 21%6%, increase in nonaccruing TDRs. The reduction in accruing TDRs was driven by the transfer of $465 million of TDRs from LHFI to LHFS in the first quarter of 2019. These TDRs were sold in the second quarter of 2019 for a net gain of $44 million.
Generally, interest income on restructured loans that have met sustained performance criteria and returned to accruing status is recognized according to the terms of the restructuring. Such recognized interest income totaled $26$22 million and $27 million for the third quarterfirst quarters of 20182019 and 2017, and totaled $80 million and $81 million for the first nine months of 2018, and 2017, respectively. If all such loans had been accruing interest according to their original contractual terms, estimated interest income of $30$24 million and $32 million for the third quarterfirst quarters of 20182019 and 2017, and $93 million and $98 million for the first nine months of 2018, and 2017, respectively, would have been recognized.
For additional information regarding our restructured loans and associated accounting policies, see Note 1, "Significant“Significant Accounting Policies,"” and the "Nonperforming Assets"“Nonperforming Assets” MD&A section inof our 20172018 Annual Report on Form 10-K, as well as Note 6, “Loans,” to the Consolidated Financial Statements in this Form 10-Q.


SELECTED FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The following is a discussion of the more significant financial assets and financial liabilities that are measured at fair value on the Consolidated Balance Sheets at September 30, 2018March 31, 2019 and December 31, 2017.2018. For a complete discussion of our financial instruments measured at fair value and the methodologies used to estimate the fair values of our financial instruments, see Note 16,17, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.10-Q as well as in our 2018 Annual Report on Form 10-K.


Trading Assets and Liabilities and Derivative Instruments
Trading assets and derivative instruments increased $583$753 million, or 11%14%, compared to December 31, 2017.2018. This increase was due primarily to increases in CP,derivative instruments, corporate and other debt securities, federal agency securities, U.S. Treasury securities,CP, and trading loans, offset partially by decreases in agency MBS and municipal securities, offset partially by a decrease in derivative instruments.securities. These changes were driven by normal
 
by normal activity in the trading portfolio product mix as we manage our business and continue to meet our clients' needs. Trading liabilities and derivative instruments increased $580$5 million or 45%, compared to December 31, 2017,2018, driven by increases in derivative instruments, U.S. Treasury securities and corporate and other debt securities.securities, offset largely by a decrease in derivative instruments. For composition and valuation assumptions related to our trading products, as well as additional information on our derivative instruments, see Note 4, “Trading Assets and Liabilities and Derivative Instruments,” Note 15,16, “Derivative Financial Instruments,” and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 16,17, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q. Also, for a discussion of market risk associated with our trading activities, refer to the “Market“Market Risk Management—Management—Market Risk from Trading Activities” section ofin this MD&A.&A and in our 2018 Annual Report on Form 10-K.






Investment Securities              
              
Investment Securities Portfolio Composition

      Table 9
      Table 9
September 30, 2018March 31, 2019
(Dollars in millions)
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Securities AFS:              
U.S. Treasury securities
$4,275
 
$—
 
$142
 
$4,133

$4,279
 
$4
 
$24
 
$4,259
Federal agency securities224
 2
 3
 223
143
 1
 2
 142
U.S. states and political subdivisions621
 3
 22
 602
594
 6
 7
 593
MBS - agency residential23,112
 111
 718
 22,505
23,149
 207
 146
 23,210
MBS - agency commercial2,713
 1
 112
 2,602
2,641
 20
 37
 2,624
MBS - non-agency commercial943
 —
 38
 905
1,009
 7
 4
 1,012
Corporate and other debt securities14
 —
 —
 14
13
 —
 —
 13
Total securities AFS
$31,902
 
$117
 
$1,035
 
$30,984

$31,828
 
$245
 
$220
 
$31,853


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

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

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


The investment securities portfolio is managed as part of our overall liquidity management and ALM process to optimize income and portfolio value over an entire interest rate cycle while mitigating the associated risks. Changes in the size and composition of the portfolio reflect our efforts to maintain a high quality, liquid portfolio, while managing our interest rate risk profile.
The amortized cost of the portfolio increased $989decreased $82 million during the ninethree months ended September 30, 2018,March 31, 2019, due primarily to decreased holdings of federal agency securities, agency MBS, and municipal securities, offset partially by increased holdings of agency commercial and residential MBS as well as non-agency commercial MBS, offset partially by decreased holdings of U.S. Treasury securities, non-agency residential MBS, and federal agency securities.MBS. The fair value of the securities AFS portfolio increased $37$411 million compared to Decemberduring the three months ended March 31, 2017,2019, due primarily to the aforementioned increases in securities holdings, offset largely by a $952$493 million increasedecrease in net unrealized losses associated with increasedthe decline in market interest rates.rates, offset partially by the aforementioned decreases in securities holdings. At September 30, 2018,March 31, 2019, the overall securities AFS portfolio was in a $918$25 million net unrealized lossgain position, compared to a net unrealized gainloss position of $34$468 million at December 31, 2017.2018. The securities AFS portfolio had an effective duration of 4.84.2 years at September 30, 2018March 31, 2019 compared to 4.54.6 years at December 31, 2017.
2018.
NetFor the three months ended March 31, 2019, there were no net realized gains related torecognized on the sale of securities AFS were immaterialand for both the ninethree months ended September 30,March 31, 2018, and 2017. Therenet realized gains were noimmaterial. No OTTI credit losses were recognized in earnings for the ninethree months ended September 30, 2018March 31, 2019 and 2017.2018. Additionally, in the second quarter of 2019 we repositioned a portion of the securities AFS portfolio, which resulted in net
realized losses of approximately $45 million. For additional information on our accounting policies, composition, and valuation assumptions related to the securities AFS portfolio, see Note 1, "Significant“Significant Accounting Policies," to” and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 20, “Fair Value Election and Measurement,” in our 20172018 Annual Report on Form 10-K, as well as Note 5, "Investment“Investment Securities," Note 1, "Significant Accounting Policies," and the “Trading Assets and Derivative Instruments and Investment Securities” section of Note 16, “Fair Value Election and Measurement,” to the Consolidated Financial Statements in this Form 10-Q.
For the three months ended September 30, 2018,March 31, 2019, the average yield on the securities AFS portfolio was 2.69%2.77%, compared to 2.49%2.62% for the three months ended September 30, 2017. For the nine months ended September 30, 2018, the average yield on the securities AFS portfolio was 2.66%, compared to 2.45% for the nine months ended September 30, 2017.March 31, 2018. The increasesincrease in average yield werewas due primarily to higher benchmark interest rates favorable mix shift, and lower premium amortization. See additional discussion related to average yields on securities AFS in the "Net“Net Interest Income/Margin"Margin” section of this MD&A.

The credit quality and liquidity profile of our investment securities portfolio remained strong at September 30, 2018.March 31, 2019. Over the longer term, the size and composition of the investment securities portfolio will reflect balance sheet trends and our overall liquidity objectives. Accordingly, the size and composition of the investment securities portfolio could change over time.


BORROWINGS

Short-Term Borrowings
Short-term borrowings include funds purchased, securities sold under agreements to repurchase, and other short-term borrowings. Our short-term borrowings at September 30, 2018 March 31, 2019

increased $3.2$1.6 billion, or 66%18%, from December 31, 2017,2018, driven by increases of $2.1$2.4 billion $793 million, and $227$188 million in other short-term borrowings funds purchased, and securities sold under agreements to repurchase, respectively.respectively, offset partially by a $972 million decrease in funds purchased. The increase in other short-term borrowings was due primarily to a $2.0$2.3 billion increase in outstanding short-term FHLB advances.
Long-Term Debt
During the ninethree months ended September 30, 2018,March 31, 2019, our long-term debt increased by $4.5$2.3 billion, or 46%15%. This increase was driven by (i) the Bank's first quarterour issuance of 2018 issuances of $500 million$1.3 billion of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under the Global Bank Note program, (ii) our second quarter of 2018 issuance of $850 million of 7-year fixed rate senior notes under the Parent Company SEC shelf registration, (iii) the Bank's third quarter of 2018 issuances of $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes under the Global Bank Note program and (iv) increases ofa $1.0 billion and $542 millionincrease in outstanding long-term FHLB advances and direct finance leases, respectively, during the ninethree months ended September 30, 2018. Partially offsetting these increases was $314 million of subordinated note maturities during the first nine months of 2018.March 31, 2019.
Table 10 presents our October 2018 issuances of long-term debt under the Global Bank Note program (completed subsequent to the current reporting period).
Issuances Subsequent to September 30, 2018Table 10
Bank IssuancesPrincipal AmountInterest RateOptional RedemptionMaturity Date
7-year fixed rate senior notes$500 million4.050% per annumCallable either (i) on or after September 3, 2025, or (ii) on or after 180 days from October 26, 2018 and prior to September 3, 2025 under a "make-whole" provisionNovember 3, 2025
3-year fixed-to-floating rate senior notes$600 millionFixed annual rate of 3.525% until October 25, 2020 and floating rate thereafter of 3-month LIBOR plus 50 basis pointsCallable on October 26, 2020October 26, 2021
3-year floating rate senior notes$300 million3-month LIBOR plus 50 basis pointsCallable on or after October 26, 2020October 26, 2021

CAPITAL RESOURCES
Regulatory Capital
Our primary federal regulator, the Federal Reserve, measures capital adequacy within a framework that sets capital requirements relative to the risk profiles of individual banks. The framework assigns risk weights to assets and off-balance sheet risk exposures according to predefined classifications, creating a base from which to compare capital levels. We measure capital adequacy using the standardized approach to the FRB'sFRB’s Basel III Final Rule. Basel III capital categories are discussed below.
CET1 is limited to common equity and related surplus (net of treasury stock), retained earnings, AOCI, and common equity minority interest, subject to limitations. Certain regulatory adjustments and exclusions are made to CET1, including removal of goodwill, other intangible assets, certain DTAs, and certain defined benefit pension fund net assets. Further, banks not subject to the advanced approaches risk-based capital rules were granted a one-time permanent election to exclude AOCI from the calculation of regulatory capital. We elected to exclude AOCI from the calculation of our CET1.
Tier 1 capital includes CET1, qualified preferred equity instruments, qualifying minority interest not included in CET1, subject to limitations, and certain other regulatory deductions. Tier 2 capital includes qualifying portions of subordinated debt, trust preferred securities and minority interest not included in Tier 1 capital, ALLL up to a maximum of 1.25% of RWA, and a limited percentage of unrealized gains on equity securities. Total capital consists of Tier 1 capital and Tier 2 capital.
To be considered "adequately“adequately capitalized,"” we are subject to minimum CET1, Tier 1 capital, and Total capital ratios of 4.5%, 6%, and 8%, respectively, plus, in 2018, 2017, and 2016, CCB amounts of 1.875%, 1.25%, and 0.625%, respectively, arewere required to be maintained above the minimum capital ratios. The CCB will bewas fully phased-in at 2.5% above the minimum capital ratios on January 1, 2019. The CCB places restrictions on the amount of retained earnings that may be used for capital distributions or discretionary bonus payments as risk-based capital ratios approach their respective “adequately capitalized” minimum capital ratios plus the CCB. To be considered “well-capitalized,” Tier 1 and Total capital ratios of 6% and 10%, respectively, are required.

In April 2018, the FRB issued an NPR that included proposed modifications to minimum regulatory capital
requirements as well as proposed changes to assumptions used in the stress testing process. The modifications would replace the 2.5% CCB with a Stress Capital Buffer ("SCB"(“SCB”). The SCB is the greater of (i) the difference between the actual CET1 ratio and the minimum forecasted CET1 ratio under a severely adverse scenario, based on modeling and projections performed by the Federal Reserve, plus four quarters of planned common stock dividends, or (ii) 2.5%, based on modeling and projections performed by the Federal Reserve.. If finalized, the SCB would be calculated based on the 2019 CCAR process and be incorporated into capital requirements effective as of the fourth quarter of 2019.
We are also subject to a Tier 1 leverage ratio requirement, which measures Tier 1 capital against average total assets less certain deductions, as calculated in accordance with regulatory guidelines. The minimum leverage ratio threshold is 4% and is not subject to the CCB.
A transition period previously applied to certain capital elements and risk weighted assets, where phase-in percentages were applicable in the calculations of capital and RWA. One of the more significant transitions required by the Basel III Final Rule relatesrelated to the risk weighting applied to MSRs, which impacted the CET1 ratio during the transition period when compared to the CET1 ratio calculated on a fully phased-in basis. Specifically, the fully phased-in risk weight of MSRs would have been 250%, while the risk weight to be applied during the transition period was 100%.
In the third quarter of 2017, the OCC, FRB, and FDIC issued two NPRs in an effort to simplify certain aspects of the capital rules, a Transitions NPR and a Simplifications NPR. The Transitions NPR proposed to extend certain transition provisions in the capital rules for banks with less than $250 billion in total consolidated assets. The Transitions NPR was finalized in November 2017, resulting in the MSR risk weight of 100% being extended indefinitely. The rule became effective on January 1, 2018. The Simplifications NPR would simplify the capital treatment for certain acquisition, development, and construction loans, mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act ("the Act"(“EGRRCPA”) was signed into law, which provides certain limited amendments to the Dodd-Frank Act as well as certain targeted modifications to other post-financial crisis regulatory requirements. WhileThe federal banking agencies have proposed several rules to implement the EGRRCPA (including the October 2018 NPR discussed below), but these proposed rules are subject to finalization, and additional rulemakings by the federal regulators are expected to be issued. As a result, we continue to evaluate the impact of the EGRRCPA, but anticipate that certain of the Act'sits provisions could impactaffect our capital planning and strategy execution,execution. See the extent“Enhanced Prudential Standards,” “Mandatory Liquidity Coverage Ratio and Net Stable Funding Ratio,” and “Capital Planning and Stress Testing” sections of Part I, Item 1, “Business,” in our 2018 Annual Report on Form 10-K for more information on the impact is yet to be determined given that federal banking regulators have not yet conformed current regulations to the provisions of the Act.EGRRCPA.
In September 2018, the OCC, FRB, and FDIC issued an NPR that would revise the definition of high volatility commercial real estate exposure ("HVCRE"(“HVCRE”) to conform with the statutory definition of a high volatility commercial real estate acquisition, development, or construction loan, in accordance

with the Act.EGRRCPA. The revised definition would exclude any loans made prior to January 1, 2015, and certain other loans currently classified as HVCRE. We are currently evaluating the impactadopted this revised definition of this NPR on our capital ratios.
HVCRE effective March 31, 2019.
In October 2018, the OCC, FRB, and FDIC issued an a joint NPR to address the tailoring provided for in the EGRRCPA that would establish four risk-based categories of standards for determining applicability of capital and liquidity requirements for large U.S. banking organizations. The proposal is consistent with a separate NPR issued concurrently by the FRB that would amend certain prudential standards, including standards relating to liquidity, risk management, stress testing, and single-counterparty credit limits, to reflect the risk profiles of banking organizations. We are currently evaluating
In February 2019, the impactFRB announced that certain less-complex BHCs with less than $250 billion in assets, including the Company, would not be subject to supervisory stress testing, company-run stress testing, or CCAR for 2019.
For more information on these NPRs and announcements, see the “Enhanced Prudential Standards,” “Mandatory Liquidity Coverage Ratio and Net Stable Funding Ratio,” and “Capital Planning and Stress Testing” sections of these NPRs.Part I, Item 1, “Business,” in our 2018 Annual Report on Form 10-K.
InAlso in October 2018, the OCC, FRB, and FDIC issued an NPR that introduced a new approach for calculating the exposure amount of derivative contracts for regulatory capital purposes, the standardized approach for counterparty credit risk ("SA-CCR"(“SA-CCR”). If finalized, we would be permittedcould elect to utilize the SA-CCR in place of the current exposure methodology for determining counterparty credit risk exposures. We are currently evaluatingexposures, as the impact of this NPR.SA-CCR would be optional for non-advanced approaches banking institutions.
Table 1110 presents the Company'sCompany’s Basel III regulatory capital metrics:
Regulatory Capital Metrics 1
Regulatory Capital Metrics 1
 Table 11
Regulatory Capital Metrics 1
 Table 10
(Dollars in millions)September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Regulatory capital:      
CET1
$17,543
 
$17,141

$17,391
 
$17,258
Tier 1 capital19,591
 19,622
19,439
 19,306
Total capital22,791
 23,028
22,690
 22,517
Assets:      
RWA
$182,729
 
$175,950

$191,431
 
$187,380
Average total assets for leverage ratio202,786
 200,141
212,417
 208,482
Risk-based ratios 2:
      
CET19.60% 9.74%9.09% 9.21%
Tier 1 capital10.72
 11.15
10.15
 10.30
Total capital12.47
 13.09
11.85
 12.02
Leverage9.66
 9.80
9.15
 9.26
Total shareholders’ equity to assets11.43
 12.21
11.26
 11.26
1We calculated these measures based on the methodology specified by our primary regulator, which may differ from the calculations used by other financial services companies that present similar metrics.
2 Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented.


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

Capital Actions
We declared and paid common stock dividends of $603$222 million, or $1.30$0.50 per common share, for the ninethree months ended September 30, 2018,March 31, 2019, compared to $443$187 million, or $0.92$0.40 per common share, for the ninethree months ended September 30, 2017.March 31, 2018. Additionally, we declared dividends on our preferred stock of $81$26 million and $65$31 million during the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, respectively.
Various regulations administered by federal and state bank regulatory authorities restrict the Bank'sBank’s ability to distribute its retained earnings. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Bank'sBank’s capacity to pay cash dividends to the Parent Company under these regulations totaled approximately $2.1$1.5 billion and $2.5$2.2 billion, respectively.
During each of the first and second quartersquarter of 2018,2019, we repurchased $330$250 million of our outstanding common stock at market value, which completed our $1.32 billion of authorized common equity repurchases approved by the Board in conjunction with the 2017 capital plan.
In June 2018, we announced capital plans in response to the Federal Reserve's review of and non-objection tounder our 2018 capital plan submitted in conjunction with the 2018 CCAR. Our 2018 capitalpursuant to an SEC Rule 10b5-1 repurchase plan includes increases in our share repurchase program and quarterlyentered into on November 6, 2018. At March 31, 2019, we had $500 million of remaining common stock dividend, while maintaining our level of preferred stock dividends. Specifically,repurchase capacity available under the 2018 capital plan authorizedplan; however, we do not intend to utilize this remaining share repurchase capacity in view of the repurchaseMerger. Also, in April 2019, we submitted certain required schedules to the Federal Reserve to support our 2019 internal capital plan.
Going forward, we expect our capital ratios to trend upward given the suspension of up to $2.0 billionshare repurchases in anticipation of our outstanding commonthe Merger. This will result in a share count that is relatively stable until the Merger closes. Relatedly, we will not be pursuing the preferred stock to be completed between the third quarter of 2018 and the second quarter of 2019, as well as a 25% increaseissuance that was contemplated in our quarterly common stock dividend from $0.40 per share to $0.50 per share, beginning in the third quarter of 2018.
During the third quarter of 2018, we repurchased $500 million of our outstanding common stock at market value as part of thisoriginal 2018 capital plan. We will repurchase a minimum of $500 million of our outstanding common stock in the fourth quarter of 2018.
See Item 5 and Note 13, "Capital,"15, “Capital,” to the Consolidated Financial Statements in our 20172018 Annual Report on Form 10-K, as well as Part II, Item 2 in this Form 10-Q for additional information regarding our capital actions.


CRITICAL ACCOUNTING POLICIES
There have been no significant changes to our Critical Accounting Policies from those described in our 20172018 Annual Report on Form 10-K.

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

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


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


Market Risk from Non-Trading Activities
The sensitivity analysis presented in Table 1211 is measured as a percentage change in net interest income due to instantaneous moves in benchmark interest rates. Estimated changes are dependent upon material assumptions such as those described in our 20172018 Annual Report on Form 10-K.
Net Interest Income Asset SensitivityNet Interest Income Asset SensitivityTable 12Net Interest Income Asset SensitivityTable 11
  
Estimated % Change in
Net Interest Income Over 12 Months 1
Estimated % Change in
Net Interest Income Over Twelve Months 1
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Rate Change  
+200 bps2.0% 2.4%3.0% 2.3%
+100 bps1.1% 1.4%1.6% 1.2%
-50 bps(0.8)% (1.0)%(1.3)% (0.9)%
1 Estimated % change of net interest income is reflected on a non-FTE basis.


Net interest income asset sensitivity at September 30, 2018 decreasedMarch 31, 2019 increased compared to December 31, 2017,2018, driven primarily by changesgrowth in our funding profile.floating rate loans. See additional discussion related to net interest income in the "Net Interest Income/Margin" section of this MD&A.
At September 30, 2018,In addition to assessing net interest income asset sensitivities, we also perform simulation analyses to assess the sensitivity of our MVE profile in Table 13 indicates a decline in net balance sheet value duerelative to instantaneous upward changes in rates. This MVE sensitivity is reported for both upward and downward rate shocks. 
Market Value of Equity SensitivityTable 13
    
 Estimated % Change in MVE
 September 30, 2018 December 31, 2017
Rate Change   
+200 bps(7.5)% (7.6)%
+100 bps(3.5)% (3.3)%
 -50 bps1.3% 0.8%
MVE sensitivity for downward rate shocks at September 30, 2018 increased compared to December 31, 2017, driven primarily by higher absolute levels ofmarket interest rates. While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these rate scenarios, we believe that a gradual shift in interest rates would have a much more modest impact.
Since MVE measuresis measured as the discounted present value of asset and derivative cash flows overminus the estimated livesdiscounted present value of instruments, the change inliability cash flows. Management uses MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Furthermore, MVE does not take into account factors suchsensitivity as future balance sheet growth, changes in product mix, changes in yield curve relationships,an additional means of measuring interest rate risk and changing product spreads that could mitigate the impactincorporates this form of changes in interest rates. The net interest income simulationanalysis within its governance and valuation analyses do not includelimits framework.
 
actions that management may undertake to manage this risk in response to anticipated changes in interest rates.
Market Risk from Trading Activities
Table 1412 presents VAR and Stressed VAR for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, as well as VAR by Risk Factor at September 30, 2018March 31, 2019 and 2017.2018.
Value at Risk ProfileValue at Risk Profile   Table 14 Table 12 
          
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
(Dollars in millions)2018 2017 2018 20172019 2018
VAR (1-day holding period):VAR (1-day holding period):         
Period end
$2
 
$2
 
$2
 
$2

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

$111
 
$68
High81
 100
 103
 100
127
 85
Low25
 44
 25
 22
31
 25
Average55
 65
 61
 53
56
 49
VAR by Risk Factor at period end (1-day holding period):
Equity risk    
$2
 
$1

$1
 
$2
Interest rate risk    1
 1
1
 1
Credit spread risk    2
 3
2
 3
VAR total at period end (1-day diversified)VAR total at period end (1-day diversified) 2
 2
2
 2
The trading portfolio'sportfolio’s VAR profile, presented in Table 14,12, is influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. Notwithstanding normal quarterly variations in the VAR associated with individual risk factors, average daily VAR as well as period end VAR for the three and nine months ended September 30, 2018March 31, 2019 remained largely unchanged compared to the same periodsperiod in 2017.2018. Average and period end Stressed VAR remained within historic ranges throughoutand increased for the first ninethree months ofended March 31, 2019 compared to the same period in 2018, reflecting typical fluctuations in portfolio composition and balance sheet usage.higher stressed exposures associated with our equity derivatives portfolio. The trading portfolio of covered positions did not contain any correlation trading positions or on- or off-balance sheet securitization positions during the ninethree months ended September 30, 2018March 31, 2019 or 2017.2018.
In accordance with the Market Risk Rule, we evaluate the accuracy of our VAR model through daily backtesting by comparing aggregate daily trading gains and losses (excluding fees, commissions, reserves, net interest income, and intraday trading) from covered positions with the corresponding daily VAR-based measures generated by the model. As illustrated in the following graph, there were notwo firmwide VAR backtesting exceptions during the twelve months ended September 30, 2018.March 31, 2019. These two backtesting exceptions were driven primarily by credit spread widening during the broader sell-off in equity and credit markets during the latter half of December 2018, which impacted our corporate credit trading portfolio of bonds and loans. The total number of firmwide VAR backtesting exceptions over the preceding twelve months is used to determine the multiplication factor for the VAR-based capital requirement under the Market Risk Rule. The capital multiplication factor

increases from a minimum of three to a maximum of four, depending on the number of exceptions. There was no change
in the capital multiplication factor over the preceding twelve months.



vara15.jpgvara21.jpg


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


Liquidity Risk Management
LCR requirements under Regulation WW require large U.S. banking organizations to hold unencumbered high-quality liquid assets sufficient to withstand projected 30-day total net cash outflows, each as defined under the LCR rule. At September 30, 2018,March 31, 2019, our LCR calculated pursuant to the rule was above the 100% minimum regulatory requirement. At March 31, 2019, our average month-end LCR was 111%.
On December 19, 2016, the FRB published a final rule implementing public disclosure requirements for BHCs subject to the LCR that will requirerequires them to publicly disclose quantitative and qualitative information regarding their respective LCR calculations on a quarterly basis. We will beare required to begin disclosingdisclose elements under this final rule for quarterly periods ending after October 1, 2018.2018, which can be found on our investor relations website at http://investors.suntrust.com.
On May 3, 2016, the FRB, OCC, and the FDIC issued a joint proposed rule to implement the NSFR. The proposal would require large U.S. banking organizations to maintain a stable
funding profile over a one-year horizon. The FRB proposed a modified NSFR requirement for BHCs with greater than $50 billion but less than $250 billion in total consolidated assets, and less than $10 billion in total on balance sheet foreign exposure. The proposed NSFR requirement seeks to (i) reduce
vulnerability to liquidity risk in financial institution funding structures and (ii) promote improved standardization in the measurement, management and disclosure of liquidity risk. The proposed rule contains an implementation date of January 1, 2018; however, a final rule has not yet been issued.
On October 31, 2018, the FRB released a draft proposal designed to tailor the application of the enhanced prudential standards pursuant to the EGRRCPA. Under the proposal, four categories of standards would be applied to U.S. banking organizations based on size, complexity, and other risk-based factors. If the proposal is finalized as proposed, we would be considered a Category IV bank and would no longer be subject to the mandatory LCR and proposed NSFR requirements. Internal liquidity stress testing, liquidity buffer, and liquidity risk management requirements would still apply. Should the Merger be approved and close, the combined entity would be considered a Category III bank under the proposal, and it would be subject to the tailored LCR and proposed NSFR requirements.
Uses of Funds. Our primary uses of funds include the extension of loans and credit, the purchase of investment securities, working capital, and debt and capital service. The Bank borrows from the money markets using instruments such as Fed Funds, Eurodollars, and securities sold under agreements to repurchase.

At September 30, 2018,March 31, 2019, the Bank retained a material cash position in its Federal Reserve account. The Parent Company also retained a material cash position in its account with the Bank in accordance with our policies and risk limits, discussed in greater detail below.
Sources of Funds. Our primary source of funds is a large, stable deposit base. Core deposits, predominantly made up of consumer and commercial deposits originated primarily from our retail branch network and Wholesale client base, are our largest and most cost-effective source of funding. Total deposits decreased to $160.4$162.2 billion at September 30, 2018,March 31, 2019, from $160.8$162.6 billion at December 31, 2017.2018.
We also maintain access to diversified sources for both secured and unsecured wholesale funding. These uncommitted sources include Fed Funds purchased from other banks,financial institutions, securities sold under agreements to repurchase, FHLB advances, and Global Bank Notes. Aggregate borrowings increased to $22.2$27.8 billion at September 30, 2018,March 31, 2019, from $14.6$23.8 billion at December 31, 2017.2018. These additional borrowings include a mix of both secured and unsecured funding and have primarily been used to support loan growth.

As mentioned above, theThe Bank and Parent Company maintain programs to access the debt capital markets. The Parent Company maintains an SEC shelf registration from which it may issue senior or subordinated notes and various capital securities, such as common or preferred stock. In August 2018, our Board approved a new SEC shelf registration, which authorized the issuance of up to $6.0 billion of such securities, of which $6.0$5.9 billion of issuance capacity remained available at September 30, 2018. Under our previous SEC shelf registration, the Board authorized the issuance of up to $5.0 billion of such securities, of which $1.7 billion of issuance capacity remained available at DecemberMarch 31, 2017. In April 2018, the Parent Company issued $850 million of 7-year fixed rate senior notes under our previous SEC shelf registration.2019.
The Bank maintains a Global Bank Note program under which it may issue senior or subordinated debt with various terms. In the first quarter of 2018,2019, we issued $500 million$1.3 billion of 5-year fixed rate senior notes and $750 million of 3-year fixed-to-floating rate senior notes under this program. In the third quarter of 2018, we issued $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes under this program. At September 30, 2018,March 31, 2019, the Bank retained $32.9$30.2 billion of remaining capacity to issue notes under the Global Bank Note program. See the “Recent Developments”“Borrowings” section belowof this MD&A for a description ofdetails regarding Bank and Parent Company debt issuances subsequent to September 30, 2018 under this program.completed during 2019.
Our issuance capacity under these Bank and Parent Company programs refers to authorization granted by our Board, which is a formal program capacity and not a commitment to purchase by any investor. Debt and equity securities issued under these programs are designed to appeal primarily to domestic and international institutional investors. Institutional investor demand for these securities depends upon numerous factors, including, but not limited to, our credit ratings, investor perception of financial market conditions, and the health of the banking sector. Therefore, our ability to access these markets in the future could be impaired for either idiosyncratic or systemic reasons.
We assess liquidity needs that may occur in both the normal course of business and during times of unusual, adverse events, considering both on and off-balance sheet arrangements and commitments that may impact liquidity in certain business environments. We have contingency funding scenarios and plans that assess liquidity needs that may arise from certain stress
events such as severe economic recessions, financial market disruptions, and credit rating downgrades. In particular, a ratings downgrade could adversely impact the cost and availability of some of our liquid funding sources. Factors that affect our credit ratings include, but are not limited to, the credit risk profile of
our assets, the adequacy of our ALLL, the level and stability of our earnings, the liquidity profile of both the Bank and the Parent Company, the economic environment, and the adequacy of our capital base.
As illustrated in Table 15, at September 30, 2018, S&P has13, Moody’s assigned a “Positive”“Review for Upgrade” outlook on our credit rating, while both Moody’sS&P assigned a “Credit Watch Positive” outlook, and Fitch maintained “Stable” outlooks.assigned a “Rating Watch Positive” outlook. Future credit rating downgrades are possible, although not currently anticipated, given these “Positive” and “Stable”current credit rating outlooks.
Credit Ratings and OutlookTable 1513
 September 30, 2018March 31, 2019
 Moody’s S&P Fitch
SunTrust Banks, Inc.:     
Senior debtBaa1 BBB+ A-
Preferred stockBaa3 BB+ BB
      
SunTrust Bank:     
Long-term depositsA1 A- A
Short-term depositsP-1 A-2 F1
Senior debtBaal A- A-
OutlookStableReview for Upgrade Credit Watch Positive StableRating Watch Positive
Our investment securities portfolio is a use of funds and a store of liquidity that is managed as part of our overall liquidity management and ALM process to optimize income and portfolio value, maintaining the majority of securities in liquid and high-grade asset classes, such as agency MBS, agency debt, and U.S. Treasury securities; nearly all of these securities qualify as high-quality liquid assets under the U.S. LCR Final Rule. At September 30, 2018,March 31, 2019, our securities AFS portfolio contained $27.4$28.4 billion of unencumbered, high-quality liquid securities at market value.
As mentioned above, we evaluate contingency funding scenarios to anticipate and manage the likely impact of impaired capital markets access and other adverse liquidity circumstances. Our contingency plans also provide for continuous monitoring of net borrowed funds dependence and available sources of contingency liquidity. These contingency liquidity sources include available cash reserves, the ability to sell, pledge, or borrow against unencumbered securities in our investment portfolio, the capacity to borrow from the FHLB system or the Federal Reserve discount window, and the ability to sell or securitize certain loan portfolios. Table 1614 presents period end and average balances of our contingency liquidity sources for the thirdfirst quarters of 20182019 and 2017.2018. These sources exceed our contingency liquidity needs as measured in our contingency funding scenarios.

Contingency Liquidity SourcesContingency Liquidity Sources     Table 16
Contingency Liquidity Sources     Table 14
        
As of Average for the Three Months Ended ¹ As of Average for the Three Months Ended ¹ 
(Dollars in billions)September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018
Excess reserves
$3.8
 
$4.5
 
$2.4
 
$2.8

$2.1
 
$3.6
 
$2.1
 
$3.0
Free and liquid investment portfolio securities27.4
 27.4
 27.4
 27.8
28.4
 27.0
 28.2
 27.3
Unused FHLB borrowing capacity24.2
 24.5
 25.3
 23.2
19.6
 25.5
 18.8
 23.9
Unused discount window borrowing capacity19.8
 17.8
 19.4
 17.8
22.6
 17.6
 22.3
 18.0
Total
$75.2
 
$74.2
 
$74.5
 
$71.6

$72.7
 
$73.7
 
$71.4
 
$72.2
1 Average based upon month-end data, except excess reserves, which is based upon a daily average.


Federal Home Loan Bank and Federal Reserve Bank Stock. We previously acquired capital stock in the FHLB of Atlanta as a precondition for becoming a member of that institution. As a member, we are able to take advantage of competitively priced advances as a wholesale funding source and to access grants and low-cost loans for affordable housing and community development projects, among other benefits. At September 30, 2018,March 31, 2019, we held $142$366 million of capital stock in the FHLB of Atlanta, an increase of $127$139 million compared to December 31, 20172018 due to an increase in short-term FHLB advances over the same period. For each ofboth the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we recognized an immaterial amount of dividends related to FHLB capital stock.
Similarly, to remain a member of the Federal Reserve System, we are required to hold a certain amount of capital stock, determined as either a percentage of the Bank’s capital or as a percentage of total deposit liabilities. At both September 30, 2018March 31, 2019 and December 31, 2017,2018, we held $403 million of Federal Reserve Bank of Atlanta stock. For both the three months ended September 30,March 31, 2019 and 2018, and 2017, we recognized an immaterial amount of dividends related to Federal Reserve Bank of Atlanta stock. For the nine months ended September 30, 2018 and 2017, we recognized dividends related to Federal Reserve Bank of Atlanta stock of $9 million and $7 million, respectively.


Parent Company Liquidity. Our primary measure of Parent Company liquidity is the length of time the Parent Company can meet its existing and forecasted obligations using its cash resources. We measure and manage this metric using forecasts from both normal and adverse conditions. Under adverse conditions, we measure how long the Parent Company can meet its capital and debt service obligations after experiencing material attrition of short-term unsecured funding and without the support of dividends from the Bank or access to the capital markets. Our ALCO and the Board have established risk limits against these metrics to manage the Parent Company’s liquidity by structuring its net maturity schedule to minimize the amount of debt maturing within a short period of time. A majority of the Parent Company’s liabilities are long-term in nature, coming from the proceeds of issuances of our capital securities and long-term senior and subordinated notes. See the “Borrowings” section of this MD&A as well as Note 13, “Borrowings and Contractual Commitments,” to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for further information regarding our debt.
We manage the Parent Company to maintain most of its liquid assets in cash and securities that it can quickly convert into cash. Unlike the Bank, it is not typical for the Parent Company to maintain a material investment portfolio of publicly traded securities. We manage the Parent Company cash balance to provide sufficient liquidity to fund all forecasted obligations (primarily debt and capital service) for an extended period of months in accordance with our risk limits.
The primary uses of Parent Company liquidity include debt service, dividends on capital instruments, the periodic purchase of investment securities, loans to our subsidiaries, and common share repurchases. See further details of the authorized common share repurchases in the “Capital Resources” section of this MD&A and in Part II, Item 2 inof this Form 10-Q. We fund corporate dividends with Parent Company cash, the primary sources of which are dividends from our banking subsidiarythe Bank and proceeds from the issuance of debt and
capital securities. We are subject to both state and federal banking regulations that limit our ability to pay common stock dividends in certain circumstances. The Bank is also subject to federal and state laws and regulations that limit the amount of dividends it can pay to the Parent Company, which could affect the Parent Company’s ability to pay dividends to its shareholders.


Recent Developments. In October 2018, the Bank issued $500 million of 7-year fixed rate senior notes, $600 million of 3-year fixed-to-floating rate senior notes, and $300 million of 3-year floating rate senior notes under our Global Bank Note program. Similar to our debt issuances in the first nine months of 2018, these issuances allowed us to supplement our funding sources and pay down other borrowings. See Table 10 in “Borrowings” for additional details regarding debt issuances we completed subsequent to September 30, 2018.
Other Liquidity Considerations. As presented in Table 17,15, we had an aggregate potential obligation of $92.5$94.3 billion to our clients in unused lines of credit at September 30, 2018.March 31, 2019. Commitments to extend credit are arrangements to lend to clients who have complied with predetermined contractual obligations. We also had $3.2$2.8 billion in letters of credit outstanding at September 30, 2018,March 31, 2019, most of which are standby letters of credit, which require that we provide funding if certain future events occur. Approximately $196$153 million of these letters were available to support variable rate demand obligations at September 30, 2018.March 31, 2019. Unused commercial lines of credit increased since December 31, 2017,2018, driven by an increase in commercial line of credit commitments during the ninethree months ended September 30, 2018. Residential mortgage commitmentsMarch 31, 2019. Unused CRE lines of credit also increased since December 31, 2017, driven by the increase in IRLC volume outpacing the increase in closed loan volume during the nine months ended September 30, 2018. Additionally, unused CRE lines of credit increased since December 31, 2017,2018, driven primarily by an increase in CRE line of credit commitments during the ninethree months ended September 30, 2018.March 31, 2019.


Unfunded Lending CommitmentsUnfunded Lending Commitments     Table 17
Unfunded Lending Commitments     Table 15
As of Average for��the Three Months EndedAs of Average for the Three Months Ended
(Dollars in millions)September 30, 2018 December 31, 2017 September 30, 2018 September 30, 2017March 31, 2019 December 31, 2018 March 31, 2019 March 31, 2018
Unused lines of credit:              
Commercial
$63,400
 
$59,625
 
$62,728
 
$57,807

$63,991
 
$63,779
 
$63,885
 
$60,722
Residential mortgage commitments 1
3,777
 3,036
 3,810
 4,268
3,148
 2,739
 2,944
 3,207
Home equity lines10,200
 10,086
 10,165
 10,159
10,524
 10,338
 10,431
 10,130
CRE 2
4,534
 4,139
 4,263
 3,953
5,642
 5,307
 5,475
 4,013
Credit card10,601
 10,533
 10,602
 10,338
11,031
 10,852
 10,941
 10,557
Total unused lines of credit
$92,512
 
$87,419
 
$91,568
 
$86,525

$94,336
 
$93,015
 
$93,676
 
$88,629
              
Letters of credit:              
Financial standby
$3,041
 
$2,453
 
$2,912
 
$2,722

$2,713
 
$2,769
 
$2,741
 
$2,440
Performance standby101
 125
 101
 121
90
 102
 96
 122
Commercial37
 14
 34
 14
24
 38
 31
 15
Total letters of credit
$3,179
 
$2,592
 
$3,047
 
$2,857

$2,827
 
$2,909
 
$2,868
 
$2,577
1 Includes residential mortgage IRLCs with notional balances of $1.6$1.4 billion and $1.7 billion$992 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
2 Includes commercial mortgage IRLCs and other commitments with notional balances of $262$352 million and $240$360 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
Other Market Risk
Except as discussed below, there have been no other significant changes to other market risk as described in our 20172018 Annual Report on Form 10-K.
We measure our residential MSRs at fair value on a recurring basis and hedge the risk associated with changes in fair value. Residential MSRs totaled $2.1$1.9 billion and $1.7$2.0 billion at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and are managed and monitored as part of a comprehensive risk governance process, which includes established risk limits.
We originated residential MSRs with fair values at the time of origination of $100$63 million and $250$76 million during the threefirst quarters of 2019 and nine months ended September 30, 2018, and $90 million and $252 million during the three and nine months ended September 30, 2017, respectively. Additionally, we purchased residential MSRs with a fair value of approximately $14 million and $89$74 million during the three and nine months ended September 30, 2018, respectively.first quarter of 2018. No residential MSRs were purchased during the three and nine months ended September 30, 2017.first quarter of 2019.
We recognized a mark-to-market decrease in the fair value of our residential MSRs of $10$162 million and an increase of $15$56 million during the threefirst quarter of 2019 and nine months ended September 30, 2018, and decreases of $70 million and $195 million during the three and nine months ended September 30, 2017, respectively. Changes in fair value include the decay resulting from the realization of monthly net servicing cash flows. We recognized net losses related to residential MSRs, inclusive of fair value changes and related hedges, of $64$49 million and $184$53 million forduring the threefirst quarters of 2019 and nine months ended September 30, 2018, and $54 million and $153 million for the three and nine months ended September 30, 2017, respectively. Compared to the prior year periods,period, the increasedecrease in net losses related to residential MSRs was primarily driven by higher decayimproved net hedge performance combined with lower net hedge performancedecay in the current periods. Higher decay was driven by an increase in residential MSR asset value as well as an increase in the size of the servicing portfolio, offset partially
by a decrease in payoff volume. All other servicing rights, which include commercialperiod. Commercial mortgage and consumer indirect loan servicing rights are not measured at fair value on a recurring basis, and therefore, are not subject to the same market risks associated with residential MSRs.


OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we engage in certain activities that are not reflected in our Consolidated Balance Sheets, generally referred to as "off-balance“off-balance sheet arrangements."” These activities involve transactions with unconsolidated VIEs as well as other arrangements, such as commitments and guarantees, to meet the financing needs of our clients and to support ongoing operations. Additional information regarding these types of activities is included in the "Liquidity“Liquidity Risk Management"Management” section of this MD&A, as well as in Note 10, "Certain11, “Certain Transfers of Financial Assets and Variable Interest Entities,"” and Note 14, "Guarantees,"15, “Guarantees,” to the Consolidated Financial Statements in this Form 10-Q, as well as in our 20172018 Annual Report on Form 10-K.
Contractual Obligations
In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on our borrowings, partnershiptax credit investments, and lease arrangements, as well as commitments to lend to clients and to fund capital expenditures and service contracts.
Except for changes in unfunded lending commitments (presented in Table 1715 within the "Liquidity“Liquidity Risk Management"Management” section of this MD&A), borrowings (presented in the "Borrowings"“Borrowings” section of this MD&A), leases (disclosed in Note 10, “Leases,” to the Consolidated Financial Statements in this Form 10-Q), commitments to fund tax credit investments (disclosed in Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities,” to the Consolidated Financial Statements in this Form 10-Q), and pension and other postretirement benefit plans (disclosed in Note 13, "Employee14, “Employee Benefit Plans,"” to the Consolidated Financial Statements in this Form 10-Q), there have been no material changes in our contractual obligations from those disclosed in our 20172018 Annual Report on Form 10-K.




BUSINESS SEGMENTSSEGMENT RESULTS
Three Months Ended March 31, 2019 versus Three Months Ended March 31, 2018
Consumer
Consumer reported net income of $326 million for the three months ended March 31, 2019, an increase of $24 million, or 8%, compared to the same period in 2018. The increase was driven primarily by higher net interest income, offset partially by higher noninterest expense and provision for credit losses.
Net interest income was $1.1 billion, an increase of $78 million, or 8%, compared to the same period in 2018, driven by improved spreads on deposit balances. Net interest income related to deposits increased $56 million, or 9%, driven by a 15 basis point increase in deposit spreads and a $2.8 billion, or 3%, increase in average consumer and commercial deposit balances. Deposit balance growth was driven by increases in commercial and consumer DDAs, checking, and CD balances, offset partially by lower money market accounts. Net interest income related to LHFI increased $19 million, or 5%, driven primarily by a $3.8 billion, or 5%, increase in average LHFI balances, while spreads on loan balances remained flat. Consumer loan growth was driven by increases in residential mortgages, consumer direct, indirect, and guaranteed student loans, offset partially by declines in home equity products and personal credit lines.
Provision for credit losses was $83 million, an increase of $25 million, or 43%, compared to the same period in 2018. The increase was driven largely by loan growth.
Total noninterest income was $446 million, a decrease of $4 million, or 1%, compared to the same period in 2018. The decrease was driven primarily by lower client transaction-related fee income (which includes service charges on deposit accounts, other charges and fees, and card fees) and lower retail investment services and trust fee income, offset partially by increased mortgage related income.
Total noninterest expense was $1.0 billion, an increase of $16 million, or 2%, compared to the same period in 2018. The increase was driven primarily by higher operating losses due to favorable developments with certain legal matters in the first quarter of 2018, fixed asset write-downs, and increased escrow deposit referral fees. These increases were offset partially by lower personnel expenses and regulatory assessments.
Wholesale
Wholesale reported net income of $305 million for the three months ended March 31, 2019, a decrease of $42 million, or 12%, compared to the same period in 2018. The decrease was due to higher provision for credit losses and higher noninterest expense, offset partially by higher net interest income and higher noninterest income.
Net interest income was $568 million, an increase of $34 million, or 6%, compared to the same period in 2018, driven primarily by increases in loan balances and improved equity spreads, offset partially by declines in deposit volume. Net
interest income related to deposits increased $4 million, or 2%, as a result of improved spreads, offset partially by decreased deposit volumes. Average consumer and commercial deposit balances decreased $1.8 billion, or 4%, as a result of decreases in non-interest-bearing commercial DDAs and money market accounts, offset partially by increases in interest-bearing commercial DDAs and CD balances. Net interest income related to LHFI increased $26 million, or 9%, as a result of higher loan balances, offset by a slight decrease in loan spreads. Average LHFI increased $7.5 billion, or 11%, primarily in C&I loans.
Provision for credit losses was $70 million, an increase of $100 million compared to the same period in 2018, driven primarily by loan growth.
Total noninterest income was $364 million, an increase of $24 million, or 7%, compared to the same period in 2018. The increase was due largely to higher trading income, primarily attributable to fixed income, as well as higher tax credits.
Total noninterest expense was $462 million, an increase of $12 million, or 3%, compared to the same period in 2018. The increase was due primarily to higher personnel expenses, driven by increased headcount, combined with an increase in technology-related expenses.
Corporate Other
Corporate Other net income was a net loss of $50 million for the three months ended March 31, 2019, a decrease of $70 million compared to the same period in 2018. The decrease in net income was due primarily to lower net interest income.
Net interest income was a net expense of $77 million, a decrease of $48 million compared to the same period in 2018. The decrease was driven primarily by lower commercial loan swap income resulting from higher benchmark interest rates. Average short-term borrowings increased $5.4 billion, and average long-term debt increased $4.9 billion, or 53%, driven by balance sheet management activities.
Total noninterest income was $19 million, a decrease of $19 million, or 50%, compared to the same period in 2018. The decrease was due primarily to a $23 million remeasurement gain on an equity investment in the first quarter of 2018 that was reclassified from Wholesale to Corporate Other in the first quarter of 2019.
Total noninterest expense was $14 million for the three months ended March 31, 2019. The increase of $43 million compared to the same period in 2018 was due to $45 million of Merger-related costs. These expenses were related to merger and acquisition advisory fees and legal costs.

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


Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures  Table 16
(Dollars in millions and shares in thousands, except per share data)   
Three Months Ended March 31
Selected Financial Data2019 2018
Summary of Operations:   
Interest income
$1,987
 
$1,668
Interest expense443
 227
Net interest income1,544
 1,441
Provision for credit losses153
 28
Net interest income after provision for credit losses1,391
 1,413
Noninterest income784
 796
Noninterest expense1,489
 1,417
Income before provision for income taxes686
 792
Provision for income taxes104
 147
Net income attributable to noncontrolling interest2
 2
Net income
$580
 
$643
Net income available to common shareholders
$554
 
$612
Net interest income-FTE 1

$1,567
 
$1,461
Total revenue2,328
 2,237
Total revenue-FTE 1
2,351
 2,257
Net securities gains/(losses)—
 1
Net income per average common share:   
Diluted
$1.24
 
$1.29
Basic1.25
 1.31
Dividends declared per common share0.50
 0.40
Book value per common share51.15
 47.14
Tangible book value per common share 2
37.22
 33.97
Market capitalization26,290
 31,959
Market price per common share (NYSE trading symbol “STI”):   
High
$67.25
 
$73.37
Low49.78
 64.32
Close59.25
 68.04
Selected Average Balances:   
Total assets
$217,403
 
$204,132
Earning assets194,385
 182,874
LHFI154,258
 142,920
Intangible assets including residential MSRs8,394
 8,244
Residential MSRs1,984
 1,833
Consumer and commercial deposits159,921
 159,169
Preferred stock2,025
 2,390
Total shareholders’ equity24,466
 24,605
Average common shares - diluted446,662
 473,620
Average common shares - basic443,566
 468,723
Financial Ratios (Annualized):   
ROA1.08% 1.28%
ROE10.06
 11.23
ROTCE 3
13.91
 15.60
Net interest margin3.22
 3.20
Net interest margin-FTE 1
3.27
 3.24
Efficiency ratio 4
63.97
 63.35
Efficiency ratio-FTE 1, 4
63.35
 62.77
Tangible efficiency ratio-FTE 1, 4, 5
62.70
 62.11
Adjusted tangible efficiency ratio-FTE 1, 4, 5, 6
60.78
 62.11
Total average shareholders’ equity to total average assets11.25
 12.05
Tangible common equity to tangible assets 7
7.71
 8.04
Common dividend payout ratio40.1
 30.6

Net Income by Business Segment      Table 18
        
 Three Months Ended September 30 Nine Months Ended September 30
(Dollars in millions)2018 
  2017 1, 2
 2018 
  2017 1, 2
Consumer
$381
 
$264
 
$1,081
 
$698
Wholesale372
 341
 1,120
 917
        
Corporate Other50
 (17) 49
 60
Reconciling Items 3
(51) (50) (133) (142)
Total Corporate Other(1) (67) (84) (82)
Consolidated Net Income
$752
 
$538
 
$2,117
 
$1,533
Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
    
Selected Financial Data (continued)Three Months Ended March 31
Capital Ratios at period end 8:
2019 2018
CET19.09% 9.84%
Tier 1 capital10.15
 11.00
Total capital11.85
 12.90
Leverage9.15
 9.75

    
(Dollars in millions, except per share data)Three Months Ended March 31
Reconcilement of Non-U.S. GAAP Measures2019 2018
Net interest margin3.22 % 3.20 %
Impact of FTE adjustment0.05
 0.04
Net interest margin-FTE 1
3.27 % 3.24 %
    
Efficiency ratio 4
63.97 % 63.35 %
Impact of FTE adjustment(0.62) (0.58)
Efficiency ratio-FTE 1, 4
63.35
 62.77
Impact of excluding amortization related to intangible assets and certain tax credits(0.65) (0.66)
Tangible efficiency ratio-FTE 1, 4, 5
62.70
 62.11
Impact of excluding Merger-related costs(1.92) —
Adjusted tangible efficiency ratio-FTE 1, 4, 5, 6
60.78 % 62.11 %
    
ROE10.06 % 11.23 %
Impact of removing average intangible assets other than residential MSRs and other servicing rights from average common shareholders' equity, and removing related pre-tax amortization expense from net income available to common shareholders3.85
 4.37
ROTCE 3
13.91% 15.60%
    
Net interest income
$1,544
 
$1,441
FTE adjustment23
 20
Net interest income-FTE 1
1,567
 1,461
Noninterest income784
 796
Total revenue-FTE 1

$2,351
 
$2,257
    
    
(Dollars in millions, except per share data)March 31, 2019 March 31, 2018
Total shareholders’ equity
$24,823
 
$24,269
Goodwill, net of deferred taxes 9
(6,169) (6,172)
Other intangible assets (including residential MSRs and other servicing rights)(1,963) (1,996)
Residential MSRs and other servicing rights1,949
 1,981
Tangible equity 7
18,640
 18,082
Noncontrolling interest(101) (101)
Preferred stock(2,025) (2,025)
Tangible common equity 7

$16,514
 
$15,956
    
Total assets
$220,425
 
$204,885
Goodwill(6,331) (6,331)
Other intangible assets (including residential MSRs and other servicing rights)(1,963) (1,996)
Residential MSRs and other servicing rights1,949
 1,981
Tangible assets
$214,080
 
$198,539
Tangible common equity to tangible assets 7
7.71 % 8.04 %
Tangible book value per common share 2

$37.22
 
$33.97

Selected Financial Data and Reconcilement of Non-U.S. GAAP Measures (continued)
(Dollars in millions)
Reconciliation of PPNR10
Three Months Ended March 31, 2019
Income before provision for income taxes
$686
Provision for credit losses153
Less:
Net securities gains/(losses)—
PPNR
$839

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



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

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



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

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

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

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

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

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

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

1 We present net interest income-FTE, total revenue-FTE, net interest margin-FTE, efficiency ratio-FTE, and tangible efficiency ratio-FTE on a fully taxable-equivalent ("FTE") basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 21% for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as state income taxes, where applicable, to increase tax-exempt interest income to a taxable-equivalent basis. We believe the FTE basis is the preferred industry measurement basis for these measures and that it enhances comparability of net interest income and total revenue arising from taxable and tax-exempt sources. Total revenue-FTE is calculated as net interest income-FTE plus noninterest income. Net interest margin-FTE is calculated by dividing annualized net interest income-FTE by average total earning assets.
2 We present tangible book value per common share, which removes the after-tax impact of purchase accounting intangible assets, noncontrolling interest, and preferred stock from shareholders' equity. We believe this measure is useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity, and removing the amounts of noncontrolling interest and preferred stock that do not represent our common shareholders' equity, it allows investors to more easily compare our capital position to other companies in the industry.
3
We present ROTCE, which removes the after-tax impact of purchase accounting intangible assets from average common shareholders' equity and removes the related intangible asset amortization from netNet income available to common shareholders. We believe this measure is useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity and related pre-tax amortization expense (the level of which may vary from company to company), it allows investors to more easily compare our ROTCE to other companies in the industry who present a similar measure. We also believe that removing these items provides a more relevant measure of our returnReturn on common shareholders' equity. This measure is utilized by management to assess our profitability.
4
Efficiency ratio is computed by dividing Noninterest expense by Total revenue. Efficiency ratio-FTE is computed by dividing Noninterest expense by Total revenue-FTE.
5
We present Tangible efficiency ratio-FTE, which excludes amortization related to intangible assets and certain tax credits. We believe this measure is useful to investors because, by removing the impact of amortization (the level of which may vary from company to company), it allows investors to more easily compare our efficiency to other companies in the industry. This measure is utilized by management to assess our efficiency and that of our lines of business.
6
We present Adjusted tangible efficiency ratio-FTE, which excludes the $45 million pre-tax impact of Merger-related costs recognized in the first quarter of 2019. We believe this measure is useful to investors because it removes the effect of material items impacting the periods' results and is more reflective of normalized operations as it reflects results that are primarily client relationship and client transaction driven. Removing these items also allows investors to more easily compare our tangible efficiency to other companies in the industry that may not have had similar items impacting their results. Additional detail on the Merger can be found in our 2018 Annual Report on Form 10-K.
7
We present certain capital information on a tangible basis, including the ratio of Tangible common equity to tangible assets, Tangible equity, and Tangible common equity, which removes the after-tax impact of purchase accounting intangible assets. We believe these measures are useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity (the level of which may vary from company to company), it allows investors to more easily compare our capital position to other companies in the industry. These measures are utilized by management to analyze capital adequacy.
8
Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented. Refer to the "Capital Resources" section of this MD&A for additional regulatory capital information.
9
Net of deferred taxes of $162 million and $159 million at March 31, 2019 and 2018, respectively.
10
We present the reconciliation of PPNR because it is a performance metric utilized by management and in certain of our compensation plans. PPNR impacts the level of awards if certain thresholds are met. We believe this measure is useful to investors because it allows investors to compare our PPNR to other companies in the industry who present a similar measure.
4 Efficiency ratio is computed by dividing noninterest expense by total revenue. Efficiency ratio-FTE is computed by dividing noninterest expense by total revenue-FTE.
5 We present tangible efficiency ratio-FTE, which excludes amortization related to intangible assets and certain tax credits. We believe this measure is useful to investors because, by removing the impact of amortization (the level of which may vary from company to company), it allows investors to more easily compare our efficiency to other companies in the industry. This measure is utilized by management to assess our efficiency and that of our lines of business.
6 We present certain capital information on a tangible basis, including the ratio of tangible common equity to tangible assets, tangible equity, and tangible common equity, which removes the after-tax impact of purchase accounting intangible assets. We believe these measures are useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity (the level of which may vary from company to company), it allows investors to more easily compare our capital position to other companies in the industry. These measures are utilized by management to analyze capital adequacy.
7 Basel III capital ratios are calculated under the standardized approach using regulatory capital methodology applicable to us for each period presented. Refer to the "Capital Resources" section of this MD&A for additional regulatory capital information.
8 Net of deferred taxes of $160 million and $254 million at September 30, 2018 and 2017, respectively.

9 We present the reconciliation of PPNR because it is a performance metric utilized by management and in certain of our compensation plans. PPNR impacts the level of awards if certain thresholds are met. We believe this measure is useful to investors because it allows investors to compare our PPNR to other companies in the industry who present a similar measure.




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






Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management conducted an evaluation, under the supervision and with the participation of its CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) at September 30, 2018.March 31, 2019. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based upon the evaluation, the CEO and CFO
 
CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at September 30, 2018.March 31, 2019.


Changes in Internal Control over Financial Reporting
Effective January 1, 2018,2019, the Company adopted several new accounting standardsASC Topic 842, Leases, and implemented relevant changes to its control activities and processes to monitor and maintain appropriate internal controls over financial reporting. There were no other changes to the Company’s internal control over financial reporting during the ninethree months ended September 30, 2018March 31, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Refer to the Company's 20172018 Annual Report on Form 10-K for additional information.








PART II - OTHER INFORMATION



Item 1.LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to numerous claims and lawsuits arising in the normal course of its business activities, some of which involve claims for substantial amounts. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, when resolved, will have a material effect on the Company’s consolidated results of operations, cash flows, or financial condition. For additional information, see Note 17,18, “Contingencies,” to the Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference.


Item 1A.RISK FACTORS
The risks described in this report and in the Company's 20172018 Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known, or that the Company currently deems to be immaterial, also may adversely affect the Company's business, financial condition, or future results. In addition to the information set forth in this report, factors discussed in Part I, Item 1A., “Risk Factors,” in the Company's 20172018 Annual Report on Form 10-K, and in Part II, Item 1A., “Risk Factors,” in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2018, which could materially affect the Company's business, financial condition, or future results, should be carefully considered.
Additionally, we update the “Risk Factors” sections contained in the Company's 2017 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the period ended March 31, 2018 by replacing the existing risk factor, “Our operational and communications systems and infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business and disrupt business continuity,” with the following risk factor:

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


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

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





Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c) Issuer Purchases of Equity Securities:
       Table 21
 
 Common Stock 1, 2
 Total Number of Shares Purchased Average Price Paid per Share 
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
 
Approximate Dollar Value
of Equity that May Yet Be
Purchased Under the Plans
or Programs at Period End
(in millions)
January 1 - 314,550,359
 $68.03 4,550,359
 $350
February 1 - 28287,254
   71.08 287,254
   330
March 1 - 31—
 — —
   330
Total during first quarter of 20184,837,613
 68.22 4,837,613
   330
        
April 1 - 304,910,576
   67.20 4,910,576
 —
May 1 - 31—
 — —
 —
June 1 - 30—
 — —
 —
Total during second quarter of 20184,910,576
   67.20 4,910,576
 —
        
July 1 - 314,487,600
   69.90 4,487,600
   1,686
August 1 - 312,556,079
   72.88 2,556,079
   1,500
September 1 - 30—
 — —
   1,500
Total during third quarter of 20187,043,679
   70.99 7,043,679
   1,500
        
Total year-to-date 201816,791,868
 $69.08 16,791,868
 $1,500
       Table 17
 
 Common Stock 1, 2
 Total Number of Shares Purchased Average Price Paid per Share 
Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
 
Approximate Dollar Value
of Equity that May Yet Be
Purchased Under the Plans
or Programs at Period End
(in millions)
January 1 - 314,578,864
 $54.60 4,578,864
 $500
February 1 - 28—
 — —
   500
March 1 - 31—
 — —
   500
Total during first quarter of 20194,578,864
 $54.60 4,578,864
 $500
1 The principal market in which SunTrust common stock is traded is the NYSE (trading symbol “STI”).
2 During the three and nine months ended September 30, 2018,March 31, 2019, no shares of SunTrust common stock were surrendered by participants in SunTrust's employee stock option plans, where participants may pay the exercise price upon exercise of SunTrust stock options by surrendering shares of SunTrust common stock that the participant already owns. SunTrust considers any such shares surrendered by participants in SunTrust's employee stock option plans to be repurchased pursuant to the authority and terms of the applicable stock option plan rather than pursuant to publicly announced share repurchase programs.


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










Item 3.DEFAULTS UPON SENIOR SECURITIES
None.




Item 4.MINE SAFETY DISCLOSURES
Not applicable.




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



Item 6.EXHIBITS
Exhibit NumberDescription
3.1
Amended and Restated Articles of Incorporation, restated effective January 20, 2009, incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K filed January 22, 2009, as further amended by (i) Articles of Amendment dated December 13, 2012, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed December 20, 2012, (ii) the Articles of Amendment dated November 6, 2014, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed November 7, 2014, (iii) the Articles of Amendment dated May 2, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed May 2, 2017, and (iv) the Articles of Amendment dated November 13, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed November 14, 2017.

*
3.2
Bylaws of the Registrant, as amended and restated on October 15, 2018, incorporated by reference to Exhibit 3.2 to the registrant's Current Report on Form 8-K filed October 15, 2018.
*
31.1
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**
31.2
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**
32.1
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
32.2
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
101.1Interactive Data File.**
Exhibit Number  Description Location
2 
Agreement and Plan of Merger, dated February 7, 2019, by and between registrant and BB&T Corporation, incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed February 13, 2019.
 (1)
     
3.1 
Amended and Restated Articles of Incorporation, restated effective January 20, 2009, incorporated by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K filed January 22, 2009, as further amended by (i) Articles of Amendment dated December 13, 2012, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed December 20, 2012, (ii) the Articles of Amendment dated November 6, 2014, incorporated by reference to Exhibit 3.1 and 4.1 to the registrant's Current Report on Form 8-K filed November 7, 2014, (iii) the Articles of Amendment dated May 1, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed May 2, 2017, and (iv) the Articles of Amendment dated November 13, 2017, incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed November 14, 2017.
 (1)
     
3.2 
Bylaws of the Registrant, as amended and restated on October 15, 2018, incorporated by reference to Exhibit 3.2 to the registrant's Current Report on Form 8-K filed October 15, 2018.
 (1)
     
10.1*
 
Form of Non-Employee Director Restricted Stock Award Agreement, under 2018 Omnibus Incentive Compensation Plan
 (2)
     
10.2*
 
Form of Non-Employee Director Restricted Stock Unit Award Agreement, under 2018 Omnibus Incentive Compensation Plan
 (2)
     
31.1
 
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 (2)
     
31.2
 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 (2)
     
32.1
 
Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (2)
     
32.2
 
Certification of Corporate Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 (2)
     
101 
Interactive Data File (XBRL tags are embedded within the Inline XBRL document).
 (2)


*Management contract or compensatory plan or arrangement
(1)incorporated by reference
**(2)filed herewith


  
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   SUNTRUST BANKS, INC.
   (Registrant)
    
Date:November 2, 2018May 6, 2019 
By: /s/ R. Ryan Richards
   
R. Ryan Richards,
Senior Vice President and Controller
(on behalf of the registrant and as Principal Accounting Officer)
    






10993