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TRUIST FINANCIAL CORP - Quarter Report: 2018 June (Form 10-Q)



 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2018
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
North Carolina
56-0939887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 West Second Street
Winston-Salem, North Carolina
27101
(Address of principal executive offices)
(Zip Code)
(336) 733-2000
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   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  ý   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 filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  ý
At June 30, 2018, 774,446,877 shares of the registrant's common stock, $5 par value, were outstanding.
 
 
 
 
 



TABLE OF CONTENTS
BB&T CORPORATION
FORM 10-Q
June 30, 2018
 
 
 
Page No.
PART I - Financial Information
 
Glossary of Defined Terms
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets (Unaudited)
 
Consolidated Statements of Income (Unaudited)
 
Consolidated Statements of Comprehensive Income (Unaudited)
 
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
 
Consolidated Statements of Cash Flows (Unaudited)
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
Note 1. Basis of Presentation
 
Note 2. Securities
 
Note 3. Loans and ACL
 
Note 4. Goodwill and Other Intangible Assets
 
Note 5. Loan Servicing
 
Note 6. Deposits
 
Note 7. Long-Term Debt
 
Note 8. Shareholders' Equity
 
Note 9. AOCI
 
Note 10. Income Taxes
 
Note 11. Benefit Plans
 
Note 12. Commitments and Contingencies
 
Note 13. Fair Value Disclosures
 
Note 14. Derivative Financial Instruments
 
Note 15. Computation of EPS
 
Note 16. Operating Segments
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II - Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities - (none)
 
Item 4.
Mine Safety Disclosures - (not applicable)
 
Item 5.
Other Information - (none to be reported)
 
Item 6.
Exhibits




Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes. 
Term
 
Definition
2017 Repurchase Plan
 
Plan for the repurchase of up to $1.93 billion of BB&T's common stock for the one-year period ended June 30, 2018
2018 Repurchase Plan
 
Plan for the repurchase of up to $1.7 billion of BB&T's common stock for the one-year period ended June 30, 2019
ACL
 
Allowance for credit losses
AFS
 
Available-for-sale
Agency MBS
 
Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL
 
Allowance for loan and lease losses
AOCI
 
Accumulated other comprehensive income (loss)
Basel III
 
Global regulatory standards on bank capital adequacy and liquidity published by the BCBS
BB&T
 
BB&T Corporation and subsidiaries
BCBS
 
Basel Committee on Banking Supervision
BHC
 
Bank holding company
BHCA
 
Bank Holding Company Act of 1956, as amended
Branch Bank
 
Branch Banking and Trust Company
BSA/AML
 
Bank Secrecy Act/Anti-Money Laundering
BU
 
Business Unit
CB-Commercial
 
Community Banking Commercial, an operating segment
CB-Retail
 
Community Banking Retail and Consumer Finance, an operating segment
CCAR
 
Comprehensive Capital Analysis and Review
CD
 
Certificate of deposit
CDI
 
Core deposit intangible assets
CEO
 
Chief Executive Officer
CET1
 
Common equity Tier 1
CFPB
 
Consumer Financial Protection Bureau
CMO
 
Collateralized mortgage obligation
Colonial
 
Collectively, certain assets and liabilities of Colonial Bank acquired by BB&T in 2009
Company
 
BB&T Corporation and subsidiaries (interchangeable with "BB&T" above)
CRA
 
Community Reinvestment Act of 1977
CRE
 
Commercial real estate
CRMC
 
Credit Risk Management Committee
CROC
 
Compliance Risk Oversight Committee
DIF
 
Deposit Insurance Fund administered by the FDIC
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
DOL
 
United States Department of Labor
EPS
 
Earnings per common share
EVE
 
Economic value of equity
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FATCA
 
Foreign Account Tax Compliance Act
FDIC
 
Federal Deposit Insurance Corporation
FHA
 
Federal Housing Administration
FHC
 
Financial Holding Company
FHLB
 
Federal Home Loan Bank
FHLMC
 
Federal Home Loan Mortgage Corporation
FINRA
 
Financial Industry Regulatory Authority
FNMA
 
Federal National Mortgage Association
FRB
 
Board of Governors of the Federal Reserve System
FS&CF
 
Financial Services and Commercial Finance, an operating segment
FTE
 
Full-time equivalent employee
FTP
 
Funds transfer pricing
GAAP
 
Accounting principles generally accepted in the United States of America
GNMA
 
Government National Mortgage Association
Grandbridge
 
Grandbridge Real Estate Capital, LLC

BB&T Corporation 1



Term
 
Definition
GSE
 
U.S. government-sponsored enterprise
HFI
 
Held for investment
HMDA
 
Home Mortgage Disclosure Act
HTM
 
Held-to-maturity
IDI
 
Insured depository institution
IH&PF
 
Insurance Holdings and Premium Finance, an operating segment
IPV
 
Independent price verification
IRC
 
Internal Revenue Code
IRS
 
Internal Revenue Service
ISDA
 
International Swaps and Derivatives Association, Inc.
LCR
 
Liquidity Coverage Ratio
LHFS
 
Loans held for sale
LIBOR
 
London Interbank Offered Rate
MBS
 
Mortgage-backed securities
MRLCC
 
Market Risk, Liquidity and Capital Committee
MSR
 
Mortgage servicing right
MSRB
 
Municipal Securities Rulemaking Board
N/A
 
Not applicable
National Penn
 
National Penn Bancshares, Inc., acquired by BB&T effective April 1, 2016
NCCOB
 
North Carolina Office of the Commissioner of Banks
NIM
 
Net interest margin, computed on a TE basis
NM
 
Not meaningful
NPA
 
Nonperforming asset
NPL
 
Nonperforming loan
NSFR
 
Net stable funding ratio
NYSE
 
NYSE Euronext, Inc.
OAS
 
Option adjusted spread
OCI
 
Other comprehensive income (loss)
OREO
 
Other real estate owned
ORMC
 
Operational Risk Management Committee
OT&C
 
Other, Treasury and Corporate
OTTI
 
Other-than-temporary impairment
Parent Company
 
BB&T Corporation, the parent company of Branch Bank and other subsidiaries
Patriot Act
 
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCI
 
Purchased credit impaired loans as well as assets of Colonial Bank acquired from the FDIC during 2009, which were formerly covered under loss sharing agreements
PSU
 
Performance share units
Re-REMICs
 
Re-securitizations of Real Estate Mortgage Investment Conduits
RMC
 
Risk Management Committee
RMO
 
Risk Management Organization
RSU
 
Restricted stock unit
RUFC
 
Reserve for unfunded lending commitments
SBIC
 
Small Business Investment Company
SEC
 
Securities and Exchange Commission
Short-Term Borrowings
 
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowed funds with original maturities of less than one year
Simulation
 
Interest sensitivity simulation analysis
Swett & Crawford
 
CGSC North America Holdings Corporation, acquired by BB&T effective April 1, 2016
TBA
 
To be announced
TDR
 
Troubled debt restructuring
TE
 
Taxable-equivalent
U.S.
 
United States of America
U.S. Treasury
 
United States Department of the Treasury
UPB
 
Unpaid principal balance
VaR
 
Value-at-risk
VIE
 
Variable interest entity

2 BB&T Corporation



ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands)
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and due from banks
$
2,046

 
$
2,243

Interest-bearing deposits with banks
662

 
343

Cash equivalents
213

 
127

Restricted cash
132

 
370

AFS securities at fair value
23,919

 
24,547

HTM securities (fair value of $21,080 and $22,837 at June 30, 2018 and December 31, 2017, respectively)
21,749

 
23,027

LHFS at fair value
1,615

 
1,099

Loans and leases
146,183

 
143,701

ALLL
(1,530
)
 
(1,490
)
Loans and leases, net of ALLL
144,653

 
142,211

Premises and equipment
2,154

 
2,055

Goodwill
9,617

 
9,618

CDI and other intangible assets
647

 
711

MSRs at fair value
1,143

 
1,056

Other assets
14,131

 
14,235

Total assets
$
222,681

 
$
221,642

Liabilities
 
 
 
Deposits
$
159,475

 
$
157,371

Short-term borrowings
3,576

 
4,938

Long-term debt
24,081

 
23,648

Accounts payable and other liabilities
5,717

 
5,990

Total liabilities
192,849

 
191,947

Commitments and contingencies (Note 12)

 

Shareholders' Equity
 
 
 
Preferred stock, $5 par, liquidation preference of $25,000 per share
3,053

 
3,053

Common stock, $5 par
3,872

 
3,910

Additional paid-in capital
7,364

 
7,893

Retained earnings
17,197

 
16,259

AOCI, net of deferred income taxes
(1,706
)
 
(1,467
)
Noncontrolling interests
52

 
47

Total shareholders' equity
29,832

 
29,695

Total liabilities and shareholders' equity
$
222,681

 
$
221,642

 
 
 
 
Common shares outstanding
774,447

 
782,006

Common shares authorized
2,000,000

 
2,000,000

Preferred shares outstanding
126

 
126

Preferred shares authorized
5,000

 
5,000


The accompanying notes are an integral part of these consolidated financial statements.

BB&T Corporation 3



CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
 
Six Months Ended
Unaudited
 
June 30,
 
June 30,
(Dollars in millions, except per share data, shares in thousands)
 
2018
 
2017
 
2018
 
2017
Interest Income
 
 
 
 
 
 
 
 
Interest and fees on loans and leases
 
$
1,687

 
$
1,540

 
$
3,292

 
$
3,041

Interest and dividends on securities
 
294

 
272

 
585

 
530

Interest on other earning assets
 
13

 
12

 
38

 
28

Total interest income
 
1,994

 
1,824

 
3,915

 
3,599

Interest Expense
 
 
 
 
 
 
 
 
Interest on deposits
 
148

 
80

 
266

 
149

Interest on short-term borrowings
 
23

 
5

 
43

 
7

Interest on long-term debt
 
166

 
104

 
316

 
199

Total interest expense
 
337

 
189

 
625

 
355

Net Interest Income
 
1,657

 
1,635

 
3,290

 
3,244

Provision for credit losses
 
135

 
135

 
285

 
283

Net Interest Income After Provision for Credit Losses
 
1,522

 
1,500

 
3,005

 
2,961

Noninterest Income
 
 
 
 
 
 
 
 
Insurance income
 
481

 
481

 
917

 
939

Service charges on deposits
 
179

 
176

 
344

 
344

Mortgage banking income
 
94

 
94

 
193

 
197

Investment banking and brokerage fees and commissions
 
109

 
105

 
222

 
196

Trust and investment advisory revenues
 
72

 
70

 
144

 
138

Bankcard fees and merchant discounts
 
72

 
75

 
141

 
134

Checkcard fees
 
57

 
54

 
109

 
105

Operating lease income
 
36

 
37

 
73

 
73

Income from bank-owned life insurance
 
30

 
32

 
61

 
61

Other income
 
91

 
96

 
197

 
204

Securities gains (losses), net
 
 
 
 
 
 
 
 
Gross realized gains
 
1

 

 
1

 

Gross realized losses
 

 

 

 

OTTI charges
 

 

 

 

Non-credit portion recognized in OCI
 

 

 

 

Total securities gains (losses), net
 
1

 

 
1

 

Total noninterest income
 
1,222

 
1,220

 
2,402

 
2,391

Noninterest Expense
 
 
 
 
 
 
 
 
Personnel expense
 
1,074

 
1,068

 
2,113

 
2,103

Occupancy and equipment expense
 
187

 
198

 
381

 
391

Software expense
 
67

 
57

 
132

 
115

Outside IT services
 
32

 
39

 
64

 
88

Regulatory charges
 
39

 
36

 
79

 
75

Amortization of intangibles
 
31

 
36

 
64

 
74

Loan-related expense
 
26

 
36

 
55

 
66

Professional services
 
32

 
38

 
62

 
60

Merger-related and restructuring charges, net
 
24

 
10

 
52

 
46

Loss (gain) on early extinguishment of debt
 

 

 

 
392

Other expense
 
208

 
224

 
404

 
434

Total noninterest expense
 
1,720

 
1,742

 
3,406

 
3,844

Earnings
 
 
 
 
 
 
 
 
Income before income taxes
 
1,024

 
978

 
2,001

 
1,508

Provision for income taxes
 
202

 
304

 
388

 
408

Net income
 
822

 
674

 
1,613

 
1,100

Noncontrolling interests
 
3

 
(1
)
 
6

 
4

Dividends on preferred stock
 
44

 
44

 
87

 
87

Net income available to common shareholders
 
$
775

 
$
631

 
$
1,520

 
$
1,009

Basic EPS
 
$
1.00

 
$
0.78

 
$
1.95

 
$
1.25

Diluted EPS
 
$
0.99

 
$
0.77

 
$
1.93

 
$
1.23

Cash dividends declared per share
 
$
0.375

 
$
0.300

 
$
0.750

 
$
0.600

Basic weighted average shares outstanding
 
775,836

 
808,980

 
777,716

 
809,439

Diluted weighted average shares outstanding
 
785,750

 
819,389

 
788,362

 
821,072


The accompanying notes are an integral part of these consolidated financial statements.

4 BB&T Corporation



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
 
Six Months Ended
Unaudited
 
June 30,
 
June 30,
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
Net income
 
$
822

 
$
674

 
$
1,613

 
$
1,100

OCI, net of tax:
 
 

 
 

 
 

 
 

Change in unrecognized net pension and postretirement costs
 
13

 
12

 
27

 
21

Change in unrealized net gains (losses) on cash flow hedges
 
26

 
(34
)
 
104

 
(36
)
Change in unrealized net gains (losses) on AFS securities
 
(99
)
 
74

 
(367
)
 
72

Other, net
 
(1
)
 

 
(3
)
 
2

Total OCI
 
(61
)
 
52

 
(239
)
 
59

Total comprehensive income
 
$
761

 
$
726

 
$
1,374

 
$
1,159

 
 
 
 
 
 
 
 
 
Income Tax Effect of Items Included in OCI:
 
 
 
 
 
 
 
 
Change in unrecognized net pension and postretirement costs
 
$
5

 
$
7

 
$
9

 
$
14

Change in unrealized net gains (losses) on cash flow hedges
 
8

 
(20
)
 
34

 
(21
)
Change in unrealized net gains (losses) on AFS securities
 
(31
)
 
43

 
(115
)
 
42

Other, net
 

 

 
1

 


The accompanying notes are an integral part of these consolidated financial statements.


BB&T Corporation 5



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, shares in thousands)
Shares of
Common
Stock
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
AOCI
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
Balance, January 1, 2017
809,475

 
$
3,053

 
$
4,047

 
$
9,104

 
$
14,809

 
$
(1,132
)
 
$
45

 
$
29,926

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
1,096

 

 
4

 
1,100

OCI

 

 

 

 

 
59

 

 
59

Stock transactions:
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
6,644

 

 
33

 
55

 

 

 

 
88

Repurchase of common stock
(8,026
)
 

 
(40
)
 
(280
)
 

 

 

 
(320
)
Cash dividends declared on common stock

 

 

 

 
(485
)
 

 

 
(485
)
Cash dividends declared on preferred stock

 

 

 

 
(87
)
 

 

 
(87
)
Equity-based compensation expense

 

 

 
74

 

 

 

 
74

Other, net

 

 

 
13

 
(12
)
 

 
(7
)
 
(6
)
Balance, June 30, 2017
808,093

 
$
3,053

 
$
4,040

 
$
8,966

 
$
15,321

 
$
(1,073
)
 
$
42

 
$
30,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
782,006

 
$
3,053

 
$
3,910

 
$
7,893

 
$
16,259

 
$
(1,467
)
 
$
47

 
$
29,695

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
1,607

 

 
6

 
1,613

OCI

 

 

 

 

 
(239
)
 

 
(239
)
Stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
4,055

 

 
20

 
(22
)
 

 

 

 
(2
)
Repurchase of common stock
(11,614
)
 

 
(58
)
 
(572
)
 

 

 

 
(630
)
Cash dividends declared on common stock

 

 

 

 
(582
)
 

 

 
(582
)
Cash dividends declared on preferred stock

 

 

 

 
(87
)
 

 

 
(87
)
Equity-based compensation expense

 

 

 
76

 

 

 

 
76

Other, net

 

 

 
(11
)
 

 

 
(1
)
 
(12
)
Balance, June 30, 2018
774,447

 
$
3,053

 
$
3,872

 
$
7,364

 
$
17,197

 
$
(1,706
)
 
$
52

 
$
29,832


The accompanying notes are an integral part of these consolidated financial statements.

6 BB&T Corporation



CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
 
Six Months Ended June 30,
(Dollars in millions)
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
1,613

 
$
1,100

Adjustments to reconcile net income to net cash from operating activities:
 
 

 
 
Provision for credit losses
 
285

 
283

Depreciation
 
210

 
200

Loss (gain) on early extinguishment of debt
 

 
392

Amortization of intangibles
 
64

 
74

Equity-based compensation expense
 
76

 
74

(Gain) loss on securities, net
 
(1
)
 

Net change in operating assets and liabilities:
 
 

 
 
LHFS
 
(516
)
 
394

Trading and equity securities
 
(187
)
 
(655
)
Other assets, accounts payable and other liabilities
 
59

 
(377
)
Other, net
 
(176
)
 
3

Net cash from operating activities
 
1,427

 
1,488

Cash Flows From Investing Activities:
 
 

 
 
Proceeds from sales of AFS securities
 
160

 
224

Proceeds from maturities, calls and paydowns of AFS securities
 
1,990

 
2,531

Purchases of AFS securities
 
(1,989
)
 
(2,599
)
Proceeds from maturities, calls and paydowns of HTM securities
 
1,259

 
1,138

Purchases of HTM securities
 
(39
)
 
(2,859
)
Originations and purchases of loans and leases, net of principal collected
 
(2,957
)
 
(1,049
)
Other, net
 
13

 
(12
)
Net cash from investing activities
 
(1,563
)
 
(2,626
)
Cash Flows From Financing Activities:
 
 

 
 
Net change in deposits
 
2,113

 
(3,256
)
Net change in short-term borrowings
 
(1,362
)
 
4,736

Proceeds from issuance of long-term debt
 
1,755

 
4,650

Repayment of long-term debt
 
(1,044
)
 
(5,271
)
Repurchase of common stock
 
(630
)
 
(320
)
Cash dividends paid on common stock
 
(582
)
 
(485
)
Cash dividends paid on preferred stock
 
(87
)
 
(87
)
Other, net
 
(57
)
 
175

Net cash from financing activities
 
106

 
142

Net Change in Cash, Cash Equivalents and Restricted Cash
 
(30
)
 
(996
)
Cash, Cash Equivalents and Restricted Cash, January 1
 
3,083

 
4,424

Cash, Cash Equivalents and Restricted Cash, June 30
 
$
3,053

 
$
3,428

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Net cash paid (received) during the period for:
 
 
 
 
Interest expense
 
$
619

 
$
347

Income taxes
 
(60
)
 
187

Noncash investing activities:
 
 

 
 
Transfers of loans to foreclosed assets
 
125

 
267


The accompanying notes are an integral part of these consolidated financial statements.

BB&T Corporation 7



NOTE 1. Basis of Presentation

General
 
See the Glossary of Defined Terms at the beginning of this Report for terms used herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2017 should be referred to in connection with these unaudited interim consolidated financial statements.
 
Reclassifications

The Consolidated Statements of Cash Flows has been reclassified to include restricted cash in cash and cash equivalents. Certain other amounts reported in prior periods' consolidated financial statements have been reclassified to conform to the current presentation.
 
Use of Estimates in the Preparation of Financial Statements
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL, determination of fair value for financial instruments, valuation of MSRs, goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.

Derivative Financial Instruments

BB&T historically assessed the effectiveness of its accounting hedges using the long-haul method. In conjunction with the adoption of new hedge accounting guidance in the first quarter of 2018, the shortcut method was added to the methods BB&T uses to assess effectiveness. The selection of methods depends on the facts and circumstances specific to each hedge. The shortcut method is applied to hedges that achieve perfect offset. For hedges that are not eligible for the shortcut method, an initial quantitative analysis is performed to demonstrate that the hedges are expected to be highly effective in off-setting corresponding changes in either the fair value or cash flows of the hedged item. At least quarterly thereafter, qualitative analyses are performed to ensure that each hedge remains highly effective. When applicable, quantitative analyses, referred to as a long-haul methodology, are performed and include techniques such as regression analysis and hypothetical derivatives.

Revenue Recognition

In addition to lending and related activities, BB&T offers various services to customers that generate revenue. Contract performance typically occurs in one year or less. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. As of June 30, 2018, remaining performance obligations consisted primarily of insurance and investment banking services for contracts with an original expected length of one year or less.

Insurance income

Insurance commissions are received on the sale of insurance products, and revenue is recognized upon the placement date of the insurance policies. Payment is normally received within the policy period. In addition to placement, BB&T also provides insurance policy related risk management services. Revenue is recognized as these services are provided. Performance-based commissions are recognized when received or earlier when, upon consideration of past results and current conditions, the revenue is deemed not probable of reversal.

Transaction and service based revenues

Transaction and service based revenues include service charges on deposits, investment banking and brokerage fees and commissions, trust and investment advisory revenues, bankcard fees and merchant discounts, and checkcard fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur or, in some cases, within 90 days of the service period. Fees may be fixed or, where applicable, based on a percentage of transaction size or managed assets.


8 BB&T Corporation



Changes in Accounting Principles and Effects of New Accounting Pronouncements
Standard/
Adoption Date
Description
Effects on the Financial Statements
Standards Adopted During the Current Period
Revenue from Contracts with Customers
Jan 1, 2018
Requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
BB&T adopted this guidance using the modified retrospective approach for in-scope contracts at the date of adoption. The impact was not material.
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Jan 1, 2018
Requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost are required to be presented in a separate line item.

The service cost component is included in personnel expense and the other components of net benefit costs are included in other expense in the Consolidated Statements of Income. The prior period was reclassified to conform to the current presentation. See Note 11. Benefit Plans.
Derivatives and Hedging
Jan 1, 2018
Expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements.
BB&T early adopted this guidance using the modified retrospective approach. The impact was not material. New required disclosures have been included in Note 14. Derivative Financial Instruments.
Standards Not Yet Adopted
Leases
Jan 1, 2019
Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors.
Implementation efforts are ongoing, including implementation and testing of software solutions. BB&T expects assets and liabilities will likely be significantly higher, with no material impact to its Consolidated Statements of Income. BB&T expects to adopt on a prospective basis.
Credit Losses
Jan 1, 2020
Replaces the incurred loss impairment methodology with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance for expected credit losses. Any credit impairment on AFS debt securities for which the fair value is less than cost will be recorded through an allowance for expected credit losses. The standard also requires expanded disclosures related to credit losses and asset quality.
BB&T expects that the ACL could be materially higher; however, the magnitude of the increase and its impact has not yet been quantified and depends on economic conditions at the time of adoption. Implementation efforts include the development and testing of core models, evaluation of data requirements, guidance interpretation, and consideration of relevant internal processes and controls.


BB&T Corporation 9



NOTE 2. Securities

In conjunction with the adoption of new accounting standards, an immaterial amount of HTM securities was transferred to AFS securities and an immaterial amount of equity securities was transferred from AFS securities to other assets in the first quarter of 2018.

The following tables present the amortized cost, gross unrealized gains and losses, and fair values of AFS and HTM securities:
June 30, 2018
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
2,437

 
$

 
$
114

 
$
2,323

GSE
 
186

 

 
11

 
175

Agency MBS
 
20,880

 
2

 
1,034

 
19,848

States and political subdivisions
 
971

 
27

 
18

 
980

Non-agency MBS
 
351

 
203

 

 
554

Other
 
38

 
1

 

 
39

Total AFS securities
 
$
24,863

 
$
233

 
$
1,177

 
$
23,919

 
 
 
 
 
 
 
 
 
HTM securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,098

 
$

 
$
9

 
$
1,089

GSE
 
2,198

 
2

 
60

 
2,140

Agency MBS
 
18,436

 
30

 
632

 
17,834

States and political subdivisions
 
16

 

 

 
16

Other
 
1

 

 

 
1

Total HTM securities
 
$
21,749

 
$
32

 
$
701

 
$
21,080

December 31, 2017
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
2,368

 
$

 
$
77

 
$
2,291

GSE
 
187

 

 
8

 
179

Agency MBS
 
20,683

 
8

 
590

 
20,101

States and political subdivisions
 
1,379

 
37

 
24

 
1,392

Non-agency MBS
 
384

 
192

 

 
576

Other
 
8

 

 

 
8

Total AFS securities
 
$
25,009

 
$
237

 
$
699

 
$
24,547

 
 
 
 
 
 
 
 
 
HTM securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,098

 
$
8

 
$

 
$
1,106

GSE
 
2,198

 
11

 
22

 
2,187

Agency MBS
 
19,660

 
33

 
222

 
19,471

States and political subdivisions
 
28

 

 

 
28

Other
 
43

 
2

 

 
45

Total HTM securities
 
$
23,027

 
$
54

 
$
244

 
$
22,837

 
Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded 10% of shareholders' equity at June 30, 2018. The FNMA investments had total amortized cost and fair value of $14.1 billion and $13.5 billion, respectively. The FHLMC investments had total amortized cost and fair value of $10.2 billion and $9.8 billion, respectively.
 
Changes in credit losses on securities with OTTI where a portion of the unrealized loss was recognized in OCI were immaterial for all periods presented.

The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.

10 BB&T Corporation



June 30, 2018
 
AFS
 
HTM
(Dollars in millions)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
468

 
$
466

 
$
1

 
$
1

Due after one year through five years
 
2,093

 
1,982

 
2,789

 
2,739

Due after five years through ten years
 
584

 
573

 
940

 
909

Due after ten years
 
21,718

 
20,898

 
18,019

 
17,431

Total debt securities
 
$
24,863

 
$
23,919

 
$
21,749

 
$
21,080

 
The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
June 30, 2018
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
655

 
$
10

 
$
1,643

 
$
104

 
$
2,298

 
$
114

GSE
 
9

 

 
166

 
11

 
175

 
11

Agency MBS
 
7,148

 
245

 
12,624

 
789

 
19,772

 
1,034

States and political subdivisions
 
161

 
1

 
314

 
17

 
475

 
18

Total
 
$
7,973

 
$
256

 
$
14,747

 
$
921

 
$
22,720

 
$
1,177

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,089

 
$
9

 
$

 
$

 
$
1,089

 
$
9

GSE
 
1,446

 
46

 
286

 
14

 
1,732

 
60

Agency MBS
 
12,040

 
381

 
4,251

 
251

 
16,291

 
632

Total
 
$
14,575

 
$
436

 
$
4,537

 
$
265

 
$
19,112

 
$
701

December 31, 2017
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
634

 
$
4

 
$
1,655

 
$
73

 
$
2,289

 
$
77

GSE
 
9

 

 
170

 
8

 
179

 
8

Agency MBS
 
5,077

 
64

 
13,920

 
526

 
18,997

 
590

States and political subdivisions
 
201

 
1

 
355

 
23

 
556

 
24

Total
 
$
5,921

 
$
69

 
$
16,100

 
$
630

 
$
22,021

 
$
699

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

GSE
 
$
1,470

 
$
12

 
$
290

 
$
10

 
$
1,760

 
$
22

Agency MBS
 
10,880

 
77

 
4,631

 
145

 
15,511

 
222

Total
 
$
12,350

 
$
89

 
$
4,921

 
$
155

 
$
17,271

 
$
244

 
The unrealized losses on U.S. Treasury securities, GSE securities and Agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.
 

BB&T Corporation 11



NOTE 3. Loans and ACL

The following tables present loans and leases HFI by aging category:
June 30, 2018
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonperforming
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
60,205

 
$
26

 
$

 
$
243

 
$
60,474

CRE
 
21,545

 
4

 

 
61

 
21,610

Lease financing
 
1,913

 
2

 

 
9

 
1,924

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
29,031

 
441

 
374

 
119

 
29,965

Direct
 
11,547

 
52

 
4

 
58

 
11,661

Indirect
 
16,731

 
337

 
4

 
68

 
17,140

Revolving credit
 
2,845

 
21

 
10

 

 
2,876

PCI
 
468

 
22

 
43

 

 
533

Total
 
$
144,285

 
$
905

 
$
435

 
$
558

 
$
146,183

December 31, 2017
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonperforming
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
58,852

 
$
41

 
$
1

 
$
259

 
$
59,153

CRE
 
21,209

 
8

 
1

 
45

 
21,263

Lease financing
 
1,906

 
4

 

 
1

 
1,911

Retail:
 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
27,659

 
472

 
465

 
129

 
28,725

Direct
 
11,756

 
65

 
6

 
64

 
11,891

Indirect
 
16,745

 
412

 
6

 
72

 
17,235

Revolving credit
 
2,837

 
23

 
12

 

 
2,872

PCI
 
567

 
27

 
57

 

 
651

Total
 
$
141,531

 
$
1,052

 
$
548

 
$
570

 
$
143,701


The following table presents the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance and revolving credit loans are excluded as the loans are charged-off rather than reclassifying to nonperforming:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Commercial & Industrial
 
CRE
 
Lease Financing
 
Commercial & Industrial
 
CRE
 
Lease Financing
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
$
59,246

 
$
21,273

 
$
1,905

 
$
57,700

 
$
20,862

 
$
1,881

Special mention
 
189

 
38

 
6

 
268

 
48

 
6

Substandard-performing
 
796

 
238

 
4

 
926

 
308

 
23

Nonperforming
 
243

 
61

 
9

 
259

 
45

 
1

Total
 
$
60,474

 
$
21,610

 
$
1,924

 
$
59,153

 
$
21,263

 
$
1,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
 
Direct
 
Indirect
 
Residential Mortgage
 
Direct
 
Indirect
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
29,846

 
$
11,603

 
$
17,072

 
$
28,596

 
$
11,827

 
$
17,163

Nonperforming
 
119

 
58

 
68

 
129

 
64

 
72

Total
 
$
29,965


$
11,661

 
$
17,140


$
28,725

 
$
11,891

 
$
17,235



12 BB&T Corporation



The following tables present activity in the ACL:
Three Months Ended June 30, 2018
 
Balance at
Apr 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Jun 30, 2018
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
522

 
$
(23
)
 
$
11

 
$
25

 
$
535

CRE
 
175

 
(2
)
 
1

 
17

 
191

Lease financing
 
10

 
(1
)
 
1

 

 
10

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
216

 
(5
)
 
1

 
9

 
221

Direct
 
99

 
(17
)
 
6

 
9

 
97

Indirect
 
347

 
(82
)
 
17

 
71

 
353

Revolving credit
 
104

 
(21
)
 
5

 
17

 
105

PCI
 
25

 

 

 
(7
)
 
18

ALLL
 
1,498

 
(151
)
 
42

 
141

 
1,530

RUFC
 
116

 

 

 
(6
)
 
110

ACL
 
$
1,614

 
$
(151
)
 
$
42

 
$
135

 
$
1,640

Three Months Ended June 30, 2017
 
Balance at
Apr 1, 2017
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Jun 30, 2017
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
524

 
$
(26
)
 
$
9

 
$
8

 
$
515

CRE
 
141

 
(3
)
 
3

 
25

 
166

Lease financing
 
10

 
(1
)
 

 

 
9

Retail:
 
 
 
 
 
 
 
 
 


Residential mortgage
 
223

 
(20
)
 
1

 
7

 
211

Direct
 
102

 
(16
)
 
7

 
7

 
100

Indirect
 
338

 
(88
)
 
16

 
87

 
353

Revolving credit
 
103

 
(19
)
 
5

 
12

 
101

PCI
 
46

 

 

 
(16
)
 
30

ALLL
 
1,487

 
(173
)
 
41

 
130

 
1,485

RUFC
 
112

 

 

 
5

 
117

ACL
 
$
1,599

 
$
(173
)
 
$
41

 
$
135

 
$
1,602

Six Months Ended June 30, 2018
 
Balance at
Jan 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Jun 30, 2018
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
522

 
$
(46
)
 
$
19

 
$
40

 
$
535

CRE
 
160

 
(8
)
 
3

 
36

 
191

Lease financing
 
9

 
(2
)
 
1

 
2

 
10

Retail:
 
 

 
 

 
 

 
 

 


Residential mortgage
 
209

 
(9
)
 
1

 
20

 
221

Direct
 
106

 
(36
)
 
12

 
15

 
97

Indirect
 
348

 
(189
)
 
32

 
162

 
353

Revolving credit
 
108

 
(42
)
 
10

 
29

 
105

PCI
 
28

 

 

 
(10
)
 
18

ALLL
 
1,490

 
(332
)
 
78

 
294

 
1,530

RUFC
 
119

 

 

 
(9
)
 
110

ACL
 
$
1,609

 
$
(332
)
 
$
78

 
$
285

 
$
1,640


BB&T Corporation 13



Six Months Ended June 30, 2017
 
Balance at
Jan 1, 2017
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Jun 30, 2017
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
530

 
$
(59
)
 
$
16

 
$
28

 
$
515

CRE
 
145

 
(4
)
 
9

 
16

 
166

Lease financing
 
7

 
(2
)
 

 
4

 
9

Retail:
 
 

 
 

 
 

 
 

 


Residential mortgage
 
227

 
(32
)
 
1

 
15

 
211

Direct
 
103

 
(30
)
 
13

 
14

 
100

Indirect
 
327

 
(195
)
 
33

 
188

 
353

Revolving credit
 
106

 
(40
)
 
10

 
25

 
101

PCI
 
44

 

 

 
(14
)
 
30

ALLL
 
1,489

 
(362
)
 
82

 
276

 
1,485

RUFC
 
110

 

 

 
7

 
117

ACL
 
$
1,599

 
$
(362
)
 
$
82

 
$
283

 
$
1,602


The following table provides a summary of loans that are collectively evaluated for impairment:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Recorded Investment
 
Related ALLL
 
Recorded Investment
 
Related ALLL
Commercial:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
60,141

 
$
502

 
$
58,804

 
$
494

CRE
 
21,512

 
181

 
21,173

 
154

Lease financing
 
1,915

 
10

 
1,910

 
9

Retail:
 
 
 
 
 
 
 
 
Residential mortgage
 
29,116

 
154

 
27,914

 
143

Direct
 
11,590

 
91

 
11,815

 
98

Indirect
 
16,837

 
300

 
16,935

 
296

Revolving credit
 
2,847

 
94

 
2,842

 
97

PCI
 
533

 
18

 
651

 
28

Total
 
$
144,491

 
$
1,350

 
$
142,044

 
$
1,319


The following tables set forth certain information regarding impaired loans, excluding PCI and LHFS, that were individually evaluated for impairment:
As of / For The Six Months Ended June 30, 2018
 
UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
(Dollars in millions)
 
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
350

 
$
125

 
$
208

 
$
33

 
$
343

 
$
2

CRE
 
108

 
21

 
77

 
10

 
107

 
1

Lease financing
 
10

 

 
9

 

 
7

 

Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
897

 
133

 
716

 
67

 
833

 
18

Direct
 
92

 
25

 
46

 
6

 
74

 
2

Indirect
 
312

 
5

 
298

 
53

 
299

 
22

Revolving credit
 
29

 

 
29

 
11

 
29

 

Total
 
$
1,798

 
$
309

 
$
1,383

 
$
180

 
$
1,692

 
$
45


14 BB&T Corporation



As of / For The Year Ended December 31, 2017
 
UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
(Dollars in millions)
 
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
381

 
$
136

 
$
213

 
$
28

 
$
424

 
$
6

CRE
 
91

 
26

 
64

 
6

 
109

 
3

Lease financing
 
1

 

 
1

 

 
3

 

Retail:
 
 
 
 

 
 

 
 

 
 

 
 

Residential mortgage
 
860

 
132

 
679

 
67

 
895

 
37

Direct
 
99

 
22

 
54

 
8

 
78

 
4

Indirect
 
308

 
6

 
294

 
52

 
269

 
41

Revolving credit
 
30

 

 
30

 
10

 
29

 
1

Total
 
$
1,770

 
$
322

 
$
1,335

 
$
171

 
$
1,807

 
$
92


The following table presents a summary of TDRs, all of which are considered impaired:
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Performing TDRs:
 
 
 
 
Commercial:
 
 
 
 
Commercial and industrial
 
$
44

 
$
50

CRE
 
11

 
16

Lease financing
 

 

Retail:
 
 
 
 
Residential mortgage
 
647

 
605

Direct
 
58

 
62

Indirect
 
284

 
281

Revolving credit
 
29

 
29

Total performing TDRs
 
1,073

 
1,043

Nonperforming TDRs (also included in NPL disclosures)
 
191

 
189

Total TDRs
 
$
1,264

 
$
1,232

ALLL attributable to TDRs
 
$
153

 
$
142


The primary reason loan modifications were classified as TDRs is summarized below. Balances represent the recorded investment at the end of the quarter in which the modification was made. Rate modifications consist of TDRs made with below market interest rates, including those that also have modifications of loan structures.
Three Months Ended June 30,
2018
 
2017
 
Type of Modification
 
ALLL Impact
 
Type of Modification
 
ALLL Impact
(Dollars in millions)
Rate
 
Structure
 
 
Rate
 
Structure
 
Newly Designated TDRs:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
20

 
$
33

 
$

 
$
33

 
$
25

 
$
1

CRE
8

 
1

 

 
8

 
3

 
1

Retail:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
58

 
5

 
4

 
82

 
6

 
10

Direct
2

 
1

 

 
2

 
1

 

Indirect
45

 
1

 
5

 
37

 
2

 
4

Revolving credit
4

 

 
1

 
4

 

 
1

Re-modification of Previously Designated TDRs
31

 
5

 

 
40

 
13

 



BB&T Corporation 15



Six Months Ended June 30,
2018
 
2017
 
Type of Modification
 
ALLL Impact
 
Type of Modification
 
ALLL Impact
(Dollars in millions)
Rate
 
Structure
 
 
Rate
 
Structure
 
Newly Designated TDRs:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
30

 
$
43

 
$

 
$
55

 
$
56

 
$
2

CRE
27

 
2

 

 
14

 
5

 
1

Retail:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
140

 
15

 
9

 
210

 
12

 
16

Direct
4

 
1

 

 
5

 
2

 

Indirect
87

 
2

 
10

 
78

 
4

 
8

Revolving credit
9

 

 
2

 
9

 

 
2

Re-Modification of Previously Designated TDRs
52

 
10

 

 
85

 
22

 


Charge-offs and forgiveness of principal and interest for TDRs were immaterial for all periods presented.
 
The pre-default balance for modifications that had been classified as TDRs during the previous 12 months that experienced a payment default was $13 million and $17 million for the three months ended June 30, 2018 and 2017, respectively, and $36 million and $45 million for the six months ended June 30, 2018 and 2017, respectively. Payment default is defined as movement of the TDR to nonperforming status, foreclosure or charge-off, whichever occurs first.

Unearned income, discounts and net deferred loan fees and costs were immaterial. Residential mortgage loans in the process of foreclosure were $270 million at June 30, 2018 and $288 million at December 31, 2017.

NOTE 4. Goodwill and Other Intangible Assets

The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
CDI
 
$
605

 
$
(436
)
 
$
169

 
$
605

 
$
(409
)
 
$
196

Other, primarily customer relationship intangibles
 
1,165

 
(687
)
 
478

 
1,211

 
(696
)
 
515

Total
 
$
1,770

 
$
(1,123
)
 
$
647

 
$
1,816

 
$
(1,105
)
 
$
711


NOTE 5. Loan Servicing
 
Residential Mortgage Banking Activities
 
The following tables summarize residential mortgage banking activities:
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
UPB of residential mortgage and home equity loan servicing portfolio
 
$
118,753

 
$
118,424

UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate
 
88,492

 
89,124

Mortgage loans sold with recourse
 
452

 
490

Maximum recourse exposure from mortgage loans sold with recourse liability
 
237

 
251

Indemnification, recourse and repurchase reserves
 
34

 
37

As of / For the Six Months Ended June 30,
 

(Dollars in millions)
 
2018
 
2017
UPB of residential mortgage loans sold from LHFS
 
$
5,536

 
$
6,309

Pre-tax gains recognized on mortgage loans sold and held for sale
 
74

 
65

Servicing fees recognized from mortgage loans serviced for others
 
128

 
133

Approximate weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others
 
0.28
%
 
0.28
%
Weighted average interest rate on mortgage loans serviced for others
 
4.01

 
4.00



16 BB&T Corporation



The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
Six Months Ended June 30,
 
 
(Dollars in millions)
 
2018
 
2017
Residential MSRs, carrying value, January 1
 
$
914

 
$
915

Additions
 
63

 
63

Change in fair value due to changes in valuation inputs or assumptions:
 
 
 
 
Prepayment speeds
 
67

 
(45
)
OAS
 
17

 
42

Servicing costs
 

 
9

Realization of expected net servicing cash flows, passage of time and other
 
(70
)
 
(69
)
Residential MSRs, carrying value, June 30
 
$
991

 
$
915

 
 
 
 
 
Gains (losses) on derivative financial instruments used to mitigate the income statement effect of changes in residential MSR fair value
 
$
(84
)
 
$
3

 
The sensitivity of the fair value of the residential MSRs to changes in key assumptions is presented in the following table:
 
 
June 30, 2018
 
December 31, 2017
 
 
Range
 
Weighted
Average
 
Range
 
Weighted
Average
(Dollars in millions)
 
Min
 
Max
 
 
Min
 
Max
 
Prepayment speed
 
7.8
%
 
8.9
%
 
8.1
%
 
7.1
%
 
10.1
%
 
9.1
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(29
)
 
 
 
 
 
$
(31
)
Effect on fair value of a 20% increase
 
 
 
 
 
(56
)
 
 
 
 
 
(60
)
 
 
 
 
 
 
 
 
 
 
 
 
 
OAS
 
7.9
%
 
8.5
%
 
8.1
%
 
8.4
%
 
8.9
%
 
8.5
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(30
)
 
 
 
 
 
$
(28
)
Effect on fair value of a 20% increase
 
 
 
 
 
(57
)
 
 
 
 
 
(54
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of loans serviced for others:
 
 
 
 
 
 
 
 
 
 
Fixed-rate residential mortgage loans
 
 
 
 
 
99.2
%
 
 
 
 
 
99.1
%
Adjustable-rate residential mortgage loans
 
 
 
 
 
0.8

 
 
 
 
 
0.9

Total
 
 

 
 

 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average life
 
 

 
 

 
7.0 years

 
 
 
 
 
6.4 years


The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in one assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.
 
Commercial Mortgage Banking Activities

The following table summarizes commercial mortgage banking activities for the periods presented:
(Dollars in millions)
Jun 30, 2018
 
Dec 31, 2017
UPB of CRE mortgages serviced for others
$
27,586

 
$
28,441

CRE mortgages serviced for others covered by recourse provisions
4,475

 
4,153

Maximum recourse exposure from CRE mortgages sold with recourse liability
1,241

 
1,218

Recorded reserves related to recourse exposure
5

 
5

CRE mortgages originated during the year-to-date period
3,337

 
6,753

Commercial MSRs at fair value
152

 
142



BB&T Corporation 17



NOTE 6. Deposits
 
The composition of deposits is presented in the following table:
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Noninterest-bearing deposits
 
$
54,270

 
$
53,767

Interest checking
 
27,257

 
27,677

Money market and savings
 
63,167

 
62,757

Time deposits
 
14,781

 
13,170

Total deposits
 
$
159,475

 
$
157,371

 
 
 
 
 
Time deposits greater than $250,000
 
$
4,097

 
$
2,622

 
NOTE 7. Long-Term Debt

The following table presents a summary of long-term debt:
 
 
Jun 30, 2018
 
Dec 31, 2017
 
 
 
 
 
 
Stated Rate
 
Effective Rate
 
Carrying
 
Carrying
(Dollars in millions)
 
Maturity
 
Min
 
Max
 
 
Amount
 
Amount
BB&T Corporation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2019
to
2025
 
2.05
%
 
6.85
%
 
3.45
%
 
$
9,362

 
$
8,562

Floating rate senior notes
 
2019
 
2022
 
2.58

 
3.06

 
2.93

 
2,397

 
2,547

Fixed rate subordinated notes
 
2019
 
2022
 
3.95

 
5.25

 
2.52

 
911

 
933

Branch Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2018
 
2022
 
1.45

 
2.85

 
2.98

 
5,609

 
5,653

Floating rate senior notes
 
2019
 
2020
 
2.52

 
2.89

 
2.81

 
1,149

 
1,149

Fixed rate subordinated notes
 
2025
 
2026
 
3.63

 
3.80

 
4.12

 
2,044

 
2,119

FHLB advances (1)
 
2018
 
2034
 

 
5.50

 
2.54

 
2,440

 
2,480

Other long-term debt
 
 
 
 
 
 
 
 
 
 
 
169

 
205

Total long-term debt
 
 
 
 
 
 
 
 
 
 
 
$
24,081

 
$
23,648

(1)
FHLB advances had a weighted average maturity of 3.3 years at June 30, 2018.

The effective rates above reflect the impact of fair value hedges and debt issuance costs. Subordinated notes with a remaining maturity of one year or greater qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.

During 2017, Branch Bank terminated FHLB advances totaling $2.9 billion of par value, which resulted in a pre-tax loss on early extinguishment of debt totaling $392 million.


18 BB&T Corporation



NOTE 8. Shareholders' Equity

The following table presents the activity related to awards of RSUs, PSUs and restricted shares:
(Shares in thousands)
 
Units/Shares
 
Wtd. Avg. Grant Date Fair Value
Nonvested at January 1, 2018
 
12,948

 
$
33.90

Granted
 
3,416

 
49.11

Vested
 
(3,459
)
 
33.55

Forfeited
 
(155
)
 
36.15

Nonvested at June 30, 2018
 
12,750

 
38.04


NOTE 9. AOCI

Activity in AOCI is summarized below:
Three Months Ended June 30, 2018 and 2017



(Dollars in millions)
Unrecognized Net Pension and Postretirement Costs
 
Unrealized Net Gains (Losses) on Cash Flow Hedges
 
Unrealized Net Gains (Losses) on AFS Securities
 
Other, net
 
Total
AOCI balance, April 1, 2017
$
(755
)
 
$
(94
)
 
$
(261
)
 
$
(15
)
 
$
(1,125
)
OCI before reclassifications, net of tax
1

 
(30
)
 
81

 
1

 
53

Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
18

 
(6
)
 
(12
)
 
(1
)
 
(1
)
Tax effect
7

 
(2
)
 
(5
)
 

 

Amounts reclassified, net of tax
11

 
(4
)
 
(7
)
 
(1
)
 
(1
)
Total OCI, net of tax
12

 
(34
)
 
74

 

 
52

AOCI balance, June 30, 2017
$
(743
)
 
$
(128
)
 
$
(187
)
 
$
(15
)
 
$
(1,073
)
 
 
 
 
 
 
 
 
 
 
AOCI balance, April 1, 2018
$
(990
)
 
$
(14
)
 
$
(624
)
 
$
(17
)
 
$
(1,645
)
OCI before reclassifications, net of tax


23


(100
)
 
(2
)
 
(79
)
Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
18

 
3

 
1

 
1

 
23

Tax effect
5

 

 

 

 
5

Amounts reclassified, net of tax
13

 
3

 
1

 
1

 
18

Total OCI, net of tax
13

 
26

 
(99
)
 
(1
)
 
(61
)
AOCI balance, June 30, 2018
$
(977
)
 
$
12

 
$
(723
)
 
$
(18
)
 
$
(1,706
)

BB&T Corporation 19



Six Months Ended June 30, 2018 and 2017



(Dollars in millions)
Unrecognized Net Pension and Postretirement Costs
 
Unrealized Net Gains (Losses) on Cash Flow Hedges
 
Unrealized Net Gains (Losses) on AFS Securities
 
Other, net
 
Total
AOCI balance, January 1, 2017
$
(764
)
 
$
(92
)
 
$
(259
)
 
$
(17
)
 
$
(1,132
)
OCI before reclassifications, net of tax
(1
)
 
(27
)
 
80

 
2

 
54

Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
35

 
(14
)
 
(13
)
 

 
8

Tax effect
13

 
(5
)
 
(5
)
 

 
3

Amounts reclassified, net of tax
22

 
(9
)
 
(8
)
 

 
5

Total OCI, net of tax
21

 
(36
)
 
72

 
2

 
59

AOCI balance, June 30, 2017
$
(743
)
 
$
(128
)
 
$
(187
)
 
$
(15
)
 
$
(1,073
)
 
 
 
 
 
 
 
 
 
 
AOCI balance, January 1, 2018
$
(1,004
)
 
$
(92
)
 
$
(356
)
 
$
(15
)
 
$
(1,467
)
OCI before reclassifications, net of tax

 
93

 
(382
)
 
(4
)
 
(293
)
Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
36

 
14

 
20

 
1

 
71

Tax effect
9

 
3

 
5

 

 
17

Amounts reclassified, net of tax
27

 
11

 
15

 
1

 
54

Total OCI, net of tax
27

 
104

 
(367
)
 
(3
)
 
(239
)
AOCI balance, June 30, 2018
$
(977
)
 
$
12

 
$
(723
)
 
$
(18
)
 
$
(1,706
)
Primary income statement location of amounts reclassified from AOCI
Other expense
 
Interest expense
 
Interest income
 
Interest income
 
 

NOTE 10. Income Taxes

The effective tax rates for the three months ended June 30, 2018 and 2017 were 19.7% and 31.1%, respectively. The current quarter tax provision reflects the lower federal income tax rate enacted with tax reform in December of 2017.

The effective tax rates for the six months ended June 30, 2018 and 2017 were 19.4% and 27.1%, respectively. The effective tax rate for the six months ended June 30, 2018 was lower than the corresponding period in 2017 primarily due to the lower federal income tax rate. The earlier period also included the tax benefits associated with using the marginal income tax rate for the loss on the early extinguishment of debt.

NOTE 11. Benefit Plans

The components of net periodic benefit cost for defined benefit pension plans are summarized in the following table:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
Location
2018
 
2017
 
2018
 
2017
Service cost
Personnel expense
$
60

 
$
53

 
$
120

 
$
105

Interest cost
Other expense
50

 
47

 
100

 
96

Estimated return on plan assets
Other expense
(112
)
 
(92
)
 
(224
)
 
(185
)
Amortization and other
Other expense
19

 
19

 
39

 
39

Net periodic benefit cost
 
$
17

 
$
27

 
$
35

 
$
55


BB&T makes contributions to the qualified pension plans in amounts between the minimum required for funding and the maximum deductible for federal income tax purposes. Discretionary contributions totaling $144 million were made during the six months ended June 30, 2018. There are no required contributions for the remainder of 2018, though BB&T may elect to make additional discretionary contributions.


20 BB&T Corporation



NOTE 12. Commitments and Contingencies

The following table summarizes certain commitments and contingencies. Refer to Note 13. Fair Value Disclosures for amounts related to off-balance sheet financial instruments.
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Investments in affordable housing projects:
 
 
 
 
Carrying amount
 
$
2,068

 
$
1,948

Amount of future funding commitments included in carrying amount
 
947

 
928

Lending exposure
 
541

 
561

Tax credits subject to recapture
 
478

 
471

Private equity investments
 
463

 
471

Future funding commitments to private equity investments
 
128

 
143


Legal Proceedings

The nature of BB&T's business ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. BB&T believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management's judgment as to what is in the best interests of BB&T and its shareholders.
 
On at least a quarterly basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information available. For those matters where it is probable that BB&T will incur a loss and the amount of the loss can be reasonably estimated, and is more than nominal, a liability is recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of BB&T.
 
Pledged Assets
 
Certain assets were pledged to secure municipal deposits, securities sold under agreements to repurchase, borrowings and borrowing capacity, subject to any applicable asset discount, at the FHLB and FRB as well as for other purposes as required or permitted by law. The following table provides the total carrying amount of pledged assets by asset type, of which the majority are pursuant to agreements that do not permit the other party to sell or repledge the collateral. Assets related to employee benefit plans are excluded from the following table.
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Pledged securities
 
$
12,940

 
$
14,636

Pledged loans
 
75,300

 
74,718



BB&T Corporation 21



NOTE 13. Fair Value Disclosures

The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
June 30, 2018
 
 
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 

 
 

 
 

 
 

AFS securities:
 
 

 
 
 
 
 
 
U.S. Treasury
 
$
2,323

 
$

 
$
2,323

 
$

GSE
 
175

 

 
175

 

Agency MBS
 
19,848

 

 
19,848

 

States and political subdivisions
 
980

 

 
980

 

Non-agency MBS
 
554

 

 
129

 
425

Other
 
39

 

 
39

 

Total AFS securities
 
23,919

 

 
23,494

 
425

LHFS
 
1,615

 

 
1,615

 

MSRs
 
1,143

 

 

 
1,143

Other assets:
 

 
 
 
 
 
 
Trading and equity securities
 
820

 
380

 
440

 

Derivative assets
 
192

 

 
185

 
7

Private equity investments
 
399

 

 

 
399

Total assets
 
$
28,088

 
$
380


$
25,734


$
1,974

Liabilities:
 
 

 
 

 
 

 
 

Derivative liabilities
 
$
395

 
$

 
$
392

 
$
3

Securities sold short
 
235

 

 
235

 

Total liabilities
 
$
630

 
$

 
$
627

 
$
3

December 31, 2017
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
AFS securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
$
2,291

 
$

 
$
2,291

 
$

GSE
 
179

 

 
179

 

Agency MBS
 
20,101

 

 
20,101

 

States and political subdivisions
 
1,392

 

 
1,392

 

Non-agency MBS
 
576

 

 
144

 
432

Other
 
8

 
6

 
2

 

Total AFS securities
 
24,547

 
6

 
24,109

 
432

LHFS
 
1,099

 

 
1,099

 

MSRs
 
1,056

 

 

 
1,056

Other assets:
 
 
 
 
 
 
 
 
Trading and equity securities
 
633

 
363

 
270

 

Total derivative assets
 
443

 

 
437

 
6

Private equity investments
 
404

 

 

 
404

Total assets
 
$
28,182

 
$
369

 
$
25,915

 
$
1,898

Liabilities:
 
 

 
 

 
 

 
 

Derivative liabilities
 
$
714

 
$

 
$
711

 
$
3

Securities sold short
 
120

 

 
120

 

Total liabilities
 
$
834

 
$

 
$
831

 
$
3


Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level valuation input hierarchy. The following discussion focuses on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities.


22 BB&T Corporation



A third-party pricing service is generally utilized in determining the fair value of the securities portfolio. Management independently evaluates the fair values provided by the pricing service through comparisons to other external pricing sources, review of additional information provided by the pricing service and other third party sources for selected securities and back-testing to compare the price realized on any security sales to the daily pricing information received from the pricing service. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.
 
U.S. Treasury securities: Treasury securities are valued using quoted prices in active over-the-counter markets.
 
GSE securities and agency MBS: GSE pass-through securities are valued using market-based pricing matrices that reference observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE CMOs are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.
 
States and political subdivisions: These securities are valued using market-based pricing matrices that reference observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.
 
Non-agency MBS: Pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above. Non-agency MBS also include investments in Re-REMIC trusts that primarily hold non-agency MBS, which are valued based on broker pricing models that use baseline securities yields and tranche-level yield adjustments to discount cash flows modeled using market convention prepayment speed and default assumptions.
 
Other securities: These securities consist primarily of corporate bonds. These securities are valued based on a review of quoted market prices for assets as well as through the various other inputs discussed previously.
 
LHFS: Certain mortgage loans are originated to be sold to investors, which are carried at fair value. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage LHFS.
 
MSRs: Residential MSRs are valued using an OAS valuation model to project cash flows over multiple interest rate scenarios, which are discounted at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. Fair value estimates and assumptions are compared to industry surveys, recent market activity, actual portfolio experience and, when available, other observable market data. Commercial MSRs are valued using a cash flow valuation model that calculates the present value of estimated future net servicing cash flows. BB&T considers actual and expected loan prepayment rates, discount rates, servicing costs and other economic factors that are determined based on current market conditions.
 
Trading and equity securities: Trading and equity securities primarily consist of exchange traded equity securities, and debt securities issued by the U.S. Treasury, GSEs, or states and political subdivisions. The valuation techniques for debt securities are more fully discussed above.

Derivative assets and liabilities: The fair values of derivatives are determined based on quoted market prices and internal pricing models that use market observable data. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted market prices adjusted for commitments that are not expected to fund and include the value attributable to the net servicing fees.

Private equity investments: In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment, and actual values in a sale could differ materially from those estimated.
 
Securities sold short: Securities sold short represent debt securities sold short that are entered into as a hedging strategy for the purposes of supporting institutional and retail client trading activities.


BB&T Corporation 23



Activity for Level 3 assets and liabilities is summarized below:
Three Months Ended June 30, 2018 and 2017
 
Non-agency MBS
 
MSRs
 
Net Derivatives
 
Private Equity Investments
(Dollars in millions)
 
 
 
 
Balance at April 1, 2017
 
$
480

 
$
1,088

 
$
10

 
$
400

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
14

 
(17
)
 
23

 

Included in unrealized net holding gains (losses) in OCI
 
(2
)
 

 

 

Purchases
 

 

 

 
7

Issuances
 

 
25

 
9

 

Sales
 

 

 

 
(12
)
Settlements
 
(18
)
 
(44
)
 
(39
)
 
(1
)
Balance at June 30, 2017
 
$
474

 
$
1,052

 
$
3

 
$
394

 
 
 
 
 
 
 
 
 
Balance at April 1, 2018
 
$
441

 
$
1,119

 
$
7

 
$
400

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
7

 
23

 
1

 
5

Included in unrealized net holding gains (losses) in OCI
 
(9
)
 

 

 

Purchases
 

 

 

 
3

Issuances
 

 
46

 
11

 

Sales
 

 

 

 

Settlements
 
(14
)
 
(45
)
 
(15
)
 
(9
)
Balance at June 30, 2018
 
$
425

 
$
1,143

 
$
4

 
$
399

Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2018
 
$
7

 
$
23

 
$
4

 
$
4

Six Months Ended June 30, 2018 and 2017
 
Non-agency MBS
 
MSRs
 
Net Derivatives
 
Private Equity Investments
(Dollars in millions)
 
 
 
 
Balance at January 1, 2017
 
$
507

 
$
1,052

 
$
(13
)
 
$
362

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
23

 
20

 
19

 
5

Included in unrealized net holding gains (losses) in OCI
 
(20
)
 

 

 

Purchases
 

 

 

 
75

Issuances
 

 
63

 
24

 

Sales
 

 

 

 
(30
)
Settlements
 
(36
)
 
(83
)
 
(27
)
 
(5
)
Transfers out of Level 3
 

 

 

 
(13
)
Balance at June 30, 2017
 
$
474

 
$
1,052

 
$
3

 
$
394

 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
$
432

 
1,056

 
$
3

 
$
404

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
6

 
91

 
1

 
11

Included in unrealized net holding gains (losses) in OCI
 
14

 

 

 

Purchases
 

 

 

 
27

Issuances
 

 
83

 
6

 

Sales
 

 

 

 
(24
)
Settlements
 
(27
)
 
(87
)
 
(6
)
 
(19
)
Balance at June 30, 2018
 
$
425

 
$
1,143

 
$
4

 
$
399

Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2018
 
$
6

 
$
91

 
$
4

 
$
11

Primary income statement location of realized gains (losses) included in earnings
 
Interest income
 
Mortgage banking income
 
Mortgage banking income
 
Other income

BB&T’s policy is to recognize transfers between levels as of the end of a reporting period. There were no transfers between Level 1 and Level 2 for 2018 and 2017.
 

24 BB&T Corporation



The non-agency MBS categorized as Level 3 represent ownership interests in various tranches of Re-REMIC trusts. These securities are valued at a discount, which is unobservable in the market, to the fair value of the underlying securities owned by the trusts. The Re-REMIC tranches do not have an active market and therefore are categorized as Level 3. At June 30, 2018, the fair value of Re-REMIC non-agency MBS represented a discount of 16.9% to the fair value of the underlying securities owned by the Re-REMIC trusts.

The majority of private equity investments are in SBIC qualified funds, which primarily focus on equity and subordinated debt investments in privately-held middle market companies. The majority of these VIE investments are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates on an approximately ratable basis through 2026, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. As of June 30, 2018, restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. These investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 5x to 14x, with a weighted average of 9x, at June 30, 2018.

The following table details the fair value and UPB of LHFS that were elected to be carried at fair value:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Fair Value
 
UPB
 
Difference
 
Fair Value
 
UPB
 
Difference
LHFS reported at fair value
 
$
1,615

 
$
1,596

 
$
19

 
$
1,099

 
$
1,084

 
$
15

 
Excluding government guaranteed, LHFS that were nonperforming or 90 days or more past due and still accruing interest were not material at June 30, 2018.

The following table provides information about certain assets measured at fair value on a nonrecurring basis, which are primarily collateral dependent and may be subject to liquidity adjustments. The carrying values represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates throughout the period. The valuation adjustments represent the amounts recorded during the period regardless of whether the asset is still held at period end. These assets are considered to be Level 3 assets (excludes PCI).
As of / For The Six Months Ended June 30,
 
2018
 
2017
(Dollars in millions)
 
Carrying Value
 
Valuation Adjustments
 
Carrying Value
 
Valuation Adjustments
Impaired loans
 
$
174

 
$
(22
)
 
$
190

 
$
(14
)
Foreclosed real estate
 
43

 
(114
)
 
48

 
(126
)
 
For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instrument. Values obtained relate to one trading unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.
 
An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following assumptions were used to estimate the fair value of these financial instruments.
 
Cash and cash equivalents and restricted cash: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.
 
HTM securities: The fair values of HTM securities are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.
 
Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly transactions in the current market. For commercial loans and leases, discount rates may be adjusted to address additional credit risk on lower risk grade instruments. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.


BB&T Corporation 25



Deposit liabilities: The fair values for demand deposits are equal to the amount payable on demand. Fair values for CDs are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. BB&T has developed long-term relationships with its deposit customers, commonly referred to as CDIs, that have not been considered in the determination of the deposit liabilities' fair value.
 
Short-term borrowings: The carrying amounts of short-term borrowings, excluding securities sold short, approximate their fair values.
 
Long-term debt: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of guarantees and letters of credit are estimated based on the counterparties' creditworthiness and average default rates for loan products with similar risks. These respective fair value measurements are categorized within Level 3 of the fair value hierarchy. Retail lending commitments are assigned no fair value as BB&T typically has the ability to cancel such commitments by providing notice to the borrower.
 
Financial assets and liabilities not recorded at fair value are summarized below:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
Fair Value Hierarchy
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
HTM securities
Level 2
$
21,749

 
$
21,080

 
$
23,027

 
$
22,837

Loans and leases HFI, net of ALLL
Level 3
144,653

 
143,345

 
142,211

 
141,664

Financial liabilities:
 
 

 
 

 
 

 
 

Time deposits
Level 2
14,781

 
14,817

 
13,170

 
13,266

Long-term debt
Level 2
24,081

 
24,155

 
23,648

 
23,885


The following is a summary of selected information pertaining to off-balance sheet financial instruments:
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Notional/Contract Amount
 
Fair
Value
 
Notional/Contract Amount
 
Fair
Value
Commitments to extend, originate or purchase credit
 
$
70,601

 
$
312

 
$
67,860

 
$
259

Residential mortgage loans sold with recourse
 
452

 
5

 
490

 
5

Other loans sold with recourse
 
4,475

 
5

 
4,153

 
5

Letters of credit
 
2,465

 
20

 
2,466

 
21



26 BB&T Corporation



NOTE 14. Derivative Financial Instruments

The following table provides a summary of derivative strategies and the related accounting treatment:
 
 
Cash Flow Hedges
 
Fair Value Hedges
 
Derivatives Not Designated as Hedges
Risk exposure
 
Variability in cash flows of interest payments on floating rate business loans, overnight funding and various LIBOR funding instruments.
 
Changes in value on fixed rate long-term debt, CDs, FHLB advances, loans and state and political subdivision securities due to changes in interest rates.
 
Risk associated with an asset or liability, including mortgage banking operations and MSRs, or for client needs. Includes exposure to changes in market rates and conditions subsequent to the interest rate lock and funding date for mortgage loans originated for sale.
Risk management objective
 
Hedge the variability in the interest payments and receipts on future cash flows for forecasted transactions related to the first unhedged payments and receipts of variable interest.
 
Convert the fixed rate paid or received to a floating rate, primarily through the use of swaps.
 
For interest rate lock commitment derivatives and LHFS, use mortgage-based derivatives such as forward commitments and options to mitigate market risk. For MSRs, mitigate the income statement effect of changes in the fair value of the MSRs.
Treatment during the hedge period
 
Changes in value of the hedging instruments are recognized in AOCI until the related cash flows from the hedged item are recognized in earnings.
 
Changes in value of both the hedging instruments and the assets or liabilities being hedged are recognized in the income statement line item associated with the instrument being hedged.
 
Entire change in fair value recognized in current period income.
Treatment if hedge ceases to be highly effective or is terminated
 
Hedge is dedesignated. Changes in value recorded in AOCI before dedesignation are amortized to yield over the period the forecasted hedged transactions impact earnings.
 
If hedged item remains outstanding, the basis adjustment that resulted from hedging is amortized into earnings over the lesser of the designated hedged period or the maturity date of the instrument, and cash flows from terminations are reported in the same category as the cash flows from the hedged item.
 
Not applicable
Treatment if transaction is no longer probable of occurring during forecast period or within a short period thereafter
 
Hedge accounting ceases and any gain or loss in AOCI is reported in earnings immediately.
 
Not applicable
 
Not applicable

Impact of Derivatives on the Consolidated Balance Sheets

The fair values of derivative instruments are presented on a gross basis in other assets or other liabilities in the Consolidated Balance Sheets. Master netting arrangements allow counterparties to offset certain net derivative assets and liabilities with a defaulting party in determining the net termination amount. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a daily basis to secure the aggregate net exposure. Cash collateral is recorded in restricted cash and interest-bearing deposits in the Consolidated Balance Sheet. BB&T utilizes LCH Limited to clear swaps that are required to be cleared under the Dodd-Frank Act. Effective January 16, 2018, LCH Limited rules were modified to treat variation margin payments as settlements of exposure instead of collateral. At June 30, 2018, settlements are applied against the fair value of the related derivative contracts in the table below.


BB&T Corporation 27



The following table presents the notional amount and estimated fair value of derivative instruments:
 
 
 
 
June 30, 2018
 
December 31, 2017
 
 
Hedged Item or Transaction
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
(Dollars in millions)
 
 
 
Gain
 
Loss
 
 
Gain
 
Loss
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed swaps
 
3 mo. LIBOR funding
 
$
6,500

 
$

 
$

 
$
6,500

 
$

 
$
(126
)
Fair value hedges:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Receive fixed swaps
 
Long-term debt
 
13,461

 

 
(130
)
 
15,538

 
118

 
(166
)
Options
 
Long-term debt
 
5,337

 

 
(1
)
 
6,087

 

 
(1
)
Pay fixed swaps
 
Commercial loans
 
549

 
2

 

 
416

 
5

 
(1
)
Pay fixed swaps
 
Municipal securities
 
259

 

 

 
231

 

 
(76
)
Total
 
 
 
19,606

 
2

 
(131
)
 
22,272

 
123

 
(244
)
Not designated as hedges:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Client-related and other risk management:
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
11,141

 
54

 
(195
)
 
10,880

 
141

 
(61
)
Pay fixed swaps
 
 
 
11,157

 
38

 
(30
)
 
10,962

 
59

 
(155
)
Other
 
 
 
1,656

 
4

 
(4
)
 
1,658

 
4

 
(4
)
Forward commitments
 
 
 
4,356

 
8

 
(7
)
 
3,549

 
3

 
(2
)
Foreign exchange contracts
 
555

 
4

 
(3
)
 
470

 
3

 
(6
)
Total
 
 
 
28,865

 
108

 
(239
)
 
27,519

 
210

 
(228
)
Mortgage banking:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments
 
1,269

 
8

 
(4
)
 
1,308

 
7

 
(3
)
When issued securities, forward rate agreements and forward commitments
 
3,910

 
5

 
(10
)
 
3,124

 
4

 
(3
)
Other
 
 
 
352

 
2

 

 
182

 
1

 

Total
 
 
 
5,531

 
15

 
(14
)
 
4,614

 
12

 
(6
)
MSRs:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
3,553

 

 

 
4,498

 
15

 
(86
)
Pay fixed swaps
 
 
 
2,747

 

 

 
3,418

 
32

 
(13
)
Options
 
 
 
3,565

 
63

 
(10
)
 
4,535

 
50

 
(11
)
When issued securities, forward rate agreements and forward commitments
 
1,060

 
4

 
(1
)
 
1,813

 
1

 

Other
 
 
 

 

 

 
3

 

 

Total
 
 
 
10,925

 
67

 
(11
)
 
14,267

 
98

 
(110
)
Total derivatives not designated as hedges
 
45,321

 
190

 
(264
)
 
46,400

 
320

 
(344
)
Total derivatives
 
 
 
$
71,427

 
192

 
(395
)
 
$
75,172

 
443

 
(714
)
Gross amounts not offset in the Consolidated Balance Sheets:
 
 
 

 
 

 
 

 
 

 
 

Amounts subject to master netting arrangements not offset due to policy election
 
 
 
(67
)
 
67

 
 

 
(297
)
 
297

Cash collateral (received) posted
 
 

 
(59
)
 
120

 
 

 
(20
)
 
344

Net amount
 
 
 
 

 
$
66

 
$
(208
)
 
 

 
$
126

 
$
(73
)
 
The following table presents additional information for fair value hedging relationships:
 
 
June 30, 2018
 
December 31, 2017
 
 
 
 
Hedge Basis Adjustment
 
 
 
Hedge Basis Adjustment
(Dollars in millions)
 
Carrying Amount
 
Items Currently Designated
 
Items No Longer Designated
 
Carrying Amount
 
Items Currently Designated
 
Items No Longer Designated
AFS securities
 
$
490

 
$
1

 
$
57

 
$
533

 
$
64

 
$
10

Loans and leases
 
581

 
(7
)
 
(3
)
 
511

 
(5
)
 

Long-term debt
 
16,041

 
(314
)
 
127

 
16,917

 
(49
)
 
140


28 BB&T Corporation




Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income

No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.
 
The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts. Prior amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2018
 
2017
 
2018
 
2017
Pre-tax gain (loss) recognized in OCI:
 
 
 
 
 
 
 
Deposits
$
8

 
 
 
$
29

 
 
Short-term borrowings
2

 
 
 
2

 
 
Long-term debt
21

 
 
 
93

 
 
Total
$
31

 
$
(47
)
 
$
124

 
$
(43
)
Pre-tax gain (loss) reclassified from AOCI into interest expense:
 
 
 
 
 
 
 
Deposits
$
(1
)
 
 
 
(3
)
 
 
Short-term borrowings

 
 
 

 
 
Long-term debt
(2
)
 
 
 
(11
)
 
 
Total
$
(3
)
 
$
6

 
$
(14
)
 
$
14


The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts. Prior period amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2018
 
2017
 
2018
 
2017
AFS securities:
 
 
 
 
 
 


Amounts related to interest settlements
$
(2
)
 
 
 
$
(4
)
 
 
Recognized on derivatives
5

 
 
 
16

 
 
Recognized on hedged items
(5
)
 
 
 
(16
)
 
 
Net income (expense) recognized
(2
)
 
$
(4
)
 
(4
)
 
$
(8
)
Loans and leases:
 
 
 
 
 
 
 
Amounts related to interest settlements
(1
)
 
 
 
(1
)
 
 
Recognized on derivatives
3

 
 
 
6

 
 
Recognized on hedged items
(3
)
 
 
 
(6
)
 
 
Net income (expense) recognized
(1
)
 
(1
)
 
(1
)
 
(1
)
Long-term debt:


 


 


 


Amounts related to interest settlements
(7
)
 
 
 
1

 
 
Recognized on derivatives
(62
)
 
 
 
(243
)
 
 
Recognized on hedged items
75

 
 
 
267

 
 
Net income (expense) recognized
6

 
42

 
25

 
88

Net income (expense) recognized, total
$
3

 
$
37

 
$
20

 
$
79


The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
Location
2018
 
2017
 
2018
 
2017
Client-related and other risk management:
 
 

 
 

 
 
 
 
Interest rate contracts
Other noninterest income
$
10

 
$
16

 
$
25

 
$
27

Foreign exchange contracts
Other noninterest income
6

 
(3
)
 
13

 
(5
)
Mortgage banking:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
(8
)
 
10

 
(4
)
 
(5
)
MSRs:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
(23
)
 
23

 
(90
)
 
3

Total
 
$
(15
)
 
$
46

 
$
(56
)
 
$
20



BB&T Corporation 29



The following table presents information about BB&T's cash flow and fair value hedges:
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Cash flow hedges:
 
 
 
 

Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
 
$
18

 
$
(96
)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)
 
(5
)
 
3

Estimated portion of net after-tax gain (loss) on active and terminated hedges to be reclassified from AOCI into earnings during the next 12 months
 
7

 
(25
)
Maximum time period over which BB&T has hedged a portion of the variability in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing instruments
 
4 years

 
5 years

Fair value hedges:
 
 

 
 
Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2025)
 
$
73

 
$
129

Portion of pre-tax net gain on terminated hedges to be recognized as a change in interest during the next 12 months
 
36

 
49

 
Derivatives Credit Risk – Dealer Counterparties
 
Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. The risk of loss is addressed by subjecting dealer counterparties to credit reviews and approvals similar to those used in making loans or other extensions of credit and by requiring collateral. Dealer counterparties operate under agreements to provide cash and/or liquid collateral when unsecured loss positions exceed minimal limits.
 
Derivative contracts with dealer counterparties settle on a monthly, quarterly or semiannual basis, with daily movement of collateral between counterparties required within established netting agreements. BB&T only transacts with dealer counterparties with strong credit standings.
 
Derivatives Credit Risk – Central Clearing Parties
 
With the exception of the central clearing party used for TBA transactions that does not post variation margin to BB&T, central clearing parties exchange cash on a daily basis to settle changes in exposure. Certain derivatives are cleared through central clearing parties that require initial margin collateral. Initial margin collateral requirements are established on varying bases, with such amounts generally designed to offset the risk of non-payment. Initial margin is generally calculated by applying the maximum loss experienced in value over a specified time horizon to the portfolio of existing trades.

The following table summarizes collateral positions with counterparties:
(Dollars in millions)
Jun 30, 2018
 
Dec 31, 2017
Dealer Counterparties:
 
 
 
Cash collateral received from dealer counterparties
$
61

 
$
21

Derivatives in a net gain position secured by collateral received
59

 
22

Unsecured positions in a net gain with dealer counterparties after collateral postings
1

 
2

Cash collateral posted to dealer counterparties
113

 
172

Derivatives in a net loss position secured by collateral received
115

 
171

Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade
2

 

Central Clearing Parties:
 
 
 
Cash collateral, including initial margin, posted to central clearing parties
21

 
177

Derivatives in a net loss position
7

 
176

Securities pledged to central clearing parties
120

 
91

 


30 BB&T Corporation



NOTE 15. Computation of EPS
 
Basic and diluted EPS calculations are presented in the following table:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions, except per share data, shares in thousands)
2018
 
2017
 
2018
 
2017
Net income available to common shareholders
$
775

 
$
631

 
$
1,520

 
$
1,009

 
 
 
 
 
 
 
 
Weighted average number of common shares
775,836

 
808,980

 
777,716

 
809,439

Effect of dilutive outstanding equity-based awards
9,914

 
10,409

 
10,646

 
11,633

Weighted average number of diluted common shares
785,750

 
819,389

 
788,362

 
821,072

 
 
 
 
 
 
 
 
Basic EPS
$
1.00

 
$
0.78

 
$
1.95

 
$
1.25

Diluted EPS
$
0.99

 
$
0.77

 
$
1.93

 
$
1.23

 
 
 
 
 
 
 
 
Anti-dilutive awards

 
187

 
45

 
297

 
NOTE 16. Operating Segments
 
BB&T's business segment structure aligns with how management reviews performance and makes decisions by client, segment and business unit. There are four major reportable business segments: CB-Retail, CB-Commercial, IH&PF and FS&CF. In addition, there is an OT&C segment. For additional information, see Note 19 of the Annual Report on Form 10-K for the year ended December 31, 2017.

Three Months Ended June 30,
 
CB-Retail
 
CB-Commercial
 
FS&CF
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
853

 
$
853

 
$
491

 
$
430

 
$
169

 
$
145

Net intersegment interest income (expense)
 
70

 
39

 
54

 
95

 
19

 
38

Segment net interest income
 
923

 
892

 
545

 
525

 
188

 
183

Allocated provision for credit losses
 
110

 
118

 
42

 
46

 
(4
)
 
(17
)
Segment net interest income after provision
 
813

 
774

 
503

 
479

 
192

 
200

Noninterest income
 
354

 
353

 
108

 
109

 
303

 
297

Noninterest expense
 
667

 
682

 
254

 
320

 
312

 
300

Income (loss) before income taxes
 
500

 
445

 
357

 
268

 
183

 
197

Provision (benefit) for income taxes
 
123

 
166

 
80

 
91

 
38

 
63

Segment net income (loss)
 
$
377

 
$
279

 
$
277

 
$
177

 
$
145

 
$
134

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
72,577

 
$
72,791

 
$
57,009

 
$
55,680

 
$
30,446

 
$
29,097

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IH&PF
 
OT&C (1)
 
Total
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
29

 
$
25

 
$
115

 
$
182

 
$
1,657

 
$
1,635

Net intersegment interest income (expense)
 
(7
)
 
(5
)
 
(136
)
 
(167
)
 

 

Segment net interest income
 
22

 
20

 
(21
)
 
15

 
1,657

 
1,635

Allocated provision for credit losses
 

 
1

 
(13
)
 
(13
)
 
135

 
135

Segment net interest income after provision
 
22

 
19

 
(8
)
 
28

 
1,522

 
1,500

Noninterest income
 
484

 
485

 
(27
)
 
(24
)
 
1,222

 
1,220

Noninterest expense
 
408

 
408

 
79

 
32

 
1,720

 
1,742

Income (loss) before income taxes
 
98

 
96

 
(114
)
 
(28
)
 
1,024

 
978

Provision (benefit) for income taxes
 
25

 
36

 
(64
)
 
(52
)
 
202

 
304

Segment net income (loss)
 
$
73

 
$
60

 
$
(50
)
 
$
24

 
$
822

 
$
674

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
6,321

 
$
6,275

 
$
56,328

 
$
57,349

 
$
222,681

 
$
221,192


BB&T Corporation 31



Six Months Ended June 30,
 
CB-Retail
 
CB-Commercial
 
FS&CF
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
1,690

 
$
1,695

 
$
955

 
$
836

 
$
328

 
$
275

Net intersegment interest income (expense)
 
119

 
73

 
124

 
196

 
37

 
78

Segment net interest income
 
1,809

 
1,768

 
1,079

 
1,032

 
365

 
353

Allocated provision for credit losses
 
232

 
247

 
79

 
50

 
(9
)
 
(11
)
Segment net interest income after provision
 
1,577

 
1,521

 
1,000

 
982

 
374

 
364

Noninterest income
 
693

 
684

 
213

 
211

 
604

 
577

Noninterest expense
 
1,340

 
1,355

 
508

 
627

 
613

 
587

Income (loss) before income taxes
 
930

 
850

 
705

 
566

 
365

 
354

Provision (benefit) for income taxes
 
229

 
317

 
158

 
194

 
76

 
111

Segment net income (loss)
 
$
701

 
$
533

 
$
547

 
$
372

 
$
289

 
$
243

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
72,577

 
$
72,791

 
$
57,009

 
$
55,680

 
$
30,446

 
$
29,097

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IH&PF
 
OT&C (1)
 
Total
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
55

 
$
48

 
$
262

 
$
390

 
$
3,290

 
$
3,244

Net intersegment interest income (expense)
 
(13
)
 
(9
)
 
(267
)
 
(338
)
 

 

Segment net interest income
 
42

 
39

 
(5
)
 
52

 
3,290

 
3,244

Allocated provision for credit losses
 
1

 
3

 
(18
)
 
(6
)
 
285

 
283

Segment net interest income after provision
 
41

 
36

 
13

 
58

 
3,005

 
2,961

Noninterest income
 
923

 
948

 
(31
)
 
(29
)
 
2,402

 
2,391

Noninterest expense
 
783

 
808

 
162

 
467

 
3,406

 
3,844

Income (loss) before income taxes
 
181

 
176

 
(180
)
 
(438
)
 
2,001

 
1,508

Provision (benefit) for income taxes
 
46

 
66

 
(121
)
 
(280
)
 
388

 
408

Segment net income (loss)
 
$
135

 
$
110

 
$
(59
)
 
$
(158
)
 
$
1,613

 
$
1,100

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
6,321

 
$
6,275

 
$
56,328

 
$
57,349

 
$
222,681

 
$
221,192

(1)
Includes financial data from business units below the quantitative and qualitative thresholds requiring disclosure.

32 BB&T Corporation



ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T that are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," "could," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:
l 
general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, slower deposit and/or asset growth, and a deterioration in credit quality and/or a reduced demand for credit, insurance or other services;
l 
disruptions to the national or global financial markets, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies, the economic instability and recessionary conditions in Europe, the eventual exit of the United Kingdom from the European Union;
l 
changes in the interest rate environment, including interest rate changes made by the Federal Reserve, as well as cash flow reassessments may reduce net interest margin and/or the volumes and values of loans and deposits as well as the value of other financial assets and liabilities;
l 
competitive pressures among depository and other financial institutions may increase significantly;
l 
legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Act may adversely affect the businesses in which BB&T is engaged;
l 
local, state or federal taxing authorities may take tax positions that are adverse to BB&T;
l 
a reduction may occur in BB&T's credit ratings;
l 
adverse changes may occur in the securities markets;
l 
competitors of BB&T may have greater financial resources or develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T;
l 
cybersecurity risks could adversely affect BB&T's business and financial performance or reputation, and BB&T could be liable for financial losses incurred by third parties due to breaches of data shared between financial institutions;
l 
higher-than-expected costs related to information technology infrastructure or a failure to successfully implement future system enhancements could adversely impact BB&T's financial condition and results of operations and could result in significant additional costs to BB&T;
l 
natural or other disasters, including acts of terrorism, could have an adverse effect on BB&T, materially disrupting BB&T's operations or the ability or willingness of customers to access BB&T's products and services;
l 
costs related to the integration of the businesses of BB&T and its merger partners may be greater than expected;
l 
failure to execute on strategic or operational plans, including the ability to successfully complete and/or integrate mergers and acquisitions or fully achieve expected cost savings or revenue growth associated with mergers and acquisitions within the expected time frames could adversely impact financial condition and results of operations;
l 
significant litigation and regulatory proceedings could have a material adverse effect on BB&T;
l 
unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries could result in negative publicity, protests, fines, penalties, restrictions on BB&T's operations or ability to expand its business and other negative consequences, all of which could cause reputational damage and adversely impact BB&T's financial conditions and results of operations;
l 
risks resulting from the extensive use of models;
l 
risk management measures may not be fully effective;
l 
deposit attrition, customer loss and/or revenue loss following completed mergers/acquisitions may exceed expectations; and
l 
widespread system outages, caused by the failure of critical internal systems or critical services provided by third parties, could adversely impact BB&T's financial condition and results of operations.

These and other risk factors are more fully described in this report and in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 under the sections entitled "Item 1A. Risk Factors" and from time to time, in other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BB&T undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Readers should, however, consult any further disclosures of a forward-looking nature BB&T may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.


BB&T Corporation 33



BB&T is a financial holding company organized under the laws of North Carolina. BB&T conducts operations through its principal bank subsidiary, Branch Bank, and its nonbank subsidiaries.

Regulatory Considerations
 
The extensive regulatory framework applicable to financial institutions is intended primarily for the protection of depositors, the DIF and the stability of the financial system, rather than for the protection of shareholders and creditors. In addition to banking laws, regulations and regulatory agencies, BB&T is subject to various other laws, regulations, supervision and examination by other regulatory agencies, all of which affect the operations and management of BB&T and its ability to make distributions to shareholders. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for additional disclosures with respect to significant laws and regulations affecting BB&T.

On April 10, 2018, the banking regulators issued a proposal to simplify capital rules for large banks. The proposal introduces a “stress capital buffer," which would in part integrate the forward-looking stress test results with the non-stress capital requirements. The result would produce capital requirements for large banking organizations that are firm-specific and risk-sensitive and reduce the overall number of capital ratios that must be met. The stress capital buffer would equal the decrease in a firm’s CET1 capital ratio in CCAR plus four quarters of planned common stock dividends. A bank's stress capital buffer requirement would be subject to a floor of 2.5% of risk-weighted assets.

On May 14, 2018, the banking regulators issued a proposal that would revise the agencies' regulatory capital rules. The proposal identifies which allowances under the new current expected credit losses accounting standard would be eligible for inclusion in regulatory capital, provides banking organizations the option to phase in the day-one effects on regulatory capital that may result from the adoption of the new accounting standard, and amends certain regulatory disclosure requirements consistent with the new accounting standard. In addition, the agencies are proposing to make amendments to their stress testing regulations so that covered banking organizations that have adopted the new accounting standard would not include the effect of it on their provisioning for purposes of stress testing until the 2020 stress test cycle.

The Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted on May 24, 2018. Effective upon enactment, the banking agencies require depository institutions to assign a heightened risk weight of 150% to high volatility CRE exposures, as defined in the new law. In addition, the bill amends the Federal Deposit Insurance Act to exclude a capped amount of reciprocal deposits from treatment as brokered deposits for qualifying institutions, effective upon enactment. BB&T began to report both items under the new rules of the bill for the second quarter of 2018.

During June 2018, the FDIC and the NCCOB terminated their consent order with Branch Bank related to internal control within the BSA/AML Compliance Program. No money laundering activity was identified and no financial penalty was levied. BB&T continues to work closely with the FRB to resolve its continuing order. Since early 2016, BB&T has made substantial enhancements to its AML compliance program, including significant investments in system upgrades, process improvements and the hiring and placement of a highly experienced AML team to oversee these efforts.

Executive Summary
 
Consolidated net income available to common shareholders for the second quarter of 2018 was $775 million. On a diluted per common share basis, earnings for the second quarter of 2018 were $0.99, an increase of $0.22 compared to the second quarter of 2017.
 
BB&T's results of operations for the second quarter of 2018 produced an annualized return on average assets of 1.49% and an annualized return on average common shareholders' equity of 11.74%, compared to ratios for the same quarter of the prior year of 1.22% and 9.30%, respectively.

Total revenues on a TE basis were $2.9 billion for the second quarter of 2018, an increase of $6 million compared to the same period in 2017 as taxable-equivalent net interest income and noninterest income were essentially flat.

The provision for credit losses was $135 million, flat compared to the earlier quarter. Net charge-offs for the second quarter of 2018 totaled $109 million compared to $132 million for the earlier quarter.

Noninterest income was $1.2 billion, flat from the earlier quarter. Noninterest expense for the second quarter of 2018 was $1.7 billion, down $22 million compared to the earlier quarter. Excluding merger-related and restructuring charges, noninterest expense was down $36 million due to continued focus on expense control.

The provision for income taxes was $202 million for the second quarter of 2018, compared to $304 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2018 of 19.7%, compared to 31.1% for the earlier quarter. The provision for income taxes for the current quarter reflects the new lower federal tax rate.


34 BB&T Corporation



The Company previously announced that the FRB accepted its capital plan and did not object to its proposed capital actions. The capital actions, which have been approved by BB&T's Board of Directors, include a $0.03 increase in the quarterly dividend to $0.405 and share buybacks of up to $1.7 billion for the one-year period ending June 30, 2019. BB&T may not utilize the full share repurchases in order to maintain desired capital levels. On July 2, 2018, the acquisition of Regions Insurance was completed.

Analysis of Results of Operations

Net Interest Income and NIM
 
Second Quarter 2018 compared to Second Quarter 2017
 
Net interest income on a TE basis was $1.7 billion for the second quarter of 2018, flat compared to the same period in 2017. Interest income increased $152 million, which primarily reflects higher rates. Interest expense increased $148 million primarily due to higher funding costs reflecting the impact of rate increases.
 
Net interest margin was 3.45%, compared to 3.47% for the second quarter of 2017. Average earning assets increased $1.7 billion. The increase in average earnings assets reflects a $1.7 billion increase in average securities, a $1.4 billion increase in average total loans inclusive of a $1.3 billion decrease in indirect lending and a $1.5 billion decrease in average other earning assets. Average interest-bearing liabilities increased $470 million compared to the earlier quarter, as the growth in earning assets was primarily funded by noninterest-bearing deposits, which increased $1.4 billion compared to the earlier quarter. Average interest-bearing deposits decreased $4.0 billion due to the decision to shift away from higher-cost rate sensitive deposits, which was offset by increases of $1.9 billion in average long-term debt and $2.6 billion in average short-term borrowings. The annualized yield on the total loan portfolio for the second quarter of 2018 was 4.70%, up 34 basis points compared to the earlier quarter, reflecting the impact of rate increases. The annualized taxable-equivalent yield on the average securities portfolio was 2.53%, up four basis points compared to the earlier period.
 
The average annualized cost of interest-bearing deposits was 0.57%, up 27 basis points compared to the earlier quarter. The average annualized rate on long-term debt was 2.81%, up 90 basis points compared to the earlier quarter. The average annualized rate on short-term borrowings was 1.77%, up 107 basis points compared to the earlier quarter. The higher rates on interest-bearing liabilities reflect the impact of rate increases.

Six Months of 2018 compared to Six Months of 2017
 
Net interest income on a TE basis was $3.3 billion for the six months ended June 30, 2018, an increase of $11 million compared to the same period in 2017. This increase reflects a $281 million increase in TE interest income, partially offset by a $270 million increase in funding costs. The increase in interest income was driven by higher overall yields. The increase in funding costs was driven by increases in interest rates.
 
The NIM was 3.45% for the six months ended June 30, 2018, compared to 3.47% for the same period of 2017. The annualized TE yield on the average securities portfolio for the six months ended June 30, 2018 was 2.48%, up three basis points compared to the annualized yield earned during the same period of 2017. The annualized TE yield for the total loan portfolio for the six months ended June 30, 2018 was 4.63%, up 30 basis points compared to the corresponding period of 2017.
 
The average annualized cost of interest-bearing deposits for the six months ended June 30, 2018 was 0.52%, up 24 basis points compared to the same period in the prior year. The average annualized rate on short-term borrowings was 1.60% for the six months ended June 30, 2018, up 102 basis points compared to the same period in 2017. The average annualized rate on long-term debt for the six months ended June 30, 2018 was 2.67%, up 80 basis points compared to the same period in 2017.

The major components of net interest income and the related annualized yields and rates as well as the variances between the periods caused by changes in interest rates versus changes in volumes are summarized below.


BB&T Corporation 35



Table 1-1
TE Net Interest Income and Rate / Volume Analysis (1)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Average Balances (6)
 
Annualized Yield/Rate
 
Income/Expense
 
Increase
 
Change due to
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
(Decrease)
 
Rate
 
Volume
Assets
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
3,537

 
$
4,761

 
1.80
%
 
1.73
%
 
$
17

 
$
21

 
$
(4
)
 
$
1

 
$
(5
)
GSE
 
2,384

 
2,386

 
2.23

 
2.22

 
14

 
14

 

 

 

Agency MBS
 
39,777

 
35,911

 
2.44

 
2.21

 
241

 
198

 
43

 
22

 
21

States and political subdivisions
 
1,051

 
1,879

 
3.79

 
5.29

 
8

 
25

 
(17
)
 
(7
)
 
(10
)
Non-agency MBS
 
354

 
416

 
17.35

 
24.16

 
17

 
25

 
(8
)
 
(5
)
 
(3
)
Other
 
42

 
57

 
3.26

 
2.22

 

 

 

 

 

Total securities
 
47,145

 
45,410

 
2.53

 
2.49

 
297

 
283

 
14

 
11

 
3

Other earning assets (3)
 
2,197

 
3,649

 
2.24

 
1.36

 
13

 
11

 
2

 
7

 
(5
)
Loans and leases, net of unearned income: (4)(5)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Commercial and industrial
 
59,548

 
58,150

 
3.92

 
3.57

 
580

 
518

 
62

 
50

 
12

CRE
 
21,546

 
20,304

 
4.64

 
3.87

 
246

 
196

 
50

 
38

 
12

Lease financing
 
1,862

 
1,664

 
3.05

 
2.91

 
12

 
12

 

 

 

Residential mortgage
 
29,272

 
29,392

 
4.01

 
4.01

 
291

 
295

 
(4
)
 

 
(4
)
Direct
 
11,680

 
12,000

 
5.10

 
4.55

 
150

 
135

 
15

 
18

 
(3
)
Indirect
 
16,804

 
18,127

 
7.46

 
6.83

 
311

 
309

 
2

 
26

 
(24
)
Revolving credit
 
2,831

 
2,612

 
9.16

 
8.78

 
73

 
57

 
16

 
6

 
10

PCI
 
559

 
825

 
18.92

 
17.94

 
26

 
37

 
(11
)
 
2

 
(13
)
Total loans and leases HFI
 
144,102

 
143,074

 
4.70

 
4.37

 
1,689

 
1,559

 
130

 
140

 
(10
)
LHFS
 
1,650

 
1,253

 
4.02

 
3.65

 
17

 
11

 
6

 
1

 
5

Total loans and leases
 
145,752

 
144,327

 
4.70

 
4.36

 
1,706

 
1,570

 
136

 
141

 
(5
)
Total earning assets
 
195,094

 
193,386

 
4.14

 
3.87

 
2,016

 
1,864

 
152

 
159

 
(7
)
Nonearning assets
 
26,250

 
27,632

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Total assets
 
$
221,344

 
$
221,018

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Liabilities and Shareholders' Equity
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-checking
 
$
26,969

 
$
28,849

 
0.42

 
0.22

 
29

 
15

 
14

 
15

 
(1
)
Money market and savings
 
62,105

 
64,294

 
0.56

 
0.29

 
86

 
47

 
39

 
41

 
(2
)
Time deposits
 
13,966

 
14,088

 
0.86

 
0.48

 
30

 
17

 
13

 
13

 

Foreign deposits - interest-bearing
 
673

 
459

 
1.77

 
1.03

 
3

 
1

 
2

 
1

 
1

Total interest-bearing deposits
 
103,713

 
107,690

 
0.57

 
0.30

 
148

 
80

 
68

 
70

 
(2
)
Short-term borrowings
 
5,323

 
2,748

 
1.77

 
0.70

 
23

 
5

 
18

 
11

 
7

Long-term debt
 
23,639

 
21,767

 
2.81

 
1.91

 
166

 
104

 
62

 
52

 
10

Total interest-bearing liabilities
 
132,675

 
132,205

 
1.02

 
0.57

 
337

 
189

 
148

 
133

 
15

Noninterest-bearing deposits
 
53,963

 
52,573

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other liabilities
 
5,121

 
5,938

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Shareholders' equity
 
29,585

 
30,302

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total liabilities and shareholders' equity
 
$
221,344

 
$
221,018

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average interest-rate spread
 
 

 
 
 
3.12
%
 
3.30
%
 
 

 
 

 
 

 
 

 
 

NIM/net interest income
 
 

 
 
 
3.45
%
 
3.47
%
 
$
1,679

 
$
1,675

 
$
4

 
$
26

 
$
(22
)
Taxable-equivalent adjustment
 
 

 
 
 
 
 
 

 
$
22

 
$
40

 
 

 
 

 
 

(1)
Yields are stated on a TE basis utilizing the marginal income tax rates. The change in interest not solely due to changes in rate or volume has been allocated on a pro-rata basis based on the absolute dollar amount of each.
(2)
Total securities include AFS and HTM securities.
(3)
Includes cash equivalents, interest-bearing deposits with banks, trading securities, FHLB stock and other earning assets.
(4)
Loan fees, which are not material for any of the periods shown, are included for rate calculation purposes.
(5)
NPLs are included in the average balances.
(6)
Excludes basis adjustments for fair value hedges.

36 BB&T Corporation



Table 1-2
TE Net Interest Income and Rate / Volume Analysis (1)
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
Average Balances (6)
 
Annualized Yield/Rate
 
Income/Expense
 
Increase
 
Change due to
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
(Decrease)
 
Rate
 
Volume
Assets
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
3,538

 
$
4,746

 
1.79
%
 
1.72
%
 
$
32

 
$
41

 
$
(9
)
 
$
2

 
$
(11
)
GSE
 
2,384

 
2,385

 
2.23

 
2.22

 
27

 
27

 

 

 

Agency MBS
 
40,292

 
35,412

 
2.43

 
2.19

 
489

 
387

 
102

 
45

 
57

States and political subdivisions
 
1,133

 
1,985

 
3.78

 
5.20

 
19

 
52

 
(33
)
 
(13
)
 
(20
)
Non-agency MBS
 
364

 
424

 
12.41

 
21.45

 
24

 
45

 
(21
)
 
(16
)
 
(5
)
Other
 
45

 
58

 
2.73

 
2.05

 

 

 

 

 

Total securities
 
47,756

 
45,010

 
2.48

 
2.45

 
591

 
552

 
39

 
18

 
21

Other earning assets (3)
 
2,223

 
3,953

 
3.40

 
1.43

 
38

 
27

 
11

 
27

 
(16
)
Loans and leases, net of unearned income: (4)(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
 

Commercial and industrial
 
59,090

 
57,639

 
3.82

 
3.53

 
1,117

 
1,010

 
107

 
82

 
25

CRE
 
21,472

 
20,100

 
4.56

 
3.81

 
480

 
379

 
101

 
75

 
26

Lease financing
 
1,867

 
1,658

 
3.03

 
2.88

 
26

 
24

 
2

 

 
2

Residential mortgage
 
29,049

 
29,546

 
4.01

 
4.01

 
580

 
592

 
(12
)
 

 
(12
)
Direct
 
11,735

 
12,007

 
5.00

 
4.44

 
291

 
264

 
27

 
33

 
(6
)
Indirect
 
16,859

 
18,132

 
7.39

 
6.79

 
615

 
611

 
4

 
50

 
(46
)
Revolving credit
 
2,815

 
2,610

 
9.05

 
8.79

 
140

 
114

 
26

 
7

 
19

PCI
 
595

 
854

 
19.07

 
18.86

 
56

 
80

 
(24
)
 
1

 
(25
)
Total loans and leases HFI
 
143,482

 
142,546

 
4.64

 
4.34

 
3,305

 
3,074

 
231

 
248

 
(17
)
LHFS
 
1,352

 
1,468

 
3.87

 
3.56

 
26

 
26

 

 
2

 
(2
)
Total loans and leases
 
144,834

 
144,014

 
4.63

 
4.33

 
3,331

 
3,100

 
231

 
250

 
(19
)
Total earning assets
 
194,813

 
192,977

 
4.09

 
3.84

 
3,960

 
3,679

 
281

 
295

 
(14
)
Nonearning assets
 
26,568

 
27,516

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total assets
 
$
221,381

 
$
220,493

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Liabilities and Shareholders' Equity
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-checking
 
$
27,119

 
$
29,211

 
0.39

 
0.20

 
54

 
28

 
26

 
28

 
(2
)
Money market and savings
 
61,899

 
64,574

 
0.50

 
0.26

 
153

 
84

 
69

 
73

 
(4
)
Time deposits
 
13,907

 
14,504

 
0.77

 
0.48

 
53

 
34

 
19

 
20

 
(1
)
Foreign deposits - interest-bearing
 
803

 
693

 
1.57

 
0.79

 
6

 
3

 
3

 
3

 

Total interest-bearing deposits
 
103,728

 
108,982

 
0.52

 
0.28

 
266

 
149

 
117

 
124

 
(7
)
Short-term borrowings
 
5,399

 
2,428

 
1.60

 
0.58

 
43

 
7

 
36

 
21

 
15

Long-term debt
 
23,658

 
21,264

 
2.67

 
1.87

 
316

 
199

 
117

 
93

 
24

Total interest-bearing liabilities
 
132,785

 
132,674

 
0.94

 
0.54

 
625

 
355

 
270

 
238

 
32

Noninterest-bearing deposits
 
53,681

 
51,838

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other liabilities
 
5,359

 
5,877

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Shareholders' equity
 
29,556

 
30,104

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total liabilities and shareholders' equity
 
$
221,381

 
$
220,493

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average interest-rate spread
 
 

 
 
 
3.15
%
 
3.30
%
 
 

 
 

 
 

 
 

 
 

NIM/net interest income
 
 

 
 
 
3.45
%
 
3.47
%
 
$
3,335

 
$
3,324

 
$
11

 
$
57

 
$
(46
)
Taxable-equivalent adjustment
 
 

 
 
 
 
 
 

 
$
45

 
$
80

 
 

 
 

 
 

(1)
Yields are stated on a TE basis utilizing the marginal income tax rates. The change in interest not solely due to changes in rate or volume has been allocated on a pro-rata basis based on the absolute dollar amount of each.
(2)
Total securities include AFS and HTM securities.
(3)
Includes cash equivalents, interest-bearing deposits with banks, trading securities, FHLB stock and other earning assets.
(4)
Loan fees, which are not material for any of the periods shown, are included for rate calculation purposes.
(5)
NPLs are included in the average balances.
(6)
Excludes basis adjustments for fair value hedges.

BB&T Corporation 37



Provision for Credit Losses
 
Second Quarter 2018 compared to Second Quarter 2017
 
The provision for credit losses totaled $135 million for the second quarter of 2018, compared to $135 million for the same period of the prior year.

Net charge-offs were $109 million for the second quarter of 2018 and $132 million for the second quarter of 2017. Net charge-offs in residential mortgage decreased $15 million, primarily due to net charge-offs associated with the 2017 sale of $300 million of residential mortgage loans, which included $40 million of nonaccrual loans and $199 million of performing TDRs.

Net charge-offs were 0.30% of average loans and leases on an annualized basis for the second quarter of 2018, compared to 0.37% of average loans and leases for the same period in 2017.

Six Months of 2018 compared to Six Months of 2017
 
The provision for credit losses totaled $285 million for the six months ended June 30, 2018, compared to $283 million for the same period of 2017.
 
Net charge-offs for the six months ended June 30, 2018 were $254 million, compared to $280 million for the six months ended June 30, 2017. Net charge-offs in residential mortgage decreased $23 million, primarily due to net charge-offs associated with the previously mentioned sale of residential mortgage loans.

Net charge-offs were 0.36% of average loans and leases on an annualized basis for the six months ended June 30, 2018, compared to 0.40% of average loans and leases for the same period in 2017.

Noninterest Income
 
Second Quarter 2018 compared to Second Quarter 2017
 
Noninterest income for the second quarter of 2018 was essentially flat compared to the earlier quarter.

Six Months of 2018 compared to Six Months of 2017
 
Noninterest income for the six months ended June 30, 2018 totaled $2.4 billion, up $11 million compared to the same period in 2017.

Investment banking and brokerage fees and commissions were $222 million, up $26 million due to higher managed account fees and higher investment banking income. Insurance income was $917 million, down $22 million compared to the corresponding period of 2017. This decrease was primarily due to lower performance-based commissions. Service charges on deposits was essentially flat, but was negatively impacted due to fee waivers associated with the February system outage. Other income was essentially flat, as increases from various sundry items were offset by a $27 million decrease in income related to assets for certain post-employment benefits, which is primarily offset in other income/expense categories.

Noninterest Expense
 
Second Quarter 2018 compared to Second Quarter 2017
 
Noninterest expense for the second quarter of 2018 was down $22 million compared to the earlier quarter. Excluding merger-related and restructuring charges, noninterest expense was down $36 million due to continued focus on expense control. This includes the benefits of prior optimization efforts including lower occupancy and equipment expense and fewer FTEs, as well as lower project-related costs.

Personnel expense was essentially flat compared to the earlier quarter as lower salaries expense driven by approximately 1,600 fewer FTEs was largely offset by higher performance-based incentive expense and annual merit increases.

Other expense decreased $16 million compared to the earlier quarter primarily due to an increase in the expected return on pension plan assets due to higher plan assets.

Six Months of 2018 compared to Six Months of 2017
 
Noninterest expense totaled $3.4 billion for the six months ended June 30, 2018, a decrease of $438 million, or 11.4%, over the same period of the prior year. This decrease was driven by the loss on early extinguishment of debt in 2017, lower outside IT services and lower other expense.
 

38 BB&T Corporation



Personnel expense was $2.1 billion for the six months ended June 30, 2018, an increase of $10 million compared to the six months ended June 30, 2017. The increase was driven by $15 million in higher defined benefit pension plan service cost and $12 million of higher performance-based incentive expense. Salaries decreased by $15 million primarily due to approximately 1,600 fewer FTEs, which was partially offset by annual merit increases and promotions.

Outside IT services decreased $24 million primarily as a result of decreased expenses associated with the implementation of a new commercial lending information and accounting system in 2017 and systems enhancements related to BSA/AML.

Other expense decreased $30 million primarily due to the estimated return on defined benefit pension plan assets, which was $39 million better than the earlier period.

Segment Results
 
See Note 16. Operating Segments herein and Note 19. Operating Segments in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017, for additional disclosures related to BB&T's reportable business segments. Fluctuations in noninterest income and noninterest expense incurred directly by the segments are more fully discussed in the "Noninterest Income" and "Noninterest Expense" sections above.
Table 2
Net Income by Reportable Segment
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
Community Banking Retail and Consumer Finance
 
$
377

 
$
279

 
$
701

 
$
533

Community Banking Commercial
 
277

 
177

 
547

 
372

Financial Services and Commercial Finance
 
145

 
134

 
289

 
243

Insurance Holdings and Premium Finance
 
73

 
60

 
135

 
110

Other, Treasury & Corporate
 
(50
)
 
24

 
(59
)
 
(158
)
BB&T Corporation
 
$
822

 
$
674

 
$
1,613

 
$
1,100


Second Quarter 2018 compared to Second Quarter 2017

Community Banking Retail and Consumer Finance

CB-Retail serves retail clients by offering a variety of loan and deposit products, payment services, bankcard products and other financial services by connecting clients to a wide range of financial products and services. CB-Retail includes Dealer Retail Services, which originates loans on an indirect basis to consumers for the purchase of automobiles, boats and recreational vehicles. Additionally, CB-Retail includes specialty finance lending, small equipment leasing and other products for consumers. CB-Retail also includes Residential Mortgage Banking, which originates and purchases mortgage loans to either hold for investment or sell to third parties. BB&T generally retains the servicing rights to loans sold. Mortgage products include fixed and adjustable-rate government guaranteed and conventional loans used for the purpose of constructing, purchasing or refinancing residential properties. Substantially all of the properties are owner-occupied. Residential Mortgage Banking also includes Mortgage Warehouse Lending, which provides short-term lending solutions to finance first-lien residential mortgages held-for-sale by independent mortgage companies.

CB-Retail net income was $377 million for the second quarter of 2018, an increase of $98 million compared to the earlier quarter. Segment net interest income increased $31 million due to higher funding spreads on deposits, partially offset by lower credit spreads on loans. The allocated provision for credit losses decreased slightly due to a decline in net charge-offs primarily driven by the sale of mortgage TDRs in the earlier period, partially offset by accelerating loan growth in the current quarter. Noninterest expense decreased primarily due to declines in personnel expense, loan-related expense, and occupancy and equipment expense. The provision for income taxes decreased $43 million due to the lower federal tax rate compared to the earlier quarter.

CB-Retail average loans and leases held for investment decreased $1.4 billion, or 2.2%, compared to the earlier quarter, primarily driven by a decline in sales finance loans due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets.

CB-Retail average total deposits decreased $96 million, or 0.1%, compared to the earlier quarter. Average noninterest-bearing deposits increased $1.3 billion while average time deposits, interest checking, and money market and savings fell $636 million, $478 million and $290 million, respectively.


BB&T Corporation 39



Community Banking Commercial

CB-Commercial serves large, medium and small business clients by offering a variety of loan and deposit products and by connecting clients to the combined organization’s broad array of financial services. CB-Commercial includes CRE lending, commercial and industrial lending, corporate banking, asset-based lending, dealer inventory financing, tax exempt financing, cash management and treasury services, and commercial deposit products.

CB-Commercial net income was $277 million for the second quarter of 2018, an increase of $100 million compared to the earlier quarter. Segment net interest income increased $20 million primarily driven by higher funding spreads and average loan growth, partially offset by lower credit spreads on loans. Noninterest expense decreased $66 million driven primarily by a decline in personnel expense due to a change in approach for allocating capitalized loan origination costs that was implemented in the third quarter of 2017, as well as lower allocated corporate expenses. The provision for income taxes decreased compared to the earlier quarter due to the lower federal tax rate.

CB-Commercial average loans and leases held for investment increased $994 million, or 1.9%, compared to the earlier quarter, driven primarily by an increase in average commercial real estate loans.

CB-Commercial average total deposits decreased $307 million, or 0.5%, compared to the earlier quarter. Noninterest-bearing deposits increased $480 million while average interest checking and time deposits declined $725 million and $153 million, respectively.

Financial Services and Commercial Finance

FS&CF provides personal trust administration, estate planning, investment counseling, wealth management, asset management, corporate retirement services, capital markets and corporate banking services, specialty finance and corporate trust services to individuals, corporations, institutions, foundations and government entities. In addition, the segment includes BB&T Securities, a full-service brokerage and investment banking firm, which offers clients a variety of investment services, including discount brokerage services, equities, annuities, mutual funds and government bonds. The Corporate Banking Division originates and services large corporate relationships, syndicated lending relationships and client derivatives while the specialty finance products offered by FS&CF include equipment finance, tax-exempt financing for local governments and special-purpose entities, and full-service commercial mortgage banking lending.

FS&CF net income was $145 million for the second quarter of 2018, an increase of $11 million compared to the earlier quarter. Noninterest income increased slightly primarily due to higher commercial mortgage banking income. The allocated provision for credit losses increased due to higher incurred loss estimates and an increase in net charge-offs. Noninterest expense increased primarily due to higher personnel expense. The provision for income taxes decreased $25 million due to the lower federal tax rate.

FS&CF average loans and leases held for investment increased $1.9 billion, or 7.5%, compared to the earlier quarter. Corporate Banking's average loans and leases held for investment increased $698 million, or 4.7%, compared to the earlier quarter, while BB&T Wealth's average loans and leases held for investment increased $240 million, or 14.5%. Average loans and leases held for investment at Governmental Finance increased $417 million, or 8.8%, compared to the earlier quarter and increased 12.5% and 15.0%, respectively, for Equipment Finance and Grandbridge.

FS&CF average total deposits decreased $3.1 billion, or 10.0%, compared to the earlier quarter. Average money market and savings accounts fell $2.2 billion, or 10.4%, and average interest checking declined $745 million, or 12.3%.

Insurance Holdings and Premium Finance

BB&T's insurance agency / brokerage network is the fifth largest in the world. IH&PF provides property and casualty, employee benefits and life insurance to businesses and individuals. It also provides small business and corporate services, such as workers compensation and professional liability, as well as surety coverage and title insurance. In addition, IH&PF includes commercial and retail insurance premium finance.

IH&PF net income was $73 million for the second quarter of 2018, an increase of $13 million compared to the earlier quarter. Noninterest income and noninterest expense were essentially flat compared to the earlier quarter. The provision for income taxes decreased compared to the earlier quarter due to the lower federal tax rate.

Other, Treasury & Corporate

Net income in OT&C can vary due to the changing needs of the Corporation, including the size of the investment portfolio, the need for wholesale funding and income received from derivatives used to hedge the balance sheet.


40 BB&T Corporation



OT&C generated a net loss of $50 million in the second quarter of 2018, compared to net income of $24 million in the earlier quarter. Segment net interest income decreased $36 million primarily due to an increase in the rate and average balances for long-term debt. Noninterest expense increased $47 million primarily due to an increase in personnel expense resulting from a third quarter of 2017 change in approach for allocating capitalized loan origination costs.

Six Months of 2018 compared to Six Months of 2017
 
Community Banking Retail and Consumer Finance

CB-Retail net income was $701 million for the six months ended June 30, 2018, an increase of $168 million compared to the same period of the prior year. Segment net interest income increased $41 million primarily due to higher funding spreads on deposits, partially offset by lower credit spreads on loans. Noninterest income increased slightly primarily due to higher bankcard fees and merchant discounts. The allocated provision for credit losses decreased primarily due to a decline in net charge-offs and a decrease in incurred loss estimates, partially offset by accelerating loan growth in the current period. Noninterest expense decreased primarily due to declines in personnel expense, loan-related expense, and occupancy and equipment expense, partially offset by an increase in allocated corporate expenses. The provision for income taxes decreased $88 million due to the lower federal tax rate compared to the earlier period.

CB-Retail average loans and leases held for investment decreased $1.8 billion, or 2.8%, compared to the earlier period, primarily driven by a decline in sales finance loans due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets.

CB-Retail average total deposits decreased $243 million, or 0.3%, compared to the earlier period. Average noninterest-bearing deposits increased $1.4 billion while average time deposits and interest checking fell $1.0 billion and $472 million, respectively.

Community Banking Commercial

CB-Commercial net income was $547 million for the six months ended June 30, 2018, an increase of $175 million compared to the same period of the prior year. Segment net interest income increased $47 million driven primarily by higher funding spreads and average loan growth, partially offset by lower credit spreads on loans. The allocated provision for credit losses increased $29 million primarily due to an increase in incurred loss estimates. Noninterest expense decreased $119 million driven primarily by a decline in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs, as well as lower allocated corporate expenses. The provision for income taxes decreased $36 million compared to the earlier period due to the lower tax rate.

CB-Commercial average loans and leases held for investment increased $1.1 billion, or 2.1%, compared to the earlier period, driven primarily by an increase in average commercial real estate loans.

CB-Commercial average total deposits decreased $238 million, or 0.4%, compared to the earlier period. Noninterest-bearing deposits increased $744 million while average interest checking and time deposits declined $758 million and $158 million, respectively.

Financial Services and Commercial Finance

FS&CF net income was $289 million for the six months ended June 30, 2018, an increase of $46 million compared to the same period of the prior year. Segment net interest income increased due to higher funding spreads and average loan growth, partially offset by lower credit spreads on loans and a decline in average total deposits. Noninterest income increased $27 million due to higher investment banking and brokerage fees and commissions, primarily driven by higher managed account fees. Noninterest expense increased $26 million due to higher performance-based incentive expense. The provision for income taxes decreased $35 million due to the lower tax rate.

FS&CF average loans and leases held for investment increased $2.1 billion, or 8.5%, compared to the earlier period. Corporate Banking's average loans and leases held for investment increased $793 million, or 5.4%, compared to the earlier period, while BB&T Wealth's average loans and leases held for investment increased $255 million, or 15.8%. Average loans and leases held for investment at Governmental Finance increased $507 million, or 10.8%, compared to the earlier period and increased 13.5% and 14.5%, respectively, for Equipment Finance and Grandbridge.

FS&CF average total deposits decreased $3.4 billion, or 10.7%, compared to the earlier period. Average money market and savings accounts fell $2.4 billion, or 11.3%, and average interest checking declined $845 million, or 13.9%.

BB&T Corporation 41




Insurance Holdings and Premium Finance

IH&PF net income was $135 million for the six months ended June 30, 2018, an increase of $25 million compared to the same period of the prior year. Noninterest income decreased $25 million primarily due to lower performance-based commissions. Noninterest expense decreased $25 million primarily due to declines in business referral expense and allocated corporate expenses. The provision for income taxes decreased $20 million compared to the earlier period due to the lower federal tax rate.

Other, Treasury & Corporate

OT&C generated a net loss of $59 million for the six months ended June 30, 2018, compared to a net loss of $158 million for the same period of the prior year. Segment net interest income decreased $57 million primarily due to an increase in the rate and average balances for long-term debt. The allocated provision for credit losses decreased due to a decline in the provision for unfunded lending commitments. Noninterest expense decreased $305 million due to a $392 million loss on the early extinguishment of debt in the earlier period. This decrease was partially offset by an increase in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs, as well as a decline in corporate expenses allocated to other operating segments. The benefit for income taxes decreased $159 million primarily due to a decline in pre-tax loss and lower excess tax benefits from equity-based compensation.

Analysis of Financial Condition

Investment Activities
 
The total securities portfolio was $45.7 billion at June 30, 2018, compared to $47.6 billion at December 31, 2017. As of June 30, 2018, the securities portfolio included $23.9 billion of AFS securities (at fair value) and $21.7 billion of HTM securities (at amortized cost).
 
The effective duration of the securities portfolio was 5.2 years at June 30, 2018, compared to 4.7 years at December 31, 2017. The duration of the securities portfolio excludes certain non-agency MBS.

Lending Activities
 
Loans HFI totaled $146.2 billion at June 30, 2018, compared to $143.7 billion at December 31, 2017. This increase was primarily related to commercial and industrial loans and residential mortgage loans. Management continuously evaluates the composition of the loan portfolio taking into consideration the current and expected market conditions, interest rate environment and risk profiles to optimize profitability. Based upon this evaluation, management may decide to focus efforts on growing or decreasing exposures in certain portfolios through both organic changes and portfolio acquisitions or sales.

The following table presents the composition of average loans and leases:
Table 3
Quarterly Average Balances of Loans and Leases
 
 
 
For the Three Months Ended
 
 
(Dollars in millions)
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
59,548

 
$
58,627

 
$
58,478

 
$
58,211

 
$
58,150

CRE
 
21,546

 
21,398

 
20,998

 
20,776

 
20,304

Lease financing
 
1,862

 
1,872

 
1,851

 
1,732

 
1,664

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
29,272

 
28,824

 
28,559

 
28,924

 
29,392

Direct
 
11,680

 
11,791

 
11,901

 
11,960

 
12,000

Indirect
 
16,804

 
16,914

 
17,426

 
17,678

 
18,127

Revolving credit
 
2,831

 
2,798

 
2,759

 
2,668

 
2,612

PCI
 
559

 
631

 
689

 
742

 
825

Total average loans and leases HFI
 
$
144,102

 
$
142,855

 
$
142,661

 
$
142,691

 
$
143,074

 
Average loans held for investment for the second quarter of 2018 were $144.1 billion, up $1.2 billion, or 3.5% annualized compared to the first quarter of 2018.


42 BB&T Corporation



Average commercial and industrial loans increased $921 million driven by strong growth in mortgage warehouse lending of $389 million following a seasonal decline in the first quarter. Community Banking Commercial segment average loans increased $260 million across most of the footprint. Also contributing to the growth in commercial and industrial loans was higher dealer floor plan and premium finance of $64 million and $60 million, respectively. Average CRE loans increased $148 million primarily due to an increase in construction lending and Grandbridge. Average residential mortgage loans increased $448 million primarily due to the retention of a portion of the conforming mortgage production.

Average direct retail loans decreased $111 million, however, direct retail loans as of June 30, 2018, were relatively flat compared to the balance at the end of the first quarter as loan demand in this category improved late in the second quarter.

Average indirect retail loans decreased $110 million. While overall this category decreased, there was strong seasonal growth in power sports and recreational lending, which was more than offset by declines in automobile loans. Indirect loans as of June 30, 2018, were $17.1 billion, up 11.1% annualized compared to the end of the first quarter, reflecting strong growth late in the second quarter.


BB&T Corporation 43



Asset Quality

The following tables summarize asset quality information for the past five quarters:
Table 4
Asset Quality
 
 
 
(Dollars in millions)
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
NPAs (1)
 
 
 
 
 
 
 
 
 
NPLs:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
243

 
$
257

 
$
259

 
$
288

 
$
300

CRE
61

 
67

 
45

 
41

 
50

Lease financing
9

 
13

 
1

 
2

 
3

Residential mortgage
119

 
127

 
129

 
141

 
131

Direct
58

 
64

 
64

 
64

 
65

Indirect
68

 
74

 
72

 
70

 
63

Total NPLs HFI (1)(2)
558

 
602

 
570

 
606

 
612

Foreclosed real estate
43

 
40

 
32

 
46

 
48

Other foreclosed property
23

 
27

 
25

 
28

 
30

Total nonperforming assets (1)(2)
$
624

 
$
669

 
$
627

 
$
680

 
$
690

 
 
 
 
 
 
 
 
 
 
 
Performing TDRs (3):
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
44

 
$
38

 
$
50

 
$
62

 
$
50

CRE
11

 
12

 
16

 
22

 
24

Residential mortgage
647

 
627

 
605

 
609

 
603

Direct
58

 
59

 
62

 
63

 
63

Indirect
284

 
277

 
281

 
267

 
244

Revolving credit
29

 
29

 
29

 
29

 
29

Total performing TDRs (3)(4)
$
1,073

 
$
1,042

 
$
1,043

 
$
1,052

 
$
1,013

 
 
 
 
 
 
 
 
 
 
 
Loans 90 days or more past due and still accruing:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$

 
$

 
$
1

 
$

 
$

CRE

 

 
1

 

 

Residential mortgage (5)
374

 
420

 
465

 
409

 
401

Direct
4

 
6

 
6

 
9

 
7

Indirect
4

 
5

 
6

 
6

 
4

Revolving credit
10

 
11

 
12

 
11

 
10

PCI
43

 
48

 
57

 
70

 
71

Total loans 90 days or more past due and still accruing (5)
$
435

 
$
490

 
$
548

 
$
505

 
$
493

 
 
 
 
 
 
 
 
 
 
 
Loans 30-89 days past due:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
26

 
$
31

 
$
41

 
$
47

 
$
32

CRE
4

 
10

 
8

 
8

 
3

Lease financing
2

 
1

 
4

 
1

 
2

Residential mortgage (6)
441

 
400

 
472

 
455

 
393

Direct
52

 
55

 
65

 
55

 
54

Indirect
337

 
272

 
412

 
358

 
341

Revolving credit
21

 
21

 
23

 
22

 
20

PCI
22

 
24

 
27

 
41

 
29

Total loans 30-89 days past due (6)
$
905

 
$
814

 
$
1,052

 
$
987

 
$
874

Excludes loans held for sale.
(1)
PCI loans are accounted for using the accretion method.
(2)
Sales of nonperforming loans totaled $12 million, $33 million, $44 million, $19 million and $75 million for the quarter ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.
(3)
Excludes TDRs that are nonperforming totaling $191 million, $196 million, $189 million, $203 million and $214 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively. These amounts are included in total nonperforming assets.
(4)
Sales of performing TDRs, which were primarily residential mortgage loans, totaled $17 million, $29 million, $44 million, $49 million and $203 million for the quarter ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.
(5)
Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 90 days or more totaling $27 million, $23 million, $66 million, $45 million and $32 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.
(6)
Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 30-89 days totaling $1 million, $1 million, $2 million, $2 million and $2 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, respectively.

44 BB&T Corporation



Table 5
Asset Quality Ratios
 
 
 
As of / For the Three Months Ended
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
NPLs as a percentage of loans and leases HFI
 
0.38
%
 
0.42
%
 
0.40
%
 
0.42
%
 
0.43
%
NPAs as a percentage of:
 
 
 
 
 
 
 
 
 
 
Total assets
 
0.28

 
0.30

 
0.28

 
0.31

 
0.31

Loans and leases HFI plus foreclosed property
 
0.43

 
0.47

 
0.44

 
0.48

 
0.48

Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI
 
0.30

 
0.34

 
0.38

 
0.35

 
0.34

Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI
 
0.62

 
0.57

 
0.73

 
0.69

 
0.61

Net charge-offs as a percentage of average loans and leases HFI
 
0.30

 
0.41

 
0.36

 
0.35

 
0.37

ALLL as a percentage of loans and leases HFI
 
1.05

 
1.05

 
1.04

 
1.04

 
1.03

Ratio of ALLL to:
 
 
 
 
 
 
 
 
 
 
Net charge-offs
 
3.49x

 
2.55x

 
2.89x

 
2.93x

 
2.80x

NPLs
 
2.74x

 
2.49x

 
2.62x

 
2.44x

 
2.43x

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios (Excluding Government Guaranteed and PCI): (1)
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI
 
0.04
%
 
0.04
%
 
0.05
%
 
0.05
%
 
0.05
%
Applicable ratios are annualized.
(1)
This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage loans and PCI. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio such that it might not be reflective of asset collectibility or might not be comparable to other periods presented or to other portfolios that do not have government guarantees or were not impacted by purchase accounting.

Nonperforming assets totaled $624 million at June 30, 2018, down $45 million compared to March 31, 2018. Nonperforming loans and leases represented 0.38% of loans and leases held for investment, a four basis point decrease compared to March 31, 2018. The decrease in nonperforming assets was across all major loan categories.

The following table presents activity related to NPAs:
Table 6
Rollforward of NPAs
 
 
 
Six Months Ended June 30,
 
 
(Dollars in millions)
 
2018
 
2017
Balance, January 1
 
$
627

 
$
813

New NPAs
 
616

 
657

Advances and principal increases
 
226

 
141

Disposals of foreclosed assets (1)
 
(222
)
 
(258
)
Disposals of NPLs (2)
 
(45
)
 
(149
)
Charge-offs and losses
 
(124
)
 
(131
)
Payments
 
(366
)
 
(289
)
Transfers to performing status
 
(87
)
 
(91
)
Other, net
 
(1
)
 
(3
)
Ending balance, June 30
 
$
624

 
$
690

(1) 
Includes charge-offs and losses recorded upon sale of $105 million and $115 million for the six months ended June 30, 2018 and 2017, respectively.
(2)
Includes charge-offs and losses recorded upon sale of $11 million and $17 million for the six months ended June 30, 2018 and 2017, respectively.

Loans 30-89 days past due and still accruing totaled $905 million at June 30, 2018, up $91 million compared to the prior quarter. The increase was primarily due to residential mortgage and expected seasonality in indirect lending.


BB&T Corporation 45



Loans 90 days or more past due and still accruing totaled $435 million at June 30, 2018, down $55 million compared to the prior quarter, primarily due to a decrease in residential mortgage loans. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.30% at June 30, 2018, compared to 0.34% for the prior quarter. Excluding government guaranteed and PCI loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.04% at June 30, 2018, unchanged from the prior quarter.

Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 4. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to Note 3. Loans and ACL herein for additional disclosures related to these potential problem loans.
 
Certain residential mortgage loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both interest and principal over the remaining term. At June 30, 2018, approximately $614 million of the outstanding balances of residential mortgage loans were in the interest-only phase. Approximately 96.2% of the interest-only balances will begin amortizing within the next three years.
 
Home equity lines, which are a component of the direct retail portfolio, generally require interest-only payments during the first 15 years after origination. After this initial period, the outstanding balance begins amortizing and requires the payment of both interest and principal. At June 30, 2018, the direct retail lending portfolio includes $8.2 billion of variable rate home equity lines and $1.1 billion of variable rate other lines of credit. Approximately $6.4 billion of the variable rate home equity lines is currently in the interest-only phase and approximately 7.4% of these balances will begin amortizing within the next three years. Approximately $942 million of the outstanding balance of variable rate other lines of credit is in the interest-only phase and 13.6% of these balances will begin amortizing within the next three years. Variable rate home equity lines and other lines of credit typically reset on a monthly basis.
 
TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and a concession has been granted to the borrower. As a result, BB&T will work with the borrower to prevent further difficulties and ultimately improve the likelihood of recovery on the loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR. Refer to Note 1. Summary of Significant Accounting Policies in the Annual Report on Form 10-K for the year ended December 31, 2017 for additional policy information regarding TDRs.
 
Performing TDRs were up $31 million during the second quarter primarily in residential mortgage with small increases in indirect lending and commercial and industrial.

The following table provides a summary of performing TDR activity: 
Table 7
Rollforward of Performing TDRs
 
 
 
(Dollars in millions)
 
2018
 
2017
Balance, January 1
 
$
1,043

 
$
1,187

Inflows
 
256

 
324

Payments and payoffs
 
(83
)
 
(138
)
Charge-offs
 
(31
)
 
(26
)
Transfers to nonperforming TDRs, net
 
(36
)
 
(40
)
Removal due to the passage of time
 
(25
)
 
(41
)
Non-concessionary re-modifications
 
(5
)
 
(2
)
Sold and transferred to LHFS
 
(46
)
 
(251
)
Balance, June 30
 
$
1,073

 
$
1,013



46 BB&T Corporation



The following table provides further details regarding the payment status of TDRs outstanding at June 30, 2018:
Table 8
Payment Status of TDRs
 
 
 
June 30, 2018
 
 
 
 
 
 
 
Past Due 90 Days Or More
 
 
(Dollars in millions)
 
Current Status
 
Past Due 30-89 Days
 
 
Total
Performing TDRs (1):
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
44

 
100.0
%
 
$

 
%
 
$

 
%
 
$
44

CRE
 
11

 
100.0

 

 

 

 

 
11

Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
377

 
58.3

 
109

 
16.8

 
161

 
24.9

 
647

Direct
 
56

 
96.6

 
2

 
3.4

 

 

 
58

Indirect
 
236

 
83.1

 
48

 
16.9

 

 

 
284

Revolving credit
 
25

 
86.3

 
3

 
10.3

 
1

 
3.4

 
29

Total performing TDRs
 
749

 
69.8

 
162

 
15.1

 
162

 
15.1

 
1,073

Nonperforming TDRs (2)
 
87

 
45.5

 
28

 
14.7

 
76

 
39.8

 
191

Total TDRs
 
$
836

 
66.2

 
$
190

 
15.0

 
$
238

 
18.8

 
$
1,264

(1)
Past due performing TDRs are included in past due disclosures.
(2)
Nonperforming TDRs are included in NPL disclosures.


BB&T Corporation 47



ACL

Activity related to the ACL is presented in the following tables:
Table 9
Activity in ACL
 
 
 
 
 
 
 
For The Three Months Ended
 
Six Months Ended June 30,
(Dollars in millions)
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
2018
 
2017
Balance, beginning of period
$
1,614

 
$
1,609

 
$
1,601

 
$
1,602

 
$
1,599

 
$
1,609

 
$
1,599

Provision for credit losses (excluding PCI loans)
142

 
153

 
137

 
128

 
151

 
295

 
297

Provision (benefit) for PCI loans
(7
)
 
(3
)
 
1

 
(2
)
 
(16
)
 
(10
)
 
(14
)
Charge-offs:
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and industrial
(23
)
 
(23
)
 
(23
)
 
(13
)
 
(26
)
 
(46
)
 
(59
)
CRE
(2
)
 
(6
)
 
(2
)
 
(4
)
 
(3
)
 
(8
)
 
(4
)
Lease financing
(1
)
 
(1
)
 
(1
)
 
(2
)
 
(1
)
 
(2
)
 
(2
)
Residential mortgage
(5
)
 
(4
)
 
(8
)
 
(7
)
 
(20
)
 
(9
)
 
(32
)
Direct
(17
)
 
(19
)
 
(15
)
 
(16
)
 
(16
)
 
(36
)
 
(30
)
Indirect
(82
)
 
(107
)
 
(104
)
 
(103
)
 
(88
)
 
(189
)
 
(195
)
Revolving credit
(21
)
 
(21
)
 
(19
)
 
(17
)
 
(19
)
 
(42
)
 
(40
)
PCI

 

 

 
(1
)
 

 

 

Total charge-offs
(151
)
 
(181
)
 
(172
)
 
(163
)
 
(173
)
 
(332
)
 
(362
)
Recoveries:
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and industrial
11

 
8

 
12

 
8

 
9

 
19

 
16

CRE
1

 
2

 
4

 
3

 
3

 
3

 
9

Lease financing
1

 

 
1

 
1

 

 
1

 

Residential mortgage
1

 

 
1

 

 
1

 
1

 
1

Direct
6

 
6

 
6

 
6

 
7

 
12

 
13

Indirect
17

 
15

 
13

 
14

 
16

 
32

 
33

Revolving credit
5

 
5

 
5

 
4

 
5

 
10

 
10

Total recoveries
42

 
36

 
42

 
36

 
41

 
78

 
82

Net charge-offs
(109
)
 
(145
)
 
(130
)
 
(127
)
 
(132
)
 
(254
)
 
(280
)
Balance, end of period
$
1,640

 
$
1,614

 
$
1,609

 
$
1,601

 
$
1,602

 
$
1,640

 
$
1,602

 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALLL (excluding PCI loans)
$
1,512

 
$
1,473

 
$
1,462

 
$
1,451

 
$
1,455

 
 
 
 
ALLL for PCI loans
18

 
25

 
28

 
27

 
30

 
 
 
 
RUFC
110

 
116

 
119

 
123

 
117

 
 
 
 
Total ACL
$
1,640

 
$
1,614

 
$
1,609

 
$
1,601

 
$
1,602

 
 
 
 

The ACL, which consists of the ALLL and the RUFC, totaled $1.6 billion at June 30, 2018, up $31 million compared to December 31, 2017.

The ALLL, excluding PCI, was $1.5 billion, up $50 million compared to December 31, 2017. The allowance for PCI loans was $18 million, down $10 million compared to December 31, 2017. As of June 30, 2018, the total allowance for loan and lease losses was 1.05% of loans and leases held for investment, compared to 1.04% at December 31, 2017. These amounts include acquired loans, which were marked to fair value and did not receive an ALLL at the acquisition date.

The ALLL was 2.74 times NPLs held for investment, compared to 2.62 times at December 31, 2017. At June 30, 2018, the ALLL was 3.49 times annualized quarterly net charge-offs, compared to 2.89 times at December 31, 2017.

Net charge-offs during the second quarter of 2018 totaled $109 million, or 0.30% of average loans and leases, compared to $132 million, or 0.37% of average loans and leases for the second quarter of 2017.


48 BB&T Corporation



The following table presents an allocation of the ALLL at June 30, 2018 and December 31, 2017. This allocation of the ALLL is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.
Table 10
Allocation of ALLL by Category
 
 
 
 
 
 
 
June 30, 2018
 
December 31, 2017
(Dollars in millions)
 
Amount
 
% Loans in each category
 
Amount
 
% Loans in each category
Commercial and industrial
 
$
535

 
41.3
%
 
$
522

 
41.1
%
CRE
 
191

 
14.8

 
160

 
14.8

Lease financing
 
10

 
1.3

 
9

 
1.3

Residential mortgage
 
221

 
20.5

 
209

 
20.0

Direct
 
97

 
8.0

 
106

 
8.3

Indirect
 
353

 
11.7

 
348

 
12.0

Revolving credit
 
105

 
2.0

 
108

 
2.0

PCI
 
18

 
0.4

 
28

 
0.5

Total ALLL
 
1,530

 
100.0
%
 
1,490

 
100.0
%
RUFC
 
110

 
 

 
119

 
 

Total ACL
 
$
1,640

 
 

 
$
1,609

 
 


Deposits
 
Deposits totaled $159.5 billion at June 30, 2018, an increase of $2.1 billion from December 31, 2017. Noninterest-bearing deposits increased $503 million, time deposits increased $1.6 billion and money market and savings increased $410 million, while interest checking decreased $420 million.

The following table presents the composition of average deposits for the last five quarters:
Table 11
Composition of Average Deposits
 
 
 
Three Months Ended
 

(Dollars in millions)
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Noninterest-bearing deposits
 
$
53,963

 
$
53,396

 
$
54,288

 
$
53,489

 
$
52,573

Interest checking
 
26,969

 
27,270

 
26,746

 
27,000

 
28,849

Money market and savings
 
62,105

 
61,690

 
61,693

 
61,450

 
64,294

Time deposits
 
13,966

 
13,847

 
13,744

 
13,794

 
14,088

Foreign office deposits - interest-bearing
 
673

 
935

 
1,488

 
1,681

 
459

Total average deposits
 
$
157,676

 
$
157,138

 
$
157,959

 
$
157,414

 
$
160,263

 
Average deposits for the second quarter were $157.7 billion, up $538 million compared to the prior quarter. Average noninterest-bearing deposits increased $567 million, driven by increases in personal and commercial balances, partially offset by a decrease in public funds balances.

Average interest checking decreased $301 million primarily due to a decrease in public funds balances, partially offset by an increase in commercial balances. Average money market and savings deposits increased $415 million primarily due to an increase in commercial balances partially offset by a decline in public funds balances. Average foreign office deposits decreased $262 million due to changes in the overall funding mix.

Noninterest-bearing deposits represented 34.2% of total average deposits for the second quarter, compared to 34.0% for the prior quarter and 32.8% a year ago. The cost of interest-bearing deposits was 0.57% for the second quarter, up 11 basis points compared to the prior quarter.

Borrowings
 
At June 30, 2018, short-term borrowings totaled $3.6 billion, a decrease of $1.4 billion compared to December 31, 2017. Short-term borrowings fluctuate based on the Company's funding needs. Long-term debt totaled $24.1 billion at June 30, 2018, an increase of $433 million compared to December 31, 2017. The increase in long-term debt was driven by the issuance of $1.8 billion of senior debt partially offset by normal payments and maturities.
 

BB&T Corporation 49



Shareholders' Equity
 
Total shareholders' equity was $29.8 billion at June 30, 2018, up $137 million from December 31, 2017. Significant additions include net income of $1.6 billion. Significant decreases include common and preferred dividends totaling $669 million, $630 million of share repurchases and the OCI net loss of $239 million, primarily due to declines in AFS securities valuations. BB&T's book value per common share at June 30, 2018 was $34.51, compared to $34.01 at December 31, 2017.
 
Merger-Related and Restructuring Activities
 
In conjunction with the consummation of an acquisition or the implementation of a restructuring initiative, BB&T typically accrues certain merger-related and restructuring expenses, which may include estimated severance and other personnel-related costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition or restructuring activity. Merger-related and restructuring accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at June 30, 2018 are expected to be utilized within one year, unless they relate to specific contracts that expire later. The following table presents a summary of merger-related and restructuring charges and the related accruals:
Table 12
Merger-Related and Restructuring Charges and Related Accruals
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Accrual at Apr 1, 2018
 
Expense
 
Utilized
 
Accrual at Jun 30, 2018
 
Accrual at Jan 1, 2018
 
Expense
 
Utilized
 
Accrual at Jun 30, 2018
Severance and personnel-related
$
8

 
$
2

 
$
(6
)
 
$
4

 
$
14

 
$
5

 
$
(15
)
 
$
4

Occupancy and equipment (1)
19

 
17

 
(17
)
 
19

 
20

 
35

 
(36
)
 
19

Professional services
1

 

 

 
1

 

 
1

 

 
1

Systems conversion and related costs (1)

 

 

 

 

 
5

 
(5
)
 

Other adjustments

 
5

 
(2
)
 
3

 

 
6

 
(3
)
 
3

Total
$
28

 
$
24

 
$
(25
)
 
$
27

 
$
34

 
$
52

 
$
(59
)
 
$
27

(1)
Includes asset impairment charges.

Critical Accounting Policies
 
The accounting and reporting policies of BB&T are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. BB&T's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting and reporting policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, costs and benefit obligations associated with pension and postretirement benefit plans, and income taxes. Understanding BB&T's accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. Accordingly, the critical accounting policies are discussed in detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1. Summary of Significant Accounting Policies in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017. Additional disclosures regarding the effects of new accounting pronouncements are included in the "Basis of Presentation" Note included herein. There have been no other changes to the significant accounting policies during 2018.
 
Risk Management
 
BB&T has a strong and consistent risk culture, based on established risk values, which promotes predictable and consistent performance within an environment of open communication and effective challenge. The strong culture influences all associates in the organization daily and helps them evaluate whether risks are acceptable or unacceptable while making decisions that balance quality, profitability and growth appropriately. BB&T’s effective risk management framework establishes an environment which enables it to achieve superior performance relative to peers, ensures that BB&T is viewed among the safest of banks and assures the operational freedom to act on opportunities.
 
BB&T ensures that there is an appropriate return for the amount of risk taken, and that the expected return is in line with its strategic objectives and business plan. Risk-taking activities are evaluated and prioritized to identify those that present attractive risk-adjusted returns while preserving asset value. BB&T only undertakes risks that are understood and can be managed effectively. By managing risk well, BB&T ensures sufficient capital is available to maintain and grow core business operations in a safe and sound manner.
 

50 BB&T Corporation



Regardless of financial gain or loss to the Company, associates are held accountable if they do not follow the established risk management policies and procedures. Compensation decisions take into account an associate’s adherence to, and successful implementation of, BB&T’s risk values. The compensation structure supports the Company’s core values and sound risk management practices in an effort to promote judicious risk-taking behavior.
 
BB&T’s risk culture encourages transparency and open dialogue between all levels in the performance of organizational functions, such as the development, marketing and implementation of a product or service.
 
The principal types of inherent risk include compliance, credit, liquidity, market, operational, reputation and strategic risks. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for disclosures related to each of these risks under the section titled "Risk Management."
 
Market Risk Management
 
The effective management of market risk is essential to achieving BB&T’s strategic financial objectives. As a financial institution, BB&T’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in BB&T’s BUs. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, net income and capital and to offset the risk of price changes for certain assets recorded at fair value. At BB&T, market risk management also includes the enterprise-wide IPV function.
 
Interest Rate Market Risk (Other than Trading)
 
BB&T actively manages market risk associated with asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of appropriate maturity mixes of assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T’s portfolios of assets and liabilities that will produce reasonably consistent net interest income during periods of changing interest rates. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios.
 
The asset/liability management process is designed to achieve relatively stable NIM and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. Among other things, this process gives consideration to prepayment trends related to securities, loans and leases and certain deposits that have no stated maturity. Prepayment assumptions are developed using a combination of market data and internal historical prepayment experience for residential mortgage-related loans and securities, and internal historical prepayment experience for client deposits with no stated maturity and loans that are not residential mortgage related. These assumptions are subject to monthly review and adjustment, and are modified as deemed necessary to reflect changes in interest rates relative to the reference rate of the underlying assets or liabilities. On a monthly basis, BB&T evaluates the accuracy of its Simulation model, which includes an evaluation of its prepayment assumptions, to ensure that all significant assumptions inherent in the model appropriately reflect changes in the interest rate environment and related trends in prepayment activity. It is the responsibility of the MRLCC to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as to ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The MRLCC also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The MRLCC meets regularly to review BB&T’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impacts on earnings and liquidity as a result of fluctuations in interest rates are within acceptable tolerance guidelines.
 
BB&T uses derivatives primarily to manage economic risk related to securities, commercial loans, MSRs and mortgage banking operations, long-term debt and other funding sources. BB&T also uses derivatives to facilitate transactions on behalf of its clients. As of June 30, 2018, BB&T had derivative financial instruments outstanding with notional amounts totaling $71.4 billion, with a net fair value loss of $203 million. See Note 14. Derivative Financial Instruments for additional disclosures.
 
The majority of BB&T’s assets and liabilities are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Fluctuations in interest rates and actions of the FRB to regulate the availability and cost of credit have a greater effect on a financial institution’s profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, which is monitored by the MRLCC, management believes that BB&T is positioned to respond to changing needs for liquidity, changes in interest rates and inflationary trends.
 

BB&T Corporation 51



Management uses the Simulation to measure the sensitivity of projected earnings to changes in interest rates. The Simulation projects net interest income and interest rate risk for a rolling two-year period of time. The Simulation takes into account the current contractual agreements that BB&T has made with its customers on deposits, borrowings, loans, investments and commitments to enter into those transactions. Furthermore, the Simulation considers the impact of expected customer behavior. Management monitors BB&T’s interest sensitivity by means of a model that incorporates the current volumes, average rates earned and paid, and scheduled maturities and payments of asset and liability portfolios, together with multiple scenarios that include projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, but management believes that it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap. In addition to the Simulation, BB&T uses EVE analysis to focus on projected changes in assets and liabilities given potential changes in interest rates. This measure also allows BB&T to analyze interest rate risk that falls outside the analysis window contained in the Simulation. The EVE model is a discounted cash flow of the portfolio of assets, liabilities, and derivative instruments. The difference in the present value of assets minus the present value of liabilities is defined as the economic value of equity.
 
The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies, as well as any enacted or prospective regulatory changes. BB&T’s current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with the information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals.

The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months assuming a gradual change in interest rates as described below. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing, deposit sensitivity, customer preferences and capital plans. The resulting change in net interest income reflects the level of interest rate sensitivity that income has in relation to the investment, loan and deposit portfolios.
Table 13
Interest Sensitivity Simulation Analysis
 
 
 
 
 
 
 
Interest Rate Scenario
 
Annualized Hypothetical Percentage Change in Net Interest Income
Linear Change in Prime Rate
 
Prime Rate
 
 
Jun 30, 2018
 
Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
Up 200 bps
 
7.00
%
 
6.25
%
 
3.05
 %
 
3.95
 %
Up 100
 
6.00

 
5.25

 
1.93

 
2.54

No Change
 
5.00

 
4.25

 

 

Down 100
 
4.00

 
3.25

 
(4.64
)
 
(7.20
)
Down 150
 
3.50

 
N/A

 
(7.50
)
 
N/A

 
Rate sensitivity decreased from June 30, 2017, primarily driven by loan and deposit mix changes partially offset by higher balances of fixed rate long-term debt.

Management must also consider how the balance sheet and interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry has been very strong during the current economic cycle. Much of this liquidity increase has been due to a significant increase in noninterest-bearing demand deposits. Consistent with the industry, Branch Bank has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of BB&T. A loss of these deposits in the future would reduce the asset sensitivity of BB&T’s balance sheet as the Company increases interest-bearing funds to offset the loss of this advantageous funding source.

Beta represents the correlation between overall market interest rates and the rates paid by BB&T on interest-bearing deposits. BB&T applies an average beta of approximately 50% to its non-maturity interest-bearing deposit accounts for determining its interest rate sensitivity. Non-maturity interest-bearing deposit accounts include interest checking accounts, savings accounts and money market accounts that do not have a contractual maturity. Due to current market conditions the actual deposit beta on non-maturity interest-bearing deposits has been less than 25% since rates began to rise in December 2015. However, BB&T expects the beta to increase as rates continue to rise as evidenced by the 41% beta on interest bearing-deposits related to the March 2018 federal funds rate increase. BB&T regularly conducts sensitivity on other key variables to determine the impact they could have on the interest rate risk position. This allows BB&T to evaluate the likely impact on its balance sheet management strategies due to a more extreme variation in a key assumption than expected.
 

52 BB&T Corporation



The following table shows the effect that the loss of demand deposits and an associated increase in managed rate deposits would have on BB&T’s interest-rate sensitivity position. For purposes of this analysis, BB&T modeled the incremental beta for the replacement of the lost demand deposits at 100%.
Table 14
Deposit Mix Sensitivity Analysis
 
 
 
 
 
Linear Change in Rates
 
Base Scenario at June 30, 2018 (1)
 
Results Assuming a Decrease in
Noninterest-Bearing Demand Deposits
 
 
 
 
$1 Billion
 
$5 Billion
Up 200 bps
 
3.05
%
 
2.84
%
 
2.01
%
Up 100
 
1.93

 
1.81

 
1.29

(1) The base scenario is equal to the annualized hypothetical percentage change in net interest income at June 30, 2018 as presented in the preceding table.

If rates increased 200 basis points, BB&T could absorb the loss of $14.7 billion, or 27.2%, of noninterest-bearing deposits and replace them with managed rate deposits with a beta of 100% before becoming neutral to interest rate changes.
 
The following table shows the effect that the indicated changes in interest rates would have on EVE. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing and deposit sensitivity.
Table 15
EVE Simulation Analysis
 
 
 
 
 
Change in Interest Rates
 
EVE/Assets
 
Hypothetical Percentage
Change in EVE
 
Jun 30, 2018
 
Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
Up 200 bps
 
11.9
%
 
12.1
%
 
(7.3
)%
 
(0.6
)%
Up 100
 
12.5

 
12.4

 
(2.7
)
 
1.4

No Change
 
12.8

 
12.2

 

 

Down 100
 
12.5

 
11.1

 
(2.9
)
 
(9.6
)
Down 150
 
11.7

 
N/A

 
(9.0
)
 
N/A


Market Risk from Trading Activities
 
BB&T also manages market risk from trading activities which consists of acting as a financial intermediary to provide its customers access to derivatives, foreign exchange and securities markets. Trading market risk is managed through the use of statistical and non-statistical risk measures and limits. BB&T utilizes a historical VaR methodology to measure and aggregate risks across its covered trading BUs. This methodology uses two years of historical data to estimate economic outcomes for a one-day time horizon at a 99% confidence level. The average 99% one-day VaR and the maximum daily VaR for the three months ended June 30, 2018 and 2017, respectively, were each less than $1 million. Market risk disclosures under Basel II.5 are available in the Additional Disclosures section of the Investor Relations site on BBT.com.

Liquidity
 
Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, timely repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as cash, cash equivalents and AFS securities, many other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity in national money markets, growing core deposits, the repayment of loans and the ability to securitize or package loans for sale.

BB&T monitors the ability to meet customer demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates BB&T’s funding mix based on client core funding, client rate-sensitive funding and national markets funding. In addition, management also evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against 30 days of stressed cash outflows for Branch Bank and BB&T. To ensure a strong liquidity position, management maintains a liquid asset buffer of cash on hand and highly liquid unpledged securities. BB&T follows the FRB's enhanced prudential standards for purposes of determining the liquid asset buffer. BB&T’s policy is to use the greater of either 5% of total assets or a range of projected net cash outflows over a 30 day period. As of June 30, 2018 and December 31, 2017, BB&T's liquid asset buffer was 14.3% of total assets.
 

BB&T Corporation 53



BB&T is considered to be a "modified LCR" holding company. BB&T would be subject to full LCR requirements if its assets were to increase above $250 billion or if it were to be considered internationally active. BB&T produces LCR calculations to effectively manage the position of high-quality liquid assets and the balance sheet deposit mix to optimize BB&T's liquidity position. BB&T's LCR was approximately 131% at June 30, 2018, compared to the regulatory minimum for such entities of 100%, which puts BB&T in full compliance with the rule. The LCR can experience volatility due to issues like maturing debt rolling into the 30 day measurement period, or client inflows and outflows. The daily change in BB&T’s LCR averaged less than 2% during the second quarter of 2018 with a maximum change of approximately 5%.
 
On April 27, 2016, the OCC, the FRB and the FDIC released a notice of proposed rulemaking for the US version of the NSFR. Under the proposal, BB&T will be a "modified NSFR" holding company. BB&T would be subject to full NSFR requirements if it has $250 billion or more in assets or if it were to be considered internationally active. BB&T is evaluating the information in the proposal but does not currently expect a material impact on its results of operations or financial condition.

Parent Company
 
The purpose of the Parent Company is to serve as the primary source of capital for the operating subsidiaries, with assets primarily consisting of cash on deposit with Branch Bank, equity investments in subsidiaries, advances to subsidiaries, accounts receivable from subsidiaries, and other miscellaneous assets. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiary, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are for investments in subsidiaries, advances to subsidiaries, dividend payments to common and preferred shareholders, retirement of common stock and payments on long-term debt.
 
Liquidity at the Parent Company is more susceptible to market disruptions. BB&T prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities without the benefit of any new cash infusions. Generally, BB&T maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, BB&T considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, being a source of strength to its banking subsidiary and being able to withstand sustained market disruptions that could limit access to the capital markets. At June 30, 2018 and December 31, 2017, the Parent Company had 27 months and 29 months, respectively, of cash on hand to satisfy projected contractual cash outflows, and 22 months and 23 months, respectively, taking into account common stock dividends.

Branch Bank
 
BB&T carefully manages liquidity risk at Branch Bank. Branch Bank’s primary source of funding is customer deposits. Continued access to customer deposits is highly dependent on the confidence the public has in the stability of the bank and its ability to return funds to the client when requested. BB&T maintains a strong focus on its reputation in the market to ensure continued access to client deposits. BB&T integrates its risk appetite into its overall risk management framework to ensure the bank does not exceed its risk tolerance through its lending and other risk taking functions and thus risk becoming undercapitalized. BB&T believes that sufficient capital is paramount to maintaining the confidence of its depositors and other funds providers. BB&T has extensive capital management processes in place to ensure it maintains sufficient capital to absorb losses and maintain a highly capitalized position that will instill confidence in the bank and allow continued access to deposits and other funding sources. Branch Bank monitors many liquidity metrics including funding concentrations, diversification, maturity distribution, contingent funding needs and ability to meet liquidity requirements under times of stress.

Branch Bank has several major sources of funding to meet its liquidity requirements, including access to capital markets through issuance of senior or subordinated bank notes and institutional CDs, access to the FHLB system, dealer repurchase agreements and repurchase agreements with commercial clients, access to the overnight and term Federal funds markets, use of a Cayman branch facility, access to retail brokered CDs and a borrower in custody program with the FRB for the discount window. At June 30, 2018, Branch Bank has approximately $82.4 billion of secured borrowing capacity, which represents approximately 7.6 times the amount of one year wholesale funding maturities.

Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions
 
Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for discussion with respect to BB&T's quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Additional disclosures about BB&T's contractual obligations, commitments and derivative financial instruments are included in Note 12. Commitments and Contingencies, Note 13. Fair Value Disclosures and Note 14. Derivative Financial Instruments.


54 BB&T Corporation



Capital
 
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. BB&T’s principal goals related to the maintenance of capital are to provide adequate capital to support BB&T’s risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for BB&T and its subsidiaries and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
 
Management regularly monitors the capital position of BB&T on both a consolidated and bank level basis. In this regard, management’s overriding policy is to maintain capital at levels that are in excess of the capital targets, which are above the regulatory "well capitalized" levels. Management has implemented stressed capital ratio minimum targets to evaluate whether capital ratios calculated with planned capital actions are likely to remain above minimums specified by the FRB for the annual CCAR. Breaches of stressed minimum targets prompt a review of the planned capital actions included in BB&T’s capital plan. 
Table 16
Capital Under Basel III
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum Capital
 
Well-Capitalized
 
Minimum Capital Plus Capital Conservation Buffer
 
BB&T Targets
 
 
 
2018
 
2019
 
Operating (1)
 
Stressed
CET1 capital to risk-weighted assets
4.5
%
 
6.5
%
 
6.375
%
 
7.000
%
 
8.5
%
 
6.0
%
Tier 1 capital to risk-weighted assets
6.0

 
8.0

 
7.875

 
8.500

 
10.0

 
7.5

Total capital to risk-weighted assets
8.0

 
10.0

 
9.875

 
10.500

 
12.0

 
9.5

Leverage ratio
4.0

 
5.0

 
N/A
 
N/A
 
8.0

 
5.5

(1)
BB&T's goal is to maintain capital levels above all regulatory minimums.

While nonrecurring events or management decisions may result in the Company temporarily falling below its operating minimum guidelines for one or more of these ratios, it is management’s intent through capital planning to return to these targeted operating minimums within a reasonable period of time. Such temporary decreases below the operating minimums shown above are not considered an infringement of BB&T’s overall capital policy, provided a return above the minimums is forecast to occur within a reasonable time period.
Table 17
Capital Ratios (1)
 
 
 
 
 
(Dollars in millions, except per share data, shares in thousands)
 
Jun 30, 2018
 
Dec 31, 2017
Risk-based:
 
 
 
 
CET1 capital to risk-weighted assets
 
10.2
%
 
10.2
%
Tier 1 capital to risk-weighted assets
 
11.9

 
11.9

Total capital to risk-weighted assets
 
13.9

 
13.9

Leverage ratio
 
10.0

 
9.9

 
 
 
 
 
Non-GAAP capital measure (2):
 
 

 
 
Tangible common equity per common share
 
$
21.26

 
$
20.80

 
 
 
 
 
Calculation of tangible common equity (2):
 
 
 
 
Total shareholders' equity
 
$
29,832

 
$
29,695

Less:
 
 
 
 
Preferred stock
 
3,053

 
3,053

Noncontrolling interests
 
52

 
47

Intangible assets
 
10,264

 
10,329

Tangible common equity
 
$
16,463

 
$
16,266

 
 
 
 
 
Risk-weighted assets
 
$
180,190

 
$
177,217

Common shares outstanding at end of period
 
774,447

 
782,006

(1)
Current quarter regulatory capital information is preliminary.
(2)
Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. BB&T's management uses these measures to assess the quality of capital and returns relative to balance sheet risk and believes investors may find them useful in their analysis of the Corporation. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies.


BB&T Corporation 55



Capital levels remained strong at June 30, 2018. BB&T declared total common dividends of $0.375 per share during the second quarter of 2018, which resulted in a dividend payout ratio of 37.5%. The Company also completed $310 million of share repurchases during the second quarter of 2018, which resulted in a total payout ratio of 77.5%.

Share Repurchase Activity
Table 18
Share Repurchase Activity
 
 
 
 
 
 
 
 
(Dollars in millions, except per share data, shares in thousands)
Total Shares Repurchased
 
Average Price Paid Per Share (1)
 
Total Shares Repurchased Pursuant to Publicly-Announced Plan (2)
 
Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
April 2018
4,736

 
$
53.81

 
4,736

 
$
65

May 2018
1,025

 
53.81

 
1,025

 
10

June 2018

 

 

 

Total
5,761

 
53.81

 
5,761

 
 
(1)
Excludes commissions.
(2)
Pursuant to the 2017 Repurchase Plan, announced on June 28, 2017, authorizing up to $1.88 billion of share repurchases over the one-year period ended June 30, 2018. In November 2017, the amount authorized was increased $53 million to $1.93 billion for the same one-year period.

The 2018 Repurchase Plan, announced on June 28, 2018, authorizes up to $1.7 billion of share repurchases over the one-year period ending June 30, 2019. BB&T may not utilize the full share repurchases in order to maintain desired capital levels.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Refer to "Market Risk Management" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective.
 
Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
Refer to Note 12. Commitments and Contingencies in the "Notes to Consolidated Financial Statements."
 
ITEM 1A. RISK FACTORS
 
There have been no material changes to the risk factors disclosed in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017. Additional risks and uncertainties not currently known to BB&T or that management has deemed to be immaterial also may materially adversely affect BB&T's business, financial condition, and/or operating results.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
(c) Refer to "Share Repurchase Activity" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.


56 BB&T Corporation



ITEM 6. EXHIBITS
 
 
 
 
 
Exhibit No.
 
Description
 
Location
3(i)
 
Bylaws of the Registrant, as amended and restated April 24, 2018.
 
12†
 
Statement re: Computation of Ratios.
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32
 
Certification of Chief Executive Officer 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.INS
 
XBRL Instance Document.
 
Filed herewith.
101.SCH
 
XBRL Taxonomy Extension Schema.
 
Filed herewith.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase.
 
Filed herewith.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase.
 
Filed herewith.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase.
 
Filed herewith.
101.DEF
 
XBRL Taxonomy Definition Linkbase.
 
Filed herewith.
† Exhibit filed with the Securities and Exchange Commission and available upon request.

SIGNATURES
 
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.
 
 
 
BB&T CORPORATION
(Registrant)
 
 
 
 
 
Date:
July 27, 2018
 
By:
/s/ Daryl N. Bible
 
 
 
 
Daryl N. Bible
 
 
 
 
Senior Executive Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 
 
 
 
 
Date:
July 27, 2018
 
By:
/s/ Cynthia B. Powell
 
 
 
 
Cynthia B. Powell
 
 
 
 
Executive Vice President and Corporate Controller
 
 
 
 
(Principal Accounting Officer)

BB&T Corporation 57