10-K 1 form10-k_4q17.htm 10-K Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-K
____________________________________________________
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017

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)
Registrant’s telephone number, including area code: (336) 733-2000
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $5 par value
 
New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series D Non-Cumulative Perpetual Preferred Stock
 
New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series E Non-Cumulative Perpetual Preferred Stock
 
New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series F Non-Cumulative Perpetual Preferred Stock
 
New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series G Non-Cumulative Perpetual Preferred Stock
 
New York Stock Exchange
Depositary Shares each representing 1/1,000th interest in a share of Series H Non-Cumulative Perpetual Preferred Stock
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý   No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨   No  ý
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 website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
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 Act).    Yes  ¨   No  ý
At January 31, 2018, the Company had 778,291,454 shares of its Common Stock, $5 par value, outstanding. As of June 30, 2017, the aggregate market value of voting stock held by nonaffiliates of the Company was approximately $36.5 billion. Documents incorporated by reference: Portions of the definitive proxy statement relating to the registrant’s 2018 annual meeting of stockholders are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
 



TABLE OF CONTENTS
Form 10-K
December 31, 2017
 
 
Page Nos.
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments-(None to be reported)
 
Item 2
Properties
Item 3
Legal Proceedings (see Note 6, Note 11 and Note 13)
Item 4
Mine Safety Disclosures-(Not applicable)
 
PART II
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management)
Item 8
Financial Statements and Supplementary Data
 
 
Quarterly Financial Summary
 
Report of Independent Registered Public Accounting Firm
 
Consolidated Balance Sheets
 
Consolidated Statements of Income
 
Consolidated Statements of Comprehensive Income
 
Consolidated Statements of Changes in Shareholders' Equity
 
Consolidated Statements of Cash Flows
 
Notes to Consolidated Financial Statements
 
 
Note 1. Summary of Significant Accounting Policies
 
Note 2. Securities
 
Note 3. Loans and ACL
 
Note 4. Premises and Equipment
 
Note 5. Goodwill and Other Intangible Assets
 
Note 6. Loan Servicing
 
Note 7. Deposits
 
Note 8. Long-Term Debt
 
Note 9. Shareholders' Equity
 
Note 10. AOCI
 
Note 11. Income Taxes
 
Note 12. Benefit Plans
 
Note 13. Commitments and Contingencies
 
Note 14. Regulatory Requirements and Other Restrictions
 
Note 15. Parent Company Financial Statements
 
Note 16. Fair Value Disclosures
 
Note 17. Derivative Financial Instruments
 
Note 18. Computation of EPS
 
Note 19. Operating Segments
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure-(None to be reported)
Item 9A
Controls and Procedures
Item 9B
Other Information-(None to be reported)
 
PART III
Item 10
Directors, Executive Officers and Corporate Governance
*
Item 11
Executive Compensation
*
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
*
Item 13
Certain Relationships and Related Transactions, and Director Independence
*
Item 14
Principal Accounting Fees and Services
*
PART IV
Item 15
Exhibits, Financial Statement Schedules
 
 
Financial Statements-(see Listing in Item 8 above)
 
 
Exhibits
 
Financial Statement Schedules-(None required)
 
Item 16
Form 10-K Summary-(None)
 




*
For information regarding executive officers, refer to "Executive Officers of BB&T" in Part I. The other information required by Item 10 is incorporated herein by reference to the information that appears under the headings "Proposal 1-Election of Directors," "Corporate Governance Matters," "Corporate Governance Matters-Board Committees, Membership, Attendance and Lead Director Responsibilities," "Audit Committee Report" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders.
The information required by Item 11 is incorporated herein by reference to the information that appears under the headings "Compensation Discussion and Analysis," "Compensation of Executive Officers," "Compensation Committee Report on Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation of Directors" in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders.
For information regarding the registrant’s securities authorized for issuance under equity compensation plans, refer to "Equity Compensation Plan Information" in Part II. The other information required by Item 12 is incorporated herein by reference to the information that appears under the headings "Stock Ownership Information" in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders.
The information required by Item 13 is incorporated herein by reference to the information that appears under the headings "Corporate Governance Matters-Director Independence" and "Transactions with Executive Officers and Directors" in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders.
The information required by Item 14 is incorporated herein by reference to the information that appears under the headings "Fees to Auditors" and "Audit Committee Pre-Approval Policy" in the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders.



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
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
American Coastal
 
American Coastal Insurance Company
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
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
CISA
 
Cybersecurity Information Sharing Act
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
CRO
 
Chief Risk Officer
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
DTSSRC
 
Data & Technology Services Strategy & Risk Committee
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
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
GSE
 
U.S. government-sponsored enterprise
HFI
 
Held for investment
HMDA
 
Home Mortgage Disclosure Act
HTM
 
Held-to-maturity
HUD-OIG
 
Office of Inspector General, U.S. Department of Housing and Urban Development

1


Term
 
Definition
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
MRM
 
Model Risk Management
MSR
 
Mortgage servicing right
MSRB
 
Municipal Securities Rulemaking Board
N/A
 
Not applicable
National Penn
 
National Penn Bancshares, Inc., previously a Pennsylvania incorporated BHC, acquired April 1, 2016
NCCOB
 
North Carolina Office of the Commissioner of Banks
NIM
 
Net interest margin, computed on a taxable-equivalent basis
NM
 
Not meaningful
NPA
 
Nonperforming asset
NPL
 
Nonperforming loan
NSFR
 
Net stable value funding ratio
NYSE
 
NYSE Euronext, Inc.
OAS
 
Option adjusted spread
OCI
 
Other comprehensive income (loss)
OFAC
 
U.S. Department of the Treasury’s Office of Foreign Assets Control
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
S&P
 
Standard & Poor's
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
Susquehanna
 
Susquehanna Bancshares, Inc., acquired by BB&T effective August 1, 2015
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


Forward-Looking Statements
 
This Annual Report on Form 10-K 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 made or held as well as the value of other financial assets held;
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.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and should also consider the risks and uncertainties described elsewhere in this report, including under the "Risk Factors" section. Actual results may differ materially from those expressed in or implied by any forward-looking statement. 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.

3


ITEM 1. BUSINESS
 
BB&T is a FHC headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its bank subsidiary, Branch Bank, and other nonbank subsidiaries.
 
Operating Subsidiaries
 
Branch Bank (Winston-Salem, North Carolina), BB&T’s largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina. Branch Bank provides a wide range of banking and trust services for retail and commercial clients in its geographic markets, including small and mid-size businesses, public agencies, local governments and individuals, through 2,049 offices (as of December 31, 2017). Branch Bank’s principal operating subsidiaries include:
 
BB&T Commercial Equipment Capital Corp. (Malvern, Pennsylvania) provides loans and lease financing to commercial and small businesses.

BB&T Equipment Finance Corporation (Charlotte, North Carolina) provides loan and lease financing to commercial and small businesses;

BB&T Insurance Services, Inc. (Raleigh, North Carolina) offers property and casualty, life, health, employee benefits, commercial general liability, surety, title and other insurance products through its agency network;

BB&T Investment Services, Inc. (Charlotte, North Carolina) was a registered broker-dealer and offers clients non-deposit investment products, including discount brokerage services, equities, fixed-rate, variable-rate and index annuities, mutual funds, government and municipal bonds, and money market funds. It merged with BB&T Securities, LLC effective January 1, 2018;

CRC Insurance Services, Inc. (Birmingham, Alabama) is a wholesale insurance broker authorized to do business nationwide;

Crump Life Insurance Services, Inc. (Parsippany, New Jersey) is a wholesale insurance broker authorized to do business nationwide;

Grandbridge (Charlotte, North Carolina) specializes in arranging and servicing commercial mortgage loans;

McGriff, Seibels & Williams, Inc. (Birmingham, Alabama) is authorized to do business nationwide and specializes in providing insurance products on an agency basis to large commercial clients, including many Fortune 500 companies;

Prime Rate Premium Finance Corporation, Inc. (Florence, South Carolina) and its subsidiaries, which include AFCO Credit Corporation, provide insurance premium financing to clients in the United States and Canada; and

Major Nonbank Subsidiaries
 
BB&T also has a number of nonbank subsidiaries, including:
 
BB&T Securities, LLC (Richmond, Virginia) is a registered investment banking and full-service brokerage firm that provides services in retail brokerage, equity and debt underwriting, investment advice, corporate finance and equity research; and facilitates the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets;

Regional Acceptance Corporation (Greenville, North Carolina) specializes in nonprime, indirect financing for consumer purchases of primarily mid-model and late-model used automobiles; and

Sterling Capital Management, LLC (Charlotte, North Carolina) is a registered investment advisor, which provides tailored investment management solutions to meet the specific needs and objectives of individual and institutional clients through a full range of investment strategies.


4


Services

BB&T’s subsidiaries offer a variety of services targeted to retail and commercial clients. BB&T’s objective is to offer clients a full array of products to meet all their financial needs. BB&T provides insurance services primarily through its retail agency and wholesale brokerage operations.
 
Retail Services:
 
Commercial Services:
 
Asset management
 
Asset management
 
Automobile lending
 
Association services
 
Bankcard lending
 
Capital markets services
 
Consumer finance
 
Commercial deposit and treasury services
 
Home equity lending
 
Commercial finance
 
Home mortgage lending
 
Commercial middle market lending
 
Insurance
 
Commercial mortgage lending
 
Investment brokerage services
 
Corporate banking
 
Mobile/online banking
 
Floor plan lending
 
Payment solutions
 
Institutional trust services
 
Retail deposit services
 
Insurance
 
Small business lending
 
Insurance premium finance
 
Wealth management/private banking
 
International banking services
 
 
 
Leasing
 
 
 
Merchant services
 
 
 
Mortgage warehouse lending
 
 
 
Payment solutions
 
 
 
Private equity investments
 
 
 
Real estate lending
 
 
 
Supply chain management

Operating Segments

Refer to "Note 19. Operating Segments" for disclosures related to BB&T’s operating segments.

Market Area

The following table reflects BB&T’s deposit market share and branch locations by state:
Table 1
BB&T Deposit Market Share and Branch Locations by State
 
 
 
 
 
 
 
 
 
% of BB&T's Deposits (2)
 
Deposit Market Share Rank (2)
 
Number of Branches (3)
North Carolina (1)
 
21
%
 
2nd
 
328
Virginia
 
16

 
4th
 
319
Florida
 
13

 
7th
 
298
Pennsylvania
 
10

 
6th
 
246
Georgia
 
8

 
5th
 
144
Maryland
 
7

 
6th
 
158
South Carolina
 
6

 
3rd
 
102
Texas
 
4

 
14th
 
117
Kentucky
 
4

 
4th
 
99
West Virginia
 
4

 
1st
 
68
Alabama
 
3

 
6th
 
77
Tennessee
 
2

 
8th
 
46
New Jersey
 
1

 
16th
 
30
Washington, D.C.
 
1

 
9th
 
12
(1)
Excludes home office deposits.
(2)
Source: S&P Global Market Intelligence-data as of December 28, 2017.
(3)
As of December 31, 2017. Excludes three branches in Ohio and two in Indiana.


5


BB&T operates in markets that have a diverse employment base covering numerous industries. Management strongly believes that BB&T’s community bank approach to providing client service is a competitive advantage that strengthens the Company’s ability to effectively provide financial products and services to businesses and individuals in its markets. Furthermore, BB&T believes its current market area will support growth in assets and deposits in the future.

Competition

The financial services industry is highly competitive and constantly evolving. BB&T’s subsidiaries compete actively with national, regional and local financial services providers, including banks, thrifts, securities dealers, mortgage bankers, finance companies and insurance companies. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and BHCs. Consumers have the opportunity to select from a variety of traditional and nontraditional alternatives. The industry frequently sees merger activity, which affects competition by eliminating some regional and local institutions, while strengthening the franchises of acquirers. For additional information concerning markets, BB&T’s competitive position and business strategies and recent government interventions, see "Market Area" above and "General Business Development" below.

General Business Development

BB&T is a regional FHC and has maintained a long-term focus on a strategy that includes expansion of asset size and diversification in terms of revenues and sources of profitability. This strategy encompasses both organic growth and acquisitions of complementary banks and financial businesses.

Merger and Acquisition Strategy

BB&T’s growth in business, profitability and market share has historically been enhanced by strategic mergers and acquisitions. BB&T is not currently pursuing significant mergers or acquisitions, but will assess future opportunities, primarily within or contiguous to BB&T’s existing footprint, based on market conditions and may pursue economically advantageous acquisitions of insurance agencies, specialized lending businesses and fee income generating financial services businesses. BB&T’s acquisition strategy will focus on meeting the following criteria:

the organization must be a good fit with BB&T’s culture;

the acquisition must be strategically attractive;

any risks must be identified and mitigation plans put in place to ensure any risks fall within BB&T’s risk appetite; and

the transaction must meet BB&T’s financial criteria.

Regulatory actions, such as the orders more fully discussed in the "BSA/AML and Suspicious Activity" section below, can limit BB&T’s and Branch Bank’s ability to pursue mergers and acquisitions for a period of time and require new or additional regulatory approvals before engaging in certain other business activities.

During 2016, BB&T acquired National Penn and Swett & Crawford. During 2015, BB&T completed the purchases of Susquehanna Bancshares, Inc. and The Bank of Kentucky Financial Corporation. BB&T also acquired 41 retail branches in Texas from Citigroup.

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 directly or indirectly affect the operations and management of BB&T and its ability to make distributions to shareholders.

The current administration and members of Congress have publicly disclosed proposals to change certain laws and regulations. Proposals to change the laws and regulations are frequently introduced at both the federal and state levels. The likelihood and timing of any such changes and the impact such changes may have on BB&T is impossible to determine with any certainty. 

The description below summarizes the significant state and federal laws to which BB&T currently is subject. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions summarized. The descriptions below do not summarize all possible or proposed changes in current laws or regulations.


6


Financial Regulatory Oversight

U.S. financial services firms, including BB&T, are subject to significant regulatory oversight. The Dodd-Frank Act is extensive, complex and comprehensive legislation that impacts practically all aspects of a banking organization. The Dodd-Frank Act has led to numerous and far-reaching changes that affect financial institutions.

Certain provisions of the Dodd-Frank Act and other laws are subject to further rulemaking, guidance and interpretation by the applicable federal regulators. BB&T will continue to evaluate the impact of any new regulations so promulgated, including changes in regulatory costs and fees, modifications to consumer products or disclosures required by the CFPB and the requirements of the enhanced supervision provisions, among others.

As a BHC and a FHC under federal law, BB&T is subject to regulation under the BHCA and the examination and reporting requirements of the FRB. Branch Bank, a North Carolina state-chartered commercial bank, is subject to regulation, supervision and examination by the NCCOB, the FDIC and the CFPB.

In August 2017, the FRB proposed a new rating system that will apply to all BHCs with total consolidated assets of $50 billion or more. Under the new rating system, component ratings would be assigned for capital planning and positions, liquidity risk management and positions, and governance and controls; however, a standalone composite rating would not be assigned. To be considered “well managed" under the proposed rating system, a firm must be rated “Satisfactory” or “Satisfactory Watch” for each of its three component ratings. Initial ratings would be assigned during 2018 under the proposal.

State and federal law govern the activities in which Branch Bank engages, the investments it makes, and the aggregate amount of loans that may be granted to one borrower. Various consumer and compliance laws and regulations also affect its operations. Branch Bank is also affected by the actions of the FRB as it implements monetary policy.

In addition to federal and state banking laws and regulations, BB&T and certain of its subsidiaries and affiliates, including those that engage in securities underwriting, dealing, brokerage, investment advisory and insurance activities, are subject to other federal and state laws and regulations as well as supervision and examination by other federal and state regulatory agencies and other regulatory authorities, including the SEC, FINRA, and NYSE.

FHC Regulation

Under current federal law, as a BHC, BB&T has elected to become a FHC, which allows it to offer customers virtually any type of service that is financial in nature or incidental thereto, including banking and activities closely related thereto, securities underwriting, insurance and merchant banking. In order to maintain its status as a FHC, BB&T and all of its affiliated IDIs must be well-capitalized and well-managed and have at least a satisfactory CRA rating. The FRB has responsibility for overseeing compliance with these requirements. If the FRB determines that a FHC is not well-capitalized or well-managed, the FHC has a period of time to comply, but during the period of noncompliance, the FRB can place any limitations on the FHC that it believes to be appropriate. Furthermore, if the FRB determines that a FHC has not maintained a satisfactory CRA rating, the FHC would not be able to commence any new financial activities or acquire a company that engages in such activities, although the FHC would still be allowed to engage in activities closely related to banking and make investments in the ordinary course of conducting banking activities.

Most of the financial activities that are permissible for FHCs also are permissible for a bank’s "financial subsidiary," except for insurance underwriting, insurance company portfolio investments, real estate investments and development, and merchant banking, which must be conducted by a FHC. In order for a financial subsidiary of a bank to engage in permissible financial activities, federal law requires the parent bank (and its sister-bank affiliates) to be well-capitalized and well-managed; the aggregate consolidated assets of all of that bank’s financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements.

Current federal law also establishes a system of functional regulation under which the FRB is the umbrella regulator for BHCs, but BHC affiliates are principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the SEC for securities affiliates and state insurance regulators for insurance affiliates. Certain specific activities, including traditional bank trust and fiduciary activities, may be conducted in the bank without the bank being deemed a "broker" or a "dealer" in securities for purposes of functional regulation. Although states generally must regulate bank insurance activities in a nondiscriminatory manner, states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain identifiable areas.


7


Resolution Planning

FRB and FDIC regulations require "covered companies" such as BB&T and systemically important financial institutions such as Branch Bank to file, maintain and update plans for a rapid and orderly resolution in the event of material financial distress or failure (a "living will"). Both the FRB and the FDIC must review and evaluate BB&T’s and Branch Bank’s living wills and are authorized to impose restrictions on growth and activities or operations if deemed necessary. The public portions of the resolution plans are available in the Additional Disclosures section of the Investor Relations site at bbt.investorroom.com/additional-disclosures.

CCAR and Stress Test Requirements

FRB rules require BB&T to submit annual capital plans based on pre-defined stress scenarios. BB&T is also required to collect and report certain related data on a monthly and quarterly basis to allow the FRB to monitor progress against the annual capital plan. BB&T may pay dividends and repurchase stock only in accordance with a capital plan that has been reviewed by the FRB and that has not received any objections from the FRB. A capital distribution can only occur if, after giving effect to the distribution, all minimum regulatory capital ratios will be maintained, including a post-stress Basel III CET1 ratio of at least 4.5%. See Table 32 for additional information about Basel III requirements. The FRB did not object to BB&T’s 2017 capital plan.

The FRB conducts an annual supervisory stress test and requires that BB&T conduct a separate mid-cycle stress test, file the results of such test with the FRB and publicly disclose details of the scenario and the impact on its capital. The FDIC requires Branch Bank to conduct annual company-run stress tests. BB&T’s annual and mid-cycle stress test results are available on its website at bbt.investorroom.com/additional-disclosures.

The start date of the annual stress test cycle is January 1 of the following calendar year. The capital plan period starts July 1 of the following calendar year. A BHC can only make capital distributions as provided for in its capital plan.

FRB rules limit the amount of capital that can be distributed by CCAR banks to shareholders outside of an approved capital plan without seeking prior approval from the FRB. Additionally, the FRB rules contain a blackout period in the second quarter of each year during which a firm cannot change its capital distribution plan. BB&T is not subject to the qualitative assessment of CCAR for BHCs as BB&T's total consolidated assets are between $50 billion and $250 billion. BB&T has maintained and intends to maintain the processes and infrastructure to facilitate future compliance.

Acquisitions

BB&T complies with numerous laws related to its acquisition activity. Under the BHCA, a BHC may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any BHC or bank or merge or consolidate with another BHC without the prior approval of the FRB.

Current federal law authorizes interstate acquisitions of banks and BHCs without geographic limitation, and a bank headquartered in one state is authorized to merge with a bank headquartered in another state, subject to market share limitations, regulatory approvals and any state requirement that the target bank shall have been in existence and operating for a minimum period of time. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. These regulatory considerations are applicable to privately negotiated acquisition transactions.

FRB rules prohibit a financial company from combining with another company if the ratio of the resulting company's liabilities exceeds 10% of the aggregate consolidated liabilities of all financial companies.

Other Safety and Soundness Regulations

The FRB has enforcement powers over BHCs and their nonbanking subsidiaries. The FRB has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through the issuance of cease and desist orders, civil money penalties or other actions.


8


There also are a number of obligations and restrictions imposed on BHCs and their IDI subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to depositors and the FDIC insurance fund in the event the IDI is insolvent or is in danger of becoming insolvent. For example, the FRB requires a BHC to serve as a source of financial strength to its subsidiary IDIs and to commit financial resources to support such institutions in circumstances where it might not do so otherwise. In addition, the "cross-guarantee" provisions of federal law require IDIs under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the DIF as a result of the insolvency or potential failure of commonly controlled IDIs. The FDIC’s claim for reimbursement under the cross-guarantee provisions is superior to claims of shareholders of the IDI or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt.

Banking regulators also have broad enforcement powers over Branch Bank, including the power to impose fines and other civil and criminal penalties, and to appoint a receiver in order to conserve the assets of Branch Bank for the benefit of depositors and other creditors. The NCCOB also has the authority to take possession of a North Carolina state bank in certain circumstances, including, among other things, when it appears that such bank has violated its charter or any applicable laws, is conducting its business in an unauthorized or unsafe manner, is in an unsafe or unsound condition to transact its business or has an impairment of its capital stock.

Payment of Dividends; Capital Requirements

The Parent Company is a legal entity separate and distinct from its subsidiaries. The majority of the Parent Company’s revenue is from dividends paid by Branch Bank, which are limited by laws and regulations. In addition, BB&T and Branch Bank are subject to various regulatory restrictions relating to the payment of dividends, including regulatory capital minimums and the requirement to remain "well-capitalized" under the prompt corrective action regulations summarized elsewhere in this section. Banking regulators have indicated that dividends should generally only be paid if (1) net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. BB&T’s future capital actions will depend on the FRB’s review of BB&T’s annual capital plans.

North Carolina law states that, provided a bank does not make distributions that reduce its capital below its applicable required capital, the board of directors of a bank chartered under the laws of North Carolina may declare such distributions as the directors deem proper.

The federal banking agencies are required to take "prompt corrective action" in respect of financial institutions that do not meet minimum capital requirements. The law establishes five categories for this purpose: "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." To be considered "well-capitalized," an IDI must maintain minimum capital ratios and must not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. Additionally, failure to meet capital requirements may cause an institution to be directed to raise additional capital. Federal law further mandates that the agencies adopt safety and soundness standards generally relating to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.

In addition, failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.

In October 2017, the federal banking agencies proposed revisions that would simplify compliance with certain aspects of capital rules. A majority of the proposed simplifications would apply solely to banking organizations that are not subject to the advanced approaches capital rule. The proposed rules simplify application of regulatory capital treatment for mortgage servicing assets, certain deferred tax assets arising from temporary differences, investments in the capital of unconsolidated financial institutions, and capital issued by a consolidated subsidiary of a banking organization and held by third parties (minority interest), and; revisions to the treatment of certain acquisition, development, or construction exposures. In addition, the federal banking agencies have deferred the final phase-in and increased risk-weighting associated with CET1 deductions indefinitely for non-advanced approaches banks.

Basel III

The U.S. capital requirements follow the accord of the BCBS. The Company currently qualifies as a standardized approach banking organization under the FRB's Basel III capital framework rules. The rules stipulate the risk-based capital requirements applicable to BHCs and IDIs define the components of capital and address other areas affecting banking institutions' regulatory capital ratios. The rules also address risk weights and other items affecting the denominator in banking institutions' regulatory capital ratios, and the rules use a more risk-sensitive approach than the pre-Basel III rules.


9


Institutions with greater than $250 billion in assets or $10 billion in foreign assets are considered advanced approaches banking organizations, which results in a more complex calculation of risk-weighted assets that includes an assessment of the impact of operational risk, among other differences. In addition, advanced approaches institutions have additional reporting requirements and must calculate capital under both the standardized approach and the advanced approaches and use the more conservative result. BB&T would become subject to these requirements upon exceeding either of the asset thresholds.

The Basel III rules, among other things, (1) include a capital measure referred to as CET1; (2) specify that Tier 1 capital consists of Tier 1 common equity and additional Tier 1 capital instruments meeting specified requirements; (3) define Tier 1 common equity narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to Tier 1 common equity and not to the other components of capital; and (4) expand the scope of the deductions/adjustments from capital as compared to prior regulations.

The Basel III rules prescribe a standardized approach for risk weightings that generally range from 0% for U.S. government securities to 600% for certain equity exposures, with a maximum risk weight classification of 1,250% for certain securitizations. This results in higher risk weights for a variety of asset categories. In addition, the rules provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

The Basel III rules also establish more conservative ratio levels for well-capitalized status. In addition to the minimum risk-based capital requirements, all banks must hold additional capital, referred to as the capital conservation buffer (which is in the form of common equity), to avoid being subject to limits on capital distributions and certain discretionary bonus payments to officers. The required amount of the capital conservation buffer is being phased-in annually over four years, through January 1, 2019. The capital conservation buffer requirements do not currently result in any limitations on distributions or discretionary bonuses for Branch Bank.

See the "Liquidity" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information about BB&T's liquidity requirements.

See the "Capital" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information about BB&T's capital requirements.

HMDA Regulations

The CFPB has issued final rules changing the reporting requirements for lenders under the HMDA. The new rules expand the range of transactions subject to these requirements to include most securitized residential mortgage loans and credit lines. The rules also increase the overall amount of data required to be collected and submitted, including additional data points about the applicable loans and expanded data about the borrowers. BB&T is required to begin collecting the expanded data on January 1, 2018.

Tax Cuts and Jobs Act

During 2017, the Tax Cuts and Jobs Act was signed into law. Among other changes, the Tax Cuts and Jobs Act significantly changes corporate income tax law by reducing the corporate income tax rate from 35% to 21%, creating a territorial tax system, allowing for immediate capital expensing of certain qualified property, and eliminating the deductibility of DIF assessments. The tax laws are generally effective for the 2018 tax year. However, BB&T recognized certain effects of changes in tax laws in 2017, which was when the new legislation was enacted. Refer to "Note 11. Income Taxes" for additional disclosures regarding the impact of the Tax Cuts and Jobs Act.

Volcker Rule

The Volcker Rule prohibits IDIs and their affiliates from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options for their own account. The rule provides certain exemptions and also clarifies that certain activities are not prohibited, including acting as agent, broker, or custodian. Banking entities were required to conform proprietary trading activities to the final rule by July 21, 2015.

The rule also imposes limits on certain relationships with hedge funds or private equity funds. The rule became effective on July 21, 2017 for purposes of conforming investments in and relationships with certain funds that were in place prior to December 31, 2013. These requirements did not have a material impact on BB&T's consolidated financial position, results of operations or cash flows.


10


DIF Assessments

Branch Bank’s deposits are insured by the DIF of the FDIC up to the limits set forth under applicable law. The FDIC imposes a risk-based deposit premium assessment system that determines assessment rates for an IDI based on an assessment rate calculator, which is based on a number of elements to measure the risk each IDI poses to the DIF. The assessment rate is applied to total average assets less tangible equity, as defined under the Dodd-Frank Act. The assessment rate schedule can change from time to time at the discretion of the FDIC, subject to certain limits. Under the current system, premiums are assessed quarterly.

The FDIC adopted a final rule that imposes a surcharge of 4.5 cents per $100 of the assessment base, after making certain adjustments, for banks with total assets of at least $10 billion. The surcharge became effective July 1, 2016 and will last for a period currently estimated by the FDIC to be two years but ending no later than December 31, 2018. If the DIF has not reached the required level at that time, then the FDIC will impose a special assessment on institutions with assets greater than $10 billion. The net effect of the new surcharge increased BB&T's total annual assessment by $84 million for 2017.

Consumer Protection Laws and Regulations

In connection with its lending and leasing activities, Branch Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts.

CFPB

The CFPB has broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the laws referenced above, fair lending laws and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets, their service providers and certain non-depository entities such as debt collectors and consumer reporting agencies. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

The CFPB has concentrated much of its rulemaking efforts on a variety of mortgage-related topics required under the Dodd-Frank Act, including mortgage origination disclosures, minimum underwriting standards and ability to repay, high-cost mortgage lending, and servicing practices.

Patriot Act

The Patriot Act is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to cooperate in the prevention, detection and prosecution of international money laundering and the financing of terrorism. The Patriot Act contains anti-money laundering measures affecting IDIs, broker-dealers and certain other financial institutions. The Patriot Act includes the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which requires such financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism and grants the Secretary of the U.S. Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. The Patriot Act imposes substantial obligations on financial institutions to maintain appropriate policies, procedures and processes to detect, prevent and report money laundering, terrorist financing and other financial crimes. Failure to comply with these regulations may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on business. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and BHC acquisitions.


11


BSA/AML and Suspicious Activity

BB&T is subject to a number of anti-money laundering laws and regulations as a result of being a financial company headquartered in the United States. AML requirements are primarily derived from the Bank Secrecy Act, as amended by the USA Patriot Act. These laws and regulations are designed to prevent the financial system from being used by criminals to hide illicit proceeds and to impede terrorists’ ability to access and move funds used in support of terrorist activities. Among other things, BSA/AML laws and regulations require financial institutions to establish AML programs that meet certain standards, including, in some instances, expanded reporting, particularly in the area of suspicious transactions, and enhanced information gathering and recordkeeping requirements. Failure to comply with applicable laws and regulations or maintain adequate AML related controls can lead to significant monetary penalties and reputational damage.

BB&T has established and continues to maintain an AML program designed to ensure that, at a minimum, BB&T is in compliance with all applicable laws, rules and regulations related to AML and anti-terrorist financing initiatives. The AML program provides for a system of internal controls to ensure that appropriate due diligence and, when necessary, enhanced due diligence, including obtaining and maintaining appropriate documentation, is conducted at account opening and updated, as necessary, through the course of the client relationship. The AML program is also designed to ensure there are appropriate methods of monitoring transactions and account relationships to identify potentially suspicious activity and report suspicious activity to governmental authorities in accordance with applicable laws, rules and regulations. In addition, the AML program requires the training of appropriate personnel with regard to AML and anti-terrorist financing issues and provides for independent testing to ensure that the AML program is in compliance with all applicable laws and regulations. Non-compliance with BSA/AML laws or failure to maintain adequate policies and procedures can lead to significant monetary penalties and reputational damage, and federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a bank merger, BHC acquisitions or other expansionary activity.

During December 2016, Branch Bank entered into a consent order with the FDIC and the NCCOB and in January 2017, BB&T entered into a cease and desist order with the FRB and NCCOB. These orders call for corrective actions and enhancements to address certain internal control deficiencies within the BSA/AML Compliance Program. No criminal activity has been identified as the result of such deficiencies, and no financial penalty was levied. During 2017, BB&T made significant progress in addressing matters identified in the consent order, as well as the cease and desist order. BB&T continues to devote significant resources to its BSA/AML program.

By May 11, 2018, BB&T must comply with new provisions of the Bank Secrecy Act: “Customer Due Diligence Requirements for Financial Institutions.” These new requirements, among other things, will require BB&T to collect information on the beneficial ownership and controlling person of legal entity clients and then verify their identity.

The U.S. Treasury's OFAC rules prohibit U.S. persons from engaging in financial transactions with certain individuals, entities, or countries, identified as “Specially Designated Nationals,” such as terrorists and narcotics traffickers. These rules require the blocking of assets held by, and prohibit transfers of property to such individuals, entities or countries. Blocked assets, such as property or bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. BB&T maintains an OFAC program designed to ensure compliance with OFAC requirements. Failure to comply with such requirements could subject BB&T to serious legal and reputational consequences, including criminal penalties.

Privacy

Federal law contains extensive customer privacy protection provisions, including those provided under the Financial Services Modernization Act of 1999 (commonly known as the Gramm-Leach-Bliley Act). Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. The privacy provisions include an exception under which if a financial institution meets certain conditions, it is not required to provide annual privacy notices to customers. In August 2017, the CFPB finalized a rule implementing this provision, with an effective date of October 1, 2018.

An institution may not provide customers’ nonpublic personal financial information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information by fraudulent or deceptive means.


12


CRA

The CRA requires Branch Bank’s primary federal bank regulatory agency, the FDIC, to assess the bank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings: "Outstanding," "Satisfactory," "Needs to Improve" or "Substantial Noncompliance." This assessment is reviewed for any bank that applies to merge or consolidate with or acquire the assets or assume the liabilities of an IDI, or to open or relocate a branch office. The CRA record of each subsidiary bank of a FHC also is assessed by the FRB in connection with any acquisition or merger application.

Automated Overdraft Payment Regulation

There are federal consumer protection laws related to automated overdraft payment programs offered by financial institutions. The FRB prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service. Financial institutions must also provide consumers with a notice that explains the financial institution’s overdraft services, including the associated fees and the consumer’s choices. In addition, FDIC-supervised institutions must monitor overdraft payment programs for "excessive or chronic" customer use and undertake "meaningful and effective" follow-up action with customers that overdraw their accounts more than six times during a rolling 12-month period. Financial institutions must also impose daily limits on overdraft charges, review and modify check-clearing procedures, prominently distinguish account balances from available overdraft coverage amounts and ensure board and management oversight regarding overdraft payment programs.

Pay Ratio Disclosure
 
The SEC has adopted amendments to require the disclosure of: (1) the median compensation amount of the annual total compensation of all employees of a registrant (excluding the CEO), (2) the annual total compensation of that registrant's CEO and (3) the ratio of the median of the annual total compensation of all employees (excluding the CEO) to the annual total compensation of the CEO. This information for the year ended December 31, 2017 will be included in the Company's Proxy Statement for the 2018 Meeting of Shareholders.

DOL Fiduciary Rule

During April 2016, the DOL issued a final rule related to fiduciary standards in regards to the investing of clients' retirement assets. The final rule expands the definition of a fiduciary under the Employee Retirement Income Security Act of 1974. Those who provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the DOL. Under new exemptions adopted with the rule, financial institutions will be obligated to acknowledge their status and the status of their individual advisers as "fiduciaries." Firms and advisers will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments. Additionally, the new rule requires certain disclosures to be made to the investor, and ongoing compliance must be monitored and documented.

During 2017, the DOL issued extensions on implementation of certain aspects of the final rule to allow additional time to evaluate the impacts of the rule and extend the phase in period. Thus, the requirements under the rule are being phased in through July 1, 2019. The impact on BB&T of the implementation of such requirements for 2017 was not significant.
 
FDIC Recordkeeping Requirements

The FDIC has released a final rule to facilitate prompt payment of FDIC-insured deposits when large IDIs fail. The rule requires IDIs with two million or more deposit accounts to maintain complete and accurate data on each depositor's ownership interest by right and capacity and to develop the capability to calculate the insured and uninsured amounts for each deposit owner by ownership right and capacity. Compliance with the rule is required by April 1, 2020. This rule is expected to result in additional costs to BB&T; however, the amount has not been quantified.

Cybersecurity
 
The CISA is intended to improve cybersecurity in the U.S. by enhanced sharing of information about security threats among the U.S. government and private sector entities, including financial institutions. The CISA also authorizes companies to monitor their own systems notwithstanding any other provision of law, and allows companies to carry out defensive measures on their own systems from cyber attacks. The law includes liability protections for companies that share cyber threat information with third parties so long as such sharing activity is conducted in accordance with CISA.
 

13


Incentive-Based Compensation Arrangements

During May 2016, several financial regulators jointly issued a proposed rule designed to prohibit incentive-based compensation arrangements that could encourage inappropriate risks by providing excessive compensation or that could lead to a material financial loss. The proposed rule would require the applicable compensation arrangements to be considered against a number of factors, including a requirement that the arrangements contain both financial and non-financial measures of performance. In addition, the requirements would differ based on the size of the institution, and institutions with assets exceeding $50 billion would be subject to mandatory deferral, forfeiture/adjustment and clawback requirements for employees subject to the rule.

Other Regulatory Matters
 
BB&T is subject to examinations by federal and state banking regulators, as well as the SEC, the FINRA, the NYSE, various taxing authorities and various state insurance and securities regulators. BB&T periodically receives requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning BB&T’s business and accounting practices. Such requests are considered incidental to the normal conduct of business.
 
Employees
 
For the quarter ended December 31, 2017, BB&T had 36,484 full-time equivalent employees, compared to 37,481 full-time equivalent employees for the quarter ended December 31, 2016.

Website Access to BB&T’s Filings with the SEC
 
BB&T’s electronic filings with the SEC, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act, as amended, are made available at no cost in the Investor Relations section of the Company’s website, BBT.com, as soon as reasonably practicable after BB&T files such material with, or furnishes it to, the SEC. BB&T’s SEC filings are also available through the SEC’s website at sec.gov.

Corporate Governance

Information with respect to BB&T’s Board of Directors, Executive Officers and corporate governance policies and principles is presented on BB&T’s website, BBT.com.


14


Executive Officers
Executive Officer
 
Recent Work Experience
 
Yrs of Service
 
Age
Kelly S. King
 
Chairman since January 2010. Chief Executive Officer since January 2009.
 
45
 
69
Chairman and Chief Executive Officer
 
 
 
 
Christopher L. Henson
 
President since December 2016. Chief Operating Officer since January 2009.
 
33
 
56
President and Chief Operating Officer
 
 
 
 
Daryl N. Bible
 
Chief Financial Officer since January 2009.
 
10
 
56
Senior Executive Vice President and
 
 
 
 
 
Chief Financial Officer
 
 
 
 
 
Clarke R. Starnes III
 
Chief Risk Officer since July 2009.
 
35
 
58
Senior Executive Vice President and
 
 
 
 
 
Chief Risk Officer
 
 
 
 
 
W. Bennett Bradley
 
Chief Digital Officer since January 2016. President, Payment Solutions from September 2005 to December 2015.
 
32
 
56
Senior Executive Vice President and
 
 
 
 
 
Chief Digital Officer
 
 
 
 
 
Barbara F. Duck
 
Chief Information Officer since July 2016. Data and Technology Services Manager from January 2016 to June 2016. Enterprise Risk Manager from July 2009 to December 2015.
 
30
 
51
Senior Executive Vice President and
 
 
 
 
Chief Information Officer
 
 
 
 
Jim. D. Godwin
 
Chief Credit Officer since January 2018. Deputy Chief Risk Officer from January 2016 to December 2017. Chief Operational Risk Officer from September 2012 to December 2015. Credit Risk Review Manager from May 2009 to September 2012.
 
22
 
49
Senior Executive Vice President and
 
 
 
 
 
Chief Credit Officer
 
 
 
 
 
Donna C. Goodrich
 
Deposit, Operations and Fraud Manager since November 2017. Deposit, Payment and Operations Services Manager from January 2016 to October 2017. Deposit Services Manager from April 2004 to December 2015.
 
32
 
55
Senior Executive Vice President and
 
 
 
 
Deposit, Operations and Fraud Manager
 
 
 
 
Robert J. Johnson, Jr.
 
General Counsel, Secretary and Chief Corporate Governance Officer since August 2010.
 
13
 
45
Senior Executive Vice President and
 
 
 
 
General Counsel, Secretary and
 
 
 
 
 
 
Chief Corporate Governance Officer
 
 
 
 
 
 
Brant J. Standridge
 
President, Retail Banking since January 2018. Lending Group Manager from August 2016 to December 2017. Regional President in Texas from January 2015 to August 2016. Regional President in Georgia from November 2011 to December 2014.
 
19
 
42
Senior Executive Vice President and
 
 
 
 
 
President, Retail Banking
 
 
 
 
 
David H. Weaver
 
President, Community Banking since December 2016. Community Banking Group Executive from 2010 to December 2016.
 
22
 
51
Senior Executive Vice President and
 
 
 
 
 
President, Community Banking
 
 
 
 
 
Dontá L. Wilson
 
Chief Client Experience Officer since August 2016. Regional President in Georgia from December 2014 to July 2016. Regional President in Alabama from August 2009 to November 2014.
 
19
 
41
Senior Executive Vice President and
 
 
 
 
 
Chief Client Experience Officer
 
 
 
 
 
W. Rufus Yates
 
President and CEO of BB&T Securities, LLC since January 2009. Financial Services Commercial Finance Manager since 2012.
 
31
 
60
Senior Executive Vice President and
 
 
 
 
President and CEO of BB&T Securities, LLC
 
 
 
 
and Financial Services Commercial Finance
 
 
 
 
Manager
 
 
 
 

15


ITEM 1A. RISK FACTORS
 
The following discussion sets forth some of the more important risk factors that could materially affect BB&T’s financial condition and operations. When a risk factor spans several risk categories, the below risks have been listed by their primary risk category. Other factors that could affect the Company’s financial condition and operations are discussed in the "Forward-Looking Statements" section above. However, there may be additional risks that are not presently material or known, and factors besides those discussed below, or elsewhere in this or other reports that BB&T filed or furnished with the SEC, that also could adversely affect the Company.
 
Compliance Risk
 
Changes in banking laws could have a material adverse effect on BB&T.
 
BB&T is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, the DIF and the banking system as a whole. In addition, BB&T is subject to changes in federal and state laws as well as changes in banking and credit regulations and governmental economic and monetary policies. Any of these changes could adversely and materially affect BB&T. The regulatory environment for financial institutions entails significant potential increases in compliance requirements and associated costs, including those related to consumer credit, with a focus on mortgage lending.
 
Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may result in higher capital requirements, higher deposit insurance premiums and limitations on BB&T’s activities that could have a material adverse effect on its business and profitability.

For example, as discussed in "Regulatory Considerations" above, the FDIC adopted a final rule that imposes a DIF assessment surcharge for banks with total assets of at least $10 billion. The surcharge became effective July 1, 2016 and will last for a period currently estimated by the FDIC to be two years but ending no later than December 31, 2018. If the DIF has not reached the required level at that time, then the FDIC will impose a special assessment on institutions with assets greater than $10 billion. The net effect of the new surcharge increased BB&T's total annual assessment by $84 million for 2017.

The Dodd-Frank Act, and its related rulemaking activities, may result in lower revenues, higher costs and ratings downgrades. In addition, failure to meet the FRB’s capital planning and adequacy requirements and liquidity requirements under the Dodd-Frank Act and other banking laws may limit the ability to pay dividends, pursue acquisitions and repurchase common stock.
 
The Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry, addressing, among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, derivatives, lending limits, and changes among the bank regulatory agencies. Under Dodd-Frank, BB&T is deemed to be a "systemically important" institution subject to certain enhanced prudential standards imposed by the FRB. Federal agencies continue to implement the provisions of the Dodd-Frank Act. Certain of these provisions remain subject to further rulemaking, guidance and interpretation by the applicable federal regulators. Additionally, the CFPB has finalized a number of significant rules that impact nearly every aspect of the lifecycle of a residential mortgage. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act. These rules have a direct impact on BB&T’s operations, as BB&T is both a mortgage originator and a servicer.
 
Due to BB&T’s size, it is subject to additional regulations such as the "living will" requirements relating to the rapid and orderly resolution of systemically important financial institutions in the event of material financial distress or failure. BB&T cannot predict the additional effects that compliance with the Dodd-Frank Act or any regulations will have on BB&T’s businesses or its ability to pursue future business opportunities. Additional regulations resulting from the Dodd-Frank Act may materially adversely affect BB&T’s business, financial condition or results of operations. See "Regulatory Considerations" for additional information regarding the Dodd-Frank Act and its impact upon BB&T.


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BB&T is subject to enhanced capital requirements and may be subject to more stringent capital requirements, which could diminish its ability to pay dividends or require BB&T to reduce its operations.
 
The Dodd-Frank Act requires federal banking agencies to establish more stringent risk-based capital requirements and leverage limits applicable to banks and BHCs. The FRB approved final rules that established a new comprehensive capital framework for U.S. banking organizations and established a more conservative definition of capital. These requirements, known as Basel III, became effective on January 1, 2015, and as a result, BB&T became subject to enhanced minimum capital and leverage ratios. These requirements, and any other new regulations, including those that have been proposed but not yet implemented as a result of the requirements established by the BCBS, could adversely affect BB&T’s ability to pay dividends or raise capital, or could require BB&T to limit certain business activities, which may adversely affect its results of operations or financial condition. BB&T currently qualifies as a standardized approach banking organization under Basel III. Financial institutions with greater than $250 billion in assets or $10 billion in foreign assets are considered advanced approaches banking organizations, which are subject to a more complex calculation of RWA that includes an assessment of the impact of operational risk, among other requirements. BB&T is preparing to comply with the advanced approaches requirements, and these more stringent requirements, or BB&T’s failure to properly comply with them, could materially and adversely impact BB&T’s financial results and regulatory status once the requirements become applicable to BB&T. In addition, the costs associated with complying with more stringent capital requirements, such as the requirement to formulate and submit capital plans based on pre-defined stress scenarios on an annual basis, could have a material adverse effect on BB&T. See "Regulatory Considerations" for additional information regarding the capital requirements under the Dodd-Frank Act and Basel III.
 
For example, BB&T is subject to assessment by the FRB as part of the CCAR program. CCAR is an annual exercise by the FRB to ensure that institutions have forward-looking capital planning processes that account for their risks and sufficient capital to continue operations throughout times of economic and financial stress. BB&T cannot be certain that the FRB will have no objections to BB&T’s future capital plans submitted through the CCAR program. Failure to pass the CCAR review could adversely affect BB&T’s ability to pay dividends, enter into acquisitions and repurchase common stock.

BB&T is subject to extensive and expanding government regulation and supervision, which can lead to costly enforcement actions while increasing the cost of doing business and limiting BB&T’s ability to generate revenue.
 
The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of regulations on both the federal and state levels, particularly with respect to mortgage-related practices and other consumer compliance matters, as well as compliance with anti-money laundering, Bank Secrecy Act and Office of Foreign Assets Control efforts, and economic sanctions against certain foreign countries and nationals. Federal banking law grants substantial enforcement powers to federal banking regulators. This enforcement authority includes, among other things, the ability to assess significant civil or criminal monetary penalties, fines, or restitution; to issue cease and desist or removal orders; and to initiate injunctive actions against banking organizations and institution-affiliated parties. These enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage or restrictions on business.

In addition, federal bank regulatory agencies are required to consider the effectiveness of a financial institution’s anti-money laundering activities and other regulatory compliance matters when reviewing bank mergers and BHC acquisitions and, consequently, non-compliance with the applicable regulations could materially impair BB&T’s ability to enter into or complete mergers and acquisitions.

For example, as discussed in "Regulatory Considerations" above, Branch Bank entered into a consent order with the FDIC and the NCCOB in December 2016 and BB&T entered into a cease and desist order with the FRB and NCCOB in January 2017. The orders call for corrective actions and enhancements to address certain internal control deficiencies within the BSA/AML Compliance Program. BB&T’s and Branch Bank’s ability to pursue mergers and acquisitions may be limited for a period of time.
 
In addition, during 2014, BB&T received notice from the HUD-OIG that BB&T had been selected for an audit/survey to assess BB&T's compliance with FHA loan origination and quality control requirements. BB&T subsequently received subpoenas from the HUD-OIG and the Department of Justice seeking additional information regarding its lending practices in connection with loans insured by the FHA. During 2014, BB&T recognized an $85 million charge that was included in other expense on the Consolidated Statements of Income. During 2016, the Company paid $83 million to settle these matters pursuant to an agreement with the Department of Justice.
 

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Issuance of new tax guidance or differences in interpretation of tax laws and regulations may adversely impact BB&T’s financial statements.
 
Local, state or federal tax authorities may interpret tax laws, including the recently issued Tax Cuts and Jobs Act, and regulations differently than BB&T and challenge tax positions that BB&T has taken on its tax returns. This may result in differences in the treatment of revenues, deductions or credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have a material adverse effect on financial results. Potential litigation related to BB&T could adversely affect BB&T’s financial position or results of operations.
 
Credit Risk
 
Changes in national, regional and local economic conditions and deterioration in the geographic and financial markets in which BB&T operates could lead to higher loan charge-offs and reduce net income and growth.
 
BB&T’s business is subject to fluctuations based on national, regional and local economic conditions, as well as conditions that may be specific to particular sectors or industries. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on BB&T’s operations and financial condition even if other favorable events occur. BB&T’s banking operations are primarily locally oriented and community-based. Accordingly, BB&T expects to continue to be dependent upon local business conditions as well as conditions in the local residential and CRE markets it serves. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities BB&T serves. Weakness in BB&T’s market area could depress its earnings and consequently its financial condition because:
 
customers may not want or need BB&T’s products or services;
borrowers may not be able or willing to repay their loans;
the value of the collateral securing loans to borrowers may decline; and
the quality of BB&T’s loan portfolio may decline.

Any of the latter three scenarios could require BB&T to charge off a higher percentage of loans and/or increase provisions for credit losses, which would reduce net income. These factors could result in higher delinquencies and greater charge-offs in future periods, which could adversely affect our business, financial condition or results of operations.
 
A systemic lack of available credit, a lack of confidence in the financial sector, volatility in the financial markets and/or reduced business activity could materially adversely affect BB&T’s business, financial condition and results of operations.
 
Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on BB&T’s operations, earnings and financial condition.
 
A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived creditworthiness of U.S. government-related obligations could impact BB&T’s ability to obtain funding that is collateralized by affected instruments, as well as affect the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. BB&T cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these obligations will affect economic conditions. Such ratings actions could result in a significant adverse impact on BB&T. For example, BB&T’s securities portfolio consists largely of MBS issued by GSEs, such as FHLMC and FNMA. Among other things, a downgrade in the U.S. government’s credit rating could adversely impact the value of these securities and may trigger requirements that the Company post additional collateral for trades relative to these securities. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instruments would significantly exacerbate the other risks to which BB&T is subject and any related adverse effects on its business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect BB&T.
 
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. BB&T has exposure to many different industries and counterparties, and BB&T and certain of its subsidiaries routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutions. Many of these transactions expose BB&T to credit risk in the event of default of its counterparty. In addition, BB&T’s credit risk may be exacerbated when collateral is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure. These types of losses could materially adversely affect BB&T’s results of operations or financial condition.


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BB&T could be affected by the United Kingdom’s eventual withdrawal from the European Union.

In June 2016, the United Kingdom held a non-binding referendum in which a majority of voters voted in favor of the United Kingdom’s exit from the European Union (commonly referred to as “Brexit”). On March 29, 2017, the United Kingdom formally notified the European Union of its intention to withdraw pursuant to the Treaty on European Union. The withdrawal of the United Kingdom from the European Union will take effect either when agreed upon or, in the absence of such an agreement, two years after the United Kingdom provided its notice of withdrawal. It appears likely that this withdrawal will involve a process of lengthy negotiations between the United Kingdom and the European Union member states to determine the terms of the withdrawal as well as the United Kingdom’s relationship with the European Union going forward. The ultimate impact of Brexit and its effects on BB&T still remain uncertain and will depend on the terms of withdrawal and the post-Brexit relationships that the United Kingdom will negotiate with the European Union and other nations that are not a part of the European Union. Increased market volatility and further global economic deterioration resulting from Brexit, or concern about Brexit, could have significant adverse effects on BB&T's businesses, results of operations, financial condition, liquidity and capital. In addition, specific impacts from Brexit could include requirements that BB&T make certain changes to its operational model, business practices and regulatory authorizations in order to continue servicing customers across Europe; detrimental impacts on revenues and expenses; increased difficulties related to recruitment, retention, and mobility of certain European-based associates; and other adverse impacts on business operations. 

Liquidity Risk
 
BB&T’s liquidity could be impaired by an inability to access the capital markets, an unforeseen outflow of cash or a reduction in the credit ratings for BB&T or its subsidiaries.
 
Liquidity is essential to BB&T’s businesses. When volatility or disruptions occur in the capital markets, BB&T’s ability to access capital could be materially impaired. Additionally, other factors outside of BB&T’s control, such as a general market disruption or an operational problem that affects third parties, could impair BB&T’s ability to access capital markets or create an unforeseen outflow of cash or deposits. BB&T’s inability to access the capital markets could constrain its ability to make new loans or meet its existing lending commitments and could ultimately jeopardize its overall liquidity and capitalization.
 
BB&T’s credit ratings are also important to its liquidity. Rating agencies regularly evaluate BB&T and its subsidiaries, and their ratings are based on a number of factors, including the financial strength of BB&T and its subsidiaries, as well as factors not entirely within BB&T’s control, including conditions affecting the financial services industry generally. As a result, there can be no assurance that BB&T will maintain its current ratings. A reduction in BB&T’s credit ratings could adversely affect BB&T’s liquidity and competitive position, increase its borrowing costs, limit its access to the capital markets or trigger unfavorable contractual obligations.
 
Market Risk
 
Instability in economic conditions and geopolitical matters as well as volatility in financial markets could have a material adverse effect on BB&T’s operations, earnings and financial condition.
 
The macroeconomic environment in the United States is susceptible to global events and volatility. The negative impact on economic conditions and global markets from foreign sovereign debt matters and other matters could adversely affect BB&T’s business, financial condition and liquidity. Domestic and global political activity, geopolitical matters, including international political unrest or disturbances, concerns over energy prices and economic instability or recession in certain regions could cause turmoil and volatility in the financial markets, which could reduce the value of BB&T’s assets or cause a reduction in liquidity that adversely impacts BB&T’s financial condition and results of operations.
 
The monetary, tax and other policies of governmental agencies, including the FRB, have a significant impact on market interest rates, and BB&T’s business and financial performance is impacted significantly by such interest rates.
 
BB&T’s businesses and earnings are affected by the fiscal and other policies adopted by various regulatory authorities of the U.S., non-U.S. governments and international agencies. The FRB regulates the supply of money and credit in the U.S. The federal policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments. The market impact from such policies can also materially decrease the value of certain of BB&T’s financial assets, most notably debt securities. Changes in the federal policies are beyond BB&T’s control and, consequently, the impact of these changes on BB&T’s activities and results of operations is difficult to predict.
 

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Changes in interest rates may have an adverse effect on BB&T’s profitability.
 
BB&T’s earnings and financial condition are largely dependent on net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect BB&T’s earnings and financial condition. BB&T cannot control or predict with certainty changes in interest rates. Regional and local economic conditions, competitive pressures and the policies of regulatory authorities, including monetary policies of the FRB, affect interest income and interest expense. As discussed in "Market Risk Management – Interest Rate Market Risk (Other than Trading)," BB&T has ongoing policies and procedures designed to manage the risks associated with changes in market interest rates. However, changes in interest rates still may have an adverse effect on BB&T’s profitability. For example, rising interest rates could adversely affect BB&T’s mortgage banking business because higher interest rates could cause customers to apply for fewer mortgages. Similarly, rising interest rates would increase the required periodic payment for variable rate loans and may result in borrowers becoming unable to pay. Additionally, rising interest rates may increase the cost of BB&T’s deposits, which are a primary source of funding. BB&T is also subject to the risk of a negative interest rate scenario, which implies that a depositor would pay a premium for a financial institution to hold funds on deposit. In such a scenario, some depositors may choose to withdraw their deposits in lieu of paying an interest rate to BB&T to hold such deposits. Negative rates would also diminish the spreads on loans and securities. This scenario could have a material adverse effect on BB&T’s financial condition and results of operations.

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021. In the U.S., efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the FRB and the Federal Reserve Bank of New York. At this time, it is not possible to predict the effect of the Financial Conduct Authority announcement or other regulatory changes or announcements, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom, the United States or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect BB&T’s financial condition and results of operations.

Loss of deposits or a change in deposit mix could increase the Company’s funding costs.
 
Deposits are a low cost and stable source of funding. BB&T competes with banks and other financial institutions for deposits. Funding costs may increase because the Company may lose deposits and replace them with more expensive sources of funding, clients may shift their deposits into higher cost products or the Company may need to raise its interest rates to avoid losing deposits. Higher funding costs reduce the Company’s NIM, net interest income and net income.
 
Operational Risk
 
BB&T faces cybersecurity risks that could result in the disruption of operations or the disclosure of confidential information, adversely affect BB&T’s business or reputation and create significant legal and financial exposure.
 
BB&T’s computer systems and network infrastructure are subject to security risks and could be susceptible to cyber attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions, including BB&T. As a result of these attacks, the performance of BB&T’s website, BBT.com, was adversely affected, and in some instances customers were prevented from accessing BB&T’s website. BB&T expects to be subject to similar attacks in the future. While events to date primarily resulted in inconvenience, future cyber attacks could be more disruptive and damaging. Hacking and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and BB&T may not be able to anticipate or prevent all such attacks. BB&T may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
 
Despite efforts to ensure the integrity of its systems, BB&T will not be able to anticipate all security breaches of these types, and BB&T may not be able to implement effective preventive measures against such security breaches. The techniques used by cyber criminals change frequently and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce associates, customers or other users of BB&T’s systems to disclose sensitive information in order to gain access to its data or that of its clients. These risks may increase in the future as the Company continues to increase its mobile-payment and other internet-based product offerings and expands its internal usage of web-based products and applications.
 

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A successful penetration or circumvention of system security could cause serious negative consequences to BB&T, including disruption of operations, misappropriation of confidential information of BB&T or its customers, or damage to computer systems of BB&T or its customers and counterparties. A security breach could result in violations of applicable privacy and other laws, financial loss to BB&T or to its customers, loss of confidence in BB&T’s security measures, significant litigation exposure and harm to BB&T’s reputation, all of which could have a material adverse effect.
 
BB&T relies on its associates, systems and certain counterparties, and certain failures could materially adversely affect operations.
 
BB&T’s business is dependent on the ability to process, record and monitor a large number of complex transactions. The Company could be materially adversely affected if one or more of its associates causes a significant operational breakdown or failure, either as a result of human error or intentionally. Financial, accounting or other data processing systems may fail or have other significant shortcomings that materially adversely affect BB&T’s business. BB&T’s systems may not be able to handle certain scenarios, such as a negative interest rate environment. In addition, products, services and processes are continually changing and BB&T may not fully identify new operational risks that may arise from such changes. Any of these occurrences could diminish the ability to operate one or more BUs or result in potential liability to clients, increased operating expenses, higher litigation costs (including fines and sanctions), reputational damage, regulatory intervention or weaker competitive standing, any of which could be material to the Company.
 
If personal, confidential or proprietary information of clients were to be mishandled or misused, significant regulatory consequences, reputational damage and financial loss could occur. Such mishandling or misuse could include circumstances where, for example, such information was erroneously provided to parties who are not permitted to have the information, either through the fault of systems, associates, or counterparties, or where such information was intercepted or otherwise inappropriately taken by third parties.

BB&T may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control, which may include, for example, security breaches; electrical or telecommunications outages; failures of computer servers or other damage to property or assets; natural disasters; health emergencies or pandemics; or events arising from political events, including terrorist acts. There can be no assurance that disaster recovery or other plans will fully mitigate all potential business continuity risks. Any failures or disruptions of systems or operations could impact BB&T’s ability to service its clients, which could adversely affect BB&T’s results of operations by subjecting BB&T to losses, litigation, regulatory fines or penalties or by requiring the expenditure of significant resources to correct the failure or disruption.
 
Significant litigation and regulatory proceedings could have a material adverse effect on BB&T.
 
BB&T faces significant litigation and regulatory proceedings in its business. The volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remains high. Given the inherent uncertainties involved in litigation and regulatory proceedings, and the very large or indeterminate damages sought in some matters asserted against BB&T, there can be significant uncertainty as to the ultimate liability BB&T may incur from such matters. The finding, or even the assertion, of substantial legal liability or significant regulatory action against BB&T may have material adverse financial effects or cause significant reputational harm to BB&T, which in turn could seriously harm BB&T’s business prospects.
 
BB&T faces significant operational and other risks related to its activities, which could expose it to negative publicity, litigation and/or regulatory action.
 
BB&T is exposed to many types of operational risks, legal and compliance risk, internal or external fraud (including identity and information theft), transaction processing errors due to clerical or record-keeping mistakes or those resulting from faulty or disabled computer or telecommunications systems. Negative public opinion can result from BB&T’s actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, activities related to asset sales and balance sheet management and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect BB&T’s ability to attract and keep customers and can expose it to litigation and regulatory action.
 
Because the nature of the financial services industry involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. BB&T’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical flaws or associate tampering or manipulation of those systems will result in losses that are difficult to detect. BB&T also may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. BB&T is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as is BB&T) and to the risk that BB&T’s (or its vendors’) business continuity and data security systems prove to be inadequate.
 

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BB&T relies on other companies to provide certain key components of its business infrastructure.
 
Third party vendors provide certain key components of BB&T’s business infrastructure such as internet connections, network access and certain transaction processing. While BB&T has selected these third party vendors carefully, it does not control their operations. Any failure by these third parties to perform or provide agreed upon goods and services for any reason, or their poor performance of services, could adversely affect BB&T’s ability to deliver products and services to its customers and otherwise conduct its business. Replacing these third party vendors could also entail significant delay and expense.
 
BB&T may not be able to successfully integrate mergers and acquisitions.
 
Difficulties may arise in the integration of the business and operations of BHCs, banks and non-bank entities that BB&T acquires and, as a result, BB&T may not be able to achieve the cost savings and synergies that it expects will result from such transactions. Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services. Additional operational savings are dependent upon the integration of the acquired or merged entity’s businesses with BB&T or one of BB&T’s subsidiaries, the conversion of core operating systems, data systems and products and the standardization of business practices. Complications or difficulties in the conversion of core operating systems, data systems and products may result in the loss of customers, damage to BB&T’s reputation within the financial services industry, operational problems, one-time costs currently not anticipated or reduced cost savings resulting from such mergers or acquisitions. Annual cost savings in each such transaction may be materially less than anticipated if the merger or acquisition is delayed unexpectedly, the integration of operations is delayed beyond what is anticipated or the conversion to a single set of data systems is not accomplished on a timely basis.

Difficulty in integrating an acquired company may prevent BB&T from realizing expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits from the acquisition. The integration could result in higher than expected deposit attrition, loss of key associates, disruption of BB&T’s businesses or the businesses of the acquired company, or otherwise adversely affect BB&T’s ability to maintain relationships with customers and associates or achieve the anticipated benefits of the acquisition. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected. As a result of these and other factors, BB&T could incur losses on acquired assets and increased expenses resulting from the failure to successfully integrate an acquired company, which could adversely impact its financial condition or results of operations.
 
BB&T may not be able to successfully implement future information technology system enhancements, which could adversely affect BB&T’s business operations and profitability.
 
BB&T invests significant resources in information technology system enhancements in order to provide functionality and security at an appropriate level. BB&T may not be able to successfully implement and integrate future system enhancements, which could adversely impact the ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines and suspension of trading in BB&T stock, among others. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.
 
Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact BB&T’s financial condition and results of operations and could result in significant costs to remediate or replace the defective components. In addition, BB&T may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.
 
There are risks resulting from the extensive use of models in BB&T’s business.

BB&T relies on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, assessing capital adequacy and calculating economic and regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items. Poorly designed or implemented models present the risk that BB&T’s business decisions based on information incorporating model output would be adversely affected due to the inadequacy of that information. Also, information BB&T provides to the public or to its regulators based on poorly designed or implemented models could be inaccurate or misleading. Some of the decisions that the regulators make, including those related to capital distributions to BB&T’s shareholders, could be affected adversely due to the perception that the quality of the models used to generate the relevant information is insufficient.


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BB&T’s risk management measures may not be fully effective.
 
Management of risk, including compliance, credit, liquidity, market, operational, reputation and strategic risks, requires policies and procedures to properly record and verify a large number of transactions and events. BB&T’s risk management measures may not be fully effective in identifying and mitigating its risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated, even if the models for assessing risk are properly designed and implemented. Some of BB&T’s methods of managing risk are based upon its use of observed historical market behavior and management's judgment. These methods may not accurately predict future exposures, which could be significantly greater than the historical measures indicate. In addition, credit risk is inherent in the financial services business. BB&T’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches it uses to select, manage and underwrite consumer and commercial customers become less predictive of future charge-offs.

BB&T's set of risk monitoring and risk mitigation techniques, and the judgments that accompany their application, cannot anticipate every economic and financial outcome or the timing of such outcomes. BB&T may, therefore, incur losses in the course of its risk management or investing activities.

Strategic and Other Risk
 
BB&T may experience significant competition from new or existing competitors, which may reduce its customer base or cause it to lower prices for its products and services in order to maintain market share.

There is intense competition among commercial banks in BB&T’s market area. In addition, BB&T competes with other providers of financial services, such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, commercial finance and leasing companies, the mutual funds industry, full-service brokerage firms and discount brokerage firms, some of which are subject to less extensive regulations than BB&T is with respect to the products and services they provide. BB&T’s success depends, in part, on its ability to adapt its products and services to evolving industry standards and customer expectations. There is increasing pressure to provide products and services at lower prices. Lower prices can reduce BB&T’s NIM and revenues from its fee-based products and services.
 
In addition, the adoption of new technologies by competitors, including internet banking services, mobile applications and advanced ATM functionality could require BB&T to make substantial expenditures to modify or adapt its existing products and services. These and other capital investments in BB&T’s business may not produce expected growth in earnings anticipated at the time of the expenditure. BB&T may not be successful in introducing new products and services, achieving market acceptance of its products and services, anticipating or reacting to consumers’ changing technological preferences or developing and maintaining loyal customers. In addition, BB&T could lose market share to the shadow banking system or other non-traditional banking organizations.
 
Any potential adverse reactions to BB&T’s financial condition or status in the marketplace, as compared to its competitors, could limit BB&T’s ability to attract and retain customers and to compete for new business opportunities. The inability to attract and retain customers or to effectively compete for new business may have a material and adverse effect on BB&T’s financial condition and results of operations.

BB&T also experiences competition from nonbank companies inside and outside of its market area and, in some cases, from companies other than those traditionally considered financial sector participants. In particular, technology companies have begun to focus on the financial sector and offer software and products primarily over the Internet, with an increasing focus on mobile device delivery. These companies generally are not subject to the comparable regulatory burdens as financial institutions and may accordingly realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer. For example, a number of companies offer bill pay and funds transfer services that allow customers to avoid using a bank. Technology companies are generally positioned and structured to quickly adapt to technological advances and directly focus resources on implementing those advances. This competition could result in the loss of fee income and customer deposits and related income. In addition, changes in consumer spending and saving habits could adversely affect BB&T’s operations, and the Company may be unable to develop competitive and timely new products and services in response. As the pace of technology and change advance, continuous innovation is expected to exert long-term pressure on the financial services industry.

23


BB&T may not be able to complete future acquisitions.
 
BB&T must generally satisfy a number of meaningful conditions before it can complete an acquisition of another bank or BHC, including federal and/or state regulatory approvals. In determining whether to approve a proposed bank or BHC acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, financial condition and future prospects, including current and projected capital ratios and levels, the competence, experience and integrity of management and record of compliance with laws and regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance under the CRA, the effectiveness of the acquiring institution in combating money laundering activities and protests from various stakeholders of both BB&T and its acquisition partner. Also, under the Dodd-Frank Act, U.S. regulators must now take systemic risk into account when evaluating whether to approve a potential acquisition transaction involving a large financial institution like BB&T. BB&T cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. In specific cases, BB&T may be required to sell banks or branches, or take other actions as a condition to receiving regulatory approval. An inability to satisfy other conditions necessary to consummate an acquisition transaction, such as third-party litigation, a judicial order blocking the transaction or lack of shareholder approval, could also prevent BB&T from completing an announced acquisition.
 
Catastrophic weather-related events and other natural disasters could have a material adverse effect on BB&T.
 
The occurrence of events such as hurricanes, tropical storms, tornados, winter storms and other large scale catastrophes could adversely affect BB&T’s financial condition or results of operations. BB&T has operations and customers along the Gulf and Atlantic coasts as well as other parts of the southeastern United States. Such areas could be adversely impacted by such events in those regions, the nature and severity of which may be impacted by climate change and are difficult to predict. These and other unpredictable natural disasters could have an adverse effect on BB&T in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services offered by BB&T. These events could reduce BB&T’s earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on BB&T’s financial condition and/or results of operations.

ITEM 2. PROPERTIES
 
BB&T leases its headquarters at 200 West Second Street, Winston-Salem, North Carolina 27101 and owns or leases other significant office space in the vicinity of its headquarters. BB&T owns or leases free-standing operations centers, with its primary operations and information technology centers located in various locations in the Southeastern and Mid-Atlantic United States. Offices are either owned or operated under long-term leases. BB&T operates retail branches and other offices in a number of states, primarily concentrated in the Southeastern and Mid-Atlantic United States. See Table 1 for a list of BB&T’s branches by state. BB&T also operates numerous insurance agencies and other businesses that occupy facilities throughout the U.S. and Canada. Management believes that the premises are well-located and suitably equipped to serve as financial services facilities. See "Note 4. Premises and Equipment" for additional disclosures related to properties and other fixed assets.

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
BB&T’s common stock is traded on the NYSE under the symbol "BBT." The common stock was held by approximately 480,000 shareholders and 450,000 shareholders at December 31, 2017 and 2016, respectively. The following table sets forth the quarterly high, low and closing sales prices for BB&T’s common stock and the cash dividends declared per share of common stock for the last two years.
Table 2
Quarterly Summary of Market Prices and Cash Dividends Declared on Common Stock
 
 
 
 
 
 
 
2017
 
2016
 
 
Sales Prices
 
Cash Dividends Declared
 
Sales Prices
 
Cash Dividends Declared
 
 
High
 
Low
 
Close
 
 
High
 
Low
 
Close
 
Quarter Ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31
 
$
49.88

 
$
42.73

 
$
44.70

 
$
0.30

 
$
37.03

 
$
29.95

 
$
33.27

 
$
0.27

June 30
 
46.50

 
41.17

 
45.41

 
0.30

 
37.02

 
32.22

 
35.61

 
0.28

September 30
 
48.90

 
43.03

 
46.94

 
0.33

 
38.81

 
33.72

 
37.72

 
0.30

December 31
 
51.11

 
44.62

 
49.72

 
0.33

 
47.85

 
37.40

 
47.02

 
0.30

Year
 
51.11

 
41.17

 
49.72

 
$
1.26

 
47.85

 
29.95

 
47.02

 
$
1.15


The stock price reached an all-time high during the first quarter of 2018.


24


Common Stock, Dividends and Share Repurchases
 
BB&T’s ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets for distribution and is subject to the FRB not objecting to its capital plan. BB&T’s ability to generate liquid assets for distribution is dependent on the ability of Branch Bank to pay dividends to the Parent Company. The payment of cash dividends is an integral part of providing a competitive return on shareholders’ investments. The Company’s policy is to accomplish this while retaining sufficient capital to support future growth and to meet regulatory requirements. Management has established a guideline that the common dividend payout ratio (computed by dividing common stock dividends by net income available to common shareholders) will be between 30% and 50% during normal economic conditions. BB&T’s common dividend payout ratio was 45.3% in 2017 compared to 40.9% in 2016 and 40.8% in 2015. BB&T has paid a cash dividend to shareholders every year since 1903. BB&T expects common dividend declarations, if declared, to occur in January, April, July and October with payment dates on or about the first of March, June, September and December. A discussion of dividend restrictions is included in "Note 14. Regulatory Requirements and Other Restrictions" and in the "Regulatory Considerations" section.
 
Share Repurchases
 
BB&T has periodically repurchased shares of its own common stock. In accordance with North Carolina law, repurchased shares cannot be held as treasury stock, but revert to the status of authorized and unissued shares upon repurchase. Repurchases may be effected through open market purchases, privately negotiated transactions, trading plans established in accordance with Securities and Exchange Commission rules or other means. The timing and exact amount of repurchases will be consistent with the Company's capital plan and subject to various factors, including the Company's capital position, liquidity, financial performance, alternative uses of capital, stock trading price and general market conditions, and may be suspended at any time. Shares repurchased constitute authorized but unissued shares of the Company and are therefore available for future issuances. During 2017, the Company repurchased 35.5 million shares of common stock totaling $1.6 billion.

Management's guideline for the total payout ratio (computed by dividing the sum of common stock dividends declared and share repurchases, excluding shares repurchased in connection with equity awards, by net income available to common shareholders) is that it will range between 30% and 80% during normal economic conditions. BB&T may consider higher total distributions based on its capital position, earnings and prevailing economic conditions. The total payout ratio was 117.9%, 64.0% and 40.8% in 2017, 2016 and 2015, respectively.
Table 3
Share Repurchase Activity
 
 
 
 
 
 
 
 
 
(shares in thousands)
 
Total Shares Repurchased (1)
 
Average Price Paid Per Share
 
Total Shares Purchased Pursuant to Publicly-Announced Plan (2)
 
Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
October 2017
 
5,477

 
$
48.12

 
5,477

 
$
696

November 2017
 
2,296

 
47.53

 
2,296

 
640

December 2017
 

 

 

 
640

Total
 
7,773

 
47.95

 
7,773

 
 

(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 a one-year period ending June 30, 2018. In November 2017, the amount authorized was increased $53 million to $1.93 billion for the same one-year period.
 
Preferred Stock
 
See "Note 9. Shareholders' Equity" for information about preferred stock.
 

25


Equity Compensation Plan Information
 
The following table provides information concerning securities to be issued upon the exercise of outstanding equity-based awards as of December 31, 2017:
Table 4
Equity Compensation Plan Information
 
 
 
 
 
 
 
Plan Category
 
(a)(1)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
(b)(2)
Weighted-average exercise price of outstanding options, warrants and rights
 
(c)(3)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in (a))
Approved by security holders
 
18,474,088

 
$30.88
 
19,408,161

Not approved by security holders (4)
 

 
 

Total
 
18,474,088

 
30.88
 
19,408,161

(1)
Includes 12,521,571 RSUs and PSUs.
(2)
Excludes RSUs and PSUs because they do not have an exercise price.
(3)
All awards remaining available for future issuance will be issued under the terms of the 2012 Incentive Plan, as amended.
(4)
Excludes 195,933 options outstanding with a weighted average exercise price of $31.40 for plans that BB&T will not make future awards under and were assumed in mergers and acquisitions.

Performance Graphs
 
The following graphs compare the cumulative total returns (assuming concurrent $100 investments at the beginning of each period and reinvestment of dividends) of BB&T common stock, the S&P 500 Index, and an industry peer group. The companies in the peer group were Comerica Incorporated, Fifth-Third Bancorp, Huntington Bancshares, Incorporated, KeyCorp, M&T Bank Corporation, PNC Financial Services Group, Inc., Regions Financial Corporation, SunTrust Banks, Inc., U.S. Bancorp, Wells Fargo & Company and Zions Bancorporation.

chart-445d175103b05882ac7a13.jpg

26


chart-cf0f6f31f0535bab9d4a13.jpg
 
 
As of / Through December 31,
 
10 Year Cumulative Total Return Through 12/31/2017(1)
 
 
Invested
 
Cumulative Total Return
 

 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
 
BB&T Corporation
 
$
100.00

 
$
132.72

 
$
141.87

 
$
141.73

 
$
182.08

 
$
197.88

 
$
228.92

S&P 500 Index
 
100.00

 
132.38

 
150.49

 
152.55

 
170.79

 
208.06

 
225.85

BB&T's Peer Group
 
100.00

 
136.23

 
161.16

 
162.89

 
189.90

 
217.45

 
217.40

(1)
The 10 year cumulative total return assumes $100 was invested on December 31, 2007

27


ITEM 6. SELECTED FINANCIAL DATA
 
 
 
 
 
As of/ For the Year Ended December 31,
(Dollars in millions, except per share data, shares in thousands)
 
2017
 
2016
 
2015
 
2014
 
2013
Summary Income Statement:
 
 
 
 
 
 
 
 
 
 
Revenue-TE (1)
 
$
11,476

 
$
10,953


$
9,757

 
$
9,373

 
$
9,798

Less: TE adjustment (2)
 
159

 
160

 
146

 
143

 
146

Revenue-reported (1)
 
11,317

 
10,793

 
9,611

 
9,230

 
9,652

Provision for credit losses
 
547

 
572

 
428

 
251

 
592

Noninterest expense
 
7,444

 
6,721

 
6,266

 
5,852

 
5,777

Income before income taxes
 
3,326


3,500


2,917


3,127


3,283

Provision for income taxes
 
911

 
1,058

 
794

 
921

 
1,553

Net income
 
2,415


2,442


2,123


2,206


1,730

Noncontrolling interest
 
21

 
16

 
39

 
75

 
50

Dividends and accretion on preferred stock
 
174

 
167

 
148

 
148

 
117

Net income available to common shareholders
 
2,220


2,259


1,936


1,983


1,563

 
 
 
 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 

 
 

 
 

Basic EPS
 
$
2.78

 
$
2.81

 
$
2.59

 
$
2.76

 
$
2.22

Diluted EPS
 
2.74

 
2.77

 
2.56

 
2.72

 
2.19

Cash dividends declared
 
1.26

 
1.15

 
1.05

 
0.95

 
0.92

Common equity
 
34.01

 
33.14

 
31.66

 
30.09

 
28.48

 
 
 
 
 
 
 
 
 
 
 
Average Balances:
 
 
 
 
 
 

 
 

 
 

Total assets
 
$
221,065

 
$
218,945

 
$
197,347

 
$
185,095

 
$
181,282

Securities (3)
 
46,029

 
46,279

 
42,103

 
40,541

 
36,772

Loans and leases (4)
 
144,075

 
141,759

 
127,802

 
118,830

 
117,527

Deposits
 
159,241

 
157,469

 
138,498

 
129,077

 
128,555

Long-term debt
 
21,660

 
22,791

 
23,343

 
22,210

 
19,301

Shareholders' equity
 
30,001

 
29,355

 
25,871

 
23,954

 
21,860

 
 
 
 
 
 
 
 
 
 
 
Period-End Balances:
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
221,642

 
$
219,276

 
$
209,947

 
$
186,834

 
$
183,043

Securities (3)
 
47,574

 
43,606

 
43,827

 
41,147

 
40,205

Loans and leases (4)
 
144,800

 
145,038

 
136,986

 
121,307

 
117,139

Deposits
 
157,371

 
160,234

 
149,124

 
129,040

 
127,475

Long-term debt
 
23,648

 
21,965

 
23,769

 
23,312

 
21,493

Shareholders' equity
 
29,695

 
29,926

 
27,340

 
24,377

 
22,780

 
 
 
 
 
 
 
 
 
 
 
Selected Ratios:
 
 
 
 
 
 
 
 
 
 
NIM
 
3.46
%
 
3.39
%
 
3.32
%
 
3.42
%
 
3.68
%
Rate of return on:
 
 
 
 
 
 
 
 
 
 
Average total assets
 
1.09

 
1.12

 
1.08

 
1.19

 
0.95

Average common equity
 
8.25

 
8.57

 
8.34

 
9.32

 
8.07

Average total shareholders' equity
 
8.05

 
8.32

 
8.21

 
9.21

 
7.91

Average total shareholders' equity to average total assets
 
13.57

 
13.41

 
13.11

 
12.94

 
12.06

(1)
Revenue is defined as net interest income plus noninterest income.
(2)
TE adjustment is based on the marginal income tax rates for the periods presented.
(3)
Excludes trading securities. HTM securities at amortized cost. AFS securities at fair value.
(4)
Loans and leases are net of unearned income and include LHFS.

28


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Executive Overview
 
Overview of Significant Events and Financial Results
 
Net income available to common shareholders totaled $2.2 billion for 2017, a 1.7% decrease from the prior year. On a diluted per common share basis, earnings for 2017 were $2.74, compared to $2.77 for 2016. BB&T’s results of operations for 2017 produced a return on average assets of 1.09% and a return on average common shareholders’ equity of 8.25% compared to prior year ratios of 1.12% and 8.57%, respectively. These results include merger-related and restructuring charges of $115 million for 2017 compared to $171 million for 2016. Net interest income was up primarily due to an 11 basis point increase in the yield on earning assets, and a $2.3 billion increase in average outstanding loans. Noninterest income was up due to increased business activity for the majority of revenue sources, as well as higher income from SBIC and other investments. Noninterest expense was up due to a loss on the early extinguishment of higher-cost FHLB advances of $392 million ($246 million after tax), and $136 million ($86 million after tax) in one-time expenses incurred in connection with tax reform legislation. The current period provision for income taxes includes a net tax benefit of $43 million due to the passage of tax reform legislation.

BB&T’s revenue for 2017 was $11.3 billion. On a TE basis, revenue was $11.5 billion, which represents an increase of $523 million compared to 2016. Net interest income on a TE basis was up $214 million compared to the prior year, which reflects a $308 million increase in interest income and a $94 million increase in interest expense. Noninterest income increased $310 million for the year, driven by improvements in FDIC loss share income, higher other income primarily due to income from SBIC investment and income related to assets for certain post-employment benefits, and higher insurance income primarily from the acquisition of Swett and Crawford in 2016. The increase in noninterest income was partially offset by lower mortgage banking income primarily resulting from a decline in the net mortgage servicing rights valuation.
 
NIM was 3.46% for 2017, compared to 3.39% for the prior year. Average earning assets increased $2.3 billion or 1.2%, while average interest-bearing liabilities decreased $1.2 billion, or 0.9%. The annualized TE yield on the total loan portfolio for 2017 was 4.41%, up 11 basis points compared to the prior year. The annualized TE yield on the average securities portfolio was 2.45%, up 12 basis points compared to the prior year.

The provision for credit losses was $547 million, compared to $572 million for the prior year. This decrease was primarily driven by improvement in the commercial and industrial portfolio.
 
NPAs decreased $186 million compared to 2016. This included a $166 million decrease in NPLs primarily within commercial and industrial lending and residential mortgage, and a $20 million decrease in foreclosed real estate and other property. Net charge-offs for 2017 were $537 million, compared to $532 million for the prior year. The ratio of the ALLL to net charge-offs was 2.78x for 2017, compared to 2.80x in 2016.
 
Noninterest expense increased $723 million primarily due to higher losses from the early extinguishment of debt and expenses incurred in connection with tax reform legislation. The actions taken associated with tax reform include a $100 million contribution to the Company's philanthropic fund and $36 million for a one-time bonus paid to associates who do not generally receive incentives. Additionally, noninterest expense increased due to higher incentive costs as a result of improved performance.
 
The effective tax rate was 27.4% for 2017, compared to 30.2% for the prior year. The current period provision includes a net tax benefit related to tax reform legislation and excess tax benefits from equity-based compensation plans.

BB&T’s total assets at December 31, 2017 were $221.6 billion, an increase of $2.4 billion compared to December 31, 2016. This includes a $4.0 billion increase in the total securities portfolio. The fair value of AFS securities totaled $24.5 billion at December 31, 2017, compared to $26.9 billion at December 31, 2016. The amortized cost of HTM securities was $23.0 billion at December 31, 2017 compared to $16.7 billion in the prior year.
 
Total deposits at December 31, 2017 were $157.4 billion, a decrease of $2.9 billion from the prior year. Noninterest-bearing deposits increased $3.1 billion, interest checking decreased $2.6 billion and money market and savings decreased $2.1 billion. Time deposits declined $1.2 billion. The overall growth in lower-cost deposits is primarily due to increases in commercial and public funds balances. The average cost of interest-bearing deposits for 2017 was 0.32%, up 9 basis points compared to the prior year.
 

29


Total shareholders’ equity was $29.7 billion at December 31, 2017, down slightly compared to the prior year. Net income in excess of dividends totaling $1.2 billion was offset by $1.6 billion of share repurchases. BB&T’s Tier 1 risk-based capital and total risk-based capital ratios at December 31, 2017 were 11.9% and 13.9%, respectively, compared to 12.0% and 14.1% at December 31, 2016, respectively. The CET1 ratio was 10.2% at December 31, 2017 compared to 10.2% at December 31, 2016.

Current Regulatory Environment

Over the past several years, BB&T has made substantial investments and incurred significant costs related to personnel, infrastructure and other items in response to increased regulations. While the impact of any relief is uncertain, the current U.S. administration has stated its intention to potentially alleviate part of the regulatory burden on financial institutions.

Key Challenges
 
BB&T’s business is dynamic and complex. Consequently, management annually evaluates and, as necessary, adjusts the Company’s business strategy in the context of the current operating environment. During this process, management considers the current financial condition and performance of the Company and its expectations for future economic activity from both a national and local market perspective. The achievement of key strategic objectives and established long-term financial goals is subject to many uncertainties and challenges. In the opinion of management, the challenges that are most relevant and likely to have a near term impact on performance are presented below:
 
Intense competition within the financial services industry given the challenge in growing assets.

New technologies and evolving consumer preferences will put pressure on market share and customer loyalty.

Global economic and geopolitical risk, including potential financial system instability and ramifications of sovereign debt issues.

Cost and risk associated with regulatory initiatives and IT projects.

In addition, certain other challenges and unforeseen events could have a near term impact on BB&T’s financial condition and results of operations. See the sections titled "Forward-Looking Statements" and "Risk Factors" for additional examples of such challenges.

Analysis of Results of Operations

Net Interest Income and NIM
 
Net interest income is BB&T’s primary source of revenue. Net interest income is influenced by a number of factors, including the volume, mix and maturity of interest-earning assets and interest-bearing liabilities and the interest rates earned and paid thereon. The difference between rates earned on interest-earning assets and the cost of funds (with a TE adjustment made to tax-exempt items to provide comparability with taxable items) is measured by the NIM.

2017 compared to 2016
 
For 2017, net interest income on a TE basis totaled $6.7 billion, an increase of $213 million or 3.3% compared to the prior year. The increase reflects higher interest income due to rate increases and higher outstanding loans primarily due to organic loan growth. This was partially offset by runoff in PCI and residential mortgage loans. Interest expense increased $94 million, reflecting higher funding costs due to rate increases.
 
The NIM is the primary measure used in evaluating the gross profit margin from the portfolios of earning assets. The NIM was 3.46% in 2017 compared with 3.39% in 2016. The increase in the NIM reflects higher yields on loans and securities, partially offset by higher funding costs. The average annualized TE yield for total loans and leases was 4.41% for 2017, compared to 4.30% for the prior year. The increase was primarily due to rate increases, partially offset by runoff in PCI loans. The TE yield on the total securities portfolio was 2.45% for the year ended December 31, 2017, compared to 2.33% for the prior year.
 
The average rate paid on interest-bearing deposits for 2017 increased to 0.32%, from 0.23% in 2016. This primarily reflects the impact of rate increases.
 

30


The average rate on short-term borrowings was 0.94% in 2017, compared to 0.35% in 2016. The increase in the rate on short-term borrowings reflects the federal funds target rate increases. The average rate on long-term debt was 2.10% during 2017, compared to 2.13% in the prior year. The decline in the average rate on long-term debt reflects the impact of the early extinguishment of $2.9 billion of higher cost FHLB advances in the first quarter, partially offset by new issuances. At December 31, 2017, the targeted Federal funds rate was a range of 1.25% to 1.50%.
 
2016 compared to 2015
 
For 2016, net interest income on a TE basis totaled $6.5 billion, an increase of $743 million or 12.9% compared to the prior year. The increase reflects higher interest income due to acquisitions and organic loan growth, partially offset by lower yields on new loans and securities and runoff in the loan portfolio acquired from the FDIC. Interest expense increased slightly, reflecting higher balances from acquisitions, partially offset by improvement in the mix of funding sources.
 
The NIM is the primary measure used in evaluating the gross profit margin from the portfolios of earning assets. The NIM was 3.39% in 2016 compared with 3.32% in 2015. The increase in the NIM reflects higher yields on loans and improved funding mix, partially offset by lower yields on securities. The average annualized TE yield for total loans and leases was 4.30% for 2016, compared to 4.26% for the prior year. The increase was primarily due to acquisitions, partially offset by lower yields on new loan originations and the runoff of higher yielding loans acquired from the FDIC. The TE yield on the total securities portfolio was 2.33% for the year ended December 31, 2016, compared to 2.36% for the prior year.
 
The average rate paid on interest-bearing deposits for 2016 dropped to 0.23%, from 0.24% in 2015. This improvement was driven by changes in mix, with time deposits representing a lower percentage of interest-bearing deposits at December 31, 2016.
 
The rate paid on average short-term borrowings was 0.35% in 2016, compared to 0.15% in 2015. The increase in the rate on short-term borrowings reflects the federal funds target rate increase from December 2015. The average rate on long-term debt was 2.13% during 2016, flat compared to the prior year. At December 31, 2016, the targeted Federal funds rate range was 0.50% to 0.75%.


31


Table 5
TE Net Interest Income and Rate / Volume Analysis (1)
Year Ended December 31, 2017, 2016 and 2015
 
 
2017 vs. 2016
 
2016 vs. 2015
 
 
Average Balances (6)
 
Yield/Rate
 
Income/Expense
 
Incr.
 
Change due to
 
Incr.
 
Change due to
(Dollars in millions)
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
 
(Decr.)
 
Rate
 
Vol.
 
(Decr.)
 
Rate
 
Vol.
Assets
 
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 
 

 
 
 
 

 
 
 
 
 
 

 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
4,179

 
$
3,061

 
$
2,650

 
1.71
%
 
1.67
%
 
1.58
%
 
$
72

 
$
51

 
$
42

 
$
21

 
$
1

 
$
20

 
$
9

 
$
2

 
$
7

GSE
 
2,385

 
3,601

 
5,338

 
2.22

 
2.13

 
2.13

 
53

 
77

 
113

 
(24
)
 
3

 
(27
)
 
(36
)
 

 
(36
)
Agency MBS
 
37,250

 
36,658

 
30,683

 
2.26

 
2.05

 
1.98

 
841

 
750

 
605

 
91

 
79

 
12

 
145

 
22

 
123

States and political subdivisions
 
1,748

 
2,361

 
2,204

 
4.77

 
5.20

 
5.65

 
83

 
123

 
125

 
(40
)
 
(10
)
 
(30
)
 
(2
)
 
(11
)
 
9

Non-agency MBS
 
411

 
534

 
751

 
18.80

 
14.56

 
13.51

 
77

 
78

 
102

 
(1
)
 
19

 
(20
)
 
(24
)
 
7

 
(31
)
Other
 
56

 
64

 
477

 
2.17

 
1.87

 
1.31

 
1

 

 
7

 
1

 
1

 

 
(7
)
 
1

 
(8
)
Total securities
 
46,029

 
46,279

 
42,103

 
2.45

 
2.33

 
2.36

 
1,127

 
1,079

 
994

 
48

 
93

 
(45
)
 
85

 
21

 
64

Other earning assets (3)
 
3,484

 
3,202

 
2,768

 
1.53

 
1.64

 
1.39

 
53

 
53

 
38

 

 
(4
)
 
4

 
15

 
8

 
7

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

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 
Commercial:
 
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 
Commercial and industrial
 
57,994

 
56,227

 
49,518

 
3.59

 
3.40

 
3.25

 
2,080

 
1,914

 
1,612

 
166

 
106

 
60

 
302

 
77

 
225

CRE
 
20,497

 
19,407

 
15,840

 
4.08

 
3.75

 
3.67

 
837

 
727

 
581

 
110

 
67

 
43

 
146

 
13

 
133

Lease financing
 
1,726

 
1,524

 
1,183

 
2.82

 
3.01

 
2.82

 
49

 
45

 
33

 
4

 
(3
)
 
7

 
12

 
2

 
10

Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
29,140

 
30,184

 
30,252

 
4.02

 
4.05

 
4.15

 
1,170

 
1,224

 
1,255

 
(54
)
 
(10
)
 
(44
)
 
(31
)
 
(28
)
 
(3
)
Direct
 
11,968

 
11,796

 
9,375

 
4.60

 
4.27

 
4.07

 
550

 
503

 
381

 
47

 
40

 
7

 
122

 
20

 
102

Indirect
 
17,840

 
17,072

 
16,443

 
6.89

 
6.94

 
6.86

 
1,230

 
1,186

 
1,127

 
44

 
(9
)
 
53

 
59

 
13

 
46

Revolving credit
 
2,662

 
2,521

 
2,406

 
8.88

 
8.77

 
8.76

 
236

 
221

 
211

 
15

 
3

 
12

 
10

 

 
10

PCI
 
784

 
1,063

 
1,083

 
18.86

 
19.55

 
16.57

 
148

 
208

 
179

 
(60
)
 
(7
)
 
(53
)
 
29

 
32

 
(3
)
Total loans and leases HFI
 
142,611

 
139,794

 
126,100

 
4.42

 
4.31

 
4.27

 
6,300

 
6,028

 
5,379

 
272

 
187

 
85

 
649

 
129

 
520

LHFS
 
1,464

 
1,965

 
1,702

 
3.62

 
3.34

 
3.63

 
53

 
66

 
62

 
(13
)
 
5

 
(18
)
 
4

 
(5
)
 
9

Total loans and leases
 
144,075

 
141,759

 
127,802

 
4.41

 
4.30

 
4.26

 
6,353

 
6,094

 
5,441

 
259

 
192

 
67

 
653

 
124

 
529

Total earning assets
 
193,588

 
191,240

 
172,673

 
3.89

 
3.78

 
3.75

 
7,533

 
7,226

 
6,473

 
307

 
281

 
26