10-Q 1 form10-q_1q18.htm 10-Q Document
 


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

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2018
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
North Carolina
56-0939887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 West Second Street
Winston-Salem, North Carolina
27101
(Address of principal executive offices)
(Zip Code)
(336) 733-2000
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  ý
At March 31, 2018, 779,751,860 shares of the registrant's common stock, $5 par value, were outstanding.


 


TABLE OF CONTENTS
FORM 10-Q
March 31, 2018
 
 
 
Page No.
PART I - Financial Information
 
Glossary of Defined Terms
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets (Unaudited)
 
Consolidated Statements of Income (Unaudited)
 
Consolidated Statements of Comprehensive Income (Unaudited)
 
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
 
Consolidated Statements of Cash Flows (Unaudited)
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
Note 1. Basis of Presentation
 
Note 2. Securities
 
Note 3. Loans and ACL
 
Note 4. Goodwill and Other Intangible Assets
 
Note 5. Loan Servicing
 
Note 6. Deposits
 
Note 7. Long-Term Debt
 
Note 8. Shareholders' Equity
 
Note 9. AOCI
 
Note 10. Income Taxes
 
Note 11. Benefit Plans
 
Note 12. Commitments and Contingencies
 
Note 13. Fair Value Disclosures
 
Note 14. Derivative Financial Instruments
 
Note 15. Computation of EPS
 
Note 16. Operating Segments
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II - Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities - (none.)
 
Item 4.
Mine Safety Disclosures - (not applicable.)
 
Item 5.
Other Information - (none to be reported.)
 
Item 6.
Exhibits



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

1


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


2


ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands)
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Cash and due from banks
$
1,869

 
$
2,243

Interest-bearing deposits with banks
912

 
343

Cash equivalents
132

 
127

Restricted cash
198

 
370

AFS securities at fair value
25,017

 
24,547

HTM securities (fair value of $21,829 and $22,837 at March 31, 2018 and December 31, 2017, respectively)
22,390

 
23,027

LHFS at fair value
1,189

 
1,099

Loans and leases
143,017

 
143,701

ALLL
(1,498
)
 
(1,490
)
Loans and leases, net of ALLL
141,519

 
142,211

Premises and equipment
2,078

 
2,055

Goodwill
9,617

 
9,618

CDI and other intangible assets
679

 
711

MSRs at fair value
1,119

 
1,056

Other assets
14,010

 
14,235

Total assets
$
220,729

 
$
221,642

Liabilities
 
 
 
Deposits
$
158,196

 
$
157,371

Short-term borrowings
4,321

 
4,938

Long-term debt
23,410

 
23,648

Accounts payable and other liabilities
5,140

 
5,990

Total liabilities
191,067

 
191,947

Commitments and contingencies (Note 12)

 

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

 
3,053

Common stock, $5 par
3,899

 
3,910

Additional paid-in capital
7,593

 
7,893

Retained earnings
16,712

 
16,259

AOCI, net of deferred income taxes
(1,645
)
 
(1,467
)
Noncontrolling interests
50

 
47

Total shareholders' equity
29,662

 
29,695

Total liabilities and shareholders' equity
$
220,729

 
$
221,642

 
 
 
 
Common shares outstanding
779,752

 
782,006

Common shares authorized
2,000,000

 
2,000,000

Preferred shares outstanding
126

 
126

Preferred shares authorized
5,000

 
5,000


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

3


CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
Unaudited
 
March 31,
(Dollars in millions, except per share data, shares in thousands)
 
2018
 
2017
Interest Income
 
 
 
 
Interest and fees on loans and leases
 
$
1,605

 
$
1,501

Interest and dividends on securities
 
291

 
258

Interest on other earning assets
 
25

 
16

Total interest income
 
1,921

 
1,775

Interest Expense
 
 
 
 
Interest on deposits
 
118

 
69

Interest on short-term borrowings
 
20

 
2

Interest on long-term debt
 
150

 
95

Total interest expense
 
288

 
166

Net Interest Income
 
1,633

 
1,609

Provision for credit losses
 
150

 
148

Net Interest Income After Provision for Credit Losses
 
1,483

 
1,461

Noninterest Income
 
 
 
 
Insurance income
 
436

 
458

Service charges on deposits
 
165

 
168

Mortgage banking income
 
99

 
103

Investment banking and brokerage fees and commissions
 
113

 
91

Trust and investment advisory revenues
 
72

 
68

Bankcard fees and merchant discounts
 
69

 
59

Checkcard fees
 
52

 
51

Operating lease income
 
37

 
36

Income from bank-owned life insurance
 
31

 
29

Other income
 
106

 
108

Securities gains (losses), net
 
 
 
 
Gross realized gains
 

 

Gross realized losses
 

 

OTTI charges
 

 

Non-credit portion recognized in OCI
 

 

Total securities gains (losses), net
 

 

Total noninterest income
 
1,180

 
1,171

Noninterest Expense
 
 
 
 
Personnel expense
 
1,039

 
1,035

Occupancy and equipment expense
 
194

 
193

Software expense
 
65

 
58

Outside IT services
 
32

 
49

Regulatory charges
 
40

 
39

Amortization of intangibles
 
33

 
38

Loan-related expense
 
29

 
30

Professional services
 
30

 
22

Merger-related and restructuring charges, net
 
28

 
36

Loss (gain) on early extinguishment of debt
 

 
392

Other expense
 
196

 
210

Total noninterest expense
 
1,686

 
2,102

Earnings
 
 
 
 
Income before income taxes
 
977

 
530

Provision for income taxes
 
186

 
104

Net income
 
791

 
426

Noncontrolling interests
 
3

 
5

Dividends on preferred stock
 
43

 
43

Net income available to common shareholders
 
$
745

 
$
378

Basic EPS
 
$
0.96

 
$
0.47

Diluted EPS
 
$
0.94

 
$
0.46

Cash dividends declared per share
 
$
0.375

 
$
0.300

Basic weighted average shares outstanding
 
779,617

 
809,903

Diluted weighted average shares outstanding
 
791,005

 
822,719


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

4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
Unaudited
 
March 31,
(Dollars in millions)
 
2018
 
2017
Net income
 
$
791

 
$
426

OCI, net of tax:
 
 

 
 

Change in unrecognized net pension and postretirement costs
 
14

 
9

Change in unrealized net gains (losses) on cash flow hedges
 
78

 
(2
)
Change in unrealized net gains (losses) on AFS securities
 
(268
)
 
(2
)
Other, net
 
(2
)
 
2

Total OCI
 
(178
)
 
7

Total comprehensive income
 
$
613

 
$
433

 
 
 
 
 
Income Tax Effect of Items Included in OCI:
 
 
 
 
Change in unrecognized net pension and postretirement costs
 
$
4

 
$
7

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

 
(1
)
Change in unrealized net gains (losses) on AFS securities
 
(84
)
 
(1
)
Other, net
 
1

 


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


5


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

 
$
3,053

 
$
4,047

 
$
9,104

 
$
14,809

 
$
(1,132
)
 
$
45

 
$
29,926

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
421

 

 
5

 
426

OCI

 

 

 

 

 
7

 

 
7

Stock transactions:
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
6,256

 

 
32

 
54

 

 

 

 
86

Repurchase of common stock
(4,361
)
 

 
(22
)
 
(138
)
 

 

 

 
(160
)
Cash dividends declared on common stock

 

 

 

 
(243
)
 

 

 
(243
)
Cash dividends declared on preferred stock

 

 

 

 
(43
)
 

 

 
(43
)
Equity-based compensation expense

 

 

 
30

 

 

 

 
30

Other, net

 

 

 
13

 
(11
)
 

 
(6
)
 
(4
)
Balance, March 31, 2017
811,370

 
$
3,053

 
$
4,057

 
$
9,063

 
$
14,933

 
$
(1,125
)
 
$
44

 
$
30,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
782,006

 
$
3,053

 
$
3,910

 
$
7,893

 
$
16,259

 
$
(1,467
)
 
$
47

 
$
29,695

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
788

 

 
3

 
791

OCI

 

 

 

 

 
(178
)
 

 
(178
)
Stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
3,599

 

 
18

 
(31
)
 

 

 

 
(13
)
Repurchase of common stock
(5,853
)
 

 
(29
)
 
(291
)
 

 

 

 
(320
)
Cash dividends declared on common stock

 

 

 

 
(292
)
 

 

 
(292
)
Cash dividends declared on preferred stock

 

 

 

 
(43
)
 

 

 
(43
)
Equity-based compensation expense

 

 

 
31

 

 

 

 
31

Other, net

 

 

 
(9
)
 

 

 

 
(9
)
Balance, March 31, 2018
779,752

 
$
3,053

 
$
3,899

 
$
7,593

 
$
16,712

 
$
(1,645
)
 
$
50

 
$
29,662


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

6


CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
 
Three Months Ended March 31,
(Dollars in millions)
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
791

 
$
426

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

 
 
Provision for credit losses
 
150

 
148

Depreciation
 
105

 
99

Loss (gain) on early extinguishment of debt
 

 
392

Amortization of intangibles
 
33

 
38

Equity-based compensation expense
 
31

 
30

(Gain) loss on securities, net
 

 

Net change in operating assets and liabilities:
 
 

 
 
LHFS
 
(90
)
 
499

Trading and equity securities
 
10

 
(644
)
Other assets, accounts payable and other liabilities
 
(583
)
 
(886
)
Other, net
 
(139
)
 
56

Net cash from operating activities
 
308

 
158

Cash Flows From Investing Activities:
 
 

 
 
Proceeds from sales of AFS securities
 
95

 
107

Proceeds from maturities, calls and paydowns of AFS securities
 
959

 
1,355

Purchases of AFS securities
 
(1,863
)
 
(1,205
)
Proceeds from maturities, calls and paydowns of HTM securities
 
626

 
588

Purchases of HTM securities
 
(39
)
 
(2,126
)
Originations and purchases of loans and leases, net of principal collected
 
385

 
333

Other, net
 
40

 
201

Net cash from investing activities
 
203

 
(747
)
Cash Flows From Financing Activities:
 
 

 
 
Net change in deposits
 
830

 
1,104

Net change in short-term borrowings
 
(617
)
 
613

Proceeds from issuance of long-term debt
 
7

 
3,947

Repayment of long-term debt
 
(41
)
 
(4,645
)
Net cash from common stock transactions
 
(344
)
 
(74
)
Cash dividends paid on common stock
 
(292
)
 
(243
)
Cash dividends paid on preferred stock
 
(43
)
 
(43
)
Other, net
 
17

 
(14
)
Net cash from financing activities
 
(483
)
 
645

Net Change in Cash, Cash Equivalents and Restricted Cash
 
28

 
56

Cash, Cash Equivalents and Restricted Cash, January 1
 
3,083

 
4,424

Cash, Cash Equivalents and Restricted Cash, March 31
 
$
3,111

 
$
4,480

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
256

 
$
151

Income taxes
 
15

 
21

Noncash investing activities:
 
 

 
 
Transfers of loans to foreclosed assets
 
67

 
138


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

7


NOTE 1. Basis of Presentation
 
General
 
See the Glossary of Defined Terms at the beginning of this Report for terms used herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2017 should be referred to in connection with these unaudited interim consolidated financial statements.
 
Reclassifications

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

Derivative Financial Instruments

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

Revenue Recognition

In addition to lending and related activities, BB&T offers various services to customers that generate revenue. Contract performance typically occurs in one year or less. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. As of March 31, 2018, remaining performance obligations consisted primarily of insurance and investment banking services for contracts with an original expected length of one year or less.

Insurance income

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

Transaction and service based revenues

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

8



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

The service cost component is included in personnel expense and the other components of net benefit costs are included in other expense in the Consolidated Statements of Income. The prior period was reclassified to conform to the current presentation. See Note 11. Benefit Plans.
Derivatives and Hedging
Jan 1, 2018
Expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements.
BB&T early adopted this guidance using the modified retrospective approach. The impact was not material. New required disclosures have been included in Note 14. Derivative Financial Instruments.
Standards Not Yet Adopted
Leases
Jan 1, 2019
Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors.
BB&T expects assets and liabilities will likely be significantly higher. Implementation efforts are ongoing, including implementation of software solutions.
Credit Losses
Jan 1, 2020
Replaces the incurred loss impairment methodology with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance for expected credit losses. Any credit impairment on AFS debt securities for which the fair value is less than cost will be recorded through an allowance for expected credit losses.
BB&T expects that the ACL could be materially higher; however, the magnitude of the increase and its impact has not yet been quantified and depends on economic conditions at the time of adoption. The standard also requires expanded disclosures related to credit losses and asset quality.

NOTE 2. Securities

In conjunction with the adoption of new accounting standards, an immaterial amount of HTM securities was transferred to AFS securities and an immaterial amount of equity securities was transferred from AFS securities to other assets in the first quarter of 2018. The following tables present the amortized cost, gross unrealized gains and losses, and fair values of AFS and HTM securities:
March 31, 2018
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
2,441

 
$

 
$
106

 
$
2,335

GSE
 
187

 

 
11

 
176

Agency MBS
 
21,605

 
3

 
921

 
20,687

States and political subdivisions
 
1,194

 
28

 
23

 
1,199

Non-agency MBS
 
363

 
215

 

 
578

Other
 
41

 
1

 

 
42

Total AFS securities
 
$
25,831

 
$
247

 
$
1,061

 
$
25,017

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

 
$

 
$
4

 
$
1,094

GSE
 
2,198

 
5

 
50

 
2,153

Agency MBS
 
19,069

 
30

 
542

 
18,557

States and political subdivisions
 
24

 

 

 
24

Other
 
1

 

 

 
1

Total HTM securities
 
$
22,390

 
$
35

 
$
596

 
$
21,829


9


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

 
$

 
$
77

 
$
2,291

GSE
 
187

 

 
8

 
179

Agency MBS
 
20,683

 
8

 
590

 
20,101

States and political subdivisions
 
1,379

 
37

 
24

 
1,392

Non-agency MBS
 
384

 
192

 

 
576

Other
 
8

 

 

 
8

Total AFS securities
 
$
25,009

 
$
237

 
$
699

 
$
24,547

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

 
$
8

 
$

 
$
1,106

GSE
 
2,198

 
11

 
22

 
2,187

Agency MBS
 
19,660

 
33

 
222

 
19,471

States and political subdivisions
 
28

 

 

 
28

Other
 
43

 
2

 

 
45

Total HTM securities
 
$
23,027

 
$
54

 
$
244

 
$
22,837

 
Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded 10% of shareholders' equity at March 31, 2018. The FNMA investments had total amortized cost and fair value of $14.6 billion and $14.0 billion, respectively. The FHLMC investments had total amortized cost and fair value of $10.5 billion and $10.1 billion, respectively.
 
Changes in credit losses on securities with OTTI where a portion of the unrealized loss was recognized in OCI were immaterial for all periods presented.

The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.
March 31, 2018
 
AFS
 
HTM
(Dollars in millions)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
462

 
$
460

 
$

 
$

Due after one year through five years
 
544

 
534

 
2,699

 
2,665

Due after five years through ten years
 
2,266

 
2,161

 
863

 
840

Due after ten years
 
22,559

 
21,862

 
18,828

 
18,324

Total debt securities
 
$
25,831

 
$
25,017

 
$
22,390

 
$
21,829

 
The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
March 31, 2018
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
697

 
$
9

 
$
1,637

 
$
97

 
$
2,334

 
$
106

GSE
 
9

 

 
167

 
11

 
176

 
11

Agency MBS
 
7,304

 
198

 
13,273

 
723

 
20,577

 
921

States and political subdivisions
 
203

 
1

 
343

 
22

 
546

 
23

Total
 
$
8,213

 
$
208

 
$
15,420

 
$
853

 
$
23,633

 
$
1,061

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,094

 
$
4

 
$

 
$

 
$
1,094

 
$
4

GSE
 
1,455

 
37

 
287

 
13

 
1,742

 
50

Agency MBS
 
12,396

 
313

 
4,339

 
229

 
16,735

 
542

Total
 
$
14,945

 
$
354

 
$
4,626

 
$
242

 
$
19,571

 
$
596


10


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

 
$
4

 
$
1,655

 
$
73

 
$
2,289

 
$
77

GSE
 
9

 

 
170

 
8

 
179

 
8

Agency MBS
 
5,077

 
64

 
13,920

 
526

 
18,997

 
590

States and political subdivisions
 
201

 
1

 
355

 
23

 
556

 
24

Total
 
$
5,921

 
$
69

 
$
16,100

 
$
630

 
$
22,021

 
$
699

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

GSE
 
$
1,470

 
$
12

 
$
290

 
$
10

 
$
1,760

 
$
22

Agency MBS
 
10,880

 
77

 
4,631

 
145

 
15,511

 
222

Total
 
$
12,350

 
$
89

 
$
4,921

 
$
155

 
$
17,271

 
$
244

 
The unrealized losses on U.S. Treasury securities, GSE securities and Agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.
 
At March 31, 2018, the majority of the unrealized loss on states and political subdivisions securities was the result of fair value hedge basis adjustments that are a component of amortized cost. These securities are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. At March 31, 2018, none of these securities had credit impairment.
 
NOTE 3. Loans and ACL

The following tables present loans and leases HFI by aging category:
March 31, 2018
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
58,844

 
$
31

 
$

 
$
257

 
$
59,132

CRE
 
21,420

 
10

 

 
67

 
21,497

Lease financing
 
1,872

 
1

 

 
13

 
1,886

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
27,845

 
400

 
420

 
127

 
28,792

Direct
 
11,550

 
55

 
6

 
64

 
11,675

Indirect
 
16,329

 
272

 
5

 
74

 
16,680

Revolving credit
 
2,734

 
21

 
11

 

 
2,766

PCI
 
517

 
24

 
48

 

 
589

Total
 
$
141,111

 
$
814

 
$
490

 
$
602

 
$
143,017

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

 
$
41

 
$
1

 
$
259

 
$
59,153

CRE
 
21,209

 
8

 
1

 
45

 
21,263

Lease financing
 
1,906

 
4

 

 
1

 
1,911

Retail:
 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
27,659

 
472

 
465

 
129

 
28,725

Direct
 
11,756

 
65

 
6

 
64

 
11,891

Indirect
 
16,745

 
412

 
6

 
72

 
17,235

Revolving credit
 
2,837

 
23

 
12

 

 
2,872

PCI
 
567

 
27

 
57

 

 
651

Total
 
$
141,531

 
$
1,052

 
$
548

 
$
570

 
$
143,701



11


The following table presents the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance and revolving credit loans are excluded as the loans are charged-off rather than reclassifying to nonperforming:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Commercial & Industrial
 
CRE
 
Lease Financing
 
Commercial & Industrial
 
CRE
 
Lease Financing
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
$
57,844

 
$
21,127

 
$
1,867

 
$
57,700

 
$
20,862

 
$
1,881

Special mention
 
155

 
29

 
2

 
268

 
48

 
6

Substandard-performing
 
876

 
274

 
4

 
926

 
308

 
23

Nonperforming
 
257

 
67

 
13

 
259

 
45

 
1

Total
 
$
59,132

 
$
21,497

 
$
1,886

 
$
59,153

 
$
21,263

 
$
1,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
 
Direct
 
Indirect
 
Residential Mortgage
 
Direct
 
Indirect
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
28,665

 
$
11,611

 
$
16,606

 
$
28,596

 
$
11,827

 
$
17,163

Nonperforming
 
127

 
64

 
74

 
129

 
64

 
72

Total
 
$
28,792


$
11,675

 
$
16,680


$
28,725

 
$
11,891

 
$
17,235


The following tables present activity in the ACL:
Three Months Ended March 31, 2018
 
Balance at
Jan 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Mar 31, 2018
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
522

 
$
(23
)
 
$
8

 
$
15

 
$
522

CRE
 
160

 
(6
)
 
2

 
19

 
175

Lease financing
 
9

 
(1
)
 

 
2

 
10

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
209

 
(4
)
 

 
11

 
216

Direct
 
106

 
(19
)
 
6

 
6

 
99

Indirect
 
348

 
(107
)
 
15

 
91

 
347

Revolving credit
 
108

 
(21
)
 
5

 
12

 
104

PCI
 
28

 

 

 
(3
)
 
25

ALLL
 
1,490

 
(181
)
 
36

 
153

 
1,498

RUFC
 
119

 

 

 
(3
)
 
116

ACL
 
$
1,609

 
$
(181
)
 
$
36

 
$
150

 
$
1,614

Three Months Ended March 31, 2017
 
Balance at
Jan 1, 2017
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Mar 31, 2017
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
530

 
$
(33
)
 
$
7

 
$
20

 
$
524

CRE
 
145

 
(1
)
 
6

 
(9
)
 
141

Lease financing
 
7

 
(1
)
 

 
4

 
10

Retail:
 
 
 
 
 
 
 
 
 


Residential mortgage
 
227

 
(12
)
 

 
8

 
223

Direct
 
103

 
(14
)
 
6

 
7

 
102

Indirect
 
327

 
(107
)
 
17

 
101

 
338

Revolving credit
 
106

 
(21
)
 
5

 
13

 
103

PCI
 
44