10-Q 1 form10-q_2q18.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: June 30, 2018
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
North Carolina
56-0939887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 West Second Street
Winston-Salem, North Carolina
27101
(Address of principal executive offices)
(Zip Code)
(336) 733-2000
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý   No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  ý
At June 30, 2018, 774,446,877 shares of the registrant's common stock, $5 par value, were outstanding.
 
 
 
 
 



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




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

BB&T Corporation 1



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

2 BB&T Corporation



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

 
$
2,243

Interest-bearing deposits with banks
662

 
343

Cash equivalents
213

 
127

Restricted cash
132

 
370

AFS securities at fair value
23,919

 
24,547

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

 
23,027

LHFS at fair value
1,615

 
1,099

Loans and leases
146,183

 
143,701

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

 
142,211

Premises and equipment
2,154

 
2,055

Goodwill
9,617

 
9,618

CDI and other intangible assets
647

 
711

MSRs at fair value
1,143

 
1,056

Other assets
14,131

 
14,235

Total assets
$
222,681

 
$
221,642

Liabilities
 
 
 
Deposits
$
159,475

 
$
157,371

Short-term borrowings
3,576

 
4,938

Long-term debt
24,081

 
23,648

Accounts payable and other liabilities
5,717

 
5,990

Total liabilities
192,849

 
191,947

Commitments and contingencies (Note 12)

 

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

 
3,053

Common stock, $5 par
3,872

 
3,910

Additional paid-in capital
7,364

 
7,893

Retained earnings
17,197

 
16,259

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

 
47

Total shareholders' equity
29,832

 
29,695

Total liabilities and shareholders' equity
$
222,681

 
$
221,642

 
 
 
 
Common shares outstanding
774,447

 
782,006

Common shares authorized
2,000,000

 
2,000,000

Preferred shares outstanding
126

 
126

Preferred shares authorized
5,000

 
5,000


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

BB&T Corporation 3



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

 
$
1,540

 
$
3,292

 
$
3,041

Interest and dividends on securities
 
294

 
272

 
585

 
530

Interest on other earning assets
 
13

 
12

 
38

 
28

Total interest income
 
1,994

 
1,824

 
3,915

 
3,599

Interest Expense
 
 
 
 
 
 
 
 
Interest on deposits
 
148

 
80

 
266

 
149

Interest on short-term borrowings
 
23

 
5

 
43

 
7

Interest on long-term debt
 
166

 
104

 
316

 
199

Total interest expense
 
337

 
189

 
625

 
355

Net Interest Income
 
1,657

 
1,635

 
3,290

 
3,244

Provision for credit losses
 
135

 
135

 
285

 
283

Net Interest Income After Provision for Credit Losses
 
1,522

 
1,500

 
3,005

 
2,961

Noninterest Income
 
 
 
 
 
 
 
 
Insurance income
 
481

 
481

 
917

 
939

Service charges on deposits
 
179

 
176

 
344

 
344

Mortgage banking income
 
94

 
94

 
193

 
197

Investment banking and brokerage fees and commissions
 
109

 
105

 
222

 
196

Trust and investment advisory revenues
 
72

 
70

 
144

 
138

Bankcard fees and merchant discounts
 
72

 
75

 
141

 
134

Checkcard fees
 
57

 
54

 
109

 
105

Operating lease income
 
36

 
37

 
73

 
73

Income from bank-owned life insurance
 
30

 
32

 
61

 
61

Other income
 
91

 
96

 
197

 
204

Securities gains (losses), net
 
 
 
 
 
 
 
 
Gross realized gains
 
1

 

 
1

 

Gross realized losses
 

 

 

 

OTTI charges
 

 

 

 

Non-credit portion recognized in OCI
 

 

 

 

Total securities gains (losses), net
 
1

 

 
1

 

Total noninterest income
 
1,222

 
1,220

 
2,402

 
2,391

Noninterest Expense
 
 
 
 
 
 
 
 
Personnel expense
 
1,074

 
1,068

 
2,113

 
2,103

Occupancy and equipment expense
 
187

 
198

 
381

 
391

Software expense
 
67

 
57

 
132

 
115

Outside IT services
 
32

 
39

 
64

 
88

Regulatory charges
 
39

 
36

 
79

 
75

Amortization of intangibles
 
31

 
36

 
64

 
74

Loan-related expense
 
26

 
36

 
55

 
66

Professional services
 
32

 
38

 
62

 
60

Merger-related and restructuring charges, net
 
24

 
10

 
52

 
46

Loss (gain) on early extinguishment of debt
 

 

 

 
392

Other expense
 
208

 
224

 
404

 
434

Total noninterest expense
 
1,720

 
1,742

 
3,406

 
3,844

Earnings
 
 
 
 
 
 
 
 
Income before income taxes
 
1,024

 
978

 
2,001

 
1,508

Provision for income taxes
 
202

 
304

 
388

 
408

Net income
 
822

 
674

 
1,613

 
1,100

Noncontrolling interests
 
3

 
(1
)
 
6

 
4

Dividends on preferred stock
 
44

 
44

 
87

 
87

Net income available to common shareholders
 
$
775

 
$
631

 
$
1,520

 
$
1,009

Basic EPS
 
$
1.00

 
$
0.78

 
$
1.95

 
$
1.25

Diluted EPS
 
$
0.99

 
$
0.77

 
$
1.93

 
$
1.23

Cash dividends declared per share
 
$
0.375

 
$
0.300

 
$
0.750

 
$
0.600

Basic weighted average shares outstanding
 
775,836

 
808,980

 
777,716

 
809,439

Diluted weighted average shares outstanding
 
785,750

 
819,389

 
788,362

 
821,072


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

4 BB&T Corporation



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

 
$
674

 
$
1,613

 
$
1,100

OCI, net of tax:
 
 

 
 

 
 

 
 

Change in unrecognized net pension and postretirement costs
 
13

 
12

 
27

 
21

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

 
(34
)
 
104

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

 
(367
)
 
72

Other, net
 
(1
)
 

 
(3
)
 
2

Total OCI
 
(61
)
 
52

 
(239
)
 
59

Total comprehensive income
 
$
761

 
$
726

 
$
1,374

 
$
1,159

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

 
$
7

 
$
9

 
$
14

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

 
(20
)
 
34

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

 
(115
)
 
42

Other, net
 

 

 
1

 


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


BB&T Corporation 5



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

 
$
3,053

 
$
4,047

 
$
9,104

 
$
14,809

 
$
(1,132
)
 
$
45

 
$
29,926

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
1,096

 

 
4

 
1,100

OCI

 

 

 

 

 
59

 

 
59

Stock transactions:
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
6,644

 

 
33

 
55

 

 

 

 
88

Repurchase of common stock
(8,026
)
 

 
(40
)
 
(280
)
 

 

 

 
(320
)
Cash dividends declared on common stock

 

 

 

 
(485
)
 

 

 
(485
)
Cash dividends declared on preferred stock

 

 

 

 
(87
)
 

 

 
(87
)
Equity-based compensation expense

 

 

 
74

 

 

 

 
74

Other, net

 

 

 
13

 
(12
)
 

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

 
$
3,053

 
$
4,040

 
$
8,966

 
$
15,321

 
$
(1,073
)
 
$
42

 
$
30,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
782,006

 
$
3,053

 
$
3,910

 
$
7,893

 
$
16,259

 
$
(1,467
)
 
$
47

 
$
29,695

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
1,607

 

 
6

 
1,613

OCI

 

 

 

 

 
(239
)
 

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

 

 
20

 
(22
)
 

 

 

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

 
(58
)
 
(572
)
 

 

 

 
(630
)
Cash dividends declared on common stock

 

 

 

 
(582
)
 

 

 
(582
)
Cash dividends declared on preferred stock

 

 

 

 
(87
)
 

 

 
(87
)
Equity-based compensation expense

 

 

 
76

 

 

 

 
76

Other, net

 

 

 
(11
)
 

 

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

 
$
3,053

 
$
3,872

 
$
7,364

 
$
17,197

 
$
(1,706
)
 
$
52

 
$
29,832


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

6 BB&T Corporation



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

 
$
1,100

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

 
 
Provision for credit losses
 
285

 
283

Depreciation
 
210

 
200

Loss (gain) on early extinguishment of debt
 

 
392

Amortization of intangibles
 
64

 
74

Equity-based compensation expense
 
76

 
74

(Gain) loss on securities, net
 
(1
)
 

Net change in operating assets and liabilities:
 
 

 
 
LHFS
 
(516
)
 
394

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

 
(377
)
Other, net
 
(176
)
 
3

Net cash from operating activities
 
1,427

 
1,488

Cash Flows From Investing Activities:
 
 

 
 
Proceeds from sales of AFS securities
 
160

 
224

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

 
2,531

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

 
1,138

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

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

 
 
Net change in deposits
 
2,113

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

Proceeds from issuance of long-term debt
 
1,755

 
4,650

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

Net cash from financing activities
 
106

 
142

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

 
4,424

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

 
$
3,428

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

 
$
347

Income taxes
 
(60
)
 
187

Noncash investing activities:
 
 

 
 
Transfers of loans to foreclosed assets
 
125

 
267


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

BB&T Corporation 7



NOTE 1. Basis of Presentation

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

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

Derivative Financial Instruments

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

Revenue Recognition

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

Insurance income

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

Transaction and service based revenues

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


8 BB&T Corporation



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

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


BB&T Corporation 9



NOTE 2. Securities

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

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

 
$

 
$
114

 
$
2,323

GSE
 
186

 

 
11

 
175

Agency MBS
 
20,880

 
2

 
1,034

 
19,848

States and political subdivisions
 
971

 
27

 
18

 
980

Non-agency MBS
 
351

 
203

 

 
554

Other
 
38

 
1

 

 
39

Total AFS securities
 
$
24,863

 
$
233

 
$
1,177

 
$
23,919

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

 
$

 
$
9

 
$
1,089

GSE
 
2,198

 
2

 
60

 
2,140

Agency MBS
 
18,436

 
30

 
632

 
17,834

States and political subdivisions
 
16

 

 

 
16

Other
 
1

 

 

 
1

Total HTM securities
 
$
21,749

 
$
32

 
$
701

 
$
21,080

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

 
$

 
$
77

 
$
2,291

GSE
 
187

 

 
8

 
179

Agency MBS
 
20,683

 
8

 
590

 
20,101

States and political subdivisions
 
1,379

 
37

 
24

 
1,392

Non-agency MBS
 
384

 
192

 

 
576

Other
 
8

 

 

 
8

Total AFS securities
 
$
25,009

 
$
237

 
$
699

 
$
24,547

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

 
$
8

 
$

 
$
1,106

GSE
 
2,198

 
11

 
22

 
2,187

Agency MBS
 
19,660

 
33

 
222

 
19,471

States and political subdivisions
 
28

 

 

 
28

Other
 
43

 
2

 

 
45

Total HTM securities
 
$
23,027

 
$
54

 
$
244

 
$
22,837

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

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

10 BB&T Corporation



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

 
$
466

 
$
1

 
$
1

Due after one year through five years
 
2,093

 
1,982

 
2,789

 
2,739

Due after five years through ten years
 
584

 
573

 
940

 
909

Due after ten years
 
21,718

 
20,898

 
18,019

 
17,431

Total debt securities
 
$
24,863

 
$
23,919

 
$
21,749

 
$
21,080

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

 
$
10

 
$
1,643

 
$
104

 
$
2,298

 
$
114

GSE
 
9

 

 
166

 
11

 
175

 
11

Agency MBS
 
7,148

 
245

 
12,624

 
789

 
19,772

 
1,034

States and political subdivisions
 
161

 
1

 
314

 
17

 
475

 
18

Total
 
$
7,973

 
$
256

 
$
14,747

 
$
921

 
$
22,720

 
$
1,177

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,089

 
$
9

 
$

 
$

 
$
1,089

 
$
9

GSE
 
1,446

 
46

 
286

 
14

 
1,732

 
60

Agency MBS
 
12,040

 
381

 
4,251

 
251

 
16,291

 
632

Total
 
$
14,575

 
$
436

 
$
4,537

 
$
265

 
$
19,112

 
$
701

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

 
$
4

 
$
1,655

 
$
73

 
$
2,289

 
$
77

GSE
 
9

 

 
170

 
8

 
179

 
8

Agency MBS
 
5,077

 
64

 
13,920

 
526

 
18,997

 
590

States and political subdivisions
 
201

 
1

 
355

 
23

 
556

 
24

Total
 
$
5,921

 
$
69

 
$
16,100

 
$
630

 
$
22,021

 
$
699

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

GSE
 
$
1,470

 
$
12

 
$
290

 
$
10

 
$
1,760

 
$
22

Agency MBS
 
10,880

 
77

 
4,631

 
145

 
15,511

 
222

Total
 
$
12,350

 
$
89

 
$
4,921

 
$
155

 
$
17,271

 
$
244

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

BB&T Corporation 11



NOTE 3. Loans and ACL

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

 
$
26

 
$

 
$
243

 
$
60,474

CRE
 
21,545

 
4

 

 
61

 
21,610

Lease financing
 
1,913

 
2

 

 
9

 
1,924

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
29,031

 
441

 
374

 
119

 
29,965

Direct
 
11,547

 
52

 
4

 
58

 
11,661

Indirect
 
16,731

 
337

 
4

 
68

 
17,140

Revolving credit
 
2,845

 
21

 
10

 

 
2,876

PCI
 
468

 
22

 
43

 

 
533

Total
 
$
144,285

 
$
905

 
$
435

 
$
558

 
$
146,183

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

 
$
41

 
$
1

 
$
259

 
$
59,153

CRE
 
21,209

 
8

 
1

 
45

 
21,263

Lease financing
 
1,906

 
4

 

 
1

 
1,911

Retail:
 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
27,659

 
472

 
465

 
129

 
28,725

Direct
 
11,756

 
65

 
6

 
64

 
11,891

Indirect
 
16,745

 
412

 
6

 
72

 
17,235

Revolving credit
 
2,837

 
23

 
12

 

 
2,872

PCI
 
567

 
27

 
57

 

 
651

Total
 
$
141,531

 
$
1,052

 
$
548

 
$
570

 
$
143,701


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

 
$
21,273

 
$
1,905

 
$
57,700

 
$
20,862

 
$
1,881

Special mention
 
189

 
38

 
6

 
268

 
48

 
6

Substandard-performing
 
796

 
238

 
4

 
926

 
308

 
23