UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
Current Report
Pursuant to Section 13 OR 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
(Exact name of registrant as specified in its charter)
Commission file number:
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(State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol |
Name of each exchange on which registered | ||
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).
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. ☐
Item 8.01. | Other Events |
As previously announced, on February 7, 2019, BB&T Corporation (“BB&T”) and SunTrust Banks, Inc. (“SunTrust”) entered into an agreement and plan of merger, which was amended on June 14, 2019 (as so amended, the “Merger Agreement”). Pursuant to the Merger Agreement, SunTrust will merge with and into BB&T (the “Merger”), with BB&T as the surviving entity in the Merger, as described in the Current Reports on Form 8-K filed by BB&T on February 13, 2019 and June 14, 2019, respectively. The Merger is expected to close on December 6, 2019, subject to satisfaction of customary closing conditions.
This Current Report on Form 8-K is being filed to incorporate certain historical unaudited financial statements of SunTrust and certain pro forma financial information of BB&T into one or more registration statements filed or to be filed by BB&T. The historical unaudited consolidated balance sheet of SunTrust as of September 30, 2019, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the nine months ended September 30, 2019 and 2018, and the related notes thereto, are attached hereto as Exhibit 99.1 and incorporated herein by reference. The unaudited pro forma condensed combined balance sheet as of September 30, 2019, giving effect to the Merger as if it had been completed on September 30, 2019, and unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2019 and the year ended December 31, 2018, giving effect to the Merger as if it had been completed on January 1, 2018, and related notes thereto, are attached hereto as Exhibit 99.2 and incorporated herein by reference.
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits. |
Exhibit No. |
Description |
Location | ||||
99.1 |
Filed herewith | |||||
99.2 |
Filed herewith | |||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
BB&T CORPORATION (Registrant) | ||
By: |
/s/ Cynthia B. Powell | |
Cynthia B. Powell | ||
Executive Vice President and Corporate Controller (Principal Accounting Officer) |
Date: December 3, 2019
Exhibit 99.1
INDEX TO SUNTRUST BANKS, INC. FINANCIAL STATEMENTS (UNAUDITED)
Page | ||||
Consolidated Statements of Income |
2 | |||
Consolidated Statements of Comprehensive Income |
3 | |||
Consolidated Balance Sheets |
4 | |||
Consolidated Statements of Shareholders Equity |
5 | |||
Consolidated Statements of Cash Flows |
6 | |||
Notes to Consolidated Financial Statements (Unaudited) |
7 |
SunTrust Banks, Inc.
Consolidated Statements of Income
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(Dollars in millions and shares in thousands, except per share data) (Unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Interest Income |
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Interest and fees on loans held for investment |
$ | 1,708 | $ | 1,549 | $ | 5,125 | $ | 4,424 | ||||||||
Interest and fees on loans held for sale |
21 | 22 | 50 | 67 | ||||||||||||
Interest on securities available for sale |
215 | 212 | 659 | 628 | ||||||||||||
Trading account interest and other |
61 | 51 | 179 | 142 | ||||||||||||
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Total interest income |
2,005 | 1,834 | 6,013 | 5,261 | ||||||||||||
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Interest Expense |
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Interest on deposits |
293 | 193 | 811 | 484 | ||||||||||||
Interest on long-term debt |
150 | 95 | 425 | 252 | ||||||||||||
Interest on other borrowings |
52 | 34 | 188 | 85 | ||||||||||||
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Total interest expense |
495 | 322 | 1,424 | 821 | ||||||||||||
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Net interest income |
1,510 | 1,512 | 4,589 | 4,440 | ||||||||||||
Provision for credit losses |
132 | 61 | 412 | 121 | ||||||||||||
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Net interest income after provision for credit losses |
1,378 | 1,451 | 4,177 | 4,319 | ||||||||||||
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Noninterest Income |
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Service charges on deposit accounts |
141 | 144 | 417 | 433 | ||||||||||||
Other charges and fees |
90 | 89 | 265 | 264 | ||||||||||||
Card fees |
83 | 75 | 247 | 241 | ||||||||||||
Investment banking income |
159 | 150 | 431 | 453 | ||||||||||||
Trading income |
29 | 42 | 144 | 137 | ||||||||||||
Mortgage-related income 1 |
106 | 83 | 294 | 256 | ||||||||||||
Trust and investment management income |
78 | 80 | 222 | 230 | ||||||||||||
Retail investment services |
76 | 74 | 220 | 219 | ||||||||||||
Insurance settlement |
5 | | 210 | | ||||||||||||
Commercial real estate-related income |
32 | 24 | 106 | 66 | ||||||||||||
Net securities gains/(losses) |
4 | | (38 | ) | 1 | |||||||||||
Other noninterest income |
40 | 21 | 135 | 108 | ||||||||||||
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Total noninterest income |
843 | 782 | 2,653 | 2,408 | ||||||||||||
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Noninterest Expense |
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Employee compensation |
744 | 719 | 2,149 | 2,141 | ||||||||||||
Employee benefits |
97 | 76 | 344 | 310 | ||||||||||||
Outside processing and software |
241 | 234 | 720 | 667 | ||||||||||||
Net occupancy expense |
102 | 86 | 305 | 270 | ||||||||||||
Charitable contribution to SunTrust Foundation |
| | 205 | | ||||||||||||
Marketing and customer development |
44 | 45 | 131 | 127 | ||||||||||||
Equipment expense |
36 | 40 | 114 | 124 | ||||||||||||
Merger-related costs |
22 | | 75 | | ||||||||||||
Operating losses |
23 | 18 | 60 | 40 | ||||||||||||
Amortization |
21 | 19 | 54 | 51 | ||||||||||||
Regulatory assessments |
17 | 39 | 53 | 118 | ||||||||||||
Other noninterest expense |
127 | 108 | 392 | 343 | ||||||||||||
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Total noninterest expense |
1,474 | 1,384 | 4,602 | 4,191 | ||||||||||||
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Income before provision for income taxes |
747 | 849 | 2,228 | 2,536 | ||||||||||||
Provision for income taxes |
122 | 95 | 330 | 412 | ||||||||||||
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Net income including income attributable to noncontrolling interest |
625 | 754 | 1,898 | 2,124 | ||||||||||||
Less: Net income attributable to noncontrolling interest |
2 | 2 | 7 | 7 | ||||||||||||
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Net income |
623 | 752 | 1,891 | 2,117 | ||||||||||||
Less: Preferred stock dividends |
26 | 26 | 77 | 81 | ||||||||||||
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Net income available to common shareholders |
$ | 597 | $ | 726 | $ | 1,814 | $ | 2,036 | ||||||||
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Net income per average common share: |
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Diluted |
$ | 1.34 | $ | 1.56 | $ | 4.06 | $ | 4.34 | ||||||||
Basic |
1.35 | 1.58 | 4.09 | 4.38 | ||||||||||||
Dividends declared per common share |
0.56 | 0.50 | 1.56 | 1.30 | ||||||||||||
Average common shares outstanding - diluted |
446,962 | 464,164 | 446,673 | 469,006 | ||||||||||||
Average common shares outstanding - basic |
443,960 | 460,252 | 443,779 | 464,804 |
1 | Beginning with the 2018 Form 10-K, the Company began presenting Mortgage production related income and Mortgage servicing related income as a single line item on the Consolidated Statements of Income titled Mortgage-related income. Prior periods have been conformed to this updated presentation for comparability. |
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
SunTrust Banks, Inc.
Consolidated Statements of Comprehensive Income
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(Dollars in millions) (Unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income |
$ | 623 | $ | 752 | $ | 1,891 | $ | 2,117 | ||||||||
Components of other comprehensive income/(loss): |
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Change in net unrealized gains/(losses) on securities available for sale, net of tax of $51, ($55), $294 and ($223), respectively |
166 | (178 | ) | 960 | (726 | ) | ||||||||||
Change in net unrealized gains/(losses) on derivative instruments, net of tax of $25, ($6), $93 and ($55), respectively |
82 | (20 | ) | 302 | (179 | ) | ||||||||||
Change in net unrealized losses on brokered time deposits, net of tax of $0, $0, $0 and $0, respectively |
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Change in credit risk adjustment on long-term debt, net of tax of $0, $0, $0 and $1, respectively |
| | | 3 | ||||||||||||
Change related to employee benefit plans, net of tax of $1, $1, $4 and $1, respectively |
4 | 3 | 10 | 2 | ||||||||||||
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Total other comprehensive income/(loss), net of tax |
252 | (195 | ) | 1,271 | (900 | ) | ||||||||||
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Total comprehensive income |
$ | 875 | $ | 557 | $ | 3,162 | $ | 1,217 | ||||||||
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See accompanying Notes to Consolidated Financial Statements (unaudited).
3
SunTrust Banks, Inc.
Consolidated Balance Sheets
(Dollars in millions and shares in thousands, except per share data) | September 30, 2019 |
December 31, 2018 |
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(Unaudited) | ||||||||
Assets |
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Cash and due from banks |
$ | 7,844 | $ | 5,791 | ||||
Federal funds sold and securities borrowed or purchased under agreements to resell |
1,314 | 1,679 | ||||||
Interest-bearing deposits in other banks |
26 | 25 | ||||||
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Cash and cash equivalents |
9,184 | 7,495 | ||||||
Trading assets and derivative instruments 1 |
7,104 | 5,506 | ||||||
Securities available for sale 2 |
31,358 | 31,442 | ||||||
Loans held for sale ($1,488 and $1,178 at fair value at September 30, 2019 and December 31, 2018, respectively) |
2,006 | 1,468 | ||||||
Loans held for investment 3 ($124 and $163 at fair value at September 30, 2019 and December 31, 2018, respectively) |
158,455 | 151,839 | ||||||
Allowance for loan and lease losses |
(1,699 | ) | (1,615 | ) | ||||
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Net loans held for investment |
156,756 | 150,224 | ||||||
Premises, property, and equipment, net |
1,985 | 2,024 | ||||||
Goodwill |
6,331 | 6,331 | ||||||
Other intangible assets (Residential MSRs at fair value: $1,564 and $1,983 at September 30, 2019 and December 31, 2018, respectively) |
1,648 | 2,062 | ||||||
Other assets ($76 and $95 at fair value at September 30, 2019 and December 31, 2018, respectively) |
10,996 | 8,991 | ||||||
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Total assets |
$ | 227,368 | $ | 215,543 | ||||
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Liabilities |
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Noninterest-bearing deposits |
$ | 40,360 | $ | 40,770 | ||||
Interest-bearing deposits ($552 and $403 at fair value at September 30, 2019 and December 31, 2018, respectively) |
127,311 | 121,819 | ||||||
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Total deposits |
167,671 | 162,589 | ||||||
Funds purchased |
254 | 2,141 | ||||||
Securities sold under agreements to repurchase |
1,829 | 1,774 | ||||||
Other short-term borrowings |
5,061 | 4,857 | ||||||
Long-term debt 4 ($302 and $289 at fair value at September 30, 2019 and December 31, 2018, respectively) |
20,369 | 15,072 | ||||||
Trading liabilities and derivative instruments |
1,380 | 1,604 | ||||||
Other liabilities |
4,315 | 3,226 | ||||||
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Total liabilities |
200,879 | 191,263 | ||||||
Shareholders Equity |
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Preferred stock, no par value |
2,025 | 2,025 | ||||||
Common stock, $1.00 par value |
553 | 553 | ||||||
Additional paid-in capital |
8,989 | 9,022 | ||||||
Retained earnings |
20,664 | 19,522 | ||||||
Treasury stock, at cost, and other 5 |
(5,593 | ) | (5,422 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(149 | ) | (1,420 | ) | ||||
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Total shareholders equity |
26,489 | 24,280 | ||||||
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Total liabilities and shareholders equity |
$ | 227,368 | $ | 215,543 | ||||
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Common shares outstanding 6 |
444,033 | 446,888 | ||||||
Common shares authorized |
750,000 | 750,000 | ||||||
Preferred shares outstanding |
20 | 20 | ||||||
Preferred shares authorized |
50,000 | 50,000 | ||||||
Treasury shares of common stock |
108,750 | 105,896 | ||||||
1 Includes trading securities pledged as collateral where counterparties have the right to sell or repledge the collateral |
$ | 1,284 | $ | 1,442 | ||||
2 Includes securities AFS pledged as collateral where counterparties have the right to sell or repledge the collateral |
151 | 222 | ||||||
3 Includes LHFI of consolidated VIEs |
136 | 153 | ||||||
4 Includes debt of consolidated VIEs |
143 | 161 | ||||||
5 Includes noncontrolling interest |
101 | 103 | ||||||
6 Includes restricted shares |
4 | 7 |
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
SunTrust Banks, Inc.
Consolidated Statements of Shareholders Equity
(Dollars and shares in millions, except per share data) (Unaudited) |
Preferred Stock |
Common Shares Outstanding |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury 1 Stock and Other |
Accumulated Other Comprehensive Loss |
Total | ||||||||||||||||||||||||
Balance, July 1, 2019 |
$ | 2,025 | 444 | $ | 553 | $ | 8,965 | $ | 20,319 | ($ | 5,599 | ) | ($ | 401 | ) | $ | 25,862 | |||||||||||||||
Net income |
| | | | 623 | | | 623 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | | | 252 | 252 | ||||||||||||||||||||||||
Change in noncontrolling interest |
| | | | | (2 | ) | | (2 | ) | ||||||||||||||||||||||
Common stock dividends, $0.56 per share |
| | | | (249 | ) | | | (249 | ) | ||||||||||||||||||||||
Preferred stock dividends 2 |
| | | | (26 | ) | | | (26 | ) | ||||||||||||||||||||||
Exercise of stock options and stock compensation expense |
| | | (3 | ) | | 5 | | 2 | |||||||||||||||||||||||
Restricted stock activity |
| | | 27 | (3 | ) | 3 | | 27 | |||||||||||||||||||||||
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Balance, September 30, 2019 |
$ | 2,025 | 444 | $ | 553 | $ | 8,989 | $ | 20,664 | ($ | 5,593 | ) | ($ | 149 | ) | $ | 26,489 | |||||||||||||||
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Balance, January 1, 2019 |
$ | 2,025 | 447 | $ | 553 | $ | 9,022 | $ | 19,522 | ($ | 5,422 | ) | ($ | 1,420 | ) | $ | 24,280 | |||||||||||||||
Cumulative effect adjustment related to ASU adoption 3 |
| | | | 31 | | | 31 | ||||||||||||||||||||||||
Net income |
| | | | 1,891 | | | 1,891 | ||||||||||||||||||||||||
Other comprehensive income |
| | | | | | 1,271 | 1,271 | ||||||||||||||||||||||||
Change in noncontrolling interest |
| | | | | (2 | ) | | (2 | ) | ||||||||||||||||||||||
Common stock dividends, $1.56 per share |
| | | | (693 | ) | | | (693 | ) | ||||||||||||||||||||||
Preferred stock dividends 2 |
| | | | (77 | ) | | | (77 | ) | ||||||||||||||||||||||
Repurchase of common stock |
| (5 | ) | | | | (250 | ) | | (250 | ) | |||||||||||||||||||||
Exercise of stock options and stock compensation expense |
| | | (7 | ) | | 14 | | 7 | |||||||||||||||||||||||
Restricted stock activity |
| 2 | | (26 | ) | (10 | ) | 67 | | 31 | ||||||||||||||||||||||
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Balance, September 30, 2019 |
$ | 2,025 | 444 | $ | 553 | $ | 8,989 | $ | 20,664 | ($ | 5,593 | ) | ($ | 149 | ) | $ | 26,489 | |||||||||||||||
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1 | At September 30, 2019, includes ($5,693) million for treasury stock, less than ($ 1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest. |
2 | For the three months ended September 30, 2019, dividends were $1,022.22 per share for both Series A and B Preferred Stock, $1,406.25 per share for Series F Preferred Stock, $1,262.50 per share for Series G Preferred Stock, and $1,281.25 per share for Series H Preferred Stock. |
For the nine months ended September 30, 2019, dividends were $3,044.44 per share for both Series A and B Preferred Stock, $4,218.75 per share for Series F Preferred Stock, $3,787.50 per share for Series G Preferred Stock, and $3,843.75 per share for Series H Preferred Stock.
3 | Related to the Companys adoption of ASU 2016-02 on January 1, 2019. See Note 1, Significant Accounting Policies, for additional information. |
(Dollars and shares in millions, except per share data) (Unaudited) |
Preferred Stock |
Common Shares Outstanding |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury 1 Stock and Other |
Accumulated Other Comprehensive Loss |
Total | ||||||||||||||||||||||||
Balance, July 1, 2018 |
$ | 2,025 | 465 | $ | 552 | $ | 8,980 | $ | 18,616 | ($ | 4,178 | ) | ($ | 1,679 | ) | $ | 24,316 | |||||||||||||||
Net income |
| | | | 752 | | | 752 | ||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | (195 | ) | (195 | ) | ||||||||||||||||||||||
Change in noncontrolling interest |
| | | | | (2 | ) | | (2 | ) | ||||||||||||||||||||||
Common stock dividends, $0.50 per share |
| | | | (229 | ) | | | (229 | ) | ||||||||||||||||||||||
Preferred stock dividends 2 |
| | | | (26 | ) | | | (26 | ) | ||||||||||||||||||||||
Repurchase of common stock |
| (7 | ) | | | | (500 | ) | | (500 | ) | |||||||||||||||||||||
Exercise of stock options and stock compensation expense |
| | | (1 | ) | | 3 | | 2 | |||||||||||||||||||||||
Exercise of stock warrants |
| 1 | 1 | | | | | 1 | ||||||||||||||||||||||||
Restricted stock activity |
| | | 22 | (2 | ) | | | 20 | |||||||||||||||||||||||
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Balance, September 30, 2018 |
$ | 2,025 | 459 | $ | 553 | $ | 9,001 | $ | 19,111 | ($ | 4,677 | ) | ($ | 1,874 | ) | $ | 24,139 | |||||||||||||||
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Balance, January 1, 2018 |
$ | 2,475 | 471 | $ | 550 | $ | 9,000 | $ | 17,540 | ($ | 3,591 | ) | ($ | 820 | ) | $ | 25,154 | |||||||||||||||
Cumulative effect of adjustment related to ASU adoptions 3 |
| | | | 144 | | (154 | ) | (10 | ) | ||||||||||||||||||||||
Net income |
| | | | 2,117 | | | 2,117 | ||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | (900 | ) | (900 | ) | ||||||||||||||||||||||
Change in noncontrolling interest |
| | | | | (2 | ) | | (2 | ) | ||||||||||||||||||||||
Common stock dividends, $1.30 per share |
| | | | (603 | ) | | | (603 | ) | ||||||||||||||||||||||
Preferred stock dividends 2 |
| | | | (81 | ) | | | (81 | ) | ||||||||||||||||||||||
Redemption of preferred stock, Series E |
(450 | ) | | | | | | | (450 | ) | ||||||||||||||||||||||
Repurchase of common stock |
| (17 | ) | | | | (1,160 | ) | | (1,160 | ) | |||||||||||||||||||||
Exercise of stock options and stock compensation expense |
| 1 | | | | 36 | | 36 | ||||||||||||||||||||||||
Exercise of stock warrants |
| 3 | 3 | (3 | ) | | | | | |||||||||||||||||||||||
Restricted stock activity |
| 1 | | 4 | (6 | ) | 40 | | 38 | |||||||||||||||||||||||
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Balance, September 30, 2018 |
$ | 2,025 | 459 | $ | 553 | $ | 9,001 | $ | 19,111 | ($ | 4,677 | ) | ($ | 1,874 | ) | $ | 24,139 | |||||||||||||||
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1 | At September 30, 2018, includes ($4,777) million for treasury stock, less than ($1) million for the compensation element of restricted stock, and $101 million for noncontrolling interest. |
2 | For the three months ended September 30, 2018, dividends were $1,022.22 per share for both Series A and B Preferred Stock, $1,406.25 per share for Series F Preferred Stock, $1,262.50 per share for Series G Preferred Stock, and $1,281.25 per share for Series H Preferred Stock. |
For the nine months ended September 30, 2018, dividends were $3,044.44 per share for both Series A and B Preferred Stock, $1,468.75 per share for Series E Preferred Stock, $4,218.75 per share for Series F Preferred Stock, $3,787.50 per share for Series G Preferred Stock, and $4,285.07 per share for Series H Preferred Stock.
3 | Related to the Companys adoption of ASU 2014-09, ASU 2016-01, ASU 2017-12, and ASU 2018-02 on January 1, 2018. See Note 1, Significant Accounting Policies, to the Companys 2018 Annual Report on Form 10-K for additional information. |
See accompanying Notes to Consolidated Financial Statements (unaudited).
5
SunTrust Banks, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30 | ||||||||
(Dollars in millions) (Unaudited) | 2019 | 2018 | ||||||
Cash Flows from Operating Activities: |
||||||||
Net income including income attributable to noncontrolling interest |
$ | 1,898 | $ | 2,124 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation, amortization, and accretion |
518 | 535 | ||||||
Origination of servicing rights |
(251 | ) | (260 | ) | ||||
Provisions for credit losses and foreclosed property |
418 | 130 | ||||||
Stock-based compensation |
112 | 118 | ||||||
Net securities losses/(gains) |
38 | (1 | ) | |||||
Net gains on sale of loans held for sale, loans, and other assets |
(266 | ) | (83 | ) | ||||
Net (increase)/decrease in loans held for sale |
(315 | ) | 382 | |||||
Net increase in trading assets and derivative instruments |
(1,598 | ) | (818 | ) | ||||
Net increase in other assets 1 |
(382 | ) | (1,713 | ) | ||||
Net (decrease)/increase in other liabilities |
(166 | ) | 478 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
6 | 892 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities: |
||||||||
Proceeds from maturities, calls, and paydowns of securities available for sale |
3,316 | 2,840 | ||||||
Proceeds from sales of securities available for sale |
3,690 | 2,047 | ||||||
Purchases of securities available for sale |
(5,824 | ) | (5,534 | ) | ||||
Net increase in loans and leases, including purchases 1 |
(7,957 | ) | (4,566 | ) | ||||
Proceeds from sales of loans and leases |
866 | 199 | ||||||
Net cash paid for servicing rights |
(3 | ) | (73 | ) | ||||
Payments for bank-owned life insurance policy premiums |
(1 | ) | (201 | ) | ||||
Proceeds from the settlement of bank-owned life insurance |
17 | 8 | ||||||
Proceeds from the settlement of insurance claims |
210 | | ||||||
Capital expenditures |
(261 | ) | (170 | ) | ||||
Proceeds from the sale of other real estate owned and other assets |
88 | 148 | ||||||
Other investing activities |
2 | 1 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(5,857 | ) | (5,301 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities: |
||||||||
Net increase/(decrease) in total deposits |
5,082 | (402 | ) | |||||
Net (decrease)/increase in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings |
(1,628 | ) | 3,159 | |||||
Proceeds from issuance of long-term debt |
5,992 | 5,111 | ||||||
Repayments of long-term debt |
(864 | ) | (484 | ) | ||||
Repurchase of preferred stock |
| (450 | ) | |||||
Repurchase of common stock |
(250 | ) | (1,160 | ) | ||||
Common and preferred stock dividends paid |
(747 | ) | (664 | ) | ||||
Taxes paid related to net share settlement of equity awards |
(52 | ) | (44 | ) | ||||
Proceeds from exercise of stock options |
7 | 36 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
7,540 | 5,102 | ||||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
1,689 | 693 | ||||||
Cash and cash equivalents at beginning of period |
7,495 | 6,912 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 9,184 | $ | 7,605 | ||||
|
|
|
|
|||||
Supplemental Disclosures: |
||||||||
Loans transferred from loans held for sale to loans held for investment |
$ | 17 | $ | 23 | ||||
Loans transferred from loans held for investment to loans held for sale |
812 | 449 | ||||||
Loans transferred from loans held for investment to other real estate owned |
33 | 44 | ||||||
Non-cash impact of debt assumed by purchaser in lease sale |
163 | |
1 | Pursuant to the Companys adoption of ASU 2016-02 on January 1, 2019, it began including the interest portion of lessee payments received from sales-type and direct financing leases, which totaled $106 million for the nine months ended September 30, 2019, within operating activities, with the principal portion of lessee payments remaining within investing activities. For periods prior to January 1, 2019, interest payments were not retrospectively reclassified and remain within investing activities. See Note 1, Significant Accounting Policies, for additional information. |
See accompanying Notes to Consolidated Financial Statements (unaudited).
6
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Accounting Pronouncements
The following table summarizes ASUs issued by the FASB that were adopted during the nine months ended September 30, 2019 or not yet adopted as of September 30, 2019, that could have a material effect on the Companys financial statements:
Standard |
Description |
Required Date of |
Effect on the Financial Statements or Other Significant Matters | |||
Standards Adopted in 2019 | ||||||
ASU 2016-02, Leases (Topic 842) and subsequent related ASUs | These ASUs create and amend ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. ASC Topic 842 requires lessees to recognize right-of-use assets and associated liabilities that arise from leases, with the exception of short-term leases. These ASUs do not make significant changes to lessor accounting; however, there were certain improvements made to align lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers. Furthermore, there are several new qualitative and quantitative disclosures required for lessees and lessors, including updated guidance around the presentation of certain cash receipts on the Companys Consolidated Statements of Cash Flows. | January 1, 2019 | The Company adopted these ASUs on January 1, 2019, using a modified retrospective transition approach as of the date of adoption, which resulted in the recognition of $1.2 billion and $1.3 billion in right-of-use assets and associated lease liabilities, respectively, arising from operating leases in which the Company is the lessee, on the Companys Consolidated Balance Sheets. The amount of the right-of-use assets and associated lease liabilities recorded upon adoption was based primarily on the present value of unpaid future minimum lease payments, the amount of which was based on the population of leases in effect at the date of adoption. At September 30, 2019, right-of-use assets and lease liabilities recorded on the Companys Consolidated Balance Sheets totaled $1.1 billion and $1.2 billion, respectively.
Upon adoption, the Company also recognized a cumulative effect adjustment of $31 million to increase the beginning balance of retained earnings (as of January 1, 2019) for deferred gains on sale-leaseback transactions that occurred prior to the date of adoption and for other transition provisions. These ASUs did not have a material impact on the timing of expense or income recognition in the Companys Consolidated Statements of Income. | |||
Furthermore, effective January 1, 2019, the Company prospectively changed its presentation of certain cash receipts related to sales-type and direct financing leases in which it is the lessor on its Consolidated Statements of Cash Flows. Specifically, the Company began including on its Consolidated Statements of Cash Flows the interest portion of lessee payments received from sales-type and direct financing leases within operating activities, with the principal portion remaining within investing activities. For periods prior to the date of adoption, interest payments were not retrospectively reclassified and remain within investing activities. For the three and nine months ended September 30, 2019, the Company included $36 million and $106 million, respectively, of interest payments received from these sales-type and direct financing leases within operating activities on its Consolidated Statements of Cash Flows. | ||||||
For additional information and required disclosures related to ASC 842, see Note 10, Leases. |
7
Notes to Consolidated Financial Statements (Unaudited), continued
Standard |
Description |
Required Date of |
Effect on the Financial Statements or Other Significant Matters | |||
Standards Not Yet Adopted | ||||||
ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and subsequent related ASUs | These ASUs create and amend ASC Topic 326, Financial Instruments - Credit Losses, which replaces the incurred loss impairment methodology with a current expected credit loss methodology for financial instruments measured at amortized cost and other commitments to extend credit. For this purpose, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of voluntary prepayments and considering available information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is deducted from the amortized cost basis of the financial assets to reflect the net amount expected to be collected on the financial assets. Additional quantitative and qualitative disclosures are required upon adoption. The change to the allowance for credit losses at the time of the adoption will be made with a cumulative effect adjustment to retained earnings.
Although the current expected credit loss methodology does not apply to AFS debt securities, these ASUs do require entities to record an allowance when recognizing credit losses for AFS securities, rather than recording a direct write-down of the carrying amount. |
January 1, 2020 | The Company formed a cross-functional team to oversee the implementation of these ASUs. A detailed implementation plan was developed and progress is substantially complete in regards to the identification and staging of data, development and validation of models, refinement of economic forecasting processes, and documentation of accounting policy decisions. Additionally, a new credit loss forecasting process was implemented in the first half of 2019, resulting in modifications to the Companys associated internal control environment that will be effective upon adoption of these ASUs. In the first half of 2019, the Company performed testing in which methodologies, processes, and internal controls were evaluated and refined. The Company performed a full parallel run of the new methodology in the third quarter of 2019 and will perform another full parallel run in the fourth quarter of 2019. The parallel runs include execution of internal controls, supporting analytics, reserve estimation, process and procedure documentation, and subject matter expert reviews. The Company continues to refine its processes and methodology based on the results of these exercises.
The Company plans to adopt these ASUs on January 1, 2020, and it continues to evaluate the impact that these ASUs will have on its Consolidated Financial Statements and related disclosures. The Company anticipates that an increase to the allowance for credit losses will be recognized upon adoption to provide for the expected credit losses over the estimated life of the financial assets. The actual magnitude of the increase will depend on existing and forecasted economic conditions and trends in the Companys portfolio at the time of adoption. The Company is also evaluating the anticipated impact that the Merger will have on its estimated impact of adopting these ASUs on its Consolidated Financial Statements. | |||
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | This ASU amends ASC Topic 350, Intangibles - Goodwill and Other, to simplify the subsequent measurement of goodwill, by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This ASU requires an entity to recognize an impairment charge for the amount by which a reporting units carrying amount exceeds its fair value, with the loss limited to the total amount of goodwill allocated to that reporting unit. The ASU must be applied on a prospective basis. | January 1, 2020 | Based on the Companys most recent qualitative goodwill impairment assessment performed in the third quarter of 2019, there were no reporting units for which it was more-likely-than-not that the carrying amount of a reporting unit exceeded its respective fair value; therefore, this ASU would not currently have an impact on the Companys Consolidated Financial Statements or related disclosures. However, if subsequent to adoption, the carrying amount of a reporting unit exceeds its respective fair value, the Company would be required to recognize an impairment charge for the amount that the carrying value exceeds the fair value. | |||
ASU 2018-15, Intangibles - Goodwill and Other - Internal- Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract | This ASU amends ASC Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software, to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company may apply this ASU either retrospectively, or prospectively to all implementation costs incurred after the date of adoption. | January 1, 2020 | The Companys current accounting policy for capitalizing implementation costs incurred in a hosting arrangement generally aligns with the requirements of this ASU; therefore, the Companys adoption of this ASU is not expected to have a material impact on the Companys Consolidated Financial Statements or related disclosures. |
8
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 2 REVENUE RECOGNITION
Three Months Ended September 30, 2019 | ||||||||||||||||
(Dollars in millions) | Consumer 1 | Wholesale 1 | Out of Scope 1, 2 | Total | ||||||||||||
Noninterest income |
||||||||||||||||
Service charges on deposit accounts |
$ | 112 | $ | 29 | $ | | $ | 141 | ||||||||
Other charges and fees 3 |
27 | 4 | 59 | 90 | ||||||||||||
Card fees |
57 | 24 | 2 | 83 | ||||||||||||
Investment banking income |
| 97 | 62 | 159 | ||||||||||||
Trading income |
| | 29 | 29 | ||||||||||||
Mortgage-related income |
| | 106 | 106 | ||||||||||||
Trust and investment management income |
77 | | 1 | 78 | ||||||||||||
Retail investment services 4 |
76 | | | 76 | ||||||||||||
Insurance settlement |
| | 5 | 5 | ||||||||||||
Commercial real estate-related income |
| | 32 | 32 | ||||||||||||
Net securities gains/(losses) |
| | 4 | 4 | ||||||||||||
Other noninterest income |
6 | | 34 | 40 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
$ | 355 | $ | 154 | $ | 334 | $ | 843 | ||||||||
|
|
|
|
|
|
|
|
1 | Consumer total noninterest income and Wholesale total noninterest income exclude $124 million and $214 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, Business Segment Reporting. Out of scope total noninterest income includes these amounts and also includes ($4) million of Corporate Other noninterest income that is not subject to ASC Topic 606. |
2 | The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Companys Consolidated Statements of Income. |
3 | The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
4 | The Company recognized $12 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
Three Months Ended September 30, 2018 | ||||||||||||||||
(Dollars in millions) | Consumer 1 | Wholesale 1 | Out of Scope 1, 2 | Total | ||||||||||||
Noninterest income |
||||||||||||||||
Service charges on deposit accounts |
$ | 111 | $ | 33 | $ | | $ | 144 | ||||||||
Other charges and fees 3 |
28 | 3 | 58 | 89 | ||||||||||||
Card fees |
49 | 26 | | 75 | ||||||||||||
Investment banking income |
| 101 | 49 | 150 | ||||||||||||
Trading income |
| | 42 | 42 | ||||||||||||
Mortgage-related income |
| | 83 | 83 | ||||||||||||
Trust and investment management income |
79 | | 1 | 80 | ||||||||||||
Retail investment services 4 |
73 | | 1 | 74 | ||||||||||||
Insurance settlement |
| | | | ||||||||||||
Commercial real estate-related income |
| | 24 | 24 | ||||||||||||
Net securities gains/(losses) |
| | | | ||||||||||||
Other noninterest income |
5 | | 16 | 21 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
$ | 345 | $ | 163 | $ | 274 | $ | 782 | ||||||||
|
|
|
|
|
|
|
|
1 | Consumer total noninterest income and Wholesale total noninterest income exclude $99 million and $205 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, Business Segment Reporting. Out of scope total noninterest income includes these amounts and also includes ($30) million of Corporate Other noninterest income that is not subject to ASC Topic 606. |
2 | The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Companys Consolidated Statements of Income. |
3 | The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
4 | The Company recognized $12 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
9
Notes to Consolidated Financial Statements (Unaudited), continued
Nine Months Ended September 30, 2019 | ||||||||||||||||
(Dollars in millions) | Consumer 1 | Wholesale 1 | Out of Scope 1, 2 | Total | ||||||||||||
Noninterest income |
||||||||||||||||
Service charges on deposit accounts |
$ | 324 | $ | 93 | $ | | $ | 417 | ||||||||
Other charges and fees 3 |
82 | 12 | 171 | 265 | ||||||||||||
Card fees |
168 | 75 | 4 | 247 | ||||||||||||
Investment banking income |
| 261 | 170 | 431 | ||||||||||||
Trading income |
| | 144 | 144 | ||||||||||||
Mortgage-related income |
| | 294 | 294 | ||||||||||||
Trust and investment management income |
220 | | 2 | 222 | ||||||||||||
Retail investment services 4 |
218 | 1 | 1 | 220 | ||||||||||||
Insurance settlement |
| | 210 | 210 | ||||||||||||
Commercial real estate-related income |
| | 106 | 106 | ||||||||||||
Net securities gains/(losses) |
| | (38 | ) | (38 | ) | ||||||||||
Other noninterest income |
17 | | 118 | 135 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
$ | 1,029 | $ | 442 | $ | 1,182 | $ | 2,653 | ||||||||
|
|
|
|
|
|
|
|
1 | Consumer total noninterest income and Wholesale total noninterest income exclude $386 million and $695 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, Business Segment Reporting. Out of scope total noninterest income includes these amounts and also includes $101 million of Corporate Other noninterest income that is not subject to ASC Topic 606. |
2 | The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Companys Consolidated Statements of Income. |
3 | The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
4 | The Company recognized $31 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
Nine Months Ended September 30, 2018 | ||||||||||||||||
(Dollars in millions) | Consumer 1 | Wholesale 1 | Out of Scope 1, 2 | Total | ||||||||||||
Noninterest income |
||||||||||||||||
Service charges on deposit accounts |
$ | 330 | $ | 103 | $ | | $ | 433 | ||||||||
Other charges and fees 3 |
85 | 8 | 171 | 264 | ||||||||||||
Card fees |
160 | 78 | 3 | 241 | ||||||||||||
Investment banking income |
| 287 | 166 | 453 | ||||||||||||
Trading income |
| | 137 | 137 | ||||||||||||
Mortgage-related income |
| | 256 | 256 | ||||||||||||
Trust and investment management income |
228 | | 2 | 230 | ||||||||||||
Retail investment services 4 |
216 | 2 | 1 | 219 | ||||||||||||
Insurance settlement |
| | | | ||||||||||||
Commercial real estate-related income |
| | 66 | 66 | ||||||||||||
Net securities gains/(losses) |
| | 1 | 1 | ||||||||||||
Other noninterest income |
17 | | 91 | 108 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total noninterest income |
$ | 1,036 | $ | 478 | $ | 894 | $ | 2,408 | ||||||||
|
|
|
|
|
|
|
|
1 | Consumer total noninterest income and Wholesale total noninterest income exclude $311 million and $618 million of out of scope noninterest income, respectively, which are included in the business segment results presented on a management accounting basis in Note 19, Business Segment Reporting. Out of scope total noninterest income includes these amounts and also includes ($35) million of Corporate Other noninterest income that is not subject to ASC Topic 606. |
2 | The Company presents out of scope noninterest income for the purpose of reconciling noninterest income amounts within the scope of ASC Topic 606 to noninterest income amounts presented on the Companys Consolidated Statements of Income. |
3 | The Company recognized an immaterial amount of insurance trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
4 | The Company recognized $38 million of mutual fund 12b-1 fees and annuity trailing commissions, the majority of which related to performance obligations satisfied in prior periods. |
10
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 3 FEDERAL FUNDS SOLD AND SECURITIES FINANCING ACTIVITIES
Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell
Fed Funds sold and securities borrowed or purchased under agreements to resell were as follows:
(Dollars in millions) | September 30, 2019 | December 31, 2018 | ||||||
Fed funds sold |
$ | 5 | $ | 42 | ||||
Securities borrowed |
491 | 394 | ||||||
Securities purchased under agreements to resell |
818 | 1,243 | ||||||
|
|
|
|
|||||
Total Fed funds sold and securities borrowed or purchased under agreements to resell |
$ | 1,314 | $ | 1,679 | ||||
|
|
|
|
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for as secured borrowings. The following table presents the Companys related activity, by collateral type and remaining contractual maturity:
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||
(Dollars in millions) | Overnight and Continuous |
Up to 30 days | Total | Overnight and Continuous |
Up to 30 days | 30-90 days | Total | |||||||||||||||||||||
U.S. Treasury securities |
$ | 89 | $ | | $ | 89 | $ | 197 | $ | 7 | $ | | $ | 204 | ||||||||||||||
Federal agency securities |
95 | 9 | 104 | 112 | 10 | | 122 | |||||||||||||||||||||
MBS - agency residential |
1,031 | 143 | 1,174 | 881 | 35 | | 916 | |||||||||||||||||||||
CP |
74 | | 74 | 78 | |
|
|
| 78 | |||||||||||||||||||
Corporate and other debt securities |
196 | 192 | 388 | 216 | 158 | 80 | 454 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total securities sold under agreements to repurchase |
$ | 1,485 | $ | 344 | $ | 1,829 | $ | 1,484 | $ | 210 | $ | 80 | $ | 1,774 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Notes to Consolidated Financial Statements (Unaudited), continued
(Dollars in millions) | Gross Amount |
Amount Offset |
Net Amount Presented in Consolidated Balance Sheets |
Held/Pledged Financial Instruments |
Net Amount |
|||||||||||||||
September 30, 2019 |
||||||||||||||||||||
Financial assets: |
||||||||||||||||||||
Securities borrowed or purchased under agreements to resell |
$ | 1,309 | $ | | $ | 1,309 | 1 | $ | 1,293 | $ | 16 | |||||||||
Financial liabilities: |
||||||||||||||||||||
Securities sold under agreements to repurchase |
1,829 | | 1,829 | 1,829 | | |||||||||||||||
December 31, 2018 |
||||||||||||||||||||
Financial assets: |
||||||||||||||||||||
Securities borrowed or purchased under agreements to resell |
$ | 1,637 | $ | | $ | 1,637 | 1 | $ | 1,624 | $ | 13 | |||||||||
Financial liabilities: |
||||||||||||||||||||
Securities sold under agreements to repurchase |
1,774 | | 1,774 | 1,774 | |
1 | Excludes $5 million and $42 million of Fed Funds sold that are not subject to a master netting agreement at September 30, 2019 and December 31, 2018, respectively. |
NOTE 4 - TRADING ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS
The fair values of the components of trading assets and liabilities and derivative instruments are presented in the following table:
(Dollars in millions) | September 30, 2019 | December 31, 2018 | ||||||
Trading Assets and Derivative Instruments: |
||||||||
U.S. Treasury securities |
$ | 212 | $ | 262 | ||||
Federal agency securities |
319 | 188 | ||||||
U.S. states and political subdivisions |
43 | 54 | ||||||
MBS - agency residential |
1,004 | 860 | ||||||
MBS - agency commercial |
51 | | ||||||
ABS |
7 | | ||||||
Corporate and other debt securities |
628 | 700 | ||||||
CP |
122 | 190 | ||||||
Equity securities |
86 | 73 | ||||||
Derivative instruments 1 |
1,770 | 639 | ||||||
Trading loans 2 |
2,862 | 2,540 | ||||||
|
|
|
|
|||||
Total trading assets and derivative instruments |
$ | 7,104 | $ | 5,506 | ||||
|
|
|
|
|||||
Trading Liabilities and Derivative Instruments: |
||||||||
U.S. Treasury securities |
$ | 538 | $ | 801 | ||||
MBS - agency |
| 3 | ||||||
Corporate and other debt securities |
539 | 385 | ||||||
Equity securities |
20 | 5 | ||||||
Derivative instruments 1 |
274 | 410 | ||||||
Trading loans |
9 | | ||||||
|
|
|
|
|||||
Total trading liabilities and derivative instruments |
$ | 1,380 | $ | 1,604 | ||||
|
|
|
|
1 Amounts include the impact of offsetting cash collateral received from and paid to the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists. 2 Includes loans related to TRS. |
12
Notes to Consolidated Financial Statements (Unaudited), continued
Pledged trading assets are presented in the following table:
(Dollars in millions) | September 30, 2019 | December 31, 2018 | ||||||
Pledged trading assets to secure repurchase agreements 1 |
$ | 1,226 | $ | 1,418 | ||||
Pledged trading assets to secure certain derivative agreements |
62 | 22 | ||||||
Pledged trading assets to secure other arrangements |
40 | 40 |
1 | Repurchase agreements secured by collateral totaled $1.2 billion and $1.4 billion at September 30, 2019 and December 31, 2018, respectively. |
NOTE 5 INVESTMENT SECURITIES
Investment Securities Portfolio Composition
September 30, 2019 | ||||||||||||||||
(Dollars in millions) | Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
||||||||||||
Securities AFS: |
||||||||||||||||
U.S. Treasury securities |
$ | 3,915 | $ | 103 | $ | | $ | 4,018 | ||||||||
Federal agency securities |
123 | 1 | | 124 | ||||||||||||
U.S. states and political subdivisions |
564 | 9 | 1 | 572 | ||||||||||||
MBS - agency residential |
22,069 | 520 | 4 | 22,585 | ||||||||||||
MBS - agency commercial |
2,881 | 103 | 1 | 2,983 | ||||||||||||
MBS - non-agency commercial |
1,008 | 56 | | 1,064 | ||||||||||||
Corporate and other debt securities |
12 | | | 12 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities AFS |
$ | 30,572 | $ | 792 | $ | 6 | $ | 31,358 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2018 | ||||||||||||||||
(Dollars in millions) | Amortized Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
||||||||||||
Securities AFS: |
||||||||||||||||
U.S. Treasury securities |
$ | 4,277 | $ | | $ | 66 | $ | 4,211 | ||||||||
Federal agency securities |
221 | 2 | 2 | 221 | ||||||||||||
U.S. states and political subdivisions |
606 | 4 | 21 | 589 | ||||||||||||
MBS - agency residential |
23,161 | 128 | 425 | 22,864 | ||||||||||||
MBS - agency commercial |
2,688 | 8 | 69 | 2,627 | ||||||||||||
MBS - non-agency commercial |
943 | | 27 | 916 | ||||||||||||
Corporate and other debt securities |
14 | | | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total securities AFS |
$ | 31,910 | $ | 142 | $ | 610 | $ | 31,442 | ||||||||
|
|
|
|
|
|
|
|
The following table presents interest on securities AFS:
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(Dollars in millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Taxable interest |
$ | 211 | $ | 207 | $ | 646 | $ | 614 | ||||||||
Tax-exempt interest |
4 | 5 | 13 | 14 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest on securities AFS |
$ | 215 | $ | 212 | $ | 659 | $ | 628 | ||||||||
|
|
|
|
|
|
|
|
Investment securities pledged to secure public deposits, repurchase agreements, trusts, certain derivative agreements, and other funds had a fair value of $4.0 billion and $3.3 billion at September 30, 2019 and December 31, 2018, respectively.
13
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents the amortized cost, fair value, and weighted average yield of the Companys investment securities at September 30, 2019, by remaining contractual maturity, with the exception of MBS, which are based on estimated average life. Receipt of cash flows may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
Distribution of Remaining Maturities | ||||||||||||||||||||
(Dollars in millions) | Due in 1 Year or Less |
Due After 1 Year through 5 Years |
Due After 5 Years through 10 Years |
Due After 10 Years | Total | |||||||||||||||
Amortized Cost: |
||||||||||||||||||||
Securities AFS: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 632 | $ | 2,331 | $ | 952 | $ | | $ | 3,915 | ||||||||||
Federal agency securities |
50 | 10 | 6 | 57 | 123 | |||||||||||||||
U.S. states and political subdivisions |
| 90 | 317 | 157 | 564 | |||||||||||||||
MBS - agency residential |
1,435 | 9,389 | 10,890 | 355 | 22,069 | |||||||||||||||
MBS - agency commercial |
| 835 | 1,683 | 363 | 2,881 | |||||||||||||||
MBS - non-agency commercial |
| 12 | 996 | | 1,008 | |||||||||||||||
Corporate and other debt securities |
| 12 | | | 12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities AFS |
$ | 2,117 | $ | 12,679 | $ | 14,844 | $ | 932 | $ | 30,572 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fair Value: |
||||||||||||||||||||
Securities AFS: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 634 | $ | 2,389 | $ | 995 | $ | | $ | 4,018 | ||||||||||
Federal agency securities |
50 | 10 | 6 | 58 | 124 | |||||||||||||||
U.S. states and political subdivisions |
| 95 | 320 | 157 | 572 | |||||||||||||||
MBS - agency residential |
1,485 | 9,630 | 11,108 | 362 | 22,585 | |||||||||||||||
MBS - agency commercial |
| 851 | 1,752 | 380 | 2,983 | |||||||||||||||
MBS - non-agency commercial |
| 12 | 1,052 | | 1,064 | |||||||||||||||
Corporate and other debt securities |
| 12 | | | 12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities AFS |
$ | 2,169 | $ | 12,999 | $ | 15,233 | $ | 957 | $ | 31,358 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted average yield 1 |
3.09 | % | 2.81 | % | 2.93 | % | 3.02 | % | 2.89 | % |
1 Weighted average yields are based on amortized cost and presented on an FTE basis. |
14
Notes to Consolidated Financial Statements (Unaudited), continued
Investment Securities in an Unrealized Loss Position
Investment securities in an unrealized loss position at period end are presented in the following tables:
September 30, 2019 | ||||||||||||||||||||||||
Less than twelve months |
Twelve months or longer |
Total | ||||||||||||||||||||||
(Dollars in millions) | Fair Value |
Unrealized 1 Losses |
Fair Value |
Unrealized 1 Losses |
Fair Value |
Unrealized 1 Losses |
||||||||||||||||||
Temporarily impaired securities AFS: |
||||||||||||||||||||||||
U.S. Treasury securities |
$ | 50 | $ | | $ | | $ | | $ | 50 | $ | | ||||||||||||
Federal agency securities |
20 | | | | 20 | | ||||||||||||||||||
U.S. states and political subdivisions |
119 | 1 | | | 119 | 1 | ||||||||||||||||||
MBS - agency residential |
1,089 | 4 | | | 1,089 | 4 | ||||||||||||||||||
MBS - agency commercial |
207 | 1 | | | 207 | 1 | ||||||||||||||||||
Corporate and other debt securities |
| | 6 | | 6 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities AFS |
1,485 | 6 | 6 | | 1,491 | 6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
OTTI securities AFS 2: |
||||||||||||||||||||||||
Total OTTI securities AFS |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total impaired securities AFS |
$ | 1,485 | $ | 6 | $ | 6 | $ | | $ | 1,491 | $ | 6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 Unrealized losses less than $0.5 million are presented as zero within the table. 2 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings. |
December 31, 2018 | ||||||||||||||||||||||||
Less than twelve months | Twelve months or longer | Total | ||||||||||||||||||||||
(Dollars in millions) | Fair Value |
Unrealized 1 Losses |
Fair Value |
Unrealized 1 Losses |
Fair Value |
Unrealized 1 Losses |
||||||||||||||||||
Temporarily impaired securities AFS: |
||||||||||||||||||||||||
U.S. Treasury securities |
$ | | $ | | $ | 4,177 | $ | 66 | $ | 4,177 | $ | 66 | ||||||||||||
Federal agency securities |
| | 63 | 2 | 63 | 2 | ||||||||||||||||||
U.S. states and political subdivisions |
49 | 1 | 430 | 20 | 479 | 21 | ||||||||||||||||||
MBS - agency residential |
1,229 | 5 | 15,384 | 420 | 16,613 | 425 | ||||||||||||||||||
MBS - agency commercial |
68 | | 1,986 | 69 | 2,054 | 69 | ||||||||||||||||||
MBS - non-agency commercial |
106 | 1 | 773 | 26 | 879 | 27 | ||||||||||||||||||
Corporate and other debt securities |
| | 9 | | 9 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total temporarily impaired securities AFS |
1,452 | 7 | 22,822 | 603 | 24,274 | 610 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
OTTI securities AFS 2: |
||||||||||||||||||||||||
Total OTTI securities AFS |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total impaired securities AFS |
$ | 1,452 | $ | 7 | $ | 22,822 | $ | 603 | $ | 24,274 | $ | 610 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 Unrealized losses less than $0.5 million are presented as zero within the table. 2 OTTI securities AFS are impaired securities for which OTTI credit losses have been previously recognized in earnings. |
15
Notes to Consolidated Financial Statements (Unaudited), continued
Realized Gains and Losses and Other-Than-Temporarily Impaired Securities
16
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 6 - LOANS
17
Notes to Consolidated Financial Statements (Unaudited), continued
LHFI by credit quality indicator are presented in the following tables:
Commercial Loans | ||||||||||||||||||||||||
C&I | CRE | Commercial Construction | ||||||||||||||||||||||
(Dollars in millions) | September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
||||||||||||||||||
Risk rating: |
||||||||||||||||||||||||
Pass |
$ | 70,739 | $ | 69,095 | $ | 9,410 | $ | 7,165 | $ | 2,082 | $ | 2,459 | ||||||||||||
Criticized accruing |
2,285 | 1,885 | 80 | 98 | 60 | 79 | ||||||||||||||||||
Criticized nonaccruing |
350 | 157 | 1 | 2 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 73,374 | $ | 71,137 | $ | 9,491 | $ | 7,265 | $ | 2,142 | $ | 2,538 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans 1 | ||||||||||||||||||||||||
Residential Mortgages - Nonguaranteed |
Residential Home Equity Products | Residential Construction | ||||||||||||||||||||||
(Dollars in millions) | September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
||||||||||||||||||
Current FICO score range: |
||||||||||||||||||||||||
700 and above |
$ | 25,985 | $ | 25,764 | $ | 7,406 | $ | 8,060 | $ | 116 | $ | 151 | ||||||||||||
620 - 699 |
2,219 | 2,367 | 929 | 1,015 | 22 | 27 | ||||||||||||||||||
Below 620 2 |
606 | 705 | 361 | 393 | 6 | 6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 28,810 | $ | 28,836 | $ | 8,696 | $ | 9,468 | $ | 144 | $ | 184 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other Direct | Indirect | Credit Cards | ||||||||||||||||||||||
(Dollars in millions) | September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
September 30, 2019 |
December 31, 2018 |
||||||||||||||||||
Current FICO score range: |
||||||||||||||||||||||||
700 and above |
$ | 10,671 | $ | 9,296 | $ | 10,904 | $ | 9,315 | $ | 1,145 | $ | 1,142 | ||||||||||||
620 - 699 |
1,543 | 1,175 | 2,367 | 2,395 | 423 | 420 | ||||||||||||||||||
Below 620 2 |
217 | 144 | 789 | 709 | 136 | 127 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 12,431 | $ | 10,615 | $ | 14,060 | $ | 12,419 | $ | 1,704 | $ | 1,689 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | Excludes $7.1 billion and $7.2 billion of guaranteed student loans and $457 million and $459 million of guaranteed residential mortgages at September 30, 2019 and December 31, 2018, respectively, for which there was nominal risk of principal loss due to the government guarantee. |
2 | For substantially all loans with refreshed FICO scores below 620, the borrowers FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned. |
18
Notes to Consolidated Financial Statements (Unaudited), continued
The LHFI portfolio by payment status is presented in the following tables:
September 30, 2019 | ||||||||||||||||||||
Accruing | ||||||||||||||||||||
(Dollars in millions) | Current | 30-89 Days Past Due |
90+ Days Past Due |
Nonaccruing 1 |
Total | |||||||||||||||
Commercial loans: |
||||||||||||||||||||
C&I |
$ | 72,955 | $ | 55 | $ | 14 | $ | 350 | $ | 73,374 | ||||||||||
CRE |
9,486 | 3 | 1 | 1 | 9,491 | |||||||||||||||
Commercial construction |
2,142 | | | | 2,142 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial LHFI |
84,583 | 58 | 15 | 351 | 85,007 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||||
Residential mortgages - guaranteed |
131 | 25 | 301 | | 3 | 457 | ||||||||||||||
Residential mortgages - nonguaranteed 2 |
28,620 | 55 | 10 | 125 | 28,810 | |||||||||||||||
Residential home equity products |
8,534 | 61 | 1 | 100 | 8,696 | |||||||||||||||
Residential construction |
135 | 1 | | 8 | 144 | |||||||||||||||
Guaranteed student |
5,563 | 543 | 1,040 | | 3 | 7,146 | ||||||||||||||
Other direct |
12,362 | 53 | 5 | 11 | 12,431 | |||||||||||||||
Indirect |
13,951 | 103 | 1 | 5 | 14,060 | |||||||||||||||
Credit cards |
1,666 | 18 | 20 | | 1,704 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer LHFI |
70,962 | 859 | 1,378 | 249 | 73,448 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total LHFI |
$ | 155,545 | $ | 917 | $ | 1,393 | $ | 600 | $ | 158,455 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1 Includes nonaccruing LHFI past due 90 days or more of $306 million. Nonaccruing LHFI past due fewer than 90 days include nonaccrual LHFI modified in TDRs, performing second lien LHFI where the first lien loan is nonperforming, and certain energy-related commercial LHFI. 2 Includes $124 million of LHFI measured at fair value, the majority of which were accruing current. 3 Guaranteed LHFI are not placed on nonaccrual status regardless of delinquency because collection of principal and interest is reasonably assured by the government. |
December 31, 2018 | ||||||||||||||||||||
Accruing | ||||||||||||||||||||
(Dollars in millions) | Current | 30-89 Days Past Due |
90+ Days Past Due |
Nonaccruing 1 |
Total | |||||||||||||||
Commercial loans: |
||||||||||||||||||||
C&I |
$ | 70,901 | $ | 64 | $ | 15 | $ | 157 | $ | 71,137 | ||||||||||
CRE |
7,259 | 3 | 1 | 2 | 7,265 | |||||||||||||||
Commercial construction |
2,538 | | | | 2,538 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial LHFI |
80,698 | 67 | 16 | 159 | 80,940 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans: |
||||||||||||||||||||
Residential mortgages - guaranteed |
125 | 39 | 295 | | 3 | 459 | ||||||||||||||
Residential mortgages - nonguaranteed 2 |
28,552 | 70 | 10 | 204 | 28,836 | |||||||||||||||
Residential home equity products |
9,268 | 62 | | 138 | 9,468 | |||||||||||||||
Residential construction |
170 | 3 | | 11 | 184 | |||||||||||||||
Guaranteed student |
5,236 | 685 | 1,308 | | 3 | 7,229 | ||||||||||||||
Other direct |
10,559 | 45 | 4 | 7 | 10,615 | |||||||||||||||
Indirect |
12,286 | 125 | 1 | 7 | 12,419 | |||||||||||||||
Credit cards |
1,654 | 17 | 18 | | 1,689 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer LHFI |
67,850 | 1,046 | 1,636 | 367 | 70,899 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total LHFI |
$ | 148,548 | $ | 1,113 | $ | 1,652 | $ | 526 | $ | 151,839 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1 Includes nonaccruing LHFI past due 90 days or more of $306 million. Nonaccruing LHFI past due fewer than 90 days include nonaccrual LHFI modified in TDRs, performing second lien LHFI where the first lien loan is nonperforming, and certain energy-related commercial LHFI. 2 Includes $163 million of LHFI measured at fair value, the majority of which were accruing current. 3 Guaranteed LHFI are not placed on nonaccrual status regardless of delinquency because collection of principal and interest is reasonably assured by the government. |
19
Notes to Consolidated Financial Statements (Unaudited), continued
Impaired Loans
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
(Dollars in millions) | Unpaid Principal Balance |
Carrying 1 Value |
Related ALLL |
Unpaid Principal Balance |
Carrying 1 Value |
Related ALLL |
||||||||||||||||||
Impaired LHFI with no ALLL recorded: |
||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
C&I |
$ | 48 | $ | 39 | $ | | $ | 132 | $ | 79 | $ | | ||||||||||||
CRE |
| | | 10 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial LHFI with no ALLL recorded |
48 | 39 | | 142 | 79 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Residential mortgages - nonguaranteed |
354 | 283 | | 501 | 397 | | ||||||||||||||||||
Residential construction |
7 | 4 | | 12 | 7 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer LHFI with no ALLL recorded |
361 | 287 | | 513 | 404 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Impaired LHFI with an ALLL recorded: |
||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
C&I |
311 | 300 | 71 | 81 | 70 | 13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial LHFI with an ALLL recorded |
311 | 300 | 71 | 81 | 70 | 13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Residential mortgages - nonguaranteed |
561 | 561 | 54 | 1,006 | 984 | 96 | ||||||||||||||||||
Residential home equity products |
753 | 721 | 41 | 849 | 799 | 44 | ||||||||||||||||||
Residential construction |
70 | 68 | 5 | 79 | 76 | 6 | ||||||||||||||||||
Other direct |
57 | 57 | 1 | 57 | 57 | 1 | ||||||||||||||||||
Indirect |
136 | 135 | 4 | 133 | 133 | 5 | ||||||||||||||||||
Credit cards |
12 | 12 | 3 | 30 | 9 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total consumer LHFI with an ALLL recorded |
1,589 | 1,554 | 108 | 2,154 | 2,058 | 154 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total impaired LHFI |
$ | 2,309 | $ | 2,180 | $ | 179 | $ | 2,890 | $ | 2,611 | $ | 167 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 Carrying value reflects charge-offs that have been recognized plus other amounts that have been applied to adjust the net book balance. |
20
Notes to Consolidated Financial Statements (Unaudited), continued
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||
Average | Interest 1 | Average | Interest 1 | Average | Interest 1 | Average | Interest 1 | |||||||||||||||||||||||||
Carrying | Income | Carrying | Income | Carrying | Income | Carrying | Income | |||||||||||||||||||||||||
(Dollars in millions) | Value | Recognized | Value | Recognized | Value | Recognized | Value | Recognized | ||||||||||||||||||||||||
Impaired LHFI with no ALLL recorded: |
||||||||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||||||||
C&I |
$ | 40 | $ | | $ | 44 | $ | | $ | 41 | $ | | $ | 45 | $ | 1 | ||||||||||||||||
CRE |
| | 20 | | | | 20 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial LHFI with no ALLL recorded |
40 | | 64 | | 41 | | 65 | 1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||||||||
Residential mortgages - nonguaranteed |
284 | 4 | 381 | 4 | 287 | 12 | 386 | 11 | ||||||||||||||||||||||||
Residential construction |
4 | | 7 | | 4 | | 7 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer LHFI with no ALLL recorded |
288 | 4 | 388 | 4 | 291 | 12 | 393 | 11 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Impaired LHFI with an ALLL recorded: |
||||||||||||||||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||||||||||
C&I |
303 | 2 | 177 | | 305 | 8 | 176 | 3 | ||||||||||||||||||||||||
CRE |
| | 21 | | | | 22 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total commercial LHFI with an ALLL recorded |
303 | 2 | 198 | | 305 | 8 | 198 | 3 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Consumer loans: |
||||||||||||||||||||||||||||||||
Residential mortgages - nonguaranteed |
562 | 8 | 1,027 | 13 | 565 | 28 | 1,031 | 39 | ||||||||||||||||||||||||
Residential home equity products |
723 | 8 | 824 | 9 | 732 | 25 | 833 | 27 | ||||||||||||||||||||||||
Residential construction |
68 | 1 | 80 | 1 | 69 | 3 | 82 | 4 | ||||||||||||||||||||||||
Other direct |
58 | 1 | 57 | 1 | 58 | 3 | 58 | 3 | ||||||||||||||||||||||||
Indirect |
139 | 2 | 134 | 2 | 147 | 5 | 141 | 5 | ||||||||||||||||||||||||
Credit cards |
12 | | 8 | | 11 | 1 | 8 | 1 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total consumer LHFI with an ALLL recorded |
1,562 | 20 | 2,130 | 26 | 1,582 | 65 | 2,153 | 79 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total impaired LHFI |
$ | 2,193 | $ | 26 | $ | 2,780 | $ | 30 | $ | 2,219 | $ | 85 | $ | 2,809 | $ | 94 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Of the interest income recognized during the three and nine months ended September 30, 2019, cash basis interest income was immaterial and $ 9 million, respectively. Of the interest income recognized during the three and nine months ended September 30, 2018, cash basis interest income was immaterial. |
21
Notes to Consolidated Financial Statements (Unaudited), continued
NPAs are presented in the following table:
(Dollars in millions) | September 30, 2019 | December 31, 2018 | ||||||
NPAs: |
||||||||
Commercial NPLs: |
||||||||
C&I |
$ | 350 | $ | 157 | ||||
CRE |
1 | 2 | ||||||
Consumer NPLs: |
||||||||
Residential mortgages - nonguaranteed |
125 | 204 | ||||||
Residential home equity products |
100 | 138 | ||||||
Residential construction |
8 | 11 | ||||||
Other direct |
11 | 7 | ||||||
Indirect |
5 | 7 | ||||||
|
|
|
|
|||||
Total nonaccrual LHFI/NPLs 1 |
600 | 526 | ||||||
OREO 2 |
52 | 54 | ||||||
Other repossessed assets |
8 | 9 | ||||||
Nonperforming LHFS |
1 | | ||||||
|
|
|
|
|||||
Total NPAs |
$ | 661 | $ | 589 | ||||
|
|
|
|
1 | Nonaccruing restructured LHFI are included in total nonaccrual LHFI/NPLs. |
2 | Does not include foreclosed real estate related to loans insured by the FHA or guaranteed by the VA. Proceeds due from the FHA and the VA are recorded as a receivable in Other assets in the Consolidated Balance Sheets until the property is conveyed and the funds are received. The receivable related to proceeds due from the FHA and the VA totaled $43 million and $50 million at September 30, 2019 and December 31, 2018, respectively. |
22
Notes to Consolidated Financial Statements (Unaudited), continued
Restructured Loans
Three Months Ended September 30, 2019 1 | ||||||||||||||||
(Dollars in millions) | Number of Loans Modified |
Rate Modification |
Term Extension and/or Other Concessions |
Total | ||||||||||||
Commercial loans: |
||||||||||||||||
C&I |
32 | $ | | $ | 12 | $ | 12 | |||||||||
Consumer loans: |
||||||||||||||||
Residential mortgages - nonguaranteed |
30 | 2 | 2 | 4 | ||||||||||||
Residential home equity products |
54 | | 3 | 3 | ||||||||||||
Other direct |
234 | | 3 | 3 | ||||||||||||
Indirect |
634 | | 16 | 16 | ||||||||||||
Credit cards |
537 | 3 | | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR additions |
1,521 | $ | 5 | $ | 36 | $ | 41 | |||||||||
|
|
|
|
|
|
|
|
1 | Includes loans modified under the terms of a TDR that were charged-off during the period. |
Nine Months Ended September 30, 2019 1 | ||||||||||||||||
(Dollars in millions) | Number of Loans Modified |
Rate Modification |
Term Extension and/or Other Concessions |
Total | ||||||||||||
Commercial loans: |
||||||||||||||||
C&I |
88 | $ | 1 | $ | 17 | $ | 18 | |||||||||
Consumer loans: |
||||||||||||||||
Residential mortgages - nonguaranteed |
88 | 4 | 7 | 11 | ||||||||||||
Residential home equity products |
215 | 2 | 13 | 15 | ||||||||||||
Other direct |
642 | | 10 | 10 | ||||||||||||
Indirect |
1,755 | | 42 | 42 | ||||||||||||
Credit cards |
1,531 | 7 | | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR additions |
4,319 | $ | 14 | $ | 89 | $ | 103 | |||||||||
|
|
|
|
|
|
|
|
1 | Includes loans modified under the terms of a TDR that were charged-off during the period. |
23
Notes to Consolidated Financial Statements (Unaudited), continued
Three Months Ended September 30, 2018 1 | ||||||||||||||||
(Dollars in millions) | Number of Loans Modified |
Rate Modification |
Term Extension and/or Other Concessions |
Total | ||||||||||||
Commercial loans: |
||||||||||||||||
C&I |
47 | $ | | $ | 16 | $ | 16 | |||||||||
Consumer loans: |
||||||||||||||||
Residential mortgages - nonguaranteed |
48 | 3 | 7 | 10 | ||||||||||||
Residential home equity products |
130 | 1 | 11 | 12 | ||||||||||||
Other direct |
141 | | 2 | 2 | ||||||||||||
Indirect |
559 | | 14 | 14 | ||||||||||||
Credit cards |
345 | 1 | | 1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR additions |
1,270 | $ | 5 | $ | 50 | $ | 55 | |||||||||
|
|
|
|
|
|
|
|
1 | Includes loans modified under the terms of a TDR that were charged-off during the period. |
Nine Months Ended September 30, 2018 1 | ||||||||||||||||
(Dollars in millions) | Number of Loans Modified |
Rate Modification |
Term Extension and/or Other Concessions |
Total | ||||||||||||
Commercial loans: |
||||||||||||||||
C&I |
122 | $ | | $ | 75 | $ | 75 | |||||||||
Consumer loans: |
||||||||||||||||
Residential mortgages - nonguaranteed |
267 | 18 | 46 | 64 | ||||||||||||
Residential home equity products |
410 | 1 | 34 | 35 | ||||||||||||
Residential construction |
4 | | | | ||||||||||||
Other direct |
469 | | 6 | 6 | ||||||||||||
Indirect |
1,954 | | 46 | 46 | ||||||||||||
Credit cards |
1,079 | 4 | | 4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total TDR additions |
4,305 | $ | 23 | $ | 207 | $ | 230 | |||||||||
|
|
|
|
|
|
|
|
1 | Includes loans modified under the terms of a TDR that were charged-off during the period. |
24
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 7 - ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses consists of the ALLL and the unfunded commitments reserve. Activity in the allowance for credit losses by LHFI segment is presented in the following tables:
Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
(Dollars in millions) | Commercial | Consumer | Total | Commercial | Consumer | Total | ||||||||||||||||||
ALLL, beginning of period |
$ | 1,202 | $ | 479 | $ | 1,681 | $ | 1,080 | $ | 535 | $ | 1,615 | ||||||||||||
Provision for loan losses |
42 | 88 | 130 | 208 | 201 | 409 | ||||||||||||||||||
Loan charge-offs |
(35 | ) | (104 | ) | (139 | ) | (88 | ) | (289 | ) | (377 | ) | ||||||||||||
Loan recoveries |
5 | 22 | 27 | 14 | 69 | 83 | ||||||||||||||||||
Other 1 |
| | | | (31 | ) | (31 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
ALLL, end of period |
1,214 | 485 | 1,699 | 1,214 | 485 | 1,699 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Unfunded commitments reserve, beginning of period 2 |
70 | | 70 | 69 | | 69 | ||||||||||||||||||
Provision for unfunded commitments |
2 | | 2 | 3 | | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Unfunded commitments reserve, end of period 2 |
72 | | 72 | 72 | | 72 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for credit losses, end of period |
$ | 1,286 | $ | 485 | $ | 1,771 | $ | 1,286 | $ | 485 | $ | 1,771 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | Represents the allowance for restructured loans that were transferred from LHFI to LHFS in the first quarter of 2019 and subsequently sold in the second quarter of 2019. |
2 | The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets. |
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
(Dollars in millions) | Commercial | Consumer | Total | Commercial | Consumer | Total | ||||||||||||||||||
ALLL, beginning of period |
$ | 1,068 | $ | 582 | $ | 1,650 | $ | 1,101 | $ | 634 | $ | 1,735 | ||||||||||||
Provision for loan losses |
36 | 25 | 61 | 37 | 91 | 128 | ||||||||||||||||||
Loan charge-offs |
(51 | ) | (71 | ) | (122 | ) | (95 | ) | (234 | ) | (329 | ) | ||||||||||||
Loan recoveries |
9 | 25 | 34 | 19 | 70 | 89 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
ALLL, end of period |
1,062 | 561 | 1,623 | 1,062 | 561 | 1,623 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Unfunded commitments reserve, beginning of period 1 |
72 | | 72 | 79 | | 79 | ||||||||||||||||||
(Benefit)/provision for unfunded commitments |
| | | (7 | ) | | (7 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Unfunded commitments reserve, end of period 1 |
72 | | 72 | 72 | | 72 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for credit losses, end of period |
$ | 1,134 | $ | 561 | $ | 1,695 | $ | 1,134 | $ | 561 | $ | 1,695 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | The unfunded commitments reserve is recorded in Other liabilities in the Consolidated Balance Sheets. |
25
Notes to Consolidated Financial Statements (Unaudited), continued
The Companys LHFI portfolio and related ALLL are presented in the following tables:
September 30, 2019 | ||||||||||||||||||||||||
Commercial Loans | Consumer Loans | Total | ||||||||||||||||||||||
Carrying | Related | Carrying | Related | Carrying | Related | |||||||||||||||||||
(Dollars in millions) | Value | ALLL | Value | ALLL | Value | ALLL | ||||||||||||||||||
LHFI evaluated for impairment: |
||||||||||||||||||||||||
Individually evaluated |
$ | 339 | $ | 71 | $ | 1,841 | $ | 108 | $ | 2,180 | $ | 179 | ||||||||||||
Collectively evaluated |
84,668 | 1,143 | 71,483 | 377 | 156,151 | 1,520 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total evaluated |
85,007 | 1,214 | 73,324 | 485 | 158,331 | 1,699 | ||||||||||||||||||
LHFI measured at fair value |
| | 124 | | 124 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total LHFI |
$ | 85,007 | $ | 1,214 | $ | 73,448 | $ | 485 | $ | 158,455 | $ | 1,699 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2018 | ||||||||||||||||||||||||
Commercial Loans | Consumer Loans | Total | ||||||||||||||||||||||
Carrying | Related | Carrying | Related | Carrying | Related | |||||||||||||||||||
(Dollars in millions) | Value | ALLL | Value | ALLL | Value | ALLL | ||||||||||||||||||
LHFI evaluated for impairment: |
||||||||||||||||||||||||
Individually evaluated |
$ | 149 | $ | 13 | $ | 2,462 | $ | 154 | $ | 2,611 | $ | 167 | ||||||||||||
Collectively evaluated |
80,791 | 1,067 | 68,274 | 381 | 149,065 | 1,448 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total evaluated |
80,940 | 1,080 | 70,736 | 535 | 151,676 | 1,615 | ||||||||||||||||||
LHFI measured at fair value |
| | 163 | | 163 | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total LHFI |
$ | 80,940 | $ | 1,080 | $ | 70,899 | $ | 535 | $ | 151,839 | $ | 1,615 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) | Consumer | Wholesale | Total | |||||||||
Balance, January 1, 2018 |
$ | 4,262 | $ | 2,069 | $ | 6,331 | ||||||
Reallocation related to intersegment transfer of business banking clients |
128 | (128 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Balance, September 30, 2018 |
$ | 4,390 | $ | 1,941 | $ | 6,331 | ||||||
|
|
|
|
|
|
26
Notes to Consolidated Financial Statements (Unaudited), continued
Other Intangible Assets
Changes in the carrying amount of other intangible assets are presented in the following table:
(Dollars in millions) | Residential MSRs - Fair Value |
Commercial MSRs - Amortized Cost |
Other | Total | ||||||||||||
Balance, January 1, 2019 |
$ | 1,983 | $ | 66 | $ | 13 | $ | 2,062 | ||||||||
Amortization 1 |
| (8 | ) | (1 | ) | (9 | ) | |||||||||
Servicing rights originated |
237 | 14 | | 251 | ||||||||||||
Changes in fair value: |
||||||||||||||||
Due to changes in inputs and assumptions 2 |
(439 | ) | | | (439 | ) | ||||||||||
Other changes in fair value 3 |
(215 | ) | | | (215 | ) | ||||||||||
Servicing rights sold |
(2 | ) | | | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, September 30, 2019 |
$ | 1,564 | $ | 72 | $ | 12 | $ | 1,648 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, January 1, 2018 |
$ | 1,710 | $ | 65 | $ | 16 | $ | 1,791 | ||||||||
Amortization 1 |
| (11 | ) | (2 | ) | (13 | ) | |||||||||
Servicing rights originated |
250 | 10 | | 260 | ||||||||||||
Servicing rights purchased |
89 | | | 89 | ||||||||||||
Changes in fair value: |
||||||||||||||||
Due to changes in inputs and assumptions 2 |
198 | | | 198 | ||||||||||||
Other changes in fair value 3 |
(183 | ) | | | (183 | ) | ||||||||||
Servicing rights sold |
(2 | ) | | | (2 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, September 30, 2018 |
$ | 2,062 | $ | 64 | $ | 14 | $ | 2,140 | ||||||||
|
|
|
|
|
|
|
|
1 | Does not include expense associated with community development investments. See Note 11, Certain Transfers of Financial Assets and Variable Interest Entities, for additional information. |
2 | Primarily reflects changes in option adjusted spreads and prepayment speed assumptions due to changes in interest rates. |
3 | Represents changes due to the collection of expected cash flows, net of accretion due to the passage of time. |
The gross carrying value and accumulated amortization of other intangible assets are presented in the following table:
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
(Dollars in millions) | Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
Gross Carrying Value |
Accumulated Amortization |
Net Carrying Value |
||||||||||||||||||
Amortized other intangible assets 1: |
||||||||||||||||||||||||
Commercial MSRs |
$ | 109 | ($ | 37 | ) | $ | 72 | $ | 95 | ($ | 29 | ) | $ | 66 | ||||||||||
Other |
6 | (6 | ) | | 6 | (5 | ) | 1 | ||||||||||||||||
Unamortized other intangible assets: |
||||||||||||||||||||||||
Residential MSRs |
1,564 | | 1,564 | 1,983 | | 1,983 | ||||||||||||||||||
Other |
12 | | 12 | 12 | | 12 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other intangible assets |
$ | 1,691 | ($ | 43 | ) | $ | 1,648 | $ | 2,096 | ($ | 34 | ) | $ | 2,062 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | Excludes other intangible assets that are indefinite-lived, carried at fair value, or fully amortized. |
27
Notes to Consolidated Financial Statements (Unaudited), continued
28
Notes to Consolidated Financial Statements (Unaudited), continued
29
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 10 - LEASES
The Company adopted ASC Topic 842, Leases, on January 1, 2019 using a modified retrospective transition approach. As permitted by ASC 842, the Company elected not to reassess (i) whether any expired or existing contracts are leases or contain leases, (ii) the lease classification of any expired or existing leases, and (iii) the initial direct costs for existing leases.
Lessee Accounting
The Companys right-of-use assets, lease liabilities, and associated balance sheet classifications are presented in the following table:
(Dollars in millions) | Classification | September 30, 2019 | ||||||
Assets: |
||||||||
Operating lease right-of-use assets |
Other assets | $ | 1,110 | |||||
Finance lease right-of-use assets |
Premises, property, and equipment, net | 24 | ||||||
|
|
|||||||
Total right-of-use assets |
$ | 1,134 | ||||||
|
|
|||||||
Liabilities: |
||||||||
Operating leases |
Other liabilities | $ | 1,189 | |||||
Finance leases |
Long-term debt | 26 | ||||||
|
|
|||||||
Total lease liabilities |
$ | 1,215 | ||||||
|
|
The components of total lease cost and other supplemental lease information are presented in the following tables:
(Dollars in millions) | Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2019 |
||||||
Components of total lease cost: |
||||||||
Operating lease cost |
$ | 49 | $ | 152 | ||||
Finance lease cost: |
||||||||
Amortization of right-of-use assets |
1 | 3 | ||||||
Variable lease cost |
10 | 27 | ||||||
Less: Sublease income |
(1 | ) | (4 | ) | ||||
|
|
|
|
|||||
Total lease cost, net |
$ | 59 | $ | 178 | ||||
|
|
|
|
30
Notes to Consolidated Financial Statements (Unaudited), continued
(Dollars in millions) | Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2019 |
||||||
Supplemental lease information |
||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
Operating cash flows from operating leases |
$ | 47 | $ | 144 | ||||
Operating cash flows from finance leases |
1 | 1 | ||||||
Financing cash flows from finance leases |
3 | 5 | ||||||
Lease liabilities arising from obtaining right-of-use assets (subsequent to adoption): |
||||||||
Operating leases |
7 | 30 | ||||||
Finance leases |
| 11 |
Weighted average remaining lease terms and discount rates are presented in the following table:
(Dollars in millions) | September 30, 2019 | |||
Weighted-average remaining lease term (in years): |
||||
Operating leases |
8.0 | |||
Finance leases |
7.0 | |||
Weighted-average discount rate (annual): |
||||
Operating leases |
3.3 | % | ||
Finance leases |
6.6 |
The following table presents a maturity analysis of the Companys operating and finance lease liabilities at September 30, 2019:
(Dollars in millions) | Operating Leases | Finance Leases | Total | |||||||||
Year 1 |
$ | 185 | $ | 5 | $ | 190 | ||||||
Year 2 |
194 | 5 | 199 | |||||||||
Year 3 |
179 | 5 | 184 | |||||||||
Year 4 |
158 | 5 | 163 | |||||||||
Year 5 |
140 | 3 | 143 | |||||||||
Thereafter |
518 | 11 | 529 | |||||||||
|
|
|
|
|
|
|||||||
Total lease payments |
1,374 | 34 | 1,408 | |||||||||
Less: Imputed interest |
(185 | ) | (8 | ) | (193 | ) | ||||||
|
|
|
|
|
|
|||||||
Present value of lease liabilities |
$ | 1,189 | $ | 26 | $ | 1,215 | ||||||
|
|
|
|
|
|
31
Notes to Consolidated Financial Statements (Unaudited), continued
The components of total lease income are presented in the following table:
(Dollars in millions) | Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2019 |
||||||
Interest income from sales-type and direct financing leases |
$ | 37 | $ | 111 | ||||
Lease income relating to operating leases |
52 | 157 | ||||||
Lease income relating to variable lease payments not included in the measurement of the lease receivable |
1 | 3 | ||||||
|
|
|
|
|||||
Total lease income |
$ | 90 | $ | 271 | ||||
|
|
|
|
Components of the Companys net investment in sales-type and direct financing leases are presented in the following table:
(Dollars in millions) | September 30, 2019 | |||
Carrying amount of lease receivables |
$ | 3,657 | ||
Unguaranteed residual assets |
149 | |||
|
|
|||
Net investment in sales-type and direct financing lease assets 1 |
$ | 3,806 | ||
|
|
1 | Included in LHFS and LHFI on the Companys Consolidated Balance Sheets. |
The following table presents a maturity analysis of the Companys sales-type and direct financing lease receivables at September 30, 2019:
(Dollars in millions) | Sales-Type and Direct Financing Leases |
|||
Year 1 |
$ | 876 | ||
Year 2 |
746 | |||
Year 3 |
585 | |||
Year 4 |
411 | |||
Year 5 |
328 | |||
Thereafter |
1,256 | |||
|
|
|||
Total lease receivables |
4,202 | |||
Less: Reconciling items 1 |
(545 | ) | ||
|
|
|||
Present value of lease receivables |
$ | 3,657 | ||
|
|
1 | Primarily comprised of interest and guaranteed residual assets. |
32
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents a maturity analysis of the Companys operating lease payments to be received as of September 30, 2019:
(Dollars in millions) | Operating Leases | |||
Year 1 |
$ | 191 | ||
Year 2 |
155 | |||
Year 3 |
127 | |||
Year 4 |
95 | |||
Year 5 |
94 | |||
Thereafter |
225 | |||
|
|
|||
Total lease payments to be received |
$ | 887 | ||
|
|
Underlying lessor assets subject to operating leases at September 30, 2019 consisted of the following:
(Dollars in millions) | Useful life (in years) |
September 30, 2019 | ||||||
Underlying lessor assets subject to operating leases: 1 |
||||||||
Real estate 2 |
15 -20 | $ | 116 | |||||
Equipment |
2 - 30 | 1,539 | ||||||
|
|
|||||||
Total underlying lessor assets subject to operating leases |
1,655 | |||||||
Less: Accumulated depreciation |
(565 | ) | ||||||
|
|
|||||||
Underlying lessor assets subject to operating leases, net 3 |
$ | 1,090 | ||||||
|
|
1 | Excludes owned assets subject to operating leases that are held and used by the Company and which are included in Premises, property, and equipment, net, on the Companys Consolidated Balance Sheets. |
2 | Includes certain land parcels subject to operating leases that have indefinite lives. |
3 | Included in Other Assets on the Companys Consolidated Balance Sheets. |
Depreciation expense on underlying assets subject to operating leases for the three and nine months ended September 30, 2019 totaled $35 million and $106 million, respectively.
NOTE 11 - CERTAIN TRANSFERS OF FINANCIAL ASSETS AND VARIABLE INTEREST ENTITIES
33
Notes to Consolidated Financial Statements (Unaudited), continued
34
Notes to Consolidated Financial Statements (Unaudited), continued
The Companys total managed loans, including the LHFI portfolio and other transferred loans (securitized and unsecuritized), are presented in the following table by portfolio balance and delinquency status (accruing loans 90 days or more past due and all nonaccrual loans) at September 30, 2019 and December 31, 2018, as well as the related net charge-offs for the three and nine months ended September 30, 2019 and 2018.
Portfolio Balance | Past Due and Nonaccrual | Net Charge-offs | ||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30 | September 30 | |||||||||||||||||||||||||||
(Dollars in millions) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
LHFI portfolio: |
||||||||||||||||||||||||||||||||
Commercial |
$ | 85,007 | $ | 80,940 | $ | 366 | $ | 175 | $ | 30 | $ | 42 | $ | 74 | $ | 76 | ||||||||||||||||
Consumer |
73,448 | 70,899 | 1,627 | 2,003 | 82 | 46 | 220 | 164 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total LHFI portfolio |
158,455 | 151,839 | 1,993 | 2,178 | 112 | 88 | 294 | 240 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Managed securitized loans: |
||||||||||||||||||||||||||||||||
Commercial 1 |
7,391 | 6,399 | 7 | | | | | | ||||||||||||||||||||||||
Consumer |
134,515 | 139,809 | 114 | 146 | | 2 | 1 | 2 | 1 | 2 | 5 | 2 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total managed securitized loans |
141,906 | 146,208 | 121 | 146 | | 1 | 1 | 5 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Managed unsecuritized loans 3 |
514 | 1,134 | 61 | 152 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total managed loans |
$ | 300,875 | $ | 299,181 | $ | 2,175 | $ | 2,476 | $ | 112 | $ | 89 | $ | 295 | $ | 245 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Comprised of commercial mortgages sold through Fannie Mae, Freddie Mac, and Ginnie Mae securitizations, whereby servicing has been retained by the Company. |
2 | Amounts associated with $212 million and $387 million of managed securitized loans at September 30, 2019 and December 31, 2018, respectively. Net charge-off data is not reported to the Company for the remaining balance of $134.3 billion and $139.4 billion of managed securitized loans at September 30, 2019 and December 31, 2018, respectively. |
3 | Comprised of unsecuritized loans the Company originated and sold to private investors with servicing rights retained. Net charge-offs on these loans are not presented in the table as the data is not reported to the Company by the private investors that own these related loans. |
Other Variable Interest Entities
In addition to exposure to VIEs arising from transfers of financial assets, the Company also has involvement with VIEs from other business activities.
Tax Credit Investments
The following table presents information related to the Companys investments in tax credit VIEs that it does not consolidate:
Community Development Investments | Renewable Energy Partnerships | |||||||||||||||
(Dollars in millions) | September 30, 2019 | December 31, 2018 | September 30, 2019 | December 31, 2018 | ||||||||||||
Carrying value of investments 1 |
$ | 1,943 | $ | 1,636 | $ | 55 | $ | 86 | ||||||||
Maximum exposure to loss related to investments 2 |
2,379 | 2,207 | 241 | 138 |
1 | At September 30, 2019 and December 31, 2018, the carrying value of community development investments excludes $67 million and $68 million of investments in funds that do not qualify for tax credits, respectively. |
2 | At September 30, 2019 and December 31, 2018, the Companys maximum exposure to loss related to community development investments includes $470 million and $422 million of loans and $593 million and $639 million of unfunded equity commitments, respectively. At September 30, 2019 and December 31, 2018, the Companys maximum exposure to loss related to renewable energy partnerships includes $186 million and $52 million of unfunded equity commitments, respectively. |
Community Development Investments
35
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents tax credits and amortization associated with the Companys investments in community development investments:
Tax Credits | Amortization | |||||||||||||||||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||||||||||||
(Dollars in millions) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
Qualified affordable housing partnerships |
$ | 33 | $ | 28 | $ | 98 | $ | 87 | $ | 35 | $ | 29 | $ | 103 | $ | 92 | ||||||||||||||||
Other community development investments |
25 | 23 | 64 | 62 | 21 | 19 | 53 | 49 |
NOTE 12 NET INCOME PER COMMON SHARE
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(Dollars and shares in millions, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income |
$ | 623 | $ | 752 | $ | 1,891 | $ | 2,117 | ||||||||
Less: |
||||||||||||||||
Preferred stock dividends |
(26 | ) | (26 | ) | (77 | ) | (81 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income available to common shareholders |
$ | 597 | $ | 726 | $ | 1,814 | $ | 2,036 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Average common shares outstanding - basic |
444.0 | 460.3 | 443.8 | 464.8 | ||||||||||||
Add dilutive securities: |
||||||||||||||||
RSUs |
2.6 | 3.0 | 2.4 | 2.8 | ||||||||||||
Common stock warrants, options, and restricted stock |
0.4 | 0.9 | 0.5 | 1.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Average common shares outstanding - diluted |
447.0 | 464.2 | 446.7 | 469.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income per average common share - diluted |
$ | 1.34 | $ | 1.56 | $ | 4.06 | $ | 4.34 | ||||||||
Net income per average common share - basic |
1.35 | 1.58 | 4.09 | 4.38 |
36
Notes to Consolidated Financial Statements (Unaudited), continued
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(Dollars in millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
RSUs |
$ | 30 | $ | 21 | $ | 84 | $ | 82 | ||||||||
Phantom stock units 1 |
3 | 10 | 28 | 36 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation expense |
$ | 33 | $ | 31 | $ | 112 | $ | 118 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Stock-based compensation tax benefit 2 |
$ | 8 | $ | 8 | $ | 27 | $ | 28 |
1 | Phantom stock units are settled in cash. During the three and nine months ended September 30, 2019, the Company paid less than $1 million and $44 million, respectively, related to these share-based liabilities. During the three and nine months ended September 30, 2018, the Company paid $1 million and $76 million, respectively, related to these share-based liabilities. |
2 | Does not include excess tax benefits or deficiencies recognized in the Provision for income taxes in the Consolidated Statements of Income. |
Components of net periodic benefit related to the Companys pension and other postretirement benefits plans are presented in the following table and are recognized in Employee benefits in the Consolidated Statements of Income:
Pension Benefits 1 | Other Postretirement Benefits | |||||||||||||||||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||||||||||||
(Dollars in millions) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||
Service cost |
$ | 1 | $ | 1 | $ | 4 | $ | 4 | $ | | $ | | $ | | $ | | ||||||||||||||||
Interest cost |
23 | 23 | 70 | 68 | | | 1 | 1 | ||||||||||||||||||||||||
Expected return on plan assets |
(36 | ) | (47 | ) | (110 | ) | (140 | ) | (1 | ) | (1 | ) | (4 | ) | (4 | ) | ||||||||||||||||
Amortization of prior service credit |
| | | | (1 | ) | (2 | ) | (4 | ) | (5 | ) | ||||||||||||||||||||
Amortization of actuarial loss |
6 | 6 | 18 | 17 | | | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net periodic benefit |
($ | 6 | ) | ($ | 17 | ) | ($ | 18 | ) | ($ | 51 | ) | ($ | 2 | ) | ($ | 3 | ) | ($ | 7 | ) | ($ | 8 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | Administrative fees are recognized in service cost for each of the periods presented. |
37
Notes to Consolidated Financial Statements (Unaudited), continued
38
Notes to Consolidated Financial Statements (Unaudited), continued
39
Notes to Consolidated Financial Statements (Unaudited), continued
40
Notes to Consolidated Financial Statements (Unaudited), continued
41
Notes to Consolidated Financial Statements (Unaudited), continued
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Fair Value | Fair Value | |||||||||||||||||||||||
(Dollars in millions) | Notional Amounts |
Asset Derivatives |
Liability Derivatives |
Notional Amounts |
Asset Derivatives |
Liability Derivatives |
||||||||||||||||||
Derivative instruments designated in hedging relationships |
||||||||||||||||||||||||
Cash flow hedges: 1 |
||||||||||||||||||||||||
Interest rate contracts hedging floating rate LHFI |
$ | 15,225 | $ | | $ | 1 | $ | 10,500 | $ | 1 | $ | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
15,225 | | 1 | 10,500 | 1 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fair value hedges: 2 |
||||||||||||||||||||||||
Interest rate contracts hedging fixed rate debt |
12,155 | | | 9,550 | 1 | 1 | ||||||||||||||||||
Interest rate contracts hedging brokered time deposits |
| | | 59 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
12,155 | | | 9,609 | 1 | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Derivative instruments not designated as hedging instruments 3 |
||||||||||||||||||||||||
Interest rate contracts hedging: |
||||||||||||||||||||||||
Residential MSRs 4 |
19,300 | 43 | 24 | 28,011 | 54 | 10 | ||||||||||||||||||
LHFS, IRLCs 5 |
6,688 | 10 | 12 | 4,891 | 18 | 38 | ||||||||||||||||||
LHFI |
102 | | | 159 | | | ||||||||||||||||||
Trading activity 6 |
147,485 | 1,706 | 709 | 127,286 | 771 | 687 | ||||||||||||||||||
Foreign exchange rate contracts hedging loans and trading activity |
11,954 | 185 | 182 | 9,824 | 129 | 119 | ||||||||||||||||||
Credit contracts hedging: |
||||||||||||||||||||||||
LHFI |
918 | | 28 | 830 | | 14 | ||||||||||||||||||
Trading activity 7 |
5,136 | 38 | 34 | 4,058 | 97 | 95 | ||||||||||||||||||
Equity contracts hedging trading activity 6 |
36,181 | 1,774 | 1,939 | 34,471 | 1,447 | 1,644 | ||||||||||||||||||
Other contracts: |
||||||||||||||||||||||||
IRLCs and other 8 |
3,763 | 28 | 11 | 1,393 | 20 | 15 | ||||||||||||||||||
Commodity derivatives |
2,491 | 94 | 91 | 2,020 | 93 | 91 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Subtotal |
234,018 | 3,878 | 3,030 | 212,943 | 2,629 | 2,713 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivative instruments |
$ | 261,398 | $ | 3,878 | $ | 3,031 | $ | 233,052 | $ | 2,631 | $ | 2,716 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total gross derivative instruments (before netting) |
$ | 3,878 | $ | 3,031 | $ | 2,631 | $ | 2,716 | ||||||||||||||||
Less: Legally enforceable master netting agreements |
(1,750 | ) | (1,750 | ) | (1,654 | ) | (1,654 | ) | ||||||||||||||||
Less: Cash collateral received/paid |
(358 | ) | (1,007 | ) | (338 | ) | (652 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total derivative instruments (after netting) |
$ | 1,770 | $ | 274 | $ | 639 | $ | 410 | ||||||||||||||||
|
|
|
|
|
|
|
|
1 | See Cash Flow Hedging in this Note for further discussion. |
2 | See Fair Value Hedging in this Note for further discussion. |
3 | See Economic Hedging Instruments and Trading Activities in this Note for further discussion. |
4 | Notional amounts include $753 million and $921 million related to interest rate futures at September 30, 2019 and December 31, 2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. |
5 | Notional amounts include $53 million and $116 million related to interest rate futures at September 30, 2019 and December 31, 2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. |
6 | Notional amounts include $2.7 billion and $1.2 billion related to interest rate futures at September 30, 2019 and December 31, 2018, and $210 million and $136 million related to equity futures at September 30, 2019 and December 31, 2018, respectively. These futures contracts settle in cash daily, one day in arrears. The derivative asset or liability associated with the one day lag is included in the fair value column of this table. Notional amounts also include amounts related to interest rate swaps hedging fixed rate debt. |
7 | Notional amounts include $9 million and $6 million from purchased credit risk participation agreements at September 30, 2019 and December 31, 2018, and $41 million and $33 million from written credit risk participation agreements at September 30, 2019 and December 31, 2018, respectively. These notional amounts are calculated as the notional of the derivative participated adjusted by the relevant RWA conversion factor. |
8 | Notional amounts include $41 million related to the Visa derivative liability at both September 30, 2019 and December 31, 2018. See Note 15, Guarantees for additional information. |
42
Notes to Consolidated Financial Statements (Unaudited), continued
Netting of Derivative Instruments
Net Amount | ||||||||||||||||||||
Presented in | Held/Pledged | |||||||||||||||||||
Gross | Amount | Consolidated | Financial | Net | ||||||||||||||||
(Dollars in millions) | Amount | Offset | Balance Sheets | Instruments | Amount | |||||||||||||||
September 30, 2019 |
||||||||||||||||||||
Derivative instrument assets: |
||||||||||||||||||||
Derivatives subject to master netting arrangement or similar arrangement |
$ | 3,269 | $ | 1,973 | $ | 1,296 | $ | 15 | $ | 1,281 | ||||||||||
Derivatives not subject to master netting arrangement or similar arrangement |
143 | | 143 | 1 | 142 | |||||||||||||||
Exchange traded derivatives |
466 | 135 | 331 | | 331 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative instrument assets |
$ | 3,878 | $ | 2,108 | $ | 1,770 | 1 | $ | 16 | $ | 1,754 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Derivative instrument liabilities: |
||||||||||||||||||||
Derivatives subject to master netting arrangement or similar arrangement |
$ | 2,787 | $ | 2,622 | $ | 165 | $ | 18 | $ | 147 | ||||||||||
Derivatives not subject to master netting arrangement or similar arrangement |
109 | | 109 | 13 | 96 | |||||||||||||||
Exchange traded derivatives |
135 | 135 | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative instrument liabilities |
$ | 3,031 | $ | 2,757 | $ | 274 | 2 | $ | 31 | $ | 243 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2018 |
||||||||||||||||||||
Derivative instrument assets: |
||||||||||||||||||||
Derivatives subject to master netting arrangement or similar arrangement |
$ | 2,425 | $ | 1,873 | $ | 552 | $ | 12 | $ | 540 | ||||||||||
Derivatives not subject to master netting arrangement or similar arrangement |
20 | | 20 | | 20 | |||||||||||||||
Exchange traded derivatives |
186 | 119 | 67 | | 67 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative instrument assets |
$ | 2,631 | $ | 1,992 | $ | 639 | 1 | $ | 12 | $ | 627 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Derivative instrument liabilities: |
||||||||||||||||||||
Derivatives subject to master netting arrangement or similar arrangement |
$ | 2,521 | $ | 2,187 | $ | 334 | $ | 14 | $ | 320 | ||||||||||
Derivatives not subject to master netting arrangement or similar arrangement |
76 | | 76 | | 76 | |||||||||||||||
Exchange traded derivatives |
119 | 119 | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative instrument liabilities |
$ | 2,716 | $ | 2,306 | $ | 410 | 2 | $ | 14 | $ | 396 | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | At September 30, 2019, $1.8 billion, net of $358 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Companys Consolidated Balance Sheets. At December 31, 2018, $639 million, net of $338 million offsetting cash collateral, is recognized in Trading assets and derivative instruments within the Companys Consolidated Balance Sheets. |
2 | At September 30, 2019, $274 million, net of $1.0 billion offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Companys Consolidated Balance Sheets. At December 31, 2018, $410 million, net of $652 million offsetting cash collateral, is recognized in Trading liabilities and derivative instruments within the Companys Consolidated Balance Sheets. |
43
Notes to Consolidated Financial Statements (Unaudited), continued
Fair Value and Cash Flow Hedging Instruments
44
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents gains and losses on derivatives in fair value and cash flow hedging relationships by contract type and by income statement line item. The table does not disclose the financial impact of the activities that these derivative instruments are intended to hedge.
Net Interest Income | ||||||||||||
(Dollars in millions) | Interest and fees on LHFI |
Interest on Long- term Debt |
Total | |||||||||
Three Months Ended September 30, 2019 |
||||||||||||
Interest income/(expense), including the effects of fair value and cash flow hedges |
$ | 1,708 | ($ | 150 | ) | $ | 1,558 | |||||
(Loss)/gain on fair value hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amounts related to interest settlements on derivatives |
$ | | ($ | 1 | ) | ($ | 1 | ) | ||||
Recognized on derivatives |
| 43 | 43 | |||||||||
Recognized on hedged items |
| (47 | ) 1 | (47 | ) | |||||||
|
|
|
|
|
|
|||||||
Net expense recognized on fair value hedges |
$ | | ($ | 5 | ) | ($ | 5 | ) | ||||
|
|
|
|
|
|
|||||||
Loss on cash flow hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amount of pre-tax loss reclassified from AOCI into income |
($ | 46 | ) 2 | $ | | ($ | 46 | ) | ||||
|
|
|
|
|
|
|||||||
Net expense recognized on cash flow hedges |
($ | 46 | ) | $ | | ($ | 46 | ) | ||||
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2019 |
||||||||||||
Interest income/(expense), including the effects of fair value and cash flow hedges |
$ | 5,125 | ($ | 425 | ) | $ | 4,700 | |||||
(Loss)/gain on fair value hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amounts related to interest settlements on derivatives |
$ | | ($ | 10 | ) | ($ | 10 | ) | ||||
Recognized on derivatives |
| 267 | 267 | |||||||||
Recognized on hedged items |
| (282 | )1 | (282 | ) | |||||||
|
|
|
|
|
|
|||||||
Net expense recognized on fair value hedges |
$ | | ($ | 25 | ) | ($ | 25 | ) | ||||
|
|
|
|
|
|
|||||||
Loss on cash flow hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amount of pre-tax loss reclassified from AOCI into income |
($ | 129 | ) 2 | $ | | ($ | 129 | ) | ||||
|
|
|
|
|
|
|||||||
Net expense recognized on cash flow hedges |
($ | 129 | ) | $ | | ($ | 129 | ) | ||||
|
|
|
|
|
|
|||||||
Three Months Ended September 30, 2018 |
||||||||||||
Interest income/(expense), including the effects of fair value and cash flow hedges |
$ | 1,549 | ($ | 95 | ) | $ | 1,454 | |||||
(Loss)/gain on fair value hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amounts related to interest settlements on derivatives |
$ | | ($ | 2 | ) | ($ | 2 | ) | ||||
Recognized on derivatives |
| (33 | ) | (33 | ) | |||||||
Recognized on hedged items |
| 31 | 1 | 31 | ||||||||
|
|
|
|
|
|
|||||||
Net expense recognized on fair value hedges |
$ | | ($ | 4 | ) | ($ | 4 | ) | ||||
|
|
|
|
|
|
|||||||
Loss on cash flow hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amount of pre-tax loss reclassified from AOCI into income |
($ | 22 | ) 2 | $ | | ($ | 22 | ) | ||||
|
|
|
|
|
|
|||||||
Net expense recognized on cash flow hedges |
($ | 22 | ) | $ | | ($ | 22 | ) | ||||
|
|
|
|
|
|
|||||||
Nine Months Ended September 30, 2018 |
||||||||||||
Interest income/(expense), including the effects of fair value and cash flow hedges |
$ | 4,424 | ($ | 252 | ) | $ | 4,172 | |||||
(Loss)/gain on fair value hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amounts related to interest settlements on derivatives |
$ | | ($ | 1 | ) | ($ | 1 | ) | ||||
Recognized on derivatives |
| (130 | ) | (130 | ) | |||||||
Recognized on hedged items |
| 124 1 | 124 | |||||||||
|
|
|
|
|
|
|||||||
Net expense recognized on fair value hedges |
$ | | ($ | 7 | ) | ($ | 7 | ) | ||||
|
|
|
|
|
|
|||||||
Loss on cash flow hedging relationships: |
||||||||||||
Interest rate contracts: |
||||||||||||
Amount of pre-tax loss reclassified from AOCI into income |
($ | 39 | ) 2 | $ | | ($ | 39 | ) | ||||
|
|
|
|
|
|
|||||||
Net expense recognized on cash flow hedges |
($ | 39 | ) | $ | | ($ | 39 | ) | ||||
|
|
|
|
|
|
1 | Includes amortization from de-designated fair value hedging relationships. |
2 | These amounts include pre-tax gains/(losses) related to cash flow hedging relationships that have been terminated and were reclassified into earnings consistent with the pattern of net cash flows expected to be recognized. |
45
Notes to Consolidated Financial Statements (Unaudited), continued
The following table presents the carrying amount of hedged liabilities on the Consolidated Balance Sheets in fair value hedging relationships and the associated cumulative basis adjustment related to the application of hedge accounting:
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of | ||||||||||||
Hedged Liabilities | ||||||||||||
(Dollars in millions) | Carrying Amount of Hedged Liabilities | Hedged Items Currently Designated | Hedged Items No Longer Designated | |||||||||
September 30, 2019 |
||||||||||||
Long-term debt |
$11,295 | $180 | ($28 | ) | ||||||||
December 31, 2018 |
||||||||||||
Long-term debt |
$8,411 | ($10 | ) | ($120 | ) | |||||||
Brokered time deposits |
29 | | |
The impacts of derivative instruments used for economic hedging or trading purposes on the Consolidated Statements of Income are presented in the following table:
Amount of Gain/ (Loss) Recognized in Income on Derivatives During the Three Months Ended September 30 |
Amount of Gain/(Loss) Recognized in Income on Derivatives During the Nine Months Ended September 30 |
|||||||||||||||||
Classification of Gain/(Loss) Recognized in | ||||||||||||||||||
(Dollars in millions) | Income on Derivatives |
2019 | 2018 | 2019 | 2018 | |||||||||||||
Derivative instruments not designated as hedging instruments: |
||||||||||||||||||
Interest rate contracts hedging: |
||||||||||||||||||
Residential MSRs |
Mortgage-related income | $ | 166 | ($ | 54 | ) | $ | 436 | ($ | 210 | ) | |||||||
LHFS, IRLCs |
Mortgage-related income | (31 | ) | 10 | (76 | ) | 57 | |||||||||||
LHFI |
Other noninterest income | (1 | ) | 1 | (4 | ) | 3 | |||||||||||
Trading activity |
Trading income | 1 | 18 | 22 | 48 | |||||||||||||
Foreign exchange rate contracts hedging loans and trading activity |
Trading income | 39 | 9 | 46 | 49 | |||||||||||||
Credit contracts hedging: |
||||||||||||||||||
LHFI |
Other noninterest income | (1 | ) | (5 | ) | (16 | ) | (5 | ) | |||||||||
Trading activity |
Trading income | 7 | 5 | 20 | 16 | |||||||||||||
Equity contracts hedging trading activity |
Trading income | 6 | 6 | 34 | 8 | |||||||||||||
Other contracts: |
||||||||||||||||||
IRLCs and other |
Mortgage-related income; Commercial real estate-related income | 58 | 19 | 144 | 39 | |||||||||||||
Commodity derivatives |
Trading income | 1 | | 2 | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 245 | $ | 9 | $ | 608 | $ | 5 | ||||||||||
|
|
|
|
|
|
|
|
46
Notes to Consolidated Financial Statements (Unaudited), continued
Credit Derivative Instruments
47
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 17 - FAIR VALUE ELECTION AND MEASUREMENT
48
Notes to Consolidated Financial Statements (Unaudited), continued
Recurring Fair Value Measurements
September 30, 2019 | ||||||||||||||||||||
Fair Value Measurements | Netting | Assets/Liabilities | ||||||||||||||||||
(Dollars in millions) | Level 1 | Level 2 | Level 3 | Adjustments 1 | at Fair Value | |||||||||||||||
Assets |
||||||||||||||||||||
Trading assets and derivative instruments: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 212 | $ | | $ | | $ | | $ | 212 | ||||||||||
Federal agency securities |
| 319 | | | 319 | |||||||||||||||
U.S. states and political subdivisions |
| 43 | | | 43 | |||||||||||||||
MBSagency residential |
| 1,004 | | | 1,004 | |||||||||||||||
MBSagency commercial |
| 51 | | | 51 | |||||||||||||||
ABS |
| 7 | | | 7 | |||||||||||||||
Corporate and other debt securities |
| 628 | | | 628 | |||||||||||||||
CP |
| 122 | | | 122 | |||||||||||||||
Equity securities |
86 | | | | 86 | |||||||||||||||
Derivative instruments |
466 | 3,385 | 27 | (2,108 | ) | 1,770 | ||||||||||||||
Trading loans 2 |
| 2,862 | | | 2,862 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading assets and derivative instruments |
764 | 8,421 | 27 | (2,108 | ) | 7,104 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Securities AFS: |
||||||||||||||||||||
U.S. Treasury securities |
4,018 | | | | 4,018 | |||||||||||||||
Federal agency securities |
| 124 | | | 124 | |||||||||||||||
U.S. states and political subdivisions |
| 572 | | | 572 | |||||||||||||||
MBSagency residential |
| 22,585 | | | 22,585 | |||||||||||||||
MBSagency commercial |
| 2,983 | | | 2,983 | |||||||||||||||
MBSnon-agency commercial |
| 1,064 | | | 1,064 | |||||||||||||||
Corporate and other debt securities |
| 12 | | | 12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities AFS |
4,018 | 27,340 | | | 31,358 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LHFS |
| 1,488 | | | 1,488 | |||||||||||||||
LHFI |
| | 124 | | 124 | |||||||||||||||
Residential MSRs |
| | 1,564 | | 1,564 | |||||||||||||||
Other assets |
76 | | | | 76 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Trading liabilities and derivative instruments: |
||||||||||||||||||||
U.S. Treasury securities |
538 | | | | 538 | |||||||||||||||
Corporate and other debt securities |
| 539 | | | 539 | |||||||||||||||
Equity securities |
20 | | | | 20 | |||||||||||||||
Derivative instruments |
135 | 2,886 | 10 | (2,757 | ) | 274 | ||||||||||||||
Trading loans |
| 9 | | | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading liabilities and derivative instruments |
693 | 3,434 | 10 | (2,757 | ) | 1,380 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Brokered time deposits |
| 552 | | | 552 | |||||||||||||||
Long-term debt |
| 302 | | | 302 |
1 | Amounts represent offsetting cash collateral received from, and paid to, the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists. See Note 16, Derivative Financial Instruments, for additional information. |
2 | At September 30, 2019, includes $2.5 billion of loans related to the Companys TRS business, $70 million of loans related to the Companys loan sales and trading business held in inventory, and $227 million of loans backed by the SBA held in inventory. |
49
Notes to Consolidated Financial Statements (Unaudited), continued
December 31, 2018 | ||||||||||||||||||||
Fair Value Measurements | Netting | Assets/Liabilities | ||||||||||||||||||
(Dollars in millions) | Level 1 | Level 2 | Level 3 | Adjustments 1 | at Fair Value | |||||||||||||||
Assets |
||||||||||||||||||||
Trading assets and derivative instruments: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 262 | $ | | $ | | $ | | $ | 262 | ||||||||||
Federal agency securities |
| 188 | | | 188 | |||||||||||||||
U.S. states and political subdivisions |
| 54 | | | 54 | |||||||||||||||
MBSagency residential |
| 860 | | | 860 | |||||||||||||||
Corporate and other debt securities |
| 700 | | | 700 | |||||||||||||||
CP |
| 190 | | | 190 | |||||||||||||||
Equity securities |
73 | | | | 73 | |||||||||||||||
Derivative instruments |
186 | 2,425 | 20 | (1,992 | ) | 639 | ||||||||||||||
Trading loans 2 |
| 2,540 | | | 2,540 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading assets and derivative instruments |
521 | 6,957 | 20 | (1,992 | ) | 5,506 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Securities AFS: |
||||||||||||||||||||
U.S. Treasury securities |
4,211 | | | | 4,211 | |||||||||||||||
Federal agency securities |
| 221 | | | 221 | |||||||||||||||
U.S. states and political subdivisions |
| 589 | | | 589 | |||||||||||||||
MBSagency residential |
| 22,864 | | | 22,864 | |||||||||||||||
MBSagency commercial |
| 2,627 | | | 2,627 | |||||||||||||||
MBSnon-agency commercial |
| 916 | | | 916 | |||||||||||||||
Corporate and other debt securities |
| 14 | | | 14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total securities AFS |
4,211 | 27,231 | | | 31,442 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LHFS |
| 1,178 | | | 1,178 | |||||||||||||||
LHFI |
| | 163 | | 163 | |||||||||||||||
Residential MSRs |
| | 1,983 | | 1,983 | |||||||||||||||
Other assets |
95 | | | | 95 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Trading liabilities and derivative instruments: |
||||||||||||||||||||
U.S. Treasury securities |
801 | | | | 801 | |||||||||||||||
MBSagency |
| 3 | | | 3 | |||||||||||||||
Corporate and other debt securities |
| 385 | | | 385 | |||||||||||||||
Equity securities |
5 | | | | 5 | |||||||||||||||
Derivative instruments |
119 | 2,590 | 7 | (2,306 | ) | 410 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading liabilities and derivative instruments |
925 | 2,978 | 7 | (2,306 | ) | 1,604 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Brokered time deposits |
| 403 | | | 403 | |||||||||||||||
Long-term debt |
| 289 | | | 289 |
1 | Amounts represent offsetting cash collateral received from, and paid to, the same derivative counterparties, and the impact of netting derivative assets and derivative liabilities when a legally enforceable master netting agreement or similar agreement exists. See Note 16, Derivative Financial Instruments, for additional information. |
2 | At December 31, 2018, includes $2.0 billion of loans related to the Companys TRS business, $137 million of loans related to the Companys loan sales and trading business held in inventory, and $366 million of loans backed by the SBA loans held in inventory, measured at fair value. |
50
Notes to Consolidated Financial Statements (Unaudited), continued
The following tables present the difference between fair value and the aggregate UPB for which the FVO has been elected for certain trading loans, LHFS, LHFI, brokered time deposits, and long-term debt instruments.
(Dollars in millions) | Fair Value at September 30, 2019 |
Aggregate UPB at September 30, 2019 |
Fair Value Over/(Under) Unpaid Principal |
|||||||||
Assets: |
||||||||||||
Trading loans |
$ | 2,862 | $ | 2,779 | $ | 83 | ||||||
LHFS: |
||||||||||||
Accruing |
1,488 | 1,446 | 42 | |||||||||
LHFI: |
||||||||||||
Accruing |
121 | 119 | 2 | |||||||||
Nonaccrual |
3 | 4 | (1 | ) | ||||||||
Liabilities: |
||||||||||||
Trading loans |
9 | 9 | | |||||||||
Brokered time deposits |
552 | 539 | 13 | |||||||||
Long-term debt |
302 | 290 | 12 | |||||||||
(Dollars in millions) | Fair Value at December 31, 2018 |
Aggregate UPB at December 31, 2018 |
Fair Value Over/(Under) Unpaid Principal |
|||||||||
Assets: |
||||||||||||
Trading loans |
$ | 2,540 | $ | 2,526 | $ | 14 | ||||||
LHFS: |
||||||||||||
Accruing |
1,178 | 1,128 | 50 | |||||||||
LHFI: |
||||||||||||
Accruing |
158 | 163 | (5 | ) | ||||||||
Nonaccrual |
5 | 6 | (1 | ) | ||||||||
Liabilities: |
||||||||||||
Brokered time deposits |
403 | 403 | | |||||||||
Long-term debt |
289 | 286 | 3 |
51
Notes to Consolidated Financial Statements (Unaudited), continued
Fair Value (Loss)/Gain for the Three
Months Ended September 30, 2019 for Items Measured at Fair Value Pursuant to Election of the FVO |
Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2019 for Items Measured at Fair Value Pursuant to Election of the FVO |
|||||||||||||||||||||||||||||||
(Dollars in millions) | Trading Income |
Mortgage 1 Related Income |
Other Noninterest Income |
Total 2 Changes in Fair Values Included in Earnings |
Trading Income |
Mortgage 1 Related Income |
Other Noninterest Income |
Total 2 Changes in Fair Values Included in Earnings |
||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Trading loans 3 |
($ | 1 | ) | $ | | $ | | ($ | 1 | ) | $ | 18 | $ | | $ | | $ | 18 | ||||||||||||||
LHFS 4 |
| 40 | | 40 | | 80 | | 80 | ||||||||||||||||||||||||
LHFI |
| | 2 | 2 | | | 5 | 5 | ||||||||||||||||||||||||
Residential MSRs |
| (250 | ) | | (250 | ) | | (650 | ) | | (650 | ) | ||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||
Brokered time deposits |
(3 | ) | | | (3 | ) | (24 | ) | | | (24 | ) | ||||||||||||||||||||
Long-term debt |
(2 | ) | | | (2 | ) | (15 | ) | | | (15 | ) |
1 | Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2019, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM. |
2 | Changes in fair value for the three and nine months ended September 30, 2019 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in Interest income or Interest expense in the Consolidated Statements of Income. |
3 | Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk for three and nine months ended September 30, 2019. |
4 | Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for the three and nine months ended September 30, 2019. |
Fair Value Gain/(Loss) for the Three Months Ended September 30, 2018 for Items Measured at Fair Value Pursuant to Election of the FVO |
Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2018 for Items Measured at Fair Value Pursuant to Election of the FVO |
|||||||||||||||||||||||||||||||
(Dollars in millions) | Trading Income |
Mortgage 1 Related Income |
Other Noninterest Income |
Total 2 Changes in Fair Values Included in Earnings |
Trading Income |
Mortgage 1 Related Income |
Other Noninterest Income |
Total 2 Changes in Fair Values Included in Earnings |
||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Trading loans 3 |
$ | 3 | $ | | $ | | $ | 3 | $ | 10 | $ | | $ | | $ | 10 | ||||||||||||||||
LHFS 4 |
| 5 | | 5 | | (3 | ) | | (3 | ) | ||||||||||||||||||||||
LHFI |
| | (1 | ) | (1 | ) | | | (4 | ) | (4 | ) | ||||||||||||||||||||
Residential MSRs |
| (8 | ) | | (8 | ) | | 22 | | 22 | ||||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||
Brokered time deposits |
(4 | ) | | | (4 | ) | 6 | | | 6 | ||||||||||||||||||||||
Long-term debt |
1 | | | 1 | 6 | | | 6 |
1 | Income related to LHFS does not include income from IRLCs. For the three and nine months ended September 30, 2018, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM. |
2 | Changes in fair value for the three and nine months ended September 30, 2018 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be measured at fair value are recognized in Interest income or Interest expense in the Consolidated Statements of Income. |
3 | Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to instrument-specific credit risk for three and nine months ended September 30, 2018. |
4 | Includes an immaterial amount of gains or losses in the Consolidated Statements of Income due to changes in fair value attributable to borrower-specific credit risk for the three and nine months ended September 30, 2018. |
52
Notes to Consolidated Financial Statements (Unaudited), continued
The valuation technique and range, including weighted average, of the unobservable inputs associated with the Companys level 3 assets and liabilities are as follows:
Level 3 Significant Unobservable Input Assumptions | ||||||||||||||||
(Dollars in millions) | Fair value September 30, 2019 |
Valuation Technique | Unobservable Input | Range (Weighted Average) 1 |
||||||||||||
Assets |
||||||||||||||||
Trading assets and derivative instruments: |
||||||||||||||||
Derivative instruments, net 2 |
$ | 17 | Internal model | Pull through rate | 2-100% (83%) | |||||||||||
MSR value | 21-155 bps (102 bps) | |||||||||||||||
LHFI |
121 | Monte | Option adjusted spread | 62-250 bps (172 bps) | ||||||||||||
Carlo/Discounted | Conditional prepayment rate | 7-31 CPR (16 CPR) | ||||||||||||||
cash flow | Conditional default rate | 0-2 CDR (0.5 CDR) | ||||||||||||||
3 | Collateral based pricing | Appraised value | NM 3 | |||||||||||||
Residential MSRs |
1,564 | Monte | Conditional prepayment rate | 6-31 CPR (15 CPR) | ||||||||||||
Carlo/Discounted | ||||||||||||||||
cash flow | Option adjusted spread | 1-29% (3%) |
1 | Unobservable inputs were weighted by the relative fair value of the financial instruments. |
2 | Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Companys sale of Visa shares. Refer to the Trading Liabilities and Derivative Instruments section in Note 20, Fair Value Election and Measurement, to the Companys 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability. |
3 | Not meaningful. |
Level 3 Significant Unobservable Input Assumptions | ||||||||||||||||
(Dollars in millions) | Fair value December 31, 2018 |
Valuation Technique | Unobservable Input | Range (Weighted Average) 1 |
||||||||||||
Assets |
||||||||||||||||
Trading assets and derivative instruments: |
||||||||||||||||
Derivative instruments, net 2 |
$ | 13 | Internal model | Pull through rate | 41-100% (81%) | |||||||||||
MSR value | 11-165 bps (108 bps) | |||||||||||||||
LHFI |
158 | Monte Carlo/Discounted | Option adjusted spread | 0-250 bps (164 bps) | ||||||||||||
cash flow | Conditional prepayment rate | 7-22 CPR (12 CPR) | ||||||||||||||
Conditional default rate | 0-1 CDR (0.6 CDR) | |||||||||||||||
5 | Collateral based pricing | Appraised value | NM 3 | |||||||||||||
Residential MSRs |
1,983 | Monte Carlo/Discounted | Conditional prepayment rate | 6-30 CPR (13 CPR) | ||||||||||||
cash flow | Option adjusted spread | 0-116% (2%) |
1 | Unobservable inputs were weighted by the relative fair value of the financial instruments. |
2 | Amount represents the net of IRLC assets and liabilities and includes the derivative liability associated with the Companys sale of Visa shares. Refer to the Trading Liabilities and Derivative Instruments section in Note 20, Fair Value Election and Measurement, to the Companys 2018 Annual Report on Form 10-K, for a discussion of valuation assumptions related to the Visa derivative liability. |
3 | Not meaningful. |
53
Notes to Consolidated Financial Statements (Unaudited), continued
Fair Value Measurements Using Significant Unobservable Inputs |
||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Beginning Balance July 1, 2019 |
Included in Earnings |
OCI | Purchases | Sales | Settlements | Transfers to/from Other Balance Sheet Line Items |
Transfers into Level 3 |
Transfers out of Level 3 |
Fair Value September 30, 2019 |
||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||||||
Derivative instruments, net |
$ | 24 | $ | 60 | 1 | $ | | $ | | $ | | ($ | 3 | ) | ($ | 64 | ) 2 | $ | | $ | | $ | 17 | |||||||||||||||||
LHFI |
127 | 2 | 3 | | | | (6 | ) | | 1 | | 124 | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Beginning Balance January 1, 2019 |
Included in Earnings |
OCI | Purchases | Sales | Settlements | Transfers to/from Other Balance Sheet Line Items |
Transfers into Level 3 |
Transfers out of Level 3 |
Fair Value September 30, 2019 |
||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||||||
Derivative instruments, net |
$ | 13 | $ | 147 | 1 | $ | | $ | | $ | | ($ | 5 | ) | ($ | 138 | ) 2 | $ | | $ | | $ | 17 | |||||||||||||||||
LHFI |
163 | 5 | 3 | | | | (21 | ) | | 2 | (25 | ) | 124 |
1 | Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $23 million in earnings during both the three and nine months ended September 30, 2019, related to changes in unrealized gains on net derivative instruments still held at September 30, 2019. |
2 | During the three and nine months ended September 30, 2019, the Company transferred $64 million and $138 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed. 3 Amounts are generally included in Mortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $3 million and $5 million in earnings during the three and nine months ended September 30, 2019, respectively, related to changes in unrealized gains on LHFI still held at September 30, 2019. |
Fair Value Measurements Using Significant Unobservable Inputs |
||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Beginning Balance July 1, 2018 |
Included in Earnings |
OCI | Purchases | Sales | Settlements | Transfers to/ from Other Balance Sheet Line Items |
Transfers into Level 3 |
Transfers out of Level 3 |
Fair Value September 30, 2018 |
||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||||||
Derivative instruments, net |
$ | 3 | $ | 18 | 1 | $ | | $ | | $ | | $ | 8 | ($ | 26 | ) 2 | $ | | $ | | $ | 3 | ||||||||||||||||||
LHFI |
177 | | 3 | | | | (9 | ) | | | | 168 | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Beginning Balance January 1, 2018 |
Included in Earnings |
OCI | Purchases | Sales | Settlements | Transfers to/ from Other Balance Sheet Line Items |
Transfers into Level 3 |
Transfers out of Level 3 |
Fair Value September 30, 2018 |
||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||||||
Derivative instruments, net |
$ | | $ | 36 | 1 | $ | | $ | | $ | | $ | 10 | ($ | 43 | ) 2 | $ | | $ | | $ | 3 | ||||||||||||||||||
Securities AFS: |
||||||||||||||||||||||||||||||||||||||||
MBS - non-agency residential |
59 | | | | | (2 | ) | | | (57 | ) | | ||||||||||||||||||||||||||||
ABS |
8 | | | | | (1 | ) | | | (7 | ) | | ||||||||||||||||||||||||||||
Corporate and other debt securities |
5 | | | | | | | | (5 | ) | | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total securities AFS |
72 | | | | | (3 | ) | | | (69 | ) | | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
LHFI |
196 | (3 | ) 3 | | | | (26 | ) | | 1 | | 168 |
1 | Includes issuances, fair value changes, and expirations. Amount related to residential IRLCs is recognized in Mortgage-related income, amount related to commercial IRLCs is recognized in Commercial real estate-related income, and amount related to Visa derivative liability is recognized in Other noninterest expense. Included $10 million and $7 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized gains on net derivative instruments still held at September 30, 2018. |
2 | During the three and nine months ended September 30, 2018, the Company transferred $26 million and $43 million, respectively, of net IRLC assets out of level 3 as the associated loans were closed. |
3 | Amounts are generally included in Mortgage-related income; however, the mark on certain fair value loans is included in Other noninterest income. Included $0 and $4 million in earnings during the three and nine months ended September 30, 2018, respectively, related to changes in unrealized losses on LHFI still held at September 30, 2018. |
54
Notes to Consolidated Financial Statements (Unaudited), continued
Fair Value Measurements | (Losses)/Gains for the Three Months Ended September 30, 2019 |
(Losses)/Gains for the Nine Months Ended September 30, 2019 |
||||||||||||||||||||||
(Dollars in millions) | September 30, 2019 | Level 1 |
Level 2 |
Level 3 | ||||||||||||||||||||
LHFS |
$ | 311 | $ | | $ | 311 | $ | | ($ | 14 | ) | ($ | 14 | ) | ||||||||||
LHFI |
128 | | | 128 | | | ||||||||||||||||||
OREO |
22 | | | 22 | (1 | ) | (3 | ) | ||||||||||||||||
Other assets |
74 | | 61 | 13 | 16 | 14 |
Fair Value Measurements | (Losses)/Gains for the | |||||||||||||||||||
Year Ended | ||||||||||||||||||||
(Dollars in millions) | December 31, 2018 | Level 1 | Level 2 | Level 3 | December 31, 2018 | |||||||||||||||
LHFS |
$ | 47 | $ | | $ | 47 | $ | | ($ | 1 | ) | |||||||||
LHFI |
63 | | | 63 | | |||||||||||||||
OREO |
19 | | | 19 | (4 | ) | ||||||||||||||
Other assets |
67 | | 47 | 20 | 24 |
55
Notes to Consolidated Financial Statements (Unaudited), continued
Fair Value of Financial Instruments
The carrying amounts and fair values of the Companys financial instruments are as follows:
September 30, 2019 | Fair Value Measurements | |||||||||||||||||||||||
(Dollars in millions) | Measurement Category | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
Amortized cost | $ | 9,184 | $ | 9,184 | $ | 9,184 | $ | | $ | | |||||||||||||
Trading assets and derivative instruments |
Fair value | 7,104 | 7,104 | 764 | 6,313 | 27 | ||||||||||||||||||
Securities AFS |
Fair value | 31,358 | 31,358 | 4,018 | 27,340 | | ||||||||||||||||||
LHFS |
Amortized cost | 518 | 525 | | 448 | 77 | ||||||||||||||||||
Fair value | 1,488 | 1,488 | | 1,488 | | |||||||||||||||||||
LHFI, net |
Amortized cost | 156,632 | 156,222 | | | 156,222 | ||||||||||||||||||
Fair value | 124 | 124 | | | 124 | |||||||||||||||||||
Other 1 |
Amortized cost | 737 | 737 | | | 737 | ||||||||||||||||||
Fair value | 76 | 76 | 76 | | | |||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Consumer and other time deposits |
Amortized cost | 16,727 | 16,637 | | 16,637 | | ||||||||||||||||||
Brokered time deposits |
Amortized cost | 993 | 964 | | 964 | | ||||||||||||||||||
Fair value | 552 | 552 | | 552 | | |||||||||||||||||||
Short-term borrowings |
Amortized cost | 7,144 | 7,144 | | 7,144 | | ||||||||||||||||||
Long-term debt |
Amortized cost | 20,067 | 20,257 | | 18,490 | 1,767 | ||||||||||||||||||
Fair value | 302 | 302 | | 302 | | |||||||||||||||||||
Trading liabilities and derivative instruments |
Fair value | 1,380 | 1,380 | 693 | 677 | 10 | ||||||||||||||||||
December 31, 2018 | Fair Value Measurements | |||||||||||||||||||||||
(Dollars in millions) | Measurement Category | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
Amortized cost | $ | 7,495 | $ | 7,495 | $ | 7,495 | $ | | $ | | |||||||||||||
Trading assets and derivative instruments |
Fair value | 5,506 | 5,506 | 521 | 4,965 | 20 | ||||||||||||||||||
Securities AFS |
Fair value | 31,442 | 31,442 | 4,211 | 27,231 | | ||||||||||||||||||
LHFS |
Amortized cost | 290 | 291 | | 261 | 30 | ||||||||||||||||||
Fair value | 1,178 | 1,178 | | 1,178 | | |||||||||||||||||||
LHFI, net |
Amortized cost | 150,061 | 148,167 | | | 148,167 | ||||||||||||||||||
Fair value | 163 | 163 | | | 163 | |||||||||||||||||||
Other 1 |
Amortized cost | 630 | 630 | | | 630 | ||||||||||||||||||
Fair value | 95 | 95 | 95 | | | |||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Consumer and other time deposits |
Amortized cost | 15,355 | 15,106 | | 15,106 | | ||||||||||||||||||
Brokered time deposits |
Amortized cost | 642 | 615 | | 615 | | ||||||||||||||||||
Fair value | 403 | 403 | | 403 | | |||||||||||||||||||
Short-term borrowings |
Amortized cost | 8,772 | 8,772 | | 8,772 | | ||||||||||||||||||
Long-term debt |
Amortized cost | 14,783 | 14,729 | | 13,024 | 1,705 | ||||||||||||||||||
Fair value | 289 | 289 | | 289 | | |||||||||||||||||||
Trading liabilities and derivative instruments |
Fair value | 1,604 | 1,604 | 925 | 672 | 7 |
1 | Other financial assets recorded at amortized cost consist of FHLB of Atlanta stock and Federal Reserve Bank of Atlanta stock. Other financial assets recorded at fair value consist of mutual fund investments and other equity securities with readily determinable fair values. |
56
Notes to Consolidated Financial Statements (Unaudited), continued
57
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 19 BUSINESS SEGMENT REPORTING
58
Notes to Consolidated Financial Statements (Unaudited), continued
59
Notes to Consolidated Financial Statements (Unaudited), continued
Three Months Ended September 30, 2019 | ||||||||||||||||||||
(Dollars in millions) | Consumer | Wholesale | Corporate Other |
Reconciling Items |
Consolidated | |||||||||||||||
Balance Sheets: |
||||||||||||||||||||
Average LHFI |
$ | 80,414 | $ | 77,107 | $ | 91 | $ | | $ | 157,612 | ||||||||||
Average consumer and commercial deposits |
114,132 | 45,817 | 2,779 | (195 | ) | 162,533 | ||||||||||||||
Average total assets |
90,329 | 93,584 | 38,557 | 2,277 | 224,747 | |||||||||||||||
Average total liabilities |
114,989 | 52,471 | 31,126 | (65 | ) | 198,521 | ||||||||||||||
Average total equity |
| | | 26,226 | 26,226 | |||||||||||||||
Statements of Income: |
||||||||||||||||||||
Net interest income |
$ | 1,068 | $ | 529 | ($ | 79 | ) | ($ | 8 | ) | $ | 1,510 | ||||||||
FTE adjustment |
| 21 | | 1 | 22 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income-FTE 1 |
1,068 | 550 | (79 | ) | (7 | ) | 1,532 | |||||||||||||
Provision for credit losses 2 |
77 | 56 | | (1 | ) | 132 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses-FTE |
991 | 494 | (79 | ) | (6 | ) | 1,400 | |||||||||||||
Total noninterest income |
479 | 368 | 34 | (38 | ) | 843 | ||||||||||||||
Total noninterest expense |
1,025 | 457 | (5 | ) | (3 | ) | 1,474 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before provision for income taxes-FTE |
445 | 405 | (40 | ) | (41 | ) | 769 | |||||||||||||
Provision for income taxes-FTE 3 |
102 | 96 | (10 | ) | (44 | ) | 144 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income including income attributable to noncontrolling interest |
343 | 309 | (30 | ) | 3 | 625 | ||||||||||||||
Less: Net income attributable to noncontrolling interest |
| | 2 | | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 343 | $ | 309 | ($ | 32 | ) | $ | 3 | $ | 623 | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | Presented on a matched maturity funds transfer price basis for the segments. |
2 | Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances. |
3 | Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals. |
Three Months Ended September 30, 2018 | ||||||||||||||||||||
(Dollars in millions) | Consumer | Wholesale | Corporate Other |
Reconciling Items |
Consolidated | |||||||||||||||
Balance Sheets: |
||||||||||||||||||||
Average LHFI |
$ | 75,234 | $ | 70,669 | $ | 93 | ($ | 1 | ) | $ | 145,995 | |||||||||
Average consumer and commercial deposits |
111,950 | 44,702 | 3,264 | (568 | ) | 159,348 | ||||||||||||||
Average total assets |
85,933 | 84,909 | 35,647 | 906 | 207,395 | |||||||||||||||
Average total liabilities |
112,898 | 51,215 | 19,531 | (524 | ) | 183,120 | ||||||||||||||
Average total equity |
| | | 24,275 | 24,275 | |||||||||||||||
Statements of Income: |
||||||||||||||||||||
Net interest income |
$ | 1,056 | $ | 539 | ($ | 46 | ) | ($ | 37 | ) | $ | 1,512 | ||||||||
FTE adjustment |
| 22 | 1 | (1 | ) | 22 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income-FTE 1 |
1,056 | 561 | (45 | ) | (38 | ) | 1,534 | |||||||||||||
Provision for credit losses 2 |
36 | 24 | | 1 | 61 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses-FTE |
1,020 | 537 | (45 | ) | (39 | ) | 1,473 | |||||||||||||
Total noninterest income |
444 | 368 | 16 | (46 | ) | 782 | ||||||||||||||
Total noninterest expense |
991 | 432 | (35 | ) | (4 | ) | 1,384 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before provision for income taxes-FTE |
473 | 473 | 6 | (81 | ) | 871 | ||||||||||||||
Provision for income taxes-FTE 3 |
108 | 112 | (51 | ) | (52 | ) | 117 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income including income attributable to noncontrolling interest |
365 | 361 | 57 | (29 | ) | 754 | ||||||||||||||
Less: Net income attributable to noncontrolling interest |
| | 2 | | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 365 | $ | 361 | $ | 55 | ($ | 29 | ) | $ | 752 | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | Presented on a matched maturity funds transfer price basis for the segments. |
2 | Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances. |
3 | Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals. |
60
Notes to Consolidated Financial Statements (Unaudited), continued
Nine Months Ended September 30, 2019 | ||||||||||||||||||||
(Dollars in millions) | Consumer | Wholesale | Corporate Other |
Reconciling Items |
Consolidated | |||||||||||||||
Balance Sheets: |
||||||||||||||||||||
Average LHFI |
$ | 79,473 | $ | 76,481 | $ | 90 | $ | | $ | 156,044 | ||||||||||
Average consumer and commercial deposits |
113,067 | 44,777 | 3,224 | (289 | ) | 160,779 | ||||||||||||||
Average total assets |
89,026 | 92,046 | 38,189 | 1,758 | 221,019 | |||||||||||||||
Average total liabilities |
113,979 | 51,441 | 30,465 | (173 | ) | 195,712 | ||||||||||||||
Average total equity |
| | | 25,307 | 25,307 | |||||||||||||||
Statements of Income: |
||||||||||||||||||||
Net interest income |
$ | 3,222 | $ | 1,607 | ($ | 222 | ) | ($ | 18 | ) | $ | 4,589 | ||||||||
FTE adjustment |
| 65 | 1 | | 66 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income-FTE 1 |
3,222 | 1,672 | (221 | ) | (18 | ) | 4,655 | |||||||||||||
Provision for credit losses 2 |
204 | 208 | | | 412 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses-FTE |
3,018 | 1,464 | (221 | ) | (18 | ) | 4,243 | |||||||||||||
Total noninterest income |
1,415 | 1,137 | 230 | (129 | ) | 2,653 | ||||||||||||||
Total noninterest expense |
3,029 | 1,382 | 207 | (16 | ) | 4,602 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before provision for income taxes-FTE |
1,404 | 1,219 | (198 | ) | (131 | ) | 2,294 | |||||||||||||
Provision for income taxes-FTE 3 |
321 | 289 | (81 | ) | (133 | ) | 396 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income including income attributable to noncontrolling interest |
1,083 | 930 | (117 | ) | 2 | 1,898 | ||||||||||||||
Less: Net income attributable to noncontrolling interest |
| | 7 | | 7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 1,083 | $ | 930 | ($ | 124 | ) | $ | 2 | $ | 1,891 | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | Presented on a matched maturity funds transfer price basis for the segments. |
2 | Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances. |
3 | Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals. |
Nine Months Ended September 30, 2018 | ||||||||||||||||||||
(Dollars in millions) | Consumer | Wholesale | Corporate Other |
Reconciling Items |
Consolidated | |||||||||||||||
Balance Sheets: |
||||||||||||||||||||
Average LHFI |
$ | 74,907 | $ | 69,375 | $ | 89 | ($ | 3 | ) | $ | 144,368 | |||||||||
Average consumer and commercial deposits |
111,008 | 45,247 | 3,234 | (330 | ) | 159,159 | ||||||||||||||
Average total assets |
84,909 | 83,193 | 35,585 | 1,683 | 205,370 | |||||||||||||||
Average total liabilities |
111,909 | 51,375 | 18,065 | (303 | ) | 181,046 | ||||||||||||||
Average total equity |
| | | 24,324 | 24,324 | |||||||||||||||
Statements of Income: |
||||||||||||||||||||
Net interest income |
$ | 3,087 | $ | 1,580 | ($ | 111 | ) | ($ | 116 | ) | $ | 4,440 | ||||||||
FTE adjustment |
| 63 | 2 | | 65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income-FTE 1 |
3,087 | 1,643 | (109 | ) | (116 | ) | 4,505 | |||||||||||||
Provision for credit losses 2 |
102 | 19 | | | 121 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net interest income after provision for credit losses-FTE |
2,985 | 1,624 | (109 | ) | (116 | ) | 4,384 | |||||||||||||
Total noninterest income |
1,347 | 1,096 | 81 | (116 | ) | 2,408 | ||||||||||||||
Total noninterest expense |
2,984 | 1,307 | (83 | ) | (17 | ) | 4,191 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before provision for income taxes-FTE |
1,348 | 1,413 | 55 | (215 | ) | 2,601 | ||||||||||||||
Provision for income taxes-FTE 3 |
305 | 334 | (23 | ) | (139 | ) | 477 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income including income attributable to noncontrolling interest |
1,043 | 1,079 | 78 | (76 | ) | 2,124 | ||||||||||||||
Less: Net income attributable to noncontrolling interest |
| | 7 | | 7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 1,043 | $ | 1,079 | $ | 71 | ($ | 76 | ) | $ | 2,117 | |||||||||
|
|
|
|
|
|
|
|
|
|
1 | Presented on a matched maturity funds transfer price basis for the segments. |
2 | Provision for credit losses represents net charge-offs by segment combined with an allocation to the segments for the provision attributable to quarterly changes in the ALLL and unfunded commitment reserve balances. |
3 | Includes regular provision for income taxes as well as FTE income and tax credit adjustment reversals. |
61
Notes to Consolidated Financial Statements (Unaudited), continued
NOTE 20 ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in the components of AOCI, net of tax, are presented in the following table:
(Dollars in millions) | Securities AFS |
Derivative Instruments |
Brokered Time Deposits |
Long-Term Debt |
Employee Benefit Plans |
Total | ||||||||||||||||||
Three Months Ended September 30, 2019 |
||||||||||||||||||||||||
Balance, beginning of period |
$ | 437 | ($ | 148 | ) | $ | | ($ | 1 | ) | ($ | 689 | ) | ($ | 401 | ) | ||||||||
Net unrealized gains arising during the period |
169 | 47 | | | | 216 | ||||||||||||||||||
Amounts reclassified to net income |
(3 | ) | 35 | | | 4 | 36 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income, net of tax |
166 | 82 | | | 4 | 252 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 603 | ($ | 66 | ) | $ | | ($ | 1 | ) | ($ | 685 | ) | ($ | 149 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three Months Ended September 30, 2018 |
||||||||||||||||||||||||
Balance, beginning of period |
($ | 519 | ) | ($ | 459 | ) | ($ | 1 | ) | ($ | 2 | ) | ($ | 698 | ) | ($ | 1,679 | ) | ||||||
Net unrealized losses arising during the period |
(178 | ) | (37 | ) | | | | (215 | ) | |||||||||||||||
Amounts reclassified to net income |
| 17 | | | 3 | 20 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss)/income, net of tax |
(178 | ) | (20 | ) | | | 3 | (195 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
($ | 697 | ) | ($ | 479 | ) | ($ | 1 | ) | ($ | 2 | ) | ($ | 695 | ) | ($ | 1,874 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nine Months Ended September 30, 2019 |
||||||||||||||||||||||||
Balance, beginning of period |
($ | 357 | ) | ($ | 368 | ) | $ | 1 | ($ | 1 | ) | ($ | 695 | ) | ($ | 1,420 | ) | |||||||
Net unrealized gains/(losses) arising during the period |
931 | 203 | (1 | ) | | | 1,133 | |||||||||||||||||
Amounts reclassified to net income |
29 | 99 | | | 10 | 138 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive income/(loss), net of tax |
960 | 302 | (1 | ) | | 10 | 1,271 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 603 | ($ | 66 | ) | $ | | ($ | 1 | ) | ($ | 685 | ) | ($ | 149 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nine Months Ended September 30, 2018 |
||||||||||||||||||||||||
Balance, beginning of period |
($ | 1 | ) | ($ | 244 | ) | ($ | 1 | ) | ($ | 4 | ) | ($ | 570 | ) | ($ | 820 | ) | ||||||
Cumulative effect adjustment related to ASU adoption 1 |
30 | (56 | ) | | (1 | ) | (127 | ) | (154 | ) | ||||||||||||||
Net unrealized (losses)/gains arising during the period |
(725 | ) | (209 | ) | | 3 | (7 | ) | (938 | ) | ||||||||||||||
Amounts reclassified to net income |
(1 | ) | 30 | | | 9 | 38 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other comprehensive (loss)/income, net of tax |
(726 | ) | (179 | ) | | 3 | 2 | (900 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
($ | 697 | ) | ($ | 479 | ) | ($ | 1 | ) | ($ | 2 | ) | ($ | 695 | ) | ($ | 1,874 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | Related to the Companys early adoption of ASU 2018-02 on January 1, 2018. See Note 1, Significant Accounting Policies, to the Companys 2018 Annual Report on Form 10-K for additional information. |
62
Notes to Consolidated Financial Statements (Unaudited), continued
Reclassifications from AOCI to Net income, and the related tax effects, are presented in the following table:
(Dollars in millions) | Three Months Ended September 30 |
Nine Months Ended September 30 |
Impacted Line Item in the Consolidated | |||||||||||||||
Details About AOCI Components |
2019 | 2018 | 2019 | 2018 | Statements of Income | |||||||||||||
Securities AFS: |
||||||||||||||||||
Net realized (gains)/losses on securities AFS |
($ | 4 | ) | $ | | $ | 38 | ($ | 1 | ) | Net securities gains/(losses) | |||||||
Tax effect |
1 | | (9 | ) | | Provision for income taxes | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
(3 | ) | | 29 | (1 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Derivative Instruments: |
||||||||||||||||||
Net realized losses on cash flow hedges |
46 | 22 | 129 | 39 | Interest and fees on loans held for investment | |||||||||||||
Tax effect |
(11 | ) | (5 | ) | (30 | ) | (9 | ) | Provision for income taxes | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
35 | 17 | 99 | 30 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Employee Benefit Plans: |
||||||||||||||||||
Amortization of prior service credit |
(1 | ) | (2 | ) | (4 | ) | (5 | ) | Employee benefits | |||||||||
Amortization of actuarial loss |
6 | 6 | 18 | 17 | Employee benefits | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
5 | 4 | 14 | 12 | |||||||||||||||
Tax effect |
(1 | ) | (1 | ) | (4 | ) | (3 | ) | Provision for income taxes | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
4 | 3 | 10 | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total reclassifications from AOCI to net income |
$ | 36 | $ | 20 | $ | 138 | $ | 38 | ||||||||||
|
|
|
|
|
|
|
|
63
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 7, 2019, BB&T Corporation (BB&T) and SunTrust Banks, Inc. (SunTrust) entered into the merger agreement providing for the merger of SunTrust with and into BB&T, with BB&T as the surviving entity in the merger. Subject to the satisfaction or (to the extent permitted by law) waiver of the closing conditions set forth in the merger agreement, SunTrust will merge with and into BB&T. In the merger, BB&T will be the surviving entity and SunTrust will no longer be a separate publicly traded corporation.
BB&T and SunTrust shareholders have approved the merger and BB&T shareholders have approved Truist Financial Corporation to be the name of the new combined company. In addition, all required regulatory approvals necessary to consummate the merger have been received. Completion of the merger remains subject to customary closing conditions. Assuming such conditions are satisfied, the merger is expected to be completed after the close of business on December 6, 2019.
The following unaudited pro forma condensed combined financial statements give effect to the merger and include adjustments for the following:
| certain reclassifications to conform historical financial statement presentation of SunTrust to BB&T; |
| application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, which we refer to as ASC 805, Business Combinations, to reflect estimated merger consideration of approximately $32.1 billion in exchange for 100% of all outstanding shares of SunTrust common stock; |
| transaction costs in connection with the merger; and |
| the divestiture of 30 SunTrust branches, including related assets and liabilities, to be acquired by First Horizon Bank, a wholly owned subsidiary of First Horizon National Corporation, to satisfy regulatory requirements in connection with the merger. Refer to Note 6 for more details related to the divestiture. |
The following unaudited pro forma condensed combined financial statements and related notes are based on and should be read in conjunction with (i) the historical audited consolidated financial statements of BB&T and the related notes included in BB&Ts Annual Report on Form 10-K for the year ended December 31, 2018, and the historical unaudited consolidated financial statements of BB&T and the related notes included in BB&Ts Quarterly Report on Form 10-Q for the period ended September 30, 2019, each of which is incorporated by reference herein, and (ii) the historical audited consolidated financial statements of SunTrust and the related notes included in SunTrusts Annual Report on Form 10-K for the year ended December 31, 2018, and the historical unaudited consolidated financial statements of SunTrust and the related notes included in SunTrusts Quarterly Report on Form 10-Q for the period ended September 30, 2019, each of which is incorporated by reference herein.
The unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2019 and for the year ended December 31, 2018 combine the historical consolidated statements of income of BB&T and SunTrust, giving effect to the merger as if it had been completed on January 1, 2018. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2019 combines the historical consolidated balance sheets of BB&T and SunTrust, giving effect to the merger as if it had been completed on September 30, 2019.
The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the merger, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statement of income, expected to have a continuing effect on the combined results of BB&T and SunTrust. The unaudited pro forma condensed combined financial information contained herein does not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the merger.
The statements and related notes are being provided for illustrative purposes only and do not purport to represent what the combined companys actual results of operations or financial position would have been had the merger been completed on the dates indicated, nor are they necessarily indicative of the combined companys future results of operations or financial position for any future period.
BB&T has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the SunTrust assets to be acquired or liabilities to be assumed, other than a preliminary estimate for loans and certain intangible assets. For certain financial assets and liabilities, BB&T has used information from SunTrusts Quarterly Report on Form 10-Q to estimate preliminary fair values. Accordingly, apart from the aforementioned, certain SunTrust assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values until such time the valuations are completed. A final determination of the fair value of SunTrusts assets and liabilities will be based on SunTrusts actual assets and liabilities as of the closing date and, therefore, cannot be made prior to the completion of the merger. In addition, the value of the merger consideration to be paid by BB&T in shares of BB&T common stock upon the completion of the merger will be determined based on the closing price of BB&T common stock on the closing date and the number of issued and outstanding shares of SunTrust common stock immediately prior to the closing. Actual adjustments may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements, and the differences may be material.
1
Further, BB&T has not identified all adjustments necessary to conform SunTrusts accounting policies to BB&Ts accounting policies. Upon completion of the merger, or as more information becomes available, BB&T will perform a more detailed review of SunTrusts accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined companys financial information.
As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements. BB&T estimated the fair value of certain SunTrust assets and liabilities based on a preliminary valuation analysis, due diligence information, information presented in SunTrusts SEC filings and other publicly available information. Until the merger is completed, both companies are limited in their ability to share certain information.
Upon completion of the merger, a final determination of the fair value of SunTrusts assets acquired and liabilities assumed will be performed. Any changes in the fair values of the net assets or total purchase consideration as compared with the information shown in the unaudited pro forma condensed combined financial statements may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined companys statement of income. The final purchase consideration allocation may be materially different than the preliminary purchase consideration allocation presented in the unaudited pro forma condensed combined financial statements.
2
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 2019 |
Historical BB&T |
Historical SunTrust |
Pro Forma Adjustments |
(Note 3) | Pro Forma Condensed Combined |
|||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 3,018 | $ | 9,184 | $ | (1,990 | ) | (a) | $ | 10,212 | ||||||||||
Investment securities |
54,765 | 31,358 | | 86,123 | ||||||||||||||||
LHFS |
1,442 | 2,006 | 7 | (b) | 3,455 | |||||||||||||||
Loans and leases |
149,413 | 158,455 | (4,710 | ) | (c) | 303,158 | ||||||||||||||
ALLL |
(1,573 | ) | (1,699 | ) | 1,699 | (d) | (1,573 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Loans and leases, net of ALLL |
147,840 | 156,756 | (3,011 | ) | 301,585 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Goodwill |
9,832 | 6,331 | 7,597 | (e) | 23,760 | |||||||||||||||
CDI and other intangible assets |
678 | | 2,850 | (f) | 3,528 | |||||||||||||||
Other assets |
19,175 | 21,733 | 595 | (g) | 41,503 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 236,750 | $ | 227,368 | $ | 6,048 | $ |
470,166 |
| |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities |
||||||||||||||||||||
Deposits |
$ | 162,280 | $ | 167,671 | $ | (2,519 | ) | (h) | $ | 327,432 | ||||||||||
Short-term borrowings |
10,405 | 7,144 | | 17,549 | ||||||||||||||||
Long-term debt |
25,520 | 20,369 | 190 | (i) | 46,079 | |||||||||||||||
Accounts payable and other liabilities |
6,242 | 5,695 | 667 | (j) | 12,604 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
204,447 | 200,879 | (1,662 | ) | 403,664 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Shareholders Equity |
||||||||||||||||||||
Total BB&T Equity |
32,234 | | 34,098 | (k) | 66,332 | |||||||||||||||
Total SunTrust Equity |
| 26,388 | (26,388 | ) | (k) | | ||||||||||||||
Noncontrolling interests |
69 | 101 | | 170 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total shareholders equity |
32,303 | 26,489 | 7,710 | (k) | 66,502 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and shareholders equity |
$ | 236,750 | $ | 227,368 | $ | 6,048 | $ | 470,166 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Nine Months Ended September 30,
2019 |
Historical BB&T |
Historical SunTrust |
Pro Forma Adjustments |
(Note 4) | Pro Forma Condensed Combined |
|||||||||||||||
Interest Income |
||||||||||||||||||||
Interest and fees on total loans and leases |
$ | 5,611 | $ | 5,175 | $ | 582 | (a) | $ | 11,368 | |||||||||||
Interest and dividends on securities and other earning assets |
986 | 838 | 52 | (b) | 1,876 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total interest income |
6,597 | 6,013 | 634 | 13,244 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Interest Expense |
||||||||||||||||||||
Interest on deposits |
797 | 811 | | (c) | 1,608 | |||||||||||||||
Interest on short-term and other borrowings |
136 | 188 | | 324 | ||||||||||||||||
Interest on long-term debt |
578 | 425 | (44 | ) | (d) | 959 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total interest expense |
1,511 | 1,424 | (44 | ) | 2,891 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Interest Income |
5,086 | 4,589 | 678 | 10,353 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Provision for credit losses |
444 | 412 | | 856 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Interest Income After Provision for Credit Losses |
4,642 | 4,177 | 678 | 9,497 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noninterest Income |
||||||||||||||||||||
Insurance income |
1,563 | | 7 | (e) | 1,570 | |||||||||||||||
Service charges on deposits |
540 | 417 | | 957 | ||||||||||||||||
Investment banking and brokerage fees and commissions |
372 | 575 | | 947 | ||||||||||||||||
Other income |
1,382 | 1,661 | 88 | (f) | 3,131 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total noninterest income |
3,857 | 2,653 | 95 | 6,605 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noninterest Expense |
||||||||||||||||||||
Personnel expense |
3,368 | 2,493 | | 5,861 | ||||||||||||||||
Net occupancy and equipment expense |
557 | 419 | | 976 | ||||||||||||||||
Software expense |
220 | 720 | (336 | ) | (g) | 604 | ||||||||||||||
Amortization of intangibles |
93 | 54 | 320 | (h) | 467 | |||||||||||||||
Other expense |
1,121 | 916 | 367 | (i) | 2,404 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total noninterest expense |
5,359 | 4,602 | 351 | 10,312 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Earnings |
||||||||||||||||||||
Income before provision for income taxes |
3,140 | 2,228 | 422 | 5,790 | ||||||||||||||||
Provision for income taxes |
629 | 330 | 86 | (j) | 1,045 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Income |
2,511 | 1,898 | 336 | 4,745 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noncontrolling interests |
8 | 7 | | 15 | ||||||||||||||||
Dividends on preferred stock |
177 | 77 | | 254 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income available to common shareholders |
$ | 2,326 | $ | 1,814 | $ | 336 | $ | 4,476 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic EPS |
$ | 3.04 | $ | 4.09 | $ | 3.34 | ||||||||||||||
Diluted EPS |
3.00 | 4.06 | 3.29 | |||||||||||||||||
Basic weighted average shares outstanding |
765,428 | 443,779 | (k) | 1,340,460 | ||||||||||||||||
Diluted weighted average shares outstanding |
774,907 | 446,673 | (k) | 1,359,017 | ||||||||||||||||
|
|
|
|
|
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
Year Ended December 31, 2018
|
Historical BB&T |
Historical SunTrust |
Pro Forma Adjustments |
(Note 4) | Pro Forma Condensed Combined |
|||||||||||||||
Interest Income |
||||||||||||||||||||
Interest and fees on total loans and leases |
$ | 6,894 | $ | 6,159 | $ | 828 | (a) | $ | 13,881 | |||||||||||
Interest and dividends on securities and other earning assets |
1,226 | 1,046 | 59 | (b) | 2,331 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total interest income |
8,120 | 7,205 | 887 | 16,212 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Interest Expense |
||||||||||||||||||||
Interest on deposits |
644 | 711 | 88 | (c) | 1,443 | |||||||||||||||
Interest on short-term and other borrowings |
111 | 132 | | 243 | ||||||||||||||||
Interest on long-term debt |
683 | 375 | (68 | ) | (d) | 990 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total interest expense |
1,438 | 1,218 | 20 | 2,676 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Interest Income |
6,682 | 5,987 | 867 | 13,536 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Provision for credit losses |
566 | 208 | | 774 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Interest Income After Provision for Credit Losses |
6,116 | 5,779 | 867 | 12,762 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noninterest Income |
||||||||||||||||||||
Insurance income |
1,852 | | 11 | (e) | 1,863 | |||||||||||||||
Service charges on deposits |
712 | 579 | | 1,291 | ||||||||||||||||
Investment banking and brokerage fees and commissions |
477 | 760 | | 1,237 | ||||||||||||||||
Other income |
1,835 | 1,887 | 104 | (f) | 3,826 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total noninterest income |
4,876 | 3,226 | 115 | 8,217 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noninterest Expense |
||||||||||||||||||||
Personnel expense |
4,313 | 3,308 | | 7,621 | ||||||||||||||||
Net occupancy and equipment expense |
758 | 538 | | 1,296 | ||||||||||||||||
Software expense |
272 | 909 | (458 | ) | (g) | 723 | ||||||||||||||
Amortization of intangibles |
131 | 73 | 477 | (h) | 681 | |||||||||||||||
Other expense |
1,458 | 845 | 666 | (i) | 2,969 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total noninterest expense |
6,932 | 5,673 | 685 | 13,290 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Earnings |
||||||||||||||||||||
Income before provision for income taxes |
4,060 | 3,332 | 297 | 7,689 | ||||||||||||||||
Provision for income taxes |
803 | 548 | 70 | (j) | 1,421 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net Income |
3,257 | 2,784 | 227 | 6,268 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Noncontrolling interests |
20 | 9 | | 29 | ||||||||||||||||
Dividends on preferred stock |
174 | 107 | | 281 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income available to common shareholders |
$ | 3,063 | $ | 2,668 | $ | 227 | $ | 5,958 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic EPS |
$ | 3.96 | $ | 5.79 | $ | 4.42 | ||||||||||||||
Diluted EPS |
3.91 | 5.74 | 4.36 | |||||||||||||||||
Basic weighted average shares outstanding |
772,963 | 460,922 | (k) | 1,347,995 | ||||||||||||||||
Diluted weighted average shares outstanding |
783,484 | 464,961 | (k) | 1,367,594 | ||||||||||||||||
|
|
|
|
|
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Basis of pro forma presentation
The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2019 and for the year ended December 31, 2018 combine the historical consolidated statements of income of BB&T and SunTrust, giving effect to the merger as if it had been completed on January 1, 2018. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2019 combines the historical consolidated balance sheets of BB&T and SunTrust, giving effect to the merger as if it had been completed on September 30, 2019.
BB&Ts and SunTrusts historical financial statements were prepared in accordance with U.S. GAAP and presented in U.S. dollars. As discussed in Note 3 and Note 4, certain reclassifications were made to align BB&Ts and SunTrusts financial statement presentation. BB&T has not identified all adjustments necessary to conform SunTrusts accounting policies to BB&Ts accounting policies. Upon completion of the merger, or as more information becomes available, BB&T will perform a more detailed review of SunTrusts accounting policies. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined companys financial information.
The accompanying unaudited pro forma condensed combined financial statements and related notes were prepared using the acquisition method of accounting under the provisions of ASC 805, with BB&T considered the acquirer of SunTrust. ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. For purposes of the unaudited pro forma condensed combined balance sheet, the purchase consideration has been allocated to the assets acquired and liabilities assumed of SunTrust based upon managements preliminary estimate of their fair values as of September 30, 2019. BB&T has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the SunTrust assets to be acquired or liabilities assumed, other than a preliminary estimate for loans and certain intangible assets. For certain financial assets and liabilities, BB&T has used information from SunTrusts Quarterly Report on Form 10-Q to estimate preliminary fair values. Accordingly, apart from the aforementioned, certain SunTrust assets and liabilities are presented at their respective carrying amounts and should be treated as preliminary values. Any differences between the fair value of the consideration transferred and the fair value of the assets acquired, liabilities assumed and equity reissued will be recorded as goodwill. Accordingly, the purchase price allocation and related adjustments reflected in these unaudited pro forma condensed combined financial statements are preliminary and subject to revision based on a final determination of fair value.
In the second quarter of 2019, BB&T began applying the offsetting provisions for contracts that are covered by legally enforceable master netting agreements. Application of these provisions was not material to BB&Ts consolidated financial statements. As a result, there was no need for an adjustment for SunTrusts derivative instruments in the unaudited pro forma condensed combined financial statements as of September 30, 2019.
All dollar amounts presented within these Notes to Unaudited Pro Forma Condensed Combined Financial Statements are in millions, except per share data. Share amounts are in thousands.
Note 2. Preliminary purchase price allocation
Refer to the table below for the preliminary calculation of estimated merger consideration:
Preliminary calculation of estimated merger consideration
|
Note | Amount | ||||||
Share consideration: |
||||||||
Shares of SunTrust common stock |
(i) | 444,040 | ||||||
Exchange ratio |
1.295 | |||||||
BB&T common stock to be issued |
575,032 | |||||||
BB&Ts share price on November 25, 2019 |
$ | 55.20 | ||||||
|
|
|||||||
Preliminary fair value of consideration for outstanding common stock |
$ | 31,742 | ||||||
Consideration related to equity awards |
(ii) | 339 | ||||||
|
|
|||||||
Preliminary fair value of estimated total merger consideration |
$ | 32,081 | ||||||
|
|
(i) | Under the terms of the merger agreement, holders of SunTrust common stock have the right to receive a fixed exchange ratio of 1.295 shares of BB&T common stock, par value $5.00 per share, for each share of SunTrust common stock. For purposes of the unaudited pro forma condensed combined balance sheet, the estimated merger consideration is based on the total number of shares of SunTrust common stock issued and outstanding as of October 31, 2019 and the closing price per share of BB&T common stock on November 25, 2019. A 10% change in the closing price per share of BB&T common stock would increase or decrease the estimated fair value of share consideration transferred by approximately $3.2 billion. |
(ii) | In connection with the merger, BB&T has agreed to convert certain equity awards held by SunTrust employees into BB&T equity awards. |
6
The preliminary estimated merger consideration as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed of SunTrust based on their preliminary estimated fair values. As mentioned above in Note 1, BB&T has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the SunTrust assets to be acquired or liabilities assumed, other than a preliminary estimate for loans and certain intangible assets. For certain financial assets and liabilities, BB&T has used information from SunTrusts Quarterly Report on Form 10-Q to estimate preliminary fair values. Accordingly, apart from the aforementioned, certain assets acquired and liabilities assumed are presented at their respective carrying amounts and should be treated as preliminary values. The fair value assessments are preliminary and are based upon available information and certain assumptions, which BB&T believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the unaudited pro forma condensed combined financial statements.
The following table sets forth a preliminary allocation of the estimated merger consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of SunTrust using SunTrusts unaudited consolidated balance sheet as of September 30, 2019:
September 30, 2019 |
Amount | |||
Preliminary fair value of estimated total merger consideration |
$ | 32,081 | ||
Assets |
||||
Cash and cash equivalents |
9,184 | |||
Investment securities |
31,358 | |||
LHFS |
2,013 | |||
Loans and leases |
154,155 | |||
CDI and other intangible assets |
2,850 | |||
Other assets |
22,328 | |||
|
|
|||
Total assets |
221,888 | |||
|
|
|||
Liabilities and Equity |
||||
Deposits |
(167,552 | ) | ||
Short-term borrowings |
(7,144 | ) | ||
Long-term debt |
(20,559 | ) | ||
Accounts payable and other liabilities |
(6,362 | ) | ||
|
|
|||
Total liabilities |
(201,617 | ) | ||
|
|
|||
Preferred stock |
(2,017 | ) | ||
Noncontrolling interest |
(101 | ) | ||
|
|
|||
Less: Net assets |
18,153 | |||
|
|
|||
Goodwill |
$ | 13,928 | ||
|
|
Note 3. Adjustments to the unaudited pro forma condensed combined balance sheet
Refer to the items below for a reconciliation of the pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet:
(a) | Adjustment to cash and cash equivalents to reflect net cash to be paid related to the divestiture of 30 legacy SunTrust branches as mentioned in Note 6. |
(b) | Adjustment to loans held for sale (LHFS) to reflect preliminary estimated fair value of acquired LHFS. |
(c) | Adjustment to loans and leases as follows: |
September 30, 2019 |
Note | Amount | ||||||
Estimated fair value adjustment for loans and leases |
(i) | $ | (4,300 | ) | ||||
Loans and leases divestiture |
(ii) | (410 | ) | |||||
|
|
|||||||
Pro forma net adjustment to loans and leases |
$ | (4,710 | ) | |||||
|
|
(i) | Reflects preliminary estimated fair value adjustments to acquired loans of $2.6 billion for credit (approximately 2% of SunTrust loans) and $1.7 billion for current interest rates and other (representing the remaining mark-to -market adjustment). The fair value adjustment is being recognized over a weighted average contractual maturity of 4.2 years for commercial loans and 19.5 years for retail loans. The estimated amortization does not include the impact of prepayments. |
(ii) | Reflects the removal of loans and leases associated with the branches being divested as mentioned in Note 6. |
7
(d) | Adjustment to eliminate historical allowance for loan and lease losses (ALLL) to reflect acquired loans and leases at fair value. |
(e) | Adjustment to goodwill based on the preliminary purchase price allocation as follows: |
September 30, 2019 |
Note | Amount | ||||||
Fair value of consideration transferred in excess of the preliminary fair value of net assets acquired |
(i) | $ | 13,928 | |||||
Removal of SunTrusts historical goodwill |
(6,331 | ) | ||||||
|
|
|||||||
Pro forma net adjustment to goodwill |
$ | 7,597 | ||||||
|
|
(i) | Goodwill represents the excess of the estimated merger consideration over the preliminary fair value of net assets acquired. Refer to the preliminary estimated merger consideration allocation in Note 2 above for more details. |
(f) | Adjustment to core deposit intangible assets (CDI) and other intangible assets to reflect the preliminary estimated fair value of acquired intangibles, including CDI, other customer relationships for both banking and non-banking businesses, technology and other, as follows: |
September 30, 2019 |
Note | Amount | ||||||
Reclassification of other intangible assets |
(i) | $ | 12 | |||||
Removal of SunTrusts historical intangible assets |
(12 | ) | ||||||
Fair value of CDI and other intangible assets acquired |
(ii) | 2,850 | ||||||
|
|
|||||||
Pro forma net adjustment to CDI and other intangibles assets |
$ | 2,850 | ||||||
|
|
(i) | Reflects the reclassification of SunTrusts other intangible assets to conform to BB&Ts financial statement presentation. |
(ii) | BB&T performed a preliminary fair value assessment of CDI and other intangible assets. The estimated weighted average useful life of the intangible assets is 9.8 years. |
(g) | Adjustment to other assets as follows: |
September 30, 2019 |
Note | Amount | ||||||
Reclassification of other intangible assets to CDI and other intangible assets |
(i) | $ | (12 | ) | ||||
Estimated fair value adjustment for right-of-use assets |
(ii) | 79 | ||||||
Estimated fair value adjustment for mortgage servicing rights |
(iii) | (150 | ) | |||||
Low income housing tax credit investments |
(iv) | 678 | ||||||
|
|
|||||||
Pro forma net adjustment to other assets |
$ | 595 | ||||||
|
|
(i) | As mentioned in Note 3(f)(i), reflects the reclassification of SunTrusts other intangible assets to conform to BB&Ts financial statement presentation. |
(ii) | Adjustment to right-of-use assets to reflect the preliminary estimated fair value. The impact to the unaudited pro forma condensed combined statements of income was not material. |
(iii) | Reflects the preliminary estimated fair value of mortgage servicing rights acquired. |
(iv) | Reflects the adjustment to SunTrusts low income housing tax credit investments to conform to BB&Ts gross financial statement presentation of future funding commitments. |
(h) | Adjustment to deposits as follows: |
September 30, 2019 |
Note | Amount | ||||||
Estimated fair value adjustment for deposits |
(i) | $ | (119 | ) | ||||
Deposits divestiture |
(ii) | (2,400 | ) | |||||
|
|
|||||||
Pro forma net adjustment to deposits |
$ | (2,519 | ) | |||||
|
|
(i) | Reflects the preliminary estimated fair value of deposits acquired. The fair value adjustment is being recognized over a weighted average period of 1.1 years. |
(ii) | Reflects the removal of deposits associated with the branches being divested as mentioned in Note 6. |
8
(i) | Adjustment to long-term debt to reflect the preliminary estimated fair value of acquired long-term debt. The carrying value of short-term borrowings was equal to the fair value. The fair value adjustment is being recognized over a weighted average period of 3.5 years. |
(j) | Adjustment to accounts payable and other liabilities as follows: |
September 30, 2019 |
Note | Amount | ||||||
Deferred tax effect of pro forma adjustments |
(i) | $ | (161 | ) | ||||
Low income housing tax credit investments |
(ii) | 678 | ||||||
Estimated fair value of reserve for unfunded commitments |
(iii) | 150 | ||||||
|
|
|||||||
Pro forma net adjustment to accounts payable and other liabilities |
$ | 667 | ||||||
|
|
(i) | Reflects the reduction to the deferred income tax liability resulting from the preliminary fair value adjustments to intangible assets and certain financial assets and financial liabilities, and the removal of certain SunTrust deferred income tax liabilities. The estimate of the deferred tax liability was determined based on the book and tax basis differences using a blended federal and state statutory rate of approximately 24%. This estimate of the deferred income tax liability is preliminary and subject to change based on BB&Ts final determination of the fair values of the net assets acquired by jurisdiction. |
(ii) | Reflects the adjustment to SunTrusts low income housing tax credit investments to conform to BB&Ts gross financial statement presentation of future funding commitments. |
(iii) | Reflects the preliminary estimated fair value adjustment for the reserve for unfunded commitments. |
(k) | Adjustment to BB&Ts and SunTrusts shareholders equity based on the following: |
September 30, 2019 |
Note | Amount | ||||||
Fair value of equity consideration issued to the sellers |
(i) | $ | 32,081 | |||||
Fair value of SunTrust preferred stock |
(ii) | 2,017 | ||||||
|
|
|||||||
Pro forma adjustment to BB&T shareholders equity |
34,098 | |||||||
Removal of SunTrusts historical shareholders equity |
(26,388 | ) | ||||||
|
|
|||||||
Pro forma net adjustment to total shareholders equity |
$ | 7,710 | ||||||
|
|
(i) | As mentioned in Note 2, the preliminary estimated value of total merger consideration to be issued pursuant to the merger agreement is $32.1 billion. |
(ii) | Reflects the preliminary estimated fair value of SunTrust preferred stock converted into BB&T preferred stock. |
Note 4. Adjustments to the unaudited pro forma condensed combined statement of income
Refer to the items below for a reconciliation of the adjustments reflected in the unaudited pro forma condensed combined statement of income:
(a) | Net adjustment to interest and fees on total loans and leases as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Amortization of premiums and accretion of discounts on acquired loans and leases |
(i) | $ | 632 | $ | 873 | |||||||
Elimination of SunTrust historical amortization on loans and leases |
(ii) | (8 | ) | (8 | ) | |||||||
Reclassification of interest income on loans related to total return swaps |
(iii) | (42 | ) | (37 | ) | |||||||
|
|
|
|
|||||||||
Pro forma net adjustment to interest income |
$ | 582 | $ | 828 | ||||||||
|
|
|
|
(i) | Record estimated amortization of premiums and accretion of discounts on acquired loans and leases based on the weighted average contractual maturity. The estimated amortization does not include the impact of prepayments. |
(ii) | Reflects the elimination of SunTrust historical amortization on loans and leases. |
(iii) | Reflects the reclassification of interest income on total return swap related loans from Interest income to Other income to conform with BB&Ts financial statement presentation. |
(b) | Adjustment to reflect the reclassification of earnings credits on Federal Reserve Bank balances included in SunTrusts outside processing and other expenses from Software expense to Interest and dividends on securities and other earning assets to conform with BB&Ts financial statement presentation. |
(c) | Net adjustment to interest on deposits as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Amortization of premiums and accretion of discounts on acquired deposits |
(i) | $ | 11 | $ | 100 | |||||||
Elimination of SunTrust historical amortization on deposits |
(ii) | (11 | ) | (12 | ) | |||||||
|
|
|
|
|||||||||
Pro forma net adjustment to interest expense on deposits |
$ | | $ | 88 | ||||||||
|
|
|
|
(i) | Record estimated amortization of premiums and accretion of discounts on acquired deposits. |
(ii) | Reflects the elimination of SunTrust historical amortization on deposits. |
9
(d) | Net adjustments to interest on long-term debt as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Amortization of premiums and accretion of discounts on acquired long-term debt |
(i) | $ | (36 | ) | $ | (60 | ) | |||||
Elimination of SunTrust historical amortization on long-term debt |
(ii) | (8 | ) | (8 | ) | |||||||
|
|
|
|
|||||||||
Pro forma net adjustment to interest expense on long-term debt |
$ | (44 | ) | $ | (68 | ) | ||||||
|
|
|
|
(i) | Record estimated amortization of premiums and accretion of discounts on acquired long-term debt. |
(ii) | Reflects the elimination of SunTrust historical amortization on long-term debt. |
(e) | Adjustment to reflect the reclassification of SunTrusts insurance income from Other income to Insurance income to conform to BB&Ts financial statement presentation. |
(f) | Adjustment to other income as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Reclassification of insurance income |
(i) | $ | (7 | ) | $ | (11 | ) | |||||
Reclassification of depreciation expense on assets under operating lease |
(ii) | 106 | 149 | |||||||||
Reclassification of tax credit investment amortization |
(iii) | (53 | ) | (71 | ) | |||||||
Reclassification of interest income on loans related to total return swaps |
(iv) | 42 | 37 | |||||||||
|
|
|
|
|||||||||
Pro forma net adjustment to other income |
$ | 88 | $ | 104 | ||||||||
|
|
|
|
(i) | Reflects the reclassification of SunTrusts insurance income from Other income to Insurance income to conform to BB&Ts financial statement presentation. |
(ii) | Reflects the reclassification of SunTrusts depreciation expense for assets under operating lease from Other income to Other expense to conform to BB&Ts financial statement presentation. |
(iii) | Reflects the reclassification of SunTrusts tax credit investment amortization to conform to BB&Ts financial statement presentation of equity method investments from Amortization of intangibles to Other income. |
(iv) | Reflects the reclassification of interest income on total return swap related loans from Interest income to Other income to conform with BB&Ts financial statement presentation. |
(g) | Adjustment to software expense as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Reclassification of outside processing and other expenses |
(i) | $ | (388 | ) | $ | (517 | ) | |||||
Reclassification of earnings credits on Federal Reserve Bank balances |
(ii) | 52 | 59 | |||||||||
|
|
|
|
|||||||||
Pro forma net adjustment software expense |
$ | (336 | ) | $ | (458 | ) | ||||||
|
|
|
|
(i) | Reflects the reclassification of SunTrusts outside processing and other expenses from Software expense to Other expense to conform to BB&Ts financial statement presentation. |
(ii) | Reflects the reclassification of earnings credits on Federal Reserve Bank balances included in SunTrusts outside processing and other expenses from Software expense to Interest and dividends on securities and other earning assets to conform with BB&Ts financial statement presentation. |
10
(h) | The newly acquired CDI and other intangible assets have been amortized using the sum of the years digits methodology based on an estimated weighted average useful life of 9.8 years. Pro forma amortization expense includes amortization expense for the newly identified intangible assets less the amortization expense of SunTrusts historical intangible assets. BB&T is still in the process of evaluating the fair value of the intangible assets. Any resulting change in the fair value would have a direct impact to amortization expense. |
(Dollars in millions) |
Estimated fair value |
Weighted- average useful life |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||||||||
Amortization expense for intangible assets |
$ | 2,850 | 9.8 years | $ | 374 | $ | 550 | |||||||||||||
Reclassification of tax credit investment amortization |
(i) | (53 | ) | (71 | ) | |||||||||||||||
Historical SunTrust amortization |
(1 | ) | (2 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Pro forma net adjustment to amortization of intangibles |
$ | 320 | $ | 477 | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Amortization for the next five (5) years: |
||||||||||||||||||||
Remaining period of 2019 |
$ | 117 | ||||||||||||||||||
2020 |
432 | |||||||||||||||||||
2021 |
372 | |||||||||||||||||||
2022 |
313 | |||||||||||||||||||
2023 |
254 | |||||||||||||||||||
|
|
(i) | Reflects the reclassification of SunTrusts tax credit investment amortization to conform to BB&Ts financial statement presentation of equity method investments from Amortization of intangibles to Other income. |
(i) | Adjustment to other expense as follows: |
(Dollars in millions) |
Note | Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
|||||||||
Reclassification of outside processing and other expenses |
(i) | $ | 388 | $ | 517 | |||||||
Removal of transactions costs incurred |
(ii) | (127 | ) | | ||||||||
Reclassification of depreciation expense on assets under operating lease |
(iii) | 106 | 149 | |||||||||
|
|
|
|
|||||||||
Pro forma net adjustment to other expense |
$ | 367 | $ | 666 | ||||||||
|
|
|
|
(i) | Reflects the reclassification of SunTrusts outside processing and other expenses from Software expense to Other expense and Interest and dividends on securities and other earning assets to conform to BB&Ts financial statement presentation. |
(ii) | Reflects the removal of transaction costs incurred for the nine months ended September 30, 2019. |
(iii) | Reflects the reclassification of SunTrusts depreciation expense for assets under operating lease from Other income to Other expense to conform to BB&Ts financial statement presentation. |
(j) | To record the income tax impact on the pro forma adjustments utilizing the blended federal and state statutory income tax rate of approximately 24% for the nine months ended September 30, 2019 and for the year ended December 31, 2018. For the nine months ended September 30, 2019, a portion of the transaction costs are nondeductible. |
11
(k) | The pro forma basic and diluted earnings per share calculations are based on the basic and diluted weighted average shares of BB&T plus shares issued as part of the merger. The pro forma basic and diluted weighted average shares outstanding are a combination of historic weighted average shares of BB&T common stock and the share impact as part of the merger. In connection with the merger, BB&T agreed to convert certain equity awards held by SunTrust employees into BB&T equity awards. The difference between historical SunTrust stock compensation expense recognized and expected expense for replacement awards was not material to the unaudited pro forma condensed combined statements of income. The pro forma basic and diluted weighted average shares outstanding are as follows: |
Pro forma basic weighted average shares
|
Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
||||||
Historical BB&T weighted average shares outstanding-basic |
765,428 | 772,963 | ||||||
Shares of BB&T common stock to be issued to holders of SunTrust common stock pursuant to the merger |
575,032 | 575,032 | ||||||
|
|
|
|
|||||
Pro forma weighted average shares-basic |
1,340,460 | 1,347,995 | ||||||
|
|
|
|
Pro forma diluted weighted average shares
|
Nine Months Ended September 30, 2019 |
Year Ended December 31, 2018 |
||||||
Historical BB&T weighted average shares outstanding-diluted |
774,907 | 783,484 | ||||||
Shares of BB&T common stock to be issued to holders of SunTrust common stock pursuant to the merger |
575,032 | 575,032 | ||||||
Diluted impact of BB&Ts equity awards to replace SunTrusts equity awards |
9,078 | 9,078 | ||||||
|
|
|
|
|||||
Pro forma weighted average shares-diluted |
1,359,017 | 1,367,594 | ||||||
|
|
|
|
Note 5. Estimated merger integration costs and estimated cost savings
BB&T estimates that the combined entity will incur approximately $2.0 billion of one-time pre-tax merger integration costs. BB&T also estimates that the combined entity will achieve annual pre-tax expense savings of $1.6 billion, net of new investments, which are expected to be fully realized during 2022. Merger integration costs and estimated expense savings are not included in the pro forma combined statements of income as these items are not indicative of the historical results of the combined company.
Note 6. Divestitures in connection with the merger
On November 8, 2019, BB&T and SunTrust announced that First Horizon Bank, a wholly owned subsidiary of First Horizon National Corporation, entered into an agreement to acquire 30 branches located in North Carolina, Virginia and Georgia from SunTrust Bank, a wholly owned subsidiary of SunTrust, to satisfy regulatory requirements in connection with the merger. The unaudited pro forma condensed combined balance sheet was adjusted to reflect the estimated impact of the branch divestiture, including cash to be paid of $2.0 billion, the removal of $410 million in loans and leases, and the removal of $2.4 billion in deposits. The impact to the unaudited pro forma condensed combined statements of income was not material. The estimated impacts for the branch divestiture are preliminary and subject to change based on the balances of the accounts identified as of the time the divestiture is completed.
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