UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: SeptemberJune 30, 20172018
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
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North Carolina | 56-0939887 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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200 West Second Street Winston-Salem, North Carolina | 27101 |
(Address of principal executive offices) | (Zip Code) |
(336) 733-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ý | | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
| | | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
At SeptemberJune 30, 2017, 788,921,0522018, 774,446,877 shares of the Registrant'sregistrant's common stock, $5 par value, were outstanding.
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TABLE OF CONTENTS |
BB&T CORPORATION |
FORM 10-Q |
SeptemberJune 30, 20172018 |
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| | Page No. |
PART I - Financial Information |
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Item 1. | Financial Statements | |
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| Notes to Consolidated Financial Statements (Unaudited) | |
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| Securities | |
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| Note 4. Goodwill and Other Intangible Assets | |
| Note 5. Loan Servicing | |
| Note 6. Deposits | |
| Note 7. Long-Term Debt | |
| Note 8. Shareholders' Equity | |
| 9. AOCI | |
| Note 7. 10. Income Taxes | |
| Note 11. Benefit Plans | |
| Note 12. Commitments and Contingencies | |
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| 13. Fair Value Disclosures | |
| 14. Derivative Financial Instruments | |
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| Computation of EPS | |
| Operating Segments | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II - Other Information |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | Defaults Upon Senior Securities - (none.)(none) | |
Item 4. | Mine Safety Disclosures - (not applicable.)applicable) | |
Item 5. | Other Information - (none to be reported.)reported) | |
Item 6. | | |
Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes.
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Term | | Definition |
2015 Repurchase Plan | | Plan for the repurchase of up to 50 million shares of BB&T's common stock |
2017 Repurchase Plan | | Plan for the repurchase of up to $1.88$1.93 billion of BB&T's common stock for the one-year period ended June 30, 2018 |
2018 Repurchase Plan | | Plan for the repurchase of up to $1.7 billion of BB&T's common stock for the one-year period ended June 30, 2019 |
ACL | | Allowance for credit losses |
Acquired from FDIC | | Assets of Colonial that were formerly covered under loss sharing agreements |
AFS | | Available-for-sale |
Agency MBS | | Mortgage-backed securities issued by a U.S. government agency or GSE |
ALLL | | Allowance for loan and lease losses |
American Coastal | | American Coastal Insurance Company |
AOCI | | Accumulated other comprehensive income (loss) |
Basel III | | Global regulatory standards on bank capital adequacy and liquidity published by the BCBS |
BB&T | | BB&T Corporation and subsidiaries |
BCBS | | Basel Committee on Banking Supervision |
BHC | | Bank holding company |
BHCA | | Bank Holding Company Act of 1956, as amended |
Branch Bank | | Branch Banking and Trust Company |
BSA/AML | | Bank Secrecy Act/Anti-Money Laundering |
BU | | Business Unit |
CB-Commercial | | Community Banking Commercial, an operating segment |
CB-Retail | | Community Banking Retail and Consumer Finance, an operating segment |
CCAR | | Comprehensive Capital Analysis and Review |
CD | | Certificate of deposit |
CDI | | Core deposit intangible assets |
CEO | | Chief Executive Officer |
CET1 | | Common equity Tier 1 |
CFPB | | Consumer Financial Protection Bureau |
CMO | | Collateralized mortgage obligation |
Colonial | | Collectively, certain assets and liabilities of Colonial Bank acquired by BB&T in 2009 |
Company | | BB&T Corporation and subsidiaries (interchangeable with "BB&T" above) |
CRA | | Community Reinvestment Act of 1977 |
CRE | | Commercial real estate |
CRMC | | Credit Risk Management Committee |
CROC | | Compliance Risk Oversight Committee |
DIF | | Deposit Insurance Fund administered by the FDIC |
Dodd-Frank Act | | Dodd-Frank Wall Street Reform and Consumer Protection Act |
DOL | | United States Department of Labor |
EPS | | Earnings per common share |
EVE | | Economic value of equity |
Exchange Act | | Securities Exchange Act of 1934, as amended |
FASB | | Financial Accounting Standards Board |
FATCA | | Foreign Account Tax Compliance Act |
FDIC | | Federal Deposit Insurance Corporation |
FHA | | Federal Housing Administration |
FHC | | Financial Holding Company |
FHLB | | Federal Home Loan Bank |
FHLMC | | Federal Home Loan Mortgage Corporation |
FINRA | | Financial Industry Regulatory Authority |
FNMA | | Federal National Mortgage Association |
FRB | | Board of Governors of the Federal Reserve System |
FS&CF | | Financial Services and Commercial Finance, an operating segment |
FTE | | Full-time equivalent employee |
FTP | | Funds transfer pricing |
GAAP | | Accounting principles generally accepted in the United States of America |
GNMA | | Government National Mortgage Association |
Grandbridge | | Grandbridge Real Estate Capital, LLC |
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Term | | Definition |
GSE | | U.S. government-sponsored enterprise |
HFI | | Held for investment |
HMDA | | Home Mortgage Disclosure Act |
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| | |
Term | | Definition |
HTM | | Held-to-maturity |
IDI | | Insured depository institution |
IH&PF | | Insurance Holdings and Premium Finance, an operating segment |
IPV | | Independent price verification |
IRC | | Internal Revenue Code |
IRS | | Internal Revenue Service |
ISDA | | International Swaps and Derivatives Association, Inc. |
LCR | | Liquidity Coverage Ratio |
LHFS | | Loans held for sale |
LIBOR | | London Interbank Offered Rate |
MBS | | Mortgage-backed securities |
MRLCC | | Market Risk, Liquidity and Capital Committee |
MSR | | Mortgage servicing right |
MSRB | | Municipal Securities Rulemaking Board |
N/A | | Not applicable |
National Penn | | National Penn Bancshares, Inc., acquired by BB&T effective April 1, 2016 |
NCCOB | | North Carolina Office of the Commissioner of Banks |
NIM | | Net interest margin, computed on a TE basis |
NM | | Not meaningful |
NPA | | Nonperforming asset |
NPL | | Nonperforming loan |
NSFR | | Net stable funding ratio |
NYSE | | NYSE Euronext, Inc. |
OAS | | Option adjusted spread |
OCI | | Other comprehensive income (loss) |
OREO | | Other real estate owned |
ORMC | | Operational Risk Management Committee |
OT&C | | Other, Treasury and Corporate |
OTTI | | Other-than-temporary impairment |
Parent Company | | BB&T Corporation, the parent company of Branch Bank and other subsidiaries |
Patriot Act | | Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 |
PCI | | Purchased credit impaired loans as well as assets of Colonial Bank acquired from the FDIC during 2009, which were formerly covered under loss sharing agreements |
PSU | | Performance share units |
Re-REMICs | | Re-securitizations of Real Estate Mortgage Investment Conduits |
RMC | | Risk Management Committee |
RMO | | Risk Management Organization |
RSU | | Restricted stock unit |
RUFC | | Reserve for unfunded lending commitments |
SBIC | | Small Business Investment Company |
SEC | | Securities and Exchange Commission |
Short-Term Borrowings | | Federal funds purchased, securities sold under repurchase agreements and other short-term borrowed funds with original maturities of less than one year |
Simulation | | Interest sensitivity simulation analysis |
Susquehanna | | Susquehanna Bancshares, Inc., acquired by BB&T effective August 1, 2015 |
Swett & Crawford | | CGSC North America Holdings Corporation, acquired by BB&T effective April 1, 2016 |
TBA | | To be announced |
TDR | | Troubled debt restructuring |
TE | | Taxable-equivalent |
U.S. | | United States of America |
U.S. Treasury | | United States Department of the Treasury |
UPB | | Unpaid principal balance |
VaR | | Value-at-risk |
VIE | | Variable interest entity |
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
BB&T CORPORATION AND SUBSIDIARIES
| | Unaudited (Dollars in millions, except per share data, shares in thousands) | September 30, 2017 | | December 31, 2016 | June 30, 2018 | | December 31, 2017 |
Assets | | | | | | |
Cash and due from banks | $ | 2,195 |
| | $ | 1,897 |
| $ | 2,046 |
| | $ | 2,243 |
|
Interest-bearing deposits with banks | 428 |
| | 1,895 |
| 662 |
| | 343 |
|
Federal funds sold and other cash equivalents | 75 |
| | 144 |
| |
Cash equivalents | | 213 |
| | 127 |
|
Restricted cash | 429 |
| | 488 |
| 132 |
| | 370 |
|
AFS securities at fair value | 23,184 |
| | 26,926 |
| 23,919 |
| | 24,547 |
|
HTM securities (fair value of $23,392 and $16,546 at September 30, 2017 and December 31, 2016, respectively) | 23,447 |
| | 16,680 |
| |
HTM securities (fair value of $21,080 and $22,837 at June 30, 2018 and December 31, 2017, respectively) | | 21,749 |
| | 23,027 |
|
LHFS at fair value | 1,217 |
| | 1,716 |
| 1,615 |
| | 1,099 |
|
Loans and leases | 142,794 |
| | 143,322 |
| 146,183 |
| | 143,701 |
|
ALLL | (1,478 | ) | | (1,489 | ) | (1,530 | ) | | (1,490 | ) |
Loans and leases, net of ALLL | 141,316 |
| | 141,833 |
| 144,653 |
| | 142,211 |
|
| | | | |
Premises and equipment | 2,043 |
| | 2,107 |
| 2,154 |
| | 2,055 |
|
Goodwill | 9,618 |
| | 9,638 |
| 9,617 |
| | 9,618 |
|
CDI and other intangible assets | 745 |
| | 854 |
| 647 |
| | 711 |
|
MSRs at fair value | 1,044 |
| | 1,052 |
| 1,143 |
| | 1,056 |
|
Other assets | 14,599 |
| | 14,046 |
| 14,131 |
| | 14,235 |
|
Total assets | $ | 220,340 |
| | $ | 219,276 |
| $ | 222,681 |
| | $ | 221,642 |
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| | | | |
Liabilities and Shareholders' Equity | | | | |
Deposits: | | | | |
Noninterest-bearing deposits | $ | 54,049 |
| | $ | 50,697 |
| |
Interest-bearing deposits | 102,086 |
| | 109,537 |
| |
Total deposits | 156,135 |
| | 160,234 |
| |
| | | | |
Liabilities | | | | |
Deposits | | $ | 159,475 |
| | $ | 157,371 |
|
Short-term borrowings | 7,916 |
| | 1,406 |
| 3,576 |
| | 4,938 |
|
Long-term debt | 20,863 |
| | 21,965 |
| 24,081 |
| | 23,648 |
|
Accounts payable and other liabilities | 5,573 |
| | 5,745 |
| 5,717 |
| | 5,990 |
|
Total liabilities | 190,487 |
| | 189,350 |
| 192,849 |
| | 191,947 |
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Commitments and contingencies (Note 13) |
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| |
Shareholders' equity: | | | | |
Commitments and contingencies (Note 12) | |
| |
|
Shareholders' Equity | | | | |
Preferred stock, $5 par, liquidation preference of $25,000 per share | 3,053 |
| | 3,053 |
| 3,053 |
| | 3,053 |
|
Common stock, $5 par | 3,945 |
| | 4,047 |
| 3,872 |
| | 3,910 |
|
Additional paid-in capital | 8,192 |
| | 9,104 |
| 7,364 |
| | 7,893 |
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Retained earnings | 15,656 |
| | 14,809 |
| 17,197 |
| | 16,259 |
|
AOCI, net of deferred income taxes | (1,036 | ) | | (1,132 | ) | (1,706 | ) | | (1,467 | ) |
Noncontrolling interests | 43 |
| | 45 |
| 52 |
| | 47 |
|
Total shareholders' equity | 29,853 |
| | 29,926 |
| 29,832 |
| | 29,695 |
|
Total liabilities and shareholders' equity | $ | 220,340 |
| | $ | 219,276 |
| $ | 222,681 |
| | $ | 221,642 |
|
| | | | | | |
Common shares outstanding | 788,921 |
| | 809,475 |
| 774,447 |
| | 782,006 |
|
Common shares authorized | 2,000,000 |
| | 2,000,000 |
| 2,000,000 |
| | 2,000,000 |
|
Preferred shares outstanding | 126 |
| | 126 |
| 126 |
| | 126 |
|
Preferred shares authorized | 5,000 |
| | 5,000 |
| 5,000 |
| | 5,000 |
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The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
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| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
Unaudited | | June 30, | | June 30, |
(Dollars in millions, except per share data, shares in thousands) | | 2018 | | 2017 | | 2018 | | 2017 |
Interest Income | | | | | | | | |
Interest and fees on loans and leases | | $ | 1,687 |
| | $ | 1,540 |
| | $ | 3,292 |
| | $ | 3,041 |
|
Interest and dividends on securities | | 294 |
| | 272 |
| | 585 |
| | 530 |
|
Interest on other earning assets | | 13 |
| | 12 |
| | 38 |
| | 28 |
|
Total interest income | | 1,994 |
| | 1,824 |
| | 3,915 |
| | 3,599 |
|
Interest Expense | | | | | | | | |
Interest on deposits | | 148 |
| | 80 |
| | 266 |
| | 149 |
|
Interest on short-term borrowings | | 23 |
| | 5 |
| | 43 |
| | 7 |
|
Interest on long-term debt | | 166 |
| | 104 |
| | 316 |
| | 199 |
|
Total interest expense | | 337 |
| | 189 |
| | 625 |
| | 355 |
|
Net Interest Income | | 1,657 |
| | 1,635 |
| | 3,290 |
| | 3,244 |
|
Provision for credit losses | | 135 |
| | 135 |
| | 285 |
| | 283 |
|
Net Interest Income After Provision for Credit Losses | | 1,522 |
| | 1,500 |
| | 3,005 |
| | 2,961 |
|
Noninterest Income | | | | | | | | |
Insurance income | | 481 |
| | 481 |
| | 917 |
| | 939 |
|
Service charges on deposits | | 179 |
| | 176 |
| | 344 |
| | 344 |
|
Mortgage banking income | | 94 |
| | 94 |
| | 193 |
| | 197 |
|
Investment banking and brokerage fees and commissions | | 109 |
| | 105 |
| | 222 |
| | 196 |
|
Trust and investment advisory revenues | | 72 |
| | 70 |
| | 144 |
| | 138 |
|
Bankcard fees and merchant discounts | | 72 |
| | 75 |
| | 141 |
| | 134 |
|
Checkcard fees | | 57 |
| | 54 |
| | 109 |
| | 105 |
|
Operating lease income | | 36 |
| | 37 |
| | 73 |
| | 73 |
|
Income from bank-owned life insurance | | 30 |
| | 32 |
| | 61 |
| | 61 |
|
Other income | | 91 |
| | 96 |
| | 197 |
| | 204 |
|
Securities gains (losses), net | | | | | | | | |
Gross realized gains | | 1 |
| | — |
| | 1 |
| | — |
|
Gross realized losses | | — |
| | — |
| | — |
| | — |
|
OTTI charges | | — |
| | — |
| | — |
| | — |
|
Non-credit portion recognized in OCI | | — |
| | — |
| | — |
| | — |
|
Total securities gains (losses), net | | 1 |
| | — |
| | 1 |
| | — |
|
Total noninterest income | | 1,222 |
| | 1,220 |
| | 2,402 |
| | 2,391 |
|
Noninterest Expense | | | | | | | | |
Personnel expense | | 1,074 |
| | 1,068 |
| | 2,113 |
| | 2,103 |
|
Occupancy and equipment expense | | 187 |
| | 198 |
| | 381 |
| | 391 |
|
Software expense | | 67 |
| | 57 |
| | 132 |
| | 115 |
|
Outside IT services | | 32 |
| | 39 |
| | 64 |
| | 88 |
|
Regulatory charges | | 39 |
| | 36 |
| | 79 |
| | 75 |
|
Amortization of intangibles | | 31 |
| | 36 |
| | 64 |
| | 74 |
|
Loan-related expense | | 26 |
| | 36 |
| | 55 |
| | 66 |
|
Professional services | | 32 |
| | 38 |
| | 62 |
| | 60 |
|
Merger-related and restructuring charges, net | | 24 |
| | 10 |
| | 52 |
| | 46 |
|
Loss (gain) on early extinguishment of debt | | — |
| | — |
| | — |
| | 392 |
|
Other expense | | 208 |
| | 224 |
| | 404 |
| | 434 |
|
Total noninterest expense | | 1,720 |
| | 1,742 |
| | 3,406 |
| | 3,844 |
|
Earnings | | | | | | | | |
Income before income taxes | | 1,024 |
| | 978 |
| | 2,001 |
| | 1,508 |
|
Provision for income taxes | | 202 |
| | 304 |
| | 388 |
| | 408 |
|
Net income | | 822 |
| | 674 |
| | 1,613 |
| | 1,100 |
|
Noncontrolling interests | | 3 |
| | (1 | ) | | 6 |
| | 4 |
|
Dividends on preferred stock | | 44 |
| | 44 |
| | 87 |
| | 87 |
|
Net income available to common shareholders | | $ | 775 |
| | $ | 631 |
| | $ | 1,520 |
| | $ | 1,009 |
|
Basic EPS | | $ | 1.00 |
| | $ | 0.78 |
| | $ | 1.95 |
| | $ | 1.25 |
|
Diluted EPS | | $ | 0.99 |
| | $ | 0.77 |
| | $ | 1.93 |
| | $ | 1.23 |
|
Cash dividends declared per share | | $ | 0.375 |
| | $ | 0.300 |
| | $ | 0.750 |
| | $ | 0.600 |
|
Basic weighted average shares outstanding | | 775,836 |
| | 808,980 |
| | 777,716 |
| | 809,439 |
|
Diluted weighted average shares outstanding | | 785,750 |
| | 819,389 |
| | 788,362 |
| | 821,072 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
Unaudited | | June 30, | | June 30, |
(Dollars in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Net income | | $ | 822 |
| | $ | 674 |
| | $ | 1,613 |
| | $ | 1,100 |
|
OCI, net of tax: | | |
| | |
| | |
| | |
|
Change in unrecognized net pension and postretirement costs | | 13 |
| | 12 |
| | 27 |
| | 21 |
|
Change in unrealized net gains (losses) on cash flow hedges | | 26 |
| | (34 | ) | | 104 |
| | (36 | ) |
Change in unrealized net gains (losses) on AFS securities | | (99 | ) | | 74 |
| | (367 | ) | | 72 |
|
Other, net | | (1 | ) | | — |
| | (3 | ) | | 2 |
|
Total OCI | | (61 | ) | | 52 |
| | (239 | ) | | 59 |
|
Total comprehensive income | | $ | 761 |
| | $ | 726 |
| | $ | 1,374 |
| | $ | 1,159 |
|
| | | | | | | | |
Income Tax Effect of Items Included in OCI: | | | | | | | | |
Change in unrecognized net pension and postretirement costs | | $ | 5 |
| | $ | 7 |
| | $ | 9 |
| | $ | 14 |
|
Change in unrealized net gains (losses) on cash flow hedges | | 8 |
| | (20 | ) | | 34 |
| | (21 | ) |
Change in unrealized net gains (losses) on AFS securities | | (31 | ) | | 43 |
| | (115 | ) | | 42 |
|
Other, net | | — |
| | — |
| | 1 |
| | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
Unaudited | | September 30, | | September 30, |
(Dollars in millions, except per share data, shares in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Interest Income | | | | | | | | |
Interest and fees on loans and leases | | $ | 1,591 |
| | $ | 1,524 |
| | $ | 4,632 |
| | $ | 4,475 |
|
Interest and dividends on securities | | 276 |
| | 262 |
| | 806 |
| | 803 |
|
Interest on other earning assets | | 10 |
| | 9 |
| | 38 |
| | 43 |
|
Total interest income | | 1,877 |
| | 1,795 |
| | 5,476 |
| | 5,321 |
|
Interest Expense | | | | | | | | |
Interest on deposits | | 91 |
| | 62 |
| | 240 |
| | 190 |
|
Interest on short-term borrowings | | 15 |
| | 2 |
| | 22 |
| | 7 |
|
Interest on long-term debt | | 124 |
| | 121 |
| | 323 |
| | 368 |
|
Total interest expense | | 230 |
| | 185 |
| | 585 |
| | 565 |
|
Net Interest Income | | 1,647 |
| | 1,610 |
| | 4,891 |
| | 4,756 |
|
Provision for credit losses | | 126 |
| | 148 |
| | 409 |
| | 443 |
|
Net Interest Income After Provision for Credit Losses | | 1,521 |
| | 1,462 |
| | 4,482 |
| | 4,313 |
|
Noninterest Income | | | | | | | | |
Insurance income | | 397 |
| | 410 |
| | 1,336 |
| | 1,294 |
|
Service charges on deposits | | 179 |
| | 172 |
| | 523 |
| | 492 |
|
Mortgage banking income | | 114 |
| | 154 |
| | 311 |
| | 356 |
|
Investment banking and brokerage fees and commissions | | 103 |
| | 101 |
| | 299 |
| | 300 |
|
Trust and investment advisory revenues | | 68 |
| | 68 |
| | 206 |
| | 197 |
|
Bankcard fees and merchant discounts | | 70 |
| | 61 |
| | 204 |
| | 177 |
|
Checkcard fees | | 54 |
| | 50 |
| | 159 |
| | 145 |
|
Operating lease income | | 36 |
| | 34 |
| | 109 |
| | 103 |
|
Income from bank-owned life insurance | | 28 |
| | 35 |
| | 89 |
| | 97 |
|
FDIC loss share income, net | | — |
| | (18 | ) | | — |
| | (142 | ) |
Other income | | 117 |
| | 97 |
| | 321 |
| | 246 |
|
Securities gains (losses), net | | | | | | | | |
Gross realized gains | | 17 |
| | — |
| | 17 |
| | 45 |
|
Gross realized losses | | (17 | ) | | — |
| | (17 | ) | | — |
|
OTTI charges | | — |
| | — |
| | — |
| | — |
|
Non-credit portion recognized in OCI | | — |
| | — |
| | — |
| | — |
|
Total securities gains (losses), net | | — |
| | — |
| | — |
| | 45 |
|
Total noninterest income | | 1,166 |
| | 1,164 |
| | 3,557 |
| | 3,310 |
|
Noninterest Expense | | | | | | | | |
Personnel expense | | 1,024 |
| | 1,006 |
| | 3,077 |
| | 2,960 |
|
Occupancy and equipment expense | | 198 |
| | 203 |
| | 589 |
| | 588 |
|
Software expense | | 62 |
| | 63 |
| | 177 |
| | 167 |
|
Outside IT services | | 34 |
| | 51 |
| | 122 |
| | 136 |
|
Amortization of intangibles | | 34 |
| | 38 |
| | 108 |
| | 112 |
|
Regulatory charges | | 40 |
| | 41 |
| | 115 |
| | 103 |
|
Professional services | | 27 |
| | 27 |
| | 87 |
| | 75 |
|
Loan-related expense | | 32 |
| | 33 |
| | 98 |
| | 101 |
|
Merger-related and restructuring charges, net | | 47 |
| | 43 |
| | 93 |
| | 158 |
|
Loss (gain) on early extinguishment of debt | | — |
| | — |
| | 392 |
| | (1 | ) |
Other expense | | 247 |
| | 206 |
| | 731 |
| | 654 |
|
Total noninterest expense | | 1,745 |
| | 1,711 |
| | 5,589 |
| | 5,053 |
|
Earnings | | | | | | | | |
Income before income taxes | | 942 |
| | 915 |
| | 2,450 |
| | 2,570 |
|
Provision for income taxes | | 294 |
| | 273 |
| | 702 |
| | 771 |
|
Net income | | 648 |
| | 642 |
| | 1,748 |
| | 1,799 |
|
Noncontrolling interests | | 8 |
| | — |
| | 12 |
| | 9 |
|
Dividends on preferred stock | | 43 |
| | 43 |
| | 130 |
| | 123 |
|
Net income available to common shareholders | | $ | 597 |
| | $ | 599 |
| | $ | 1,606 |
| | $ | 1,667 |
|
Basic EPS | | $ | 0.75 |
| | $ | 0.74 |
| | $ | 2.00 |
| | $ | 2.08 |
|
Diluted EPS | | $ | 0.74 |
| | $ | 0.73 |
| | $ | 1.97 |
| | $ | 2.05 |
|
Cash dividends declared per share | | $ | 0.33 |
| | $ | 0.30 |
| | $ | 0.93 |
| | $ | 0.85 |
|
Basic weighted average shares outstanding | | 794,558 |
| | 812,521 |
| | 804,424 |
| | 802,694 |
|
Diluted weighted average shares outstanding | | 806,124 |
| | 823,106 |
| | 816,029 |
| | 812,407 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
Unaudited | | September 30, | | September 30, |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Net income | | $ | 648 |
| | $ | 642 |
| | $ | 1,748 |
| | $ | 1,799 |
|
OCI, net of tax: | | |
| | |
| | |
| | |
|
Change in unrecognized net pension and postretirement costs | | 8 |
| | 2 |
| | 29 |
| | 24 |
|
Change in unrealized net gains (losses) on cash flow hedges | | 9 |
| | 21 |
| | (27 | ) | | (143 | ) |
Change in unrealized net gains (losses) on AFS securities | | 18 |
| | (73 | ) | | 90 |
| | 224 |
|
Change in FDIC's share of unrealized gains/losses on AFS securities | | — |
| | 137 |
| | — |
| | 169 |
|
Other, net | | 2 |
| | — |
| | 4 |
| | 4 |
|
Total OCI | | 37 |
| | 87 |
| | 96 |
| | 278 |
|
Total comprehensive income | | $ | 685 |
| | $ | 729 |
| | $ | 1,844 |
| | $ | 2,077 |
|
| | | | | | | | |
Income Tax Effect of Items Included in OCI: | | | | | | | | |
Change in unrecognized net pension and postretirement costs | | $ | 3 |
| | $ | — |
| | $ | 17 |
| | $ | 14 |
|
Change in unrealized net gains (losses) on cash flow hedges | | 5 |
| | 14 |
| | (16 | ) | | (84 | ) |
Change in unrealized net gains (losses) on AFS securities | | 9 |
| | (43 | ) | | 51 |
| | 135 |
|
Change in FDIC's share of unrealized gains/losses on AFS securities | | — |
| | 80 |
| | — |
| | 98 |
|
Other, net | | — |
| | 1 |
| | — |
| | 1 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BB&T CORPORATION AND SUBSIDIARIES
| | Unaudited (Dollars in millions, shares in thousands) | Shares of Common Stock | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | AOCI | | Noncontrolling Interests | | Total Shareholders' Equity | Shares of Common Stock | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | AOCI | | Noncontrolling Interests | | Total Shareholders' Equity |
Balance, January 1, 2016 | 780,337 |
| | $ | 2,603 |
| | $ | 3,902 |
| | $ | 8,365 |
| | $ | 13,464 |
| | $ | (1,028 | ) | | $ | 34 |
| | $ | 27,340 |
| |
Add (Deduct): | | | | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | 1,790 |
| | — |
| | 9 |
| | 1,799 |
| |
Net change in AOCI | — |
| | — |
| | — |
| | — |
| | — |
| | 278 |
| | — |
| | 278 |
| |
Stock transactions: | | | |
| | |
| | | | | | | | | | | |
Issued in business combinations | 31,666 |
| | — |
| | 158 |
| | 905 |
| | — |
| | — |
| | — |
| | 1,063 |
| |
Issued in connection with equity awards, net | 3,715 |
| | — |
| | 18 |
| | 6 |
| | — |
| | — |
| | — |
| | 24 |
| |
Issued in connection with preferred stock offerings | — |
| | 450 |
| | | | | | | | | | | | 450 |
| |
Repurchase of common stock | (4,294 | ) | | — |
| | (21 | ) | | (139 | ) | | — |
| | — |
| | — |
| | (160 | ) | |
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (682 | ) | | — |
| | — |
| | (682 | ) | |
Cash dividends declared on preferred stock | — |
| | — |
| | — |
| | — |
| | (123 | ) | | — |
| | — |
| | (123 | ) | |
Equity-based compensation expense | — |
| | — |
| | — |
| | 96 |
| | — |
| | — |
| | — |
| | 96 |
| |
Other, net | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | (4 | ) | | 6 |
| |
Balance, September 30, 2016 | 811,424 |
| | $ | 3,053 |
| | $ | 4,057 |
| | $ | 9,233 |
| | $ | 14,459 |
| | $ | (750 | ) | | $ | 39 |
| | $ | 30,091 |
| |
| | | | | | | | | | | | | | | | |
Balance, January 1, 2017 | 809,475 |
| | $ | 3,053 |
| | $ | 4,047 |
| | $ | 9,104 |
| | $ | 14,809 |
| | $ | (1,132 | ) | | $ | 45 |
| | $ | 29,926 |
| 809,475 |
| | $ | 3,053 |
| | $ | 4,047 |
| | $ | 9,104 |
| | $ | 14,809 |
| | $ | (1,132 | ) | | $ | 45 |
| | $ | 29,926 |
|
Add (Deduct): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | — |
| | — |
| | — |
| | — |
| | 1,736 |
| | — |
| | 12 |
| | 1,748 |
| — |
| | — |
| | — |
| | — |
| | 1,096 |
| | — |
| | 4 |
| | 1,100 |
|
Net change in AOCI | — |
| | — |
| | — |
| | — |
| | — |
| | 96 |
| | — |
| | 96 |
| |
OCI | | — |
| | — |
| | — |
| | — |
| | — |
| | 59 |
| | — |
| | 59 |
|
Stock transactions: | | | | | | | | | | | | | | | | | | |
| | |
| | | | | | | | | | |
Issued in connection with equity awards, net | 7,201 |
| | — |
| | 37 |
| | 67 |
| | — |
| | — |
| | — |
| | 104 |
| 6,644 |
| | — |
| | 33 |
| | 55 |
| | — |
| | — |
| | — |
| | 88 |
|
Repurchase of common stock | (27,755 | ) | | — |
| | (139 | ) | | (1,101 | ) | | — |
| | — |
| | — |
| | (1,240 | ) | (8,026 | ) | | — |
| | (40 | ) | | (280 | ) | | — |
| | — |
| | — |
| | (320 | ) |
Cash dividends declared on common stock | — |
| | — |
| | — |
| | — |
| | (747 | ) | | — |
| | — |
| | (747 | ) | — |
| | — |
| | — |
| | — |
| | (485 | ) | | — |
| | — |
| | (485 | ) |
Cash dividends declared on preferred stock | — |
| | — |
| | — |
| | — |
| | (130 | ) | | — |
| | — |
| | (130 | ) | — |
| | — |
| | — |
| | — |
| | (87 | ) | | — |
| | — |
| | (87 | ) |
Equity-based compensation expense | — |
| | — |
| | — |
| | 109 |
| | — |
| | — |
| | — |
| | 109 |
| — |
| | — |
| | — |
| | 74 |
| | — |
| | — |
| | — |
| | 74 |
|
Other, net | — |
| | — |
| | — |
| | 13 |
| | (12 | ) | | — |
| | (14 | ) | | (13 | ) | — |
| | — |
| | — |
| | 13 |
| | (12 | ) | | — |
| | (7 | ) | | (6 | ) |
Balance, September 30, 2017 | 788,921 |
| | $ | 3,053 |
| | $ | 3,945 |
| | $ | 8,192 |
| | $ | 15,656 |
| | $ | (1,036 | ) | | $ | 43 |
| | $ | 29,853 |
| |
Balance, June 30, 2017 | | 808,093 |
| | $ | 3,053 |
| | $ | 4,040 |
| | $ | 8,966 |
| | $ | 15,321 |
| | $ | (1,073 | ) | | $ | 42 |
| | $ | 30,349 |
|
| | | | | | | | | | | | | | | | |
Balance, January 1, 2018 | | 782,006 |
| | $ | 3,053 |
| | $ | 3,910 |
| | $ | 7,893 |
| | $ | 16,259 |
| | $ | (1,467 | ) | | $ | 47 |
| | $ | 29,695 |
|
Add (Deduct): | | | | | | | | | | | | | | | | |
Net income | | — |
| | — |
| | — |
| | — |
| | 1,607 |
| | — |
| | 6 |
| | 1,613 |
|
OCI | | — |
| | — |
| | — |
| | — |
| | — |
| | (239 | ) | | — |
| | (239 | ) |
Stock transactions: | | | | | | | | | | | | | | | | |
Issued in connection with equity awards, net | | 4,055 |
| | — |
| | 20 |
| | (22 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Repurchase of common stock | | (11,614 | ) | | — |
| | (58 | ) | | (572 | ) | | — |
| | — |
| | — |
| | (630 | ) |
Cash dividends declared on common stock | | — |
| | — |
| | — |
| | — |
| | (582 | ) | | — |
| | — |
| | (582 | ) |
Cash dividends declared on preferred stock | | — |
| | — |
| | — |
| | — |
| | (87 | ) | | — |
| | — |
| | (87 | ) |
Equity-based compensation expense | | — |
| | — |
| | — |
| | 76 |
| | — |
| | — |
| | — |
| | 76 |
|
Other, net | | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (1 | ) | | (12 | ) |
Balance, June 30, 2018 | | 774,447 |
| | $ | 3,053 |
| | $ | 3,872 |
| | $ | 7,364 |
| | $ | 17,197 |
| | $ | (1,706 | ) | | $ | 52 |
| | $ | 29,832 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T CORPORATION AND SUBSIDIARIES
| | Unaudited | | Nine Months Ended September 30, | | Six Months Ended June 30, |
(Dollars in millions) | | 2017 | | 2016 | | 2018 | | 2017 |
Cash Flows From Operating Activities: | | | | | | | | |
Net income | | $ | 1,748 |
| | $ | 1,799 |
| | $ | 1,613 |
| | $ | 1,100 |
|
Adjustments to reconcile net income to net cash from operating activities: | | |
| | | | |
| | |
Provision for credit losses | | 409 |
| | 443 |
| | 285 |
| | 283 |
|
Depreciation | | 305 |
| | 298 |
| | 210 |
| | 200 |
|
Loss (gain) on early extinguishment of debt | | 392 |
| | (1 | ) | | — |
| | 392 |
|
Amortization of intangibles | | 108 |
| | 112 |
| | 64 |
| | 74 |
|
Equity-based compensation expense | | 109 |
| | 96 |
| | 76 |
| | 74 |
|
(Gain) loss on securities, net | | — |
| | (45 | ) | | (1 | ) | | — |
|
Net change in operating assets and liabilities: | | |
| | | | |
| | |
LHFS | | 499 |
| | (1,617 | ) | | (516 | ) | | 394 |
|
Trading securities | | (341 | ) | | 188 |
| |
Trading and equity securities | | | (187 | ) | | (655 | ) |
Other assets, accounts payable and other liabilities | | (342 | ) | | (369 | ) | | 59 |
| | (377 | ) |
Cash paid to terminate FDIC loss share agreements | | — |
| | (230 | ) | |
Other, net | | 72 |
| | (37 | ) | | (176 | ) | | 3 |
|
Net cash from operating activities | | 2,959 |
| | 637 |
| | 1,427 |
| | 1,488 |
|
| | | | | |
Cash Flows From Investing Activities: | | |
| | | | |
| | |
Proceeds from sales of AFS securities | | 4,896 |
| | 4,538 |
| | 160 |
| | 224 |
|
Proceeds from maturities, calls and paydowns of AFS securities | | 3,707 |
| | 4,039 |
| | 1,990 |
| | 2,531 |
|
Purchases of AFS securities | | (4,700 | ) | | (9,867 | ) | | (1,989 | ) | | (2,599 | ) |
Proceeds from maturities, calls and paydowns of HTM securities | | 1,845 |
| | 5,963 |
| | 1,259 |
| | 1,138 |
|
Purchases of HTM securities | | (8,640 | ) | | (5,122 | ) | | (39 | ) | | (2,859 | ) |
Originations and purchases of loans and leases, net of principal collected | | (121 | ) | | (1,734 | ) | | (2,957 | ) | | (1,049 | ) |
Net cash received (paid) for acquisitions and divestitures | | — |
| | (789 | ) | |
Other, net | | (130 | ) | | 265 |
| | 13 |
| | (12 | ) |
Net cash from investing activities | | (3,143 | ) | | (2,707 | ) | | (1,563 | ) | | (2,626 | ) |
| | | | | |
Cash Flows From Financing Activities: | | |
| | | | |
| | |
Net change in deposits | | (4,084 | ) | | 4,183 |
| | 2,113 |
| | (3,256 | ) |
Net change in short-term borrowings | | 6,510 |
| | (923 | ) | | (1,362 | ) | | 4,736 |
|
Proceeds from issuance of long-term debt | | 5,500 |
| | 3,028 |
| | 1,755 |
| | 4,650 |
|
Repayment of long-term debt | | (6,984 | ) | | (4,573 | ) | | (1,044 | ) | | (5,271 | ) |
Net cash from common stock transactions | | (1,148 | ) | | (144 | ) | |
Net proceeds from preferred stock issued | | — |
| | 450 |
| |
Repurchase of common stock | | | (630 | ) | | (320 | ) |
Cash dividends paid on common stock | | (747 | ) | | (682 | ) | | (582 | ) | | (485 | ) |
Cash dividends paid on preferred stock | | (130 | ) | | (123 | ) | | (87 | ) | | (87 | ) |
Other, net | | 29 |
| | 115 |
| | (57 | ) | | 175 |
|
Net cash from financing activities | | (1,054 | ) | | 1,331 |
| | 106 |
| | 142 |
|
Net Change in Cash and Cash Equivalents | | (1,238 | ) | | (739 | ) | |
Cash and Cash Equivalents at Beginning of Period | | 3,936 |
| | 3,711 |
| |
Cash and Cash Equivalents at End of Period | | $ | 2,698 |
| | $ | 2,972 |
| |
Net Change in Cash, Cash Equivalents and Restricted Cash | | | (30 | ) | | (996 | ) |
Cash, Cash Equivalents and Restricted Cash, January 1 | | | 3,083 |
| | 4,424 |
|
Cash, Cash Equivalents and Restricted Cash, June 30 | | | $ | 3,053 |
| | $ | 3,428 |
|
| | | | | | | | |
Supplemental Disclosure of Cash Flow Information: | | | | | | | | |
Cash paid during the period for: | | | | | |
Interest | | $ | 540 |
| | $ | 569 |
| |
Net cash paid (received) during the period for: | | | | | |
Interest expense | | | $ | 619 |
| | $ | 347 |
|
Income taxes | | 276 |
| | 706 |
| | (60 | ) | | 187 |
|
Noncash investing activities: | | |
| | | | |
| | |
Transfers of loans to foreclosed assets | | 203 |
| | 189 |
| | 125 |
| | 267 |
|
Stock issued in business combinations | | — |
| | 1,063 |
| |
The accompanying notes are an integral part of these consolidated financial statements.
NOTE 1. Basis of Presentation
General
See the Glossary of Defined Terms at the beginning of this Report for terms used throughout the consolidated financial statements and related notes of this Form 10-Q.
General
herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 20162017 should be referred to in connection with these unaudited interim consolidated financial statements.
Reclassifications
The Consolidated StatementStatements of Cash Flows for the nine months ended September 30, 2016 has been revisedreclassified to correct errors in the classification of certain transactions related to other assets and other liabilities and were not material to prior consolidated financial statements. The revisions, which had no effect on the net changeinclude restricted cash in cash and cash equivalents, increased cash from operating activities $337 million and decreased cash from investing activities and financing activities $221 million and $116 million, respectively.
equivalents. Certain other amounts reported in prior periods' consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, shareholders' equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the ACL, determination of fair value for financial instruments, valuation of MSRs, goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.
Derivative Financial Instruments
BB&T historically assessed the effectiveness of its accounting hedges using the long-haul method. In conjunction with the adoption of new hedge accounting guidance in the first quarter of 2018, the shortcut method was added to the methods BB&T uses to assess effectiveness. The selection of methods depends on the facts and circumstances specific to each hedge. The shortcut method is applied to hedges that achieve perfect offset. For hedges that are not eligible for the shortcut method, an initial quantitative analysis is performed to demonstrate that the hedges are expected to be highly effective in off-setting corresponding changes in either the fair value or cash flows of the hedged item. At least quarterly thereafter, qualitative analyses are performed to ensure that each hedge remains highly effective. When applicable, quantitative analyses, referred to as a long-haul methodology, are performed and include techniques such as regression analysis and hypothetical derivatives.
Revenue Recognition
In addition to lending and related activities, BB&T offers various services to customers that generate revenue. Contract performance typically occurs in one year or less. Incremental costs of obtaining a contract are expensed when incurred when the amortization period is one year or less. As of June 30, 2018, remaining performance obligations consisted primarily of insurance and investment banking services for contracts with an original expected length of one year or less.
Insurance income
Insurance commissions are received on the sale of insurance products, and revenue is recognized upon the placement date of the insurance policies. Payment is normally received within the policy period. In addition to placement, BB&T also provides insurance policy related risk management services. Revenue is recognized as these services are provided. Performance-based commissions are recognized when received or earlier when, upon consideration of past results and current conditions, the revenue is deemed not probable of reversal.
Transaction and service based revenues
Transaction and service based revenues include service charges on deposits, investment banking and brokerage fees and commissions, trust and investment advisory revenues, bankcard fees and merchant discounts, and checkcard fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur or, in some cases, within 90 days of the service period. Fees may be fixed or, where applicable, based on a percentage of transaction size or managed assets.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
|
| | |
Standard/ Adoption Date | Description | Effects on the Financial Statements |
Standards Adopted During the Current Period |
Revenue from Contracts with Customers Jan 1, 2018 | Requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. | BB&T adopted this guidance using the modified retrospective approach for in-scope contracts at the date of adoption. The impact was not material. |
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Jan 1, 2018 | Requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost are required to be presented in a separate line item.
| The service cost component is included in personnel expense and the other components of net benefit costs are included in other expense in the Consolidated Statements of Income. The prior period was reclassified to conform to the current presentation. See Note 11. Benefit Plans. |
Derivatives and Hedging Jan 1, 2018 | Expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements. | BB&T early adopted this guidance using the modified retrospective approach. The impact was not material. New required disclosures have been included in Note 14. Derivative Financial Instruments. |
Standards Not Yet Adopted |
Leases Jan 1, 2019 | Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors. | Implementation efforts are ongoing, including implementation and testing of software solutions. BB&T expects assets and liabilities will likely be significantly higher, with no material impact to its Consolidated Statements of Income. BB&T expects to adopt on a prospective basis. |
Credit Losses Jan 1, 2020 | Replaces the incurred loss impairment methodology with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance for expected credit losses. Any credit impairment on AFS debt securities for which the fair value is less than cost will be recorded through an allowance for expected credit losses. The standard also requires expanded disclosures related to credit losses and asset quality. | BB&T expects that the ACL could be materially higher; however, the magnitude of the increase and its impact has not yet been quantified and depends on economic conditions at the time of adoption. Implementation efforts include the development and testing of core models, evaluation of data requirements, guidance interpretation, and consideration of relevant internal processes and controls. |
Standards Adopted During Current Period - BB&T adopted the following guidance effective January 1, 2017, none of which were material to the consolidated financial statements:
Stock Compensation - eliminatedNOTE 2. Securities
In conjunction with the conceptadoption of additional paid-in capital pools for equity-based awardsnew accounting standards, an immaterial amount of HTM securities was transferred to AFS securities and requires that the related excess tax benefits and tax deficiencies be recognizedan immaterial amount of equity securities was transferred from AFS securities to other assets in earnings and classified as an operating activity in the statement of cash flows. The excess tax benefit for equity-based awards that vested or were exercised during the first quarter of 2017 was $35 million. The guidance also allows entities to make a one-time policy election to account for forfeitures when they occur, which BB&T has elected to do. Additionally, to retain equity classification, the guidance permits tax withholding up to the maximum statutory tax rate instead of the minimum statutory tax rate. Cash paid in lieu of shares for tax withholding purposes is classified as a financing activity in the Statement of Cash Flows.
Investments - eliminated the requirement to retroactively adjust the financial statements when a change in ownership or influence causes an existing investment to qualify for the equity method of accounting. The guidance also requires the investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.
Derivatives and Hedging - clarified that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. An entity performing the assessment will be required to assess the embedded call or put options solely in accordance with the pre-existing decision sequence.
Business Combinations - provided clarification on the definition of a business and criteria to aid in the assessment of whether an integrated set of assets and activities constitutes a business.
Premium Amortization on Purchased Callable Debt Securities - shortened the amortization period for the premium to the earliest call date. The amortization period for securities purchased at a discount was unaffected.
Standards Not Yet Adopted- the adoption of the following guidance is not expected to be material to the consolidated financial statements unless otherwise specified:
Statement of Cash Flows - requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance will only affect the Consolidated Statements of Cash Flows. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.
Statement of Cash Flows - clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.
Liabilities - requires companies to recognize breakage on prepaid stored-value products in accordance with the recently issued guidance on Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.
Revenue from Contracts with Customers - requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance does not have an impact on the components of the Consolidated Statement of Income most closely associated with financial instruments, including securities gains/losses and interest income. BB&T's evaluation of the impact of changes for in-scope items within noninterest income has not identified material changes. The Company continues to evaluate the related changes to disclosures that may be required. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and will be adopted using the modified retrospective approach.
Financial Instruments - requires the majority of equity investments to be measured at fair value with changes in fair value recognized in net income, excluding equity investments that are consolidated or accounted for under the equity method of accounting. The new guidance allows equity investments without readily determinable fair values to be measured at cost minus impairment, with a qualitative assessment required to identify impairment. For financial instruments recorded at amortized cost, the new guidance requires public companies to disclose all fair values using an exit price and eliminates the disclosure requirements related to measurement assumptions. The new guidance also requires separate presentation of financial assets and liabilities based on form and measurement category. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.
Leases - requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet. The new guidance also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. Upon adoption, the Company expects assets and liabilities will likely be significantly higher; however, the Company's implementation efforts are on-going, including the installation of a software solution, which will aid in determining the magnitude of the increases and its impact on the Consolidated Financial Statements. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.
Credit Losses - replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance account for expected credit losses at the acquisition date that represents a component of the purchase price allocation. For AFS debt securities where the fair value is less than cost, any credit impairment will be recorded through an allowance for expected credit losses. Upon adoption, the Company expects that the ACL will likely be materially higher; however, the Company is still in the process of determining the magnitude of the increase and its impact on the Consolidated Financial Statements. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
Intangibles—Goodwill and Other - simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost - requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost will be required to be presented in a separate line item. The guidance also specifies that only the service cost component will be eligible for capitalization. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.
Derivatives and Hedging - expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Additionally, the guidance eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements of the impact of hedging relationships. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.
NOTE 2. Acquisitions and Divestitures
On April 1, 2016, BB&T acquired National Penn, resulting in the addition of $10.1 billion in assets and $6.6 billion of deposits. National Penn had 126 financial centers as of the acquisition date.
On April 1, 2016, BB&T purchased insurance broker Swett & Crawford from Cooper Gay Swett & Crawford for $461 million in cash.
See the Annual Report on Form 10-K for the year ended December 31, 2016 for additional information related to these transactions.
NOTE 3. Securities2018.
The following tables present the amortized cost, gross unrealized gains and losses, and fair values of AFS and HTM securities:
| | | | September 30, 2017 | |
| | Amortized Cost | | Gross Unrealized | | Fair Value | |
June 30, 2018 | | | Amortized Cost | | Gross Unrealized | | Fair Value |
(Dollars in millions) | | Amortized Cost | | Gains | | Losses | | Fair Value | | Gains | | Losses | |
AFS securities: | | | | | | | | | | | | | |
U.S. Treasury | | $ | 2,170 |
| | $ | — |
| | $ | 59 |
| | $ | 2,111 |
| | $ | 2,437 |
| | $ | — |
| | $ | 114 |
| | $ | 2,323 |
|
GSE | | 188 |
| | — |
| | 6 |
| | 182 |
| | 186 |
| | — |
| | 11 |
| | 175 |
|
Agency MBS | | 19,096 |
| | 7 |
| | 427 |
| | 18,676 |
| | 20,880 |
| | 2 |
| | 1,034 |
| | 19,848 |
|
States and political subdivisions | | 1,586 |
| | 46 |
| | 33 |
| | 1,599 |
| | 971 |
| | 27 |
| | 18 |
| | 980 |
|
Non-agency MBS | | 402 |
| | 206 |
| | — |
| | 608 |
| | 351 |
| | 203 |
| | — |
| | 554 |
|
Other | | 8 |
| | — |
| | — |
| | 8 |
| | 38 |
| | 1 |
| | — |
| | 39 |
|
Total AFS securities | | $ | 23,450 |
| | $ | 259 |
| | $ | 525 |
| | $ | 23,184 |
| | $ | 24,863 |
| | $ | 233 |
| | $ | 1,177 |
| | $ | 23,919 |
|
| | | | | | | | | | | | | | | | |
HTM securities: | | | | | | | | | | | | | | | | |
U.S. Treasury | | $ | 1,098 |
| | $ | 18 |
| | $ | — |
| | $ | 1,116 |
| | $ | 1,098 |
| | $ | — |
| | $ | 9 |
| | $ | 1,089 |
|
GSE | | 2,197 |
| | 16 |
| | 13 |
| | 2,200 |
| | 2,198 |
| | 2 |
| | 60 |
| | 2,140 |
|
Agency MBS | | 20,073 |
| | 62 |
| | 140 |
| | 19,995 |
| | 18,436 |
| | 30 |
| | 632 |
| | 17,834 |
|
States and political subdivisions | | 34 |
| | — |
| | — |
| | 34 |
| | 16 |
| | — |
| | — |
| | 16 |
|
Other | | 45 |
| | 2 |
| | — |
| | 47 |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total HTM securities | | $ | 23,447 |
| | $ | 98 |
| | $ | 153 |
| | $ | 23,392 |
| | $ | 21,749 |
| | $ | 32 |
| | $ | 701 |
| | $ | 21,080 |
|
| | | | December 31, 2016 | |
| | Amortized Cost | | Gross Unrealized | | Fair Value | |
December 31, 2017 | | | Amortized Cost | | Gross Unrealized | | Fair Value |
(Dollars in millions) | | Amortized Cost | | Gains | | Losses | | Fair Value | | Gains | | Losses | |
AFS securities: | | | | | | | | | | | | | |
U.S. Treasury | | $ | 2,669 |
| | $ | 2 |
| | $ | 84 |
| | $ | 2,587 |
| | $ | 2,368 |
| | $ | — |
| | $ | 77 |
| | $ | 2,291 |
|
GSE | | 190 |
| | — |
| | 10 |
| | 180 |
| | 187 |
| | — |
| | 8 |
| | 179 |
|
Agency MBS | | 21,819 |
| | 13 |
| | 568 |
| | 21,264 |
| | 20,683 |
| | 8 |
| | 590 |
| | 20,101 |
|
States and political subdivisions | | 2,198 |
| | 56 |
| | 49 |
| | 2,205 |
| | 1,379 |
| | 37 |
| | 24 |
| | 1,392 |
|
Non-agency MBS | | 446 |
| | 233 |
| | — |
| | 679 |
| | 384 |
| | 192 |
| | — |
| | 576 |
|
Other | | 11 |
| | — |
| | — |
| | 11 |
| | 8 |
| | — |
| | — |
| | 8 |
|
Total AFS securities | | $ | 27,333 |
| | $ | 304 |
| | $ | 711 |
| | $ | 26,926 |
| | $ | 25,009 |
| | $ | 237 |
| | $ | 699 |
| | $ | 24,547 |
|
| | | | | | | | | | | | | | | | |
HTM securities: | | |
| | |
| | |
| | |
| | | | | | | | |
U.S. Treasury | | $ | 1,098 |
| | $ | 20 |
| | $ | — |
| | $ | 1,118 |
| | $ | 1,098 |
| | $ | 8 |
| | $ | — |
| | $ | 1,106 |
|
GSE | | 2,197 |
| | 14 |
| | 30 |
| | 2,181 |
| | 2,198 |
| | 11 |
| | 22 |
| | 2,187 |
|
Agency MBS | | 13,225 |
| | 40 |
| | 180 |
| | 13,085 |
| | 19,660 |
| | 33 |
| | 222 |
| | 19,471 |
|
States and political subdivisions | | 110 |
| | — |
| | — |
| | 110 |
| | 28 |
| | — |
| | — |
| | 28 |
|
Other | | 50 |
| | 2 |
| | — |
| | 52 |
| | 43 |
| | 2 |
| | — |
| | 45 |
|
Total HTM securities | | $ | 16,680 |
| | $ | 76 |
| | $ | 210 |
| | $ | 16,546 |
| | $ | 23,027 |
| | $ | 54 |
| | $ | 244 |
| | $ | 22,837 |
|
Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded 10% of shareholders' equity at SeptemberJune 30, 2017.2018. The FNMA investments had total amortized cost and fair value of $14.7$14.1 billion and $14.4$13.5 billion, respectively. The FHLMC investments had total amortized cost and fair value of $9.6$10.2 billion and $9.5$9.8 billion, respectively.
Changes in credit losses on securities with OTTI where a portion of the unrealized loss was recognized in OCI waswere immaterial for all periods presented.
The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.
| | | | September 30, 2017 | |
| | AFS | | HTM | |
June 30, 2018 | | | AFS | | HTM |
(Dollars in millions) | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | | $ | 254 |
| | $ | 254 |
| | $ | — |
| | $ | — |
| | $ | 468 |
| | $ | 466 |
| | $ | 1 |
| | $ | 1 |
|
Due after one year through five years | | 535 |
| | 539 |
| | 1,962 |
| | 1,987 |
| | 2,093 |
| | 1,982 |
| | 2,789 |
| | 2,739 |
|
Due after five years through ten years | | 2,367 |
| | 2,305 |
| | 1,389 |
| | 1,385 |
| | 584 |
| | 573 |
| | 940 |
| | 909 |
|
Due after ten years | | 20,294 |
| | 20,086 |
| | 20,096 |
| | 20,020 |
| | 21,718 |
| | 20,898 |
| | 18,019 |
| | 17,431 |
|
Total debt securities | | $ | 23,450 |
| | $ | 23,184 |
| | $ | 23,447 |
| | $ | 23,392 |
| | $ | 24,863 |
| | $ | 23,919 |
| | $ | 21,749 |
| | $ | 21,080 |
|
The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
| | | | September 30, 2017 | |
| | Less than 12 months | | 12 months or more | | Total | |
June 30, 2018 | | | Less than 12 months | | 12 months or more | | Total |
(Dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
AFS securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury | | $ | 459 |
| | $ | 2 |
| | $ | 1,553 |
| | $ | 57 |
| | $ | 2,012 |
| | $ | 59 |
| | $ | 655 |
| | $ | 10 |
| | $ | 1,643 |
| | $ | 104 |
| | $ | 2,298 |
| | $ | 114 |
|
GSE | | 12 |
| | — |
| | 170 |
| | 6 |
| | 182 |
| | 6 |
| | 9 |
| | — |
| | 166 |
| | 11 |
| | 175 |
| | 11 |
|
Agency MBS | | 8,533 |
| | 118 |
| | 9,481 |
| | 309 |
| | 18,014 |
| | 427 |
| | 7,148 |
| | 245 |
| | 12,624 |
| | 789 |
| | 19,772 |
| | 1,034 |
|
States and political subdivisions | | 87 |
| | — |
| | 408 |
| | 33 |
| | 495 |
| | 33 |
| | 161 |
| | 1 |
| | 314 |
| | 17 |
| | 475 |
| | 18 |
|
Total | | $ | 9,091 |
| | $ | 120 |
| | $ | 11,612 |
| | $ | 405 |
| | $ | 20,703 |
| | $ | 525 |
| | $ | 7,973 |
| | $ | 256 |
| | $ | 14,747 |
| | $ | 921 |
| | $ | 22,720 |
| | $ | 1,177 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
HTM securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. Treasury | | | $ | 1,089 |
| | $ | 9 |
| | $ | — |
| | $ | — |
| | $ | 1,089 |
| | $ | 9 |
|
GSE | | $ | 1,185 |
| | $ | 9 |
| | $ | 146 |
| | $ | 4 |
| | $ | 1,331 |
| | $ | 13 |
| | 1,446 |
| | 46 |
| | 286 |
| | 14 |
| | 1,732 |
| | 60 |
|
Agency MBS | | 9,178 |
| | 76 |
| | 1,736 |
| | 64 |
| | 10,914 |
| | 140 |
| | 12,040 |
| | 381 |
| | 4,251 |
| | 251 |
| | 16,291 |
| | 632 |
|
Total | | $ | 10,363 |
| | $ | 85 |
| | $ | 1,882 |
| | $ | 68 |
| | $ | 12,245 |
| | $ | 153 |
| | $ | 14,575 |
| | $ | 436 |
| | $ | 4,537 |
| | $ | 265 |
| | $ | 19,112 |
| | $ | 701 |
|
| | | | December 31, 2016 | |
| | Less than 12 months | | 12 months or more | | Total | |
December 31, 2017 | | | Less than 12 months | | 12 months or more | | Total |
(Dollars in millions) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
AFS securities: | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Treasury | | $ | 2,014 |
| | $ | 84 |
| | $ | — |
| | $ | — |
| | $ | 2,014 |
| | $ | 84 |
| | $ | 634 |
| | $ | 4 |
| | $ | 1,655 |
| | $ | 73 |
| | $ | 2,289 |
| | $ | 77 |
|
GSE | | 180 |
| | 10 |
| | — |
| | — |
| | 180 |
| | 10 |
| | 9 |
| | — |
| | 170 |
| | 8 |
| | 179 |
| | 8 |
|
Agency MBS | | 14,842 |
| | 342 |
| | 5,138 |
| | 226 |
| | 19,980 |
| | 568 |
| | 5,077 |
| | 64 |
| | 13,920 |
| | 526 |
| | 18,997 |
| | 590 |
|
States and political subdivisions | | 365 |
| | 7 |
| | 314 |
| | 42 |
| | 679 |
| | 49 |
| | 201 |
| | 1 |
| | 355 |
| | 23 |
| | 556 |
| | 24 |
|
Total | | $ | 17,401 |
| | $ | 443 |
| | $ | 5,452 |
| | $ | 268 |
| | $ | 22,853 |
| | $ | 711 |
| | $ | 5,921 |
| | $ | 69 |
| | $ | 16,100 |
| | $ | 630 |
| | $ | 22,021 |
| | $ | 699 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
HTM securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
GSE | | $ | 1,762 |
| | $ | 30 |
| | $ | — |
| | $ | — |
| | $ | 1,762 |
| | $ | 30 |
| | $ | 1,470 |
| | $ | 12 |
| | $ | 290 |
| | $ | 10 |
| | $ | 1,760 |
| | $ | 22 |
|
Agency MBS | | 7,717 |
| | 178 |
| | 305 |
| | 2 |
| | 8,022 |
| | 180 |
| | 10,880 |
| | 77 |
| | 4,631 |
| | 145 |
| | 15,511 |
| | 222 |
|
Total | | $ | 9,479 |
| | $ | 208 |
| | $ | 305 |
| | $ | 2 |
| | $ | 9,784 |
| | $ | 210 |
| | $ | 12,350 |
| | $ | 89 |
| | $ | 4,921 |
| | $ | 155 |
| | $ | 17,271 |
| | $ | 244 |
|
The unrealized losses on U.S. Treasury securities, GSE securities and Agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.
At September 30, 2017, the majority of the unrealized losses on states and political subdivisions securities was the result of fair value hedge basis adjustments that are a component of amortized cost. These securities in an unrealized loss position are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. At September 30, 2017, none of these securities had credit impairment.
NOTE 4.3. Loans and ACL
During the first quarter of 2017, an other lending subsidiaries portfolio totaling $244 million was acquired. During the second quarter of 2017, residential mortgage loans totaling $300 million were sold, which included $40 million of nonaccrual loans and $199 million of performing TDRs.
The following tables present loans and leases HFI by aging category:
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Accruing | | | | |
(Dollars in millions) | | Current | | 30-89 Days Past Due | | 90 Days Or More Past Due | | Nonaccrual | | Total |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 51,666 |
| | $ | 30 |
| | $ | — |
| | $ | 281 |
| | $ | 51,977 |
|
CRE-income producing properties | | 14,862 |
| | 7 |
| | — |
| | 31 |
| | 14,900 |
|
CRE-construction and development | | 4,490 |
| | 1 |
| | — |
| | 10 |
| | 4,501 |
|
Dealer floor plan | | 1,607 |
| | — |
| | — |
| | — |
| | 1,607 |
|
Other lending subsidiaries | | 8,281 |
| | 17 |
| | — |
| | 9 |
| | 8,307 |
|
Retail: | | | | | | | | | |
|
|
Direct retail lending | | 11,813 |
| | 55 |
| | 9 |
| | 64 |
| | 11,941 |
|
Revolving credit | | 2,664 |
| | 22 |
| | 11 |
| | — |
| | 2,697 |
|
Residential mortgage-nonguaranteed | | 27,261 |
| | 320 |
| | 43 |
| | 136 |
| | 27,760 |
|
Residential mortgage-government guaranteed | | 391 |
| | 135 |
| | 366 |
| | 5 |
| | 897 |
|
Sales finance | | 9,380 |
| | 66 |
| | 6 |
| | 5 |
| | 9,457 |
|
Other lending subsidiaries | | 7,681 |
| | 293 |
| | — |
| | 65 |
| | 8,039 |
|
PCI | | 600 |
| | 41 |
| | 70 |
| | — |
| | 711 |
|
Total | | $ | 140,696 |
| | $ | 987 |
| | $ | 505 |
| | $ | 606 |
| | $ | 142,794 |
|
|
| | | | | | | | | | | | | | | | | | | | |
June 30, 2018 | | Accruing | | | | |
(Dollars in millions) | | Current | | 30-89 Days Past Due | | 90 Days Or More Past Due | | Nonperforming | | Total |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 60,205 |
| | $ | 26 |
| | $ | — |
| | $ | 243 |
| | $ | 60,474 |
|
CRE | | 21,545 |
| | 4 |
| | — |
| | 61 |
| | 21,610 |
|
Lease financing | | 1,913 |
| | 2 |
| | — |
| | 9 |
| | 1,924 |
|
Retail: | | | | | | | | | | |
Residential mortgage | | 29,031 |
| | 441 |
| | 374 |
| | 119 |
| | 29,965 |
|
Direct | | 11,547 |
| | 52 |
| | 4 |
| | 58 |
| | 11,661 |
|
Indirect | | 16,731 |
| | 337 |
| | 4 |
| | 68 |
| | 17,140 |
|
Revolving credit | | 2,845 |
| | 21 |
| | 10 |
| | — |
| | 2,876 |
|
PCI | | 468 |
| | 22 |
| | 43 |
| | — |
| | 533 |
|
Total | | $ | 144,285 |
| | $ | 905 |
| | $ | 435 |
| | $ | 558 |
| | $ | 146,183 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Accruing | | | | |
(Dollars in millions) | | Current | | 30-89 Days Past Due | | 90 Days Or More Past Due | | Nonaccrual | | Total |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 51,329 |
| | $ | 27 |
| | $ | — |
| | $ | 363 |
| | $ | 51,719 |
|
CRE-income producing properties | | 14,492 |
| | 6 |
| | — |
| | 40 |
| | 14,538 |
|
CRE-construction and development | | 3,800 |
| | 2 |
| | — |
| | 17 |
| | 3,819 |
|
Dealer floor plan | | 1,413 |
| | — |
| | — |
| | — |
| | 1,413 |
|
Other lending subsidiaries | | 7,660 |
| | 21 |
| | — |
| | 10 |
| | 7,691 |
|
Retail: | | |
| | |
| | |
| | |
| | |
Direct retail lending | | 11,963 |
| | 60 |
| | 6 |
| | 63 |
| | 12,092 |
|
Revolving credit | | 2,620 |
| | 23 |
| | 12 |
| | — |
| | 2,655 |
|
Residential mortgage-nonguaranteed | | 28,378 |
| | 393 |
| | 79 |
| | 172 |
| | 29,022 |
|
Residential mortgage-government guaranteed | | 324 |
| | 132 |
| | 443 |
| | — |
| | 899 |
|
Sales finance | | 11,179 |
| | 76 |
| | 6 |
| | 6 |
| | 11,267 |
|
Other lending subsidiaries | | 6,931 |
| | 301 |
| | — |
| | 65 |
| | 7,297 |
|
PCI | | 784 |
| | 36 |
| | 90 |
| | — |
| | 910 |
|
Total | | $ | 140,873 |
| | $ | 1,077 |
| | $ | 636 |
| | $ | 736 |
| | $ | 143,322 |
|
|
| | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | | Accruing | | | | |
(Dollars in millions) | | Current | | 30-89 Days Past Due | | 90 Days Or More Past Due | | Nonperforming | | Total |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 58,852 |
| | $ | 41 |
| | $ | 1 |
| | $ | 259 |
| | $ | 59,153 |
|
CRE | | 21,209 |
| | 8 |
| | 1 |
| | 45 |
| | 21,263 |
|
Lease financing | | 1,906 |
| | 4 |
| | — |
| | 1 |
| | 1,911 |
|
Retail: | | |
| | |
| | |
| | |
| | |
Residential mortgage | | 27,659 |
| | 472 |
| | 465 |
| | 129 |
| | 28,725 |
|
Direct | | 11,756 |
| | 65 |
| | 6 |
| | 64 |
| | 11,891 |
|
Indirect | | 16,745 |
| | 412 |
| | 6 |
| | 72 |
| | 17,235 |
|
Revolving credit | | 2,837 |
| | 23 |
| | 12 |
| | — |
| | 2,872 |
|
PCI | | 567 |
| | 27 |
| | 57 |
| | — |
| | 651 |
|
Total | | $ | 141,531 |
| | $ | 1,052 |
| | $ | 548 |
| | $ | 570 |
| | $ | 143,701 |
|
The following tables presenttable presents the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance:performance and revolving credit loans are excluded as the loans are charged-off rather than reclassifying to nonperforming:
| | | | September 30, 2017 | | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Commercial & Industrial | | CRE - Income Producing Properties | | CRE - Construction & Development | | Dealer Floor Plan | | Other Lending Subsidiaries | | Commercial & Industrial | | CRE | | Lease Financing | | Commercial & Industrial | | CRE | | Lease Financing |
Commercial: | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 50,352 |
| | $ | 14,561 |
| | $ | 4,408 |
| | $ | 1,598 |
| | $ | 8,212 |
| | $ | 59,246 |
| | $ | 21,273 |
| | $ | 1,905 |
| | $ | 57,700 |
| | $ | 20,862 |
| | $ | 1,881 |
|
Special mention | | 395 |
| | 63 |
| | 44 |
| | — |
| | 17 |
| | 189 |
| | 38 |
| | 6 |
| | 268 |
| | 48 |
| | 6 |
|
Substandard-performing | | 949 |
| | 245 |
| | 39 |
| | 9 |
| | 69 |
| | 796 |
| | 238 |
| | 4 |
| | 926 |
| | 308 |
| | 23 |
|
Nonperforming | | 281 |
| | 31 |
| | 10 |
| | — |
| | 9 |
| | 243 |
| | 61 |
| | 9 |
| | 259 |
| | 45 |
| | 1 |
|
Total | | $ | 51,977 |
| | $ | 14,900 |
| | $ | 4,501 |
| | $ | 1,607 |
| | $ | 8,307 |
| | $ | 60,474 |
| | $ | 21,610 |
| | $ | 1,924 |
| | $ | 59,153 |
| | $ | 21,263 |
| | $ | 1,911 |
|
| | | | | | | | | | | | | |
| | | Residential Mortgage | | Direct | | Indirect | | Residential Mortgage | | Direct | | Indirect |
Retail: | | | | | | | | | | | | | |
Performing | | | $ | 29,846 |
| | $ | 11,603 |
| | $ | 17,072 |
| | $ | 28,596 |
| | $ | 11,827 |
| | $ | 17,163 |
|
Nonperforming | | | 119 |
| | 58 |
| | 68 |
| | 129 |
| | 64 |
| | 72 |
|
Total | | | $ | 29,965 |
|
| $ | 11,661 |
| | $ | 17,140 |
|
| $ | 28,725 |
| | $ | 11,891 |
| | $ | 17,235 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Direct Retail Lending | | Revolving Credit | | Residential Mortgage | | Sales Finance | | Other Lending Subsidiaries |
Retail: | | | | | | | | | | |
Performing | | $ | 11,877 |
| | $ | 2,697 |
| | $ | 28,516 |
| | $ | 9,452 |
| | $ | 7,974 |
|
Nonperforming | | 64 |
| | — |
| | 141 |
| | 5 |
| | 65 |
|
Total | | $ | 11,941 |
| | $ | 2,697 |
| | $ | 28,657 |
| | $ | 9,457 |
| | $ | 8,039 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
(Dollars in millions) | | Commercial & Industrial | | CRE - Income Producing Properties | | CRE - Construction & Development | | Dealer Floor Plan | | Other Lending Subsidiaries |
Commercial: | | | | | | | | | | |
Pass | | $ | 49,921 |
| | $ | 14,061 |
| | $ | 3,718 |
| | $ | 1,404 |
| | $ | 7,604 |
|
Special mention | | 314 |
| | 124 |
| | 38 |
| | — |
| | 33 |
|
Substandard-performing | | 1,121 |
| | 313 |
| | 46 |
| | 9 |
| | 44 |
|
Nonperforming | | 363 |
| | 40 |
| | 17 |
| | — |
| | 10 |
|
Total | | $ | 51,719 |
| | $ | 14,538 |
| | $ | 3,819 |
| | $ | 1,413 |
| | $ | 7,691 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Direct Retail Lending | | Revolving Credit | | Residential Mortgage | | Sales Finance | | Other Lending Subsidiaries |
Retail: | | | | | | | | | | |
Performing | | $ | 12,029 |
| | $ | 2,655 |
| | $ | 29,749 |
| | $ | 11,261 |
| | $ | 7,232 |
|
Nonperforming | | 63 |
| | — |
| | 172 |
| | 6 |
| | 65 |
|
Total | | $ | 12,092 |
| | $ | 2,655 |
| | $ | 29,921 |
| | $ | 11,267 |
| | $ | 7,297 |
|
The following tables present activity in the ACL for the periods presented:ACL:
| | | | Three Months Ended September 30, 2017 | |
Three Months Ended June 30, 2018 | | | Balance at Apr 1, 2018 | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Balance at Jun 30, 2018 |
(Dollars in millions) | | Beginning Balance | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Ending Balance | |
Commercial: | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 479 |
| | $ | (10 | ) | | $ | 7 |
| | $ | 3 |
| | $ | 479 |
| | $ | 522 |
| | $ | (23 | ) | | $ | 11 |
| | $ | 25 |
| | $ | 535 |
|
CRE-income producing properties | | 140 |
| | (2 | ) | | 1 |
| | — |
| | 139 |
| |
CRE-construction and development | | 23 |
| | (2 | ) | | 2 |
| | (1 | ) | | 22 |
| |
Dealer floor plan | | 12 |
| | — |
| | — |
| | 1 |
| | 13 |
| |
Other lending subsidiaries | | 36 |
| | (5 | ) | | 2 |
| | 6 |
| | 39 |
| |
CRE | | | 175 |
| | (2 | ) | | 1 |
| | 17 |
| | 191 |
|
Lease financing | | | 10 |
| | (1 | ) | | 1 |
| | — |
| | 10 |
|
Retail: | | | | | | | | | |
|
| | | | | | | | | | |
Direct retail lending | | 100 |
| | (16 | ) | | 6 |
| | 11 |
| | 101 |
| |
Residential mortgage | | | 216 |
| | (5 | ) | | 1 |
| | 9 |
| | 221 |
|
Direct | | | 99 |
| | (17 | ) | | 6 |
| | 9 |
| | 97 |
|
Indirect | | | 347 |
| | (82 | ) | | 17 |
| | 71 |
| | 353 |
|
Revolving credit | | 101 |
| | (17 | ) | | 4 |
| | 13 |
| | 101 |
| | 104 |
| | (21 | ) | | 5 |
| | 17 |
| | 105 |
|
Residential mortgage-nonguaranteed | | 173 |
| | (6 | ) | | — |
| | 5 |
| | 172 |
| |
Residential mortgage-government guaranteed | | 38 |
| | (1 | ) | | — |
| | (2 | ) | | 35 |
| |
Sales finance | | 39 |
| | (8 | ) | | 3 |
| | 3 |
| | 37 |
| |
Other lending subsidiaries | | 314 |
| | (95 | ) | | 11 |
| | 83 |
| | 313 |
| |
PCI | | 30 |
| | (1 | ) | | — |
| | (2 | ) | | 27 |
| | 25 |
| | — |
| | — |
| | (7 | ) | | 18 |
|
ALLL | | 1,485 |
| | (163 | ) | | 36 |
| | 120 |
| | 1,478 |
| | 1,498 |
| | (151 | ) | | 42 |
| | 141 |
| | 1,530 |
|
RUFC | | 117 |
| | — |
| | — |
| | 6 |
| | 123 |
| | 116 |
| | — |
| | — |
| | (6 | ) | | 110 |
|
ACL | | $ | 1,602 |
| | $ | (163 | ) | | $ | 36 |
| | $ | 126 |
| | $ | 1,601 |
| | $ | 1,614 |
| | $ | (151 | ) | | $ | 42 |
| | $ | 135 |
| | $ | 1,640 |
|
| | | | Three Months Ended September 30, 2016 | |
Three Months Ended June 30, 2017 | | | Balance at Apr 1, 2017 | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Balance at Jun 30, 2017 |
(Dollars in millions) | | Beginning Balance | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Ending Balance | |
Commercial: | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 519 |
| | $ | (23 | ) | | $ | 6 |
| | $ | 21 |
| | $ | 523 |
| | $ | 524 |
| | $ | (26 | ) | | $ | 9 |
| | $ | 8 |
| | $ | 515 |
|
CRE-income producing properties | | 116 |
| | (5 | ) | | 3 |
| | (2 | ) | | 112 |
| |
CRE-construction and development | | 28 |
| | (1 | ) | | 3 |
| | (3 | ) | | 27 |
| |
Dealer floor plan | | 10 |
| | — |
| | — |
| | — |
| | 10 |
| |
Other lending subsidiaries | | 27 |
| | (5 | ) | | 1 |
| | 5 |
| | 28 |
| |
CRE | | | 141 |
| | (3 | ) | | 3 |
| | 25 |
| | 166 |
|
Lease financing | | | 10 |
| | (1 | ) | | — |
| | — |
| | 9 |
|
Retail: | | | | | | | | | |
|
| | | | | | | | | |
|
|
Direct retail lending | | 105 |
| | (12 | ) | | 7 |
| | 3 |
| | 103 |
| |
Residential mortgage | | | 223 |
| | (20 | ) | | 1 |
| | 7 |
| | 211 |
|
Direct | | | 102 |
| | (16 | ) | | 7 |
| | 7 |
| | 100 |
|
Indirect | | | 338 |
| | (88 | ) | | 16 |
| | 87 |
| | 353 |
|
Revolving credit | | 98 |
| | (18 | ) | | 5 |
| | 14 |
| | 99 |
| | 103 |
| | (19 | ) | | 5 |
| | 12 |
| | 101 |
|
Residential mortgage-nonguaranteed | | 194 |
| | (11 | ) | | 1 |
| | — |
| | 184 |
| |
Residential mortgage-government guaranteed | | 30 |
| | (2 | ) | | — |
| | 9 |
| | 37 |
| |
Sales finance | | 36 |
| | (7 | ) | | 3 |
| | 4 |
| | 36 |
| |
Other lending subsidiaries | | 279 |
| | (86 | ) | | 11 |
| | 85 |
| | 289 |
| |
PCI | | 65 |
| | — |
| | — |
| | (2 | ) | | 63 |
| | 46 |
| | — |
| | — |
| | (16 | ) | | 30 |
|
ALLL | | 1,507 |
| | (170 | ) | | 40 |
| | 134 |
| | 1,511 |
| | 1,487 |
| | (173 | ) | | 41 |
| | 130 |
| | 1,485 |
|
RUFC | | 96 |
| | — |
| | — |
| | 14 |
| | 110 |
| | 112 |
| | — |
| | — |
| | 5 |
| | 117 |
|
ACL | | $ | 1,603 |
| | $ | (170 | ) | | $ | 40 |
| | $ | 148 |
| | $ | 1,621 |
| | $ | 1,599 |
| | $ | (173 | ) | | $ | 41 |
| | $ | 135 |
| | $ | 1,602 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018 | | Balance at Jan 1, 2018 | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Balance at Jun 30, 2018 |
(Dollars in millions) | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 522 |
| | $ | (46 | ) | | $ | 19 |
| | $ | 40 |
| | $ | 535 |
|
CRE | | 160 |
| | (8 | ) | | 3 |
| | 36 |
| | 191 |
|
Lease financing | | 9 |
| | (2 | ) | | 1 |
| | 2 |
| | 10 |
|
Retail: | | |
| | |
| | |
| | |
| |
|
|
Residential mortgage | | 209 |
| | (9 | ) | | 1 |
| | 20 |
| | 221 |
|
Direct | | 106 |
| | (36 | ) | | 12 |
| | 15 |
| | 97 |
|
Indirect | | 348 |
| | (189 | ) | | 32 |
| | 162 |
| | 353 |
|
Revolving credit | | 108 |
| | (42 | ) | | 10 |
| | 29 |
| | 105 |
|
PCI | | 28 |
| | — |
| | — |
| | (10 | ) | | 18 |
|
ALLL | | 1,490 |
| | (332 | ) | | 78 |
| | 294 |
| | 1,530 |
|
RUFC | | 119 |
| | — |
| | — |
| | (9 | ) | | 110 |
|
ACL | | $ | 1,609 |
| | $ | (332 | ) | | $ | 78 |
| | $ | 285 |
| | $ | 1,640 |
|
| | | | Nine Months Ended September 30, 2017 | |
Six Months Ended June 30, 2017 | | | Balance at Jan 1, 2017 | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Balance at Jun 30, 2017 |
(Dollars in millions) | | Beginning Balance | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Ending Balance | |
Commercial: | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 500 |
| | $ | (60 | ) | | $ | 21 |
| | $ | 18 |
| | $ | 479 |
| | $ | 530 |
| | $ | (59 | ) | | $ | 16 |
| | $ | 28 |
| | $ | 515 |
|
CRE-income producing properties | | 117 |
| | (6 | ) | | 5 |
| | 23 |
| | 139 |
| |
CRE-construction and development | | 25 |
| | (2 | ) | | 7 |
| | (8 | ) | | 22 |
| |
Dealer floor plan | | 11 |
| | (1 | ) | | — |
| | 3 |
| | 13 |
| |
Other lending subsidiaries | | 29 |
| | (15 | ) | | 4 |
| | 21 |
| | 39 |
| |
CRE | | | 145 |
| | (4 | ) | | 9 |
| | 16 |
| | 166 |
|
Lease financing | | | 7 |
| | (2 | ) | | — |
| | 4 |
| | 9 |
|
Retail: | | |
| | |
| | |
| | |
| |
|
| | |
| | |
| | |
| | |
| |
|
|
Direct retail lending | | 103 |
| | (46 | ) | | 19 |
| | 25 |
| | 101 |
| |
Residential mortgage | | | 227 |
| | (32 | ) | | 1 |
| | 15 |
| | 211 |
|
Direct | | | 103 |
| | (30 | ) | | 13 |
| | 14 |
| | 100 |
|
Indirect | | | 327 |
| | (195 | ) | | 33 |
| | 188 |
| | 353 |
|
Revolving credit | | 106 |
| | (57 | ) | | 14 |
| | 38 |
| | 101 |
| | 106 |
| | (40 | ) | | 10 |
| | 25 |
| | 101 |
|
Residential mortgage-nonguaranteed | | 186 |
| | (36 | ) | | 1 |
| | 21 |
| | 172 |
| |
Residential mortgage-government guaranteed | | 41 |
| | (3 | ) | | — |
| | (3 | ) | | 35 |
| |
Sales finance | | 38 |
| | (23 | ) | | 10 |
| | 12 |
| | 37 |
| |
Other lending subsidiaries | | 289 |
| | (275 | ) | | 37 |
| | 262 |
| | 313 |
| |
PCI | | 44 |
| | (1 | ) | | — |
| | (16 | ) | | 27 |
| | 44 |
| | — |
| | — |
| | (14 | ) | | 30 |
|
ALLL | | 1,489 |
| | (525 | ) | | 118 |
| | 396 |
| | 1,478 |
| | 1,489 |
| | (362 | ) | | 82 |
| | 276 |
| | 1,485 |
|
RUFC | | 110 |
| | — |
| | — |
| | 13 |
| | 123 |
| | 110 |
| | — |
| | — |
| | 7 |
| | 117 |
|
ACL | | $ | 1,599 |
| | $ | (525 | ) | | $ | 118 |
| | $ | 409 |
| | $ | 1,601 |
| | $ | 1,599 |
| | $ | (362 | ) | | $ | 82 |
| | $ | 283 |
| | $ | 1,602 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
(Dollars in millions) | | Beginning Balance | | Charge-Offs | | Recoveries | | Provision (Benefit) | | Acquisition | | Ending Balance |
Commercial: | | | | | | | | | | | | |
Commercial and industrial | | $ | 466 |
| | $ | (105 | ) | | $ | 30 |
| | $ | 132 |
| | $ | — |
| | $ | 523 |
|
CRE-income producing properties | | 135 |
| | (7 | ) | | 7 |
| | (23 | ) | | — |
| | 112 |
|
CRE-construction and development | | 37 |
| | (1 | ) | | 9 |
| | (18 | ) | | — |
| | 27 |
|
Dealer floor plan | | 8 |
| | — |
| | — |
| | 2 |
| | — |
| | 10 |
|
Other lending subsidiaries | | 22 |
| | (17 | ) | | 5 |
| | 18 |
| | — |
| | 28 |
|
Retail: | | |
| | |
| | |
| | |
| | |
| |
|
|
Direct retail lending | | 105 |
| | (37 | ) | | 20 |
| | 15 |
| | — |
| | 103 |
|
Revolving credit | | 104 |
| | (53 | ) | | 15 |
| | 33 |
| | — |
| | 99 |
|
Residential mortgage-nonguaranteed | | 194 |
| | (26 | ) | | 3 |
| | 13 |
| | — |
| | 184 |
|
Residential mortgage-government guaranteed | | 23 |
| | (4 | ) | | — |
| | 18 |
| | — |
| | 37 |
|
Sales finance | | 40 |
| | (21 | ) | | 9 |
| | 8 |
| | — |
| | 36 |
|
Other lending subsidiaries | | 265 |
| | (239 | ) | | 31 |
| | 232 |
| | — |
| | 289 |
|
PCI | | 61 |
| | — |
| | — |
| | 2 |
| | — |
| | 63 |
|
ALLL | | 1,460 |
| | (510 | ) | | 129 |
| | 432 |
| | — |
| | 1,511 |
|
RUFC | | 90 |
| | — |
| | — |
| | 11 |
| | 9 |
| | 110 |
|
ACL | | $ | 1,550 |
| | $ | (510 | ) | | $ | 129 |
| | $ | 443 |
| | $ | 9 |
| | $ | 1,621 |
|
The following table provides a summary of loans that are collectively evaluated for impairment:
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
(Dollars in millions) | | Recorded Investment | | Related ALLL | | Recorded Investment | | Related ALLL |
Commercial: | | | | | | | | |
Commercial and industrial | | $ | 51,594 |
| | $ | 451 |
| | $ | 51,253 |
| | $ | 463 |
|
CRE-income producing properties | | 14,831 |
| | 134 |
| | 14,455 |
| | 112 |
|
CRE-construction and development | | 4,479 |
| | 20 |
| | 3,787 |
| | 21 |
|
Dealer floor plan | | 1,607 |
| | 13 |
| | 1,413 |
| | 11 |
|
Other lending subsidiaries | | 8,295 |
| | 38 |
| | 7,678 |
| | 28 |
|
Retail: | | | | | | | | |
Direct retail lending | | 11,864 |
| | 93 |
| | 12,011 |
| | 93 |
|
Revolving credit | | 2,668 |
| | 89 |
| | 2,626 |
| | 95 |
|
Residential mortgage-nonguaranteed | | 27,316 |
| | 137 |
| | 28,488 |
| | 136 |
|
Residential mortgage-government guaranteed | | 515 |
| | 7 |
| | 466 |
| | 8 |
|
Sales finance | | 9,443 |
| | 36 |
| | 11,251 |
| | 37 |
|
Other lending subsidiaries | | 7,767 |
| | 264 |
| | 7,057 |
| | 249 |
|
PCI | | 711 |
| | 27 |
| | 910 |
| | 44 |
|
Total | | $ | 141,090 |
| | $ | 1,309 |
| | $ | 141,395 |
| | $ | 1,297 |
|
|
| | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Recorded Investment | | Related ALLL | | Recorded Investment | | Related ALLL |
Commercial: | | | | | | | | |
Commercial and industrial | | $ | 60,141 |
| | $ | 502 |
| | $ | 58,804 |
| | $ | 494 |
|
CRE | | 21,512 |
| | 181 |
| | 21,173 |
| | 154 |
|
Lease financing | | 1,915 |
| | 10 |
| | 1,910 |
| | 9 |
|
Retail: | | | | | | | | |
Residential mortgage | | 29,116 |
| | 154 |
| | 27,914 |
| | 143 |
|
Direct | | 11,590 |
| | 91 |
| | 11,815 |
| | 98 |
|
Indirect | | 16,837 |
| | 300 |
| | 16,935 |
| | 296 |
|
Revolving credit | | 2,847 |
| | 94 |
| | 2,842 |
| | 97 |
|
PCI | | 533 |
| | 18 |
| | 651 |
| | 28 |
|
Total | | $ | 144,491 |
| | $ | 1,350 |
| | $ | 142,044 |
| | $ | 1,319 |
|
The following tables set forth certain information regarding impaired loans, excluding PCI and LHFS, that were individually evaluated for impairment:
|
| | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | Recorded Investment | | UPB | | Related ALLL | | Average Recorded Investment | | Interest Income Recognized |
(Dollars in millions) | | | | | |
With no related ALLL recorded: | | | | | | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 180 |
| | $ | 207 |
| | $ | — |
| | $ | 193 |
| | $ | — |
|
CRE-income producing properties | | 17 |
| | 20 |
| | — |
| | 26 |
| | — |
|
CRE-construction and development | | 7 |
| | 8 |
| | — |
| | 11 |
| | — |
|
Dealer floor plan | | — |
| | — |
| | — |
| | 3 |
| | — |
|
Other lending subsidiaries | | 3 |
| | 5 |
| | — |
| | 3 |
| | — |
|
Retail: | | | | | | | | | | |
Direct retail lending | | 21 |
| | 45 |
| | — |
| | 16 |
| | 1 |
|
Residential mortgage-nonguaranteed | | 119 |
| | 162 |
| | — |
| | 104 |
| | 3 |
|
Residential mortgage-government guaranteed | | 4 |
| | 4 |
| | — |
| | 3 |
| | — |
|
Sales finance | | 1 |
| | 2 |
| | — |
| | 1 |
| | — |
|
Other lending subsidiaries | | 4 |
| | 10 |
| | — |
| | 4 |
| | — |
|
With an ALLL recorded: | | | | | | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | | 203 |
| | 204 |
| | 28 |
| | 236 |
| | 4 |
|
CRE-income producing properties | | 52 |
| | 53 |
| | 5 |
| | 56 |
| | 1 |
|
CRE-construction and development | | 15 |
| | 15 |
| | 2 |
| | 19 |
| | — |
|
Dealer floor plan | | — |
| | — |
| | — |
| | — |
| | — |
|
Other lending subsidiaries | | 9 |
| | 9 |
| | 1 |
| | 7 |
| | — |
|
Retail: | | | | | | | | | | |
Direct retail lending | | 56 |
| | 57 |
| | 8 |
| | 63 |
| | 3 |
|
Revolving credit | | 29 |
| | 29 |
| | 12 |
| | 29 |
| | 1 |
|
Residential mortgage-nonguaranteed | | 325 |
| | 332 |
| | 35 |
| | 407 |
| | 13 |
|
Residential mortgage-government guaranteed | | 378 |
| | 379 |
| | 28 |
| | 405 |
| | 12 |
|
Sales finance | | 13 |
| | 13 |
| | 1 |
| | 14 |
| | — |
|
Other lending subsidiaries | | 268 |
| | 269 |
| | 49 |
| | 243 |
| | 29 |
|
Total | | $ | 1,704 |
| | $ | 1,823 |
| | $ | 169 |
| | $ | 1,843 |
| | $ | 67 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
As of / For The Six Months Ended June 30, 2018 | | UPB | | Recorded Investment | | Related ALLL | | Average Recorded Investment | | Interest Income Recognized |
(Dollars in millions) | | | Without an ALLL | | With an ALLL | | | |
Commercial: | | | | | | | | | | | | |
Commercial and industrial | | $ | 350 |
| | $ | 125 |
| | $ | 208 |
| | $ | 33 |
| | $ | 343 |
| | $ | 2 |
|
CRE | | 108 |
| | 21 |
| | 77 |
| | 10 |
| | 107 |
| | 1 |
|
Lease financing | | 10 |
| | — |
| | 9 |
| | — |
| | 7 |
| | — |
|
Retail: | | | | | | | | | | | | |
Residential mortgage | | 897 |
| | 133 |
| | 716 |
| | 67 |
| | 833 |
| | 18 |
|
Direct | | 92 |
| | 25 |
| | 46 |
| | 6 |
| | 74 |
| | 2 |
|
Indirect | | 312 |
| | 5 |
| | 298 |
| | 53 |
| | 299 |
| | 22 |
|
Revolving credit | | 29 |
| | — |
| | 29 |
| | 11 |
| | 29 |
| | — |
|
Total | | $ | 1,798 |
| | $ | 309 |
| | $ | 1,383 |
| | $ | 180 |
| | $ | 1,692 |
| | $ | 45 |
|
|
| | | | | | | | | | | | | | | | | | | | |
As of / For The Year Ended December 31, 2016 | | Recorded Investment | | UPB | | Related ALLL | | Average Recorded Investment | | Interest Income Recognized |
(Dollars in millions) | | | | | |
With no related ALLL recorded: | | | | | | | | | | |
Commercial: | | | | | | | | | | |
Commercial and industrial | | $ | 201 |
| | $ | 225 |
| | $ | — |
| | $ | 217 |
| | $ | 1 |
|
CRE-income producing properties | | 25 |
| | 27 |
| | — |
| | 16 |
| | — |
|
CRE-construction and development | | 10 |
| | 11 |
| | — |
| | 8 |
| | — |
|
Dealer floor plan | | — |
| | — |
| | — |
| | — |
| | — |
|
Other lending subsidiaries | | 4 |
| | 6 |
| | — |
| | 6 |
| | — |
|
Retail: | | |
| | |
| | |
| | |
| | |
|
Direct retail lending | | 13 |
| | 38 |
| | — |
| | 12 |
| | 1 |
|
Residential mortgage-nonguaranteed | | 94 |
| | 141 |
| | — |
| | 97 |
| | 4 |
|
Residential mortgage-government guaranteed | | 3 |
| | 3 |
| | — |
| | 3 |
| | — |
|
Sales finance | | 1 |
| | 2 |
| | — |
| | 1 |
| | — |
|
Other lending subsidiaries | | 4 |
| | 9 |
| | — |
| | 4 |
| | — |
|
With an ALLL recorded: | | |
| | |
| | |
| | |
| | |
|
Commercial: | | | | | | | | | | |
Commercial and industrial | | 265 |
| | 269 |
| | 37 |
| | 259 |
| | 5 |
|
CRE-income producing properties | | 58 |
| | 61 |
| | 5 |
| | 68 |
| | 2 |
|
CRE-construction and development | | 22 |
| | 22 |
| | 4 |
| | 22 |
| | 1 |
|
Dealer floor plan | | — |
| | — |
| | — |
| | — |
| | — |
|
Other lending subsidiaries | | 9 |
| | 9 |
| | 1 |
| | 5 |
| | — |
|
Retail: | | |
| | |
| | |
| | |
| | |
|
Direct retail lending | | 68 |
| | 69 |
| | 10 |
| | 71 |
| | 4 |
|
Revolving credit | | 29 |
| | 29 |
| | 11 |
| | 31 |
| | 1 |
|
Residential mortgage-nonguaranteed | | 440 |
| | 451 |
| | 50 |
| | 383 |
| | 16 |
|
Residential mortgage-government guaranteed | | 430 |
| | 431 |
| | 33 |
| | 360 |
| | 14 |
|
Sales finance | | 15 |
| | 15 |
| | 1 |
| | 16 |
| | 1 |
|
Other lending subsidiaries | | 236 |
| | 239 |
| | 40 |
| | 206 |
| | 32 |
|
Total | | $ | 1,927 |
| | $ | 2,057 |
| | $ | 192 |
| | $ | 1,785 |
| | $ | 82 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
As of / For The Year Ended December 31, 2017 | | UPB | | Recorded Investment | | Related ALLL | | Average Recorded Investment | | Interest Income Recognized |
(Dollars in millions) | | | Without an ALLL | | With an ALLL | | | |
Commercial: | | | | | | | | | | | | |
Commercial and industrial | | $ | 381 |
| | $ | 136 |
| | $ | 213 |
| | $ | 28 |
| | $ | 424 |
| | $ | 6 |
|
CRE | | 91 |
| | 26 |
| | 64 |
| | 6 |
| | 109 |
| | 3 |
|
Lease financing | | 1 |
| | — |
| | 1 |
| | — |
| | 3 |
| | — |
|
Retail: | | | | |
| | |
| | |
| | |
| | |
|
Residential mortgage | | 860 |
| | 132 |
| | 679 |
| | 67 |
| | 895 |
| | 37 |
|
Direct | | 99 |
| | 22 |
| | 54 |
| | 8 |
| | 78 |
| | 4 |
|
Indirect | | 308 |
| | 6 |
| | 294 |
| | 52 |
| | 269 |
| | 41 |
|
Revolving credit | | 30 |
| | — |
| | 30 |
| | 10 |
| | 29 |
| | 1 |
|
Total | | $ | 1,770 |
| | $ | 322 |
| | $ | 1,335 |
| | $ | 171 |
| | $ | 1,807 |
| | $ | 92 |
|
The following table presents a summary of TDRs, including trial modifications, all of which are considered impaired:
| | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Performing TDRs: | | | | | | | | |
Commercial: | | | | | | | | |
Commercial and industrial | | $ | 60 |
| | $ | 55 |
| | $ | 44 |
| | $ | 50 |
|
CRE-income producing properties | | 13 |
| | 16 |
| |
CRE-construction and development | | 9 |
| | 9 |
| |
CRE | | | 11 |
| | 16 |
|
Lease financing | | | — |
| | — |
|
Retail: | | | | | | | | |
Direct retail lending | | 63 |
| | 67 |
| |
Residential mortgage | | | 647 |
| | 605 |
|
Direct | | | 58 |
| | 62 |
|
Indirect | | | 284 |
| | 281 |
|
Revolving credit | | 29 |
| | 29 |
| | 29 |
| | 29 |
|
Residential mortgage-nonguaranteed | | 229 |
| | 336 |
| |
Residential mortgage-government guaranteed | | 380 |
| | 433 |
| |
Sales finance | | 13 |
| | 16 |
| |
Other lending subsidiaries | | 256 |
| | 226 |
| |
Total performing TDRs | | 1,052 |
| | 1,187 |
| | 1,073 |
| | 1,043 |
|
Nonperforming TDRs (also included in NPL disclosures) | | 203 |
| | 184 |
| | 191 |
| | 189 |
|
Total TDRs | | $ | 1,255 |
| | $ | 1,371 |
| | $ | 1,264 |
| | $ | 1,232 |
|
ALLL attributable to TDRs | | $ | 140 |
| | $ | 146 |
| | $ | 153 |
| | $ | 142 |
|
The following table summarizes the primary reason loan modifications were classified as TDRs and includes newly designated TDRs as well as modifications made to existing TDRs.is summarized below. Balances represent the recorded investment at the end of the quarter in which the modification was made. Rate modifications includeconsist of TDRs made with below market interest rates, including those that also includehave modifications of loan structures.
| | | | Three Months Ended September 30, | |
| | 2017 | | 2016 | |
Three Months Ended June 30, | | 2018 | | 2017 |
| | Types of Modifications | | Impact To ALLL | | Types of Modifications | | Impact To ALLL | Type of Modification | | ALLL Impact | | Type of Modification | | ALLL Impact |
(Dollars in millions) | | Rate | | Structure | | Rate | | Structure | | Rate | | Structure | | Rate | | Structure | |
Newly Designated TDRs: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 17 |
| | $ | 36 |
| | $ | 1 |
| | $ | 8 |
| | $ | 23 |
| | $ | 1 |
| $ | 20 |
| | $ | 33 |
| | $ | — |
| | $ | 33 |
| | $ | 25 |
| | $ | 1 |
|
CRE-income producing properties | | — |
| | 4 |
| | — |
| | — |
| | 1 |
| | — |
| |
CRE-construction and development | | — |
| | 1 |
| | — |
| | — |
| | 3 |
| | — |
| |
CRE | | 8 |
| | 1 |
| | — |
| | 8 |
| | 3 |
| | 1 |
|
Retail: | | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Direct retail lending | | 2 |
| | 1 |
| | — |
| | 5 |
| | — |
| | — |
| |
Residential mortgage | | 58 |
| | 5 |
| | 4 |
| | 82 |
| | 6 |
| | 10 |
|
Direct | | 2 |
| | 1 |
| | — |
| | 2 |
| | 1 |
| | — |
|
Indirect | | 45 |
| | 1 |
| | 5 |
| | 37 |
| | 2 |
| | 4 |
|
Revolving credit | | 5 |
| | — |
| | 1 |
| | 4 |
| | — |
| | 1 |
| 4 |
| | — |
| | 1 |
| | 4 |
| | — |
| | 1 |
|
Residential mortgage-nonguaranteed | | 25 |
| | 17 |
| | 2 |
| | 30 |
| | 22 |
| | 2 |
| |
Residential mortgage-government guaranteed | | 54 |
| | — |
| | 3 |
| | 118 |
| | — |
| | 7 |
| |
Sales finance | | — |
| | 1 |
| | — |
| | — |
| | 2 |
| | — |
| |
Other lending subsidiaries | | 62 |
| | — |
| | 8 |
| | 44 |
| | — |
| | 6 |
| |
Re-modification of Previously Designated TDRs | | 63 |
| | 4 |
| | — |
| | 19 |
| | 16 |
| | — |
| 31 |
| | 5 |
| | — |
| | 40 |
| | 13 |
| | — |
|
| | | | Nine Months Ended September 30, | |
| | 2017 | | 2016 | |
Six Months Ended June 30, | | 2018 | | 2017 |
| | Types of Modifications | | Impact To ALLL | | Types of Modifications | | Impact To ALLL | Type of Modification | | ALLL Impact | | Type of Modification | | ALLL Impact |
(Dollars in millions) | | Rate | | Structure | | Rate | | Structure | | Rate | | Structure | | Rate | | Structure | |
Newly Designated TDRs: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 72 |
| | $ | 92 |
| | $ | 3 |
| | $ | 99 |
| | $ | 39 |
| | $ | 3 |
| $ | 30 |
| | $ | 43 |
| | $ | — |
| | $ | 55 |
| | $ | 56 |
| | $ | 2 |
|
CRE-income producing properties | | 6 |
| | 8 |
| | — |
| | 4 |
| | 8 |
| | — |
| |
CRE-construction and development | | 8 |
| | 2 |
| | 1 |
| | 1 |
| | 4 |
| | — |
| |
CRE | | 27 |
| | 2 |
| | — |
| | 14 |
| | 5 |
| | 1 |
|
Retail: | | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Direct retail lending | | 7 |
| | 3 |
| | — |
| | 10 |
| | 1 |
| | — |
| |
Residential mortgage | | 140 |
| | 15 |
| | 9 |
| | 210 |
| | 12 |
| | 16 |
|
Direct | | 4 |
| | 1 |
| | — |
| | 5 |
| | 2 |
| | — |
|
Indirect | | 87 |
| | 2 |
| | 10 |
| | 78 |
| | 4 |
| | 8 |
|
Revolving credit | | 14 |
| | — |
| | 3 |
| | 13 |
| | — |
| | 3 |
| 9 |
| | — |
| | 2 |
| | 9 |
| | — |
| | 2 |
|
Residential mortgage-nonguaranteed | | 119 |
| | 29 |
| | 12 |
| | 65 |
| | 36 |
| | 5 |
| |
Residential mortgage-government guaranteed | | 170 |
| | — |
| | 9 |
| | 217 |
| | — |
| | 12 |
| |
Sales finance | | — |
| | 5 |
| | — |
| | — |
| | 5 |
| | — |
| |
Other lending subsidiaries | | 140 |
| | — |
| | 16 |
| | 118 |
| | — |
| | 16 |
| |
Re-Modification of Previously Designated TDRs | | 148 |
| | 26 |
| | — |
| | 48 |
| | 26 |
| | — |
| 52 |
| | 10 |
| | — |
| | 85 |
| | 22 |
| | — |
|
Charge-offs and forgiveness of principal and interest for TDRs were immaterial for all periods presented.
The pre-default balance for modifications that had been classified as TDRs during the previous 12 months that experienced a payment default was $26$13 million and $19$17 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $71$36 million and $52$45 million for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. Payment default is defined as movement of the TDR to nonaccrualnonperforming status, foreclosure or charge-off, whichever occurs first.
Information about PCIUnearned income, discounts and net deferred loan fees and costs were immaterial. Residential mortgage loans is presented in the following table:
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Year Ended December 31, 2016 |
(Dollars in millions) | | Purchased Impaired | | Purchased Nonimpaired | | Purchased Impaired | | Purchased Nonimpaired |
Accretable yield at beginning of period | | $ | 253 |
| | $ | 155 |
| | $ | 189 |
| | $ | 176 |
|
Additions | | — |
| | — |
| | 36 |
| | — |
|
Accretion | | (67 | ) | | (44 | ) | | (134 | ) | | (73 | ) |
Other, net | | 25 |
| | 30 |
| | 162 |
| | 52 |
|
Accretable yield at end of period | | $ | 211 |
| | $ | 141 |
| | $ | 253 |
| | $ | 155 |
|
| | | | | | | | |
Carrying value at end of period | | $ | 464 |
| | $ | 247 |
| | $ | 614 |
| | $ | 296 |
|
Outstanding UPB at end of period | | 719 |
| | 343 |
| | 910 |
| | 423 |
|
process of foreclosure were $270 million at June 30, 2018 and $288 million at December 31, 2017.
The following table presents additional information about loans and leases:
|
| | | | | | | | |
(Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 |
Unearned income, discounts and net deferred loan fees and costs, excluding PCI | | $ | 143 |
| | $ | 265 |
|
Residential mortgage loans in process of foreclosure | | 305 |
| | 366 |
|
NOTE 5.4. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill attributable to operating segments are reflected in the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | Community Banking | | Residential Mortgage Banking | | Dealer Financial Services | | Specialized Lending | | Insurance Holdings | | Financial Services | | Total |
Goodwill, January 1, 2017 | | $ | 7,032 |
| | $ | 416 |
| | $ | 111 |
| | $ | 113 |
| | $ | 1,752 |
| | $ | 214 |
| | $ | 9,638 |
|
Adjustments | | (12 | ) | | 6 |
| | — |
| | (9 | ) | | (5 | ) | | — |
| | (20 | ) |
Goodwill, September 30, 2017 | | $ | 7,020 |
| | $ | 422 |
| | $ | 111 |
| | $ | 104 |
| | $ | 1,747 |
| | $ | 214 |
| | $ | 9,618 |
|
The adjustments to goodwill were primarily the result of finalizing the purchase price allocation for National Penn and Swett & Crawford.
The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
CDI | | $ | 825 |
| | $ | (614 | ) | | $ | 211 |
| | $ | 825 |
| | $ | (565 | ) | | $ | 260 |
| | $ | 605 |
| | $ | (436 | ) | | $ | 169 |
| | $ | 605 |
| | $ | (409 | ) | | $ | 196 |
|
Other, primarily customer relationship intangibles | | 1,246 |
| | (712 | ) | | 534 |
| | 1,249 |
| | (655 | ) | | 594 |
| | 1,165 |
| | (687 | ) | | 478 |
| | 1,211 |
| | (696 | ) | | 515 |
|
Total | | $ | 2,071 |
| | $ | (1,326 | ) | | $ | 745 |
| | $ | 2,074 |
| | $ | (1,220 | ) | | $ | 854 |
| | $ | 1,770 |
| | $ | (1,123 | ) | | $ | 647 |
| | $ | 1,816 |
| | $ | (1,105 | ) | | $ | 711 |
|
NOTE 6.5. Loan Servicing
Residential Mortgage Banking Activities
The following tables summarize residential mortgage banking activities:
| | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
UPB of residential mortgage and home equity loan servicing portfolio | | $ | 118,736 |
| | $ | 121,639 |
| | $ | 118,753 |
| | $ | 118,424 |
|
UPB of residential mortgage loans serviced for others (primarily agency conforming fixed rate) | | 89,391 |
| | 90,325 |
| |
UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate | | | 88,492 |
| | 89,124 |
|
Mortgage loans sold with recourse | | 514 |
| | 578 |
| | 452 |
| | 490 |
|
Maximum recourse exposure from mortgage loans sold with recourse liability | | 261 |
| | 282 |
| | 237 |
| | 251 |
|
Indemnification, recourse and repurchase reserves | | 39 |
| | 40 |
| | 34 |
| | 37 |
|
| | | | As of / For The Nine Months Ended September 30, | |
As of / For the Six Months Ended June 30, | | |
|
(Dollars in millions) | | 2017 | | 2016 | | 2018 | | 2017 |
UPB of residential mortgage loans sold from LHFS | | $ | 9,478 |
| | $ | 11,098 |
| | $ | 5,536 |
| | $ | 6,309 |
|
Pre-tax gains recognized on mortgage loans sold and held for sale | | 114 |
| | 105 |
| | 74 |
| | 65 |
|
Servicing fees recognized from mortgage loans serviced for others | | 197 |
| | 201 |
| | 128 |
| | 133 |
|
Approximate weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others | | 0.28 | % | | 0.28 | % | | 0.28 | % | | 0.28 | % |
Weighted average interest rate on mortgage loans serviced for others | | 4.00 |
| | 4.06 |
| | 4.01 |
| | 4.00 |
|
During
The following table presents a roll forward of the third quartercarrying value of 2016, the Company paid $83 million to settle certain FHA loan origination and quality control matters pursuant to an agreement with the Department of Justice. In addition, the Company separately received recoveries of $71 million, resulting in a net benefit of $73 million for the third quarter of 2016, which was included in other expense on the Consolidated Statements of Income.
residential MSRs recorded at fair value:
| | | | Nine Months Ended September 30, | |
Six Months Ended June 30, | | | |
(Dollars in millions) | | 2017 | | 2016 | | 2018 | | 2017 |
Residential MSRs, carrying value, beginning of period | | $ | 915 |
| | $ | 880 |
| |
Residential MSRs, carrying value, January 1 | | | $ | 914 |
| | $ | 915 |
|
Additions | | 93 |
| | 99 |
| | 63 |
| | 63 |
|
Change in fair value due to changes in valuation inputs or assumptions: | | | | | | | | |
Prepayment speeds | | (56 | ) | | (180 | ) | | 67 |
| | (45 | ) |
OAS | | 47 |
| | 9 |
| | 17 |
| | 42 |
|
Servicing costs | | 9 |
| | 2 |
| | — |
| | 9 |
|
Realization of expected net servicing cash flows, passage of time and other | | (104 | ) | | (103 | ) | | (70 | ) | | (69 | ) |
Residential MSRs, carrying value, end of period | | $ | 904 |
| | $ | 707 |
| |
Residential MSRs, carrying value, June 30 | | | $ | 991 |
| | $ | 915 |
|
| | | | | | | | |
Gains (losses) on derivative financial instruments used to mitigate the income statement effect of changes in residential MSR fair value | | $ | 12 |
| | $ | 224 |
| | $ | (84 | ) | | $ | 3 |
|
The sensitivity of the fair value of the residential MSRs to changes in key assumptions is includedpresented in the accompanyingfollowing table:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2018 | | December 31, 2017 |
| | Range | | Weighted Average | | Range | | Weighted Average | | Range | | Weighted Average | | Range | | Weighted Average |
(Dollars in millions) | | Min | | Max | | Min | | Max | | | Min | | Max | | Min | | Max | |
Prepayment speed | | 7.6 | % | | 10.2 | % | | 9.3 | % | | 7.5 | % | | 8.4 | % | | 8.1 | % | | 7.8 | % | | 8.9 | % | | 8.1 | % | | 7.1 | % | | 10.1 | % | | 9.1 | % |
Effect on fair value of a 10% increase | | | | | | $ | (32 | ) | | | | | | $ | (28 | ) | | | | | | $ | (29 | ) | | | | | | $ | (31 | ) |
Effect on fair value of a 20% increase | | | | | | (62 | ) | | | | | | (54 | ) | | | | | | (56 | ) | | | | | | (60 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
OAS | | 8.4 | % | | 8.9 | % | | 8.5 | % | | 9.8 | % | | 10.2 | % | | 10.0 | % | | 7.9 | % | | 8.5 | % | | 8.1 | % | | 8.4 | % | | 8.9 | % | | 8.5 | % |
Effect on fair value of a 10% increase | | | | | | $ | (28 | ) | | | | | | $ | (33 | ) | | | | | | $ | (30 | ) | | | | | | $ | (28 | ) |
Effect on fair value of a 20% increase | | | | | | (54 | ) | | | | | | (64 | ) | | | | | | (57 | ) | | | | | | (54 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Composition of loans serviced for others: | | | | | | | | | | | | | Composition of loans serviced for others: | | | | | | | | | | |
Fixed-rate residential mortgage loans | | | | | | 99.1 | % | | | | | | 99.1 | % | | | | | | 99.2 | % | | | | | | 99.1 | % |
Adjustable-rate residential mortgage loans | | | | | | 0.9 |
| | | | | | 0.9 |
| | | | | | 0.8 |
| | | | | | 0.9 |
|
Total | | |
| | |
| | 100.0 | % | | | | | | 100.0 | % | | |
| | |
| | 100.0 | % | | | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average life | | |
| | |
| | 6.4 years |
| | | | | | 7.0 years |
| | |
| | |
| | 7.0 years |
| | | | | | 6.4 years |
|
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in one assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.
Commercial Mortgage Banking Activities
The following table summarizes commercial mortgage banking activities for the periods presented:
| | (Dollars in millions) | Sep 30, 2017 | | Dec 31, 2016 | Jun 30, 2018 | | Dec 31, 2017 |
UPB of CRE mortgages serviced for others | $ | 28,122 |
| | $ | 29,333 |
| $ | 27,586 |
| | $ | 28,441 |
|
CRE mortgages serviced for others covered by recourse provisions | 4,307 |
| | 4,240 |
| 4,475 |
| | 4,153 |
|
Maximum recourse exposure from CRE mortgages sold with recourse liability | 1,244 |
| | 1,272 |
| 1,241 |
| | 1,218 |
|
Recorded reserves related to recourse exposure | 6 |
| | 7 |
| 5 |
| | 5 |
|
CRE mortgages originated during the year-to-date period | 4,969 |
| | 7,145 |
| 3,337 |
| | 6,753 |
|
Commercial MSRs at fair value | 140 |
| | 137 |
| 152 |
| | 142 |
|
NOTE 7.6. Deposits
A summaryThe composition of deposits is presented in the accompanyingfollowing table:
| | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Noninterest-bearing deposits | | $ | 54,049 |
| | $ | 50,697 |
| | $ | 54,270 |
| | $ | 53,767 |
|
Interest checking | | 26,575 |
| | 30,263 |
| | 27,257 |
| | 27,677 |
|
Money market and savings | | 60,904 |
| | 64,883 |
| | 63,167 |
| | 62,757 |
|
Time deposits | | 14,607 |
| | 14,391 |
| | 14,781 |
| | 13,170 |
|
Total deposits | | $ | 156,135 |
| | $ | 160,234 |
| | $ | 159,475 |
| | $ | 157,371 |
|
| | | | | | | | |
Time deposits $100,000 and greater | | $ | 6,542 |
| | $ | 5,394 |
| |
Time deposits $250,000 and greater | | 3,831 |
| | 2,179 |
| |
Time deposits greater than $250,000 | | | $ | 4,097 |
| | $ | 2,622 |
|
NOTE 8.7. Long-Term Debt
The following table presents a summary of long-term debt:
| | | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
| | | Stated Rate | | Effective Rate | | Carrying | | Carrying | | | Stated Rate | | Effective Rate | | Carrying | | Carrying |
(Dollars in millions) | | Maturity | | Min | | Max | | Amount | | Amount | | Maturity | | Min | | Max | | Amount | | Amount |
BB&T Corporation | | | | | | | | | | | |
BB&T Corporation: | | | | | | | | | | | |
Fixed rate senior notes | | 2018 | to | 2024 | | 1.45 | % | | 6.85 | % | | 2.63 | % | | $ | 7,079 |
| | $ | 7,600 |
| | 2019 | to | 2025 | | 2.05 | % | | 6.85 | % | | 3.45 | % | | $ | 9,362 |
| | $ | 8,562 |
|
Floating rate senior notes | | 2018 | | 2022 | | 1.89 |
| | 2.18 |
| | 2.03 |
| | 2,247 |
| | 1,898 |
| | 2019 | | 2022 | | 2.58 |
| | 3.06 |
| | 2.93 |
| | 2,397 |
| | 2,547 |
|
Fixed rate subordinated notes | | 2019 | | 2022 | | 3.95 |
| | 5.25 |
| | 1.71 |
| | 946 |
| | 1,338 |
| | 2019 | | 2022 | | 3.95 |
| | 5.25 |
| | 2.52 |
| | 911 |
| | 933 |
|
Branch Bank | | | | | | | | | | | |
Branch Bank: | | | | | | | | | | | |
Fixed rate senior notes | | 2018 | | 2022 | | 1.45 |
| | 2.85 |
| | 2.36 |
| | 4,930 |
| | 4,209 |
| | 2018 | | 2022 | | 1.45 |
| | 2.85 |
| | 2.98 |
| | 5,609 |
| | 5,653 |
|
Floating rate senior notes | | 2019 | | 2020 | | 1.75 |
| | 1.84 |
| | 1.84 |
| | 849 |
| | 250 |
| | 2019 | | 2020 | | 2.52 |
| | 2.89 |
| | 2.81 |
| | 1,149 |
| | 1,149 |
|
Fixed rate subordinated notes | | 2025 | | 2026 | | 3.63 |
| | 3.80 |
| | 3.43 |
| | 2,142 |
| | 2,138 |
| | 2025 | | 2026 | | 3.63 |
| | 3.80 |
| | 4.12 |
| | 2,044 |
| | 2,119 |
|
Floating rate subordinated notes | | | | — |
| | — |
| | — |
| | — |
| | 262 |
| |
FHLB advances (1) | | 2017 | | 2034 | | — |
| | 6.38 |
| | 1.30 |
| | 2,495 |
| | 4,118 |
| | 2018 | | 2034 | | — |
| | 5.50 |
| | 2.54 |
| | 2,440 |
| | 2,480 |
|
Other long-term debt | | | | | | | | 175 |
| | 152 |
| | | | | | | | 169 |
| | 205 |
|
Total long-term debt | | | | | | | | $ | 20,863 |
| | $ | 21,965 |
| | | | | | | | $ | 24,081 |
| | $ | 23,648 |
|
| |
(1) | FHLB advances had a weighted average maturity of 4.13.3 years at SeptemberJune 30, 2017.2018. |
The effective rates above reflect the impact of fair value hedges and debt issuance costs. Subordinated notes with a remaining maturity of one year or greater qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
During the first quarter of 2017, Branch Bank terminated FHLB advances totaling $2.9 billion of par value, which resulted in a pre-tax loss on early extinguishment of debt totaling $392 million.
During October 2017, BB&T issued $2.3 billion of fixed and floating rate debt with maturities ranging from 2021 to 2024.
NOTE 9.8. Shareholders' Equity
The following table presents the activity relatingrelated to awards of RSUs, PSUs and restricted shares/units during the period is presented in the following table:shares:
| | (Shares in thousands) | | Restricted Shares/Units | | Wtd. Avg. Grant Date Fair Value | | Units/Shares | | Wtd. Avg. Grant Date Fair Value |
Nonvested at January 1, 2017 | | 13,516 |
| | $ | 29.39 |
| |
Nonvested at January 1, 2018 | | | 12,948 |
| | $ | 33.90 |
|
Granted | | 3,909 |
| | 42.88 |
| | 3,416 |
| | 49.11 |
|
Vested | | (3,832 | ) | | 27.18 |
| | (3,459 | ) | | 33.55 |
|
Forfeited | | (285 | ) | | 33.01 |
| | (155 | ) | | 36.15 |
|
Nonvested at September 30, 2017 | | 13,308 |
| | 33.92 |
| |
Expected to vest at September 30, 2017 | | 12,297 |
| | 33.92 |
| |
Nonvested at June 30, 2018 | | | 12,750 |
| | 38.04 |
|
NOTE 9. AOCI
Activity in AOCI is summarized below: |
| | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2018 and 2017
(Dollars in millions) | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | Other, net | | Total |
AOCI balance, April 1, 2017 | $ | (755 | ) | | $ | (94 | ) | | $ | (261 | ) | | $ | (15 | ) | | $ | (1,125 | ) |
OCI before reclassifications, net of tax | 1 |
| | (30 | ) | | 81 |
| | 1 |
| | 53 |
|
Amounts reclassified from AOCI: | | | | | | | | | |
Before tax | 18 |
| | (6 | ) | | (12 | ) | | (1 | ) | | (1 | ) |
Tax effect | 7 |
| | (2 | ) | | (5 | ) | | — |
| | — |
|
Amounts reclassified, net of tax | 11 |
| | (4 | ) | | (7 | ) | | (1 | ) | | (1 | ) |
Total OCI, net of tax | 12 |
| | (34 | ) | | 74 |
| | — |
| | 52 |
|
AOCI balance, June 30, 2017 | $ | (743 | ) | | $ | (128 | ) | | $ | (187 | ) | | $ | (15 | ) | | $ | (1,073 | ) |
| | | | | | | | | |
AOCI balance, April 1, 2018 | $ | (990 | ) | | $ | (14 | ) | | $ | (624 | ) | | $ | (17 | ) | | $ | (1,645 | ) |
OCI before reclassifications, net of tax | — |
|
| 23 |
|
| (100 | ) | | (2 | ) | | (79 | ) |
Amounts reclassified from AOCI: | | | | | | | | | |
Before tax | 18 |
| | 3 |
| | 1 |
| | 1 |
| | 23 |
|
Tax effect | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
Amounts reclassified, net of tax | 13 |
| | 3 |
| | 1 |
| | 1 |
| | 18 |
|
Total OCI, net of tax | 13 |
| | 26 |
| | (99 | ) | | (1 | ) | | (61 | ) |
AOCI balance, June 30, 2018 | $ | (977 | ) | | $ | 12 |
| | $ | (723 | ) | | $ | (18 | ) | | $ | (1,706 | ) |
|
| | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018 and 2017
(Dollars in millions) | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | Other, net | | Total |
AOCI balance, January 1, 2017 | $ | (764 | ) | | $ | (92 | ) | | $ | (259 | ) | | $ | (17 | ) | | $ | (1,132 | ) |
OCI before reclassifications, net of tax | (1 | ) | | (27 | ) | | 80 |
| | 2 |
| | 54 |
|
Amounts reclassified from AOCI: | | | | | | | | | |
Before tax | 35 |
| | (14 | ) | | (13 | ) | | — |
| | 8 |
|
Tax effect | 13 |
| | (5 | ) | | (5 | ) | | — |
| | 3 |
|
Amounts reclassified, net of tax | 22 |
| | (9 | ) | | (8 | ) | | — |
| | 5 |
|
Total OCI, net of tax | 21 |
| | (36 | ) | | 72 |
| | 2 |
| | 59 |
|
AOCI balance, June 30, 2017 | $ | (743 | ) | | $ | (128 | ) | | $ | (187 | ) | | $ | (15 | ) | | $ | (1,073 | ) |
| | | | | | | | | |
AOCI balance, January 1, 2018 | $ | (1,004 | ) | | $ | (92 | ) | | $ | (356 | ) | | $ | (15 | ) | | $ | (1,467 | ) |
OCI before reclassifications, net of tax | — |
| | 93 |
| | (382 | ) | | (4 | ) | | (293 | ) |
Amounts reclassified from AOCI: | | | | | | | | | |
Before tax | 36 |
| | 14 |
| | 20 |
| | 1 |
| | 71 |
|
Tax effect | 9 |
| | 3 |
| | 5 |
| | — |
| | 17 |
|
Amounts reclassified, net of tax | 27 |
| | 11 |
| | 15 |
| | 1 |
| | 54 |
|
Total OCI, net of tax | 27 |
| | 104 |
| | (367 | ) | | (3 | ) | | (239 | ) |
AOCI balance, June 30, 2018 | $ | (977 | ) | | $ | 12 |
| | $ | (723 | ) | | $ | (18 | ) | | $ | (1,706 | ) |
Primary income statement location of amounts reclassified from AOCI | Other expense | | Interest expense | | Interest income | | Interest income | | |
NOTE 10. AOCI
Activity within AOCI is presented in the following tables: |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
(Dollars in millions) | | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | Other, net | | Total |
AOCI balance, July 1, 2017 | | $ | (743 | ) | | $ | (128 | ) | | $ | (187 | ) | | $ | (15 | ) | | $ | (1,073 | ) |
OCI before reclassifications, net of tax | | 1 |
|
| 1 |
|
| 19 |
| | 2 |
| | 23 |
|
Amounts reclassified from AOCI: | | | | | | | | | | |
Before tax (1) | | 11 |
| | 13 |
| | (2 | ) | | — |
| | 22 |
|
Tax effect | | 4 |
| | 5 |
| | (1 | ) | | — |
| | 8 |
|
Amounts reclassified, net of tax | | 7 |
| | 8 |
| | (1 | ) | | — |
| | 14 |
|
Net change in AOCI | | 8 |
| | 9 |
| | 18 |
| | 2 |
| | 37 |
|
AOCI balance, September 30, 2017 | | $ | (735 | ) | | $ | (119 | ) | | $ | (169 | ) | | $ | (13 | ) | | $ | (1,036 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
(Dollars in millions) | | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | FDIC's Share of Unrealized (Gains) Losses on AFS Securities | | Other, net | | Total |
AOCI balance, July 1, 2016 | | $ | (701 | ) | | $ | (247 | ) | | $ | 263 |
| | $ | (137 | ) | | $ | (15 | ) | | $ | (837 | ) |
OCI before reclassifications, net of tax | | (9 | ) |
| 23 |
|
| (72 | ) |
| 137 |
|
| — |
|
| 79 |
|
Amounts reclassified from AOCI: | | | | | | | | | | | | |
Before tax (1) | | 18 |
| | (3 | ) | | (2 | ) | | — |
| | 1 |
| | 14 |
|
Tax effect | | 7 |
| | (1 | ) | | (1 | ) | | — |
| | 1 |
| | 6 |
|
Amounts reclassified, net of tax | | 11 |
| | (2 | ) | | (1 | ) | | — |
| | — |
| | 8 |
|
Net change in AOCI | | 2 |
|
| 21 |
|
| (73 | ) |
| 137 |
|
| — |
|
| 87 |
|
AOCI balance, September 30, 2016 | | $ | (699 | ) | | $ | (226 | ) | | $ | 190 |
| | $ | — |
| | $ | (15 | ) | | $ | (750 | ) |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
(Dollars in millions) | | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | Other, net | | Total |
AOCI balance, January 1, 2017 | | $ | (764 | ) | | $ | (92 | ) | | $ | (259 | ) | | $ | (17 | ) | | $ | (1,132 | ) |
OCI before reclassifications, net of tax | | — |
| | (26 | ) | | 99 |
| | 4 |
| | 77 |
|
Amounts reclassified from AOCI: | | | | | | | | | | |
Before tax (1) | | 46 |
| | (1 | ) | | (15 | ) | | — |
| | 30 |
|
Tax effect | | 17 |
| | — |
| | (6 | ) | | — |
| | 11 |
|
Amounts reclassified, net of tax | | 29 |
| | (1 | ) | | (9 | ) | | — |
| | 19 |
|
Net change in AOCI | | 29 |
| | (27 | ) | | 90 |
| | 4 |
| | 96 |
|
AOCI balance, September 30, 2017 | | $ | (735 | ) | | $ | (119 | ) | | $ | (169 | ) | | $ | (13 | ) | | $ | (1,036 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
(Dollars in millions) | Unrecognized Net Pension and Postretirement Costs | | Unrealized Net Gains (Losses) on Cash Flow Hedges | | Unrealized Net Gains (Losses) on AFS Securities | | FDIC's Share of Unrealized (Gains) Losses on AFS Securities | | Other, net | | Total |
AOCI balance, January 1, 2016 | $ | (723 | ) | | $ | (83 | ) | | $ | (34 | ) | | $ | (169 | ) | | $ | (19 | ) | | $ | (1,028 | ) |
OCI before reclassifications, net of tax | (8 | ) | | (154 | ) | | 280 |
| | 148 |
| | 3 |
| | 269 |
|
Amounts reclassified from AOCI: | | | | | | | | | | | |
Before tax (1) | 51 |
| | 18 |
| | (90 | ) | | 33 |
| | 2 |
| | 14 |
|
Tax effect | 19 |
| | 7 |
| | (34 | ) | | 12 |
| | 1 |
| | 5 |
|
Amounts reclassified, net of tax | 32 |
| | 11 |
| | (56 | ) | | 21 |
| | 1 |
| | 9 |
|
Net change in AOCI | 24 |
| | (143 | ) | | 224 |
| | 169 |
| | 4 |
| | 278 |
|
AOCI balance, September 30, 2016 | $ | (699 | ) | | $ | (226 | ) | | $ | 190 |
| | $ | — |
| | $ | (15 | ) | | $ | (750 | ) |
| |
(1) | Amounts related to unrecognized net pension and postretirement costs are included in personnel expense, amounts related to unrealized net gains (losses) on cash flow hedges are included in net interest income, amounts related to unrealized net gains (losses) on AFS securities are included in net interest income and securities gains/losses when realized, amounts related to FDIC's share of unrealized gains (losses) on AFS securities are included in FDIC loss share income, net and amounts related to other, net are primarily included in net interest income in the Consolidated Statements of Income. |
NOTE 11. Income Taxes
The effective tax rates for the three months ended September 30, 2017 and 2016 were 31.2% and 29.8%, respectively.
The effective tax rates for the ninethree months ended SeptemberJune 30, 2018 and 2017 were 19.7% and 201631.1%, respectively. The current quarter tax provision reflects the lower federal income tax rate enacted with tax reform in December of 2017.
The effective tax rates for the six months ended June 30, 2018 and 2017 were 28.7%19.4% and 30.0%27.1%, respectively. The effective tax rate for the ninesix months ended SeptemberJune 30, 20172018 was lower than the corresponding period in 20162017 primarily due to the excesslower federal income tax benefits from equity-based compensation plans andrate. The earlier period also included the tax benefits associated with using the marginal income tax rate for the loss on the early extinguishment of debt.
NOTE 12.11. Benefit Plans
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | Qualified Plans | | Nonqualified Plans |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | | $ | 45 |
| | $ | 44 |
| | $ | 2 |
| | $ | 3 |
|
Interest cost | | 43 |
| | 41 |
| | 5 |
| | 5 |
|
Estimated return on plan assets | | (93 | ) | | (82 | ) | | — |
| | — |
|
Amortization and other | | 14 |
| | 18 |
| | 4 |
| | 3 |
|
Net periodic benefit cost | | $ | 9 |
| | $ | 21 |
| | $ | 11 |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | Qualified Plans | | Nonqualified Plans |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | | $ | 143 |
| | $ | 130 |
| | $ | 9 |
| | $ | 9 |
|
Interest cost | | 130 |
| | 122 |
| | 14 |
| | 14 |
|
Estimated return on plan assets | | (278 | ) | | (244 | ) | | — |
| | — |
|
Amortization and other | | 47 |
| | 51 |
| | 10 |
| | 9 |
|
Net periodic benefit cost | | $ | 42 |
| | $ | 59 |
| | $ | 33 |
| | $ | 32 |
|
The components of net periodic benefit cost for defined benefit pension plans are summarized in the following table:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions) | Location | 2018 | | 2017 | | 2018 | | 2017 |
Service cost | Personnel expense | $ | 60 |
| | $ | 53 |
| | $ | 120 |
| | $ | 105 |
|
Interest cost | Other expense | 50 |
| | 47 |
| | 100 |
| | 96 |
|
Estimated return on plan assets | Other expense | (112 | ) | | (92 | ) | | (224 | ) | | (185 | ) |
Amortization and other | Other expense | 19 |
| | 19 |
| | 39 |
| | 39 |
|
Net periodic benefit cost | | $ | 17 |
| | $ | 27 |
| | $ | 35 |
| | $ | 55 |
|
BB&T makes contributions to the qualified pension plans in amounts between the minimum required for funding and the maximum deductible for federal income tax purposes. Discretionary contributions totaling $347$144 million were made during the ninesix months ended SeptemberJune 30, 2017.2018. There are no required contributions for the remainder of 2017,2018, though BB&T may elect to make additional discretionary contributions.
NOTE 13.12. Commitments and Contingencies
The following table summarizes certain commitments and contingencies. Refer to Note 13. Fair Value Disclosures for amounts related to off-balance sheet financial instruments. | | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Letters of credit | | $ | 2,658 |
| | $ | 2,786 |
| |
Carrying amount of the liability for letters of credit | | 22 |
| | 27 |
| |
| | | | | |
Investments in affordable housing and historic building rehabilitation projects: | | | | | |
Investments in affordable housing projects: | | | | | |
Carrying amount | | 2,018 |
| | 1,719 |
| | $ | 2,068 |
| | $ | 1,948 |
|
Amount of future funding commitments included in carrying amount | | 971 |
| | 738 |
| | 947 |
| | 928 |
|
Lending exposure | | 547 |
| | 495 |
| | 541 |
| | 561 |
|
Tax credits subject to recapture | | 450 |
| | 413 |
| | 478 |
| | 471 |
|
| | | | | |
Private equity investments | | 426 |
| | 362 |
| | 463 |
| | 471 |
|
Future funding commitments to private equity investments | | 136 |
| | 197 |
| | 128 |
| | 143 |
|
Legal Proceedings
The nature of BB&T's business ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. BB&T believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management's judgment as to what is in the best interests of BB&T and its shareholders.
On at least a quarterly basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information available. For those matters where it is probable that BB&T will incur a loss and the amount of the loss can be reasonably estimated, and is more than nominal, a liability is recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of BB&T.
Pledged Assets
Certain assets were pledged to secure municipal deposits, securities sold under agreements to repurchase, borrowings and borrowing capacity, subject to any applicable asset discount, at the FHLB and FRB as well as for other purposes as required or permitted by law. The following table provides the total carrying amount of pledged assets by asset type, of which the majority are pursuant to agreements that do not permit the other party to sell or repledge the collateral. Assets related to employee benefit plans have beenare excluded from the following table.
| | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Pledged securities | | $ | 14,457 |
| | $ | 15,549 |
| | $ | 12,940 |
| | $ | 14,636 |
|
Pledged loans | | 74,411 |
| | 75,015 |
| | 75,300 |
| | 74,718 |
|
NOTE 14.13. Fair Value Disclosures
The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
| | | | September 30, 2017 | |
June 30, 2018 | | | |
(Dollars in millions) | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Trading securities | | $ | 1,089 |
| | $ | 346 |
| | $ | 743 |
| | $ | — |
| |
AFS securities: | | |
| | | | | | | | |
| | | | | | |
U.S. Treasury | | 2,111 |
| | — |
| | 2,111 |
| | — |
| | $ | 2,323 |
| | $ | — |
| | $ | 2,323 |
| | $ | — |
|
GSE | | 182 |
| | — |
| | 182 |
| | — |
| | 175 |
| | — |
| | 175 |
| | — |
|
Agency MBS | | 18,676 |
| | — |
| | 18,676 |
| | — |
| | 19,848 |
| | — |
| | 19,848 |
| | — |
|
States and political subdivisions | | 1,599 |
| | — |
| | 1,599 |
| | — |
| | 980 |
| | — |
| | 980 |
| | — |
|
Non-agency MBS | | 608 |
| | — |
| | 151 |
| | 457 |
| | 554 |
| | — |
| | 129 |
| | 425 |
|
Other | | 8 |
| | 5 |
| | 3 |
| | — |
| | 39 |
| | — |
| | 39 |
| | — |
|
Total AFS securities | | 23,184 |
| | 5 |
| | 22,722 |
| | 457 |
| | 23,919 |
| | — |
| | 23,494 |
| | 425 |
|
LHFS | | 1,217 |
| | — |
| | 1,217 |
| | — |
| | 1,615 |
| | — |
| | 1,615 |
| | — |
|
MSRs | | 1,044 |
| | — |
| | — |
| | 1,044 |
| | 1,143 |
| | — |
| | — |
| | 1,143 |
|
Derivative assets: | |
|
| | | | | | | |
Interest rate contracts | | 523 |
| | — |
| | 515 |
| | 8 |
| |
Foreign exchange contracts | | 5 |
| | — |
| | 5 |
| | — |
| |
Total derivative assets | | 528 |
| | — |
| | 520 |
| | 8 |
| |
Other assets: | | |
| | | | | | |
Trading and equity securities | | | 820 |
| | 380 |
| | 440 |
| | — |
|
Derivative assets | | | 192 |
| | — |
| | 185 |
| | 7 |
|
Private equity investments | | 413 |
| | — |
| | — |
| | 413 |
| | 399 |
| | — |
| | — |
| | 399 |
|
Total assets | | $ | 27,475 |
| | $ | 351 |
| | $ | 25,202 |
| | $ | 1,922 |
| | $ | 28,088 |
| | $ | 380 |
|
| $ | 25,734 |
|
| $ | 1,974 |
|
Liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Derivative liabilities: | | |
| | |
| | |
| | |
| |
Interest rate contracts | | $ | 725 |
| | $ | 1 |
| | $ | 721 |
| | $ | 3 |
| |
Foreign exchange contracts | | 6 |
| | — |
| | 6 |
| | — |
| |
Total derivative liabilities | | 731 |
| | 1 |
| | 727 |
| | 3 |
| |
Derivative liabilities | | | $ | 395 |
| | $ | — |
| | $ | 392 |
| | $ | 3 |
|
Securities sold short | | 82 |
| | — |
| | 82 |
| | — |
| | 235 |
| | — |
| | 235 |
| | — |
|
Total liabilities | | $ | 813 |
| | $ | 1 |
| | $ | 809 |
| | $ | 3 |
| | $ | 630 |
| | $ | — |
| | $ | 627 |
| | $ | 3 |
|
| | | | December 31, 2016 | |
December 31, 2017 | | | | | | | | | |
(Dollars in millions) | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | | | | | | | | | |
Trading securities | | $ | 748 |
| | $ | 324 |
| | $ | 424 |
| | $ | — |
| |
AFS securities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. Treasury | | 2,587 |
| | — |
| | 2,587 |
| | — |
| | $ | 2,291 |
| | $ | — |
| | $ | 2,291 |
| | $ | — |
|
GSE | | 180 |
| | — |
| | 180 |
| | — |
| | 179 |
| | — |
| | 179 |
| | — |
|
Agency MBS | | 21,264 |
| | — |
| | 21,264 |
| | — |
| | 20,101 |
| | — |
| | 20,101 |
| | — |
|
States and political subdivisions | | 2,205 |
| | — |
| | 2,205 |
| | — |
| | 1,392 |
| | — |
| | 1,392 |
| | — |
|
Non-agency MBS | | 679 |
| | — |
| | 172 |
| | 507 |
| | 576 |
| | — |
| | 144 |
| | 432 |
|
Other | | 11 |
| | 8 |
| | 3 |
| | — |
| | 8 |
| | 6 |
| | 2 |
| | — |
|
Total AFS securities | | 26,926 |
| | 8 |
| | 26,411 |
| | 507 |
| | 24,547 |
| | 6 |
| | 24,109 |
| | 432 |
|
LHFS | | 1,716 |
| | — |
| | 1,716 |
| | — |
| | 1,099 |
| | — |
| | 1,099 |
| | — |
|
MSRs | | 1,052 |
| | — |
| | — |
| | 1,052 |
| | 1,056 |
| | — |
| | — |
| | 1,056 |
|
Derivative assets: | | | | | | | | | |
Interest rate contracts | | 814 |
| | — |
| | 807 |
| | 7 |
| |
Foreign exchange contracts | | 8 |
| | — |
| | 8 |
| | — |
| |
Other assets: | | | | | | | | | |
Trading and equity securities | | | 633 |
| | 363 |
| | 270 |
| | — |
|
Total derivative assets | | 822 |
| | — |
| | 815 |
| | 7 |
| | 443 |
| | — |
| | 437 |
| | 6 |
|
Private equity investments | | 362 |
| | — |
| | — |
| | 362 |
| | 404 |
| | — |
| | — |
| | 404 |
|
Total assets | | $ | 31,626 |
| | $ | 332 |
| | $ | 29,366 |
| | $ | 1,928 |
| | $ | 28,182 |
| | $ | 369 |
| | $ | 25,915 |
| | $ | 1,898 |
|
Liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Derivative liabilities: | | |
| | |
| | |
| | |
| |
Interest rate contracts | | $ | 998 |
| | $ | — |
| | $ | 978 |
| | $ | 20 |
| |
Foreign exchange contracts | | 5 |
| | — |
| | 5 |
| | — |
| |
Total derivative liabilities | | 1,003 |
| | — |
| | 983 |
| | 20 |
| |
Derivative liabilities | | | $ | 714 |
| | $ | — |
| | $ | 711 |
| | $ | 3 |
|
Securities sold short | | 137 |
| | — |
| | 137 |
| | — |
| | 120 |
| | — |
| | 120 |
| | — |
|
Total liabilities | | $ | 1,140 |
| | $ | — |
| | $ | 1,120 |
| | $ | 20 |
| | $ | 834 |
| | $ | — |
| | $ | 831 |
| | $ | 3 |
|
Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level valuation input hierarchy. The following discussion focuses on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities.
A third-party pricing service is generally utilized in determining the fair value of the securities portfolio. Management independently evaluates the fair values provided by the pricing service through comparisons to other external pricing sources, review of additional information provided by the pricing service and other third party sources for selected securities and back-testing to compare the price realized on any security sales to the daily pricing information received from the pricing service. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.
Trading securities: Trading securities include various types of debt and equity securities, primarily consisting of debt securities issued by the U.S. Treasury, GSEs, or states and political subdivisions. The valuation techniques used for these investments are more fully discussed below.
U.S. Treasury securities: Treasury securities are valued using quoted prices in active over-the-counter markets.
GSE securities and agency MBS: GSE pass-through securities are valued using market-based pricing matrices that reference observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE CMOs are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.
States and political subdivisions: These securities are valued using market-based pricing matrices that reference observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.
Non-agency MBS: Pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above. Non-agency MBS also include investments in Re-REMIC trusts that primarily hold non-agency MBS, which are valued based on broker pricing models that use baseline securities yields and tranche-level yield adjustments to discount cash flows modeled using market convention prepayment speed and default assumptions.
Other securities: These securities consist primarily of mutual funds and corporate bonds. These securities are valued based on a review of quoted market prices for assets as well as through the various other inputs discussed previously.
LHFS: Certain mortgage loans are originated to be sold to investors, which are carried at fair value. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage LHFS.
MSRs: Residential MSRs are valued using an OAS valuation model to project cash flows over multiple interest rate scenarios, which are discounted at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. Fair value estimates and assumptions are compared to industry surveys, recent market activity, actual portfolio experience and, when available, other observable market data. Commercial MSRs are valued using a cash flow valuation model that calculates the present value of estimated future net servicing cash flows. BB&T considers actual and expected loan prepayment rates, discount rates, servicing costs and other economic factors that are determined based on current market conditions.
Trading and equity securities: Trading and equity securities primarily consist of exchange traded equity securities, and debt securities issued by the U.S. Treasury, GSEs, or states and political subdivisions. The valuation techniques for debt securities are more fully discussed above.
Derivative assets and liabilities: The fair values of derivatives are determined based on quoted market prices and internal pricing models that use market observable data. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted market prices adjusted for commitments that are not expected to fund and include the value attributable to the net servicing fees.
Private equity investments: In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment, and actual values in a sale could differ materially from those estimated.
Securities sold short: Securities sold short represent debt securities sold short that are entered into as a hedging strategy for the purposes of supporting institutional and retail client trading activities.
The following tables summarize activity
Activity for Level 3 assets and liabilities:liabilities is summarized below:
| | | | Three Months Ended September 30, 2017 | |
Three Months Ended June 30, 2018 and 2017 | | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments |
(Dollars in millions) | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments | |
Balance at July 1, 2017 | | $ | 474 |
| | $ | 1,052 |
| | $ | 3 |
| | $ | 394 |
| |
Balance at April 1, 2017 | | | $ | 480 |
| | $ | 1,088 |
| | $ | 10 |
| | $ | 400 |
|
Total realized and unrealized gains (losses): | | | | | | | | | | | | | | | | |
Included in earnings (1) | | 8 |
| | 4 |
| | 11 |
| | 21 |
| |
Included in earnings | | | 14 |
| | (17 | ) | | 23 |
| | — |
|
Included in unrealized net holding gains (losses) in OCI | | (7 | ) | | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | 7 |
|
Issuances | | — |
| | 30 |
| | 15 |
| | — |
| | — |
| | 25 |
| | 9 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | — |
| | (12 | ) |
Settlements | | (18 | ) | | (42 | ) | | (24 | ) | | — |
| | (18 | ) | | (44 | ) | | (39 | ) | | (1 | ) |
Transfers into Level 3
| | — |
| | — |
| | — |
| | — |
| |
Transfers out of Level 3 | | — |
| | — |
| | — |
| | — |
| |
Balance at September 30, 2017 | | $ | 457 |
| | $ | 1,044 |
| | $ | 5 |
| | $ | 413 |
| |
Balance at June 30, 2017 | | | $ | 474 |
| | $ | 1,052 |
| | $ | 3 |
| | $ | 394 |
|
| | | | | | | | | | | | | | | | |
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017 | | $ | 9 |
| | $ | 4 |
| | $ | 5 |
| | $ | 16 |
| |
Balance at April 1, 2018 | | | $ | 441 |
| | $ | 1,119 |
| | $ | 7 |
| | $ | 400 |
|
Total realized and unrealized gains (losses): | | | | | | | | | |
Included in earnings | | | 7 |
| | 23 |
| | 1 |
| | 5 |
|
Included in unrealized net holding gains (losses) in OCI | | | (9 | ) | | — |
| | — |
| | — |
|
Purchases | | | — |
| | — |
| | — |
| | 3 |
|
Issuances | | | — |
| | 46 |
| | 11 |
| | — |
|
Sales | | | — |
| | — |
| | — |
| | — |
|
Settlements | | | (14 | ) | | (45 | ) | | (15 | ) | | (9 | ) |
Balance at June 30, 2018 | | | $ | 425 |
| | $ | 1,143 |
| | $ | 4 |
| | $ | 399 |
|
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2018 | | | $ | 7 |
| | $ | 23 |
| | $ | 4 |
| | $ | 4 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
(Dollars in millions) | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments |
Balance at July 1, 2016 | | $ | 559 |
| | $ | 785 |
| | $ | 33 |
| | $ | 353 |
|
Total realized and unrealized gains (losses): | | | | | | | | |
Included in earnings (1) | | 6 |
| | 42 |
| | 45 |
| | 3 |
|
Included in unrealized net holding gains (losses) in OCI | | (5 | ) | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 15 |
|
Issuances | | — |
| | 44 |
| | 22 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (29 | ) |
Settlements | | (21 | ) | | (43 | ) | | (80 | ) | | (2 | ) |
Transfers into Level 3 | | — |
| | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2016 | | $ | 539 |
| | $ | 828 |
| | $ | 20 |
| | $ | 340 |
|
| | | | | | | | |
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016 | | $ | 6 |
| | $ | 42 |
| | $ | 20 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2018 and 2017 | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments |
(Dollars in millions) | | | | |
Balance at January 1, 2017 | | $ | 507 |
| | $ | 1,052 |
| | $ | (13 | ) | | $ | 362 |
|
Total realized and unrealized gains (losses): | | | | | | | | |
Included in earnings | | 23 |
| | 20 |
| | 19 |
| | 5 |
|
Included in unrealized net holding gains (losses) in OCI | | (20 | ) | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 75 |
|
Issuances | | — |
| | 63 |
| | 24 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (30 | ) |
Settlements | | (36 | ) | | (83 | ) | | (27 | ) | | (5 | ) |
Transfers out of Level 3 | | — |
| | — |
| | — |
| | (13 | ) |
Balance at June 30, 2017 | | $ | 474 |
| | $ | 1,052 |
| | $ | 3 |
| | $ | 394 |
|
| | | | | | | | |
Balance at January 1, 2018 | | $ | 432 |
| | 1,056 |
| | $ | 3 |
| | $ | 404 |
|
Total realized and unrealized gains (losses): | | | | | | | | |
Included in earnings | | 6 |
| | 91 |
| | 1 |
| | 11 |
|
Included in unrealized net holding gains (losses) in OCI | | 14 |
| | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 27 |
|
Issuances | | — |
| | 83 |
| | 6 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (24 | ) |
Settlements | | (27 | ) | | (87 | ) | | (6 | ) | | (19 | ) |
Balance at June 30, 2018 | | $ | 425 |
| | $ | 1,143 |
| | $ | 4 |
| | $ | 399 |
|
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2018 | | $ | 6 |
| | $ | 91 |
| | $ | 4 |
| | $ | 11 |
|
Primary income statement location of realized gains (losses) included in earnings | | Interest income | | Mortgage banking income | | Mortgage banking income | | Other income |
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
(Dollars in millions) | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments |
Balance at January 1, 2017 | | $ | 507 |
| | 1,052 |
| | $ | (13 | ) | | $ | 362 |
|
Total realized and unrealized gains (losses): | | | | | | | | |
Included in earnings (1) | | 31 |
| | 24 |
| | 30 |
| | 26 |
|
Included in unrealized net holding gains (losses) in OCI | | (27 | ) | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 84 |
|
Issuances | | — |
| | 93 |
| | 39 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (41 | ) |
Settlements | | (54 | ) | | (125 | ) | | (51 | ) | | (5 | ) |
Transfers into Level 3
| | — |
| | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
| | (13 | ) |
Balance at September 30, 2017 | | $ | 457 |
| | $ | 1,044 |
| | $ | 5 |
| | $ | 413 |
|
| | | | | | | | |
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2017 | | $ | 31 |
| | $ | 24 |
| | $ | 5 |
| | $ | 16 |
|
|
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
(Dollars in millions) | | Non-agency MBS | | MSRs | | Net Derivatives | | Private Equity Investments |
Balance at January 1, 2016 | | $ | 626 |
| | $ | 880 |
| | $ | 4 |
| | $ | 289 |
|
Total realized and unrealized gains (losses): | | | | | | | | |
Included in earnings (1) | | 38 |
| | (154 | ) | | 101 |
| | 6 |
|
Included in unrealized net holding gains (losses) in OCI | | (50 | ) | | — |
| | — |
| | — |
|
Purchases | | — |
| | — |
| | — |
| | 89 |
|
Issuances | | — |
| | 100 |
| | 85 |
| | — |
|
Sales | | — |
| | — |
| | — |
| | (37 | ) |
Settlements | | (75 | ) | | (121 | ) | | (170 | ) | | (7 | ) |
Transfers into Level 3 | | — |
| | — |
| | — |
| | — |
|
Transfers out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Adoption of fair value option for commercial MSRs | | — |
| | 123 |
| | — |
| | — |
|
Balance at September 30, 2016 | | $ | 539 |
| | $ | 828 |
| | $ | 20 |
| | $ | 340 |
|
| | | | | | | | |
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at September 30, 2016 | | $ | 38 |
| | $ | (154 | ) | | $ | 20 |
| | $ | 1 |
|
| |
(1) | Amounts related to non-agency MBS are included in interest income, amounts related to MSRs and net derivatives are primarily included in mortgage banking income and amounts related to private equity investments are included in other income in the Consolidated Statements of Income. |
BB&T’s policy is to recognize transfers between levels as of the end of a reporting period. There were no transfers between Level 1 and Level 2 for 2018 and 2017.
The non-agency MBS categorized as Level 3 represent ownership interestinterests in various tranches of Re-REMIC trusts. These securities are valued at a discount, which is unobservable in the market, to the fair value of the underlying securities owned by the trusts. The Re-REMIC tranches do not have an active market and therefore are categorized as Level 3. At SeptemberJune 30, 2017,2018, the fair value of Re-REMIC non-agency MBS represented a discount of 18.5%16.9% to the fair value of the underlying securities owned by the Re-REMIC trusts.
The majority of private equity investments are in SBIC qualified funds, which primarily focus on equity and subordinated debt investments in privately-held middle market companies. The majority of these VIE investments are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates on an approximately ratable basis through 2026, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. Excluding the investment of future funds, BB&T estimates these investments have a weighted average remaining life of approximately three years; however, the timing and amount of distributions may vary significantly. As of SeptemberJune 30, 2017,2018, restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. These investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 5x to 12x,14x, with a weighted average of 8x,9x, at SeptemberJune 30, 2017.2018.
The following table details the fair value and UPB of LHFS that were elected to be carried at fair value:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Fair Value | | Aggregate UPB | | Difference | | Fair Value | | Aggregate UPB | | Difference | | Fair Value | | UPB | | Difference | | Fair Value | | UPB | | Difference |
LHFS reported at fair value | | $ | 1,217 |
| | $ | 1,197 |
| | $ | 20 |
| | $ | 1,716 |
| | $ | 1,736 |
| | $ | (20 | ) | | $ | 1,615 |
| | $ | 1,596 |
| | $ | 19 |
| | $ | 1,099 |
| | $ | 1,084 |
| | $ | 15 |
|
Excluding government guaranteed, LHFS that were in nonaccrual statusnonperforming or 90 days or more past due and still accruing interest were not material at SeptemberJune 30, 2017.2018.
The following table provides information about certain assets measured at fair value on a nonrecurring basis, which are primarily collateral dependent and may be subject to liquidity adjustments. The carrying values represent end of period values, which approximate the fair value measurements that occurred on the various measurement dates throughout the period. The valuation adjustments represent the amounts recorded during the period regardless of whether the asset is still held at period end. These assets are considered to be Level 3 assets (excludes PCI).
| | | | September 30, 2017 | | September 30, 2016 | |
| | | | Valuation Adjustments | | | | Valuation Adjustments | |
As of / For The Six Months Ended June 30, | | | 2018 | | 2017 |
(Dollars in millions) | | Carrying Value | | Three Months Ended | | Nine Months Ended | | Carrying Value | | Three Months Ended | | Nine Months Ended | | Carrying Value | | Valuation Adjustments | | Carrying Value | | Valuation Adjustments |
Impaired loans | | $ | 198 |
| | $ | (4 | ) | | $ | (18 | ) | | $ | 314 |
| | $ | (22 | ) | | $ | (76 | ) | | $ | 174 |
| | $ | (22 | ) | | $ | 190 |
| | $ | (14 | ) |
Foreclosed real estate | | 46 |
| | (66 | ) | | (192 | ) | | 58 |
| | (59 | ) | | (160 | ) | | 43 |
| | (114 | ) | | 48 |
| | (126 | ) |
For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instrument. Values obtained relate to one trading unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.
An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following assumptions were used to estimate the fair value of these financial instruments.
Cash and cash equivalents and restricted cash: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.
HTM securities: The fair values of HTM securities are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.
Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly transactions in the current market. For commercial loans and leases, discount rates may be adjusted to address additional credit risk on lower risk grade instruments. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.
Deposit liabilities: The fair values for demand deposits are equal to the amount payable on demand. Fair values for CDs are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. BB&T has developed long-term relationships with its deposit customers, commonly referred to as CDIs, that have not been considered in the determination of the deposit liabilities' fair value.
Short-term borrowings: The carrying amounts of short-term borrowings, excluding securities sold short, approximate their fair values.
Long-term debt: The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.
Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of guarantees and letters of credit are estimated based on the counterparties' creditworthiness and average default rates for loan products with similar risks. These respective fair value measurements are categorized within Level 3 of the fair value hierarchy. Retail lending commitments are assigned no fair value as BB&T typically has the ability to cancel such commitments by providing notice to the borrower.
Financial assets and liabilities not recorded at fair value are summarized below:
| | | | September 30, 2017 | | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Carrying Amount | | Total Fair Value | | Level 2 | | Level 3 | Fair Value Hierarchy | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | | | | | | | | | | |
HTM securities | | $ | 23,447 |
| | $ | 23,392 |
| | $ | 23,392 |
| | $ | — |
| Level 2 | $ | 21,749 |
| | $ | 21,080 |
| | $ | 23,027 |
| | $ | 22,837 |
|
Loans and leases HFI, net of ALLL | | 141,316 |
| | 141,258 |
| | — |
| | 141,258 |
| Level 3 | 144,653 |
| | 143,345 |
| | 142,211 |
| | 141,664 |
|
| | | | | | | | | |
Financial liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deposits | | 156,135 |
| | 156,234 |
| | 156,234 |
| | — |
| |
Time deposits | | Level 2 | 14,781 |
| | 14,817 |
| | 13,170 |
| | 13,266 |
|
Long-term debt | | 20,863 |
| | 21,117 |
| | 21,117 |
| | — |
| Level 2 | 24,081 |
| | 24,155 |
| | 23,648 |
| | 23,885 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 |
(Dollars in millions) | | Carrying Amount | | Total Fair Value | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | |
HTM securities | | $ | 16,680 |
| | $ | 16,546 |
| | $ | 16,546 |
| | $ | — |
|
Loans and leases HFI, net of ALLL | | 141,833 |
| | 142,044 |
| | — |
| | 142,044 |
|
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Deposits | | 160,234 |
| | 160,403 |
| | 160,403 |
| | — |
|
Long-term debt | | 21,965 |
| | 22,423 |
| | 22,423 |
| | — |
|
The following is a summary of selected information pertaining to off-balance sheet financial instruments:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Notional/Contract Amount | | Fair Value | | Notional/Contract Amount | | Fair Value | | Notional/Contract Amount | | Fair Value | | Notional/Contract Amount | | Fair Value |
Commitments to extend, originate or purchase credit | | $ | 67,529 |
| | $ | 274 |
| | $ | 64,395 |
| | $ | 250 |
| | $ | 70,601 |
| | $ | 312 |
| | $ | 67,860 |
| | $ | 259 |
|
Residential mortgage loans sold with recourse | | 514 |
| | 6 |
| | 578 |
| | 7 |
| | 452 |
| | 5 |
| | 490 |
| | 5 |
|
Other loans sold with recourse | | 4,307 |
| | 6 |
| | 4,240 |
| | 7 |
| | 4,475 |
| | 5 |
| | 4,153 |
| | 5 |
|
Letters of credit | | 2,658 |
| | 22 |
| | 2,786 |
| | 27 |
| | 2,465 |
| | 20 |
| | 2,466 |
| | 21 |
|
NOTE 15.14. Derivative Financial Instruments
The following table presents the notional amount and estimated fair value of derivative instruments:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2017 | | December 31, 2016 |
| | Hedged Item or Transaction | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
(Dollars in millions) | | | | Gain | | Loss | | | Gain | | Loss |
Cash flow hedges: | | | | | | | | | | | | | | |
Interest rate contracts: | | | | | | | | | | | | | | |
Pay fixed swaps | | 3 mo. LIBOR funding | | $ | 6,500 |
| | $ | — |
| | $ | (200 | ) | | $ | 7,050 |
| | $ | — |
| | $ | (187 | ) |
| | | | | | | | | | | | | | |
Fair value hedges: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Receive fixed swaps | | Long-term debt | | 12,827 |
| | 157 |
| | (93 | ) | | 12,099 |
| | 202 |
| | (100 | ) |
Options | | Long-term debt | | 5,337 |
| | — |
| | (1 | ) | | 2,790 |
| | — |
| | (1 | ) |
Pay fixed swaps | | Commercial loans | | 374 |
| | 3 |
| | (1 | ) | | 346 |
| | 4 |
| | (2 | ) |
Pay fixed swaps | | Municipal securities | | 231 |
| | — |
| | (81 | ) | | 231 |
| | — |
| | (83 | ) |
Total | | | | 18,769 |
| | 160 |
| | (176 | ) | | 15,466 |
| | 206 |
| | (186 | ) |
| | | | | | | | | | | | | | |
Not designated as hedges: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Client-related and other risk management: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Receive fixed swaps | | | | 10,800 |
| | 195 |
| | (37 | ) | | 9,989 |
| | 235 |
| | (44 | ) |
Pay fixed swaps | | | | 10,930 |
| | 35 |
| | (212 | ) | | 10,263 |
| | 43 |
| | (252 | ) |
Other swaps | | | | 1,025 |
| | 2 |
| | (3 | ) | | 1,086 |
| | 2 |
| | (5 | ) |
Other | | | | 792 |
| | 2 |
| | (2 | ) | | 709 |
| | 2 |
| | (2 | ) |
Forward commitments | | | | 6,138 |
| | 8 |
| | (5 | ) | | 5,972 |
| | 29 |
| | (28 | ) |
Foreign exchange contracts | | 533 |
| | 5 |
| | (6 | ) | | 669 |
| | 8 |
| | (5 | ) |
Total | | | | 30,218 |
| | 247 |
| | (265 | ) | | 28,688 |
| | 319 |
| | (336 | ) |
| | | | | | | | | | | | | | |
Mortgage banking: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate lock commitments | | 1,528 |
| | 8 |
| | (3 | ) | | 2,219 |
| | 7 |
| | (20 | ) |
When issued securities, forward rate agreements and forward commitments | | 3,434 |
| | 8 |
| | (3 | ) | | 6,683 |
| | 51 |
| | (14 | ) |
Other | | | | 193 |
| | 2 |
| | — |
| | 449 |
| | 2 |
| | (1 | ) |
Total | | | | 5,155 |
| | 18 |
| | (6 | ) | | 9,351 |
| | 60 |
| | (35 | ) |
| | | | | | | | | | | | | | |
MSRs: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Receive fixed swaps | | | | 4,026 |
| | 48 |
| | (40 | ) | | 5,034 |
| | 18 |
| | (236 | ) |
Pay fixed swaps | | | | 3,080 |
| | 6 |
| | (38 | ) | | 3,768 |
| | 56 |
| | (7 | ) |
Options | | | | 2,930 |
| | 48 |
| | (1 | ) | | 5,710 |
| | 160 |
| | (8 | ) |
When issued securities, forward rate agreements and forward commitments | | 1,776 |
| | 1 |
| | (5 | ) | | 3,210 |
| | 3 |
| | (8 | ) |
Other | | | | 30 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | | | 11,842 |
| | 103 |
| | (84 | ) | | 17,722 |
| | 237 |
| | (259 | ) |
Total derivatives not designated as hedges | | 47,215 |
| | 368 |
| | (355 | ) | | 55,761 |
| | 616 |
| | (630 | ) |
Total derivatives | | | | $ | 72,484 |
| | 528 |
| | (731 | ) | | $ | 78,277 |
| | 822 |
| | (1,003 | ) |
| | | | | | | | | | | | | | |
Gross amounts not offset in the Consolidated Balance Sheets: | | |
| | |
| | |
| | |
| | |
|
Amounts subject to master netting arrangements not offset due to policy election | | | | (306 | ) | | 306 |
| | |
| | (443 | ) | | 443 |
|
Cash collateral (received) posted | | |
| | (40 | ) | | 375 |
| | |
| | (119 | ) | | 450 |
|
Net amount | | | | |
| | $ | 182 |
| | $ | (50 | ) | | |
| | $ | 260 |
| | $ | (110 | ) |
The fair values of derivatives in a gain or loss position are presented on a gross basis in other assets or other liabilities, respectively, in the Consolidated Balance Sheets. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a scheduled basis to secure the aggregate net unsecured exposure. In addition to collateral, the right of setoff allows counterparties to offset net derivative values with a defaulting party against certain other contractual receivables from or obligations due to the defaulting party in determining the net termination amount.
No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing. The ineffective portion was immaterial for all periods presented. The following tables present the effective portion of hedging derivative instruments on the consolidated statements of income:
|
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | Pre-tax Gain (Loss) Recognized in OCI | | Location of Amounts Reclassified from AOCI into Income | | Pre-tax Gain (Loss) Reclassified from AOCI into Income |
| | | |
(Dollars in millions) | | 2017 | | 2016 | | | 2017 | | 2016 |
Cash flow hedges: | | | | | | | | | | |
Interest rate contracts | | $ | 1 |
| | $ | 38 |
| | Total interest expense | | $ | (13 | ) | | $ | 3 |
|
| | | | | | | | | | |
| | | | | | | | Pre-tax Gain (Loss) Recognized in Income |
| | | | | | Location of Amounts Recognized in Income | |
| | | | | | | 2017 | | 2016 |
Fair value hedges: | | | | | | | | | | |
Interest rate contracts | | | | | | Total interest income | | $ | (3 | ) | | $ | (5 | ) |
Interest rate contracts | | | | | | Total interest expense | | 30 |
| | 58 |
|
Total | | | | | | | | $ | 27 |
| | $ | 53 |
|
| | | | | | | | | | |
Not designated as hedges: | | | | | | | | |
| | |
|
Client-related and other risk management: | | | | |
| | |
|
Interest rate contracts | | | | | | Other noninterest income | | $ | 11 |
| | $ | 15 |
|
Foreign exchange contracts | | | | Other noninterest income | | 5 |
| | (1 | ) |
Mortgage banking: | | | | | | | | |
| | |
|
Interest rate contracts | | | | | | Mortgage banking income | | (3 | ) | | 17 |
|
MSRs: | | | | | | | | |
| | |
|
Interest rate contracts | | | | | | Mortgage banking income | | 10 |
| | 3 |
|
Total | | | | | | | | $ | 23 |
| | $ | 34 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | Pre-tax Gain (Loss) Recognized in OCI | | Location of Amounts Reclassified from AOCI into Income | | Pre-tax Gain (Loss) Reclassified from AOCI into Income |
| | | |
(Dollars in millions) | | 2017 | | 2016 | | | 2017 | | 2016 |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate contracts | | $ | (42 | ) | | $ | (245 | ) | | Total interest expense | | $ | 1 |
| | $ | (18 | ) |
| | |
| | |
| | |
| | | | | | | | Pre-tax Gain (Loss) Recognized in Income |
| | | | | | Location of Amounts Recognized in Income | |
| | | | | | | 2017 | | 2016 |
Fair Value Hedges: | | | | | | | | | | |
Interest rate contracts | | | | | | Total interest income | | $ | (12 | ) | | $ | (13 | ) |
Interest rate contracts | | | | | | Total interest expense | | 118 |
| | 177 |
|
Total | | | | | | | | $ | 106 |
| | $ | 164 |
|
| | | | | | | | | | |
Not Designated as Hedges: | | | | | | | | |
| | |
|
Client-related and other risk management: | | | | |
| | |
|
Interest rate contracts | | | | | | Other noninterest income | | $ | 38 |
| | $ | 23 |
|
Foreign exchange contracts | | | | Other noninterest income | | — |
| | 4 |
|
Mortgage Banking: | | | | | | | | | | |
|
Interest rate contracts | | | | | | Mortgage banking income | | (8 | ) | | (2 | ) |
MSRs: | | | | | | | | |
| | |
|
Interest rate contracts | | | | | | Mortgage banking income | | 13 |
| | 232 |
|
Total | | | | | | | | $ | 43 |
| | $ | 257 |
|
The following table provides a summary of derivative strategies and the related accounting treatment:
|
| | | | | | |
| | Cash Flow Hedges | | Fair Value Hedges | | Derivatives Not Designated as Hedges |
Risk exposure | | Variability in cash flows of interest payments on floating rate business loans, overnight funding and various LIBOR funding instruments. | | Changes in value on fixed rate long-term debt, CDs, FHLB advances, loans and state and political subdivision securities due to changes in interest rates. | | Risk associated with an asset or liability, including mortgage banking operations and MSRs, or for client needs. Includes exposure to changes in market rates and conditions subsequent to the interest rate lock and funding date for mortgage loans originated for sale. |
Risk management objective | | Hedge the variability in the interest payments and receipts on future cash flows for forecasted transactions related to the first unhedged payments and receipts of variable interest. | | Convert the fixed rate paid or received to a floating rate, primarily through the use of swaps. | | For interest rate lock commitment derivatives and LHFS, use mortgage-based derivatives such as forward commitments and options to mitigate market risk. For MSRs, mitigate the income statement effect of changes in the fair value of the MSRs. |
Treatment for portion that is highly effectiveduring the hedge period | | RecognizedChanges in value of the hedging instruments are recognized in AOCI until the related cash flows from the hedged item are recognized in earnings. | | RecognizedChanges in current periodvalue of both the hedging instruments and the assets or liabilities being hedged are recognized in the income alongstatement line item associated with the corresponding changes in the fair value of the designated hedged item attributable to the riskinstrument being hedged. | | Entire change in fair value recognized in current period income. |
Treatment for portion that is ineffective | | Recognized in current period income. | | Recognized in current period income. | | Not applicable |
Treatment if hedge ceases to be highly effective or is terminated | | Hedge is dedesignated. Effective changesChanges in value that are recorded in AOCI before dedesignation are amortized to yield over the period the forecasted hedged transactions impact earnings. | | If hedged item remains outstanding, termination proceeds are included inthe basis adjustment that resulted from hedging is amortized into earnings over the lesser of the designated hedged period or the maturity date of the instrument, and cash flows from financing activities and effective changesterminations are reported in value are reflectedthe same category as part of the carrying value ofcash flows from the financial instrument and amortized to earnings over its estimated remaining life.hedged item. | | Not applicable |
Treatment if transaction is no longer probable of occurring during forecast period or within a short period thereafter | | Hedge accounting is ceasedceases and any gain or loss in AOCI is reported in earnings immediately. | | Not applicable | | Not applicable |
Impact of Derivatives on the Consolidated Balance Sheets
The fair values of derivative instruments are presented on a gross basis in other assets or other liabilities in the Consolidated Balance Sheets. Master netting arrangements allow counterparties to offset certain net derivative assets and liabilities with a defaulting party in determining the net termination amount. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a daily basis to secure the aggregate net exposure. Cash collateral is recorded in restricted cash and interest-bearing deposits in the Consolidated Balance Sheet. BB&T utilizes LCH Limited to clear swaps that are required to be cleared under the Dodd-Frank Act. Effective January 16, 2018, LCH Limited rules were modified to treat variation margin payments as settlements of exposure instead of collateral. At June 30, 2018, settlements are applied against the fair value of the related derivative contracts in the table below.
The following table presents the notional amount and estimated fair value of derivative instruments:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2018 | | December 31, 2017 |
| | Hedged Item or Transaction | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
(Dollars in millions) | | | | Gain | | Loss | | | Gain | | Loss |
Cash flow hedges: | | | | | | | | | | | | | | |
Interest rate contracts: | | | | | | | | | | | | | | |
Pay fixed swaps | | 3 mo. LIBOR funding | | $ | 6,500 |
| | $ | — |
| | $ | — |
| | $ | 6,500 |
| | $ | — |
| | $ | (126 | ) |
Fair value hedges: | | | | |
| | |
| | |
| | | | | | |
Interest rate contracts: | | | | |
| | |
| | |
| | | | | | |
Receive fixed swaps | | Long-term debt | | 13,461 |
| | — |
| | (130 | ) | | 15,538 |
| | 118 |
| | (166 | ) |
Options | | Long-term debt | | 5,337 |
| | — |
| | (1 | ) | | 6,087 |
| | — |
| | (1 | ) |
Pay fixed swaps | | Commercial loans | | 549 |
| | 2 |
| | — |
| | 416 |
| | 5 |
| | (1 | ) |
Pay fixed swaps | | Municipal securities | | 259 |
| | — |
| | — |
| | 231 |
| | — |
| | (76 | ) |
Total | | | | 19,606 |
| | 2 |
| | (131 | ) | | 22,272 |
| | 123 |
| | (244 | ) |
Not designated as hedges: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Client-related and other risk management: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Receive fixed swaps | | | | 11,141 |
| | 54 |
| | (195 | ) | | 10,880 |
| | 141 |
| | (61 | ) |
Pay fixed swaps | | | | 11,157 |
| | 38 |
| | (30 | ) | | 10,962 |
| | 59 |
| | (155 | ) |
Other | | | | 1,656 |
| | 4 |
| | (4 | ) | | 1,658 |
| | 4 |
| | (4 | ) |
Forward commitments | | | | 4,356 |
| | 8 |
| | (7 | ) | | 3,549 |
| | 3 |
| | (2 | ) |
Foreign exchange contracts | | 555 |
| | 4 |
| | (3 | ) | | 470 |
| | 3 |
| | (6 | ) |
Total | | | | 28,865 |
| | 108 |
| | (239 | ) | | 27,519 |
| | 210 |
| | (228 | ) |
Mortgage banking: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate lock commitments | | 1,269 |
| | 8 |
| | (4 | ) | | 1,308 |
| | 7 |
| | (3 | ) |
When issued securities, forward rate agreements and forward commitments | | 3,910 |
| | 5 |
| | (10 | ) | | 3,124 |
| | 4 |
| | (3 | ) |
Other | | | | 352 |
| | 2 |
| | — |
| | 182 |
| | 1 |
| | — |
|
Total | | | | 5,531 |
| | 15 |
| | (14 | ) | | 4,614 |
| | 12 |
| | (6 | ) |
MSRs: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
|
Receive fixed swaps | | | | 3,553 |
| | — |
| | — |
| | 4,498 |
| | 15 |
| | (86 | ) |
Pay fixed swaps | | | | 2,747 |
| | — |
| | — |
| | 3,418 |
| | 32 |
| | (13 | ) |
Options | | | | 3,565 |
| | 63 |
| | (10 | ) | | 4,535 |
| | 50 |
| | (11 | ) |
When issued securities, forward rate agreements and forward commitments | | 1,060 |
| | 4 |
| | (1 | ) | | 1,813 |
| | 1 |
| | — |
|
Other | | | | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Total | | | | 10,925 |
| | 67 |
| | (11 | ) | | 14,267 |
| | 98 |
| | (110 | ) |
Total derivatives not designated as hedges | | 45,321 |
| | 190 |
| | (264 | ) | | 46,400 |
| | 320 |
| | (344 | ) |
Total derivatives | | | | $ | 71,427 |
| | 192 |
| | (395 | ) | | $ | 75,172 |
| | 443 |
| | (714 | ) |
Gross amounts not offset in the Consolidated Balance Sheets: | | | |
| | |
| | |
| | |
| | |
|
Amounts subject to master netting arrangements not offset due to policy election | | | | (67 | ) | | 67 |
| | |
| | (297 | ) | | 297 |
|
Cash collateral (received) posted | | |
| | (59 | ) | | 120 |
| | |
| | (20 | ) | | 344 |
|
Net amount | | | | |
| | $ | 66 |
| | $ | (208 | ) | | |
| | $ | 126 |
| | $ | (73 | ) |
The following table presents additional information for fair value hedging relationships:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| | | | Hedge Basis Adjustment | | | | Hedge Basis Adjustment |
(Dollars in millions) | | Carrying Amount | | Items Currently Designated | | Items No Longer Designated | | Carrying Amount | | Items Currently Designated | | Items No Longer Designated |
AFS securities | | $ | 490 |
| | $ | 1 |
| | $ | 57 |
| | $ | 533 |
| | $ | 64 |
| | $ | 10 |
|
Loans and leases | | 581 |
| | (7 | ) | | (3 | ) | | 511 |
| | (5 | ) | | — |
|
Long-term debt | | 16,041 |
| | (314 | ) | | 127 |
| | 16,917 |
| | (49 | ) | | 140 |
|
Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income
No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.
The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts. Prior amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 |
Pre-tax gain (loss) recognized in OCI: | | | | | | | |
Deposits | $ | 8 |
| | | | $ | 29 |
| | |
Short-term borrowings | 2 |
| | | | 2 |
| | |
Long-term debt | 21 |
| | | | 93 |
| | |
Total | $ | 31 |
| | $ | (47 | ) | | $ | 124 |
| | $ | (43 | ) |
Pre-tax gain (loss) reclassified from AOCI into interest expense: | | | | | | | |
Deposits | $ | (1 | ) | | | | (3 | ) | | |
Short-term borrowings | — |
| | | | — |
| | |
Long-term debt | (2 | ) | | | | (11 | ) | | |
Total | $ | (3 | ) | | $ | 6 |
| | $ | (14 | ) | | $ | 14 |
|
The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts. Prior period amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions) | 2018 | | 2017 | | 2018 | | 2017 |
AFS securities: | | | | | | |
|
|
Amounts related to interest settlements | $ | (2 | ) | | | | $ | (4 | ) | | |
Recognized on derivatives | 5 |
| | | | 16 |
| | |
Recognized on hedged items | (5 | ) | | | | (16 | ) | | |
Net income (expense) recognized | (2 | ) | | $ | (4 | ) | | (4 | ) | | $ | (8 | ) |
Loans and leases: | | | | | | | |
Amounts related to interest settlements | (1 | ) | | | | (1 | ) | | |
Recognized on derivatives | 3 |
| | | | 6 |
| | |
Recognized on hedged items | (3 | ) | | | | (6 | ) | | |
Net income (expense) recognized | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Long-term debt: |
|
| |
|
| |
|
| |
|
|
Amounts related to interest settlements | (7 | ) | | | | 1 |
| | |
Recognized on derivatives | (62 | ) | | | | (243 | ) | | |
Recognized on hedged items | 75 |
| | | | 267 |
| | |
Net income (expense) recognized | 6 |
| | 42 |
| | 25 |
| | 88 |
|
Net income (expense) recognized, total | $ | 3 |
| | $ | 37 |
| | $ | 20 |
| | $ | 79 |
|
The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions) | Location | 2018 | | 2017 | | 2018 | | 2017 |
Client-related and other risk management: | | |
| | |
| | | | |
Interest rate contracts | Other noninterest income | $ | 10 |
| | $ | 16 |
| | $ | 25 |
| | $ | 27 |
|
Foreign exchange contracts | Other noninterest income | 6 |
| | (3 | ) | | 13 |
| | (5 | ) |
Mortgage banking: | | | | | | |
| | |
|
Interest rate contracts | Mortgage banking income | (8 | ) | | 10 |
| | (4 | ) | | (5 | ) |
MSRs: | | | | | | |
| | |
|
Interest rate contracts | Mortgage banking income | (23 | ) | | 23 |
| | (90 | ) | | 3 |
|
Total | | $ | (15 | ) | | $ | 46 |
| | $ | (56 | ) | | $ | 20 |
|
The following table presents information about BB&T's cash flow and fair value hedges:
| | (Dollars in millions) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Cash flow hedges: | | | | |
| | | | |
|
Net unrecognized after-tax loss on active hedges recorded in AOCI | | $ | (125 | ) | | $ | (118 | ) | |
Net unrecognized after-tax gain on terminated hedges recorded in AOCI (to be recognized in earnings through 2022) | | 6 |
| | 26 |
| |
Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI | | | $ | 18 |
| | $ | (96 | ) |
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022) | | | (5 | ) | | 3 |
|
Estimated portion of net after-tax gain (loss) on active and terminated hedges to be reclassified from AOCI into earnings during the next 12 months | | (34 | ) | | (4 | ) | | 7 |
| | (25 | ) |
Maximum time period over which BB&T has hedged a portion of the variability in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing instruments | | 5 years |
| | 6 years |
| | 4 years |
| | 5 years |
|
Fair value hedges: | | |
| | | | |
| | |
Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2019) | | $ | 142 |
| | $ | 169 |
| |
Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2025) | | | $ | 73 |
| | $ | 129 |
|
Portion of pre-tax net gain on terminated hedges to be recognized as a change in interest during the next 12 months | | 50 |
| | 56 |
| | 36 |
| | 49 |
|
Derivatives Credit Risk – Dealer Counterparties
Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. The risk of loss is addressed by subjecting dealer counterparties to credit reviews and approvals similar to those used in making loans or other extensions of credit and by requiring collateral. Dealer counterparties operate under agreements to provide cash and/or liquid collateral when unsecured loss positions exceed minimal limits.
Derivative contracts with dealer counterparties settle on a monthly, quarterly or semiannual basis, with daily movement of collateral between counterparties required within established netting agreements. BB&T only transacts with dealer counterparties with strong credit standings.
Derivatives Credit Risk – Central Clearing Parties
With the exception of the central clearing party used for TBA transactions that does not post variation margin to BB&T, central clearing parties exchange cash on a daily basis to settle changes in exposure. Certain derivatives are cleared through central clearing parties that require initial margin collateral, as well as collateral for trades in a net loss position.collateral. Initial margin collateral requirements are established by central clearing parties on varying bases, with such amounts generally designed to offset the risk of non-payment. Initial margin is generally calculated by applying the maximum loss experienced in value over a specified time horizon to the portfolio of existing trades. The central clearing party used for TBA transactions does not post variation margin to the bank.
The following table summarizes collateral positions with counterparties:
| | (Dollars in millions) | Sep 30, 2017 | | Dec 31, 2016 | Jun 30, 2018 | | Dec 31, 2017 |
Dealer Counterparties: | | | | | | |
Cash collateral received from dealer counterparties | $ | 41 |
| | $ | 123 |
| $ | 61 |
| | $ | 21 |
|
Derivatives in a net gain position secured by that collateral | 42 |
| | 123 |
| |
Derivatives in a net gain position secured by collateral received | | 59 |
| | 22 |
|
Unsecured positions in a net gain with dealer counterparties after collateral postings | 2 |
| | 4 |
| 1 |
| | 2 |
|
| | | | |
Cash collateral posted to dealer counterparties | 163 |
| | 138 |
| 113 |
| | 172 |
|
Derivatives in a net loss position secured by that collateral | 163 |
| | 144 |
| |
| | | | |
Derivatives in a net loss position secured by collateral received | | 115 |
| | 171 |
|
Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade | 1 |
| | 8 |
| 2 |
| | — |
|
| | | | |
Central Clearing Parties: | | | | | | |
Cash collateral, including initial margin, posted to central clearing parties | 222 |
| | 313 |
| 21 |
| | 177 |
|
Derivatives in a net loss position secured by that collateral | 213 |
| | 318 |
| |
Derivatives in a net loss position | | 7 |
| | 176 |
|
Securities pledged to central clearing parties | 100 |
| | 119 |
| 120 |
| | 91 |
|
NOTE 16.15. Computation of EPS
Basic and diluted EPS calculations are presented in the following table:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions, except per share data, shares in thousands) | | 2017 | | 2016 | | 2017 | | 2016 | 2018 | | 2017 | | 2018 | | 2017 |
Net income available to common shareholders | | $ | 597 |
| | $ | 599 |
| | $ | 1,606 |
| | $ | 1,667 |
| $ | 775 |
| | $ | 631 |
| | $ | 1,520 |
| | $ | 1,009 |
|
| | | | | | | | | | | | | | | |
Weighted average number of common shares | | 794,558 |
| | 812,521 |
| | 804,424 |
| | 802,694 |
| 775,836 |
| | 808,980 |
| | 777,716 |
| | 809,439 |
|
Effect of dilutive outstanding equity-based awards | | 11,566 |
| | 10,585 |
| | 11,605 |
| | 9,713 |
| 9,914 |
| | 10,409 |
| | 10,646 |
| | 11,633 |
|
Weighted average number of diluted common shares | | 806,124 |
| | 823,106 |
| | 816,029 |
| | 812,407 |
| 785,750 |
| | 819,389 |
| | 788,362 |
| | 821,072 |
|
| | | | | | | | | | | | | | | |
Basic EPS | | $ | 0.75 |
| | $ | 0.74 |
| | $ | 2.00 |
| | $ | 2.08 |
| $ | 1.00 |
| | $ | 0.78 |
| | $ | 1.95 |
| | $ | 1.25 |
|
| | | | | | | | | |
Diluted EPS | | $ | 0.74 |
| | $ | 0.73 |
| | $ | 1.97 |
| | $ | 2.05 |
| $ | 0.99 |
| | $ | 0.77 |
| | $ | 1.93 |
| | $ | 1.23 |
|
| | | | | | | | | | | | | | | |
Anti-dilutive awards | | 184 |
| | 5,416 |
| | 222 |
| | 6,088 |
| — |
| | 187 |
| | 45 |
| | 297 |
|
NOTE 17.16. Operating Segments
The financialBB&T's business segment structure aligns with how management reviews performance and makes decisions by client, segment and business unit. There are four major reportable business segments: CB-Retail, CB-Commercial, IH&PF and FS&CF. In addition, there is an OT&C segment. For additional information, related to National Penn's operations was included insee Note 19 of the Other, Treasury & Corporate segment fromAnnual Report on Form 10-K for the date of acquisition until the systems conversion, which occurred during July 2016. The majority of National Penn's operations are now included in Community Banking.year ended December 31, 2017.
During the second quarter of 2017, a change was made in the method for allocation of capital to the operating segments impacting both the allocated balances and funding credit, resulting primarily in an increase to net interest income in the Residential Mortgage segment, offset by the Other, Treasury & Corporate segment. Results for prior periods have been revised to reflect the changes in allocation methodology, which are not considered significant to other segments. |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | | CB-Retail | | CB-Commercial | | FS&CF |
(Dollars in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Net interest income (expense) | | $ | 853 |
| | $ | 853 |
| | $ | 491 |
| | $ | 430 |
| | $ | 169 |
| | $ | 145 |
|
Net intersegment interest income (expense) | | 70 |
| | 39 |
| | 54 |
| | 95 |
| | 19 |
| | 38 |
|
Segment net interest income | | 923 |
| | 892 |
| | 545 |
| | 525 |
| | 188 |
| | 183 |
|
Allocated provision for credit losses | | 110 |
| | 118 |
| | 42 |
| | 46 |
| | (4 | ) | | (17 | ) |
Segment net interest income after provision | | 813 |
| | 774 |
| | 503 |
| | 479 |
| | 192 |
| | 200 |
|
Noninterest income | | 354 |
| | 353 |
| | 108 |
| | 109 |
| | 303 |
| | 297 |
|
Noninterest expense | | 667 |
| | 682 |
| | 254 |
| | 320 |
| | 312 |
| | 300 |
|
Income (loss) before income taxes | | 500 |
| | 445 |
| | 357 |
| | 268 |
| | 183 |
| | 197 |
|
Provision (benefit) for income taxes | | 123 |
| | 166 |
| | 80 |
| | 91 |
| | 38 |
| | 63 |
|
Segment net income (loss) | | $ | 377 |
| | $ | 279 |
| | $ | 277 |
| | $ | 177 |
| | $ | 145 |
| | $ | 134 |
|
| | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 72,577 |
| | $ | 72,791 |
| | $ | 57,009 |
| | $ | 55,680 |
| | $ | 30,446 |
| | $ | 29,097 |
|
| | | | | | | | | | | | |
| | IH&PF | | OT&C (1) | | Total |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Net interest income (expense) | | $ | 29 |
| | $ | 25 |
| | $ | 115 |
| | $ | 182 |
| | $ | 1,657 |
| | $ | 1,635 |
|
Net intersegment interest income (expense) | | (7 | ) | | (5 | ) | | (136 | ) | | (167 | ) | | — |
| | — |
|
Segment net interest income | | 22 |
| | 20 |
| | (21 | ) | | 15 |
| | 1,657 |
| | 1,635 |
|
Allocated provision for credit losses | | — |
| | 1 |
| | (13 | ) | | (13 | ) | | 135 |
| | 135 |
|
Segment net interest income after provision | | 22 |
| | 19 |
| | (8 | ) | | 28 |
| | 1,522 |
| | 1,500 |
|
Noninterest income | | 484 |
| | 485 |
| | (27 | ) | | (24 | ) | | 1,222 |
| | 1,220 |
|
Noninterest expense | | 408 |
| | 408 |
| | 79 |
| | 32 |
| | 1,720 |
| | 1,742 |
|
Income (loss) before income taxes | | 98 |
| | 96 |
| | (114 | ) | | (28 | ) | | 1,024 |
| | 978 |
|
Provision (benefit) for income taxes | | 25 |
| | 36 |
| | (64 | ) | | (52 | ) | | 202 |
| | 304 |
|
Segment net income (loss) | | $ | 73 |
| | $ | 60 |
| | $ | (50 | ) | | $ | 24 |
| | $ | 822 |
| | $ | 674 |
|
| | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 6,321 |
| | $ | 6,275 |
| | $ | 56,328 |
| | $ | 57,349 |
| | $ | 222,681 |
| | $ | 221,192 |
|
Segment Realignment
Effective January 2017, several business activities were realigned within the segments. First, certain client relationships with $218 million of loans and $2.0 billion of deposits were no longer included in Financial Services and are only reported in Community Banking as the result of client re-segmentation. Second, the Mortgage Warehouse Lending and Domestic Factoring businesses within Specialized Lending were moved to Residential Mortgage Banking and Other, Treasury & Corporate, respectively, to align with changes in the internal management structure. Third, the International division was restructured with components integrated into Community Banking and Financial Services from Other, Treasury & Corporate also to align with changes in the internal management structure. The segment information presented herein reflects the impact of the realignment.
Community Banking
Community Banking serves individual and business clients by offering a variety of loan and deposit products and other financial services. Community Banking is primarily responsible for serving client relationships and, therefore, is credited with certain revenue from Residential Mortgage Banking, Financial Services, Insurance Holdings and Specialized Lending, which is reflected in net referral fees.
Residential Mortgage Banking
Residential Mortgage Banking retains and services mortgage loans originated by BB&T as well as those purchased from various correspondent originators. Mortgage loan products include fixed and adjustable rate government and conventional loans for the purpose of constructing, purchasing or refinancing residential properties. Substantially all of the properties are owner occupied. BB&T generally retains the servicing rights to loans sold. Residential Mortgage Banking earns interest on loans held in the warehouse and portfolio, earns fee income from the origination and servicing of mortgage loans and recognizes gains or losses from the sale of mortgage loans. Residential Mortgage Banking also includes Mortgage Warehouse Lending which provides short-term lending solutions to finance first-lien residential mortgage LHFS by independent mortgage companies.
Dealer Financial Services
Dealer Financial Services originates loans to consumers on a prime and nonprime basis for the purchase of automobiles. Such loans are originated on an indirect basis through approved franchised and independent automobile dealers throughout the BB&T market area and nationally through Regional Acceptance Corporation. This segment also originates loans for the purchase of boats and recreational vehicles originated through dealers in BB&T’s market area. In addition, financing and servicing to dealers for their inventories is provided through a joint relationship between Dealer Financial Services and Community Banking.
Specialized Lending
Specialized Lending consists of BUs and subsidiaries that provide specialty finance products to consumers and businesses. The BUs include Sheffield Financial and Governmental Finance. Sheffield Financial is a dealer-based financer of small ticket equipment for both businesses and consumers. Governmental Finance provides tax-exempt financing to meet the capital project needs of local governments. Operating subsidiaries include BB&T Equipment Finance and BB&T Commercial Equipment Capital, which provide equipment leasing for large and small-to-middle market clients primarily within BB&T’s banking footprint; Prime Rate Premium Finance Corporation, which includes AFCO and CAFO, insurance premium finance subsidiaries that provide funding to businesses in the United States and Canada and to consumers in certain markets within BB&T’s banking footprint; and Grandbridge, a full-service commercial mortgage banking lender providing loans on a national basis. Branch Bank clients as well as nonbank clients within and outside BB&T’s primary geographic market area are served by these subsidiaries and BUs. The Community Banking and Financial Services segments receive credit for referrals to these BUs with the corresponding charge retained as part of Other, Treasury & Corporate in the accompanying tables.
Insurance Holdings
BB&T's insurance agency / brokerage network is the fifth largest in the world. Insurance Holdings provides property and casualty, employee benefits and life insurance to businesses and individuals. It also provides small business and corporate services, such as workers compensation and professional liability, as well as surety coverage and title insurance. Community Banking and Financial Services receive credit for insurance commissions on referred accounts, with the corresponding charge retained as part of Other, Treasury & Corporate in the accompanying tables.
Financial Services
Financial Services provides personal trust administration, estate planning, investment counseling, wealth management, asset management, corporate retirement services, corporate banking and corporate trust services. Financial Services also offers clients investment alternatives, including discount brokerage services, equities, fixed-rate and variable-rate annuities, mutual funds and governmental and municipal bonds through BB&T Investment Services, Inc.
Financial Services includes BB&T Securities, a full-service brokerage and investment banking firm that provides services in retail brokerage, equity and debt underwriting and investment advice and facilitates the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. BB&T Securities also has a public finance department that provides investment banking services, financial advisory services and municipal bond financing to a variety of regional taxable and tax-exempt issuers.
Financial Services includes a group of consolidated SBIC private equity and mezzanine investment funds that invest in privately owned middle-market operating companies to facilitate growth or ownership transition. Financial Services also includes the Corporate Banking Division that originates and services large corporate relationships, syndicated lending relationships and client derivatives. Community Banking receives an interoffice credit for referral fees, with the corresponding charge retained as part of Other, Treasury & Corporate in the accompanying tables. Also captured within the net intersegment interest income for Financial Services is the NIM for the loans and deposits associated with client relationships assigned to the Wealth Division that are housed in the Community Bank.
Other, Treasury & Corporate
Other, Treasury & Corporate is the combination of the Other segment that represents operating entities that do not meet the quantitative or qualitative thresholds for disclosure; BB&T’s Treasury function, which is responsible for the management of the securities portfolios, overall balance sheet funding and liquidity, and overall management of interest rate risk; the corporate support functions that have not been allocated to the business segments; certain merger-related charges or credits that are incurred as part of the acquisition and conversion of acquired entities; certain charges that are considered to be unusual in nature and not reflective of the normal operations of the segments; and intercompany eliminations including intersegment net referral fees and net intersegment interest income (expense).
The investment balances and results related to affordable housing investments are included in the Other, Treasury & Corporate segment. PCI loans from the Colonial acquisition and related net interest income are also included in this segment. Performance results of bank acquisitions prior to system conversion are typically reported in this segment and on a post-conversion date are reported in the Community Banking segment and other segments as applicable.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | Community Banking | | Residential Mortgage Banking | | Dealer Financial Services | | Specialized Lending |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Net interest income (expense) | | $ | 647 |
| | $ | 570 |
| | $ | 332 |
| | $ | 359 |
| | $ | 242 |
| | $ | 229 |
| | $ | 189 |
| | $ | 177 |
|
Net intersegment interest income (expense) | | 409 |
| | 411 |
| | (209 | ) | | (215 | ) | | (46 | ) | | (39 | ) | | (81 | ) | | (68 | ) |
Segment net interest income | | 1,056 |
| | 981 |
| | 123 |
| | 144 |
| | 196 |
| | 190 |
| | 108 |
| | 109 |
|
Allocated provision for credit losses | | 23 |
| | (3 | ) | | 2 |
| | 9 |
| | 78 |
| | 76 |
| | 15 |
| | 18 |
|
Segment net interest income after provision | | 1,033 |
| | 984 |
| | 121 |
| | 135 |
| | 118 |
| | 114 |
| | 93 |
| | 91 |
|
Noninterest income | | 373 |
| | 360 |
| | 86 |
| | 117 |
| | — |
| | 1 |
| | 71 |
| | 80 |
|
Noninterest expense | | 789 |
| | 803 |
| | 100 |
| | 40 |
| | 57 |
| | 50 |
| | 94 |
| | 92 |
|
Income (loss) before income taxes | | 617 |
| | 541 |
| | 107 |
| | 212 |
| | 61 |
| | 65 |
| | 70 |
| | 79 |
|
Provision (benefit) for income taxes | | 221 |
| | 197 |
| | 40 |
| | 80 |
| | 23 |
| | 25 |
| | 16 |
| | 19 |
|
Segment net income (loss) | | $ | 396 |
| | $ | 344 |
| | $ | 67 |
| | $ | 132 |
| | $ | 38 |
| | $ | 40 |
| | $ | 54 |
| | $ | 60 |
|
| | | | | | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 74,493 |
| | $ | 73,125 |
| | $ | 33,213 |
| | $ | 36,652 |
| | $ | 15,239 |
| | $ | 15,090 |
| | $ | 18,854 |
| | $ | 17,823 |
|
| | | | | | | | | | | | | | | | |
| | Insurance Holdings | | Financial Services | | Other, Treasury & Corporate (1) | | Total BB&T Corporation |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Net interest income (expense) | | $ | 1 |
| | $ | 1 |
| | $ | 81 |
| | $ | 65 |
| | $ | 155 |
| | $ | 209 |
| | $ | 1,647 |
| | $ | 1,610 |
|
Net intersegment interest income (expense) | | — |
| | (1 | ) | | 80 |
| | 91 |
| | (153 | ) | | (179 | ) | | — |
| | — |
|
Segment net interest income | | 1 |
| | — |
| | 161 |
| | 156 |
| | 2 |
| | 30 |
| | 1,647 |
| | 1,610 |
|
Allocated provision for credit losses | | — |
| | — |
| | 7 |
| | 32 |
| | 1 |
| | 16 |
| | 126 |
| | 148 |
|
Segment net interest income after provision | | 1 |
| | — |
| | 154 |
| | 124 |
| | 1 |
| | 14 |
| | 1,521 |
| | 1,462 |
|
Noninterest income | | 399 |
| | 412 |
| | 251 |
| | 235 |
| | (14 | ) | | (41 | ) | | 1,166 |
| | 1,164 |
|
Noninterest expense | | 378 |
| | 375 |
| | 237 |
| | 230 |
| | 90 |
| | 121 |
| | 1,745 |
| | 1,711 |
|
Income (loss) before income taxes | | 22 |
| | 37 |
| | 168 |
| | 129 |
| | (103 | ) | | (148 | ) | | 942 |
| | 915 |
|
Provision (benefit) for income taxes | | 9 |
| | 16 |
| | 62 |
| | 48 |
| | (77 | ) | | (112 | ) | | 294 |
| | 273 |
|
Segment net income (loss) | | $ | 13 |
| | $ | 21 |
| | $ | 106 |
| | $ | 81 |
| | $ | (26 | ) | | $ | (36 | ) | | $ | 648 |
| | $ | 642 |
|
| | | | | | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 3,360 |
| | $ | 3,342 |
| | $ | 18,774 |
| | $ | 17,570 |
| | $ | 56,407 |
| | $ | 59,020 |
| | $ | 220,340 |
| | $ | 222,622 |
|
| | | | Nine Months Ended September 30, | |
| | Community Banking | | Residential Mortgage Banking | | Dealer Financial Services | | Specialized Lending | |
Six Months Ended June 30, | | | CB-Retail | | CB-Commercial | | FS&CF |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Net interest income (expense) | | $ | 1,852 |
| | $ | 1,631 |
| | $ | 996 |
| | $ | 1,045 |
| | $ | 727 |
| | $ | 684 |
| | $ | 545 |
| | $ | 517 |
| | $ | 1,690 |
| | $ | 1,695 |
| | $ | 955 |
| | $ | 836 |
| | $ | 328 |
| | $ | 275 |
|
Net intersegment interest income (expense) | | 1,236 |
| | 1,210 |
| | (633 | ) | | (646 | ) | | (137 | ) | | (118 | ) | | (230 | ) | | (201 | ) | | 119 |
| | 73 |
| | 124 |
| | 196 |
| | 37 |
| | 78 |
|
Segment net interest income | | 3,088 |
| | 2,841 |
| | 363 |
| | 399 |
| | 590 |
| | 566 |
| | 315 |
| | 316 |
| | 1,809 |
| | 1,768 |
| | 1,079 |
| | 1,032 |
| | 365 |
| | 353 |
|
Allocated provision for credit losses | | 111 |
| | 10 |
| | 17 |
| | 31 |
| | 254 |
| | 210 |
| | 43 |
| | 51 |
| | 232 |
| | 247 |
| | 79 |
| | 50 |
| | (9 | ) | | (11 | ) |
Segment net interest income after provision | | 2,977 |
| | 2,831 |
| | 346 |
| | 368 |
| | 336 |
| | 356 |
| | 272 |
| | 265 |
| | 1,577 |
| | 1,521 |
| | 1,000 |
| | 982 |
| | 374 |
| | 364 |
|
Noninterest income | | 1,104 |
| | 1,027 |
| | 234 |
| | 272 |
| | — |
| | 2 |
| | 210 |
| | 212 |
| | 693 |
| | 684 |
| | 213 |
| | 211 |
| | 604 |
| | 577 |
|
Noninterest expense | | 2,398 |
| | 2,356 |
| | 314 |
| | 259 |
| | 169 |
| | 143 |
| | 278 |
| | 259 |
| | 1,340 |
| | 1,355 |
| | 508 |
| | 627 |
| | 613 |
| | 587 |
|
Income (loss) before income taxes | | 1,683 |
| | 1,502 |
| | 266 |
| | 381 |
| | 167 |
| | 215 |
| | 204 |
| | 218 |
| | 930 |
| | 850 |
| | 705 |
| | 566 |
| | 365 |
| | 354 |
|
Provision (benefit) for income taxes | | 602 |
| | 547 |
| | 99 |
| | 144 |
| | 62 |
| | 82 |
| | 45 |
| | 50 |
| | 229 |
| | 317 |
| | 158 |
| | 194 |
| | 76 |
| | 111 |
|
Segment net income (loss) | | $ | 1,081 |
| | $ | 955 |
| | $ | 167 |
| | $ | 237 |
| | $ | 105 |
| | $ | 133 |
| | $ | 159 |
| | $ | 168 |
| | $ | 701 |
| | $ | 533 |
| | $ | 547 |
| | $ | 372 |
| | $ | 289 |
| | $ | 243 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 74,493 |
| | $ | 73,125 |
| | $ | 33,213 |
| | $ | 36,652 |
| | $ | 15,239 |
| | $ | 15,090 |
| | $ | 18,854 |
| | $ | 17,823 |
| | $ | 72,577 |
| | $ | 72,791 |
| | $ | 57,009 |
| | $ | 55,680 |
| | $ | 30,446 |
| | $ | 29,097 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Insurance Holdings | | Financial Services | | Other, Treasury & Corporate (1) | | Total BB&T Corporation | | IH&PF | | OT&C (1) | | Total |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Net interest income (expense) | | $ | 2 |
| | $ | 2 |
| | $ | 222 |
| | $ | 196 |
| | $ | 547 |
| | $ | 681 |
| | $ | 4,891 |
| | $ | 4,756 |
| | $ | 55 |
| | $ | 48 |
| | $ | 262 |
| | $ | 390 |
| | $ | 3,290 |
| | $ | 3,244 |
|
Net intersegment interest income (expense) | | 1 |
| | (4 | ) | | 263 |
| | 256 |
| | (500 | ) | | (497 | ) | | — |
| | — |
| | (13 | ) | | (9 | ) | | (267 | ) | | (338 | ) | | — |
| | — |
|
Segment net interest income | | 3 |
| | (2 | ) | | 485 |
| | 452 |
| | 47 |
| | 184 |
| | 4,891 |
| | 4,756 |
| | 42 |
| | 39 |
| | (5 | ) | | 52 |
| | 3,290 |
| | 3,244 |
|
Allocated provision for credit losses | | — |
| | — |
| | (9 | ) | | 128 |
| | (7 | ) | | 13 |
| | 409 |
| | 443 |
| | 1 |
| | 3 |
| | (18 | ) | | (6 | ) | | 285 |
| | 283 |
|
Segment net interest income after provision | | 3 |
| | (2 | ) | | 494 |
| | 324 |
| | 54 |
| | 171 |
| | 4,482 |
| | 4,313 |
| | 41 |
| | 36 |
| | 13 |
| | 58 |
| | 3,005 |
| | 2,961 |
|
Noninterest income | | 1,344 |
| | 1,298 |
| | 711 |
| | 654 |
| | (46 | ) | | (155 | ) | | 3,557 |
| | 3,310 |
| | 923 |
| | 948 |
| | (31 | ) | | (29 | ) | | 2,402 |
| | 2,391 |
|
Noninterest expense | | 1,163 |
| | 1,109 |
| | 709 |
| | 677 |
| | 558 |
| | 250 |
| | 5,589 |
| | 5,053 |
| | 783 |
| | 808 |
| | 162 |
| | 467 |
| | 3,406 |
| | 3,844 |
|
Income (loss) before income taxes | | 184 |
| | 187 |
| | 496 |
| | 301 |
| | (550 | ) | | (234 | ) | | 2,450 |
| | 2,570 |
| | 181 |
| | 176 |
| | (180 | ) | | (438 | ) | | 2,001 |
| | 1,508 |
|
Provision (benefit) for income taxes | | 70 |
| | 72 |
| | 183 |
| | 113 |
| | (359 | ) | | (237 | ) | | 702 |
| | 771 |
| | 46 |
| | 66 |
| | (121 | ) | | (280 | ) | | 388 |
| | 408 |
|
Segment net income (loss) | | $ | 114 |
| | $ | 115 |
| | $ | 313 |
| | $ | 188 |
| | $ | (191 | ) | | $ | 3 |
| | $ | 1,748 |
| | $ | 1,799 |
| | $ | 135 |
| | $ | 110 |
| | $ | (59 | ) | | $ | (158 | ) | | $ | 1,613 |
| | $ | 1,100 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Identifiable assets (period end) | | $ | 3,360 |
| | $ | 3,342 |
| | $ | 18,774 |
| | $ | 17,570 |
| | $ | 56,407 |
| | $ | 59,020 |
| | $ | 220,340 |
| | $ | 222,622 |
| | $ | 6,321 |
| | $ | 6,275 |
| | $ | 56,328 |
| | $ | 57,349 |
| | $ | 222,681 |
| | $ | 221,192 |
|
| |
(1) | Includes financial data from business units below the quantitative and qualitative thresholds requiring disclosure. |
| |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T that are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," "could," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:
general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit, insurance or other services;
disruptions to the national or global financial markets, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies, the economic instability and recessionary conditions in Europe, the potential exit of the United Kingdom from the European Union and the economic slowdown in China;
changes in the interest rate environment, including interest rate changes made by the FRB, as well as cash flow reassessments may reduce NIM and/or the volumes and values of loans made or held as well as the value of other financial assets held;
competitive pressures among depository and other financial institutions may increase significantly;
legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Act may adversely affect the businesses in which BB&T is engaged;
local, state or federal taxing authorities may take tax positions that are adverse to BB&T;
a reduction may occur in BB&T's credit ratings;
adverse changes may occur in the securities markets;
competitors of BB&T may have greater financial resources or develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T;
cybersecurity risks, including "denial of service," "hacking" and "identity theft," could adversely affect BB&T's business and financial performance or reputation, and BB&T could be liable for financial losses incurred by third parties due to breaches of data shared between financial institutions;
natural or other disasters, including acts of terrorism, could have an adverse effect on BB&T in that such events could materially disrupt BB&T's operations or the ability or willingness of customers to access the services BB&T offers;
costs related to the integration of the businesses of BB&T and its merger partners may be greater than expected;
failure to execute on strategic or operational plans, including the ability to successfully complete and/or integrate mergers and acquisitions or fully achieve expected cost savings or revenue growth associated with mergers and acquisitions within the expected time frames could adversely impact financial condition and results of operations;
significant litigation and regulatory proceedings could have a material adverse effect on BB&T;
unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries could result in negative publicity, protests, fines, penalties, restrictions on BB&T's operations or ability to expand its business and other negative consequences, all of which could cause reputational damage and adversely impact BB&T's financial conditions and results of operations;
risks resulting from the extensive use of models;
risk management measures may not be fully effective;
deposit attrition, customer loss and/or revenue loss following completed mergers/acquisitions may exceed expectations;
higher than expected costs related to information technology infrastructure or a failure to successfully implement future system enhancements could adversely impact BB&T's financial condition and results of operations and could result in significant additional costs to BB&T; and
|
| |
l | general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, slower deposit and/or asset growth, and a deterioration in credit quality and/or a reduced demand for credit, insurance or other services; |
l | disruptions to the national or global financial markets, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies, the economic instability and recessionary conditions in Europe, the eventual exit of the United Kingdom from the European Union; |
l | changes in the interest rate environment, including interest rate changes made by the Federal Reserve, as well as cash flow reassessments may reduce net interest margin and/or the volumes and values of loans and deposits as well as the value of other financial assets and liabilities; |
l | competitive pressures among depository and other financial institutions may increase significantly; |
l | legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Act may adversely affect the businesses in which BB&T is engaged; |
l | local, state or federal taxing authorities may take tax positions that are adverse to BB&T; |
l | a reduction may occur in BB&T's credit ratings; |
l | adverse changes may occur in the securities markets; |
l | competitors of BB&T may have greater financial resources or develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T; |
l | cybersecurity risks could adversely affect BB&T's business and financial performance or reputation, and BB&T could be liable for financial losses incurred by third parties due to breaches of data shared between financial institutions; |
l | higher-than-expected costs related to information technology infrastructure or a failure to successfully implement future system enhancements could adversely impact BB&T's financial condition and results of operations and could result in significant additional costs to BB&T; |
l | natural or other disasters, including acts of terrorism, could have an adverse effect on BB&T, materially disrupting BB&T's operations or the ability or willingness of customers to access BB&T's products and services; |
l | costs related to the integration of the businesses of BB&T and its merger partners may be greater than expected; |
l | failure to execute on strategic or operational plans, including the ability to successfully complete and/or integrate mergers and acquisitions or fully achieve expected cost savings or revenue growth associated with mergers and acquisitions within the expected time frames could adversely impact financial condition and results of operations; |
l | significant litigation and regulatory proceedings could have a material adverse effect on BB&T; |
l | unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries could result in negative publicity, protests, fines, penalties, restrictions on BB&T's operations or ability to expand its business and other negative consequences, all of which could cause reputational damage and adversely impact BB&T's financial conditions and results of operations; |
l | risks resulting from the extensive use of models; |
l | risk management measures may not be fully effective; |
l | deposit attrition, customer loss and/or revenue loss following completed mergers/acquisitions may exceed expectations; and |
l | widespread system outages, caused by the failure of critical internal systems or critical services provided by third parties, could adversely impact BB&T's financial condition and results of operations. |
These and other risk factors are more fully described in this report and in BB&T's Annual Report on Form 10-K for the year ended December 31, 20162017 under the sections entitled "Item 1A. Risk Factors" and from time to time, in other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, BB&T undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Readers should, however, consult any further disclosures of a forward-looking nature BB&T may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
BB&T is a financial holding company organized under the laws of North Carolina. BB&T conducts operations through its principal bank subsidiary, Branch Bank, and its nonbank subsidiaries.
Regulatory Considerations
The extensive regulatory framework applicable to financial institutions is intended primarily for the protection of depositors, the DIF and the stability of the financial system, rather than for the protection of shareholders and creditors. In addition to banking laws, regulations and regulatory agencies, BB&T is subject to various other laws, regulations, supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of BB&T and its ability to make distributions to shareholders. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 20162017 for additional disclosures with respect to significant laws and regulations affecting BB&T.
On April 10, 2018, the banking regulators issued a proposal to simplify capital rules for large banks. The proposal introduces a “stress capital buffer," which would in part integrate the forward-looking stress test results with the non-stress capital requirements. The result would produce capital requirements for large banking organizations that are firm-specific and risk-sensitive and reduce the overall number of capital ratios that must be met. The stress capital buffer would equal the decrease in a firm’s CET1 capital ratio in CCAR plus four quarters of planned common stock dividends. A bank's stress capital buffer requirement would be subject to a floor of 2.5% of risk-weighted assets.
On May 14, 2018, the banking regulators issued a proposal that would revise the agencies' regulatory capital rules. The proposal identifies which allowances under the new current administrationexpected credit losses accounting standard would be eligible for inclusion in regulatory capital, provides banking organizations the option to phase in the day-one effects on regulatory capital that may result from the adoption of the new accounting standard, and membersamends certain regulatory disclosure requirements consistent with the new accounting standard. In addition, the agencies are proposing to make amendments to their stress testing regulations so that covered banking organizations that have adopted the new accounting standard would not include the effect of Congress have publicly disclosed proposalsit on their provisioning for purposes of stress testing until the 2020 stress test cycle.
The Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted on May 24, 2018. Effective upon enactment, the banking agencies require depository institutions to change certain laws and regulations (e.g., DOL fiduciary rule). Proposalsassign a heightened risk weight of 150% to changehigh volatility CRE exposures, as defined in the laws and regulations are frequently introduced atnew law. In addition, the bill amends the Federal Deposit Insurance Act to exclude a capped amount of reciprocal deposits from treatment as brokered deposits for qualifying institutions, effective upon enactment. BB&T began to report both items under the federal and state levels. The likelihood and timingnew rules of any such changesthe bill for the second quarter of 2018.
During June 2018, the FDIC and the impact such changes may have onNCCOB terminated their consent order with Branch Bank related to internal control within the BSA/AML Compliance Program. No money laundering activity was identified and no financial penalty was levied. BB&T is impossiblecontinues to determinework closely with any certainty. The following summarizes changesthe FRB to resolve its continuing order. Since early 2016, BB&T has made substantial enhancements to its AML compliance program, including significant proposed or final rules that were published sinceinvestments in system upgrades, process improvements and the filing of BB&T's Annual Report on Form 10-K for the year ended December 31, 2016.
DOL Fiduciary Rule
During April 2016, the DOL issued a final rule related to fiduciary standards in regards to the investing of clients' retirement assets. The final rule expands the definitionhiring and placement of a fiduciary under the Employee Retirement Income Security Act of 1974. Those who provide investment advicehighly experienced AML team to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the DOL. Under new exemptions adopted with the rule, financial institutions will be obligated to acknowledge their status and the status of their individual advisers as "fiduciaries." Firms and advisers will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments. Additionally, the new rule requires certain disclosures to be made to the investor, and ongoing compliance must be monitored and documented.
In early April 2017, the DOL issued a 60 day extension on implementation of certain aspects of the final rule to allow additional time to evaluate the impacts of the rule in accordance with an executive order issued by the President of the United States. Thus, the requirements under the rule will be phased in from June 9, 2017 to January 1, 2018. The estimated impact for 2017 is not significant.oversee these efforts.
Executive Summary
Consolidated net income available to common shareholders for the thirdsecond quarter of 20172018 was $597$775 million. On a diluted per common share basis, earnings for the thirdsecond quarter of 20172018 were $0.74,$0.99, an increase of $0.01$0.22 compared to the thirdsecond quarter of 2016. Earnings for the current quarter include pre-tax merger-related and restructuring charges of $47 million ($29 million after tax). Earnings for the earlier quarter include pre-tax merger-related and restructurings charges of $43 million ($27 million after-tax).2017.
BB&T's results of operations for the thirdsecond quarter of 20172018 produced an annualized return on average assets of 1.16%, an annualized return on average risk-weighted assets of 1.45%1.49% and an annualized return on average common shareholders' equity of 8.82%11.74%, compared to ratios for the same quarter of the prior year of 1.15%, 1.45%1.22% and 8.87%9.30%, respectively.
Total revenues on a TE basis were $2.9 billion for the thirdsecond quarter of 2017,2018, an increase of $40$6 million compared to the same period in 2016. This reflects an increase of $38 million in2017 as taxable-equivalent net interest income. Net interest margin was 3.48%, compared to 3.39% for the third quarter of 2016.income and noninterest income were essentially flat.
The provision for credit losses was $126$135 million, flat compared to $148 million in the third quarter of 2016.earlier quarter. Net charge-offs for the thirdsecond quarter of 20172018 totaled $127$109 million compared to $130$132 million for the earlier quarter. Asset quality continues to improve, as NPAs were down compared to the second quarter of 2017.
Noninterest income was essentially$1.2 billion, flat compared tofrom the thirdearlier quarter. Noninterest expense for the second quarter of 2016. Noninterest expense2018 was $1.7 billion, for the third quarter of 2017, up $34down $22 million compared to the earlier quarter. This increaseExcluding merger-related and restructuring charges, noninterest expense was driven by higher personneldown $36 million due to continued focus on expense and other expense, partially offset by lower outside IT services.control.
The provision for income taxes was $294$202 million for the thirdsecond quarter of 2017,2018, compared to $273$304 million for the earlier quarter. This produced an effective tax rate for the thirdsecond quarter of 20172018 of 31.2%19.7%, compared to 29.8%31.1% for the thirdearlier quarter. The provision for income taxes for the current quarter of 2016.reflects the new lower federal tax rate.
The Company previously announced that the FRB accepted its capital plan and did not object to its proposed capital actions. The capital actions, which have been approved by BB&T's common equity Tier 1 capital ratio was 10.1% at SeptemberBoard of Directors, include a $0.03 increase in the quarterly dividend to $0.405 and share buybacks of up to $1.7 billion for the one-year period ending June 30, 2017.2019. BB&T declared common dividends of $0.33 per share duringmay not utilize the third quarter of 2017, a ten percent increase, which resulted in a dividend payout ratio of 43.8%. BB&T completed $920 million offull share repurchases duringin order to maintain desired capital levels. On July 2, 2018, the third quarteracquisition of 2017. The total payout ratio for the third quarter of 2017Regions Insurance was 198.0%.completed.
Analysis of Results of Operations
Net Interest Income and NIM
ThirdSecond Quarter 20172018 compared to ThirdSecond Quarter 20162017
Net interest income on a TE basis was $1.7 billion for the thirdsecond quarter of 2017, an increase of $38 million2018, flat compared to the same period in 2016.2017. Interest income increased $83$152 million, which primarily reflects higher rates. Interest expense increased $45$148 million primarily due to higher funding costs reflecting the impact of rate increases.
Net interest margin was 3.48%3.45%, compared to 3.39%3.47% for the thirdsecond quarter of 2016.2017. Average earning assets decreased $836 million, or 0.4%, whileincreased $1.7 billion. The increase in average earnings assets reflects a $1.7 billion increase in average securities, a $1.4 billion increase in average total loans inclusive of a $1.3 billion decrease in indirect lending and a $1.5 billion decrease in average other earning assets. Average interest-bearing liabilities increased $470 million compared to the earlier quarter, as the growth in earning assets was primarily funded by noninterest-bearing deposits, which increased $1.4 billion compared to the earlier quarter. Average interest-bearing deposits decreased $3.1 billion, or 2.3%. Noninterest-bearing deposits increased $2.9$4.0 billion due to organic growth.the decision to shift away from higher-cost rate sensitive deposits, which was offset by increases of $1.9 billion in average long-term debt and $2.6 billion in average short-term borrowings. The annualized TE yield on the total loan portfolio for the thirdsecond quarter of 2018 was 4.47%4.70%, up 1734 basis points compared to the earlier quarter.quarter, reflecting the impact of rate increases. The annualized TEtaxable-equivalent yield on the average securities portfolio for the third quarter was 2.47%2.53%, up 15four basis points compared to the earlier quarter.period.
The average annualized cost of interest-bearing deposits was 0.35%0.57%, up 1227 basis points compared to the third quarter of 2016.earlier quarter. The average annualized rate on long-term debt was 2.81%, up 90 basis points compared to the earlier quarter. The average annualized rate on short-term borrowings was 1.03%1.77%, up 69107 basis points. The average annualized rate on long-term debt was 2.29%, up 24 basis points.points compared to the earlier quarter. The higher rates on fundinginterest-bearing liabilities primarily reflect the impact of rate increases.
NineSix Months of 20172018 compared to NineSix Months of 20162017
Net interest income on a TE basis was $5.0$3.3 billion for the ninesix months ended SeptemberJune 30, 2017,2018, an increase of $137$11 million compared to the same period in 2016.2017. This increase reflects a $157$281 million increase in TE interest income, partially offset by a $20$270 million increase in funding costs. The increase in interest income was driven by an increase in average earning assets of $2.2 billion compared to the same period of 2016 and higher overall yields. The increase in funding costs was driven by higher costs for deposits and short-term borrowings due to increases in interest rates, partially offset by lower long-term debt costs.rates.
The NIM was 3.47%3.45% for the ninesix months ended SeptemberJune 30, 2017,2018, compared to 3.41%3.47% for the same period of 2016.2017. The annualized TE yield on the average securities portfolio for the ninesix months ended SeptemberJune 30, 20172018 was 2.46%2.48%, up sixthree basis points compared to the annualized yield earned during the same period of 2016.2017. The annualized TE yield for the total loan portfolio for the ninesix months ended SeptemberJune 30, 20172018 was 4.38%4.63%, up six30 basis points compared to the corresponding period of 2016.2017.
The average annualized cost of interest-bearing deposits for the ninesix months ended SeptemberJune 30, 20172018 was 0.30%0.52%, up six24 basis points compared to the same period in the prior year. The average annualized rate on short-term borrowings was 0.83%1.60% for the ninesix months ended SeptemberJune 30, 2017,2018, up 48102 basis points compared to the same period of 2016. The increases in costs for deposits and short-term borrowings were driven by rate increases.2017. The average annualized rate on long-term debt for the ninesix months ended SeptemberJune 30, 20172018 was 2.01%2.67%, up 80 basis points compared to 2.12% for the same period in 2016. This decrease is primarily due to the early extinguishment of higher cost FHLB advances.
The following tables set forth the major components of net interest income and the related annualized yields and rates as well as the variances between the periods caused by changes in interest rates versus changes in volumes. Changes attributable to the mix of assets and liabilities have been allocated proportionally between the changes due to rate and the changes due to volume.volumes are summarized below.
| | Table 1-1 | TE Net Interest Income and Rate / Volume Analysis (1) | Three Months Ended September 30, 2017 and 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Average Balances (6) | | Annualized Yield/Rate | | Income/Expense | | Increase | | Change due to | |
Three Months Ended June 30, | | | Average Balances (6) | | Annualized Yield/Rate | | Income/Expense | | Increase | | Change due to |
(Dollars in millions) | | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | (Decrease) | | Rate | | Volume | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | (Decrease) | | Rate | | Volume |
Assets | Assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total securities, at amortized cost (2) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total securities, at amortized cost: (2) | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. Treasury | U.S. Treasury | | $ | 3,794 |
| | $ | 3,460 |
| | 1.68 | % | | 1.63 | % | | $ | 16 |
| | $ | 14 |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | 3,537 |
| | $ | 4,761 |
| | 1.80 | % | | 1.73 | % | | $ | 17 |
| | $ | 21 |
| | $ | (4 | ) | | $ | 1 |
| | $ | (5 | ) |
GSE | GSE | | 2,385 |
| | 2,786 |
| | 2.22 |
| | 2.18 |
| | 13 |
| | 16 |
| | (3 | ) | | — |
| | (3 | ) | | 2,384 |
| | 2,386 |
| | 2.23 |
| | 2.22 |
| | 14 |
| | 14 |
| | — |
| | — |
| | — |
|
Agency MBS | Agency MBS | | 37,734 |
| | 37,987 |
| | 2.29 |
| | 2.05 |
| | 216 |
| | 195 |
| | 21 |
| | 22 |
| | (1 | ) | | 39,777 |
| | 35,911 |
| | 2.44 |
| | 2.21 |
| | 241 |
| | 198 |
| | 43 |
| | 22 |
| | 21 |
|
States and political subdivisions | States and political subdivisions | | 1,596 |
| | 2,356 |
| | 5.07 |
| | 5.16 |
| | 20 |
| | 30 |
| | (10 | ) | | (1 | ) | | (9 | ) | | 1,051 |
| | 1,879 |
| | 3.79 |
| | 5.29 |
| | 8 |
| | 25 |
| | (17 | ) | | (7 | ) | | (10 | ) |
Non-agency MBS | Non-agency MBS | | 405 |
| | 502 |
| | 18.58 |
| | 14.81 |
| | 19 |
| | 19 |
| | — |
| | 4 |
| | (4 | ) | | 354 |
| | 416 |
| | 17.35 |
| | 24.16 |
| | 17 |
| | 25 |
| | (8 | ) | | (5 | ) | | (3 | ) |
Other | Other | | 54 |
| | 61 |
| | 2.26 |
| | 1.67 |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 42 |
| | 57 |
| | 3.26 |
| | 2.22 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total securities | Total securities | | 45,968 |
| | 47,152 |
| | 2.47 |
| | 2.32 |
| | 285 |
| | 274 |
| | 11 |
| | 26 |
| | (15 | ) | | 47,145 |
| | 45,410 |
| | 2.53 |
| | 2.49 |
| | 297 |
| | 283 |
| | 14 |
| | 11 |
| | 3 |
|
Other earning assets (3) | Other earning assets (3) | | 2,924 |
| | 3,068 |
| | 1.42 |
| | 1.17 |
| | 11 |
| | 9 |
| | 2 |
| | 2 |
| | — |
| | 2,197 |
| | 3,649 |
| | 2.24 |
| | 1.36 |
| | 13 |
| | 11 |
| | 2 |
| | 7 |
| | (5 | ) |
Loans and leases, net of unearned income (4)(5) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
Commercial: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
Loans and leases, net of unearned income: (4)(5) | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Commercial and industrial | Commercial and industrial | | 51,605 |
| | 51,508 |
| | 3.59 |
| | 3.37 |
| | 466 |
| | 436 |
| | 30 |
| | 29 |
| | 1 |
| | 59,548 |
| | 58,150 |
| | 3.92 |
| | 3.57 |
| | 580 |
| | 518 |
| | 62 |
| | 50 |
| | 12 |
|
CRE-income producing properties | | 15,099 |
| | 14,667 |
| | 4.37 |
| | 3.75 |
| | 167 |
| | 138 |
| | 29 |
| | 25 |
| | 4 |
| |
CRE-construction and development | | 4,181 |
| | 3,802 |
| | 4.19 |
| | 3.74 |
| | 44 |
| | 36 |
| | 8 |
| | 4 |
| | 4 |
| |
Dealer floor plan | | 1,574 |
| | 1,268 |
| | 2.76 |
| | 2.09 |
| | 11 |
| | 7 |
| | 4 |
| | 2 |
| | 2 |
| |
Direct retail lending | | 11,960 |
| | 11,994 |
| | 4.73 |
| | 4.30 |
| | 143 |
| | 130 |
| | 13 |
| | 13 |
| | — |
| |
Sales finance | | 9,780 |
| | 9,339 |
| | 3.23 |
| | 3.04 |
| | 79 |
| | 71 |
| | 8 |
| | 5 |
| | 3 |
| |
CRE | | | 21,546 |
| | 20,304 |
| | 4.64 |
| | 3.87 |
| | 246 |
| | 196 |
| | 50 |
| | 38 |
| | 12 |
|
Lease financing | | | 1,862 |
| | 1,664 |
| | 3.05 |
| | 2.91 |
| | 12 |
| | 12 |
| | — |
| | — |
| | — |
|
Residential mortgage | | | 29,272 |
| | 29,392 |
| | 4.01 |
| | 4.01 |
| | 291 |
| | 295 |
| | (4 | ) | | — |
| | (4 | ) |
Direct | | | 11,680 |
| | 12,000 |
| | 5.10 |
| | 4.55 |
| | 150 |
| | 135 |
| | 15 |
| | 18 |
| | (3 | ) |
Indirect | | | 16,804 |
| | 18,127 |
| | 7.46 |
| | 6.83 |
| | 311 |
| | 309 |
| | 2 |
| | 26 |
| | (24 | ) |
Revolving credit | Revolving credit | | 2,668 |
| | 2,537 |
| | 8.92 |
| | 8.80 |
| | 60 |
| | 56 |
| | 4 |
| | 1 |
| | 3 |
| | 2,831 |
| | 2,612 |
| | 9.16 |
| | 8.78 |
| | 73 |
| | 57 |
| | 16 |
| | 6 |
| | 10 |
|
Residential mortgage | | 28,924 |
| | 30,357 |
| | 4.04 |
| | 4.06 |
| | 292 |
| | 308 |
| | (16 | ) | | (2 | ) | | (14 | ) | |
Other lending subsidiaries | | 16,158 |
| | 14,742 |
| | 7.72 |
| | 8.05 |
| | 315 |
| | 298 |
| | 17 |
| | (12 | ) | | 29 |
| |
PCI | PCI | | 742 |
| | 1,052 |
| | 17.15 |
| | 19.68 |
| | 32 |
| | 52 |
| | (20 | ) | | (6 | ) | | (14 | ) | | 559 |
| | 825 |
| | 18.92 |
| | 17.94 |
| | 26 |
| | 37 |
| | (11 | ) | | 2 |
| | (13 | ) |
Total loans and leases HFI | Total loans and leases HFI | | 142,691 |
| | 141,266 |
| | 4.48 |
| | 4.32 |
| | 1,609 |
| | 1,532 |
| | 77 |
| | 59 |
| | 18 |
| | 144,102 |
| | 143,074 |
| | 4.70 |
| | 4.37 |
| | 1,689 |
| | 1,559 |
| | 130 |
| | 140 |
| | (10 | ) |
LHFS | LHFS | | 1,490 |
| | 2,423 |
| | 3.70 |
| | 3.25 |
| | 13 |
| | 20 |
| | (7 | ) | | 2 |
| | (9 | ) | | 1,650 |
| | 1,253 |
| | 4.02 |
| | 3.65 |
| | 17 |
| | 11 |
| | 6 |
| | 1 |
| | 5 |
|
Total loans and leases | Total loans and leases | | 144,181 |
| | 143,689 |
| | 4.47 |
| | 4.30 |
| | 1,622 |
| | 1,552 |
| | 70 |
| | 61 |
| | 9 |
| | 145,752 |
| | 144,327 |
| | 4.70 |
| | 4.36 |
| | 1,706 |
| | 1,570 |
| | 136 |
| | 141 |
| | (5 | ) |
Total earning assets | Total earning assets | | 193,073 |
| | 193,909 |
| | 3.95 |
| | 3.77 |
| | 1,918 |
| | 1,835 |
| | 83 |
| | 89 |
| | (6 | ) | | 195,094 |
| | 193,386 |
| | 4.14 |
| | 3.87 |
| | 2,016 |
| | 1,864 |
| | 152 |
| | 159 |
| | (7 | ) |
Nonearning assets | Nonearning assets | | 27,659 |
| | 28,156 |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | 26,250 |
| | 27,632 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Total assets | Total assets | | $ | 220,732 |
| | $ | 222,065 |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | $ | 221,344 |
| | $ | 221,018 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Interest-bearing deposits: | Interest-bearing deposits: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Interest-checking | Interest-checking | | $ | 27,000 |
| | $ | 27,754 |
| | 0.29 |
| | 0.15 |
| | 20 |
| | 10 |
| | 10 |
| | 10 |
| | — |
| | $ | 26,969 |
| | $ | 28,849 |
| | 0.42 |
| | 0.22 |
| | 29 |
| | 15 |
| | 14 |
| | 15 |
| | (1 | ) |
Money market and savings | Money market and savings | | 61,450 |
| | 64,335 |
| | 0.32 |
| | 0.19 |
| | 49 |
| | 31 |
| | 18 |
| | 19 |
| | (1 | ) | | 62,105 |
| | 64,294 |
| | 0.56 |
| | 0.29 |
| | 86 |
| | 47 |
| | 39 |
| | 41 |
| | (2 | ) |
Time deposits | Time deposits | | 13,794 |
| | 15,818 |
| | 0.51 |
| | 0.50 |
| | 17 |
| | 20 |
| | (3 | ) | | — |
| | (3 | ) | | 13,966 |
| | 14,088 |
| | 0.86 |
| | 0.48 |
| | 30 |
| | 17 |
| | 13 |
| | 13 |
| | — |
|
Foreign deposits - interest-bearing | Foreign deposits - interest-bearing | | 1,681 |
| | 1,037 |
| | 1.14 |
| | 0.38 |
| | 5 |
| | 1 |
| | 4 |
| | 3 |
| | 1 |
| | 673 |
| | 459 |
| | 1.77 |
| | 1.03 |
| | 3 |
| | 1 |
| | 2 |
| | 1 |
| | 1 |
|
Total interest-bearing deposits | Total interest-bearing deposits | | 103,925 |
| | 108,944 |
| | 0.35 |
| | 0.23 |
| | 91 |
| | 62 |
| | 29 |
| | 32 |
| | (3 | ) | | 103,713 |
| | 107,690 |
| | 0.57 |
| | 0.30 |
| | 148 |
| | 80 |
| | 68 |
| | 70 |
| | (2 | ) |
Short-term borrowings | Short-term borrowings | | 5,983 |
| | 2,128 |
| | 1.03 |
| | 0.34 |
| | 15 |
| | 2 |
| | 13 |
| | 7 |
| | 6 |
| | 5,323 |
| | 2,748 |
| | 1.77 |
| | 0.70 |
| | 23 |
| | 5 |
| | 18 |
| | 11 |
| | 7 |
|
Long-term debt | Long-term debt | | 21,459 |
| | 23,428 |
| | 2.29 |
| | 2.05 |
| | 124 |
| | 121 |
| | 3 |
| | 14 |
| | (11 | ) | | 23,639 |
| | 21,767 |
| | 2.81 |
| | 1.91 |
| | 166 |
| | 104 |
| | 62 |
| | 52 |
| | 10 |
|
Total interest-bearing liabilities | Total interest-bearing liabilities | | 131,367 |
| | 134,500 |
| | 0.70 |
| | 0.55 |
| | 230 |
| | 185 |
| | 45 |
| | 53 |
| | (8 | ) | | 132,675 |
| | 132,205 |
| | 1.02 |
| | 0.57 |
| | 337 |
| | 189 |
| | 148 |
| | 133 |
| | 15 |
|
Noninterest-bearing deposits | Noninterest-bearing deposits | | 53,489 |
| | 50,559 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 53,963 |
| | 52,573 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Other liabilities | Other liabilities | | 5,928 |
| | 7,090 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5,121 |
| | 5,938 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Shareholders' equity | Shareholders' equity | | 29,948 |
| | 29,916 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 29,585 |
| | 30,302 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | | $ | 220,732 |
| | $ | 222,065 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | $ | 221,344 |
| | $ | 221,018 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Average interest-rate spread | Average interest-rate spread | | |
| | | | 3.25 | % | | 3.22 | % | | |
| | |
| | |
| | |
| | |
| | |
| | | | 3.12 | % | | 3.30 | % | | |
| | |
| | |
| | |
| | |
|
NIM/net interest income | NIM/net interest income | | |
| | | | 3.48 | % | | 3.39 | % | | $ | 1,688 |
| | $ | 1,650 |
| | $ | 38 |
| | $ | 36 |
| | $ | 2 |
| | |
| | | | 3.45 | % | | 3.47 | % | | $ | 1,679 |
| | $ | 1,675 |
| | $ | 4 |
| | $ | 26 |
| | $ | (22 | ) |
Taxable-equivalent adjustment | Taxable-equivalent adjustment | | |
| | | | | | |
| | $ | 41 |
| | $ | 40 |
| | |
| | |
| | |
| | |
| | | | | | |
| | $ | 22 |
| | $ | 40 |
| | |
| | |
| | |
|
| |
(1) | Yields are stated on a TE basis utilizing the marginal income tax rates for the periods presented.rates. The change in interest not solely due to changes in yield/rate or volume has been allocated on a pro-rata basis based on the absolute dollar amount of each. |
| |
(2) | Total securities include AFS and HTM securities. |
| |
(3) | Includes Federal funds sold, securities purchased under resale agreements or similar arrangements,cash equivalents, interest-bearing deposits with banks, trading securities, FHLB stock and other earning assets. |
| |
(4) | Loan fees, which are not material for any of the periods shown, are included for rate calculation purposes. |
| |
(5) | NPLs are included in the average balances. |
| |
(6) | Excludes basis adjustments for fair value hedges. |
| | Table 1-2 | TE Net Interest Income and Rate / Volume Analysis (1) | Nine Months Ended September 30, 2017 and 2016 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Average Balances (6) | | Annualized Yield/Rate | | Income/Expense | | Increase | | Change due to | |
Six Months Ended June 30, | | | Average Balances (6) | | Annualized Yield/Rate | | Income/Expense | | Increase | | Change due to |
(Dollars in millions) | | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | (Decrease) | | Rate | | Volume | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | (Decrease) | | Rate | | Volume |
Assets | Assets | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total securities, at amortized cost (2) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total securities, at amortized cost: (2) | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
U.S. Treasury | U.S. Treasury | | $ | 4,425 |
| | $ | 2,832 |
| | 1.71 | % | | 1.69 | % | | $ | 57 |
| | $ | 36 |
| | $ | 21 |
| | $ | — |
| | $ | 21 |
| | $ | 3,538 |
| | $ | 4,746 |
| | 1.79 | % | | 1.72 | % | | $ | 32 |
| | $ | 41 |
| | $ | (9 | ) | | $ | 2 |
| | $ | (11 | ) |
GSE | GSE | | 2,386 |
| | 4,012 |
| | 2.22 |
| | 2.11 |
| | 40 |
| | 64 |
| | (24 | ) | | 3 |
| | (27 | ) | | 2,384 |
| | 2,385 |
| | 2.23 |
| | 2.22 |
| | 27 |
| | 27 |
| | — |
| | — |
| | — |
|
Agency MBS | Agency MBS | | 36,194 |
| | 36,895 |
| | 2.22 |
| | 2.04 |
| | 603 |
| | 565 |
| | 38 |
| | 49 |
| | (11 | ) | | 40,292 |
| | 35,412 |
| | 2.43 |
| | 2.19 |
| | 489 |
| | 387 |
| | 102 |
| | 45 |
| | 57 |
|
States and political subdivisions | States and political subdivisions | | 1,854 |
| | 2,392 |
| | 5.17 |
| | 5.25 |
| | 72 |
| | 94 |
| | (22 | ) | | (1 | ) | | (21 | ) | | 1,133 |
| | 1,985 |
| | 3.78 |
| | 5.20 |
| | 19 |
| | 52 |
| | (33 | ) | | (13 | ) | | (20 | ) |
Non-agency MBS | Non-agency MBS | | 417 |
| | 555 |
| | 20.53 |
| | 19.57 |
| | 64 |
| | 81 |
| | (17 | ) | | 4 |
| | (21 | ) | | 364 |
| | 424 |
| | 12.41 |
| | 21.45 |
| | 24 |
| | 45 |
| | (21 | ) | | (16 | ) | | (5 | ) |
Other | Other | | 57 |
| | 63 |
| | 2.12 |
| | 1.72 |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | 45 |
| | 58 |
| | 2.73 |
| | 2.05 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total securities | Total securities | | 45,333 |
| | 46,749 |
| | 2.46 |
| | 2.40 |
| | 837 |
| | 841 |
| | (4 | ) | | 55 |
| | (59 | ) | | 47,756 |
| | 45,010 |
| | 2.48 |
| | 2.45 |
| | 591 |
| | 552 |
| | 39 |
| | 18 |
| | 21 |
|
Other earning assets (3) | Other earning assets (3) | | 3,606 |
| | 3,229 |
| | 1.42 |
| | 1.78 |
| | 38 |
| | 43 |
| | (5 | ) | | (10 | ) | | 5 |
| | 2,223 |
| | 3,953 |
| | 3.40 |
| | 1.43 |
| | 38 |
| | 27 |
| | 11 |
| | 27 |
| | (16 | ) |
Loans and leases, net of unearned income (4)(5) | | | | | | | | | | | | | | |
| | |
| | |
| |
Commercial: | | | | | | | | | | | | | | |
| | |
| | |
| |
Loans and leases, net of unearned income: (4)(5) | | | | | | | | | | | | | | | |
| | |
| | |
|
Commercial and industrial | Commercial and industrial | | 51,543 |
| | 50,393 |
| | 3.51 |
| | 3.34 |
| | 1,355 |
| | 1,261 |
| | 94 |
| | 65 |
| | 29 |
| | 59,090 |
| | 57,639 |
| | 3.82 |
| | 3.53 |
| | 1,117 |
| | 1,010 |
| | 107 |
| | 82 |
| | 25 |
|
CRE-income producing properties | | 14,857 |
| | 14,316 |
| | 3.99 |
| | 3.77 |
| | 443 |
| | 404 |
| | 39 |
| | 23 |
| | 16 |
| |
CRE-construction and development | | 3,978 |
| | 3,697 |
| | 3.91 |
| | 3.75 |
| | 116 |
| | 104 |
| | 12 |
| | 5 |
| | 7 |
| |
Dealer floor plan | | 1,498 |
| | 1,270 |
| | 2.55 |
| | 2.05 |
| | 29 |
| | 20 |
| | 9 |
| | 5 |
| | 4 |
| |
Direct retail lending | | 11,991 |
| | 11,712 |
| | 4.54 |
| | 4.29 |
| | 407 |
| | 375 |
| | 32 |
| | 23 |
| | 9 |
| |
Sales finance | | 10,371 |
| | 9,685 |
| | 3.20 |
| | 3.03 |
| | 248 |
| | 220 |
| | 28 |
| | 13 |
| | 15 |
| |
CRE | | | 21,472 |
| | 20,100 |
| | 4.56 |
| | 3.81 |
| | 480 |
| | 379 |
| | 101 |
| | 75 |
| | 26 |
|
Lease financing | | | 1,867 |
| | 1,658 |
| | 3.03 |
| | 2.88 |
| | 26 |
| | 24 |
| | 2 |
| | — |
| | 2 |
|
Residential mortgage | | | 29,049 |
| | 29,546 |
| | 4.01 |
| | 4.01 |
| | 580 |
| | 592 |
| | (12 | ) | | — |
| | (12 | ) |
Direct | | | 11,735 |
| | 12,007 |
| | 5.00 |
| | 4.44 |
| | 291 |
| | 264 |
| | 27 |
| | 33 |
| | (6 | ) |
Indirect | | | 16,859 |
| | 18,132 |
| | 7.39 |
| | 6.79 |
| | 615 |
| | 611 |
| | 4 |
| | 50 |
| | (46 | ) |
Revolving credit | Revolving credit | | 2,629 |
| | 2,492 |
| | 8.83 |
| | 8.79 |
| | 174 |
| | 164 |
| | 10 |
| | 1 |
| | 9 |
| | 2,815 |
| | 2,610 |
| | 9.05 |
| | 8.79 |
| | 140 |
| | 114 |
| | 26 |
| | 7 |
| | 19 |
|
Residential mortgage | | 29,337 |
| | 30,231 |
| | 4.02 |
| | 4.08 |
| | 884 |
| | 925 |
| | (41 | ) | | (13 | ) | | (28 | ) | |
Other lending subsidiaries | | 15,575 |
| | 14,050 |
| | 7.85 |
| | 8.32 |
| | 915 |
| | 876 |
| | 39 |
| | (51 | ) | | 90 |
| |
PCI | PCI | | 816 |
| | 1,093 |
| | 18.34 |
| | 19.40 |
| | 112 |
| | 159 |
| | (47 | ) | | (8 | ) | | (39 | ) | | 595 |
| | 854 |
| | 19.07 |
| | 18.86 |
| | 56 |
| | 80 |
| | (24 | ) | | 1 |
| | (25 | ) |
Total loans and leases HFI | Total loans and leases HFI | | 142,595 |
| | 138,939 |
| | 4.39 |
| | 4.33 |
| | 4,683 |
| | 4,508 |
| | 175 |
| | 63 |
| | 112 |
| | 143,482 |
| | 142,546 |
| | 4.64 |
| | 4.34 |
| | 3,305 |
| | 3,074 |
| | 231 |
| | 248 |
| | (17 | ) |
LHFS | LHFS | | 1,475 |
| | 1,876 |
| | 3.61 |
| | 3.42 |
| | 39 |
| | 48 |
| | (9 | ) | | 3 |
| | (12 | ) | | 1,352 |
| | 1,468 |
| | 3.87 |
| | 3.56 |
| | 26 |
| | 26 |
| | — |
| | 2 |
| | (2 | ) |
Total loans and leases | Total loans and leases | | 144,070 |
| | 140,815 |
| | 4.38 |
| | 4.32 |
| | 4,722 |
| | 4,556 |
| | 166 |
| | 66 |
| | 100 |
| | 144,834 |
| | 144,014 |
| | 4.63 |
| | 4.33 |
| | 3,331 |
| | 3,100 |
| | 231 |
| | 250 |
| | (19 | ) |
Total earning assets | Total earning assets | | 193,009 |
| | 190,793 |
| | 3.87 |
| | 3.81 |
| | 5,597 |
| | 5,440 |
| | 157 |
| | 111 |
| | 46 |
| | 194,813 |
| | 192,977 |
| | 4.09 |
| | 3.84 |
| | 3,960 |
| | 3,679 |
| | 281 |
| | 295 |
| | (14 | ) |
Nonearning assets | Nonearning assets | | 27,564 |
| | 27,742 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 26,568 |
| | 27,516 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total assets | Total assets | | $ | 220,573 |
| | $ | 218,535 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | $ | 221,381 |
| | $ | 220,493 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | Liabilities and Shareholders' Equity | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing deposits: | Interest-bearing deposits: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Interest-checking | Interest-checking | | $ | 28,465 |
| | $ | 27,246 |
| | 0.22 |
| | 0.14 |
| | 48 |
| | 29 |
| | 19 |
| | 18 |
| | 1 |
| | $ | 27,119 |
| | $ | 29,211 |
| | 0.39 |
| | 0.20 |
| | 54 |
| | 28 |
| | 26 |
| | 28 |
| | (2 | ) |
Money market and savings | Money market and savings | | 63,521 |
| | 62,658 |
| | 0.28 |
| | 0.20 |
| | 133 |
| | 92 |
| | 41 |
| | 40 |
| | 1 |
| | 61,899 |
| | 64,574 |
| | 0.50 |
| | 0.26 |
| | 153 |
| | 84 |
| | 69 |
| | 73 |
| | (4 | ) |
Time deposits | Time deposits | | 14,265 |
| | 16,931 |
| | 0.49 |
| | 0.52 |
| | 51 |
| | 66 |
| | (15 | ) | | (4 | ) | | (11 | ) | | 13,907 |
| | 14,504 |
| | 0.77 |
| | 0.48 |
| | 53 |
| | 34 |
| | 19 |
| | 20 |
| | (1 | ) |
Foreign deposits - interest-bearing | Foreign deposits - interest-bearing | | 1,026 |
| | 1,217 |
| | 0.98 |
| | 0.37 |
| | 8 |
| | 3 |
| | 5 |
| | 6 |
| | (1 | ) | | 803 |
| | 693 |
| | 1.57 |
| | 0.79 |
| | 6 |
| | 3 |
| | 3 |
| | 3 |
| | — |
|
Total interest-bearing deposits | Total interest-bearing deposits | | 107,277 |
| | 108,052 |
| | 0.30 |
| | 0.24 |
| | 240 |
| | 190 |
| | 50 |
| | 60 |
| | (10 | ) | | 103,728 |
| | 108,982 |
| | 0.52 |
| | 0.28 |
| | 266 |
| | 149 |
| | 117 |
| | 124 |
| | (7 | ) |
Short-term borrowings | Short-term borrowings | | 3,626 |
| | 2,615 |
| | 0.83 |
| | 0.35 |
| | 22 |
| | 7 |
| | 15 |
| | 12 |
| | 3 |
| | 5,399 |
| | 2,428 |
| | 1.60 |
| | 0.58 |
| | 43 |
| | 7 |
| | 36 |
| | 21 |
| | 15 |
|
Long-term debt | Long-term debt | | 21,330 |
| | 23,203 |
| | 2.01 |
| | 2.12 |
| | 323 |
| | 368 |
| | (45 | ) | | (17 | ) | | (28 | ) | | 23,658 |
| | 21,264 |
| | 2.67 |
| | 1.87 |
| | 316 |
| | 199 |
| | 117 |
| | 93 |
| | 24 |
|
Total interest-bearing liabilities | Total interest-bearing liabilities | | 132,233 |
| | 133,870 |
| | 0.59 |
| | 0.56 |
| | 585 |
| | 565 |
| | 20 |
| | 55 |
| | (35 | ) | | 132,785 |
| | 132,674 |
| | 0.94 |
| | 0.54 |
| | 625 |
| | 355 |
| | 270 |
| | 238 |
| | 32 |
|
Noninterest-bearing deposits | Noninterest-bearing deposits | | 52,395 |
| | 48,528 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 53,681 |
| | 51,838 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Other liabilities | Other liabilities | | 5,894 |
| | 7,017 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 5,359 |
| | 5,877 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Shareholders' equity | Shareholders' equity | | 30,051 |
| | 29,120 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | 29,556 |
| | 30,104 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | | $ | 220,573 |
| | $ | 218,535 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | $ | 221,381 |
| | $ | 220,493 |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Average interest-rate spread | Average interest-rate spread | | |
| | | | 3.28 | % | | 3.25 | % | | |
| | |
| | |
| | |
| | |
| | |
| | | | 3.15 | % | | 3.30 | % | | |
| | |
| | |
| | |
| | |
|
NIM/net interest income | NIM/net interest income | | |
| | | | 3.47 | % | | 3.41 | % | | $ | 5,012 |
| | $ | 4,875 |
| | $ | 137 |
| | $ | 56 |
| | $ | 81 |
| | |
| | | | 3.45 | % | | 3.47 | % | | $ | 3,335 |
| | $ | 3,324 |
| | $ | 11 |
| | $ | 57 |
| | $ | (46 | ) |
Taxable-equivalent adjustment | Taxable-equivalent adjustment | | |
| | | | | | |
| | $ | 121 |
| | $ | 119 |
| | |
| | |
| | |
| | |
| | | | | | |
| | $ | 45 |
| | $ | 80 |
| | |
| | |
| | |
|
| |
(1) | Yields are stated on a TE basis utilizing the marginal income tax rates for the periods presented.rates. The change in interest not solely due to changes in yield/rate or volume has been allocated on a pro-rata basis based on the absolute dollar amount of each. |
| |
(2) | Total securities include AFS and HTM securities. |
| |
(3) | Includes Federal funds sold, securities purchased under resale agreements or similar arrangements,cash equivalents, interest-bearing deposits with banks, trading securities, FHLB stock and other earning assets. |
| |
(4) | Loan fees, which are not material for any of the periods shown, are included for rate calculation purposes. |
| |
(5) | NPLs are included in the average balances. |
| |
(6) | Excludes basis adjustments for fair value hedges. |
Provision for Credit Losses
ThirdSecond Quarter 20172018 compared to ThirdSecond Quarter 20162017
The provision for credit losses totaled $126$135 million for the thirdsecond quarter of 2017,2018, compared to $148$135 million for the same period of the prior year.
Net charge-offs were $127$109 million for the thirdsecond quarter of 20172018 and $130$132 million for the thirdsecond quarter of 2016. 2017. Net charge-offs in residential mortgage decreased $15 million, primarily due to net charge-offs associated with the 2017 sale of $300 million of residential mortgage loans, which included $40 million of nonaccrual loans and $199 million of performing TDRs.
Net charge-offs were 0.35%0.30% of average loans and leases on an annualized basis for the thirdsecond quarter of 2017,2018, compared to 0.37% of average loans and leases for the same period in 2016.2017.
NineSix Months of 20172018 compared to NineSix Months of 20162017
The provision for credit losses totaled $409$285 million for the ninesix months ended SeptemberJune 30, 2017,2018, compared to $443$283 million for the same period of 2016.2017.
Net charge-offs for the ninesix months ended SeptemberJune 30, 20172018 were $407$254 million, compared to $381$280 million for the ninesix months ended SeptemberJune 30, 2016.2017. Net charge-offs in the other lending subsidiaries portfolio increased $29residential mortgage decreased $23 million, primarily due to an increase in loss severitynet charge-offs associated with used car values. Commercial and industrial net charge-offs decreased $36 million, primarily due to $30 millionthe previously mentioned sale of net charge-offs recorded during the first quarter of 2016 related to the energy lending portfolio.residential mortgage loans.
Net charge-offs were 0.38%0.36% of average loans and leases on an annualized basis for the ninesix months ended SeptemberJune 30, 2017,2018, compared to 0.37%0.40% of average loans and leases for the same period in 2016.2017.
Noninterest Income
ThirdSecond Quarter 20172018 compared to ThirdSecond Quarter 20162017
Noninterest income for the thirdsecond quarter of 20172018 was essentially flat compared to the earlier quarter.
FDIC loss share income improved $18 million due to the termination of loss share agreements in the third quarter of 2016.
Insurance income decreased $13 million, primarily due to lower performance-based commissions.
Mortgage banking income decreased $40 million primarily resulting from lower gains on the net MSR valuation during the current quarter. In addition, commercial mortgage production revenues were lower in the current period.
Other income increased $20 million primarily due to income from SBIC private equity investments.
NineSix Months of 2018 compared to Six Months of 2017 compared to Nine Months of 2016
Noninterest income for the ninesix months ended SeptemberJune 30, 20172018 totaled $3.6$2.4 billion, up $11 million compared to $3.3 billion for the same period in 2016, an increase of $247 million. This change was primarily driven by higher insurance income, service charges on deposits, bankcard2017.
Investment banking and brokerage fees and merchant discounts, FDIC loss share incomecommissions were $222 million, up $26 million due to higher managed account fees and otherhigher investment banking income. These increases were partially offset by decreases in mortgage banking income and securities gains.
Insurance income was $1.3 billion, up $42$917 million, down $22 million compared to the corresponding period of 2016.2017. This increasedecrease was largelyprimarily due to the acquisition of Swett & Crawford in 2016.
lower performance-based commissions. Service charges on deposits were $523 million forwas essentially flat, but was negatively impacted due to fee waivers associated with the nine months ended September 30, 2017, compared to $492 million for the same period of the prior year. This increase reflects organic growth and the impact of the acquisition of National Penn in 2016.
Mortgage bankingFebruary system outage. Other income was $311 million for the nine months ended September 30, 2017, compared to $356 million for the same period of 2016. This decrease is primarilyessentially flat, as increases from lower gains on the net MSR valuation during the current year. In addition, commercial mortgage production revenuesvarious sundry items were lower in the current period.
Bankcard fees and merchant discounts was $204 million, upoffset by a $27 million primarily due to an increase in volumes and the rates earned, as well as a reduction in the accrual for rewards.
FDIC loss share income improved $142 million due to the termination of loss share agreements in the third quarter of 2016.
Other income for the nine months ended September 30, 2017 was $321 million, an increase of $75 million compared to the same period of the prior year, which includes an increase of $34 milliondecrease in income related to assets for certain post-employment benefits, which is largelyprimarily offset in personnel expense. Partnership income increased $19 million primarily from SBIC private equity investments. In addition, income from derivatives activities increased $13 million compared to the prior period.
There were no net securities gains for the nine months ended September 30, 2017, compared to net securities gains of $45 million for the nine months ended September 30, 2016.other income/expense categories.
Noninterest Expense
ThirdSecond Quarter 20172018 compared to ThirdSecond Quarter 20162017
Noninterest expense for the thirdsecond quarter of 20172018 was up $34down $22 million compared to the earlier quarter. Excluding merger-related and restructuring charges, noninterest expense was down $36 million due to continued focus on expense control. This increase was driven by higher personnelincludes the benefits of prior optimization efforts including lower occupancy and equipment expense and other expense, partially offset byfewer FTEs, as well as lower outside IT services.project-related costs.
Personnel expense increased $18was essentially flat compared to the earlier quarter as lower salaries expense driven by approximately 1,600 fewer FTEs was largely offset by higher performance-based incentive expense and annual merit increases.
Other expense decreased $16 million compared to the earlier quarter primarily due to higher incentive compensation and lower capitalized loan origination costs.
Outside IT services decreased $17 million compared toan increase in the earlier quarterexpected return on pension plan assets due to lower project-related expenses.
Other expense increased $41 million compared to the earlier quarter. The earlier quarter included a $73 million net benefit related to the settlement of certain legacy mortgage matters and a $50 million charitable contribution. The remaining increase is due to sundry items.
Merger-related and restructuring charges were up slightly due to current quarter restructuring costs. These costs were partially offset by lower merger-related charges as a result of mergers in 2016.higher plan assets.
NineSix Months of 20172018 compared to NineSix Months of 20162017
Noninterest expense totaled $5.6$3.4 billion for the ninesix months ended SeptemberJune 30, 2017, an increase2018, a decrease of $536$438 million, or 10.6%11.4%, over the same period of the prior year. This increasedecrease was driven by the loss on early extinguishment of debt higher personnelin 2017, lower outside IT services and lower other expenses, partially offset by lower merger-related and restructuring charges.expense.
Personnel expense was $3.1$2.1 billion for the ninesix months ended SeptemberJune 30, 2017,2018, an increase of $117$10 million compared to the ninesix months ended SeptemberJune 30, 2016. Salary2017. The increase was driven by $15 million in higher defined benefit pension plan service cost and incentives expense$12 million of higher performance-based incentive expense. Salaries decreased by $15 million primarily due to approximately 1,600 fewer FTEs, which was $96partially offset by annual merit increases and promotions.
Outside IT services decreased $24 million higherprimarily as a result of acquisitionsdecreased expenses associated with the implementation of a new commercial lending information and higher equity compensation expense. Employee benefits expense increased $21 million, which includes $23 million of expenseaccounting system in 2017 and systems enhancements related to certain post-employment benefits expense, which is largely offset in other income.
Merger-related and restructuring charges decreased $65 million. This reflects a decrease of $104 million in merger-related charges primarily due to expenses for National Penn and Susquehanna in the earlier period, partially offset by an increase of $39 million in restructuring charges primarily related to facilities charges in connection with various branch closures and severance in the current period.
The current year included a loss on early extinguishment of debt of $392 million related to the termination of higher-cost FHLB advances totaling $2.9 billion.BSA/AML.
Other expense increased $77decreased $30 million primarily due to higher operating charge-offs, advertising expenses related to the new brand campaign and sundry other expenses. The earlier period included a $73estimated return on defined benefit pension plan assets, which was $39 million net benefit related to the settlement of certain legacy mortgage matters and a $50 million charitable contribution.
Provision for Income Taxes
Third Quarter 2017 compared to Third Quarter 2016
The provision for income taxes was $294 million for the third quarter of 2017, compared to $273 million forbetter than the earlier quarter. This produced an effective tax rate for the third quarter of 2017 of 31.2%, compared to 29.8% for the earlier quarter.
Nine Months of 2017 compared to Nine Months of 2016
The provision for income taxes was $702 million for the nine months ended September 30, 2017, compared to $771 million for the same period of the prior year. BB&T's effective income tax rate for the nine months ended September 30, 2017 was 28.7%, compared to 30.0% for the same period of the prior year. The current year-to-date period includes excess tax benefits from equity-based compensation plans and the tax benefits associated with using the marginal income tax rate for the loss on early extinguishment of debt. The prior year included a $13 million tax benefit related to specific tax-advantaged assets.period.
Segment Results
See the "Operating Segments" Note in the "Notes to Consolidated Financial Statements" contained16. Operating Segments herein and Note 19. Operating Segments in BB&T's Annual Report on Form 10-K for the year ended December 31, 2016,2017, for additional disclosures related to BB&T's reportable business segments. Fluctuations in noninterest income and noninterest expense incurred directly by the segments are more fully discussed in the "Noninterest Income" and "Noninterest Expense" sections above.
The financial information related to National Penn's operations was included in the Other, Treasury & Corporate segment from the date of acquisition until the systems conversion, which occurred during July 2016. Post-conversion, the majority of National Penn's operations are included in Community Banking.
|
| | | | | | | | | | | | | | | | |
Table 2 |
Net Income by Reportable Segment |
| | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
Community Banking | | $ | 396 |
| | $ | 344 |
| | $ | 1,081 |
| | $ | 955 |
|
Residential Mortgage Banking | | 67 |
| | 132 |
| | 167 |
| | 237 |
|
Dealer Financial Services | | 38 |
| | 40 |
| | 105 |
| | 133 |
|
Specialized Lending | | 54 |
| | 60 |
| | 159 |
| | 168 |
|
Insurance Holdings | | 13 |
| | 21 |
| | 114 |
| | 115 |
|
Financial Services | | 106 |
| | 81 |
| | 313 |
| | 188 |
|
Other, Treasury & Corporate | | (26 | ) | | (36 | ) | | (191 | ) | | 3 |
|
BB&T Corporation | | $ | 648 |
| | $ | 642 |
| | $ | 1,748 |
| | $ | 1,799 |
|
|
| | | | | | | | | | | | | | | | |
Table 2 |
Net Income by Reportable Segment |
| | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Community Banking Retail and Consumer Finance | | $ | 377 |
| | $ | 279 |
| | $ | 701 |
| | $ | 533 |
|
Community Banking Commercial | | 277 |
| | 177 |
| | 547 |
| | 372 |
|
Financial Services and Commercial Finance | | 145 |
| | 134 |
| | 289 |
| | 243 |
|
Insurance Holdings and Premium Finance | | 73 |
| | 60 |
| | 135 |
| | 110 |
|
Other, Treasury & Corporate | | (50 | ) | | 24 |
| | (59 | ) | | (158 | ) |
BB&T Corporation | | $ | 822 |
| | $ | 674 |
| | $ | 1,613 |
| | $ | 1,100 |
|
DuringSecond Quarter 2018 compared to Second Quarter 2017
Community Banking Retail and Consumer Finance
CB-Retail serves retail clients by offering a variety of loan and deposit products, payment services, bankcard products and other financial services by connecting clients to a wide range of financial products and services. CB-Retail includes Dealer Retail Services, which originates loans on an indirect basis to consumers for the purchase of automobiles, boats and recreational vehicles. Additionally, CB-Retail includes specialty finance lending, small equipment leasing and other products for consumers. CB-Retail also includes Residential Mortgage Banking, which originates and purchases mortgage loans to either hold for investment or sell to third parties. BB&T generally retains the servicing rights to loans sold. Mortgage products include fixed and adjustable-rate government guaranteed and conventional loans used for the purpose of constructing, purchasing or refinancing residential properties. Substantially all of the properties are owner-occupied. Residential Mortgage Banking also includes Mortgage Warehouse Lending, which provides short-term lending solutions to finance first-lien residential mortgages held-for-sale by independent mortgage companies.
CB-Retail net income was $377 million for the second quarter of 2017, a change was made in the method for allocation of capital to the operating segments impacting both the allocated balances and funding credit. Results for prior periods have been revised to reflect the new allocations. During the fourth quarter of 2017, BB&T anticipates the Specialized Lending and Dealer Financial Services segments will be combined to reflect how the Company will manage its businesses. The segment information presented herein does not reflect the impact of this realignment.
Third Quarter 2017 compared to Third Quarter 2016
Community Banking
Community Banking net income was $396 million for the third quarter of 2017,2018, an increase of $52$98 million compared to the earlier quarter. Segment net interest income increased $75 million driven by higher funding spreads on deposits as well as average loan and deposit growth, partially offset by a reduction in credit spreads on loans. Noninterest income increased $13 million due to higher bankcard fees and merchant discounts and service charges on deposits. The allocated provision for credit losses increased $26 million primarily due to a decrease in loss estimates in the earlier quarter for commercial and industrial loans and a current quarter increase in net charge-offs. Noninterest expense decreased $14 million driven by a decline in personnel expense primarily due to a change in the approach to capitalized loan origination costs, partially offset by an increase in operating charge-offs.
Residential Mortgage Banking
Residential Mortgage Banking net income was $67 million for the third quarter of 2017, a decrease of $65 million compared to the earlier quarter. Noninterest income decreased $31 million primarily due to lower gains on the net MSR valuation during the current quarter. Segment net interest income decreased $21 million primarily due to a decline in average loans. Noninterest expense increased $60 million due to a $73 million net benefit, in the earlier quarter, for the settlement of certain legacy mortgage matters involving the origination of mortgage loans insured by the FHA, partially offset by declines in personnel expense and loan processing expense.
Dealer Financial Services
Dealer Financial Services net income was $38 million for the third quarter of 2017, essentially flat compared to the earlier quarter. Segment net interest income increased slightly and was offset by an increase in noninterest expense due to higher allocated corporate expenses and increased loan processing expense.
Specialized Lending
Specialized Lending net income was $54 million for the third quarter of 2017, a decrease of $6 million compared to the earlier quarter. Noninterest income fell due to a decline in commercial mortgage banking income.
Specialized Lending average loans increased $1.4 billion, or 8.6 percent, primarily due to higher equipment finance, insurance premium finance and commercial mortgage loans.
Insurance Holdings
Insurance Holdings net income was $13 million for the third quarter of 2017, a decrease of $8 million compared to the earlier quarter. Noninterest income decreased $13 million primarily due to lower performance-based commissions.
Financial Services
Financial Services net income was $106 million for the third quarter of 2017, an increase of $25 million compared to the earlier quarter. Noninterest income increased $16 million due to higher income from SBIC private equity investments. The allocated provision for credit losses decreased $25 million due to a decline in loss estimates related to commercial and industrial loans and lower net charge-offs.
Other, Treasury & Corporate
Other, Treasury & Corporate generated a net loss of $26 million in the third quarter of 2017 compared to a net loss of $36 million for the earlier quarter. Noninterest income increased $27 million primarily due to an improvement in FDIC loss share income as a result of terminating the loss share agreements in the third quarter of 2016. Segment net interest income decreased $28 million due to higher rates for long-term debt as well as an increase in average balances for short-term borrowings. Noninterest expense decreased $31 million due to a $50 million charitable contribution made in the earlier quarter, a decline in outside IT services and an increase in corporate expenses allocated to other operating segments, partially offset by increased personnel expense largely due to the previously mentioned change in approach for capitalized loan origination costs. The allocated provision for credit losses decreased $15 million primarily due to a decline in the provision for unfunded lending commitments.
Nine Months of 2017 compared to Nine Months of 2016
Community Banking
Community Banking net income was $1.1 billion for the nine months ended September 30, 2017, an increase of $126 million compared to the same period of the prior year. Segment net interest income increased $247 million driven by higher funding spreads on deposits as well as loan and deposit growth, primarily from the acquisition of National Penn. Noninterest income increased $77 million due to higher service charges on deposits, bankcard fees and merchant discounts and checkcard fees, primarily driven by the National Penn acquisition. The allocated provision for credit losses increased $101 million due to a moderation in the improvement of loss estimates for commercial loans, higher net charge-offs and loan growth. Noninterest expense increased $42 million, driven by higher allocated corporate expenses and occupancy and equipment expense which were primarily due to the National Penn acquisition as well as an increase in operating charge-offs.
Residential Mortgage Banking
Residential Mortgage Banking net income was $167 million for the nine months ended September 30, 2017, a decrease of $70 million compared to the same period of the prior year. Noninterest income decreased $38 million due to lower gains on the net MSR valuation. Segment net interest income decreased $36 million primarily due to a decline in average loan balances. Noninterest expense increased $55 million due to a $73 million net benefit in the prior year for the settlement of certain legacy mortgage matters involving the origination of mortgage loans insured by the FHA. Also, noninterest expense increased due to higher allocated corporate expenses, partially offset by a decline in loan processing expense and personnel expense. The allocated provision for credit losses decreased $14 million primarily due to a decline in the allowance for loan and lease losses resulting from an improvement in loan mix and lower TDRs due to loan sales in the current period.
Dealer Financial Services
Dealer Financial Services net income was $105 million for the nine months ended September 30, 2017, a decrease of $28 million compared to the same period of the prior year. Segment net interest income increased $24 million due to higher average loan balances, partially offset by a decline in credit spreads on loans. The allocated provision for credit losses increased $44 million primarily due to higher net charge-offs and an increase in the allowance for loan and lease losses, both due to increased loss severity. Noninterest expense increased $26 million primarily due to higher loan processing expense, allocated corporate expenses and personnel expense.
Specialized Lending
Specialized Lending net income was $159 million for the nine months ended September 30, 2017, a decrease of $9 million compared to the same period of the prior year. Noninterest expense rose $19 million due to increased depreciation on property held under operating leases related to growth in the Equipment Finance’s lease portfolio, higher allocated corporate expenses and increased personnel expense.
Insurance Holdings
Insurance Holdings net income was $114 million for the nine months ended September 30, 2017, essentially flat compared to the same period of the prior year. Noninterest income increased $46 million, which primarily reflects the addition of Swett & Crawford in April 2016. Noninterest expense increased $54 million driven by higher personnel expense, allocated corporate expenses and amortization of intangibles, which were primarily due to Swett & Crawford.
Financial Services
Financial Services net income was $313 million for the nine months ended September 30, 2017, an increase of $125 million compared to the same period of the prior year. Noninterest income increased $57 million, primarily due to higher income from SBIC private equity investments, trust and investment advisory fees and hedge and client derivative income. Segment net interest income increased $33 million, primarily driven by loan and deposit growth and higher funding spreads on deposits, partially offset by lower credit spreads on loans. The allocated provision for credit losses decreased $137 millionslightly due to increased reservesa decline in net charge-offs primarily driven by the sale of mortgage TDRs in the earlier period, relatedpartially offset by accelerating loan growth in the current quarter. Noninterest expense decreased primarily due to energy lending exposures,declines in personnel expense, loan-related expense, and occupancy and equipment expense. The provision for income taxes decreased $43 million due to the lower federal tax rate compared to the earlier quarter.
CB-Retail average loans and leases held for investment decreased $1.4 billion, or 2.2%, compared to the earlier quarter, primarily driven by a decline in loss estimates relatedsales finance loans due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets.
CB-Retail average total deposits decreased $96 million, or 0.1%, compared to the earlier quarter. Average noninterest-bearing deposits increased $1.3 billion while average time deposits, interest checking, and money market and savings fell $636 million, $478 million and $290 million, respectively.
Community Banking Commercial
CB-Commercial serves large, medium and small business clients by offering a variety of loan and deposit products and by connecting clients to the combined organization’s broad array of financial services. CB-Commercial includes CRE lending, commercial and industrial lending, corporate banking, asset-based lending, dealer inventory financing, tax exempt financing, cash management and treasury services, and commercial deposit products.
CB-Commercial net income was $277 million for the second quarter of 2018, an increase of $100 million compared to the earlier quarter. Segment net interest income increased $20 million primarily driven by higher funding spreads and average loan growth, partially offset by lower credit spreads on loans. Noninterest expense decreased $66 million driven primarily by a decline in personnel expense due to a change in approach for allocating capitalized loan origination costs that was implemented in the third quarter of 2017, as well as lower allocated corporate expenses. The provision for income taxes decreased compared to the earlier quarter due to the lower federal tax rate.
CB-Commercial average loans and lowerleases held for investment increased $994 million, or 1.9%, compared to the earlier quarter, driven primarily by an increase in average commercial real estate loans.
CB-Commercial average total deposits decreased $307 million, or 0.5%, compared to the earlier quarter. Noninterest-bearing deposits increased $480 million while average interest checking and time deposits declined $725 million and $153 million, respectively.
Financial Services and Commercial Finance
FS&CF provides personal trust administration, estate planning, investment counseling, wealth management, asset management, corporate retirement services, capital markets and corporate banking services, specialty finance and corporate trust services to individuals, corporations, institutions, foundations and government entities. In addition, the segment includes BB&T Securities, a full-service brokerage and investment banking firm, which offers clients a variety of investment services, including discount brokerage services, equities, annuities, mutual funds and government bonds. The Corporate Banking Division originates and services large corporate relationships, syndicated lending relationships and client derivatives while the specialty finance products offered by FS&CF include equipment finance, tax-exempt financing for local governments and special-purpose entities, and full-service commercial mortgage banking lending.
FS&CF net income was $145 million for the second quarter of 2018, an increase of $11 million compared to the earlier quarter. Noninterest income increased slightly primarily due to higher commercial mortgage banking income. The allocated provision for credit losses increased due to higher incurred loss estimates and an increase in net charge-offs. Noninterest expense increased $32 million primarily driven by higher allocated corporate expenses due to higher personnel expense. The provision for income taxes decreased $25 million due to the lower federal tax rate.
FS&CF average loans and leases held for investment increased investments$1.9 billion, or 7.5%, compared to the earlier quarter. Corporate Banking's average loans and leases held for investment increased $698 million, or 4.7%, compared to the earlier quarter, while BB&T Wealth's average loans and leases held for investment increased $240 million, or 14.5%. Average loans and leases held for investment at Governmental Finance increased $417 million, or 8.8%, compared to the earlier quarter and increased 12.5% and 15.0%, respectively, for Equipment Finance and Grandbridge.
FS&CF average total deposits decreased $3.1 billion, or 10.0%, compared to the earlier quarter. Average money market and savings accounts fell $2.2 billion, or 10.4%, and average interest checking declined $745 million, or 12.3%.
Insurance Holdings and Premium Finance
BB&T's insurance agency / brokerage network is the fifth largest in the world. IH&PF provides property and casualty, employee benefits and life insurance to businesses and individuals. It also provides small business initiatives and additional support area costs.corporate services, such as workers compensation and professional liability, as well as surety coverage and title insurance. In addition, IH&PF includes commercial and retail insurance premium finance.
IH&PF net income was $73 million for the second quarter of 2018, an increase of $13 million compared to the earlier quarter. Noninterest income and noninterest expense were essentially flat compared to the earlier quarter. The provision for income taxes decreased compared to the earlier quarter due to the lower federal tax rate.
Other, Treasury & Corporate
Other, Treasury & CorporateNet income in OT&C can vary due to the changing needs of the Corporation, including the size of the investment portfolio, the need for wholesale funding and income received from derivatives used to hedge the balance sheet.
OT&C generated a net loss of $191$50 million forin the nine months ended September 30, 2017,second quarter of 2018, compared to net income of $3$24 million in the earlier quarter. Segment net interest income decreased $36 million primarily due to an increase in the rate and average balances for long-term debt. Noninterest expense increased $47 million primarily due to an increase in personnel expense resulting from a third quarter of 2017 change in approach for allocating capitalized loan origination costs.
Six Months of 2018 compared to Six Months of 2017
Community Banking Retail and Consumer Finance
CB-Retail net income was $701 million for the six months ended June 30, 2018, an increase of $168 million compared to the same period of the prior year. Segment net interest income increased $41 million primarily due to higher funding spreads on deposits, partially offset by lower credit spreads on loans. Noninterest income increased slightly primarily due to higher bankcard fees and merchant discounts. The allocated provision for credit losses decreased primarily due to a decline in net charge-offs and a decrease in incurred loss estimates, partially offset by accelerating loan growth in the current period. Noninterest expense decreased primarily due to declines in personnel expense, loan-related expense, and occupancy and equipment expense, partially offset by an increase in allocated corporate expenses. The provision for income taxes decreased $88 million due to the lower federal tax rate compared to the earlier period.
CB-Retail average loans and leases held for investment decreased $1.8 billion, or 2.8%, compared to the earlier period, primarily driven by a decline in sales finance loans due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets.
CB-Retail average total deposits decreased $243 million, or 0.3%, compared to the earlier period. Average noninterest-bearing deposits increased $1.4 billion while average time deposits and interest checking fell $1.0 billion and $472 million, respectively.
Community Banking Commercial
CB-Commercial net income was $547 million for the six months ended June 30, 2018, an increase of $175 million compared to the same period of the prior year. Segment net interest income increased $47 million driven primarily by higher funding spreads and average loan growth, partially offset by lower credit spreads on loans. The allocated provision for credit losses increased $29 million primarily due to an increase in incurred loss estimates. Noninterest expense decreased $119 million driven primarily by a decline in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs, as well as lower allocated corporate expenses. The provision for income taxes decreased $36 million compared to the earlier period due to the lower tax rate.
CB-Commercial average loans and leases held for investment increased $1.1 billion, or 2.1%, compared to the earlier period, driven primarily by an increase in average commercial real estate loans.
CB-Commercial average total deposits decreased $238 million, or 0.4%, compared to the earlier period. Noninterest-bearing deposits increased $744 million while average interest checking and time deposits declined $758 million and $158 million, respectively.
Financial Services and Commercial Finance
FS&CF net income was $289 million for the six months ended June 30, 2018, an increase of $46 million compared to the same period of the prior year. Segment net interest income increased due to higher funding spreads and average loan growth, partially offset by lower credit spreads on loans and a decline in average total deposits. Noninterest income increased $27 million due to higher investment banking and brokerage fees and commissions, primarily driven by higher managed account fees. Noninterest expense increased $26 million due to higher performance-based incentive expense. The provision for income taxes decreased $35 million due to the lower tax rate.
FS&CF average loans and leases held for investment increased $2.1 billion, or 8.5%, compared to the earlier period. Corporate Banking's average loans and leases held for investment increased $793 million, or 5.4%, compared to the earlier period, while BB&T Wealth's average loans and leases held for investment increased $255 million, or 15.8%. Average loans and leases held for investment at Governmental Finance increased $507 million, or 10.8%, compared to the earlier period and increased 13.5% and 14.5%, respectively, for Equipment Finance and Grandbridge.
FS&CF average total deposits decreased $3.4 billion, or 10.7%, compared to the earlier period. Average money market and savings accounts fell $2.4 billion, or 11.3%, and average interest checking declined $845 million, or 13.9%.
Insurance Holdings and Premium Finance
IH&PF net income was $135 million for the six months ended June 30, 2018, an increase of $25 million compared to the same period of the prior year. Noninterest income decreased $25 million primarily due to lower performance-based commissions. Noninterest expense decreased $25 million primarily due to declines in business referral expense and allocated corporate expenses. The provision for income taxes decreased $20 million compared to the earlier period due to the lower federal tax rate.
Other, Treasury & Corporate
OT&C generated a net loss of $59 million for the six months ended June 30, 2018, compared to a net loss of $158 million for the same period of the prior year. Segment net interest income decreased $137$57 million primarily due to the inclusion of National Penn results in the earlier period and a decline in PCI loans. Noninterest income increased $109 million, primarily driven by a $142 million improvement in FDIC loss share income as a result of terminating the loss share agreements in the third quarter of 2016. Also, there was an increase in income related to assetsthe rate and average balances for certain post-employment benefits, partially offset by securities gains recognized in the earlier period. Noninterest expense increased $308 million due to the first quarter 2017 loss of $392 million on the early extinguishment of higher-cost FHLB advances as well as higher personnel expense, including expense related to assets for certain post-employment benefits. These increases were partially offset by a $50 million charitable contribution made in the earlier period, lower merger-related and restructuring charges due to the inclusion of National Penn in the earlier period, and an increase in allocated corporate expenses.long-term debt. The allocated provision for credit losses decreased $20due to a decline in the provision for unfunded lending commitments. Noninterest expense decreased $305 million due to a $392 million loss on the early extinguishment of debt in the earlier period. This decrease was partially offset by an increase in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs, as well as a decline in corporate expenses allocated to other operating segments. The benefit for income taxes decreased $159 million primarily due to a provision benefit recordeddecline in the current period for PCI loans.pre-tax loss and lower excess tax benefits from equity-based compensation.
Analysis of Financial Condition
Investment Activities
The total securities portfolio was $46.6$45.7 billion at SeptemberJune 30, 2017,2018, compared to $43.6$47.6 billion at December 31, 2016.2017. As of SeptemberJune 30, 2017,2018, the securities portfolio included $23.2$23.9 billion of AFS securities (at fair value) and $23.4$21.7 billion of HTM securities (at amortized cost).
The effective duration of the securities portfolio was 4.65.2 years at SeptemberJune 30, 2017,2018, compared to 4.84.7 years at December 31, 2016.2017. The duration of the securities portfolio excludes certain non-agency residential MBS that were acquired in the Colonial acquisition and an immaterial amount of other securities without a stated maturity at September 30, 2017.
See the "Securities" Note in the "Notes to Consolidated Financial Statements" herein for additional disclosures related to BB&T's evaluation of securities for OTTI.MBS.
Lending Activities
Loans HFI totaled $142.8$146.2 billion at SeptemberJune 30, 2017,2018, compared to $143.3$143.7 billion at December 31, 2016.2017. This increase was primarily related to commercial and industrial loans and residential mortgage loans. Management continuously evaluates the composition of the loan portfolio taking into consideration the current and expected market conditions, interest rate environment and risk profiles to optimize profitability. Based upon this evaluation, management may decide to focus efforts on growing or decreasing exposures in certain portfolios through both organic changes and portfolio acquisitions or sales.
Other lending subsidiaries loans increased $1.4 billion due to seasonality and strong growth in Regional Acceptance, Sheffield and Equipment Finance. The growth in other lending subsidiaries loans also includes a portfolio purchase of $244 million in the first quarter of 2017.
CRE-construction and development increased $682 million primarily due to utilization as projects progressed. CRE-income producing properties increased $362 million, which was primarily the result of a reclassification of approximately $500 million from commercial and industrial loans that was made at the time of our new commercial loan system implementation at the beginning of the third quarter. Commercial and industrial loans increased $258 million primarily due to growth from the Financial Services and Community Banking segments and was also impacted by the reclassification.
Sales finance loans decreased $1.8 billion due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets and the continued runoff of the auto loan and lease portfolio obtained in connection with the Susquehanna acquisition. Residential mortgage loans decreased $1.3 billion due to continued targeted run-off of the portfolio.
During the second quarter, the Company completed the sale of residential mortgage loans with a carrying value before allowance for loan losses of $300 million. The sale included $40 million of nonaccrual loans and $199 million of performing TDRs.
The following table presents the composition of average loans and leases:
| | Table 3 | Composition of Average Loans and Leases | |
Quarterly Average Balances of Loans and Leases | | Quarterly Average Balances of Loans and Leases |
| | | | |
| | For the Three Months Ended | |
For the Three Months Ended | | | |
(Dollars in millions) | | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 6/30/2017 |
Commercial: | | | | | | | | | | | |
Commercial and industrial | | $ | 51,605 |
| | $ | 51,900 |
| | $ | 51,119 |
| | $ | 51,306 |
| | $ | 51,508 |
| | $ | 59,548 |
| | $ | 58,627 |
| | $ | 58,478 |
| | $ | 58,211 |
| | $ | 58,150 |
|
CRE-income producing properties | | 15,099 |
| | 14,864 |
| | 14,602 |
| | 14,566 |
| | 14,667 |
| |
CRE-construction and development | | 4,181 |
| | 3,905 |
| | 3,844 |
| | 3,874 |
| | 3,802 |
| |
Dealer floor plan | | 1,574 |
| | 1,490 |
| | 1,427 |
| | 1,367 |
| | 1,268 |
| |
Direct retail lending | | 11,960 |
| | 12,000 |
| | 12,014 |
| | 12,046 |
| | 11,994 |
| |
Sales finance | | 9,780 |
| | 10,450 |
| | 10,896 |
| | 10,599 |
| | 9,339 |
| |
CRE | | | 21,546 |
| | 21,398 |
| | 20,998 |
| | 20,776 |
| | 20,304 |
|
Lease financing | | | 1,862 |
| | 1,872 |
| | 1,851 |
| | 1,732 |
| | 1,664 |
|
Retail: | | | | | | | | | | | |
Residential mortgage | | | 29,272 |
| | 28,824 |
| | 28,559 |
| | 28,924 |
| | 29,392 |
|
Direct | | | 11,680 |
| | 11,791 |
| | 11,901 |
| | 11,960 |
| | 12,000 |
|
Indirect | | | 16,804 |
| | 16,914 |
| | 17,426 |
| | 17,678 |
| | 18,127 |
|
Revolving credit | | 2,668 |
| | 2,612 |
| | 2,607 |
| | 2,608 |
| | 2,537 |
| | 2,831 |
| | 2,798 |
| | 2,759 |
| | 2,668 |
| | 2,612 |
|
Residential mortgage | | 28,924 |
| | 29,392 |
| | 29,701 |
| | 30,044 |
| | 30,357 |
| |
Other lending subsidiaries | | 16,158 |
| | 15,636 |
| | 14,919 |
| | 14,955 |
| | 14,742 |
| |
PCI | | 742 |
| | 825 |
| | 883 |
| | 974 |
| | 1,052 |
| | 559 |
| | 631 |
| | 689 |
| | 742 |
| | 825 |
|
Total average loans and leases HFI | | $ | 142,691 |
| | $ | 143,074 |
| | $ | 142,012 |
| | $ | 142,339 |
| | $ | 141,266 |
| | $ | 144,102 |
| | $ | 142,855 |
| | $ | 142,661 |
| | $ | 142,691 |
| | $ | 143,074 |
|
Average loans held for investment for the third quarter of 2017 were $142.7 billion, down $383 million compared to the second quarter of 2017.
Excluding planned runoff from sales finance loans, residential mortgage loans and PCI loans, average loans held for investment increased $838 million,2018 were $144.1 billion, up $1.2 billion, or an annualized 3.2%3.5% annualized compared to the prior quarter.first quarter of 2018.
Average commercial and industrial loans decreased $295increased $921 million whiledriven by strong growth in mortgage warehouse lending of $389 million following a seasonal decline in the first quarter. Community Banking Commercial segment average CRE-income producing propertiesloans increased $235 million. The changes were impacted by$260 million across most of the reclassification of approximately $500 millionfootprint. Also contributing to the growth in loans from commercial and industrial to CRE-income producing properties as previously discussed.loans was higher dealer floor plan and premium finance of $64 million and $60 million, respectively. Average CRE-construction and developmentCRE loans increased $276$148 million primarily due to utilization as projects progressed.an increase in construction lending and Grandbridge. Average other lending subsidiariesresidential mortgage loans increased $522 million, which includes an increase due to strong growth in small ticket consumer finance, premium finance and equipment finance.
Average sales finance loans decreased $670$448 million primarily due to strategic optimization and directing investments towards higher-yielding assets. In addition, average residentialthe retention of a portion of the conforming mortgage production.
Average direct retail loans decreased $468$111 million, however, direct retail loans as all conforming loans continueof June 30, 2018, were relatively flat compared to be soldthe balance at the end of the first quarter as loan demand in this category improved late in the secondary market.second quarter.
Average indirect retail loans decreased $110 million. While overall this category decreased, there was strong seasonal growth in power sports and recreational lending, which was more than offset by declines in automobile loans. Indirect loans as of June 30, 2018, were $17.1 billion, up 11.1% annualized compared to the end of the first quarter, reflecting strong growth late in the second quarter.
Asset Quality
NPAs totaled $680 million at September 30, 2017, compared to $813 million at December 31, 2016. The decrease was driven by an $82 million decline in nonperforming commercial and industrial loans, primarily due to payoffs, sales and write-downs and a $31 million decline in nonperforming residential mortgage loans due to the previously mentioned loan sale. NPLs represented 0.42% of loans and leases held for investment, an improvement of nine basis points.
The following table presents activity related to NPAs. Foreclosed real estate acquired from the FDIC is excluded for periods prior to the loss share termination:
|
| | | | | | | | |
Table 4 |
Rollforward of NPAs |
| | |
| | Nine Months Ended September 30, |
(Dollars in millions) | | 2017 | | 2016 |
Beginning balance | | $ | 813 |
| | $ | 686 |
|
New NPAs | | 976 |
| | 1,311 |
|
Advances and principal increases | | 215 |
| | 186 |
|
Disposals of foreclosed assets (1) | | (386 | ) | | (382 | ) |
Disposals of NPLs (2) | | (168 | ) | | (172 | ) |
Charge-offs and losses | | (185 | ) | | (220 | ) |
Payments | | (461 | ) | | (475 | ) |
Transfers to performing status | | (120 | ) | | (111 | ) |
Foreclosed real estate, included as a result of loss share termination | | — |
| | 17 |
|
Other, net | | (4 | ) | | 3 |
|
Ending balance | | $ | 680 |
| | $ | 843 |
|
| |
(1) | Includes charge-offs and losses recorded upon sale of $177 million and $151 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(2) | Includes charge-offs and losses recorded upon sale of $29 million and $16 million for the nine months ended September 30, 2017 and 2016, respectively. |
The following tables summarize asset quality information for the past five quarters:
|
| | | | | | | | | | | | | | | | | | | | |
Table 5 |
Asset Quality |
| | |
| | Three Months Ended |
(Dollars in millions) | | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
NPAs (1) | | | | | | | | | | |
NPLs: | | | | | | | | | | |
Commercial and industrial | | $ | 281 |
| | $ | 295 |
| | $ | 344 |
| | $ | 363 |
| | $ | 413 |
|
CRE-income producing properties | | 31 |
| | 35 |
| | 43 |
| | 40 |
| | 38 |
|
CRE-construction and development | | 10 |
| | 15 |
| | 17 |
| | 17 |
| | 12 |
|
Dealer floor plan | | — |
| | — |
| | 7 |
| | — |
| | — |
|
Direct retail lending | | 64 |
| | 65 |
| | 66 |
| | 63 |
| | 55 |
|
Sales finance | | 5 |
| | 5 |
| | 6 |
| | 6 |
| | 6 |
|
Residential mortgage-nonguaranteed | | 136 |
| | 125 |
| | 167 |
| | 172 |
| | 167 |
|
Residential mortgage-government guaranteed | | 5 |
| | 6 |
| | 5 |
| | — |
| | — |
|
Other lending subsidiaries | | 74 |
| | 66 |
| | 68 |
| | 75 |
| | 66 |
|
Total nonaccrual loans and leases HFI (1)(2) | | 606 |
| | 612 |
| | 723 |
| | 736 |
| | 757 |
|
Foreclosed real estate | | 46 |
| | 48 |
| | 49 |
| | 50 |
| | 58 |
|
Other foreclosed property | | 28 |
| | 30 |
| | 29 |
| | 27 |
| | 28 |
|
Total nonperforming assets (1)(2) | | $ | 680 |
| | $ | 690 |
| | $ | 801 |
| | $ | 813 |
| | $ | 843 |
|
| | | | | | | | | | |
Performing TDRs (3): | | | | | | | | | | |
Commercial and industrial | | $ | 60 |
| | $ | 48 |
| | $ | 48 |
| | $ | 55 |
| | $ | 46 |
|
CRE-income producing properties | | 13 |
| | 15 |
| | 14 |
| | 16 |
| | 14 |
|
CRE-construction and development | | 9 |
| | 9 |
| | 11 |
| | 9 |
| | 8 |
|
Direct retail lending | | 63 |
| | 63 |
| | 65 |
| | 67 |
| | 69 |
|
Sales finance | | 13 |
| | 14 |
| | 15 |
| | 16 |
| | 16 |
|
Revolving credit | | 29 |
| | 29 |
| | 29 |
| | 29 |
| | 30 |
|
Residential mortgage-nonguaranteed | | 229 |
| | 207 |
| | 347 |
| | 336 |
| | 292 |
|
Residential mortgage-government guaranteed | | 380 |
| | 396 |
| | 424 |
| | 433 |
| | 413 |
|
Other lending subsidiaries | | 256 |
| | 232 |
| | 232 |
| | 226 |
| | 209 |
|
Total performing TDRs (3)(4) | | $ | 1,052 |
| | $ | 1,013 |
| | $ | 1,185 |
| | $ | 1,187 |
| | $ | 1,097 |
|
| | | | | | | | | | |
Loans 90 days or more past due and still accruing: | | | | | | | | | | |
Direct retail lending | | $ | 9 |
| | $ | 7 |
| | $ | 7 |
| | $ | 6 |
| | $ | 7 |
|
Sales finance | | 6 |
| | 4 |
| | 5 |
| | 6 |
| | 4 |
|
Revolving credit | | 11 |
| | 10 |
| | 10 |
| | 12 |
| | 9 |
|
Residential mortgage-nonguaranteed | | 43 |
| | 51 |
| | 64 |
| | 79 |
| | 66 |
|
Residential mortgage-government guaranteed (5) | | 366 |
| | 350 |
| | 374 |
| | 443 |
| | 414 |
|
PCI | | 70 |
| | 71 |
| | 82 |
| | 90 |
| | 92 |
|
Total loans 90 days or more past due and still accruing (5) | | $ | 505 |
| | $ | 493 |
| | $ | 542 |
| | $ | 636 |
| | $ | 592 |
|
| | | | | | | | | | |
Loans 30-89 days past due: | | | | | | | | | | |
Commercial and industrial | | $ | 30 |
| | $ | 18 |
| | $ | 22 |
| | $ | 27 |
| | $ | 34 |
|
CRE-income producing properties | | 7 |
| | 1 |
| | 11 |
| | 6 |
| | 3 |
|
CRE-construction and development | | 1 |
| | 2 |
| | 1 |
| | 2 |
| | 2 |
|
Direct retail lending | | 55 |
| | 54 |
| | 55 |
| | 60 |
| | 62 |
|
Sales finance | | 66 |
| | 57 |
| | 51 |
| | 76 |
| | 60 |
|
Revolving credit | | 22 |
| | 20 |
| | 20 |
| | 23 |
| | 20 |
|
Residential mortgage-nonguaranteed | | 320 |
| | 265 |
| | 272 |
| | 393 |
| | 354 |
|
Residential mortgage-government guaranteed (6) | | 135 |
| | 128 |
| | 129 |
| | 132 |
| | 112 |
|
Other lending subsidiaries | | 310 |
| | 300 |
| | 215 |
| | 322 |
| | 288 |
|
PCI | | 41 |
| | 29 |
| | 29 |
| | 36 |
| | 45 |
|
Total loans 30-89 days past due (6) | | $ | 987 |
| | $ | 874 |
| | $ | 805 |
| | $ | 1,077 |
| | $ | 980 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Table 4 |
Asset Quality |
| | |
(Dollars in millions) | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 6/30/2017 |
NPAs (1) | | | | | | | | | |
NPLs: | | | | | | | | | |
Commercial and industrial | $ | 243 |
| | $ | 257 |
| | $ | 259 |
| | $ | 288 |
| | $ | 300 |
|
CRE | 61 |
| | 67 |
| | 45 |
| | 41 |
| | 50 |
|
Lease financing | 9 |
| | 13 |
| | 1 |
| | 2 |
| | 3 |
|
Residential mortgage | 119 |
| | 127 |
| | 129 |
| | 141 |
| | 131 |
|
Direct | 58 |
| | 64 |
| | 64 |
| | 64 |
| | 65 |
|
Indirect | 68 |
| | 74 |
| | 72 |
| | 70 |
| | 63 |
|
Total NPLs HFI (1)(2) | 558 |
| | 602 |
| | 570 |
| | 606 |
| | 612 |
|
Foreclosed real estate | 43 |
| | 40 |
| | 32 |
| | 46 |
| | 48 |
|
Other foreclosed property | 23 |
| | 27 |
| | 25 |
| | 28 |
| | 30 |
|
Total nonperforming assets (1)(2) | $ | 624 |
| | $ | 669 |
| | $ | 627 |
| | $ | 680 |
| | $ | 690 |
|
| | | | | | | | | | |
Performing TDRs (3): | | | | | | | | | |
Commercial and industrial | $ | 44 |
| | $ | 38 |
| | $ | 50 |
| | $ | 62 |
| | $ | 50 |
|
CRE | 11 |
| | 12 |
| | 16 |
| | 22 |
| | 24 |
|
Residential mortgage | 647 |
| | 627 |
| | 605 |
| | 609 |
| | 603 |
|
Direct | 58 |
| | 59 |
| | 62 |
| | 63 |
| | 63 |
|
Indirect | 284 |
| | 277 |
| | 281 |
| | 267 |
| | 244 |
|
Revolving credit | 29 |
| | 29 |
| | 29 |
| | 29 |
| | 29 |
|
Total performing TDRs (3)(4) | $ | 1,073 |
| | $ | 1,042 |
| | $ | 1,043 |
| | $ | 1,052 |
| | $ | 1,013 |
|
| | | | | | | | | | |
Loans 90 days or more past due and still accruing: | | | | | | | | | |
Commercial and industrial | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
CRE | — |
| | — |
| | 1 |
| | — |
| | — |
|
Residential mortgage (5) | 374 |
| | 420 |
| | 465 |
| | 409 |
| | 401 |
|
Direct | 4 |
| | 6 |
| | 6 |
| | 9 |
| | 7 |
|
Indirect | 4 |
| | 5 |
| | 6 |
| | 6 |
| | 4 |
|
Revolving credit | 10 |
| | 11 |
| | 12 |
| | 11 |
| | 10 |
|
PCI | 43 |
| | 48 |
| | 57 |
| | 70 |
| | 71 |
|
Total loans 90 days or more past due and still accruing (5) | $ | 435 |
| | $ | 490 |
| | $ | 548 |
| | $ | 505 |
| | $ | 493 |
|
| | | | | | | | | | |
Loans 30-89 days past due: | | | | | | | | | |
Commercial and industrial | $ | 26 |
| | $ | 31 |
| | $ | 41 |
| | $ | 47 |
| | $ | 32 |
|
CRE | 4 |
| | 10 |
| | 8 |
| | 8 |
| | 3 |
|
Lease financing | 2 |
| | 1 |
| | 4 |
| | 1 |
| | 2 |
|
Residential mortgage (6) | 441 |
| | 400 |
| | 472 |
| | 455 |
| | 393 |
|
Direct | 52 |
| | 55 |
| | 65 |
| | 55 |
| | 54 |
|
Indirect | 337 |
| | 272 |
| | 412 |
| | 358 |
| | 341 |
|
Revolving credit | 21 |
| | 21 |
| | 23 |
| | 22 |
| | 20 |
|
PCI | 22 |
| | 24 |
| | 27 |
| | 41 |
| | 29 |
|
Total loans 30-89 days past due (6) | $ | 905 |
| | $ | 814 |
| | $ | 1,052 |
| | $ | 987 |
| | $ | 874 |
|
Excludes loans held for sale.
| |
(1) | PCI loans are accounted for using the accretion method. |
| |
(2) | Sales of nonperforming loans totaled approximately$12 million, $33 million, $44 million, $19 million $75 million, $74 million, $130 million and $63$75 million for the quarter ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
| |
(3) | Excludes TDRs that are nonperforming totaling $191 million, $196 million, $189 million, $203 million and $214 million $218 million, $184 million and $138 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. These amounts are included in total NPAs.nonperforming assets. |
| |
(4) | Sales of performing TDRs, which were primarily residential mortgage loans, totaled $17 million, $29 million, $44 million, $49 million $203 million, $48 million, $36 million and $30$203 million for the quarter ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
| |
(5) | Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 90 days or more past due totaling $27 million, $23 million, $66 million, $45 million and $32 million $29 million, $48 million and $46 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
| |
(6) | Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 30-89 days totaling $2$1 million, $1 million, $2 million, $2 million $3 million and $2 million at June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
|
| | | | | | | | | | | | | | | |
Table 6 |
Asset Quality Ratios |
| | |
| | As of / For the Three Months Ended |
| | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
Asset Quality Ratios: | | | | | | | | | | |
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI | | 0.69 | % | | 0.61 | % | | 0.56 | % | | 0.75 | % | | 0.69 | % |
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI | | 0.35 |
| | 0.34 |
| | 0.38 |
| | 0.44 |
| | 0.42 |
|
NPLs as a percentage of loans and leases HFI | | 0.42 |
| | 0.43 |
| | 0.51 |
| | 0.51 |
| | 0.53 |
|
NPAs as a percentage of: | | | | | | | | | | |
Total assets | | 0.31 |
| | 0.31 |
| | 0.36 |
| | 0.37 |
| | 0.38 |
|
Loans and leases HFI plus foreclosed property | | 0.48 |
| | 0.48 |
| | 0.56 |
| | 0.57 |
| | 0.59 |
|
Net charge-offs as a percentage of average loans and leases HFI | | 0.35 |
| | 0.37 |
| | 0.42 |
| | 0.42 |
| | 0.37 |
|
ALLL as a percentage of loans and leases HFI | | 1.04 |
| | 1.03 |
| | 1.04 |
| | 1.04 |
| | 1.06 |
|
Ratio of ALLL to: | | | | | | | | | | |
Net charge-offs | | 2.93x |
| | 2.80x |
| | 2.49x |
| | 2.47x |
| | 2.91x |
|
NPLs | | 2.44x |
| | 2.43x |
| | 2.05x |
| | 2.03x |
| | 2.00x |
|
| | | | | | | | | | |
Asset Quality Ratios (Excluding Government Guaranteed and PCI): (1) |
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI | | 0.05 | % | | 0.05 | % | | 0.06 | % | | 0.07 | % | | 0.06 | % |
|
| | | | | | | | | | | | | | | |
Table 5 |
Asset Quality Ratios |
| | |
As of / For the Three Months Ended | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 6/30/2017 |
Asset Quality Ratios: | | | | | | | | | | |
NPLs as a percentage of loans and leases HFI | | 0.38 | % | | 0.42 | % | | 0.40 | % | | 0.42 | % | | 0.43 | % |
NPAs as a percentage of: | | | | | | | | | | |
Total assets | | 0.28 |
| | 0.30 |
| | 0.28 |
| | 0.31 |
| | 0.31 |
|
Loans and leases HFI plus foreclosed property | | 0.43 |
| | 0.47 |
| | 0.44 |
| | 0.48 |
| | 0.48 |
|
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI | | 0.30 |
| | 0.34 |
| | 0.38 |
| | 0.35 |
| | 0.34 |
|
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI | | 0.62 |
| | 0.57 |
| | 0.73 |
| | 0.69 |
| | 0.61 |
|
Net charge-offs as a percentage of average loans and leases HFI | | 0.30 |
| | 0.41 |
| | 0.36 |
| | 0.35 |
| | 0.37 |
|
ALLL as a percentage of loans and leases HFI | | 1.05 |
| | 1.05 |
| | 1.04 |
| | 1.04 |
| | 1.03 |
|
Ratio of ALLL to: | | | | | | | | | | |
Net charge-offs | | 3.49x |
| | 2.55x |
| | 2.89x |
| | 2.93x |
| | 2.80x |
|
NPLs | | 2.74x |
| | 2.49x |
| | 2.62x |
| | 2.44x |
| | 2.43x |
|
| | | | | | | | | | |
Asset Quality Ratios (Excluding Government Guaranteed and PCI): (1) |
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI | | 0.04 | % | | 0.04 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
Applicable ratios are annualized. | |
(1) | This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage loans and PCI. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio such that it might not be reflective of asset collectibility or might not be comparable to other periods presented or to other portfolios that do not have government guarantees or were not impacted by purchase accounting. |
Nonperforming assets totaled $624 million at June 30, 2018, down $45 million compared to March 31, 2018. Nonperforming loans and leases represented 0.38% of loans and leases held for investment, a four basis point decrease compared to March 31, 2018. The decrease in nonperforming assets was across all major loan categories.
The following table presents activity related to NPAs:
|
| | | | | | | | |
Table 6 |
Rollforward of NPAs |
| | |
Six Months Ended June 30, | | |
(Dollars in millions) | | 2018 | | 2017 |
Balance, January 1 | | $ | 627 |
| | $ | 813 |
|
New NPAs | | 616 |
| | 657 |
|
Advances and principal increases | | 226 |
| | 141 |
|
Disposals of foreclosed assets (1) | | (222 | ) | | (258 | ) |
Disposals of NPLs (2) | | (45 | ) | | (149 | ) |
Charge-offs and losses | | (124 | ) | | (131 | ) |
Payments | | (366 | ) | | (289 | ) |
Transfers to performing status | | (87 | ) | | (91 | ) |
Other, net | | (1 | ) | | (3 | ) |
Ending balance, June 30 | | $ | 624 |
| | $ | 690 |
|
| |
(1) | Includes charge-offs and losses recorded upon sale of $105 million and $115 million for the six months ended June 30, 2018 and 2017, respectively. |
| |
(2) | Includes charge-offs and losses recorded upon sale of $11 million and $17 million for the six months ended June 30, 2018 and 2017, respectively. |
Loans 30-89 days past due and still accruing totaled $987$905 million at SeptemberJune 30, 2017,2018, up $113$91 million compared to the prior quarter. ThisThe increase was primarily due to an increase in residential mortgage loans, which was largely due toand expected seasonality and the impact of the hurricanes.in indirect lending.
Loans 90 days or more past due and still accruing totaled $505$435 million at SeptemberJune 30, 2017, up $122018, down $55 million compared to the prior quarter, primarily due to an increasea decrease in government guaranteed residential mortgage loans. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.35%0.30% at SeptemberJune 30, 2017,2018, compared to 0.34% for the prior quarter. Excluding government guaranteed and PCI loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.05%0.04% at SeptemberJune 30, 2017, flat compared to2018, unchanged from the prior quarter.
Problem loans include loans on nonaccrual status orNPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 5.4. In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to the "LoansNote 3. Loans and ACL" Note in the "Notes to Consolidated Financial Statements"ACL herein for additional disclosures related to these potential problem loans.
Certain residential mortgage loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both interest and principal over the remaining term. At SeptemberJune 30, 2017,2018, approximately 2.4%$614 million of the outstanding balances of residential mortgage loans were in the interest-only phase, compared to 2.6% at December 31, 2016.phase. Approximately 98.1%96.2% of the interest-only balances will begin amortizing within the next three years. Approximately 0.8% of interest-only loans are 30 days or more past due and still accruing and 1.1% are on nonaccrual status.
Home equity lines, which are a component of the direct retail portfolio, generally require interest-only payments during the first 15 years after origination. After this initial period, the outstanding balance begins amortizing and requires the payment of both interest and principal. At SeptemberJune 30, 2017,2018, the direct retail lending portfolio includes $8.5$8.2 billion of variable rate home equity lines and $1.0$1.1 billion of variable rate other lines of credit. Approximately $6.4 billion of the variable rate home equity lines is currently in the interest-only phase and approximately 5.9%7.4% of these balances will begin amortizing within the next three years. Approximately $877$942 million of the outstanding balance of variable rate other lines of credit is in the interest-only phase and 15.8%13.6% of these balances will begin amortizing within the next three years. Variable rate home equity lines and other lines of credit typically reset on a monthly basis.
TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and a concession has been granted to the borrower. As a result, BB&T will work with the borrower to prevent further difficulties and ultimately improve the likelihood of recovery on the loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR. Refer to the "SummaryNote 1. Summary of Significant Accounting Policies" Note in the "Notes to Consolidated Financial Statements"Policies in the Annual Report on Form 10-K for the year ended December 31, 20162017 for additional policy information regarding TDRs. During the third quarter of 2017, the following disclosures began including trial modifications. Previous amounts have been revised to conform to the current presentation.
Performing TDRs totaled $1.1 billion at September 30, 2017, a decrease of $135were up $31 million compared to December 31, 2016. This decrease wasduring the second quarter primarily due to the previously mentionedin residential mortgage loan sale, which included $199 millionwith small increases in performing TDRs.indirect lending and commercial and industrial.
The following table provides a summary of performing TDR activity:
| | Table 7 | Rollforward of Performing TDRs | | | | | |
| | Nine Months Ended September 30, | |
(Dollars in millions) | | 2017 | | 2016 | | 2018 | | 2017 |
Beginning balance | | $ | 1,187 |
| | $ | 982 |
| |
Balance, January 1 | | | $ | 1,043 |
| | $ | 1,187 |
|
Inflows | | 501 |
| | 464 |
| | 256 |
| | 324 |
|
Payments and payoffs | | (182 | ) | | (139 | ) | | (83 | ) | | (138 | ) |
Charge-offs | | (41 | ) | | (29 | ) | | (31 | ) | | (26 | ) |
Transfers to nonperforming TDRs, net | | (65 | ) | | (51 | ) | | (36 | ) | | (40 | ) |
Removal due to the passage of time | | (46 | ) | | (52 | ) | | (25 | ) | | (41 | ) |
Non-concessionary re-modifications | | (2 | ) | | — |
| | (5 | ) | | (2 | ) |
Sold and transferred to LHFS | | (300 | ) | | (78 | ) | | (46 | ) | | (251 | ) |
Ending balance | | $ | 1,052 |
| | $ | 1,097 |
| |
Balance, June 30 | | | $ | 1,073 |
| | $ | 1,013 |
|
The following table provides further details regarding the payment status of TDRs outstanding at SeptemberJune 30, 2017:2018:
| | Table 8 | Payment Status of TDRs | | | | | |
| | September 30, 2017 | |
| | | | | | Past Due | | Past Due | | | |
June 30, 2018 | | | | | | | | | Past Due 90 Days Or More | | |
(Dollars in millions) | | Current Status | | 30-89 Days | | 90 Days Or More | | Total | | Current Status | | Past Due 30-89 Days | | Total |
Performing TDRs (1): | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | |
Commercial: | | | | | | | | | | | | | | | |
Commercial and industrial | | $ | 60 |
| | 100.0 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 60 |
| | $ | 44 |
| | 100.0 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 44 |
|
CRE—income producing properties | | 13 |
| | 100.0 |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| |
CRE—construction and development | | 9 |
| | 100.0 |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| |
Direct retail lending | | 60 |
| | 95.2 |
| | 3 |
| | 4.8 |
| | — |
| | — |
| | 63 |
| |
Sales finance | | 12 |
| | 92.3 |
| | 1 |
| | 7.7 |
| | — |
| | — |
| | 13 |
| |
CRE | | | 11 |
| | 100.0 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
|
Retail: | | | | | | | | | | | | | | | |
Residential mortgage | | | 377 |
| | 58.3 |
| | 109 |
| | 16.8 |
| | 161 |
| | 24.9 |
| | 647 |
|
Direct | | | 56 |
| | 96.6 |
| | 2 |
| | 3.4 |
| | — |
| | — |
| | 58 |
|
Indirect | | | 236 |
| | 83.1 |
| | 48 |
| | 16.9 |
| | — |
| | — |
| | 284 |
|
Revolving credit | | 24 |
| | 82.7 |
| | 4 |
| | 13.8 |
| | 1 |
| | 3.5 |
| | 29 |
| | 25 |
| | 86.3 |
| | 3 |
| | 10.3 |
| | 1 |
| | 3.4 |
| | 29 |
|
Residential mortgage—nonguaranteed | | 181 |
| | 79.0 |
| | 33 |
| | 14.4 |
| | 15 |
| | 6.6 |
| | 229 |
| |
Residential mortgage—government guaranteed | | 143 |
| | 37.6 |
| | 71 |
| | 18.7 |
| | 166 |
| | 43.7 |
| | 380 |
| |
Other lending subsidiaries | | 216 |
| | 84.4 |
| | 40 |
| | 15.6 |
| | — |
| | — |
| | 256 |
| |
Total performing TDRs | | 718 |
| | 68.3 |
| | 152 |
| | 14.4 |
| | 182 |
| | 17.3 |
| | 1,052 |
| | 749 |
| | 69.8 |
| | 162 |
| | 15.1 |
| | 162 |
| | 15.1 |
| | 1,073 |
|
Nonperforming TDRs (2) | | 107 |
| | 52.7 |
| | 18 |
| | 8.9 |
| | 78 |
| | 38.4 |
| | 203 |
| | 87 |
| | 45.5 |
| | 28 |
| | 14.7 |
| | 76 |
| | 39.8 |
| | 191 |
|
Total TDRs | | $ | 825 |
| | 65.8 |
| | $ | 170 |
| | 13.5 |
| | $ | 260 |
| | 20.7 |
| | $ | 1,255 |
| | $ | 836 |
| | 66.2 |
| | $ | 190 |
| | 15.0 |
| | $ | 238 |
| | 18.8 |
| | $ | 1,264 |
|
| |
(1) | Past due performing TDRs are included in past due disclosures. |
| |
(2) | Nonperforming TDRs are included in NPL disclosures. |
Allowance for Credit Losses
ACL
Activity related to the ACL is presented in the following tables:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table 9 |
Activity in ACL |
| | | | | |
| For The Three Months Ended | | Six Months Ended June 30, |
(Dollars in millions) | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 6/30/2017 | | 2018 | | 2017 |
Balance, beginning of period | $ | 1,614 |
| | $ | 1,609 |
| | $ | 1,601 |
| | $ | 1,602 |
| | $ | 1,599 |
| | $ | 1,609 |
| | $ | 1,599 |
|
Provision for credit losses (excluding PCI loans) | 142 |
| | 153 |
| | 137 |
| | 128 |
| | 151 |
| | 295 |
| | 297 |
|
Provision (benefit) for PCI loans | (7 | ) | | (3 | ) | | 1 |
| | (2 | ) | | (16 | ) | | (10 | ) | | (14 | ) |
Charge-offs: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial and industrial | (23 | ) | | (23 | ) | | (23 | ) | | (13 | ) | | (26 | ) | | (46 | ) | | (59 | ) |
CRE | (2 | ) | | (6 | ) | | (2 | ) | | (4 | ) | | (3 | ) | | (8 | ) | | (4 | ) |
Lease financing | (1 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
Residential mortgage | (5 | ) | | (4 | ) | | (8 | ) | | (7 | ) | | (20 | ) | | (9 | ) | | (32 | ) |
Direct | (17 | ) | | (19 | ) | | (15 | ) | | (16 | ) | | (16 | ) | | (36 | ) | | (30 | ) |
Indirect | (82 | ) | | (107 | ) | | (104 | ) | | (103 | ) | | (88 | ) | | (189 | ) | | (195 | ) |
Revolving credit | (21 | ) | | (21 | ) | | (19 | ) | | (17 | ) | | (19 | ) | | (42 | ) | | (40 | ) |
PCI | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Total charge-offs | (151 | ) | | (181 | ) | | (172 | ) | | (163 | ) | | (173 | ) | | (332 | ) | | (362 | ) |
Recoveries: | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Commercial and industrial | 11 |
| | 8 |
| | 12 |
| | 8 |
| | 9 |
| | 19 |
| | 16 |
|
CRE | 1 |
| | 2 |
| | 4 |
| | 3 |
| | 3 |
| | 3 |
| | 9 |
|
Lease financing | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | 1 |
| | — |
|
Residential mortgage | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | 1 |
|
Direct | 6 |
| | 6 |
| | 6 |
| | 6 |
| | 7 |
| | 12 |
| | 13 |
|
Indirect | 17 |
| | 15 |
| | 13 |
| | 14 |
| | 16 |
| | 32 |
| | 33 |
|
Revolving credit | 5 |
| | 5 |
| | 5 |
| | 4 |
| | 5 |
| | 10 |
| | 10 |
|
Total recoveries | 42 |
| | 36 |
| | 42 |
| | 36 |
| | 41 |
| | 78 |
| | 82 |
|
Net charge-offs | (109 | ) | | (145 | ) | | (130 | ) | | (127 | ) | | (132 | ) | | (254 | ) | | (280 | ) |
Balance, end of period | $ | 1,640 |
| | $ | 1,614 |
| | $ | 1,609 |
| | $ | 1,601 |
| | $ | 1,602 |
| | $ | 1,640 |
| | $ | 1,602 |
|
| | | | | | | | | | | | | |
ALLL (excluding PCI loans) | $ | 1,512 |
| | $ | 1,473 |
| | $ | 1,462 |
| | $ | 1,451 |
| | $ | 1,455 |
| | | | |
ALLL for PCI loans | 18 |
| | 25 |
| | 28 |
| | 27 |
| | 30 |
| | | | |
RUFC | 110 |
| | 116 |
| | 119 |
| | 123 |
| | 117 |
| | | | |
Total ACL | $ | 1,640 |
| | $ | 1,614 |
| | $ | 1,609 |
| | $ | 1,601 |
| | $ | 1,602 |
| | | | |
The ACL, which consists of the ALLL and the RUFC, totaled $1.6 billion at SeptemberJune 30, 2017, essentially flat2018, up $31 million compared to December 31, 2016.2017.
The ALLL, excluding PCI, was $1.5 billion, up $6$50 million compared to December 31, 2016. At September 30, 2017, the ALLL includes $35 million for the estimated impact of potential hurricane-related losses.2017. The allowance for PCI loans was $27$18 million, down $17$10 million compared to December 31, 2016.2017. As of SeptemberJune 30, 2017,2018, the total allowance for loan and lease losses was 1.04%1.05% of loans and leases held for investment, compared to 1.04% at December 31, 2016.2017. These amounts include acquired loans, which were marked to fair value and did not receive an ALLL at the acquisition date.
The ALLL was 2.442.74 times NPLs held for investment, compared to 2.032.62 times at December 31, 2016.2017. At SeptemberJune 30, 2017,2018, the ALLL was 2.933.49 times annualized quarterly net charge-offs, compared to 2.472.89 times at December 31, 2016.2017.
Net charge-offs during the thirdsecond quarter of 20172018 totaled $127$109 million, or 0.35%0.30% of average loans and leases, compared to $130$132 million, or 0.37% of average loans and leases for the thirdsecond quarter of 2016.2017.
Refer to the "Loans and ACL" Note in the "Notes to Consolidated Financial Statements" for additional disclosures.
The following table presents an allocation of the ALLL at SeptemberJune 30, 20172018 and December 31, 2016.2017. This allocation of the ALLL is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.
|
| | | | | | | | | | | | | | |
Table 9 |
Allocation of ALLL by Category |
| | | | |
| | September 30, 2017 | | December 31, 2016 |
(Dollars in millions) | | Amount | | % Loans in each category | | Amount | | % Loans in each category |
Commercial and industrial | | $ | 479 |
| | 36.4 | % | | $ | 500 |
| | 36.1 | % |
CRE-income producing properties | | 139 |
| | 10.4 |
| | 117 |
| | 10.1 |
|
CRE-construction and development | | 22 |
| | 3.2 |
| | 25 |
| | 2.7 |
|
Dealer floor plan | | 13 |
| | 1.1 |
| | 11 |
| | 1.0 |
|
Direct retail lending | | 101 |
| | 8.4 |
| | 103 |
| | 8.4 |
|
Sales finance | | 37 |
| | 6.6 |
| | 38 |
| | 7.9 |
|
Revolving credit | | 101 |
| | 1.9 |
| | 106 |
| | 1.9 |
|
Residential mortgage-nonguaranteed | | 172 |
| | 19.4 |
| | 186 |
| | 20.2 |
|
Residential mortgage-government guaranteed | | 35 |
| | 0.6 |
| | 41 |
| | 0.6 |
|
Other lending subsidiaries | | 352 |
| | 11.5 |
| | 318 |
| | 10.5 |
|
PCI | | 27 |
| | 0.5 |
| | 44 |
| | 0.6 |
|
Total ALLL | | 1,478 |
| | 100.0 | % | | 1,489 |
| | 100.0 | % |
RUFC | | 123 |
| | |
| | 110 |
| | |
|
Total ACL | | $ | 1,601 |
| | |
| | $ | 1,599 |
| | |
|
Activity related to the ACL is presented in the following tables:
|
| | | | | | | | | | | | | | | | | | | |
Table 10-1 |
Activity in ACL - Quarterly |
| |
| Three Months Ended |
(Dollars in millions) | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
Beginning balance | $ | 1,602 |
| | $ | 1,599 |
| | $ | 1,599 |
| | $ | 1,621 |
| | $ | 1,603 |
|
Provision for credit losses (excluding PCI loans) | 128 |
| | 151 |
| | 146 |
| | 133 |
| | 150 |
|
Provision (benefit) for PCI loans | (2 | ) | | (16 | ) | | 2 |
| | (4 | ) | | (2 | ) |
Charge-offs: | |
| | |
| | |
| | |
| | |
|
Commercial and industrial | (10 | ) | | (21 | ) | | (29 | ) | | (23 | ) | | (23 | ) |
CRE-income producing properties | (2 | ) | | (3 | ) | | (1 | ) | | (1 | ) | | (5 | ) |
CRE-construction and development | (2 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Dealer floor plan | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Direct retail lending | (16 | ) | | (16 | ) | | (14 | ) | | (16 | ) | | (12 | ) |
Sales finance | (8 | ) | | (6 | ) | | (9 | ) | | (8 | ) | | (7 | ) |
Revolving credit | (17 | ) | | (19 | ) | | (21 | ) | | (16 | ) | | (18 | ) |
Residential mortgage-nonguaranteed | (6 | ) | | (19 | ) | | (11 | ) | | (9 | ) | | (11 | ) |
Residential mortgage-government guaranteed | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (2 | ) |
Other lending subsidiaries | (100 | ) | | (87 | ) | | (103 | ) | | (102 | ) | | (91 | ) |
PCI | (1 | ) | | — |
| | — |
| | (15 | ) | | — |
|
Total charge-offs | (163 | ) | | (173 | ) | | (189 | ) | | (191 | ) | | (170 | ) |
| | | | | | | | | |
Recoveries: | |
| | |
| | |
| | |
| | |
|
Commercial and industrial | 7 |
| | 8 |
| | 6 |
| | 10 |
| | 6 |
|
CRE-income producing properties | 1 |
| | — |
| | 4 |
| | 1 |
| | 3 |
|
CRE-construction and development | 2 |
| | 3 |
| | 2 |
| | 2 |
| | 3 |
|
Direct retail lending | 6 |
| | 7 |
| | 6 |
| | 6 |
| | 7 |
|
Sales finance | 3 |
| | 3 |
| | 4 |
| | 3 |
| | 3 |
|
Revolving credit | 4 |
| | 5 |
| | 5 |
| | 5 |
| | 5 |
|
Residential mortgage-nonguaranteed | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Other lending subsidiaries | 13 |
| | 14 |
| | 14 |
| | 13 |
| | 12 |
|
Total recoveries | 36 |
| | 41 |
| | 41 |
| | 40 |
| | 40 |
|
Net charge-offs | (127 | ) | | (132 | ) | | (148 | ) | | (151 | ) | | (130 | ) |
Ending balance | $ | 1,601 |
| | $ | 1,602 |
| | $ | 1,599 |
| | $ | 1,599 |
| | $ | 1,621 |
|
| | | | | | | | | |
ALLL (excluding PCI loans) | $ | 1,451 |
| | $ | 1,455 |
| | $ | 1,441 |
| | $ | 1,445 |
| | $ | 1,448 |
|
ALLL for PCI loans | 27 |
| | 30 |
| | 46 |
| | 44 |
| | 63 |
|
RUFC | 123 |
| | 117 |
| | 112 |
| | 110 |
| | 110 |
|
Total ACL | $ | 1,601 |
| | $ | 1,602 |
| | $ | 1,599 |
| | $ | 1,599 |
| | $ | 1,621 |
|
|
| | | | | | | | |
Table 10-2 |
Activity in ACL - Year-to-Date |
| | | | |
| | Nine Months Ended September 30, |
(Dollars in millions) | | 2017 | | 2016 |
Beginning balance | | $ | 1,599 |
| | $ | 1,550 |
|
Provision for credit losses (excluding PCI loans) | | 425 |
| | 441 |
|
Provision (benefit) for PCI loans | | (16 | ) | | 2 |
|
Charge-offs: | | |
| | |
|
Commercial and industrial | | (60 | ) | | (105 | ) |
CRE-income producing properties | | (6 | ) | | (7 | ) |
CRE-construction and development | | (2 | ) | | (1 | ) |
Dealer floor plan | | (1 | ) | | — |
|
Direct retail lending | | (46 | ) | | (37 | ) |
Sales finance | | (23 | ) | | (21 | ) |
Revolving credit | | (57 | ) | | (53 | ) |
Residential mortgage-nonguaranteed | | (36 | ) | | (26 | ) |
Residential mortgage-government guaranteed | | (3 | ) | | (4 | ) |
Other lending subsidiaries | | (290 | ) | | (256 | ) |
PCI | | (1 | ) | | — |
|
Total charge-offs | | (525 | ) | | (510 | ) |
| | | | |
Recoveries: | | |
| | |
|
Commercial and industrial | | 21 |
| | 30 |
|
CRE-income producing properties | | 5 |
| | 7 |
|
CRE-construction and development | | 7 |
| | 9 |
|
Direct retail lending | | 19 |
| | 20 |
|
Sales finance | | 10 |
| | 9 |
|
Revolving credit | | 14 |
| | 15 |
|
Residential mortgage-nonguaranteed | | 1 |
| | 3 |
|
Other lending subsidiaries | | 41 |
| | 36 |
|
Total recoveries | | 118 |
| | 129 |
|
Net charge-offs | | (407 | ) | | (381 | ) |
Other | | — |
| | 9 |
|
Ending balance | | $ | 1,601 |
| | $ | 1,621 |
|
|
| | | | | | | | | | | | | | |
Table 10 |
Allocation of ALLL by Category |
| | | | |
| | June 30, 2018 | | December 31, 2017 |
(Dollars in millions) | | Amount | | % Loans in each category | | Amount | | % Loans in each category |
Commercial and industrial | | $ | 535 |
| | 41.3 | % | | $ | 522 |
| | 41.1 | % |
CRE | | 191 |
| | 14.8 |
| | 160 |
| | 14.8 |
|
Lease financing | | 10 |
| | 1.3 |
| | 9 |
| | 1.3 |
|
Residential mortgage | | 221 |
| | 20.5 |
| | 209 |
| | 20.0 |
|
Direct | | 97 |
| | 8.0 |
| | 106 |
| | 8.3 |
|
Indirect | | 353 |
| | 11.7 |
| | 348 |
| | 12.0 |
|
Revolving credit | | 105 |
| | 2.0 |
| | 108 |
| | 2.0 |
|
PCI | | 18 |
| | 0.4 |
| | 28 |
| | 0.5 |
|
Total ALLL | | 1,530 |
| | 100.0 | % | | 1,490 |
| | 100.0 | % |
RUFC | | 110 |
| | |
| | 119 |
| | |
|
Total ACL | | $ | 1,640 |
| | |
| | $ | 1,609 |
| | |
|
Deposits
Deposits totaled $156.1$159.5 billion at SeptemberJune 30, 2017, a decrease2018, an increase of $4.1$2.1 billion from December 31, 2016. Money2017. Noninterest-bearing deposits increased $503 million, time deposits increased $1.6 billion and money market and savings decreased $4.0 billion andincreased $410 million, while interest checking decreased $3.7 billion. These decreases were partially offset by a $3.4 billion increase in noninterest-bearing deposits.$420 million.
The following table presents the composition of average deposits for the last five quarters:
| | Table 11 | Composition of Average Deposits | | | | | |
| | For the Three Months Ended | |
Three Months Ended | | |
|
(Dollars in millions) | | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 6/30/2017 |
Noninterest-bearing deposits | | $ | 53,489 |
| | $ | 52,573 |
| | $ | 51,095 |
| | $ | 51,421 |
| | $ | 50,559 |
| | $ | 53,963 |
| | $ | 53,396 |
| | $ | 54,288 |
| | $ | 53,489 |
| | $ | 52,573 |
|
Interest checking | | 27,000 |
| | 28,849 |
| | 29,578 |
| | 28,634 |
| | 27,754 |
| | 26,969 |
| | 27,270 |
| | 26,746 |
| | 27,000 |
| | 28,849 |
|
Money market and savings | | 61,450 |
| | 64,294 |
| | 64,857 |
| | 63,884 |
| | 64,335 |
| | 62,105 |
| | 61,690 |
| | 61,693 |
| | 61,450 |
| | 64,294 |
|
Time deposits | | 13,794 |
| | 14,088 |
| | 14,924 |
| | 15,693 |
| | 15,818 |
| | 13,966 |
| | 13,847 |
| | 13,744 |
| | 13,794 |
| | 14,088 |
|
Foreign office deposits - interest-bearing | | 1,681 |
| | 459 |
| | 929 |
| | 486 |
| | 1,037 |
| | 673 |
| | 935 |
| | 1,488 |
| | 1,681 |
| | 459 |
|
Total average deposits | | $ | 157,414 |
| | $ | 160,263 |
| | $ | 161,383 |
| | $ | 160,118 |
| | $ | 159,503 |
| | $ | 157,676 |
| | $ | 157,138 |
| | $ | 157,959 |
| | $ | 157,414 |
| | $ | 160,263 |
|
Average deposits for the thirdsecond quarter were $157.4$157.7 billion, down $2.8 billionup $538 million compared to the prior quarter. Average noninterest-bearing deposits increased $916$567 million, driven by increases in personal and commercial balances, partially offset by a decrease in public funds balances.
Average interest checking decreased $301 million primarily due to increasesa decrease in public funds balances, partially offset by an increase in commercial balances.
Interest checking decreased $1.8 billion, Average money market and savings deposits increased $415 million primarily due to decreasesan increase in commercial balances partially offset by a decline in public funds and personal balances. Money market and savings decreased $2.8 billion primarily due to commercial balances. Average time deposits decreased $294 million due to decreases in personal balances. Average foreign office deposits increased $1.2 billiondecreased $262 million due to changes in the overall funding mix.
Noninterest-bearing deposits represented 34.0%34.2% of total average deposits for the thirdsecond quarter, compared to 32.8%34.0% for the prior quarter and 31.7%32.8% a year ago. The cost of interest-bearing deposits was 0.35%0.57% for the thirdsecond quarter, up five11 basis points compared to the prior quarter.
Borrowings
At SeptemberJune 30, 2017,2018, short-term borrowings totaled $7.9$3.6 billion, an increasea decrease of $6.5$1.4 billion compared to December 31, 2016.2017. Short-term borrowings fluctuate based on the Company's funding needs. Long-term debt totaled $20.9$24.1 billion at SeptemberJune 30, 2017, a decrease2018, an increase of $1.1 billion$433 million compared to December 31, 2016.2017. The decrease reflectsincrease in long-term debt was driven by the early extinguishmentissuance of $2.9 billion of FHLB advances and other repayments totaling $3.7 billion. During the first nine months of 2017, BB&T issued $1.3$1.8 billion of senior medium term notesdebt partially offset by normal payments and Branch Bank issued $2.6 billion of senior bank notes and $1.5 billion in new FHLB advances. During October 2017, BB&T issued $2.3 billion of fixed and floating rate debt with maturities ranging from 2021 to 2024.maturities.
Shareholders' Equity
Total shareholders' equity was $29.9$29.8 billion at SeptemberJune 30, 2017, down $732018, up $137 million from December 31, 2016.2017. Significant additions include net income of $1.7 billion and $104 million pursuant to activity in equity-based compensation plans.$1.6 billion. Significant usesdecreases include $1.2 billion of share repurchases and common and preferred dividends totaling $877 million.$669 million, $630 million of share repurchases and the OCI net loss of $239 million, primarily due to declines in AFS securities valuations. BB&T's book value per common share at SeptemberJune 30, 20172018 was $33.92,$34.51, compared to $33.14$34.01 at December 31, 2016.2017.
Merger-Related and Restructuring Activities
In conjunction with the consummation of an acquisition or the implementation of a restructuring initiative, BB&T typically accrues certain merger-related and restructuring expenses, which may include estimated severance and other personnel-related costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition or restructuring activity. Merger-related and restructuring accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at SeptemberJune 30, 20172018 are expected to be utilized within one year, unless they relate to specific contracts that expire later. The following table presents a summary of merger-related and restructuring charges and the related accruals:
| | Table 12 | Merger-Related and Restructuring Charges and Related Accruals | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 | | | | | | | | | | | | | | | |
(Dollars in millions) | Beginning Accrual | | Expense | | Utilized | | Ending Accrual | | Beginning Accrual | | Expense | | Utilized | | Ending Accrual | Accrual at Apr 1, 2018 | | Expense | | Utilized | | Accrual at Jun 30, 2018 | | Accrual at Jan 1, 2018 | | Expense | | Utilized | | Accrual at Jun 30, 2018 |
Severance and personnel-related | $ | 20 |
| | $ | 15 |
| | $ | (10 | ) | | $ | 25 |
| | $ | 25 |
| | $ | 28 |
| | $ | (28 | ) | | $ | 25 |
| $ | 8 |
| | $ | 2 |
| | $ | (6 | ) | | $ | 4 |
| | $ | 14 |
| | $ | 5 |
| | $ | (15 | ) | | $ | 4 |
|
Occupancy and equipment (1) | 15 |
| | 26 |
| | (27 | ) | | 14 |
| | 21 |
| | 35 |
| | (42 | ) | | 14 |
| 19 |
| | 17 |
| | (17 | ) | | 19 |
| | 20 |
| | 35 |
| | (36 | ) | | 19 |
|
Professional services | 1 |
| | — |
| | (1 | ) | | — |
| | 1 |
| | 2 |
| | (3 | ) | | — |
| 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
|
Systems conversion and related costs (1) | — |
| | 5 |
| | (5 | ) | | — |
| | 1 |
| | 25 |
| | (26 | ) | | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | (5 | ) | | — |
|
Other adjustments | 1 |
| | 1 |
| | (2 | ) | | — |
| | 1 |
| | 3 |
| | (4 | ) | | — |
| — |
| | 5 |
| | (2 | ) | | 3 |
| | — |
| | 6 |
| | (3 | ) | | 3 |
|
Total | $ | 37 |
| | $ | 47 |
| | $ | (45 | ) | | $ | 39 |
| | $ | 49 |
| | $ | 93 |
| | $ | (103 | ) | | $ | 39 |
| $ | 28 |
| | $ | 24 |
| | $ | (25 | ) | | $ | 27 |
| | $ | 34 |
| | $ | 52 |
| | $ | (59 | ) | | $ | 27 |
|
| |
(1) | Includes asset impairment charges. |
Critical Accounting Policies
The accounting and reporting policies of BB&T are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. BB&T's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting and reporting policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, costs and benefit obligations associated with pension and postretirement benefit plans, and income taxes. Understanding BB&T's accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. Accordingly, the critical accounting policies are discussed in detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in BB&T's Annual Report on Form 10-K for the year ended December 31, 2016.2017. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in the "BasisNote 1. Summary of Presentation" Note in the "Notes to Consolidated Financial Statements"Significant Accounting Policies in BB&T's Annual Report on Form 10-K for the year ended December 31, 2016.2017. Additional disclosures regarding the effects of new accounting pronouncements are included in the "Basis of Presentation" Note included herein. There have been no other changes to the significant accounting policies during 2017.2018.
Risk Management
BB&T has a strong and consistent risk culture, based on established risk values, which promotes predictable and consistent performance within an environment of open communication and effective challenge. The strong culture influences all associates in the organization daily and helps them evaluate whether risks are acceptable or unacceptable while making decisions that balance quality, profitability and growth appropriately. BB&T’s effective risk management framework establishes an environment which enables it to achieve superior performance relative to peers, ensures that BB&T is viewed among the safest of banks and assures the operational freedom to act on opportunities.
BB&T ensures that there is an appropriate return for the amount of risk taken, and that the expected return is in line with its strategic objectives and business plan. Risk-taking activities are evaluated and prioritized to identify those that present attractive risk-adjusted returns while preserving asset value. BB&T only undertakes risks that are understood and can be managed effectively. By managing risk well, BB&T ensures sufficient capital is available to maintain and grow core business operations in a safe and sound manner.
Regardless of financial gain or loss to the Company, associates are held accountable if they do not follow the established risk management policies and procedures. Compensation decisions take into account an associate’s adherence to, and successful implementation of, BB&T’s risk values. The compensation structure supports the Company’s core values and sound risk management practices in an effort to promote judicious risk-taking behavior.
BB&T’s risk culture encourages transparency and open dialogue between all levels in the performance of organizational functions, such as the development, marketing and implementation of a product or service.
The principal types of inherent risk include compliance, credit, liquidity, market, operational, reputation and strategic risks. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 20162017 for disclosures related to each of these risks under the section titled "Risk Management."
Market Risk Management
The effective management of market risk is essential to achieving BB&T’s strategic financial objectives. As a financial institution, BB&T’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in BB&T’s BUs. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, net income and capital and to offset the risk of price changes for certain assets recorded at fair value. At BB&T, market risk management also includes the enterprise-wide IPV function.
Interest Rate Market Risk (Other than Trading)
BB&T actively manages market risk associated with asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of appropriate maturity mixes of assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T’s portfolios of assets and liabilities that will produce reasonably consistent net interest income during periods of changing interest rates. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios.
The asset/liability management process is designed to achieve relatively stable NIM and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. Among other things, this process gives consideration to prepayment trends related to securities, loans and leases and certain deposits that have no stated maturity. Prepayment assumptions are developed using a combination of market data and internal historical prepayment experience for residential mortgage-related loans and securities, and internal historical prepayment experience for client deposits with no stated maturity and loans that are not residential mortgage related. These assumptions are subject to monthly review and adjustment, and are modified as deemed necessary to reflect changes in interest rates relative to the reference rate of the underlying assets or liabilities. On a monthly basis, BB&T evaluates the accuracy of its Simulation model, which includes an evaluation of its prepayment assumptions, to ensure that all significant assumptions inherent in the model appropriately reflect changes in the interest rate environment and related trends in prepayment activity. It is the responsibility of the MRLCC to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as to ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The MRLCC also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The MRLCC meets regularly to review BB&T’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impacts on earnings and liquidity as a result of fluctuations in interest rates are within acceptable tolerance guidelines.
BB&T uses derivatives primarily to manage economic risk related to securities, commercial loans, MSRs and mortgage banking operations, long-term debt and other funding sources. BB&T also uses derivatives to facilitate transactions on behalf of its clients. As of SeptemberJune 30, 2017,2018, BB&T had derivative financial instruments outstanding with notional amounts totaling $71.5$71.4 billion, with a net fair value loss of $203 million. See the "DerivativeNote 14. Derivative Financial Instruments" Note in the "Notes to Consolidated Financial Statements" hereinInstruments for additional disclosures.
The majority of BB&T’s assets and liabilities are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Fluctuations in interest rates and actions of the FRB to regulate the availability and cost of credit have a greater effect on a financial institution’s profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, which is monitored by the MRLCC, management believes that BB&T is positioned to respond to changing needs for liquidity, changes in interest rates and inflationary trends.
Management uses the Simulation to measure the sensitivity of projected earnings to changes in interest rates. The Simulation projects net interest income and interest rate risk for a rolling two-year period of time. The Simulation takes into account the current contractual agreements that BB&T has made with its customers on deposits, borrowings, loans, investments and commitments to enter into those transactions. Furthermore, the Simulation considers the impact of expected customer behavior. Management monitors BB&T’s interest sensitivity by means of a model that incorporates the current volumes, average rates earned and paid, and scheduled maturities and payments of asset and liability portfolios, together with multiple scenarios that include projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, but management believes that it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap. In addition to the Simulation, BB&T uses EVE analysis to focus on projected changes in assets and liabilities given potential changes in interest rates. This measure also allows BB&T to analyze interest rate risk that falls outside the analysis window contained in the Simulation. The EVE model is a discounted cash flow of the portfolio of assets, liabilities, and derivative instruments. The difference in the present value of assets minus the present value of liabilities is defined as the economic value of equity.
The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies, as well as any enacted or prospective regulatory changes. BB&T’s current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with the information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals.
The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months assuming a gradual change in interest rates as described below. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing, deposit sensitivity, customer preferences and capital plans. The resulting change in net interest income reflects the level of interest rate sensitivity that income has in relation to the investment, loan and deposit portfolios.
| | Table 13 | Interest Sensitivity Simulation Analysis | | | | | | | | | | | | | |
Interest Rate Scenario | Interest Rate Scenario | | Annualized Hypothetical Percentage Change in Net Interest Income September 30, | Interest Rate Scenario | | Annualized Hypothetical Percentage Change in Net Interest Income |
Linear Change in Prime Rate | | Prime Rate September 30, | | | Prime Rate | |
| 2017 | | 2016 | | 2017 | | 2016 | | Jun 30, 2018 | | Jun 30, 2017 | | Jun 30, 2018 | | Jun 30, 2017 |
Up 200 bps | | 6.25 | % | | 5.50 | % | | 3.86 | % | | 4.62 | % | | 7.00 | % | | 6.25 | % | | 3.05 | % | | 3.95 | % |
Up 100 | | 5.25 |
| | 4.50 |
| | 2.54 |
| | 3.26 |
| | 6.00 |
| | 5.25 |
| | 1.93 |
| | 2.54 |
|
No Change | | 4.25 |
| | 3.50 |
| | — |
| | — |
| | 5.00 |
| | 4.25 |
| | — |
| | — |
|
Down 25 | | 4.00 |
| | 3.25 |
| | (1.14 | ) | | (1.89 | ) | |
Down 100 | | 3.25 |
| | N/A |
| | (6.53 | ) | | N/A |
| | 4.00 |
| | 3.25 |
| | (4.64 | ) | | (7.20 | ) |
Down 150 | | | 3.50 |
| | N/A |
| | (7.50 | ) | | N/A |
|
The MRLCC has established parameters related to interestRate sensitivity that prescribe a maximum negative impact on net interest income under different interest rate scenarios. In the event the resultsdecreased from June 30, 2017, primarily driven by loan and deposit mix changes partially offset by higher balances of the Simulation model fall outside the established parameters, management will make recommendations to the MRLCC on the most appropriate response given the current economic forecast. The following parameters and interest rate scenarios are considered BB&T’s primary measures of interest rate risk:
Maximum negative impact on net interest income of 2% for the next 12 months assuming a 25 basis point change in interest rates each month for four months followed by a flat interest rate scenario for the remaining eight month period.
Maximum negative impact on net interest income of 4% for the next 12 months assuming a 25 basis point change in interest rates each month for eight months followed by a flat interest rate scenario for the remaining four month period.
If a parallel rate change of 200 basis points cannot be modeled due to a low level of rates, a proportional limit applies, and the maximum negative impact on net interest income is adjusted on a proportional basis. Regardless of the proportional limit, the negative risk exposure limit will be the greater of the 4% or the proportional limit.
Management has also established a maximum negative impact on net interest income of 4% for an immediate 100 basis points parallel change in rates and 8% for an immediate 200 basis points parallel change in rates. Management currently only models up to a negative 100 basis point decline, and the maximum negative impact on net interest income is adjusted on a proportional basis. Regardless of the proportional limit, the negative risk exposure limit will be the greater of 4% or the proportional limit. These "interest rate shock" limits are designed to create an outer band of acceptable risk based upon a significant and immediate change in rates.
Management has temporarily suspended its interest rate exposure limits to declining interest rates. As the Federal Reserve has started to raise rates, competitive pressure on deposit rates has not materialized. As a result, asset repricing in excess of liability repricing is causing the measured exposure to declining rates to increase. Management evaluates its interest rate risk position each month.
Management also considers potential negative interest rate scenarios, which implies that a depositor would pay a premium for a financial institution to hold funds on deposit. In such a scenario, some depositors may choose to withdraw their deposits in lieu of paying an interest rate to BB&T to hold such deposits. As a result, management considers potential pricing and structure changes, such as the movement to a primarily fee-based deposit system. Negative rates would also diminish the spreads on loans and securities. As a result, management considers interest rate floors or rate index floors in loans to mitigate this risk. BB&T purchases both fixed and variable rate securities. The fixed rate securities would be beneficial in a negative interest rate environment.long-term debt.
Management must also consider how the balance sheet and interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry has been very strong during the current economic cycle. Much of this liquidity increase has been due to a significant increase in noninterest-bearing demand deposits. Consistent with the industry, Branch Bank has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of BB&T. A loss of these deposits in the future would reduce the asset sensitivity of BB&T’s balance sheet as the Company increases interest-bearing funds to offset the loss of this advantageous funding source.
Beta represents the correlation between overall market interest rates and the rates paid by BB&T on interest-bearing deposits. BB&T applies an average beta of approximately 50% to its non-maturity interest bearinginterest-bearing deposit accounts for determining its interest rate sensitivity. Non-maturity interest bearinginterest-bearing deposit accounts include interest checking accounts, savings accounts and money market accounts that do not have a contractual maturity. Due to current market conditions the actual deposit beta on non-maturity interest bearinginterest-bearing deposits has been less than 15%; however,25% since rates began to rise in December 2015. However, BB&T expects the beta to increase as rates continue to rise.rise as evidenced by the 41% beta on interest bearing-deposits related to the March 2018 federal funds rate increase. BB&T regularly conducts sensitivity on other key variables to determine the impact they could have on the interest rate risk position. This allows BB&T to evaluate the likely impact on its balance sheet management strategies due to a more extreme variation in a key assumption than expected.
The following table shows the effect that the loss of demand deposits and an associated increase in managed rate deposits would have on BB&T’s interest-rate sensitivity position. For purposes of this analysis, BB&T modeled the incremental beta for the replacement of the lost demand deposits at 100%.
| | Table 14 | Deposit Mix Sensitivity Analysis | | | | | | | | | |
Linear Change in Rates | | Base Scenario at September 30, 2017 (1) | | Results Assuming a Decrease in Noninterest Bearing Demand Deposits | | Base Scenario at June 30, 2018 (1) | | Results Assuming a Decrease in Noninterest-Bearing Demand Deposits |
| | | |
| | td Billion | | $5 Billion | | | td Billion | | $5 Billion |
Up 200 bps | | 3.86 | % | | 3.65 | % | | 2.81 | % | | 3.05 | % | | 2.84 | % | | 2.01 | % |
Up 100 | | 2.54 |
| | 2.41 |
| | 1.89 |
| | 1.93 |
| | 1.81 |
| | 1.29 |
|
(1) The base scenario is equal to the annualized hypothetical percentage change in net interest income at SeptemberJune 30, 20172018 as presented in the preceding table.
If rates increased 200 basis points, BB&T could absorb the loss of $18.3$14.7 billion, or 33.8%27.2%, of noninterest bearingnoninterest-bearing deposits and replace them with managed rate deposits with a beta of 100% before becoming neutral to interest rate changes.
The following table shows the effect that the indicated changes in interest rates would have on EVE. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing and deposit sensitivity.
| | Table 15 | EVE Simulation Analysis | | | | | | | | | |
| | EVE/Assets | | Hypothetical Percentage Change in EVE | |
Change in | | September 30, | | September 30, | |
Interest Rates | | 2017 | | 2016 | | 2017 | | 2016 | |
Change in Interest Rates | | | EVE/Assets | | Hypothetical Percentage Change in EVE |
| | Jun 30, 2018 | | Jun 30, 2017 | | Jun 30, 2018 | | Jun 30, 2017 |
Up 200 bps | | 11.8 | % | | 10.6 | % | | (2.6 | )% | | 6.3 | % | | 11.9 | % | | 12.1 | % | | (7.3 | )% | | (0.6 | )% |
Up 100 | | 12.2 |
| | 10.6 |
| | 0.4 |
| | 6.0 |
| | 12.5 |
| | 12.4 |
| | (2.7 | ) | | 1.4 |
|
No Change | | 12.1 |
| | 10.0 |
| | — |
| | — |
| | 12.8 |
| | 12.2 |
| | — |
| | — |
|
Down 25 | | 12.0 |
| | 9.7 |
| | (1.1 | ) | | (3.3 | ) | |
Down 100 | | 11.0 |
| | N/A |
| | (9.0 | ) | | N/A |
| | 12.5 |
| | 11.1 |
| | (2.9 | ) | | (9.6 | ) |
Down 150 | | | 11.7 |
| | N/A |
| | (9.0 | ) | | N/A |
|
Market Risk from Trading Activities
BB&T also manages market risk from trading activities which consists of acting as a financial intermediary to provide its customers access to derivatives, foreign exchange and securities markets. Trading market risk is managed through the use of statistical and non-statistical risk measures and limits. BB&T utilizes a historical VaR methodology to measure and aggregate risks across its covered trading BUs. This methodology uses two years of historical data to estimate economic outcomes for a one-day time horizon at a 99% confidence level. The average 99% one-day VaR and the maximum daily VaR for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, were each less than $1 million. Market risk disclosures under Basel II.5 are available in the Additional Disclosures section of the Investor Relations site on BBT.com.
Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions
Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2016 for discussion with respect to BB&T's quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Additional disclosures about BB&T's contractual obligations, commitments and derivative financial instruments are included in the "Commitments and Contingencies" Note, "Fair Value Disclosures" Note and "Derivative Financial Instruments" Note in the "Notes to Consolidated Financial Statements."
The following table presents activity in residential mortgage indemnification, recourse and repurchase reserves:
|
| | | | | | | | | | | | | | | |
Table 16 |
Mortgage Indemnification, Recourse and Repurchase Reserves Activity |
| | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | 2017 | | 2016 | | 2017 | | 2016 |
Balance, at beginning of period | $ | 39 |
| | $ | 80 |
| | $ | 40 |
| | $ | 79 |
|
Payments | — |
| | — |
| | — |
| | (2 | ) |
Expense (benefit) | — |
| | (3 | ) | | (1 | ) | | — |
|
Balance, at end of period | $ | 39 |
| | $ | 77 |
| | $ | 39 |
| | $ | 77 |
|
Liquidity
Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, timely repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as cash, cash equivalents and AFS securities, many other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity in national money markets, growing core deposits, the repayment of loans and the ability to securitize or package loans for sale.
BB&T monitors the ability to meet customer demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates BB&T’s funding mix based on client core funding, client rate-sensitive funding and national markets funding. In addition, management also evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against 30 days of stressed cash outflows for Branch Bank and BB&T. To ensure a strong liquidity position, management maintains a liquid asset buffer of cash on hand and highly liquid unpledged securities. BB&T follows the FRB's enhanced prudential standards for purposes of determining the liquid asset buffer. BB&T’s policy is to use the greater of either 5% of total assets or a range of projected net cash outflows over a 30 day period. As of SeptemberJune 30, 20172018 and December 31, 2016,2017, BB&T's liquid asset buffer was 14.3% and 12.6%, respectively, of total assets.
BB&T is considered to be a "modified LCR" holding company. BB&T would be subject to full LCR requirements if its assets were to increase above $250 billion or if it were to be considered internationally active. BB&T produces LCR calculations to effectively manage the position of High-Quality Liquid Assetshigh-quality liquid assets and the balance sheet deposit mix to optimize BB&T's liquidity position. BB&T's LCR was approximately 128%131% at SeptemberJune 30, 2017,2018, compared to the regulatory minimum for such entities of 100%, which puts BB&T in full compliance with the rule. The LCR can experience volatility due to issues like maturing debt rolling into the 30 day measurement period, or client inflows and outflows. The daily change in BB&T’s LCR averaged less than 2% during 2017the second quarter of 2018 with a maximum change of approximately 6%5%.
On April 27, 2016, the OCC, the FRB and the FDIC released a notice of proposed rulemaking for the US version of the net stable funding ratio.NSFR. Under the proposal, BB&T will be a "modified NSFR" holding company. BB&T would be subject to full NSFR requirements if it has $250 billion or more in assets or $10 billion or more in total on-balance sheet foreign exposure.if it were to be considered internationally active. BB&T is evaluating the information in the releaseproposal but does not currently expect a material impact on its results of operations or financial condition. The proposed rule would become effective January 1, 2018.
Parent Company
The purpose of the Parent Company is to serve as the primary source of capital for the operating subsidiaries, with assets primarily consisting of cash on deposit with Branch Bank, equity investments in subsidiaries, advances to subsidiaries, accounts receivable from subsidiaries, and other miscellaneous assets. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiaries,subsidiary, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are for investments in subsidiaries, advances to subsidiaries, dividend payments to common and preferred shareholders, retirement of common stock and payments on long-term debt.
Liquidity at the Parent Company is more susceptible to market disruptions. BB&T prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities without the benefit of any new cash infusions. Generally, BB&T maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, BB&T considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, being a source of strength to its banking subsidiary and being able to withstand sustained market disruptions that could limit access to the capital markets. At SeptemberJune 30, 20172018 and December 31, 2016,2017, the Parent Company had 27 months and 2529 months, respectively, of cash on hand to satisfy projected contractual cash outflows, and 2022 months and 1923 months, respectively, taking into account common stock dividends.
Branch Bank
BB&T carefully manages liquidity risk at Branch Bank. Branch Bank’s primary source of funding is customer deposits. Continued access to customer deposits is highly dependent on the confidence the public has in the stability of the bank and its ability to return funds to the client when requested. BB&T maintains a strong focus on its reputation in the market to ensure continued access to client deposits. BB&T integrates its risk appetite into its overall risk management framework to ensure the bank does not exceed its risk tolerance through its lending and other risk taking functions and thus risk becoming undercapitalized. BB&T believes that sufficient capital is paramount to maintaining the confidence of its depositors and other funds providers. BB&T has extensive capital management processes in place to ensure it maintains sufficient capital to absorb losses and maintain a highly capitalized position that will instill confidence in the bank and allow continued access to deposits and other funding sources. Branch Bank monitors many liquidity metrics including funding concentrations, diversification, maturity distribution, contingent funding needs and ability to meet liquidity requirements under times of stress.
Branch Bank has several major sources of funding to meet its liquidity requirements, including access to capital markets through issuance of senior or subordinated bank notes and institutional CDs, access to the FHLB system, dealer repurchase agreements and repurchase agreements with commercial clients, access to the overnight and term Federal funds markets, use of a Cayman branch facility, access to retail brokered CDs and a borrower in custody program with the FRB for the discount window. At SeptemberJune 30, 2017,2018, Branch Bank has approximately $78.8$82.4 billion of secured borrowing capacity, which represents approximately 6.67.6 times the amount of one year wholesale funding maturities.
Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions
Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for discussion with respect to BB&T's quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Additional disclosures about BB&T's contractual obligations, commitments and derivative financial instruments are included in Note 12. Commitments and Contingencies, Note 13. Fair Value Disclosures and Note 14. Derivative Financial Instruments.
Capital
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. BB&T’s principal goals related to the maintenance of capital are to provide adequate capital to support BB&T’s risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for BB&T and its subsidiaries and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
Management regularly monitors the capital position of BB&T on both a consolidated and bank level basis. In this regard, management’s overriding policy is to maintain capital at levels that are in excess of the capital targets, which are above the regulatory "well capitalized" levels. Management has implemented stressed capital ratio minimum targets to evaluate whether capital ratios calculated with planned capital actions are likely to remain above minimums specified by the FRB for the annual CCAR. Breaches of stressed minimum targets prompt a review of the planned capital actions included in BB&T’s capital plan.
| | Table 17 | |
Table 16 | | Table 16 |
Capital Under Basel III | | | | | | | | | | | | | | | | | | | | | | | | | |
| Minimum Capital | | Well-Capitalized | | Minimum Capital Plus Capital Conservation Buffer | | BB&T Targets | Minimum Capital | | Well-Capitalized | | Minimum Capital Plus Capital Conservation Buffer | | BB&T Targets |
| | 2017 | | 2018 | | 2019 (1) | | Operating | | Stressed | | 2018 | | 2019 | | Operating (1) | | Stressed |
CET1 capital to risk-weighted assets | 4.5 | % | | 6.5 | % | | 5.750 | % | | 6.375 | % | | 7.000 | % | | 8.5 | % | | 6.0 | % | 4.5 | % | | 6.5 | % | | 6.375 | % | | 7.000 | % | | 8.5 | % | | 6.0 | % |
Tier 1 capital to risk-weighted assets | 6.0 |
| | 8.0 |
| | 7.250 |
| | 7.875 |
| | 8.500 |
| | 10.0 |
| | 7.5 |
| 6.0 |
| | 8.0 |
| | 7.875 |
| | 8.500 |
| | 10.0 |
| | 7.5 |
|
Total capital to risk-weighted assets | 8.0 |
| | 10.0 |
| | 9.250 |
| | 9.875 |
| | 10.500 |
| | 12.0 |
| | 9.5 |
| 8.0 |
| | 10.0 |
| | 9.875 |
| | 10.500 |
| | 12.0 |
| | 9.5 |
|
Leverage ratio | 4.0 |
| | 5.0 |
| | N/A | | N/A | | N/A | | 8.0 |
| | 5.5 |
| 4.0 |
| | 5.0 |
| | N/A | | N/A | | 8.0 |
| | 5.5 |
|
| |
(1) | BB&T's goal is to maintain capital levels above the 2019 requirements.all regulatory minimums. |
While nonrecurring events or management decisions may result in the Company temporarily falling below its operating minimum guidelines for one or more of these ratios, it is management’s intent through capital planning to return to these targeted operating minimums within a reasonable period of time. Such temporary decreases below the operating minimums shown above are not considered an infringement of BB&T’s overall capital policy, provided a return above the minimums is forecast to occur within a reasonable time period.
| | Table 18 | |
Table 17 | | Table 17 |
Capital Ratios (1) | | | | | | | | | |
(Dollars in millions, except per share data, shares in thousands) | | Sep 30, 2017 | | Dec 31, 2016 | | Jun 30, 2018 | | Dec 31, 2017 |
Risk-based: | | | | | | | | |
CET1 capital to risk-weighted assets | | 10.1 | % | | 10.2 | % | | 10.2 | % | | 10.2 | % |
Tier 1 capital to risk-weighted assets | | 11.8 |
| | 12.0 |
| | 11.9 |
| | 11.9 |
|
Total capital to risk-weighted assets | | 13.9 |
| | 14.1 |
| | 13.9 |
| | 13.9 |
|
Leverage ratio | | 9.9 |
| | 10.0 |
| | 10.0 |
| | 9.9 |
|
| | | | | | | | |
Non-GAAP capital measure (2): | | |
| | | | |
| | |
Tangible common equity per common share | | $ | 20.78 |
| | $ | 20.18 |
| | $ | 21.26 |
| | $ | 20.80 |
|
| | | | | | | | |
Calculation of tangible common equity (2): | | | | | | | | |
Total shareholders' equity | | $ | 29,853 |
| | $ | 29,926 |
| | $ | 29,832 |
| | $ | 29,695 |
|
Less: | | | | | | | | |
Preferred stock | | 3,053 |
| | 3,053 |
| | 3,053 |
| | 3,053 |
|
Noncontrolling interests | | 43 |
| | 45 |
| | 52 |
| | 47 |
|
Intangible assets | | 10,363 |
| | 10,492 |
| | 10,264 |
| | 10,329 |
|
Tangible common equity | | $ | 16,394 |
| | $ | 16,336 |
| | $ | 16,463 |
| | $ | 16,266 |
|
| | | | | | | | |
Risk-weighted assets | | $ | 176,810 |
| | $ | 176,138 |
| | $ | 180,190 |
| | $ | 177,217 |
|
Common shares outstanding at end of period | | 788,921 |
| | 809,475 |
| | 774,447 |
| | 782,006 |
|
| |
(1) | Current quarter regulatory capital information is preliminary. |
| |
(2) | Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. BB&T's management uses these measures to assess the quality of capital and returns relative to balance sheet risk and believes investors may find them useful in their analysis of the Corporation. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies. |
Capital levels remained strong at SeptemberJune 30, 2017.2018. BB&T declared total common dividends of $0.33$0.375 per share during the thirdsecond quarter of 2017,2018, which resulted in a dividend payout ratio of 43.8%37.5%. The Company also completed $920$310 million of share repurchases during the thirdsecond quarter of 2017,2018, which resulted in a total payout ratio of 198.0%77.5%. The dividend and total payout ratios were 46.5% and 123.7%, respectively, for the year-to-date period ended September 30, 2017.
Share Repurchase Activity
The 2017 Repurchase Plan, announced on June 28, 2017, authorizes up to $1.88 billion of share repurchases over a one-year period beginning with the third quarter of 2017. The 2017 Repurchase Plan superseded the 2015 Repurchase Plan, announced on June 25, 2015, which allowed for the repurchase of up to 50 million shares of the Company's common stock. The unused portion of the 2015 Repurchase Plan, totaling 30.2 million shares, was canceled when the 2017 Repurchase Plan was authorized.
Repurchases may be effected through open market purchases, privately negotiated transactions, trading plans established in accordance with Securities and Exchange Commission rules or other means. The timing and exact amount of repurchases will be consistent with the Company's capital plan and subject to various factors, including the Company's capital position, liquidity, financial performance, alternative uses of capital, stock trading price and general market conditions, and may be suspended at any time. Shares repurchased pursuant to the repurchase plan constitute authorized but unissued shares of the Company and are therefore available for future issuances.
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| | | | | | | | | | | | | |
Table 19 |
Share Repurchase Activity |
| | | | | | | |
(Dollars in millions, except per share data, shares in thousands) | Total Shares Repurchased | | Average Price Paid Per Share (1) | | Total Shares Repurchased Pursuant to Publicly-Announced Plan | | Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan |
July 2017 | 15,910 |
| | $ | 46.63 |
| | 15,910 |
| | $ | 1,138 |
|
August 2017 | — |
| | — |
| | — |
| | 1,138 |
|
September 2017 | 3,819 |
| | 46.63 |
| | 3,819 |
| | 960 |
|
Total | 19,729 |
| | 46.63 |
| | 19,729 |
| | |
|
| | | | | | | | | | | | | |
Table 18 |
Share Repurchase Activity |
| | | | | | | |
(Dollars in millions, except per share data, shares in thousands) | Total Shares Repurchased | | Average Price Paid Per Share (1) | | Total Shares Repurchased Pursuant to Publicly-Announced Plan (2) | | Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan |
April 2018 | 4,736 |
| | $ | 53.81 |
| | 4,736 |
| | $ | 65 |
|
May 2018 | 1,025 |
| | 53.81 |
| | 1,025 |
| | 10 |
|
June 2018 | — |
| | — |
| | — |
| | — |
|
Total | 5,761 |
| | 53.81 |
| | 5,761 |
| | |
| |
(2) | Pursuant to the 2017 Repurchase Plan, announced on June 28, 2017, authorizing up to $1.88 billion of share repurchases over the one-year period ended June 30, 2018. In November 2017, the amount authorized was increased $53 million to $1.93 billion for the same one-year period. |
The 2018 Repurchase Plan, announced on June 28, 2018, authorizes up to $1.7 billion of share repurchases over the one-year period ending June 30, 2019. BB&T may not utilize the full share repurchases in order to maintain desired capital levels.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to "Market Risk Management" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
During the third quarter of 2017, BB&T implemented a new commercial loan software solution to enhance the commercial lending information and accounting systems. The new software supports operating activities, including loan origination and servicing, as well as accounting activities. Internal controls and processes have been appropriately modified to address changes in key business applications and financial processes as a result of this implementation.
There were no other changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended SeptemberJune 30, 20172018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the "CommitmentsNote 12. Commitments and Contingencies" noteContingencies in the "Notes to Consolidated Financial Statements."
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in BB&T's Annual Report on Form 10-K for the year ended December 31, 2016.2017. Additional risks and uncertainties not currently known to BB&T or that management has deemed to be immaterial also may materially adversely affect BB&T's business, financial condition, and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Refer to "Share Repurchase Activity" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
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ITEM 6. EXHIBITS |
| | | | |
Exhibit No. | | Description | | Location |
12†3(i) | | Bylaws of the Registrant, as amended and restated April 24, 2018. | | |
12† | | Statement re: Computation of Ratios. | | |
31.1 | | | | |
31.2 | | | | |
32 | | | | Furnished |
101.INS | | XBRL Instance Document. | | Filed herewith. |
101.SCH | | XBRL Taxonomy Extension Schema. | | Filed herewith. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. | | Filed herewith. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase. | | Filed herewith. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. | | Filed herewith. |
101.DEF | | XBRL Taxonomy Definition Linkbase. | | Filed herewith. |
† Exhibit filed with the Securities and Exchange Commission and available upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | |
| | | BB&T CORPORATION (Registrant) |
| | | | |
Date: | 10/27/2017July 27, 2018 | | By: | /s/ Daryl N. Bible |
| | | | Daryl N. Bible |
| | | | Senior Executive Vice President and Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
Date: | 10/27/2017July 27, 2018 | | By: | /s/ Cynthia B. Powell |
| | | | Cynthia B. Powell |
| | | | Executive Vice President and Corporate Controller |
| | | | (Principal Accounting Officer) |