Companies: 10,652     total market cap: $140.498 T
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Truist Financial Corporation
TFC
#361
Rank
$66.39 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$51.90
Share price
0.68%
Change (1 day)
11.83%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Truist Financial Corporation
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q2

Truist Financial Corporation - 10-Q quarterly report FY2019 Q2


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

☒ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2019
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
North Carolina
56-0939887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
 
200 West Second Street
 
 
Winston-Salem,
North Carolina
27101
(Address of principal executive offices)
(Zip Code)
 
 
 
Registrant's telephone number, including area code:
(336)
733-2000
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $5 par value
 
BBT
 
New York Stock Exchange
Depositary Shares of Series D Non-Cumulative Perpetual Preferred Stock (1)
 
BBT PrD
 
New York Stock Exchange
Depositary Shares of Series E Non-Cumulative Perpetual Preferred Stock (1)
 
BBT PrE
 
New York Stock Exchange
Depositary Shares of Series F Non-Cumulative Perpetual Preferred Stock (1)
 
BBT PrF
 
New York Stock Exchange
Depositary Shares of Series G Non-Cumulative Perpetual Preferred Stock (1)
 
BBT PrG
 
New York Stock Exchange
Depositary Shares of Series H Non-Cumulative Perpetual Preferred Stock (1)
 
BBT PrH
 
New York Stock Exchange
(1) Each depositary share represents a 1/1,000th interest in a share of the respective series of preferred stock
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
 
Accelerated filer
☐
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒
At June 30, 2019, 766,010,180 shares of the registrant's common stock, $5 par value, were outstanding.
 
 
 
 
 


 
 
10-Q
TABLE OF CONTENTS
BB&T CORPORATION
FORM 10-Q
June 30, 2019
 
 
Page No.
PART I - Financial Information
 
Glossary of Defined Terms
1
 
Forward-Looking Statements
3
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets (Unaudited)
4
 
Consolidated Statements of Income (Unaudited)
5
 
Consolidated Statements of Comprehensive Income (Unaudited)
6
 
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
7
 
Consolidated Statements of Cash Flows (Unaudited)
8
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
Note 1. Basis of Presentation
9
 
Note 2. Business Combinations
10
 
Note 3. Securities
11
 
Note 4. Loans and ACL
13
 
Note 5. Other Assets and Liabilities
18
 
Note 6. Goodwill and Other Intangible Assets
18
 
Note 7. Loan Servicing
19
 
Note 8. Deposits
20
 
Note 9. Long-Term Debt
20
 
Note 10. Shareholders' Equity
21
 
Note 11. AOCI
22
 
Note 12. Income Taxes
23
 
Note 13. Benefit Plans
23
 
Note 14. Commitments and Contingencies
23
 
Note 15. Fair Value Disclosures
25
 
Note 16. Derivative Financial Instruments
30
 
Note 17. Computation of EPS
34
 
Note 18. Operating Segments
35
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management)
53
Item 4.
Controls and Procedures
58
PART II - Other Information
Item 1.
Legal Proceedings
58
Item 1A.
Risk Factors
58
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
59
Item 3.
Defaults Upon Senior Securities - (none)
 
Item 4.
Mine Safety Disclosures - (not applicable)
 
Item 5.
Other Information - (none to be reported)
 
Item 6.
Exhibits
60



Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes. 
Term
Definition
2018 Repurchase Plan
Plan for the repurchase of up to $1.7 billion of BB&T's common stock for the one-year period ended June 30, 2019
ACL
Allowance for credit losses
AFS
Available-for-sale
Agency MBS
Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL
Allowance for loan and lease losses
AOCI
Accumulated other comprehensive income (loss)
Basel III
Global regulatory standards on bank capital adequacy and liquidity published by the BCBS
BB&T
BB&T Corporation and subsidiaries
BCBS
Basel Committee on Banking Supervision
BHC
Bank holding company
Branch Bank
Branch Banking and Trust Company
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
CCRC
Culture and Conduct Risk Committee
CD
Certificate of deposit
CDI
Core deposit intangible assets
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CET1
Common equity Tier 1
CMO
Collateralized mortgage obligation
Company
BB&T Corporation and subsidiaries (interchangeable with "BB&T" above)
CRE
Commercial real estate
DIF
Deposit Insurance Fund administered by the FDIC
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS
Earnings per common share
EVE
Economic value of equity
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
FHA
Federal Housing Administration
FHC
Financial Holding Company
FHLB
Federal Home Loan Bank
FHLMC
Federal Home Loan Mortgage Corporation
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
GAAP
Accounting principles generally accepted in the United States of America
GNMA
Government National Mortgage Association
Grandbridge
Grandbridge Real Estate Capital, LLC
GSE
U.S. government-sponsored enterprise
HFI
Held for investment
HTM
Held-to-maturity
IH
Insurance Holdings, an operating segment
IPV
Independent price verification
LCR
Liquidity Coverage Ratio
LHFS
Loans held for sale
LIBOR
London Interbank Offered Rate
MBS
Mortgage-backed securities
MRLCC
Market Risk, Liquidity and Capital Committee
MRM
Model Risk Management
MSR
Mortgage servicing right

BB&T Corporation 1


Term
Definition
MSRB
Municipal Securities Rulemaking Board
N/A
Not applicable
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
NYSE
NYSE Euronext, Inc.
OAS
Option adjusted spread
OCI
Other comprehensive income (loss)
OPEB
Other post-employment benefit
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
PCI
Purchased credit impaired loans
Peer Group
Financial holding companies included in the industry peer group index
PSU
Performance share units
Re-REMICs
Re-securitizations of Real Estate Mortgage Investment Conduits
Regions Insurance
Regions Insurance Group, acquired by BB&T effective July 2, 2018
ROU Assets
Right-of-use assets
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
SunTrust
SunTrust Banks, Inc.
TBA
To be announced
TDR
Troubled debt restructuring
TE
Taxable-equivalent
Truist
Truist Financial Corporation
U.S.
United States of America
U.S. Treasury
United States Department of the Treasury
UPB
Unpaid principal balance
VaR
Value-at-risk
VIE
Variable interest entity

2 BB&T Corporation

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:
l 
risks, uncertainties and other factors relating to the merger of SunTrust with and into BB&T, including the ability to obtain regulatory approvals and meet other closing conditions to the merger, and delay in closing the merger;
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;
l 
changes in the interest rate environment, including interest rate changes made by the Federal Reserve, the discontinuation of LIBOR as an interest rate benchmark, 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 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 
cyber security 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 
fraud or misconduct by internal or external parties, which BB&T may not be able prevent, detect or mitigate;
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, 2018 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 statement. Except to the extent required by applicable law or regulation, BB&T undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Readers should, however, consult any further disclosures of a forward-looking nature BB&T may make in any subsequent Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, or Current Reports on Form 8‑K.


BB&T Corporation 3


ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands)
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Cash and due from banks
$
1,831

 
$
2,753

Interest-bearing deposits with banks
707

 
984

Cash equivalents
148

 
143

Restricted cash
15

 
107

AFS securities at fair value
25,802

 
25,038

HTM securities (fair value of $19,565 and $20,047 at June 30, 2019 and December 31, 2018, respectively)
19,487

 
20,552

LHFS at fair value
1,237

 
988

Loans and leases
152,586

 
149,013

ALLL
(1,595
)
 
(1,558
)
Loans and leases, net of ALLL
150,991

 
147,455

Premises and equipment
2,029

 
2,118

Goodwill
9,830

 
9,818

CDI and other intangible assets
712

 
758

MSRs at fair value
970

 
1,108

Other assets
17,113

 
13,875

Total assets
$
230,872

 
$
225,697

Liabilities
 
 
 
Deposits
$
159,521

 
$
161,199

Short-term borrowings
10,344

 
5,178

Long-term debt
22,640

 
23,709

Accounts payable and other liabilities
6,603

 
5,433

Total liabilities
199,108

 
195,519

Commitments and contingencies (Note 14)

 

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

 
3,053

Common stock, $5 par
3,830

 
3,817

Additional paid-in capital
6,889

 
6,849

Retained earnings
19,050

 
18,118

AOCI, net of deferred income taxes
(1,119
)
 
(1,715
)
Noncontrolling interests
61

 
56

Total shareholders' equity
31,764

 
30,178

Total liabilities and shareholders' equity
$
230,872

 
$
225,697

Common shares outstanding
766,010

 
763,326

Common shares authorized
2,000,000

 
2,000,000

Preferred shares outstanding
126

 
126

Preferred shares authorized
5,000

 
5,000


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

4 BB&T Corporation


CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands)
Three Months Ended June 30,
 
Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
Interest Income
 
 
 
 
 
 
 
Interest and fees on loans and leases
$
1,886

 
$
1,687

 
$
3,725

 
$
3,292

Interest and dividends on securities
300

 
294

 
602

 
585

Interest on other earning assets
20

 
13

 
52

 
38

Total interest income
2,206

 
1,994

 
4,379

 
3,915

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
273

 
148

 
526

 
266

Interest on short-term borrowings
50

 
23

 
82

 
43

Interest on long-term debt
193

 
166

 
385

 
316

Total interest expense
516

 
337

 
993

 
625

Net Interest Income
1,690

 
1,657

 
3,386

 
3,290

Provision for credit losses
172

 
135

 
327

 
285

Net Interest Income After Provision for Credit Losses
1,518

 
1,522

 
3,059

 
3,005

Noninterest Income
 
 
 
 
 
 
 
Insurance income
566

 
481

 
1,076

 
917

Service charges on deposits
181

 
179

 
352

 
344

Investment banking and brokerage fees and commissions
131

 
109

 
242

 
222

Mortgage banking income
113

 
94

 
176

 
193

Trust and investment advisory revenues
70

 
72

 
138

 
144

Bankcard fees and merchant discounts
77

 
72

 
147

 
141

Checkcard fees
59

 
57

 
114

 
109

Operating lease income
35

 
36

 
70

 
73

Income from bank-owned life insurance
34

 
30

 
62

 
61

Other income
86

 
91

 
177

 
197

Securities gains (losses), net
 
 
 
 
 
 
 
Gross realized gains
20

 
1

 
42

 
1

Gross realized losses
(20
)
 
—

 
(42
)
 
—

Total securities gains (losses), net
—

 
1

 
—

 
1

Total noninterest income
1,352

 
1,222

 
2,554

 
2,402

Noninterest Expense
 
 
 
 
 
 
 
Personnel expense
1,120

 
1,074

 
2,207

 
2,113

Occupancy and equipment expense
184

 
187

 
371

 
381

Software expense
71

 
67

 
143

 
132

Outside IT services
29

 
32

 
59

 
64

Regulatory charges
19

 
39

 
37

 
79

Amortization of intangibles
32

 
31

 
64

 
64

Loan-related expense
30

 
26

 
55

 
55

Professional services
31

 
32

 
62

 
62

Merger-related and restructuring charges, net
23

 
24

 
103

 
52

Other expense
212

 
208

 
418

 
404

Total noninterest expense
1,751

 
1,720

 
3,519

 
3,406

Earnings
 
 
 
 
 
 
 
Income before income taxes
1,119

 
1,024

 
2,094

 
2,001

Provision for income taxes
234

 
202

 
411

 
388

Net income
885

 
822

 
1,683

 
1,613

Noncontrolling interests
(1
)
 
3

 
5

 
6

Dividends on preferred stock
44

 
44

 
87

 
87

Net income available to common shareholders
$
842

 
$
775

 
$
1,591

 
$
1,520

Basic EPS
$
1.10

 
$
1.00

 
$
2.08

 
$
1.95

Diluted EPS
1.09

 
0.99

 
$
2.06

 
$
1.93

Basic weighted average shares outstanding
765,958

 
775,836

 
765,052

 
777,716

Diluted weighted average shares outstanding
774,603

 
785,750

 
774,329

 
788,362


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

BB&T Corporation 5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions)
Three Months Ended June 30,
 
Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
Net income
$
885

 
$
822

 
$
1,683

 
$
1,613

OCI, net of tax:
 

 
 

 
 

 
 

Change in unrecognized net pension and postretirement costs
19

 
13

 
36

 
27

Change in unrealized net gains (losses) on cash flow hedges
(59
)
 
26

 
(93
)
 
104

Change in unrealized net gains (losses) on AFS securities
342

 
(99
)
 
651

 
(367
)
Other, net
—

 
(1
)
 
2

 
(3
)
Total OCI
302

 
(61
)
 
596

 
(239
)
Total comprehensive income
$
1,187

 
$
761

 
$
2,279

 
$
1,374

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

 
$
5

 
$
11

 
$
9

Change in unrealized net gains (losses) on cash flow hedges
(18
)
 
8

 
(29
)
 
34

Change in unrealized net gains (losses) on AFS securities
105

 
(31
)
 
200

 
(115
)
Other, net
1

 
—

 
1

 
1


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


6 BB&T Corporation


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, shares in thousands)
Shares of Common Stock
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
AOCI
 
Noncontrolling Interests
 
Total Shareholders' Equity
Balance, April 1, 2018
779,752

 
$
3,053

 
$
3,899

 
$
7,593

 
$
16,712

 
$
(1,645
)
 
$
50

 
$
29,662

Net income
—

 
—

 
—

 
—

 
819

 
—

 
3

 
822

OCI
—

 
—

 
—

 
—

 
—

 
(61
)
 
—

 
(61
)
Issued in connection with equity awards, net
456

 
—

 
2

 
9

 
—

 
—

 
—

 
11

Repurchase of common stock
(5,761
)
 
—

 
(29
)
 
(281
)
 
—

 
—

 
—

 
(310
)
Cash dividends declared on common stock
—

 
—

 
—

 
—

 
(290
)
 
—

 
—

 
(290
)
Cash dividends declared on preferred stock
—

 
—

 
—

 
—

 
(44
)
 
—

 
—

 
(44
)
Equity-based compensation expense
—

 
—

 
—

 
45

 
—

 
—

 
—

 
45

Other, net
—

 
—

 
—

 
(2
)
 
—

 
—

 
(1
)
 
(3
)
Balance, June 30, 2018
774,447


$
3,053


$
3,872


$
7,364


$
17,197


$
(1,706
)

$
52


$
29,832

Balance, April 1, 2019
765,920

 
$
3,053

 
$
3,830

 
$
6,843

 
$
18,518

 
$
(1,421
)
 
$
60

 
$
30,883

Net income
—

 
—

 
—

 
—

 
886

 
—

 
(1
)
 
885

OCI
—

 
—

 
—

 
—

 
—

 
302

 
—

 
302

Issued in connection with equity awards, net
90

 
—

 
—

 
(2
)
 
—

 
—

 
—

 
(2
)
Cash dividends declared on common stock
—

 
—

 
—

 
—

 
(310
)
 
—

 
—

 
(310
)
Cash dividends declared on preferred stock
—

 
—

 
—

 
—

 
(44
)
 
—

 
—

 
(44
)
Equity-based compensation expense
—

 
—

 
—

 
48

 
—

 
—

 
—

 
48

Other, net
—

 
—

 
—

 
—

 
—

 
—

 
2

 
2

Balance, June 30, 2019
766,010

 
$
3,053

 
$
3,830

 
$
6,889

 
$
19,050

 
$
(1,119
)
 
$
61

 
$
31,764

Balance, January 1, 2018
782,006

 
$
3,053

 
$
3,910

 
$
7,893

 
$
16,259

 
$
(1,467
)
 
$
47

 
$
29,695

Net income
—

 
—

 
—

 
—

 
1,607

 
—

 
6

 
1,613

OCI
—

 
—

 
—

 
—

 
—

 
(239
)
 
—

 
(239
)
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

Balance, January 1, 2019
763,326

 
$
3,053

 
$
3,817

 
$
6,849

 
$
18,118

 
$
(1,715
)
 
$
56

 
$
30,178

Net income
—

 
—

 
—

 
—

 
1,678

 
—

 
5

 
1,683

OCI
—

 
—

 
—

 
—

 
—

 
596

 
—

 
596

Issued in connection with equity awards, net
2,684

 
—

 
13

 
(43
)
 
—

 
—

 
—

 
(30
)
Cash dividends declared on common stock
—

 
—

 
—

 
—

 
(619
)
 
—

 
—

 
(619
)
Cash dividends declared on preferred stock
—

 
—

 
—

 
—

 
(87
)
 
—

 
—

 
(87
)
Equity-based compensation expense
—

 
—

 
—

 
80

 
—

 
—

 
—

 
80

Other, net
—

 
—

 
—

 
3

 
(40
)
 
—

 
—

 
(37
)
Balance, June 30, 2019
766,010

 
$
3,053

 
$
3,830

 
$
6,889

 
$
19,050

 
$
(1,119
)
 
$
61

 
$
31,764


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

BB&T Corporation 7


CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
Cash Flows From Operating Activities:
 
 
 
Net income
$
1,683

 
$
1,613

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

 
 
Provision for credit losses
327

 
285

Depreciation
212

 
210

Amortization of intangibles
64

 
64

Equity-based compensation expense
80

 
76

(Gain) loss on securities, net
—

 
(1
)
Net change in operating assets and liabilities:
 

 
 
LHFS
(326
)
 
(516
)
Trading and equity securities
(1,081
)
 
(187
)
Other assets, accounts payable and other liabilities
(1,164
)
 
59

Other, net
394

 
(176
)
Net cash from operating activities
189

 
1,427

Cash Flows From Investing Activities:
 

 
 
Proceeds from sales of AFS securities
4,110

 
160

Proceeds from maturities, calls and paydowns of AFS securities
1,848

 
1,990

Purchases of AFS securities
(5,828
)
 
(1,989
)
Proceeds from maturities, calls and paydowns of HTM securities
1,051

 
1,259

Purchases of HTM securities
—

 
(39
)
Originations and purchases of loans and leases, net of principal collected
(3,947
)
 
(2,957
)
Other, net
(41
)
 
13

Net cash from investing activities
(2,807
)
 
(1,563
)
Cash Flows From Financing Activities:
 

 
 
Net change in deposits
(1,573
)
 
2,113

Net change in short-term borrowings
5,166

 
(1,362
)
Proceeds from issuance of long-term debt
2,033

 
1,755

Repayment of long-term debt
(3,396
)
 
(1,044
)
Repurchase of common stock
—

 
(630
)
Cash dividends paid on common stock
(619
)
 
(582
)
Cash dividends paid on preferred stock
(87
)
 
(87
)
Other, net
(192
)
 
(57
)
Net cash from financing activities
1,332

 
106

Net Change in Cash, Cash Equivalents and Restricted Cash
(1,286
)
 
(30
)
Cash, Cash Equivalents and Restricted Cash, January 1
3,987

 
3,083

Cash, Cash Equivalents and Restricted Cash, June 30
$
2,701

 
$
3,053

Supplemental Disclosure of Cash Flow Information:
 
 
 
Net cash paid (received) during the period for:
 
 
 
Interest expense
$
993

 
$
619

Income taxes
324

 
(60
)

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


8 BB&T Corporation


NOTE 1. Basis of Presentation

General
 
See the Glossary of Defined Terms at the beginning of this Report for terms used herein. These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2018 should be referred to in connection with these unaudited interim consolidated financial statements.
 
Reclassifications

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

Leases - Lessee

BB&T has operating and finance leases for data centers, corporate offices, branches, retail centers, and certain equipment. BB&T determines if an arrangement is a lease at inception. Operating leases with an original lease term in excess of one year are included in other assets and accounts payable and other liabilities in the Consolidated Balance Sheets. Finance leases are included in premises and equipment and long-term debt in the Consolidated Balance Sheets. 

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating and finance lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. BB&T uses an implicit interest rate in determining the present value of lease payments when readily determinable, and a collateralized incremental borrowing rate when an implicit rate is not available. Lease terms consider options to extend or terminate based on the determination of whether such renewal or termination options are deemed reasonably certain. Rent expense and rental income on operating leases is generally recorded using the straight-line method over the appropriate lease terms.

Lease agreements that contain non-lease components are generally accounted for as a single lease component. Variable costs, such as maintenance expenses, property and sales taxes, association dues and index based rate increases, are expensed as they are incurred.

Leases - Lessor

BB&T's commercial lease portfolio consists of dealer-based financing of equipment for small businesses and commercial equipment leasing. The fair market value of the leased asset is generally equal to the original capitalized cost. Assets under operating leases are included in other assets in the Consolidated Balance Sheets. Depreciation expense for assets under operating leases is generally recorded using the straight-line method over the appropriate lease terms in other expense in the Consolidated Statements of Income.


BB&T Corporation 9


Changes in Accounting Principles and Effects of New Accounting Pronouncements
Standard/Adoption Date
Description
Effects on the Financial Statements
Standards Adopted During the Current Year
Leases
Jan 1, 2019
Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors.
BB&T established ROU assets of $860 million and lease liabilities of $997 million. The net impact to equity was a reduction of $40 million. There was no material impact to its Consolidated Statements of Income. BB&T adopted the guidance on a prospective basis and did not reassess whether any expired or existing contract contains a lease, the classification of leases or the initial direct costs.
Standards Not Yet Adopted
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, which is highly dependent on existing and forecasted economic conditions at the time of adoption, has not yet been quantified. BB&T performed limited parallel testing in the second quarter of 2019, and is currently conducting a more comprehensive parallel testing program that will include consideration of qualitative adjustments that among other things will include adjustments designed to capture an estimate for the inherent uncertainty related to forecasts of future economic conditions. In light of the anticipated merger with SunTrust, BB&T is also evaluating the impact of the merger on its CECL implementation project to ensure that its consolidated CECL estimate gives appropriate consideration to the acquired SunTrust loan portfolio.


NOTE 2. Business Combinations
 
On February 7, 2019, BB&T and SunTrust announced that both companies' Boards of Directors unanimously approved an agreement to combine in an all-stock merger-of-equals. Upon closing, each SunTrust share will be exchanged for 1.295 shares of BB&T stock. On July 10, 2019, BB&T received regulatory approval from the NCCOB for the pending merger-of-equals with SunTrust. The merger is expected to close late in the third or fourth quarter of 2019, subject to satisfaction of closing conditions, including receipt of remaining regulatory approvals. The merger is subject to a break-up fee of approximately $1.1 billion, payable in customary circumstances. On July 30, 2019, BB&T and SunTrust shareholders approved the merger. In addition, BB&T's shareholders approved Truist Financial Corporation to be the name of the new combined company.


10 BB&T Corporation


NOTE 3. Securities

The following tables summarize AFS and HTM securities:
June 30, 2019
(Dollars in millions)
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,120

 
$
1

 
$
9

 
$
1,112

GSE
 
246

 
3

 
2

 
247

Agency MBS
 
23,428

 
184

 
171

 
23,441

States and political subdivisions
 
568

 
31

 
12

 
587

Non-agency MBS
 
207

 
175

 
—

 
382

Other
 
33

 
—

 
—

 
33

Total AFS securities
 
$
25,602

 
$
394

 
$
194

 
$
25,802

HTM securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,099

 
$
6

 
$
—

 
$
1,105

GSE
 
2,199

 
27

 
—

 
2,226

Agency MBS
 
16,186

 
101

 
56

 
16,231

States and political subdivisions
 
3

 
—

 
—

 
3

Other
 
—

 
—

 
—

 
—

Total HTM securities
 
$
19,487

 
$
134

 
$
56

 
$
19,565

 
 
 
 
 
 
 
 
 
December 31, 2018
(Dollars in millions)
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
3,503

 
$
22

 
$
84

 
$
3,441

GSE
 
209

 
—

 
9

 
200

Agency MBS
 
20,927

 
15

 
787

 
20,155

States and political subdivisions
 
694

 
25

 
18

 
701

Non-agency MBS
 
321

 
184

 
—

 
505

Other
 
35

 
1

 
—

 
36

Total AFS securities
 
$
25,689

 
$
247

 
$
898

 
$
25,038

HTM securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,099

 
$
—

 
$
6

 
$
1,093

GSE
 
2,199

 
4

 
43

 
2,160

Agency MBS
 
17,248

 
27

 
487

 
16,788

States and political subdivisions
 
5

 
—

 
—

 
5

Other
 
1

 
—

 
—

 
1

Total HTM securities
 
$
20,552

 
$
31

 
$
536

 
$
20,047



Certain securities issued by FNMA and FHLMC exceeded 10% of shareholders' equity at June 30, 2019. The FNMA investments had total amortized cost and fair value of $13.6 billion. The FHLMC investments had total amortized cost and fair value of $9.5 billion.

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.
 
 
AFS
 
HTM
June 30, 2019
(Dollars in millions)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
346

 
$
347

 
$
—

 
$
—

Due after one year through five years
 
1,011

 
1,002

 
3,300

 
3,332

Due after five years through ten years
 
278

 
280

 
563

 
564

Due after ten years
 
23,967

 
24,173

 
15,624

 
15,669

Total debt securities
 
$
25,602

 
$
25,802

 
$
19,487

 
$
19,565




BB&T Corporation 11


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:
 
 
Less than 12 months
 
12 months or more
 
Total
June 30, 2019
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
—

 
$
—

 
$
666

 
$
9

 
$
666

 
$
9

GSE
 
—

 
—

 
171

 
2

 
171

 
2

Agency MBS
 
544

 
1

 
10,219

 
170

 
10,763

 
171

States and political subdivisions
 
101

 
1

 
197

 
11

 
298

 
12

Total
 
$
645

 
$
2

 
$
11,253

 
$
192

 
$
11,898

 
$
194

HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

Agency MBS
 
384

 
3

 
4,461

 
53

 
4,845

 
56

Total
 
$
384

 
$
3

 
$
4,461

 
$
53

 
$
4,845

 
$
56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 months
 
12 months or more
 
Total
December 31, 2018
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
111

 
$
—

 
$
2,121

 
$
84

 
$
2,232

 
$
84

GSE
 
3

 
—

 
176

 
9

 
179

 
9

Agency MBS
 
322

 
2

 
18,478

 
785

 
18,800

 
787

States and political subdivisions
 
100

 
1

 
288

 
17

 
388

 
18

Total
 
$
536

 
$
3

 
$
21,063

 
$
895

 
$
21,599

 
$
898

HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
698

 
$
3

 
$
395

 
$
3

 
$
1,093

 
$
6

GSE
 
—

 
—

 
1,749

 
43

 
1,749

 
43

Agency MBS
 
264

 
3

 
14,976

 
484

 
15,240

 
487

Total
 
$
962

 
$
6

 
$
17,120

 
$
530

 
$
18,082

 
$
536


Substantially all of the unrealized losses on the securities portfolio were the result of changes in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.


12 BB&T Corporation


NOTE 4. Loans and ACL

During the third quarter of 2019, a residential mortgage loan portfolio totaling approximately $4 billion is expected to be sold. The following tables present loans and leases HFI by aging category:
 
 
Accruing
 
 
 
 
June 30, 2019
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonperforming
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
63,468

 
$
32

 
$
—

 
$
193

 
$
63,693

CRE
 
20,686

 
3

 
—

 
33

 
20,722

Lease financing
 
2,196

 
5

 
—

 
2

 
2,203

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
31,673

 
480

 
350

 
104

 
32,607

Direct
 
11,370

 
58

 
10

 
54

 
11,492

Indirect
 
17,734

 
393

 
7

 
75

 
18,209

Revolving credit
 
3,197

 
28

 
14

 
—

 
3,239

PCI
 
378

 
17

 
26

 
—

 
421

Total
 
$
150,702

 
$
1,016

 
$
407

 
$
461

 
$
152,586

 
 
 
 
 
 
 
 
 
 
 
 
 
Accruing
 
 
 
 
December 31, 2018
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonperforming
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
61,701

 
$
34

 
$
—

 
$
200

 
$
61,935

CRE
 
20,990

 
5

 
—

 
65

 
21,060

Lease financing
 
2,014

 
1

 
—

 
3

 
2,018

Retail:
 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
30,413

 
456

 
405

 
119

 
31,393

Direct
 
11,463

 
61

 
7

 
53

 
11,584

Indirect
 
16,901

 
436

 
6

 
82

 
17,425

Revolving credit
 
3,090

 
28

 
14

 
—

 
3,132

PCI
 
413

 
23

 
30

 
—

 
466

Total
 
$
146,985

 
$
1,044

 
$
462

 
$
522

 
$
149,013


The following table presents the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance and revolving credit loans are excluded as the loans are charged-off rather than reclassifying to nonperforming:
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
 
Commercial & Industrial
 
CRE
 
Lease Financing
 
Commercial & Industrial
 
CRE
 
Lease Financing
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
$
62,211

 
$
20,315

 
$
2,188

 
$
60,655

 
$
20,712

 
$
2,012

Special mention
 
386

 
112

 
1

 
216

 
61

 
—

Substandard-performing
 
903

 
262

 
12

 
864

 
222

 
3

Nonperforming
 
193

 
33

 
2

 
200

 
65

 
3

Total
 
$
63,693

 
$
20,722

 
$
2,203

 
$
61,935

 
$
21,060

 
$
2,018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
 
Direct
 
Indirect
 
Residential Mortgage
 
Direct
 
Indirect
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
32,503

 
$
11,438

 
$
18,134

 
$
31,274

 
$
11,531

 
$
17,343

Nonperforming
 
104

 
54

 
75

 
119

 
53

 
82

Total
 
$
32,607

 
$
11,492

 
$
18,209

 
$
31,393

 
$
11,584

 
$
17,425









BB&T Corporation 13



The following tables present activity in the ACL:
(Dollars in millions)
 
Balance at Apr 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at Jun 30, 2018
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
522

 
$
(23
)
 
$
11

 
$
25

 
$
535

CRE
 
175

 
(2
)
 
1

 
17

 
191

Lease financing
 
10

 
(1
)
 
1

 
—

 
10

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
216

 
(5
)
 
1

 
9

 
221

Direct
 
99

 
(17
)
 
6

 
9

 
97

Indirect
 
347

 
(82
)
 
17

 
71

 
353

Revolving credit
 
104

 
(21
)
 
5

 
17

 
105

PCI
 
25

 
—

 
—

 
(7
)
 
18

ALLL
 
1,498

 
(151
)
 
42

 
141

 
1,530

RUFC
 
116

 
—

 
—

 
(6
)
 
110

ACL
 
$
1,614

 
$
(151
)
 
$
42

 
$
135

 
$
1,640

 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance at Apr 1, 2019
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at Jun 30, 2019
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
548

 
$
(22
)
 
$
8

 
$
40

 
$
574

CRE
 
196

 
(18
)
 
3

 
20

 
201

Lease financing
 
11

 
—

 
—

 
(1
)
 
10

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
225

 
(5
)
 
—

 
4

 
224

Direct
 
96

 
(22
)
 
7

 
18

 
99

Indirect
 
358

 
(91
)
 
19

 
73

 
359

Revolving credit
 
119

 
(25
)
 
4

 
22

 
120

PCI
 
8

 
—

 
—

 
—

 
8

ALLL
 
1,561

 
(183
)
 
41

 
176

 
1,595

RUFC
 
98

 
—

 
—

 
(4
)
 
94

ACL
 
$
1,659

 
$
(183
)
 
$
41

 
$
172

 
$
1,689

 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Balance at Jan 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at Jun 30, 2018
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

 
 
 
 
 
 
 
 
 
 
 


14 BB&T Corporation


(Dollars in millions)
 
Balance at Jan 1, 2019
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at Jun 30, 2019
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
546

 
$
(39
)
 
$
14

 
$
53

 
$
574

CRE
 
190

 
(26
)
 
4

 
33

 
201

Lease financing
 
11

 
(1
)
 
—

 
—

 
10

Retail:
 
 

 
 

 
 

 
 

 
 
Residential mortgage
 
232

 
(10
)
 
1

 
1

 
224

Direct
 
97

 
(40
)
 
13

 
29

 
99

Indirect
 
356

 
(200
)
 
36

 
167

 
359

Revolving credit
 
117

 
(51
)
 
10

 
44

 
120

PCI
 
9

 
—

 
—

 
(1
)
 
8

ALLL
 
1,558

 
(367
)
 
78

 
326

 
1,595

RUFC
 
93

 
—

 
—

 
1

 
94

ACL
 
$
1,651

 
$
(367
)
 
$
78

 
$
327

 
$
1,689



The following table provides a summary of loans that are collectively evaluated for impairment:
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
 
Recorded Investment
 
Related ALLL
 
Recorded Investment
 
Related ALLL
Commercial:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
63,383

 
$
546

 
$
61,629

 
$
521

CRE
 
20,667

 
197

 
20,960

 
181

Lease financing
 
2,201

 
10

 
2,015

 
11

Retail:
 
 
 
 
 
 
 
 
Residential mortgage
 
31,842

 
168

 
30,539

 
164

Direct
 
11,427

 
94

 
11,517

 
92

Indirect
 
17,873

 
298

 
17,099

 
299

Revolving credit
 
3,210

 
109

 
3,104

 
106

PCI
 
421

 
8

 
466

 
9

Total
 
$
151,024

 
$
1,430

 
$
147,329

 
$
1,383




BB&T Corporation 15


The following tables set forth certain information regarding impaired loans, excluding PCI and LHFS, that were individually evaluated for impairment:

UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
As of / For The Six Months Ended June 30, 2019
(Dollars in millions)
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
321

 
$
89

 
$
221

 
$
28

 
$
309

 
$
3

CRE
62

 
5

 
50

 
4

 
100

 
1

Lease financing
2

 
—

 
2

 
—

 
2

 
—

Retail:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
813

 
106

 
659

 
56

 
858

 
19

Direct
82

 
26

 
39

 
5

 
66

 
2

Indirect
346

 
5

 
331

 
61

 
328

 
26

Revolving credit
29

 
—

 
29

 
11

 
29

 
1

Total
$
1,655

 
$
231

 
$
1,331

 
$
165

 
$
1,692

 
$
52

 
 
 
 
 
 
 
 
 
 
 
 
 
UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
As of / For The Year Ended December 31, 2018
(Dollars in millions)
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
318

 
$
95

 
$
211

 
$
25

 
$
343

 
$
6

CRE
102

 
29

 
71

 
9

 
97

 
2

Lease financing
3

 
—

 
3

 
—

 
6

 
—

Retail:
 
 
 

 
 

 
 

 
 

 
 

Residential mortgage
904

 
122

 
732

 
68

 
841

 
34

Direct
86

 
26

 
41

 
5

 
72

 
4

Indirect
335

 
6

 
320

 
57

 
306

 
46

Revolving credit
28

 
—

 
28

 
11

 
29

 
1

Total
$
1,776

 
$
278

 
$
1,406

 
$
175

 
$
1,694

 
$
93


The following table presents a summary of TDRs, all of which are considered impaired:
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
Performing TDRs:
 
 
 
 
Commercial:
 
 
 
 
Commercial and industrial
 
$
84

 
$
65

CRE
 
8

 
10

Retail:
 
 
 
 
Residential mortgage
 
581

 
656

Direct
 
53

 
55

Indirect
 
315

 
305

Revolving credit
 
29

 
28

Total performing TDRs
 
1,070

 
1,119

Nonperforming TDRs (also included in NPL disclosures)
 
135

 
176

Total TDRs
 
$
1,205

 
$
1,295

ALLL attributable to TDRs
 
$
149

 
$
146




16 BB&T Corporation


The primary reason loan modifications were classified as TDRs is summarized below. Balances represent the recorded investment at the end of the quarter in which the modification was made. Rate modifications consist of TDRs made with below market interest rates, including those that also have modifications of loan structures.
 
2019
 
2018
Three Months Ended June 30,
(Dollars in millions)
Type of Modification
 
ALLL Impact
 
Type of Modification
 
ALLL Impact
Rate
 
Structure
 
 
Rate
 
Structure
 
Newly designated TDRs:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
24

 
$
3

 
$
1

 
$
20

 
$
33

 
$
—

CRE
—

 
1

 
—

 
8

 
1

 
—

Retail:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
49

 
6

 
3

 
58

 
5

 
4

Direct
2

 
1

 
—

 
2

 
1

 
—

Indirect
50

 
1

 
6

 
45

 
1

 
5

Revolving credit
5

 
—

 
1

 
4

 
—

 
1

Re-modification of previously designated TDRs
14

 
11

 
—

 
31

 
5

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
Six Months Ended June 30,
(Dollars in millions)
Type of Modification
 
ALLL Impact
 
Type of Modification
 
ALLL Impact
Rate
 
Structure
 
 
Rate
 
Structure
 
Newly designated TDRs:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
50

 
$
6

 
$
2

 
$
30

 
$
43

 
$
—

CRE
1

 
1

 
—

 
27

 
2

 
—

Retail:
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
122

 
14

 
7

 
140

 
15

 
9

Direct
5

 
2

 
—

 
4

 
1

 
—

Indirect
98

 
2

 
12

 
87

 
2

 
10

Revolving credit
11

 
—

 
2

 
9

 
—

 
2

Re-modification of previously designated TDRs
37

 
16

 
—

 
52

 
10

 
—



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 $21 million and $13 million for the three months ended June 30, 2019 and 2018, respectively, and $39 million and $36 million for the six months ended June 30, 2019 and 2018, respectively. Payment default is defined as movement of the TDR to nonperforming status, foreclosure or charge-off, whichever occurs first.

Unearned income, discounts and net deferred loan fees and costs were immaterial for all periods presented. Residential mortgage loans in the process of foreclosure were $240 million at June 30, 2019 and $253 million at December 31, 2018.


BB&T Corporation 17


NOTE 5. Other Assets and Liabilities
 
Lessee Operating and Finance Leases

Operating lease costs were $49 million and $98 million for the three and six months ended June 30, 2019, respectively.

The following table presents additional information on operating and finance leases:
June 30, 2019
(Dollars in millions)
Operating Leases
 
Finance Leases
ROU assets
$
842

 
$
18

Maturities of lease liabilities:
 
 
 
2019
$
86

 
$
4

2020
195

 
7

2021
172

 
6

2022
148

 
5

2023
118

 
3

2024
92

 
2

Thereafter
289

 
3

Total lease payments
1,100

 
30

Less: imputed interest
139

 
5

Total lease liabilities
$
961

 
$
25

Weighted average remaining term
7.5 years

 
5.0 years

Weighted average discount rate
3.1
%
 
7.1
%


Lessor Operating Leases

The following tables present a summary of assets under operating leases and activity related to assets under operating leases. These tables exclude subleases on assets included in premises and equipment.
(Dollars in millions)
Jun 30, 2019
 
Dec 31, 2018
Assets held under operating leases
$
1,359

 
$
1,378

Accumulated depreciation
(375
)
 
(374
)
Net
$
984

 
$
1,004


 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
2019
 
2018
Depreciation expense for assets under operating leases
$
29

 
$
30

 
$
58

 
$
60



The residual value of assets no longer under operating leases was immaterial.

NOTE 6. Goodwill and Other Intangible Assets

The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
CDI
 
$
605

 
$
(482
)
 
$
123

 
$
605

 
$
(460
)
 
$
145

Other, primarily customer relationship intangibles
 
1,331

 
(742
)
 
589

 
1,329

 
(716
)
 
613

Total
 
$
1,936

 
$
(1,224
)
 
$
712

 
$
1,934

 
$
(1,176
)
 
$
758




18 BB&T Corporation


NOTE 7. Loan Servicing

Residential Mortgage Banking Activities

The following tables summarize residential mortgage banking activities:
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
UPB of residential mortgage loan servicing portfolio
 
$
117,912

 
$
118,605

UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate
 
85,060

 
87,270

Mortgage loans sold with recourse
 
387

 
419

Maximum recourse exposure from mortgage loans sold with recourse liability
 
209

 
223

Indemnification, recourse and repurchase reserves
 
21

 
24

 
 


 


As of / For the Six Months Ended June 30,
(Dollars in millions)
 
2019
 
2018
UPB of residential mortgage loans sold from LHFS
 
$
3,597

 
$
5,536

Pre-tax gains recognized on mortgage loans sold and held for sale
 
48

 
74

Servicing fees recognized from mortgage loans serviced for others
 
123

 
128

Approximate weighted average servicing fee on the outstanding balance of residential mortgage loans serviced for others
 
0.28
%
 
0.28
%
Weighted average interest rate on mortgage loans serviced for others
 
4.07

 
4.01



The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
Six Months Ended June 30,
(Dollars in millions)
 
2019
 
2018
Residential MSRs, carrying value, January 1
 
$
957

 
$
914

Additions
 
40

 
63

Change in fair value due to changes in valuation inputs or assumptions:
 
 
 
 
Prepayment speeds
 
(134
)
 
67

OAS
 
37

 
17

Servicing costs
 
—

 
—

Realization of expected net servicing cash flows, passage of time and other
 
(70
)
 
(70
)
Residential MSRs, carrying value, June 30
 
$
830

 
$
991

Gains (losses) on derivative financial instruments used to mitigate the income statement effect of changes in residential MSR fair value
 
$
129

 
$
(84
)

 
The sensitivity of the fair value of the residential MSRs to changes in key assumptions is presented in the following table:
 
 
June 30, 2019
 
December 31, 2018
 
 
Range
 
Weighted Average
 
Range
 
Weighted Average
(Dollars in millions)
 
Min
 
Max
 
 
Min
 
Max
 
Prepayment speed
 
10.3
%
 
13.4
%
 
12.9
%
 
9.1
%
 
10.5
%
 
9.9
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(40
)
 
 
 
 
 
$
(34
)
Effect on fair value of a 20% increase
 
 
 
 
 
(77
)
 
 
 
 
 
(66
)
OAS
 
5.3
%
 
7.8
%
 
5.9
%
 
6.6
%
 
8.3
%
 
7.0
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(18
)
 
 
 
 
 
$
(24
)
Effect on fair value of a 20% increase
 
 
 
 
 
(34
)
 
 
 
 
 
(47
)
Composition of loans serviced for others:
 
 
 
 
 
 
 
 
 
 
Fixed-rate residential mortgage loans
 
 
 
 
 
99.2
%
 
 
 
 
 
99.2
%
Adjustable-rate residential mortgage loans
 
 
 
 
 
0.8

 
 
 
 
 
0.8

Total
 
 

 
 

 
100.0
%
 
 
 
 
 
100.0
%
Weighted average life
 
 

 
 

 
5.1 years

 
 
 
 
 
6.1 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.
 

BB&T Corporation 19


Commercial Mortgage Banking Activities

The following table summarizes commercial mortgage banking activities for the periods presented:
(Dollars in millions)
Jun 30, 2019
 
Dec 31, 2018
UPB of CRE mortgages serviced for others
$
27,683

 
$
27,761

CRE mortgages serviced for others covered by recourse provisions
4,691

 
4,699

Maximum recourse exposure from CRE mortgages sold with recourse liability
1,312

 
1,317

Recorded reserves related to recourse exposure
6

 
6

CRE mortgages originated during the year-to-date period
3,218

 
7,072

Commercial MSRs at fair value
140

 
151



NOTE 8. Deposits
 
The composition of deposits is presented in the following table:
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
Noninterest-bearing deposits
 
$
52,458

 
$
53,025

Interest checking
 
28,021

 
28,130

Money market and savings
 
63,972

 
63,467

Time deposits
 
15,070

 
16,577

Total deposits
 
$
159,521

 
$
161,199

Time deposits greater than $250,000
 
$
3,868

 
$
5,713


 
NOTE 9. Long-Term Debt

The following table presents a summary of long-term debt:
 
 
Jun 30, 2019
 
Dec 31, 2018
 
 
 
 
 
 
Stated Rate
 
Effective Rate
 
Carrying Amount
 
Carrying Amount
(Dollars in millions)
 
Maturity
 
Min
 
Max
 
 
 
BB&T Corporation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2020
to
2025
 
2.05
%
 
5.38
%
 
2.91
%
 
$
10,675

 
$
10,408

Floating rate senior notes
 
2020
 
2022
 
2.80

 
3.31

 
3.08

 
1,948

 
2,398

Fixed rate subordinated notes
 
2019
 
2029
 
3.88

 
5.25

 
2.50

 
1,586

 
903

Branch Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2020
 
2022
 
2.10

 
2.85

 
2.54

 
3,449

 
4,895

Floating rate senior notes
 
2020
 
2020
 
2.74

 
3.05

 
3.01

 
900

 
1,149

Fixed rate subordinated notes
 
2025
 
2026
 
3.63

 
3.80

 
3.09

 
2,178

 
2,075

FHLB advances (1)
 
2019
 
2034
 
—

 
5.50

 
2.77

 
1,743

 
1,749

Other long-term debt
 
 
 
 
 
 
 
 
 
 
 
161

 
132

Total long-term debt
 
 
 
 
 
 
 
 
 
 
 
$
22,640

 
$
23,709


(1)
FHLB advances had a weighted average maturity of 3.5 years at June 30, 2019.

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 third quarter of 2019, BB&T issued $1.0 billion in fixed rate medium term notes with a maturity date of 2024.


20 BB&T Corporation


NOTE 10. Shareholders' Equity

Preferred Stock

On July 29, 2019, BB&T issued $1.7 billion of series N non-cumulative perpetual preferred stock with a stated dividend rate of 4.800% per annum for net proceeds of $1.7 billion. Dividends, if declared by the Board of Directors, are payable on the first day of March and September of each year, commencing on March 1, 2020. The dividend rate will reset on September 1, 2024, and on each following fifth anniversary of the reset date to the five-year U.S. Treasury rate plus 3.003%. BB&T issued depositary shares, each of which represents a fractional ownership interest in a share of the 68,000 shares of the Company's series N preferred stock. The preferred stock has no stated maturity and redemption is solely at the option of the Company in whole, but not in part, upon the occurrence of a regulatory capital treatment event, as defined. In addition, the preferred stock may be redeemed in whole or in part, on any dividend payment date after September 1, 2024.

Dividends

The following table presents the dividends declared related to common stock. For information related to preferred stock dividends, see Note 9. Shareholders' Equity of the Annual Report on Form 10-K for the year ended December 31, 2018.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Cash dividends declared per share
 
$
0.405

 
$
0.375

 
$
0.810

 
$
0.750



Equity-Based Compensation Plans

The following table presents the activity related to awards of RSUs, PSUs and restricted shares:
(Shares in thousands)
 
Units/Shares
 
Wtd. Avg. Grant Date Fair Value
Nonvested at January 1, 2019
 
12,060

 
$
38.03

Granted
 
3,914

 
44.39

Vested
 
(3,262
)
 
35.07

Forfeited
 
(204
)
 
43.86

Nonvested at June 30, 2019
 
12,508

 
40.69




BB&T Corporation 21


NOTE 11. AOCI

AOCI includes the after-tax change in unrecognized net costs related to defined benefit pension and OPEB plans, and unrealized gains and losses on cash flow hedges and AFS securities.
Three Months Ended
(Dollars in millions)
Pension and OPEB Costs
 
Cash Flow Hedges
 
AFS Securities
 
Other, net
 
Total
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
)
AOCI balance, April 1, 2019
$
(1,147
)
 
$
(65
)
 
$
(191
)
 
$
(18
)
 
$
(1,421
)
OCI before reclassifications, net of tax
—


(61
)

346

 
—

 
285

Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
24

 
2

 
(6
)
 
—

 
20

Tax effect
5

 
—

 
(2
)
 
—

 
3

Amounts reclassified, net of tax
19

 
2

 
(4
)
 
—

 
17

Total OCI, net of tax
19

 
(59
)
 
342

 
—

 
302

AOCI balance, June 30, 2019
$
(1,128
)
 
$
(124
)
 
$
151

 
$
(18
)
 
$
(1,119
)
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019 and 2018
(Dollars in millions)
Pension and OPEB Costs
 
Cash Flow Hedges
 
AFS Securities
 
Other, net
 
Total
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
)
AOCI balance, January 1, 2019
$
(1,164
)
 
$
(31
)
 
$
(500
)
 
$
(20
)
 
$
(1,715
)
OCI before reclassifications, net of tax
—

 
(91
)
 
660

 
2

 
571

Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
47

 
(3
)
 
(12
)
 
—

 
32

Tax effect
11

 
(1
)
 
(3
)
 
—

 
7

Amounts reclassified, net of tax
36

 
(2
)
 
(9
)
 
—

 
25

Total OCI, net of tax
36

 
(93
)
 
651

 
2

 
596

AOCI balance, June 30, 2019
$
(1,128
)
 
$
(124
)
 
$
151

 
$
(18
)
 
$
(1,119
)
Primary income statement location of amounts reclassified from AOCI
Other expense
 
Net interest income
 
Net interest income
 
Net interest income
 
 



22 BB&T Corporation


NOTE 12. Income Taxes

The effective tax rates for the three months ended June 30, 2019 and 2018 were 20.9% and 19.7%, respectively.

The effective tax rates for the six months ended June 30, 2019 and 2018 were 19.6% and 19.4%, respectively.

NOTE 13. Benefit Plans

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,
 
Location
2019
 
2018
 
2019
 
2018
Service cost
Personnel expense
$
55

 
$
60

 
$
109

 
$
120

Interest cost
Other expense
54

 
50

 
111

 
100

Estimated return on plan assets
Other expense
(114
)
 
(112
)
 
(227
)
 
(224
)
Amortization and other
Other expense
26

 
19

 
51

 
39

Net periodic benefit cost
 
$
21

 
$
17

 
$
44

 
$
35



BB&T makes contributions to the qualified pension plan in amounts between the minimum required for funding and the maximum deductible for federal income tax purposes. Discretionary contributions totaling $549 million were made during the six months ended June 30, 2019. There are no required contributions for the remainder of 2019, though BB&T may elect to make additional discretionary contributions.

NOTE 14. Commitments and Contingencies

The following table summarizes certain commitments and contingencies. Refer to Note 15. Fair Value Disclosures for additional disclosures related to off-balance sheet financial instruments.
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
Investments in affordable housing projects:
 
 
 
 
Carrying amount
 
$
2,178

 
$
2,088

Amount of future funding commitments included in carrying amount
 
914

 
919

Lending exposure
 
410

 
460

Tax credits subject to recapture
 
513

 
523

Private equity investments:
 
 
 
 
Carrying amount
 
525

 
458

Amount of future funding commitments not included in carrying amount
 
312

 
331



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.


BB&T Corporation 23


Following the announcement of the proposed merger with SunTrust, six civil actions were filed challenging, among other things, the adequacy of the disclosures contained in the preliminary proxy statement/prospectus filed with the SEC in connection with the proposed transaction. Five of these suits were filed by purported SunTrust stockholders against SunTrust and its board of directors, with one suit also asserting a claim against BB&T. The sixth suit was filed by a purported BB&T stockholder against BB&T and its board of directors. Following discussions, SunTrust and BB&T reached agreement with plaintiffs to resolve these actions by making certain supplemental disclosures in the joint proxy statement/prospectus filed with the SEC in connection with the proposed transaction, which became definitive on June 19, 2019. To date, one of the suits filed by purported SunTrust stockholders has been dismissed with prejudice, and the suit filed by a purported BB&T stockholder has been discontinued with prejudice. Plaintiffs in the four remaining suits have similarly agreed to dismiss their actions in their entirety, with prejudice as to the named plaintiffs only and without prejudice to all other members of the putative class.

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, excluding assets related to employee benefit plans:
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
Pledged securities
 
$
13,782

 
$
13,237

Pledged loans
 
79,303

 
77,847




24 BB&T Corporation


NOTE 15. Fair Value Disclosures

The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
June 30, 2019
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
Assets:
 
 

 
 

 
 

 
 

 
 
AFS securities:
 
 

 
 
 
 
 
 
 
 
U.S. Treasury
 
$
1,112

 
$
—

 
$
1,112

 
$
—

 
$
—

GSE
 
247

 
—

 
247

 
—

 
—

Agency MBS
 
23,441

 
—

 
23,441

 
—

 
—

States and political subdivisions
 
587

 
—

 
587

 
—

 
—

Non-agency MBS
 
382

 
—

 
—

 
382

 
—

Other
 
33

 
—

 
33

 
—

 
—

Total AFS securities
 
25,802

 
—

 
25,420

 
382

 
—

LHFS
 
1,237

 
—

 
1,237

 
—

 
—

MSRs
 
970

 
—

 
—

 
970

 
—

Other assets:
 

 
 
 
 
 
 
 
 
Trading and equity securities
 
1,848

 
413

 
1,435

 
—

 
—

Derivative assets
 
498

 
—

 
638

 
18

 
(158
)
Private equity investments
 
449

 
—

 
—

 
449

 
—

Total assets
 
$
30,804

 
$
413


$
28,730


$
1,819

 
$
(158
)
Liabilities:
 
 

 
 

 
 

 
 

 
 
Derivative liabilities
 
$
35

 
$
—

 
$
156

 
$
11

 
$
(132
)
Securities sold short
 
188

 
—

 
188

 
—

 
—

Total liabilities
 
$
223

 
$
—

 
$
344

 
$
11

 
$
(132
)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
Assets:
 
 
 
 
 
 
 
 
 
 
AFS securities:
 
 

 
 

 
 

 
 

 
 
U.S. Treasury
 
$
3,441

 
$
—

 
$
3,441

 
$
—

 
$
—

GSE
 
200

 
—

 
200

 
—

 
—

Agency MBS
 
20,155

 
—

 
20,155

 
—

 
—

States and political subdivisions
 
701

 
—

 
701

 
—

 
—

Non-agency MBS
 
505

 
—

 
114

 
391

 
—

Other
 
36

 
—

 
36

 
—

 
—

Total AFS securities
 
25,038

 
—

 
24,647

 
391

 
—

LHFS
 
988

 
—

 
988

 
—

 
—

MSRs
 
1,108

 
—

 
—

 
1,108

 
—

Other assets:
 
 
 
 
 
 
 
 
 
 
Trading and equity securities
 
767

 
374

 
390

 
3

 
—

Derivative assets
 
246

 
—

 
234

 
12

 
—

Private equity investments
 
393

 
—

 
—

 
393

 
—

Total assets
 
$
28,540

 
$
374

 
$
26,259

 
$
1,907

 
$
—

Liabilities:
 
 

 
 

 
 

 
 

 
 
Derivative liabilities
 
$
247

 
$
1

 
$
246

 
$
—

 
$
—

Securities sold short
 
145

 
—

 
145

 
—

 
—

Total liabilities
 
$
392

 
$
1

 
$
391

 
$
—

 
$
—

(1) Refer to Note 16. Derivative Financial Instruments for additional discussion on netting adjustments.

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.


BB&T Corporation 25


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.
 
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 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 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.


26 BB&T Corporation


Activity for Level 3 assets and liabilities is summarized below:
Three Months Ended
(Dollars in millions)
 
Trading and Equity Securities
 
Non-agency MBS
 
MSRs
 
Net Derivatives
 
Private Equity Investments
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
 
1

 
—

 
—

 
—

 
3

Issuances
 
—

 
—

 
46

 
11

 
—

Sales
 
(1
)
 
—

 
—

 
—

 
—

Settlements
 
—

 
(14
)
 
(45
)
 
(15
)
 
(9
)
Balance at June 30, 2018
 
$
—

 
$
425

 
$
1,143

 
$
4

 
$
399

Balance at April 1, 2019
 
$
11

 
$
386

 
$
1,036

 
$
7

 
$
388

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
 
 
Included in earnings
 
—

 
(7
)
 
(51
)
 
13

 
1

Included in unrealized net holding gains (losses) in OCI
 
—

 
11

 
—

 
—

 
—

Purchases
 
—

 
—

 
—

 
—

 
61

Issuances
 
—

 
—

 
30

 
17

 
—

Sales
 
(11
)
 
—

 
—

 
—

 
(1
)
Settlements
 
—

 
(8
)
 
(45
)
 
(20
)
 
—

Transfers into Level 3
 
—

 
—

 
—

 
(10
)
 
—

Balance at June 30, 2019
 
$
—

 
$
382

 
$
970

 
$
7

 
$
449

Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2019
 
$
—

 
$
(7
)
 
$
(51
)
 
$
17

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019 and 2018
(Dollars in millions)
 
Trading and Equity Securities
 
Non-agency MBS
 
MSRs
 
Net Derivatives
 
Private Equity Investments
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
 
1

 
—

 
—

 
—

 
27

Issuances
 
—

 
—

 
83

 
6

 
—

Sales
 
(1
)
 
—

 
—

 
—

 
(24
)
Settlements
 
—

 
(27
)
 
(87
)
 
(6
)
 
(19
)
Balance at June 30, 2018
 
$
—

 
$
425

 
$
1,143

 
$
4

 
$
399

Balance at January 1, 2019
 
$
3

 
$
391

 
$
1,108

 
$
12

 
$
393

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
 
 
Included in earnings
 
—

 
(5
)
 
(105
)
 
21

 
24

Included in unrealized net holding gains (losses) in OCI
 
—

 
12

 
—

 
—

 
—

Purchases
 
15

 
—

 
—

 
—

 
68

Issuances
 
—

 
—

 
52

 
34

 
—

Sales
 
(18
)
 
—

 
—

 
—

 
(34
)
Settlements
 
—

 
(16
)
 
(85
)
 
(50
)
 
(2
)
Transfers into Level 3
 
—

 
—

 
—

 
(10
)
 
—

Balance at June 30, 2019
 
$
—

 
$
382

 
$
970

 
$
7

 
$
449

Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at June 30, 2019
 
$
—

 
$
(5
)
 
$
(105
)
 
$
18

 
$
4

Primary income statement location of realized gains (losses) included in earnings
 
Interest income
 
Interest income
 
Mortgage banking income
 
Mortgage banking income
 
Other income



BB&T Corporation 27


The non-agency MBS categorized as Level 3 represent ownership interests 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 June 30, 2019, the fair value of Re-REMIC non-agency MBS represented a discount of 21.7% 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 2029, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. As of June 30, 2019, 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 6x to 12x, with a weighted average of 9x, at June 30, 2019.

The following table details the fair value and UPB of LHFS that were elected to be carried at fair value:
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
 
Fair Value
 
UPB
 
Difference
 
Fair Value
 
UPB
 
Difference
LHFS at fair value
 
$
1,237

 
$
1,221

 
$
16

 
$
988

 
$
975

 
$
13



Excluding government guaranteed, LHFS that were nonperforming or 90 days or more past due and still accruing interest were not material at June 30, 2019.

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).

 
2019
 
2018
As of / For The Six Months Ended June 30,
(Dollars in millions)
 
Carrying Value
 
Valuation Adjustments
 
Carrying Value
 
Valuation Adjustments
Impaired loans
 
$
113

 
$
(20
)
 
$
174

 
$
(22
)
Foreclosed real estate
 
36

 
(117
)
 
43

 
(114
)

 
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.


28 BB&T Corporation


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 and revolving credit commitments have an immaterial fair value as BB&T typically has the ability to cancel such commitments.
 
Financial assets and liabilities not recorded at fair value are summarized below:
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
Fair Value Hierarchy
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
HTM securities
Level 2
$
19,487

 
$
19,565

 
$
20,552

 
$
20,047

Loans and leases HFI, net of ALLL
Level 3
150,991

 
150,295

 
147,455

 
145,591

Financial liabilities:
 
 

 
 

 
 

 
 

Time deposits
Level 2
15,070

 
15,141

 
16,577

 
16,617

Long-term debt
Level 2
22,640

 
23,005

 
23,709

 
23,723



The following is a summary of selected information pertaining to off-balance sheet financial instruments:
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
Notional/Contract Amount
 
Fair Value
 
Notional/Contract Amount
 
Fair Value
Commitments to extend, originate or purchase credit
$
75,677

 
$
262

 
$
72,435

 
$
280

Residential mortgage loans sold with recourse
387

 
3

 
419

 
3

CRE mortgages serviced for others covered by recourse provisions
4,691

 
6

 
4,699

 
6

Letters of credit
2,269

 
16

 
2,389

 
18




BB&T Corporation 29


NOTE 16. Derivative Financial Instruments

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. For client swaps, hedges are executed with dealer counterparties to offset market risk.
Treatment during the hedge period
Changes in value of the hedging instruments are recognized in AOCI until the related cash flows from the hedged item are recognized in earnings.
Changes in value of both the hedging instruments and the assets or liabilities being hedged are recognized in the income statement line item associated with the instrument being hedged.
Entire change in fair value recognized in current period income.
Treatment if hedge ceases to be highly effective or is terminated
Hedge is dedesignated. Changes in value recorded in AOCI before dedesignation are amortized to yield over the period the forecasted hedged transactions impact earnings.
If hedged item remains outstanding, the 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 terminations are reported in the same category as the cash flows from the hedged item.
Not applicable
Treatment if transaction is no longer probable of occurring during forecast period or within a short period thereafter
Hedge accounting ceases and any gain or loss in AOCI is reported in earnings immediately.
Not applicable
Not applicable



30 BB&T Corporation


Impact of Derivatives on the Consolidated Balance Sheets

In the second quarter of 2019, BB&T began applying the offsetting provisions for contracts that are covered by legally enforceable master netting agreements. Application of these provisions was not material to BB&T's consolidated financial statements. Gross amounts are presented in the December 31, 2018 consolidated balance sheet. The following table presents the notional amount and estimated fair value of derivative instruments:
 
 
 
 
June 30, 2019
 
December 31, 2018
 
 
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
 
$
2,500

 
$
—

 
$
—

 
$
6,500

 
$
—

 
$
—

Fair value hedges:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Receive fixed swaps
 
Long-term debt
 
11,529

 
108

 
(25
)
 
12,908

 
5

 
(74
)
Options
 
Long-term debt
 
4,785

 
—

 
(2
)
 
4,785

 
—

 
(2
)
Pay fixed swaps
 
Commercial loans
 
419

 
—

 
—

 
505

 
2

 
—

Pay fixed swaps
 
Municipal securities
 
151

 
—

 
—

 
259

 
—

 
—

Total
 
 
 
16,884

 
108

 
(27
)
 
18,457

 
7

 
(76
)
Not designated as hedges:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Client-related and other risk management:
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
12,709

 
471

 
(6
)
 
11,577

 
128

 
(98
)
Pay fixed swaps
 
 
 
12,520

 
1

 
(68
)
 
11,523

 
19

 
(32
)
Other
 
 
 
1,342

 
2

 
(3
)
 
1,143

 
2

 
(3
)
Forward commitments
 
 
 
5,345

 
20

 
(27
)
 
2,883

 
11

 
(13
)
Foreign exchange contracts
 
524

 
1

 
(3
)
 
529

 
5

 
(2
)
Total
 
 
 
32,440

 
495

 
(107
)
 
27,655

 
165

 
(148
)
Mortgage banking:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments
 
1,779

 
18

 
(1
)
 
702

 
12

 
—

When issued securities, forward rate agreements and forward commitments
 
2,339

 
3

 
(28
)
 
1,753

 
2

 
(20
)
Other
 
 
 
56

 
—

 
—

 
271

 
2

 
(1
)
Total
 
 
 
4,174

 
21

 
(29
)
 
2,726

 
16

 
(21
)
MSRs:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
3,381

 
—

 
—

 
4,328

 
—

 
—

Pay fixed swaps
 
 
 
2,442

 
1

 
—

 
3,224

 
—

 
—

Options
 
 
 
1,203

 
22

 
—

 
3,155

 
48

 
(2
)
When issued securities, forward rate agreements and forward commitments
 
1,841

 
9

 
(4
)
 
1,590

 
10

 
—

Other
 
 
 
102

 
—

 
—

 
103

 
—

 
—

Total
 
 
 
8,969

 
32

 
(4
)
 
12,400

 
58

 
(2
)
Total derivatives not designated as hedges
 
45,583

 
548

 
(140
)
 
42,781

 
239

 
(171
)
Total derivatives
 
 
 
$
64,967

 
656

 
(167
)
 
$
67,738

 
246

 
(247
)
Gross amounts in the Consolidated Balance Sheets:
 
 
 

 
 

 
 

 
 

 
 

Amounts subject to master netting arrangements
 
 
 
(57
)
 
57

 
 

 
(47
)
 
47

Cash collateral (received) posted for amounts subject to master netting arrangements
 
 

 
(101
)
 
75

 
 

 
(53
)
 
82

Net amount
 
 
 
 

 
$
498

 
$
(35
)
 
 

 
$
146

 
$
(118
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments under master netting agreements
 
 
 
$
159

 
$
(141
)
 
 
 
$
102

 
$
(131
)
Derivative instruments not under master netting agreements
 
 
 
497

 
(26
)
 
 
 
144

 
(116
)
Total derivatives
 
 
 
 
 
$
656

 
$
(167
)
 
 
 
$
246

 
$
(247
)



BB&T Corporation 31


The following table presents additional information for fair value hedging relationships:
 
 
June 30, 2019
 
December 31, 2018
 
 
 
 
Hedge Basis Adjustment
 
 
 
Hedge Basis Adjustment
(Dollars in millions)
 
Hedged Asset / Liability Basis
 
Items Currently Designated
 
Items No Longer Designated
 
Hedged Asset / Liability Basis
 
Items Currently Designated
 
Items No Longer Designated
AFS securities
 
$
467

 
$
13

 
$
56

 
$
493

 
$
5

 
$
54

Loans and leases
 
572

 
21

 
(1
)
 
562

 
—

 
(3
)
Long-term debt
 
13,652

 
212

 
(1
)
 
15,397

 
(98
)
 
12



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:

Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
2019
 
2018
Pre-tax gain (loss) recognized in OCI:
 
 
 
 
 
 
 
Deposits
$
(33
)
 
$
8

 
$
(43
)
 
$
29

Short-term borrowings
12

 
2

 
2

 
2

Long-term debt
(58
)
 
21

 
(78
)
 
93

Total
$
(79
)
 
$
31

 
(119
)
 
$
124

Pre-tax gain (loss) reclassified from AOCI into interest expense:
 
 
 
 
 
 
 
Deposits
$
(1
)
 
(1
)
 
1

 
(3
)
Short-term borrowings
—

 
—

 
1

 
—

Long-term debt
(1
)
 
(2
)
 
1

 
(11
)
Total
$
(2
)
 
$
(3
)
 
$
3

 
$
(14
)

The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
2019
 
2018
AFS securities:
 
 
 
 
 
 


Amounts related to interest settlements
$
—

 
$
(2
)
 
$
—

 
$
(4
)
Recognized on derivatives
(10
)
 
5

 
(17
)
 
16

Recognized on hedged items
8

 
(5
)
 
13

 
(16
)
Net income (expense) recognized
(2
)
 
(2
)
 
(4
)
 
$
(4
)
Loans and leases:
 
 
 
 
 
 
 
Amounts related to interest settlements
—

 
(1
)
 
—

 
(1
)
Recognized on derivatives
(14
)
 
3

 
(22
)
 
6

Recognized on hedged items
14

 
(3
)
 
22

 
(6
)
Net income (expense) recognized
—

 
(1
)
 
—

 
(1
)
Long-term debt:


 


 


 


Amounts related to interest settlements
(16
)
 
(7
)
 
(38
)
 
1

Recognized on derivatives
192

 
(62
)
 
308

 
(243
)
Recognized on hedged items
(188
)
 
75

 
(296
)
 
267

Net income (expense) recognized
(12
)
 
6

 
(26
)
 
25

Net income (expense) recognized, total
$
(14
)
 
$
3

 
$
(30
)
 
$
20



32 BB&T Corporation


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)
 
2019
 
2018
 
2019
 
2018
Client-related and other risk management:
 
 

 
 

 
 
 
 
Interest rate contracts
Other noninterest income
$
16

 
$
10

 
$
26

 
$
25

Foreign exchange contracts
Other noninterest income
(1
)
 
6

 
1

 
13

Mortgage banking:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
(2
)
 
(8
)
 
(5
)
 
(4
)
MSRs:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
83

 
(23
)
 
137

 
(90
)
Total
 
$
96

 
$
(15
)
 
$
159

 
$
(56
)


The following table presents information about BB&T's cash flow and fair value hedges:
(Dollars in millions)
 
Jun 30, 2019
 
Dec 31, 2018
Cash flow hedges:
 
 
 
 

Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
 
$
(12
)
 
$
(18
)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)
 
(112
)
 
(13
)
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
 
(45
)
 
4

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
 
1 year

 
4 years

Fair value hedges:
 
 

 
 
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2029)
 
$
(56
)
 
$
(39
)
Portion of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months
 
(1
)
 
15


 
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. Initial margin collateral requirements are established 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.

Derivatives Credit Risk – Risk Participation Agreements

BB&T has entered into risk participation agreements to share the credit exposure with other financial institutions on client-related interest rate derivative contracts. These amounts are included with other client-related and other risk management interest rate contracts in the table presenting the impact of derivatives on the consolidated balance sheets. The following table presents additional information related to interest rate derivative risk participation agreements:
(Dollars in millions)
Jun 30, 2019
 
Dec 31, 2018
Notional amount
$
752

 
$
446

Maximum exposure assuming all underlying third party customers referenced in the interest rate contracts defaulted in a zero LIBOR rate environment
47

 
26




BB&T Corporation 33


The following table summarizes collateral positions with counterparties:
(Dollars in millions)
Jun 30, 2019
 
Dec 31, 2018
Dealer counterparties:
 
 
 
Cash collateral received from dealer counterparties
$
103

 
$
56

Derivatives in a net gain position secured by collateral received
102

 
55

Unsecured positions in a net gain with dealer counterparties after collateral postings
1

 
2

Cash collateral posted to dealer counterparties
62

 
75

Derivatives in a net loss position secured by collateral received
60

 
76

Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade
—

 
1

Central clearing parties:
 
 
 
Cash collateral, including initial margin, posted to central clearing parties
21

 
17

Derivatives in a net loss position
24

 
8

Securities pledged to central clearing parties
138

 
124

 

NOTE 17. Computation of EPS
 
Basic and diluted EPS calculations are presented in the following table:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions, except per share data, shares in thousands)
2019
 
2018
 
2019
 
2018
Net income available to common shareholders
$
842

 
$
775

 
$
1,591

 
$
1,520

Weighted average number of common shares
765,958

 
775,836

 
765,052

 
777,716

Effect of dilutive outstanding equity-based awards
8,645

 
9,914

 
9,277

 
10,646

Weighted average number of diluted common shares
774,603

 
785,750

 
774,329

 
788,362

Basic EPS
$
1.10

 
$
1.00

 
$
2.08

 
$
1.95

Diluted EPS
$
1.09

 
$
0.99

 
$
2.06

 
$
1.93

Anti-dilutive awards
26

 
—

 
18

 
45


 
NOTE 18. Operating Segments
 
BB&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, FS&CF and IH. In addition, there is an OT&C segment. For additional information, see Note 19. Operating Segments of the Annual Report on Form 10-K for the year ended December 31, 2018.


34 BB&T Corporation


The following table presents results by segment:
Three Months Ended June 30,
(Dollars in millions)
CB-Retail
 
CB-Commercial
 
FS&CF
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net interest income (expense)
$
850

 
$
853

 
$
541

 
$
491

 
$
197

 
$
169

Net intersegment interest income (expense)
126

 
69

 
47

 
54

 
13

 
19

Segment net interest income
976

 
922

 
588

 
545

 
210

 
188

Allocated provision for credit losses
123

 
110

 
39

 
43

 
14

 
(4
)
Segment net interest income after provision
853

 
812

 
549

 
502

 
196

 
192

Noninterest income
387

 
355

 
114

 
110

 
329

 
303

Noninterest expense
654

 
659

 
255

 
254

 
311

 
312

Income (loss) before income taxes
586

 
508

 
408

 
358

 
214

 
183

Provision (benefit) for income taxes
141

 
125

 
89

 
80

 
45

 
38

Segment net income (loss)
$
445

 
$
383

 
$
319

 
$
278

 
$
169

 
$
145

 
 
 
 
 
 
 
 
 
 
 
 
 
IH
 
OT&C (1)
 
Total
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net interest income (expense)
$
35

 
$
29

 
$
67

 
$
115

 
$
1,690

 
$
1,657

Net intersegment interest income (expense)
(10
)
 
(7
)
 
(176
)
 
(135
)
 
—

 
—

Segment net interest income
25

 
22

 
(109
)
 
(20
)
 
1,690

 
1,657

Allocated provision for credit losses
2

 
—

 
(6
)
 
(14
)
 
172

 
135

Segment net interest income after provision
23

 
22

 
(103
)
 
(6
)
 
1,518

 
1,522

Noninterest income
570

 
484

 
(48
)
 
(30
)
 
1,352

 
1,222

Noninterest expense
444

 
408

 
87

 
87

 
1,751

 
1,720

Income (loss) before income taxes
149

 
98

 
(238
)
 
(123
)
 
1,119

 
1,024

Provision (benefit) for income taxes
38

 
25

 
(79
)
 
(66
)
 
234

 
202

Segment net income (loss)
$
111

 
$
73

 
$
(159
)
 
$
(57
)
 
$
885

 
$
822

 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
(Dollars in millions)
CB-Retail
 
CB-Commercial
 
FS&CF
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net interest income (expense)
$
1,693

 
$
1,690

 
$
1,077

 
$
955

 
$
386

 
$
328

Net intersegment interest income (expense)
235

 
117

 
91

 
124

 
34

 
37

Segment net interest income
1,928

 
1,807

 
1,168

 
1,079

 
420

 
365

Allocated provision for credit losses
253

 
232

 
58

 
80

 
15

 
(9
)
Segment net interest income after provision
1,675

 
1,575

 
1,110

 
999

 
405

 
374

Noninterest income
709

 
695

 
223

 
216

 
613

 
604

Noninterest expense
1,299

 
1,319

 
506

 
507

 
608

 
613

Income (loss) before income taxes
1,085

 
951

 
827

 
708

 
410

 
365

Provision (benefit) for income taxes
261

 
234

 
180

 
159

 
85

 
76

Segment net income (loss)
$
824

 
$
717

 
$
647

 
$
549

 
$
325

 
$
289

 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
$
76,246

 
$
72,696

 
$
56,450

 
$
57,011

 
$
33,595

 
$
30,446

 
 
 
 
 
 
 
 
 
 
 
 
 
IH
 
OT&C (1)
 
Total
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net interest income (expense)
$
69

 
$
55

 
$
161

 
$
262

 
$
3,386

 
$
3,290

Net intersegment interest income (expense)
(21
)
 
(13
)
 
(339
)
 
(265
)
 
—

 
—

Segment net interest income
48

 
42

 
(178
)
 
(3
)
 
3,386

 
3,290

Allocated provision for credit losses
5

 
1

 
(4
)
 
(19
)
 
327

 
285

Segment net interest income after provision
43

 
41

 
(174
)
 
16

 
3,059

 
3,005

Noninterest income
1,085

 
923

 
(76
)
 
(36
)
 
2,554

 
2,402

Noninterest expense
861

 
783

 
245

 
184

 
3,519

 
3,406

Income (loss) before income taxes
267

 
181

 
(495
)
 
(204
)
 
2,094

 
2,001

Provision (benefit) for income taxes
68

 
46

 
(183
)
 
(127
)
 
411

 
388

Segment net income (loss)
$
199

 
$
135

 
$
(312
)
 
$
(77
)
 
$
1,683

 
$
1,613

 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
$
7,162

 
$
6,321

 
$
57,419

 
$
56,207

 
$
230,872

 
$
222,681


(1)
Includes financial data from business units below the quantitative and qualitative thresholds requiring disclosure.


BB&T Corporation 35


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 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, 2018 for additional disclosures with respect to significant laws and regulations affecting BB&T.

In April 2019, the FRB terminated its cease and desist order related to BB&T's anti-money laundering program. No money laundering activity was identified and no financial penalty was levied in relation to this order.

In July 2019, the federal bank regulatory agencies issued a final rule that reduces regulatory burden by simplifying the capital treatment for mortgage servicing rights, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions and minority interest. The final rule applies to non-advanced approaches banking organizations and is effective April 1, 2020.

Executive Overview
 
Overview of Significant Events and Financial Results

On February 7, 2019, BB&T entered into an agreement and plan of merger, by and between BB&T and SunTrust, pursuant to which SunTrust will merge with and into BB&T, with BB&T as the surviving entity in the merger. Immediately following the merger, SunTrust's wholly owned subsidiary, SunTrust Bank, will merge with and into Branch Bank, with Branch Bank as the surviving entity. Under the terms of the merger agreement, shareholders of SunTrust will receive 1.295 shares of BB&T common stock for each share of SunTrust common stock. The merger agreement was unanimously approved by both companies' Boards of Directors. The merger is expected to close late in the third or fourth quarter of 2019, subject to satisfaction of closing conditions, including receipt of remaining regulatory approvals. The merger is subject to a mutual break-up fee of approximately $1.1 billion, payable in customary circumstances. Merger-of-equals updates include:

•
On July 10, 2019, BB&T received regulatory approval from the NCCOB for the pending merger-of-equals with SunTrust. Management is continuing to work with regulators on the remaining approvals.
•
On July 16, 2019, BB&T and SunTrust announced the Truist Bank Community Benefits Plan under which the combined company will lend or invest $60 billion to low and moderate-income borrowers and communities over a three-year period from 2020 to 2022.
•
Management agreed on a one-time bonus to be paid to certain associates of Truist following the closing of the merger. The estimated bonus payments total approximately $70 million.
•
On July 24, 2019, BB&T and SunTrust Executives attended a U.S. House Committee on Financial Services hearing.
•
On July 30, 2019, BB&T and SunTrust shareholders approved the merger. In addition, BB&T's shareholders approved Truist Financial Corporation to be the name of the combined company.

Consolidated net income available to common shareholders for the second quarter of 2019 was $842 million. On a diluted per common share basis, earnings for the second quarter of 2019 were $1.09, an increase of $0.10 compared to the second quarter of 2018.
 
BB&T's results of operations for the second quarter of 2019 produced an annualized return on average assets of 1.55% and an annualized return on average common shareholders' equity of 11.98%, compared to ratios for the same quarter of the prior year of 1.49% and 11.74%, respectively.

Total revenues on a TE basis were $3.1 billion for the second quarter of 2019, an increase of $165 million compared to the same period in 2018, which reflects an increase of $35 million in TE net interest income and an increase of $130 million in noninterest income.

The provision for credit losses was $172 million compared to $135 million for the second quarter of 2018. Net charge-offs were 0.38% of average loans and leases on an annualized basis for the second quarter of 2019, up eight basis point compared to the second quarter of 2018.


36 BB&T Corporation


Noninterest income for the second quarter of 2019 was up $130 million compared to the earlier quarter primarily due to increases in insurance income, mortgage banking income, and investment banking and brokerages fees and commissions.

Noninterest expense for the second quarter of 2019 was up $31 million compared to the earlier quarter. Excluding merger-related and restructuring charges and incremental operating expenses related to the merger, noninterest expense was up $23 million.

The provision for income taxes was $234 million for the second quarter of 2019, compared to $202 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2019 of 20.9%, compared to 19.7% for the earlier quarter.

BB&T declared common dividends of $0.405 per share during the second quarter of 2019, which resulted in a dividend payout ratio of 36.8%. The Board of Directors approved a proposal to increase the dividend 11.1% to $0.45 per share at their July meeting. As previously communicated, BB&T has suspended its share repurchase program due to the merger-of-equals.

Analysis of Results of Operations

Net Interest Income and NIM
 
Second Quarter 2019 compared to Second Quarter 2018
 
Net interest income on a TE basis was $1.7 billion for the second quarter of 2019, an increase of $35 million compared to the same period in 2018. Interest income increased $214 million, which reflects higher rates and loan growth. Interest expense increased $179 million primarily due to higher funding costs reflecting the impact of rate increases.
 
Net interest margin was 3.42%, down three basis points compared to the earlier quarter. Average earning assets increased $5.7 billion. The increase in average earning assets reflects a $5.8 billion increase in average total loans and leases. Average interest-bearing liabilities increased $6.1 billion compared to the earlier quarter. Average interest-bearing deposits increased $3.5 billion and average short-term borrowings increased $3.0 billion, while average long-term debt decreased $406 million. The annualized yield on the total loan portfolio for the second quarter of 2019 was 5.05%, up 35 basis points compared to the earlier quarter, reflecting the impact of rate increases. The annualized yield on the average securities portfolio was 2.62%, up nine basis points compared to the earlier period.

The average annualized cost of total deposits was 0.68%, up 31 basis points compared to the earlier quarter. The average annualized cost of interest-bearing deposits was 1.02%, up 45 basis points compared to the earlier quarter. The average annualized rate on long-term debt was 3.33%, up 52 basis points compared to the earlier quarter. The average annualized rate on short-term borrowings was 2.40%, up 63 basis points compared to the earlier quarter. The higher rates on interest-bearing liabilities reflect the impact of rate increases.

Six Months of 2019 compared to Six Months of 2018
 
Net interest income on a TE basis was $3.4 billion for the six months ended June 30, 2019, an increase of $99 million compared to the same period in 2018. Interest income increased $467 million, which reflects higher rates and loan growth. Interest expense increased $368 million primarily due to higher funding costs reflecting the impact of rate increases.

Net interest margin was 3.47% for the six months ended June 30, 2019, up two basis points compared to the same period of 2018. The annualized TE yield for the total loan portfolio for the six months ended June 30, 2019 was 5.05%, up 42 basis points compared to the corresponding period of 2018. The increase was primarily due to rate increases. The annualized TE yield on the average securities portfolio for the six months ended June 30, 2019 was 2.61%, up 13 basis points compared to the same period of 2018.
 
The average annualized cost of total deposits for the six months ended June 30, 2019 was 0.66%, up 32 basis points compared to the prior year. The average annualized cost of interest-bearing deposits for the six months ended June 30, 2019 was 0.99%, up 47 basis points compared to the prior year. The average annualized rate on short-term borrowings was 2.37% for the six months ended June 30, 2019, up 77 basis points compared to the same period in 2018. The average annualized rate on long-term debt for the six months ended June 30, 2019 was 3.31%, up 64 basis points compared to the same period in 2018. The higher rates on interest-bearing liabilities reflect the impact of rate increases.

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 are summarized below.


BB&T Corporation 37


Table 1-1: TE Net Interest Income and Rate / Volume Analysis (1)
Three Months Ended June 30,
(Dollars in millions)
Average Balances (6)
 
Annualized Yield/Rate
 
Income/Expense
 
Incr.
(Decr.)
 
Change due to
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
 
Rate
 
Volume
Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
$
2,662

 
$
3,537

 
2.04
%
 
1.80
%
 
$
14

 
$
17

 
$
(3
)
 
$
2

 
$
(5
)
GSE
2,440

 
2,384

 
2.25

 
2.23

 
13

 
14

 
(1
)
 
—

 
(1
)
Agency MBS
40,112

 
39,777

 
2.57

 
2.44

 
258

 
241

 
17

 
15

 
2

States and political subdivisions
566

 
1,051

 
4.37

 
3.79

 
6

 
8

 
(2
)
 
1

 
(3
)
Non-agency MBS
302

 
354

 
13.28

 
17.35

 
10

 
17

 
(7
)
 
(4
)
 
(3
)
Other
33

 
42

 
3.85

 
3.26

 
1

 
—

 
1

 
—

 
1

Total securities
46,115

 
47,145

 
2.62

 
2.53

 
302

 
297

 
5

 
14

 
(9
)
Other earning assets (3)
3,167

 
2,197

 
2.59

 
2.24

 
20

 
13

 
7

 
2

 
5

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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Commercial and industrial
62,563

 
59,548

 
4.35

 
3.92

 
679

 
580

 
99

 
68

 
31

CRE
20,748

 
21,546

 
5.03

 
4.64

 
260

 
252

 
8

 
18

 
(10
)
Lease financing
2,122

 
1,862

 
3.29

 
3.05

 
17

 
12

 
5

 
2

 
3

Residential mortgage
32,066

 
29,272

 
4.00

 
4.01

 
321

 
291

 
30

 
(1
)
 
31

Direct
11,506

 
11,680

 
5.80

 
5.10

 
166

 
150

 
16

 
18

 
(2
)
Indirect
17,879

 
16,804

 
7.99

 
7.46

 
356

 
311

 
45

 
24

 
21

Revolving credit
3,151

 
2,831

 
9.39

 
9.16

 
74

 
67

 
7

 
2

 
5

PCI
432

 
559

 
21.63

 
18.92

 
24

 
26

 
(2
)
 
4

 
(6
)
Total loans and leases HFI
150,467

 
144,102

 
5.05

 
4.70

 
1,897

 
1,689

 
208

 
135

 
73

LHFS
1,090

 
1,650

 
4.17

 
4.02

 
11

 
17

 
(6
)
 
1

 
(7
)
Total loans and leases
151,557

 
145,752

 
5.05

 
4.70

 
1,908

 
1,706

 
202

 
136

 
66

Total earning assets
200,839

 
195,094

 
4.45

 
4.14

 
2,230

 
2,016

 
214

 
152

 
62

Nonearning assets
28,410

 
26,250

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Total assets
$
229,249

 
$
221,344

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Liabilities and Shareholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-checking
$
27,708

 
$
26,969

 
0.65

 
0.42

 
45

 
29

 
16

 
15

 
1

Money market and savings
63,394

 
62,105

 
1.03

 
0.56

 
163

 
86

 
77

 
75

 
2

Time deposits
15,730

 
13,966

 
1.58

 
0.86

 
63

 
30

 
33

 
29

 
4

Foreign deposits - interest-bearing
379

 
673

 
2.43

 
1.77

 
2

 
3

 
(1
)
 
1

 
(2
)
Total interest-bearing deposits (7)
107,211

 
103,713

 
1.02

 
0.57

 
273

 
148

 
125

 
120

 
5

Short-term borrowings
8,367

 
5,323

 
2.40

 
1.77

 
50

 
23

 
27

 
10

 
17

Long-term debt
23,233

 
23,639

 
3.33

 
2.81

 
193

 
166

 
27

 
30

 
(3
)
Total interest-bearing liabilities
138,811

 
132,675

 
1.49

 
1.02

 
516

 
337

 
179

 
160

 
19

Noninterest-bearing deposits (7)
52,680

 
53,963

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other liabilities
6,457

 
5,121

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Shareholders' equity
31,301

 
29,585

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total liabilities and shareholders' equity
$
229,249

 
$
221,344

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average interest-rate spread
 

 
 
 
2.96
%
 
3.12
%
 
 

 
 

 
 

 
 

 
 

NIM/net interest income
 

 
 
 
3.42
%
 
3.45
%
 
$
1,714

 
$
1,679

 
$
35

 
$
(8
)
 
$
43

Taxable-equivalent adjustment
 

 
 
 
 
 
 

 
$
24

 
$
22

 
 

 
 

 
 

(1)
Yields are stated on a TE basis utilizing the marginal income tax rates. The change in interest not solely due to changes in 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 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.
(7)
Total deposit costs were 0.68% and 0.37% for the three months ended June 30, 2019 and 2018, respectively.

38 BB&T Corporation


Table 1-2: TE Net Interest Income and Rate / Volume Analysis (1)
Six Months Ended June 30,
(Dollars in millions)
Average Balances (6)
 
Annualized Yield/Rate
 
Income/Expense
 
Incr.
(Decr.)
 
Change due to
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
 
Rate
 
Volume
Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
$
2,980

 
$
3,538

 
2.02
%
 
1.79
%
 
$
30

 
$
32

 
$
(2
)
 
$
4

 
$
(6
)
GSE
2,429

 
2,384

 
2.24

 
2.23

 
27

 
27

 
—

 
—

 
—

Agency MBS
40,078

 
40,292

 
2.58

 
2.43

 
516

 
489

 
27

 
30

 
(3
)
States and political subdivisions
593

 
1,133

 
4.04

 
3.78

 
12

 
19

 
(7
)
 
1

 
(8
)
Non-agency MBS
308

 
364

 
12.89

 
12.41

 
20

 
24

 
(4
)
 
1

 
(5
)
Other
35

 
45

 
3.90

 
2.73

 
1

 
—

 
1

 
1

 
—

Total securities
46,423

 
47,756

 
2.61

 
2.48

 
606

 
591

 
15

 
37

 
(22
)
Other earning assets (3)
2,684

 
2,223

 
3.98

 
3.40

 
53

 
38

 
15

 
7

 
8

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

 
 

 
 

Commercial and industrial
61,970

 
59,090

 
4.34

 
3.82

 
1,335

 
1,117

 
218

 
160

 
58

CRE
20,826

 
21,472

 
5.05

 
4.56

 
521

 
486

 
35

 
50

 
(15
)
Lease financing
2,071

 
1,867

 
3.31

 
3.03

 
34

 
26

 
8

 
4

 
4

Residential mortgage
31,720

 
29,049

 
4.07

 
4.01

 
645

 
580

 
65

 
9

 
56

Direct
11,500

 
11,735

 
5.77

 
5.00

 
329

 
291

 
38

 
44

 
(6
)
Indirect
17,609

 
16,859

 
7.95

 
7.39

 
694

 
615

 
79

 
50

 
29

Revolving credit
3,131

 
2,815

 
9.44

 
9.05

 
147

 
134

 
13

 
4

 
9

PCI
444

 
595

 
19.77

 
19.07

 
44

 
56

 
(12
)
 
2

 
(14
)
Total loans and leases HFI
149,271

 
143,482

 
5.06

 
4.64

 
3,749

 
3,305

 
444

 
323

 
121

LHFS
910

 
1,352

 
4.25

 
3.87

 
19

 
26

 
(7
)
 
2

 
(9
)
Total loans and leases
150,181

 
144,834

 
5.05

 
4.63

 
3,768

 
3,331

 
437

 
325

 
112

Total earning assets
199,288

 
194,813

 
4.47

 
4.09

 
4,427

 
3,960

 
467

 
369

 
98

Nonearning assets
28,133

 
26,568

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total assets
$
227,421

 
$
221,381

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Liabilities and Shareholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest-checking
$
27,665

 
$
27,119

 
0.62

 
0.39

 
85

 
54

 
31

 
30

 
1

Money market and savings
63,360

 
61,899

 
0.99

 
0.50

 
313

 
153

 
160

 
156

 
4

Time deposits
16,059

 
13,907

 
1.54

 
0.77

 
123

 
53

 
70

 
61

 
9

Foreign deposits - interest-bearing
400

 
803

 
2.43

 
1.57

 
5

 
6

 
(1
)
 
3

 
(4
)
Total interest-bearing deposits (7)
107,484

 
103,728

 
0.99

 
0.52

 
526

 
266

 
260

 
250

 
10

Short-term borrowings
7,003

 
5,399

 
2.37

 
1.60

 
82

 
43

 
39

 
24

 
15

Long-term debt
23,240

 
23,658

 
3.31

 
2.67

 
385

 
316

 
69

 
75

 
(6
)
Total interest-bearing liabilities
137,727

 
132,785

 
1.45

 
0.94

 
993

 
625

 
368

 
349

 
19

Noninterest-bearing deposits (7)
52,484

 
53,681

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other liabilities
6,287

 
5,359

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Shareholders' equity
30,923

 
29,556

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total liabilities and shareholders' equity
$
227,421

 
$
221,381

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average interest-rate spread
 

 
 
 
3.02
%
 
3.15
%
 
 

 
 

 
 

 
 

 
 

NIM/net interest income
 

 
 
 
3.47
%
 
3.45
%
 
$
3,434

 
$
3,335

 
$
99

 
$
20

 
$
79

Taxable-equivalent adjustment
 

 
 
 
 
 
 

 
$
48

 
$
45

 
 

 
 

 
 

(1)
Yields are stated on a TE basis utilizing the marginal income tax rates. The change in interest not solely due to changes in 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 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.
(7)
Total deposit costs were 0.66% and 0.34% for the six months ended June 30, 2019 and 2018, respectively.

BB&T Corporation 39


Provision for Credit Losses

Second Quarter 2019 compared to Second Quarter 2018
 
The provision for credit losses was $172 million, compared to $135 million for the earlier quarter. Net charge-offs for the second quarter of 2019 totaled $142 million compared to $109 million in the earlier period.

Net charge-offs were 0.38% of average loans and leases on an annualized basis for the second quarter of 2019, up eight basis points compared to the second quarter of 2018. The increase in net charge-offs was primarily related to CRE and indirect loans.

Six Months of 2019 compared to Six Months of 2018
 
The provision for credit losses totaled $327 million for the six months ended June 30, 2019, compared to $285 million for 2018. The ratio of the ALLL to net charge-offs was 2.74X for 2019, compared to 2.99X for 2018.
 
Net charge-offs for the six months ended June 30, 2019 were $289 million, compared to $254 million for the six months ended June 30, 2018. Net charge-offs were 0.39% of average loans and leases for the six months ended June 30, 2019, compared to 0.36% of average loans and leases for 2018. The increase in net charge-offs was primarily related to CRE, indirect and revolving credit loans.

Noninterest Income

Noninterest income is a significant contributor to BB&T's financial results. Management focuses on diversifying its sources of revenue to further reduce BB&T's reliance on traditional spread-based interest income, as certain fee-based activities are a relatively stable revenue source during periods of changing interest rates.
Table 2: Noninterest Income
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Insurance income
$
566

 
$
481

 
17.7
 %
 
$
1,076

 
$
917

 
17.3
 %
Service charges on deposits
181

 
179

 
1.1

 
352

 
344

 
2.3

Investment banking and brokerage fees and commissions
131

 
109

 
20.2

 
242

 
222

 
9.0

Mortgage banking income
113

 
94

 
20.2

 
176

 
193

 
(8.8
)
Trust and investment advisory revenues
70

 
72

 
(2.8
)
 
138

 
144

 
(4.2
)
Bankcard fees and merchant discounts
77

 
72

 
6.9

 
147

 
141

 
4.3

Checkcard fees
59

 
57

 
3.5

 
114

 
109

 
4.6

Operating lease income
35

 
36

 
(2.8
)
 
70

 
73

 
(4.1
)
Income from bank-owned life insurance
34

 
30

 
13.3

 
62

 
61

 
1.6

Securities gains (losses), net
—

 
1

 
NM

 
—

 
1

 
NM

Other income
86

 
91

 
(5.5
)
 
177

 
197

 
(10.2
)
Total noninterest income
$
1,352

 
$
1,222

 
10.6

 
$
2,554

 
$
2,402

 
6.3


Second Quarter 2019 compared to Second Quarter 2018
 
Noninterest income for the second quarter of 2019 was up $130 million compared to the earlier quarter. Insurance income increased $85 million to record levels due to higher production and the acquisition of Regions Insurance. Mortgage banking income increased $19 million primarily due to an increase of $28 million for net mortgage servicing rights valuation adjustments, which was partially offset by lower residential and commercial mortgage banking revenues. Investment banking and brokerage fees and commissions increased $22 million primarily due to higher revenue from investment banking transactions and higher managed account fees.

Six Months of 2019 compared to Six Months of 2018
 
Noninterest income for the six months ended June 30, 2019 was $2.6 billion, up $152 million compared to 2018. Insurance income was $1.1 billion, up $159 million compared to 2018, due to higher production levels and the acquisition of Regions Insurance. Investment banking and brokerage fees and commissions were $242 million, up $20 million compared to 2018, due to higher managed account fees and higher investment banking income. Mortgage banking income was $176 million, down $17 million compared to 2018, due to lower residential mortgage sales, partially offset by an increase of $28 million for net mortgage service rights valuation adjustments.


40 BB&T Corporation


Noninterest Expense

The following table provides a breakdown of BB&T's noninterest expense:
Table 3: Noninterest Expense
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Personnel expense
$
1,120

 
$
1,074

 
4.3
 %
 
$
2,207

 
$
2,113

 
4.4
 %
Occupancy and equipment expense
184

 
187

 
(1.6
)
 
371

 
381

 
(2.6
)
Software expense
71

 
67

 
6.0

 
143

 
132

 
8.3

Outside IT services
29

 
32

 
(9.4
)
 
59

 
64

 
(7.8
)
Regulatory charges
19

 
39

 
(51.3
)
 
37

 
79

 
(53.2
)
Amortization of intangibles
32

 
31

 
3.2

 
64

 
64

 
—

Loan-related expense
30

 
26

 
15.4

 
55

 
55

 
—

Professional services
31

 
32

 
(3.1
)
 
62

 
62

 
—

Merger-related and restructuring charges, net
23

 
24

 
(4.2
)
 
103

 
52

 
98.1

Other expense
212

 
208

 
1.9

 
418

 
404

 
3.5

Total noninterest expense
$
1,751


$
1,720

 
1.8

 
$
3,519

 
$
3,406

 
3.3


Second Quarter 2019 compared to Second Quarter 2018
 
Noninterest expense for the second quarter of 2019 was up $31 million compared to the earlier quarter. Merger-related and restructuring charges was essentially flat, as the current quarter included charges in connection with the announced merger-of-equals with SunTrust, whereas the earlier quarter included charges associated with facilities optimization. The current quarter also included $9 million of incremental operating expenses related to the merger. Excluding these charges, noninterest expense was up $23 million, or 1.4% compared to the earlier quarter.

Personnel expense increased $46 million compared to the earlier quarter, primarily due to higher incentives, partially due to the Regions Insurance acquisition, and lower capitalized employee costs. The lower capitalized employee costs reflect efficiencies in the loan closing process. Regulatory charges decreased $20 million as a result of the deposit insurance fund reaching the targeted level.

Six Months of 2019 compared to Six Months of 2018
 
Noninterest expense totaled $3.5 billion for the six months ended June 30, 2019, an increase of $113 million, or 3.3%, from the same period in the prior year. Merger-related and restructuring expense was $103 million, an increase of $51 million, primarily due to the announced merger-of-equals with SunTrust. Additionally, the six months ended June 30, 2019 included $11 million of incremental operating expenses related to the merger. Excluding these charges, noninterest expense was up $51 million or 1.5% compared to the earlier period.
 
Personnel expense was $2.2 billion for the six months ended June 30, 2019, an increase of $94 million compared to the six months ended June 30, 2018, primarily due to higher incentives, partially due to the Regions Insurance acquisition, and lower capitalized employee costs. The lower capitalized employee costs reflect efficiencies in the loan closing process.

Regulatory charges decreased $42 million as a result of the DIF reaching the targeted level.

Merger-Related and Restructuring Charges

The following table presents a summary of merger-related and restructuring charges and the related accruals:
Table 4: Merger-Related and Restructuring Accrual Activity
(Dollars in millions)
Accrual at Apr 1, 2019
 
Expense
 
Utilized
 
Accrual at Jun 30, 2019
 
Accrual at Jan 1, 2019
 
Expense
 
Utilized
 
Accrual at Jun 30, 2019
Severance and personnel-related
$
10

 
$
5

 
$
(7
)
 
$
8

 
$
43

 
$
21

 
$
(56
)
 
$
8

Occupancy and equipment (1)
—

 
3

 
(3
)
 
—

 
—

 
12

 
(12
)
 
—

Professional services
44

 
9

 
—

 
53

 
1

 
60

 
(8
)
 
53

Other adjustments
2

 
6

 
(7
)
 
1

 
—

 
10

 
(9
)
 
1

Total
$
56

 
$
23

 
$
(17
)
 
$
62

 
$
44

 
$
103

 
$
(85
)
 
$
62

(1) Certain lease reserves are no longer required as a result of new lease accounting guidance adopted in the first quarter of 2019. See additional information in Note 1. Basis of Presentation.


BB&T Corporation 41


Provision for Income Taxes

Second Quarter 2019 compared to Second Quarter 2018
 
The provision for income taxes was $234 million for the second quarter of 2019, compared to $202 million for the earlier quarter. This produced an effective tax rate for the second quarter of 2019 of 20.9%, compared to 19.7% for the earlier quarter.

Six Months of 2019 compared to Six Months of 2018
 
The provision for income taxes was $411 million for the six months ended June 30, 2019, compared to $388 million for 2018. This produced an effective tax rate for the six months ended June 30, 2019 of 19.6%, compared to 19.4% for 2018.

Segment Results
 
See Note 18. Operating Segments herein and Note 19. Operating Segments in BB&T's Annual Report on Form 10-K for the year ended December 31, 2018, 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.
Table 5: Net Income by Reportable Segment
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Community Banking Retail and Consumer Finance
$
445

 
$
383

 
16.2
%
 
$
824

 
$
717

 
14.9
%
Community Banking Commercial
319

 
278

 
14.7

 
647

 
549

 
17.9

Financial Services and Commercial Finance
169

 
145

 
16.6

 
325

 
289

 
12.5

Insurance Holdings
111

 
73

 
52.1

 
199

 
135

 
47.4

Other, Treasury & Corporate
(159
)
 
(57
)
 
178.9

 
(312
)
 
(77
)
 
NM

BB&T Corporation
$
885

 
$
822

 
7.7

 
$
1,683

 
$
1,613

 
4.3


Second Quarter 2019 compared to Second Quarter 2018

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 $445 million for the second quarter of 2019, an increase of $62 million compared to the earlier quarter. Segment net interest income increased $54 million primarily due to average loan growth and higher funding spreads on deposits, partially offset by lower credit spreads on loans. Noninterest income increased $32 million primarily due to an increase in mortgage banking income resulting from net residential mortgage servicing rights valuation adjustments. The allocated provision for credit losses increased $13 million primarily due to higher net charge-offs in the current quarter due to portfolio growth, partially offset by reserve rate changes at Regional Acceptance Corporation. Noninterest expense decreased primarily due to lower personnel expense.

CB-Retail average loans and leases held for investment increased $4.4 billion, or 7.0%, compared to the earlier quarter. The increase was primarily driven by increases in average residential mortgage loans of $2.8 billion, or 9.6%, and increases in average indirect lending of $1.1 billion.

CB-Retail average total deposits increased $117 million, or 0.1%, compared to the earlier quarter. The increase was primarily driven by growth in average money market and savings of $926 million, or 2.6%, and average noninterest-bearing deposits of $390 million, or 2.3%, partially offset by a decline in interest checking of $1.3 billion, or 8.2%.


42 BB&T Corporation


Community Banking Commercial

CB-Commercial serves large, medium and small business clients by offering a variety of loan and deposit products and 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 $319 million for the second quarter of 2019, an increase of $41 million compared to the earlier quarter. Segment net interest income increased $43 million primarily driven by higher funding spreads, partially offset by lower credit spreads on loans. Noninterest income increased compared to the earlier quarter primarily due to higher referral fees in the current quarter. The allocated provision for credit losses decreased primarily due to the impact of average loan growth in the earlier quarter and reserve rate changes primarily due to overall credit improvement in the past year, partially offset by higher net charge-offs. Noninterest expense was essentially flat compared to the earlier quarter.

CB-Commercial average loans and leases held for investment decreased $222 million, or 0.4%, compared to the earlier quarter. Average commercial real estate loans declined $741 million, or 3.8%, partially offset by increases in average commercial and industrial loans of $572 million, or 1.8%. Average total deposits increased $324 million, or 0.5%, compared to the earlier quarter driven by an increase in average money market and savings of $837 million, or 5.5%, and interest checking of $797 million, or 9.3%, partially offset by a decline in noninterest-bearing deposits of $1.4 billion, or 4.2%.

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 $169 million for the second quarter of 2019, an increase of $24 million compared to the earlier quarter. Segment net interest income increased $22 million primarily driven by average loan growth and higher funding spreads, partially offset by lower credit spreads on loans. Noninterest income increased $26 million primarily due to an increase in investment banking and brokerage fees and commissions related to several large deals in the current quarter as well as market driven asset growth. The allocated provision for credit losses increased $18 million primarily due to the release of specific reserves in the earlier quarter. Noninterest expense was essentially flat compared to the earlier quarter.

FS&CF average loans and leases held for investment increased $2.4 billion, or 8.9%, compared to the earlier quarter. The increase was primarily driven by growth in Corporate Banking loans of $2.0 billion, or 13.3%, and Equipment Finance of $532 million, or 19.0%, partially offset by a decline for Governmental Finance of $384 million, or 7.4%.

FS&CF average total deposits increased $106 million, or 0.4%, compared to the earlier quarter primarily driven by growth in average total deposits for Wealth and Retirement Services of $268 million, or 1.6%.

Insurance Holdings

BB&T's insurance agency / brokerage network is the sixth largest in the world. IH 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. In addition, IH includes commercial and retail insurance premium finance.

IH net income was $111 million for the second quarter of 2019, an increase of $38 million compared to the earlier quarter. Noninterest income increased $86 million, primarily due to higher production and the acquisition of Regions Insurance, which contributed $32 million. Noninterest expense increased $36 million primarily due to the acquisition of Regions Insurance and commissions on higher production.

Other, Treasury & Corporate

Net 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.


BB&T Corporation 43


OT&C generated a net loss of $159 million in the second quarter of 2019, compared to a net loss of $57 million in the earlier quarter. Segment net interest income decreased $89 million primarily due to an increase in the net credit for funds provided to other operating segments, and an increase in the rates on long-term debt. Noninterest income decreased $18 million primarily due to lower hedge and client derivative income and income related to assets for certain post-employment benefits. The benefit for income taxes increased $13 million primarily due to a higher pre-tax loss, partially offset by a higher tax benefit from discrete items in the earlier quarter.

Six Months of 2019 compared to Six Months of 2018
 
Community Banking Retail and Consumer Finance

CB-Retail net income was $824 million for the six months ended June 30, 2019, an increase of $107 million, or 14.9%, compared to the same period of the prior year. Segment net interest income increased $121 million primarily due to higher funding spreads and average loan growth, partially offset by lower credit spreads on loans. Noninterest income increased primarily due to an increase in checkcard fees, bankcard fees and merchant discounts, and service charges on deposits. The allocated provision for credit losses increased $21 million primarily due to higher net charge-offs. Noninterest expense decreased $20 million primarily due to declines in personnel expense and net occupancy expense.

CB-Retail average loans and leases HFI increased $3.7 billion, or 5.9%, compared to the earlier period. Average residential mortgage loans increased $2.7 billion, or 9.2%, and average indirect retail loans increased $758 million, or 4.5%, and average revolving credit increased $317 million, or 11.3%.

CB-Retail average total deposits increased $142 million, or 0.2%, compared to the earlier period. Average money market and savings increased $817 million, or 2.3%, and average noninterest-bearing deposits increased $425 million, or 2.6%, while average interest checking decreased $1.2 billion, or 7.4%.

Community Banking Commercial

CB-Commercial net income was $647 million for the six months ended June 30, 2019, an increase of $98 million, or 17.9%, compared to the same period of the prior year. Segment net interest income increased $89 million driven primarily by higher funding spreads. The allocated provision for credit losses decreased $22 million primarily due to a decrease in incurred loss estimates and loan growth, partially offset by an increase in net charge-offs.

CB-Commercial average loans and leases HFI were essentially flat compared with the earlier period. Average commercial and industrial loans increased $777 million, or 2.4%, while average commercial real estate loans decreased $666 million, or 3.4%.

CB-Commercial average total deposits decreased $165 million, or 0.3%, compared to the earlier period. Average noninterest-bearing deposits declined $1.4 billion, or 4.0%, while average money market and savings increased $658 million, or 4.4%, and average interest checking increased $405 million, or 4.6%.

Financial Services and Commercial Finance

FS&CF net income was $325 million for the six months ended June 30, 2019, an increase of $36 million, or 12.5%, compared to the same period of the prior year. Segment net interest income increased $55 million due to higher average loan growth and funding spreads. Noninterest income increased primarily due to higher revenue from managed account fees, investment commissions, and investment banking transactions, and client derivatives due to higher sales volumes, partially offset by declines in commercial mortgage banking income primarily due to lower sales volume. The allocated provision for credit losses increased $24 million primarily due the release of specific reserves and reserve rate changes driven by overall credit improvement in the earlier period. Noninterest expense decreased primarily due to lower allocated corporate expenses, partially offset by higher personnel expense.

FS&CF average loans and leases HFI increased $2.3 billion, or 8.3%, compared to the earlier period. Average loans and leases HFI for Corporate Banking and Equipment Finance increased $1.9 billion, or 12.5%, and $407 million, or 14.6%, respectively. FS&CF average total deposits increased $389 million, or 1.4%, compared to the earlier period primarily driven by growth in average total deposits for Wealth and Retirement Services of $363 million, or 2.2%.
 
Client invested assets totaled $170.4 billion as of June 30, 2019, an increase of $6.3 billion, or 3.9%, compared to the earlier period.

Insurance Holdings

IH net income was $199 million for the six months ended June 30, 2019, an increase of $64 million, or 47.4%, compared to the same period of the prior year. Noninterest income increased $162 million due to the acquisition of Regions Insurance, which contributed $78 million, and organic growth. Noninterest expense increased $78 million primarily due to the acquisition of Regions Insurance and commissions on higher production.


44 BB&T Corporation


Other, Treasury & Corporate

OT&C generated a net loss of $312 million for the six months ended June 30, 2019, compared to a net loss of $77 million for the earlier period. Segment net interest income decreased $175 million primarily due to an increase in the net credit for funds provided to other operating segments, an increased net cost for long-term debt and short-term borrowings, and a decline in volume for securities and short-term borrowings. Noninterest income decreased $40 million primarily due lower hedge and client derivative income and income related to assets for certain post-employment benefits. The allocated provision for credit losses increased $15 million primarily due to an increase in the provision for unfunded lending commitments. Noninterest expense increased $61 million due to merger-related charges in the current period, as well as higher personnel expense resulting from capitalized employee costs allocated to the segments in the current quarter, which were partially offset by lower regulatory charges. The benefit for income taxes increased $56 million primarily due to an increase in pre-tax loss, partially offset by a lower tax benefit from discrete items compared to the earlier period.

Analysis of Financial Condition

Investment Activities

The securities portfolio totaled $45.3 billion at June 30, 2019, compared to $45.6 billion at December 31, 2018.
 
As of June 30, 2019, approximately 6.4% of the securities portfolio was variable rate, compared to 6.5% as of December 31, 2018. The effective duration of the securities portfolio was 3.3 years at June 30, 2019, compared to 4.8 years at December 31, 2018. The duration of the securities portfolio excludes certain non-agency MBS.

U.S. Treasury, GSE and Agency MBS represented 97.8% of the total securities portfolio as of June 30, 2019, compared to 97.3% as of prior year end.

Lending Activities

Loans HFI totaled $152.6 billion at June 30, 2019, compared to $149.0 billion at December 31, 2018. 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. During the third quarter of 2019, a residential mortgage loan portfolio totaling approximately $4 billion is expected to be sold.

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. The outstanding balances of variable rate residential mortgage loans in the interest-only phase were approximately $57 million and $64 million at June 30, 2019 and December 31, 2018, respectively. At June 30, 2019, approximately 100.0% of the interest-only balances will begin amortizing within the next three years compared to 95.9% at December 31, 2018.

The direct retail portfolio includes variable rate home equity lines and other lines of credit whose rate typically reset on a monthly basis. Home equity lines 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. The following table presents additional information over variable rate lines of credit:
Table 6: Variable Rate Lines of Credit
 
 
 
 
 
 
 
 
Home Equity Lines
 
Other Lines of Credit
(Dollars in millions)
Jun 30, 2019
 
Dec 31, 2018
 
Jun 30, 2019
 
Dec 31, 2018
Total variable rate lines
$
6,831

 
$
7,201

 
$
1,092

 
$
1,067

Amount in interest-only phase
5,487

 
5,730

 
985

 
949

Percent in interest-only phase that will begin amortizing within 3 years
10.7
%
 
10.3
%
 
13.0
%
 
15.9
%

BB&T Corporation 45



The following table presents the most recent composition of average loans and leases:
Table 7: Composition of Average Loans and Leases
For the Three Months Ended
(Dollars in millions)
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Sep 30, 2018
 
Jun 30, 2018
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
62,563

 
$
61,370

 
$
60,553

 
$
59,900

 
$
59,548

CRE
 
20,748

 
20,905

 
21,301

 
21,496

 
21,546

Lease financing
 
2,122

 
2,021

 
1,990

 
1,941

 
1,862

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
32,066

 
31,370

 
31,103

 
30,500

 
29,272

Direct
 
11,506

 
11,493

 
11,600

 
11,613

 
11,680

Indirect
 
17,879

 
17,337

 
17,436

 
17,282

 
16,804

Revolving credit
 
3,151

 
3,110

 
3,070

 
2,947

 
2,831

PCI
 
432

 
455

 
486

 
518

 
559

Total average loans and leases HFI
 
$
150,467

 
$
148,061

 
$
147,539

 
$
146,197

 
$
144,102


Average loans held for investment for the second quarter of 2019 were $150.5 billion, up $2.4 billion or 6.5% annualized, compared to the first quarter of 2019.

Average commercial and industrial loans increased $1.2 billion driven by strong growth in mortgage warehouse lending, corporate banking, equipment finance and dealer floor plan. Average CRE loans decreased $157 million, primarily due to a decrease in construction loans.

Average residential mortgage loans increased $696 million primarily due to the retention of a portion of the conforming mortgage production.

Average indirect retail loans increased $542 million. The increase was across all categories of indirect lending. Growth was led by prime automobile lending and complemented with seasonally strong growth in power sports and recreational lending.



46 BB&T Corporation


Asset Quality

The following tables summarize asset quality information for the past five quarters:
Table 8: Asset Quality
(Dollars in millions)
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Sep 30, 2018
 
Jun 30, 2018
NPAs:
 
 
 
 
 
 
 
 
 
NPLs:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
193

 
$
196

 
$
200

 
$
238

 
$
243

CRE
33

 
75

 
65

 
46

 
61

Lease financing
2

 
1

 
3

 
6

 
9

Residential mortgage
104

 
121

 
119

 
120

 
119

Direct
54

 
53

 
53

 
55

 
58

Indirect
75

 
80

 
82

 
72

 
68

Total NPLs HFI
461

 
526

 
522

 
537

 
558

Foreclosed real estate
36

 
33

 
35

 
39

 
43

Other foreclosed property
26

 
25

 
28

 
25

 
23

Total nonperforming assets (1)
$
523

 
$
584

 
$
585

 
$
601

 
$
624

Performing TDRs:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
84

 
$
63

 
$
65

 
$
56

 
$
44

CRE
8

 
9

 
10

 
12

 
11

Residential mortgage
581

 
669

 
656

 
643

 
647

Direct
53

 
54

 
55

 
56

 
58

Indirect
315

 
306

 
305

 
295

 
284

Revolving credit
29

 
29

 
28

 
28

 
29

Total performing TDRs (2)(3)
$
1,070

 
$
1,130

 
$
1,119

 
$
1,090

 
$
1,073

Loans 90 days or more past due and still accruing:
 
 
 
 
 
 
 
 
 
Residential mortgage
$
350

 
$
377

 
$
405

 
$
367

 
$
374

Direct
10

 
7

 
7

 
6

 
4

Indirect
7

 
5

 
6

 
6

 
4

Revolving credit
14

 
14

 
14

 
12

 
10

PCI
26

 
28

 
30

 
40

 
43

Total loans 90 days or more past due and still accruing
$
407

 
$
431

 
$
462

 
$
431

 
$
435

Loans 30-89 days past due:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
32

 
$
36

 
$
34

 
$
35

 
$
26

CRE
3

 
3

 
5

 
4

 
4

Lease financing
5

 
3

 
1

 
1

 
2

Residential mortgage
480

 
478

 
456

 
510

 
441

Direct
58

 
67

 
61

 
59

 
52

Indirect
393

 
316

 
436

 
418

 
337

Revolving credit
28

 
27

 
28

 
27

 
21

PCI
17

 
18

 
23

 
21

 
22

Total loans 30-89 days past due
$
1,016

 
$
948

 
$
1,044

 
$
1,075

 
$
905

Excludes loans held for sale.     
(1)
Sales of nonperforming loans totaled $48 million, $30 million, $30 million, $20 million and $12 million for the quarter ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.
(2)
Excludes TDRs that are nonperforming totaling $135 million, $178 million, $176 million, $176 million and $191 million at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively. These amounts are included in total nonperforming assets.
(3)
Sales of performing TDRs, which were primarily residential mortgage loans, totaled $120 million, $33 million, $15 million, $34 million and $17 million for the quarter ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018 and June 30, 2018, respectively.

Nonperforming assets totaled $523 million at June 30, 2019, down $61 million compared to March 31, 2019. Nonperforming loans and leases represented 0.30% of loans and leases held for investment, down five basis points compared to March 31, 2019.

Performing TDRs were down $60 million during the second quarter primarily in residential mortgage loans, which was partially offset by an increase in commercial and industrial loans.

Loans 90 days or more past due and still accruing totaled $407 million at June 30, 2019, down $24 million compared to the prior quarter. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.27% at June 30, 2019, compared to 0.29% 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 0.04% at June 30, 2019, unchanged from the prior quarter.

BB&T Corporation 47



Loans 30-89 days past due and still accruing totaled $1.0 billion at June 30, 2019, up $68 million compared to the prior quarter, primarily due to an expected seasonal increase in indirect automobile lending.

Problem loans include NPLs and loans that are 90 days or more past due and still accruing as disclosed in Table 8. 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 Note 4. Loans and ACL herein for additional disclosures related to these potential problem loans.
Table 9: Asset Quality Ratios
As of / For the Three Months Ended
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Sep 30, 2018
 
Jun 30, 2018
Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI
0.67
%
 
0.64
%
 
0.70
%
 
0.73
%
 
0.62
%
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI
0.27

 
0.29

 
0.31

 
0.29

 
0.30

NPLs as a percentage of loans and leases HFI
0.30

 
0.35

 
0.35

 
0.37

 
0.38

NPAs as a percentage of:
 
 
 
 
 
 
 
 
 
Total assets
0.23

 
0.26

 
0.26

 
0.27

 
0.28

Loans and leases HFI plus foreclosed property
0.34

 
0.39

 
0.39

 
0.41

 
0.43

Net charge-offs as a percentage of average loans and leases HFI
0.38

 
0.40

 
0.38

 
0.35

 
0.30

ALLL as a percentage of loans and leases HFI
1.05

 
1.05

 
1.05

 
1.05

 
1.05

Ratio of ALLL to:
 
 
 
 
 
 
 
 
 
Net charge-offs
2.80x

 
2.62x

 
2.76x

 
3.05x

 
3.49x

NPLs
3.46x

 
2.97x

 
2.99x

 
2.86x

 
2.74x

Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI (1)
0.04
%
 
0.04
%
 
0.04
%
 
0.04
%
 
0.04
%
Applicable ratios are annualized.
(1)
This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage loans and PCI. 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 collectability or might not be comparable to other periods presented or to other portfolios that do not have government guarantees or were not impacted by PCI accounting requirements.

The following table presents activity related to NPAs:
Table 10: Rollforward of NPAs
(Dollars in millions)
 
2019
 
2018
Balance, January 1
 
$
585

 
$
627

New NPAs
 
600

 
616

Advances and principal increases
 
107

 
226

Disposals of foreclosed assets (1)
 
(235
)
 
(222
)
Disposals of NPLs (2)
 
(78
)
 
(45
)
Charge-offs and losses
 
(141
)
 
(124
)
Payments
 
(237
)
 
(366
)
Transfers to performing status
 
(78
)
 
(87
)
Other, net
 
—

 
(1
)
Ending balance, June 30
 
$
523

 
$
624

(1) 
Includes charge-offs and losses recorded upon sale of $106 million and $105 million for the six months ended June 30, 2019 and 2018, respectively.
(2)
Includes charge-offs and losses recorded upon sale of $17 million and $11 million for the six months ended June 30, 2019 and 2018, respectively.
 
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.
 
The following table provides a summary of performing TDR activity: 

48 BB&T Corporation


Table 11: Rollforward of Performing TDRs
(Dollars in millions)
 
2019
 
2018
Balance, January 1
 
$
1,119

 
$
1,043

Inflows
 
283

 
256

Payments and payoffs
 
(90
)
 
(83
)
Charge-offs
 
(31
)
 
(31
)
Transfers to nonperforming TDRs, net
 
(36
)
 
(36
)
Removal due to the passage of time
 
(15
)
 
(25
)
Non-concessionary re-modifications
 
(7
)
 
(5
)
Transferred to LHFS and/or sold
 
(153
)
 
(46
)
Balance, June 30
 
$
1,070

 
$
1,073


The following table provides further details regarding the payment status of TDRs outstanding at June 30, 2019:
Table 12: Payment Status of TDRs (1)
June 30, 2019
(Dollars in millions)
 
Current
 
Past Due 30-89 Days
 
Past Due 90 Days Or More
 
Total
Performing TDRs:
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
84

 
100.0
%
 
$
—

 
—
%
 
$
—

 
—
%
 
$
84

CRE
 
8

 
100.0

 
—

 
—

 
—

 
—

 
8

Retail:
 


 


 


 


 


 


 


Residential mortgage
 
315

 
54.2

 
107

 
18.4

 
159

 
27.4

 
581

Direct
 
51

 
96.2

 
2

 
3.8

 
—

 
—

 
53

Indirect
 
260

 
82.5

 
55

 
17.5

 
—

 
—

 
315

Revolving credit
 
25

 
86.3

 
3

 
10.3

 
1

 
3.4

 
29

Total performing TDRs
 
743

 
69.4

 
167

 
15.6

 
160

 
15.0

 
1,070

Nonperforming TDRs
 
58

 
43.0

 
15

 
11.1

 
62

 
45.9

 
135

Total TDRs
 
$
801

 
66.5

 
$
182

 
15.1

 
$
222

 
18.4

 
$
1,205

(1)
Past due performing TDRs are included in past due disclosures and nonperforming TDRs are included in NPL disclosures.


BB&T Corporation 49


ACL

Activity related to the ACL is presented in the following tables:
Table 13: Activity in ACL
 
For the Three Months Ended
 
For the Six Months Ended
(Dollars in millions)
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Sep 30, 2018
 
Jun 30, 2018
 
2019
 
2018
Balance, beginning of period
$
1,659

 
$
1,651

 
$
1,648

 
$
1,640

 
$
1,614

 
$
1,651

 
$
1,609

Provision for credit losses (excluding PCI loans)
172

 
156

 
147

 
141

 
142

 
328

 
295

Provision (benefit) for PCI loans
—

 
(1
)
 
(1
)
 
(6
)
 
(7
)
 
(1
)
 
(10
)
Charge-offs:
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and industrial
(22
)
 
(17
)
 
(18
)
 
(28
)
 
(23
)
 
(39
)
 
(46
)
CRE
(18
)
 
(8
)
 
(5
)
 
—

 
(2
)
 
(26
)
 
(8
)
Lease financing
—

 
(1
)
 
(1
)
 
(1
)
 
(1
)
 
(1
)
 
(2
)
Residential mortgage
(5
)
 
(5
)
 
(8
)
 
(4
)
 
(5
)
 
(10
)
 
(9
)
Direct
(22
)
 
(18
)
 
(18
)
 
(17
)
 
(17
)
 
(40
)
 
(36
)
Indirect
(91
)
 
(109
)
 
(108
)
 
(94
)
 
(82
)
 
(200
)
 
(189
)
Revolving credit
(25
)
 
(26
)
 
(22
)
 
(20
)
 
(21
)
 
(51
)
 
(42
)
PCI
—

 
—

 
—

 
(2
)
 
—

 
—

 
—

Total charge-offs
(183
)
 
(184
)
 
(180
)
 
(166
)
 
(151
)
 
(367
)
 
(332
)
Recoveries:
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial and industrial
8

 
6

 
7

 
13

 
11

 
14

 
19

CRE
3

 
1

 
4

 
1

 
1

 
4

 
3

Lease financing
—

 
—

 
—

 
—

 
1

 
—

 
1

Residential mortgage
—

 
1

 
1

 
—

 
1

 
1

 
1

Direct
7

 
6

 
5

 
6

 
6

 
13

 
12

Indirect
19

 
17

 
15

 
15

 
17

 
36

 
32

Revolving credit
4

 
6

 
5

 
4

 
5

 
10

 
10

Total recoveries
41

 
37

 
37

 
39

 
42

 
78

 
78

Net charge-offs
(142
)
 
(147
)
 
(143
)
 
(127
)
 
(109
)
 
(289
)
 
(254
)
Balance, end of period
$
1,689

 
$
1,659

 
$
1,651

 
$
1,648

 
$
1,640

 
$
1,689

 
$
1,640

ALLL (excluding PCI loans)
$
1,587

 
$
1,553

 
$
1,549

 
$
1,528

 
$
1,512

 
 
 
 
ALLL for PCI loans
8

 
8

 
9

 
10

 
18

 
 
 
 
RUFC
94

 
98

 
93

 
110

 
110

 
 
 
 
Total ACL
$
1,689

 
$
1,659

 
$
1,651

 
$
1,648

 
$
1,640

 
 
 
 

The ACL consists of the ALLL, which is presented separately on the Consolidated Balance Sheets, and the RUFC, which is included in other liabilities on the Consolidated Balance Sheets. The ACL totaled $1.7 billion at June 30, 2019, up $38 million compared to December 31, 2018.

Net charge-offs during the second quarter totaled $142 million, down $5 million compared to the prior quarter. As a percentage of average loans and leases, annualized net charge-offs were 0.38%, down two basis points compared to the prior quarter.

The allowance for loan and lease losses, excluding the allowance for PCI loans, was $1.6 billion, up $34 million compared to the prior quarter. As of June 30, 2019, the total allowance for loan and lease losses was 1.05% of loans and leases held for investment, unchanged compared to March 31, 2019.

The allowance for loan and lease losses was 3.46 times nonperforming loans and leases held for investment, compared to 2.97 times at March 31, 2019. At June 30, 2019, the allowance for loan and lease losses was 2.80 times annualized net charge-offs, compared to 2.62 times at March 31, 2019.


50 BB&T Corporation


The following table presents an allocation of the ALLL at the periods shown. 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 14: Allocation of ALLL by Category
 
 
June 30, 2019
 
December 31, 2018
(Dollars in millions)
 
Amount
 
% Loans in each category
 
Amount
 
% Loans in each category
Commercial and industrial
 
$
574

 
41.8
%
 
$
546

 
41.5
%
CRE
 
201

 
13.6

 
190

 
14.1

Lease financing
 
10

 
1.4

 
11

 
1.4

Residential mortgage
 
224

 
21.4

 
232

 
21.1

Direct
 
99

 
7.5

 
97

 
7.8

Indirect
 
359

 
11.9

 
356

 
11.7

Revolving credit
 
120

 
2.1

 
117

 
2.1

PCI
 
8

 
0.3

 
9

 
0.3

Total ALLL
 
1,595

 
100.0
%
 
1,558

 
100.0
%
RUFC
 
94

 
 

 
93

 
 

Total ACL
 
$
1,689

 
 

 
$
1,651

 
 


BB&T monitors the performance of its home equity loans and lines secured by second liens similarly to other consumer loans and utilizes assumptions specific to these loans in determining the necessary ALLL. BB&T also receives notification when the first lien holder, whether BB&T or another financial institution, has initiated foreclosure proceedings against the borrower. When notified that the first lien is in the process of foreclosure, BB&T obtains valuations to determine if any additional charge-offs or reserves are warranted. These valuations are updated at least annually thereafter.
 
BB&T has limited ability to monitor the delinquency status of the first lien, unless the first lien is held or serviced by BB&T. As a result, using migration assumptions that are based on historical experience and adjusted for current trends, BB&T estimates the volume of second lien positions where the first lien is delinquent and adjusts the ALLL to reflect the increased risk of loss on these credits. Finally, BB&T also provides additional reserves for second lien positions when the estimated combined current loan to value ratio for the credit exceeds 100%. As of June 30, 2019, BB&T held or serviced the first lien on 29.6% of its second lien positions.

Funding Activities

Deposits

Deposits totaled $159.5 billion at June 30, 2019, a decrease of $1.7 billion from December 31, 2018, primarily due to a decline in commercial time deposits.

The following table presents the most recent composition of average deposits:
Table 15: Composition of Average Deposits
Three Months Ended
(Dollars in millions)
 
Jun 30, 2019
 
Mar 31, 2019
 
Dec 31, 2018
 
Sep 30, 2018
 
Jun 30, 2018
Noninterest-bearing deposits
 
$
52,680

 
$
52,283

 
$
53,732

 
$
54,174

 
$
53,963

Interest checking
 
27,708

 
27,622

 
26,921

 
26,655

 
26,969

Money market and savings
 
63,394

 
63,325

 
62,261

 
62,957

 
62,105

Time deposits
 
15,730

 
16,393

 
14,682

 
13,353

 
13,966

Foreign office deposits - interest-bearing
 
379

 
422

 
246

 
132

 
673

Total average deposits
 
$
159,891

 
$
160,045

 
$
157,842

 
$
157,271

 
$
157,676

 
Average deposits for the second quarter were $159.9 billion, down $154 million compared to the prior quarter. Average noninterest-bearing deposits increased $397 million, primarily due to increases in personal and commercial balances, partially offset by a seasonal decrease in public funds balances. Average time deposits decreased $663 million primarily due to a decrease in commercial balances.

Noninterest-bearing deposits represented 32.9% of total average deposits for the second quarter, compared to 32.7% for the prior quarter and 34.2% for the same quarter a year ago. The cost of average total deposits was 0.68% for the second quarter, up four basis points compared to the prior quarter. The cost of average interest-bearing deposits was 1.02% for the second quarter, up seven basis points compared to the prior quarter.

BB&T Corporation 51



Borrowings

At June 30, 2019, short-term borrowings totaled $10.3 billion, an increase of $5.2 billion compared to December 31, 2018. Short-term borrowings fluctuate based on the Company's funding needs. Average short-term borrowings were $8.4 billion or 3.6% of total funding on average in the second quarter of 2019 as compared to $5.3 billion or 2.4% in the same period of 2018.

Long-term debt provides funding and, to a lesser extent, regulatory capital, and primarily consists of senior and subordinated notes issued by BB&T and Branch Bank. Long-term debt totaled $22.6 billion at June 30, 2019, a decrease of $1.1 billion compared to December 31, 2018. The decrease is primarily due to the maturities of $1.8 billion of senior notes issued by Branch Bank and $1.6 billion of senior notes issued by BB&T, partially offset by the corporate issuance of $1.4 billion of senior notes and $650 million of subordinated notes. The average cost of long-term debt was 3.31% for the six months ended June 30, 2019, up 64 basis points compared to the same period in 2018. During the third quarter of 2019, BB&T issued $1.0 billion in fixed rate medium term notes with a maturity date of 2024.

FHLB advances represented 7.7% of total outstanding long-term debt at June 30, 2019, compared to 7.4% at December 31, 2018. See Note 9. Long-Term Debt for additional disclosures.

Shareholders' Equity

Total shareholders' equity was $31.8 billion at June 30, 2019, an increase of $1.6 billion from December 31, 2018. Significant additions include net income of $1.7 billion and an increase in AOCI of $596 million, which was partially offset by a decrease of $706 million for common and preferred dividends. BB&T's book value per common share at June 30, 2019 was $37.40, compared to $35.46 at December 31, 2018.

On July 29, 2019, BB&T issued $1.7 billion of series N non-cumulative perpetual preferred stock with a stated dividend rate of 4.800% per annum for net proceeds of $1.7 billion. Dividends, if declared by the Board of Directors, are payable on the first day of March and September of each year, commencing on March 1, 2020. The dividend rate will reset on September 1, 2024, and on each following fifth anniversary of the reset date to the five-year U.S. Treasury rate plus 3.003%. BB&T issued depositary shares, each of which represents a fractional ownership interest in a share of the 68,000 shares of the Company's series N preferred stock. The preferred stock has no stated maturity and redemption is solely at the option of the Company in whole, but not in part, upon the occurrence of a regulatory capital treatment event, as defined. In addition, the preferred stock may be redeemed in whole or in part, on any dividend payment date after September 1, 2024.

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.
 
Management has formed a cross-functional project team to address the LIBOR transition. The project team has performed an assessment to identify the potential risks related to the transition from LIBOR to a new index. The project team is continuing to develop a transition plan and providing regular reports to the Board of Directors and Risk Management Committee.

The principal types of inherent risk include compliance, credit, liquidity, market, operational, cyber security, model, reputation and strategic risks. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2018 for disclosures related to each of these risks under the section titled "Risk Management."
 

52 BB&T Corporation


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 June 30, 2019, BB&T had derivative financial instruments outstanding with notional amounts totaling $65.0 billion, with a net fair value of $489 million. See Note 16. Derivative Financial Instruments for additional disclosures.
 
The majority of BB&T's assets and liabilities are monetary in nature and, therefore, differ 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 asset and liability values 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.
 

BB&T Corporation 53


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 beta, 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 16: Interest Sensitivity Simulation Analysis
Interest Rate Scenario
 
Annualized Hypothetical Percentage Change in Net Interest Income
Linear Change in Prime Rate
 
Prime Rate
 
 
Jun 30, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Up 200
 
7.50
%
 
7.00
%
 
0.57
 %
 
3.05
 %
Up 100
 
6.50

 
6.00

 
0.73

 
1.93

No Change
 
5.50

 
5.00

 
—

 
—

Down 25
 
5.25

 
4.75

 
(0.87
)
 
N/A

Down 100
 
4.50

 
4.00

 
(4.26
)
 
(4.64
)

Rate sensitivity decreased from June 30, 2018, primarily driven by loan and deposit mix changes.

Management considers 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 deposit beta of approximately 50% to its non-maturity interest-bearing deposit accounts for determining its interest rate sensitivity. Non-maturity interest-bearing deposit accounts include interest checking accounts, savings accounts and money market accounts that do not have a contractual maturity. 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 results of BB&T's interest-rate sensitivity position assuming the loss of demand deposits and an associated increase in managed rate deposits under various scenarios. For purposes of this analysis, BB&T modeled the incremental beta for the replacement of the lost demand deposits at 100%.
Table 17: Deposit Mix Sensitivity Analysis
Linear Change in Rates
 
Base Scenario at June 30, 2019 (1)
 
Results Assuming a Decrease in Noninterest-Bearing Demand Deposits
 
 
 
 
$1 Billion
 
$5 Billion
Up 200 bps
 
0.57
%
 
0.36
%
 
(0.48
)%
Up 100
 
0.73

 
0.60

 
0.08

(1) The base scenario is equal to the annualized hypothetical percentage change in net interest income at June 30, 2019 as presented in the preceding table.

If rates increased 200 basis points, BB&T could absorb the loss of $2.7 billion, or 5.2%, of noninterest-bearing deposits and replace them with managed rate deposits with a beta of 100% before becoming neutral to interest rate changes.
 

54 BB&T Corporation


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 18: EVE Simulation Analysis
Change in Interest Rates
 
EVE/Assets
 
Hypothetical Percentage Change in EVE
 
Jun 30, 2019
 
Jun 30, 2018
 
Jun 30, 2019
 
Jun 30, 2018
Up 100
 
11.8
 
12.5
 
4.4

 
(2.7
)
No Change
 
11.3
 
12.8
 
—

 
—

Down 25
 
11.0
 
N/A
 
(2.8
)
 
N/A

Down 100
 
9.4
 
12.5
 
(16.3
)
 
(2.9
)

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 June 30, 2019 and 2018, 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.

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 has the ability to utilize sources such as FHLB letters of credit to reduce the securities we have pledged.

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 June 30, 2019 and December 31, 2018, BB&T's liquid asset buffer was 14.3% and 14.7%, 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. In October 2018, the federal banking agencies proposed changes to applicability thresholds for liquidity requirements that would amend the full LCR such that BHC's with assets between $250 billion and $700 billion, and less than $75 billion in certain other risk related exposures, would be subject to a reduced full LCR. See additional disclosures in the "Regulatory Considerations" section.

BB&T produces LCR calculations to effectively manage the position of high-quality liquid assets and the balance sheet deposit mix to optimize BB&T's liquidity position. BB&T's preliminary modified average LCR was approximately 129% for the three months ended June 30, 2019, 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 modified LCR averaged less than 2% for the three months ended June 30, 2019 with a maximum daily change of approximately 5%.

BB&T routinely evaluates the impact of becoming subject to the full LCR requirement. This includes an evaluation of the changes to the balance sheet and investment strategy that would be necessary to comply with the requirement. Management does not currently expect the required changes to have a material impact on BB&T's financial condition or results of operations.


BB&T Corporation 55


Parent Company
 
The purpose of the Parent Company is to serve as the primary source of capital for the operating subsidiaries. The Parent Company's assets primarily consist 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 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.
 
The primary source of funds used for Parent Company cash requirements was dividends received from subsidiaries. See Note 15. Parent Company Financial Information of the Annual Report on Form 10-K for the year ended December 31, 2018 for additional information regarding dividends from subsidiaries and debt transactions.

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 June 30, 2019 and December 31, 2018, the Parent Company had 33 months and 28 months, respectively, of cash on hand to satisfy projected contractual cash outflows, and 22 months and 19 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 Branch 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 Branch 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 Branch 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 June 30, 2019, Branch Bank has approximately $81.6 billion of secured borrowing capacity, which represents approximately 4.1 times the amount of one year wholesale funding maturities.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements
 
Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2018 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 14. Commitments and Contingencies, Note 15. Fair Value Disclosures and Note 16. 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.

BB&T regularly performs stress testing on its capital levels and is required to periodically submit the company's capital plans to the banking regulators. On February 5, 2019, the FRB notified banks with less than $250 billion in assets that they will not need to participate in the 2019 supervisory stress test.
 

56 BB&T Corporation


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 internal 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 19: Capital Requirements Under Basel III
 
Minimum Capital
 
Well-Capitalized
 
Minimum Capital Plus Capital Conservation Buffer
 
BB&T Targets
 
 
 
 
Operating (1)
 
Stressed
CET1 capital to risk-weighted assets
4.5
%
 
6.5
%
 
7.0
%
 
8.5
%
 
6.0
%
Tier 1 capital to risk-weighted assets
6.0

 
8.0

 
8.5

 
10.0

 
7.5

Total capital to risk-weighted assets
8.0

 
10.0

 
10.5

 
12.0

 
9.5

Leverage ratio
4.0

 
5.0

 
N/A
 
8.0

 
5.5

(1)
BB&T's goal is to maintain capital levels above 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 to return to these targeted operating minimums within a reasonable period of time through capital planning. 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 forecasted to occur within a reasonable time period.

BB&T's capital ratios are presented in the following table:
Table 20: Capital Ratios - BB&T Corporation
(Dollars in millions, except per share data, shares in thousands)
 
Jun 30, 2019
 
Dec 31, 2018
Risk-based:
 
(preliminary)
 
 
CET1 capital to risk-weighted assets
 
10.3
%
 
10.2
%
Tier 1 capital to risk-weighted assets
 
12.0

 
11.8

Total capital to risk-weighted assets
 
14.2

 
13.8

Leverage ratio
 
10.2

 
9.9

Non-GAAP capital measure (1):
 
 

 
 
Tangible common equity per common share
 
$
23.93

 
$
21.89

Calculation of tangible common equity (1):
 
 
 
 
Total shareholders' equity
 
$
31,764

 
$
30,178

Less:
 
 
 
 
Preferred stock
 
3,053

 
3,053

Noncontrolling interests
 
61

 
56

Intangible assets, net of deferred taxes
 
10,317

 
10,360

Tangible common equity
 
$
18,333

 
$
16,709

Risk-weighted assets
 
$
187,942

 
$
181,260

Common shares outstanding at end of period
 
766,010

 
763,326

(1)
Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets, net of deferred taxes, 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 June 30, 2019. BB&T declared common dividends of $0.405 per share during the second quarter of 2019, which resulted in dividend and total payout ratios of 36.8%. The Board of Directors approved a proposal to increase the dividend 11.1% to $0.45 per share at their July meeting. As previously communicated, BB&T has suspended its share repurchases under the 2018 Repurchase Plan due to the merger-of-equals.


BB&T Corporation 57


Share Repurchase Activity
Table 21: Share Repurchase Activity
(Dollars in millions, except per share data, shares in thousands)
Total Shares Repurchased (1)
 
Average Price Paid Per Share (2)
 
Total Shares Repurchased Pursuant to Publicly-Announced Plan (3)
 
Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
April 2019
—

 
$
—

 
—

 
$
1,125

May 2019
—

 
—

 
—

 
1,125

June 2019
—

 
—

 
—

 
—

Total
—

 
—

 
—

 
 
(1)
Includes shares exchanged or surrendered in connection with the exercise of equity-based awards under BB&T's equity-based compensation plans.
(2)
Excludes commissions.
(3)
Pursuant to the 2018 Repurchase Plan, announced on June 28, 2018, which authorized up to $1.7 billion of share repurchases over the one-year period ending June 30, 2019.

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 policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, and costs and benefit obligations associated with pension and postretirement benefit plans. Understanding BB&T's accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. The critical accounting policies are discussed 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, 2018. Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 1. Basis of Presentation in Form 10-K for the year ended December 31, 2018. Additional disclosures regarding the effects of new accounting pronouncements are included in the Note 1. Basis of Presentation included herein. There have been no other changes to the significant accounting policies during 2019.

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 CEO and CFO, 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 CEO and CFO concluded that the Company's disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no 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 June 30, 2019 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 Legal Proceeding section in Note 14. Commitments and Contingencies, which is incorporated by reference into this item.

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, 2018. 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.


58 BB&T Corporation


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Refer to the Share Repurchase Activity section in the Management's Discussion and Analysis of Financial Condition and Results of Operations section, which is incorporated by reference into this item.


BB&T Corporation 59


ITEM 6. EXHIBITS
Exhibit No.
 
Description
 
Location
2.1
 
First Amendment to the Agreement and Plan of Merger, dated as of June 14, 2019, by and between SunTrust Banks, Inc. and BB&T Corporation.
 
Incorporated herein by reference to Exhibit 2.1 of the Current Report on Form 8-K, filed June 14, 2019.
10.1*
 
Form of Synergy Incentive Award Letter with each of Daryl N. Bible and Clarke R. Starnes, III
 
Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed June 3, 2019.
10.2*
 
Synergy Incentive Award Letter with Donna C. Goodrich
 
Incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K, filed June 3, 2019.
10.3*
 
Synergy Incentive Award Letter with Christopher L. Henson
 
Incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K, filed June 3, 2019.
10.4*
 
Form of First Amendment to Employment Agreement with each of Daryl N. Bible and Clarke R. Starnes, III
 
Incorporated herein by reference to Exhibit 10.4 of the Current Report on Form 8-K, filed June 3, 2019.
10.5*
 
Form of First Amendment to Employment Agreement with each of Donna C. Goodrich and Christopher L. Henson
 
Incorporated herein by reference to Exhibit 10.5 of the Current Report on Form 8-K, filed June 3, 2019.
10.6*
 
First Amendment to 2016 Employment Agreement with W. Bennett Bradley
 
Filed herewith.
10.7*
 
First Amendment to 2016 Employment Agreement with Jim. D. Godwin
 
Filed herewith.
10.8*
 
First Amendment to 2014 Employment Agreement with Robert J. Johnson, Jr.
 
Filed herewith.
10.9*
 
First Amendment to 2016 Employment Agreement with Brant J. Standridge
 
Filed herewith.
10.10*
 
First Amendment to 2016 Employment Agreement with David H. Weaver
 
Filed herewith.
10.11*
 
First Amendment to 2016 Employment Agreement with Dontá L. Wilson
 
Filed herewith.
10.12*
 
First Amendment to 2012 Employment Agreement with W. Rufus Yates
 
Filed herewith.
10.13*
 
Form of Synergy Incentive Award Letter with each of W. Bennett Bradley, Jim. D. Godwin, Robert J. Johnson, Jr. and W. Rufus Yates
 
Filed herewith.
10.14*
 
Form of Synergy Incentive Award Letter with each of Brant J. Standridge, David H. Weaver and Dontá L. Wilson
 
Filed herewith.
11
 
Statement re computation of earnings per share.
 
Filed herewith as Computation of EPS note to the consolidated financial statements.
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
101.INS
 
XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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.
*    Management compensatory plan or arrangement.


60 BB&T Corporation


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.
 
 
 
BB&T CORPORATION
(Registrant)
 
 
 
 
 
Date:
July 30, 2019
 
By:
/s/ Daryl N. Bible
 
 
 
 
Daryl N. Bible
 
 
 
 
Senior Executive Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 
 
 
 
 
Date:
July 30, 2019
 
By:
/s/ Cynthia B. Powell
 
 
 
 
Cynthia B. Powell
 
 
 
 
Executive Vice President and Corporate Controller
 
 
 
 
(Principal Accounting Officer)

BB&T Corporation 61

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