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EX-32 - EXHIBIT 32 - BB&T CORPex32-certification_1q17.htm
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EX-12 - EXHIBIT 12 - BB&T CORPex12-earningstofixedcharge.htm
EX-10.2 - EXHIBIT 10.2 - BB&T CORPex102-formofperformanceuni.htm
EX-10.1 - EXHIBIT 10.1 - BB&T CORPex101-formofltipagreement_.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2017
Commission File Number: 1-10853
_____________________________
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
_____________________________
North Carolina
56-0939887
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 West Second Street
Winston-Salem, North Carolina
27101
(Address of principal executive offices)
(Zip Code)
(336) 733-2000
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [X]   No  [  ]
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  [X]   No  [  ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
X  
 
Accelerated filer
      
 
 
 
 
 
Non-accelerated filer
 
(Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  [  ]   No  [X]
At March 31, 2017, 811,370,216 shares of the Registrant's common stock, $5 par value, were outstanding.
 



BB&T CORPORATION
FORM 10-Q
March 31, 2017
 
TABLE OF CONTENTS
 
 
 
 
 
Page No.
PART I
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
 
 
Note 3. Securities
 
 
Note 5. Goodwill
 
 
Note 7. Deposits
 
 
 
Note 10. AOCI
 
Note 11. Income Taxes
 
Note 12. Benefit Plans
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Defaults Upon Senior Securities - (none.)
 
Item 4.
Mine Safety Disclosures - (not applicable.)
 
Item 5.
Other Information - (none to be reported.)
 
Item 6.



Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes. 
Term
 
Definition
2015 Repurchase Plan
 
Plan for the repurchase of up to 50 million shares of BB&T's common stock
ACL
 
Allowance for credit losses
Acquired from FDIC
 
Assets of Colonial that were formerly covered under loss sharing agreements
AFS
 
Available-for-sale
Agency MBS
 
Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL
 
Allowance for loan and lease losses
American Coastal
 
American Coastal Insurance Company
AOCI
 
Accumulated other comprehensive income (loss)
Basel III
 
Global regulatory standards on bank capital adequacy and liquidity published by the BCBS
BB&T
 
BB&T Corporation and subsidiaries
BCBS
 
Basel Committee on Banking Supervision
BHC
 
Bank holding company
BHCA
 
Bank Holding Company Act of 1956, as amended
Branch Bank
 
Branch Banking and Trust Company
BU
 
Business Unit
CCAR
 
Comprehensive Capital Analysis and Review
CD
 
Certificate of deposit
CDI
 
Core deposit intangible assets
CEO
 
Chief Executive Officer
CET1
 
Common equity Tier 1
CFPB
 
Consumer Financial Protection Bureau
CMO
 
Collateralized mortgage obligation
Colonial
 
Collectively, certain assets and liabilities of Colonial Bank acquired by BB&T in 2009
Company
 
BB&T Corporation and subsidiaries (interchangeable with "BB&T" above)
CRA
 
Community Reinvestment Act of 1977
CRE
 
Commercial real estate
CRMC
 
Credit Risk Management Committee
CROC
 
Compliance Risk Oversight Committee
DIF
 
Deposit Insurance Fund administered by the FDIC
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS
 
Earnings per common share
EVE
 
Economic value of equity
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FATCA
 
Foreign Account Tax Compliance Act
FDIC
 
Federal Deposit Insurance Corporation
FHA
 
Federal Housing Administration
FHC
 
Financial Holding Company
FHLB
 
Federal Home Loan Bank
FHLMC
 
Federal Home Loan Mortgage Corporation
FINRA
 
Financial Industry Regulatory Authority
FNMA
 
Federal National Mortgage Association
FRB
 
Board of Governors of the Federal Reserve System
FTP
 
Funds transfer pricing
GAAP
 
Accounting principles generally accepted in the United States of America
GNMA
 
Government National Mortgage Association
Grandbridge
 
Grandbridge Real Estate Capital, LLC
GSE
 
U.S. government-sponsored enterprise
HFI
 
Held for investment
HMDA
 
Home Mortgage Disclosure Act
HTM
 
Held-to-maturity
HUD-OIG
 
Office of Inspector General, U.S. Department of Housing and Urban Development
IDI
 
Insured depository institution
IPV
 
Independent price verification

1


Term
 
Definition
IRC
 
Internal Revenue Code
IRS
 
Internal Revenue Service
ISDA
 
International Swaps and Derivatives Association, Inc.
LCR
 
Liquidity Coverage Ratio
LHFS
 
Loans held for sale
LIBOR
 
London Interbank Offered Rate
MBS
 
Mortgage-backed securities
MRLCC
 
Market Risk, Liquidity and Capital Committee
MSR
 
Mortgage servicing right
MSRB
 
Municipal Securities Rulemaking Board
National Penn
 
National Penn Bancshares, Inc., acquired by BB&T effective April 1, 2016
NIM
 
Net interest margin, computed on a TE basis
NM
 
Not meaningful
NPA
 
Nonperforming asset
NPL
 
Nonperforming loan
NSFR
 
Net stable funding ratio
NYSE
 
NYSE Euronext, Inc.
OAS
 
Option adjusted spread
OCI
 
Other comprehensive income (loss)
OREO
 
Other real estate owned
ORMC
 
Operational Risk Management Committee
OTTI
 
Other-than-temporary impairment
Parent Company
 
BB&T Corporation, the parent company of Branch Bank and other subsidiaries
Patriot Act
 
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCI
 
Purchased credit impaired loans as well as assets of Colonial Bank acquired from the FDIC during 2009, which were formerly covered under loss sharing agreements
Re-REMICs
 
Re-securitizations of Real Estate Mortgage Investment Conduits
RMC
 
Risk Management Committee
RMO
 
Risk Management Organization
RSU
 
Restricted stock unit
RUFC
 
Reserve for unfunded lending commitments
SBIC
 
Small Business Investment Company
SEC
 
Securities and Exchange Commission
Short-Term Borrowings
 
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowed funds with original maturities of less than one year
Simulation
 
Interest sensitivity simulation analysis
Susquehanna
 
Susquehanna Bancshares, Inc., acquired by BB&T effective August 1, 2015
Swett & Crawford
 
CGSC North America Holdings Corporation, acquired by BB&T effective April 1, 2016
TBA
 
To be announced
TDR
 
Troubled debt restructuring
TE
 
Taxable-equivalent
U.S.
 
United States of America
U.S. Treasury
 
United States Department of the Treasury
UPB
 
Unpaid principal balance
VaR
 
Value-at-risk
VIE
 
Variable interest entity


2


ITEM 1. FINANCIAL STATEMENTS
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

Unaudited
 
 

(Dollars in millions, except per share data, shares in thousands)
March 31, 2017
 
December 31, 2016
Assets
 
 
 
Cash and due from banks
$
1,739

 
$
1,897

Interest-bearing deposits with banks
2,056

 
1,895

Federal funds sold and other cash equivalents
238

 
144

Restricted cash
447

 
488

AFS securities at fair value
26,668

 
26,926

HTM securities (fair value of $18,075 and $16,546 at March 31, 2017 and December 31, 2016, respectively)
18,209

 
16,680

LHFS at fair value
1,291

 
1,716

Loans and leases
142,605

 
143,322

ALLL
(1,487
)
 
(1,489
)
Loans and leases, net of ALLL
141,118

 
141,833

 
 
 
 
Premises and equipment
2,104

 
2,107

Goodwill
9,618

 
9,638

CDI and other intangible assets
818

 
854

MSRs at fair value
1,088

 
1,052

Other assets
15,107

 
14,046

Total assets
$
220,501

 
$
219,276

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Deposits:
 
 
 
Noninterest-bearing deposits
$
53,262

 
$
50,697

Interest-bearing deposits
108,071

 
109,537

Total deposits
161,333

 
160,234

 
 
 
 
Short-term borrowings
2,019

 
1,406

Long-term debt
21,635

 
21,965

Accounts payable and other liabilities
5,489

 
5,745

Total liabilities
190,476

 
189,350

 
 
 
 
Commitments and contingencies (Note 13)

 

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

 
3,053

Common stock, $5 par
4,057

 
4,047

Additional paid-in capital
9,063

 
9,104

Retained earnings
14,933

 
14,809

AOCI, net of deferred income taxes
(1,125
)
 
(1,132
)
Noncontrolling interests
44

 
45

Total shareholders' equity
30,025

 
29,926

Total liabilities and shareholders' equity
$
220,501

 
$
219,276

 
 
 
 
Common shares outstanding
811,370

 
809,475

Common shares authorized
2,000,000

 
2,000,000

Preferred shares outstanding
126

 
126

Preferred shares authorized
5,000

 
5,000


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

3


BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
 
Three Months Ended March 31,
(Dollars in millions, except per share data, shares in thousands)
 
2017
 
2016
Interest Income
 
 
 
 
Interest and fees on loans and leases
 
$
1,501

 
$
1,442

Interest and dividends on securities
 
258

 
255

Interest on other earning assets
 
16

 
24

Total interest income
 
1,775

 
1,721

Interest Expense
 
 
 
 
Interest on deposits
 
69

 
64

Interest on short-term borrowings
 
2

 
2

Interest on long-term debt
 
95

 
126

Total interest expense
 
166

 
192

Net Interest Income
 
1,609

 
1,529

Provision for credit losses
 
148

 
184

Net Interest Income After Provision for Credit Losses
 
1,461

 
1,345

Noninterest Income
 
 
 
 
Insurance income
 
458

 
419

Service charges on deposits
 
168

 
154

Mortgage banking income
 
103

 
91

Investment banking and brokerage fees and commissions
 
91

 
97

Trust and investment advisory revenues
 
68

 
62

Bankcard fees and merchant discounts
 
59

 
56

Checkcard fees
 
51

 
45

Operating lease income
 
36

 
34

Income from bank-owned life insurance
 
29

 
31

FDIC loss share income, net
 

 
(60
)
Other income
 
108

 
42

Securities gains (losses), net
 
 
 
 
Gross realized gains
 

 
45

Gross realized losses
 

 

OTTI charges
 

 

Non-credit portion recognized in OCI
 

 

Total securities gains (losses), net
 

 
45

Total noninterest income
 
1,171

 
1,016

Noninterest Expense
 
 
 
 
Personnel expense
 
1,011

 
915

Occupancy and equipment expense
 
193

 
191

Software expense
 
58

 
51

Outside IT services
 
49

 
41

Amortization of intangibles
 
38

 
32

Regulatory charges
 
39

 
30

Professional services
 
22

 
22

Loan-related expense
 
30

 
32

Merger-related and restructuring charges, net
 
36

 
23

Loss (gain) on early extinguishment of debt
 
392

 
(1
)
Other expense
 
234

 
209

Total noninterest expense
 
2,102

 
1,545

Earnings
 
 
 
 
Income before income taxes
 
530

 
816

Provision for income taxes
 
104

 
246

Net income
 
426

 
570

Noncontrolling interests
 
5

 
6

Dividends on preferred stock
 
43

 
37

Net income available to common shareholders
 
$
378

 
$
527

Basic EPS
 
$
0.47

 
$
0.67

Diluted EPS
 
$
0.46

 
$
0.67

Cash dividends declared per share
 
$
0.30

 
$
0.27

Basic weighted average shares outstanding
 
809,903

 
781,193

Diluted weighted average shares outstanding
 
822,719

 
790,176


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

4


BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
 
Three Months Ended March 31,
(Dollars in millions)
 
2017
 
2016
Net Income
 
$
426

 
$
570

OCI, net of tax:
 
 

 
 

Change in unrecognized net pension and postretirement costs
 
9

 
11

Change in unrealized net gains (losses) on cash flow hedges
 
(2
)
 
(115
)
Change in unrealized net gains (losses) on AFS securities
 
(2
)
 
197

Change in FDIC's share of unrealized gains/losses on AFS securities
 

 
15

Other, net
 
2

 
3

Total OCI
 
7

 
111

Total comprehensive income
 
$
433

 
$
681

 
 
 
 
 
Income Tax Effect of Items Included in OCI:
 
 
 
 
Change in unrecognized net pension and postretirement costs
 
$
7

 
$
7

Change in unrealized net gains (losses) on cash flow hedges
 
(1
)
 
(68
)
Change in unrealized net gains (losses) on AFS securities
 
(1
)
 
118

Change in FDIC's share of unrealized gains/losses on AFS securities
 

 
8

Other, net
 

 


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


5


BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Unaudited 
(Dollars in millions, shares in thousands)
Shares of
Common
Stock
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
AOCI
 
Noncontrolling
Interests
 
Total
Shareholders'
Equity
Balance, January 1, 2016
780,337

 
$
2,603

 
$
3,902

 
$
8,365

 
$
13,464

 
$
(1,028
)
 
$
34

 
$
27,340

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
564

 

 
6

 
570

Net change in AOCI

 

 

 

 

 
111

 

 
111

Stock transactions:
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
2,042

 

 
10

 
(28
)
 

 

 

 
(18
)
Issued in connection with preferred stock offerings

 
451

 
 
 
 
 
 
 
 
 
 
 
451

Cash dividends declared on common stock

 

 

 

 
(211
)
 

 

 
(211
)
Cash dividends declared on preferred stock

 

 

 

 
(37
)
 

 

 
(37
)
Equity-based compensation expense

 

 

 
27

 

 

 

 
27

Other, net

 

 

 
(4
)
 
11

 

 
(1
)
 
6

Balance, March 31, 2016
782,379

 
$
3,054

 
$
3,912

 
$
8,360

 
$
13,791

 
$
(917
)
 
$
39

 
$
28,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
809,475

 
$
3,053

 
$
4,047

 
$
9,104

 
$
14,809

 
$
(1,132
)
 
$
45

 
$
29,926

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
421

 

 
5

 
426

Net change in AOCI

 

 

 

 

 
7

 

 
7

Stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
6,256

 

 
32

 
54

 

 

 

 
86

Repurchase of common stock
(4,361
)
 

 
(22
)
 
(138
)
 

 

 

 
(160
)
Cash dividends declared on common stock

 

 

 

 
(243
)
 

 

 
(243
)
Cash dividends declared on preferred stock

 

 

 

 
(43
)
 

 

 
(43
)
Equity-based compensation expense

 

 

 
30

 

 

 

 
30

Other, net

 

 

 
13

 
(11
)
 

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

 
$
3,053

 
$
4,057

 
$
9,063

 
$
14,933

 
$
(1,125
)
 
$
44

 
$
30,025


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

6


BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 
Three Months Ended March 31,
(Dollars in millions)
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
426

 
$
570

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

 
 
Provision for credit losses
 
148

 
184

Depreciation
 
99

 
95

Loss (gain) on early extinguishment of debt
 
392

 
(1
)
Amortization of intangibles
 
38

 
32

Equity-based compensation expense
 
30

 
27

(Gain) loss on securities, net
 

 
(45
)
Net change in operating assets and liabilities:
 
 

 
 
LHFS
 
499

 
(540
)
Trading securities
 
(644
)
 
(307
)
Other assets
 
(653
)
 
(481
)
Accounts payable and other liabilities
 
(233
)
 
249

Other, net
 
56

 
87

Net cash from operating activities
 
158

 
(130
)
 
 
 
 
 
Cash Flows From Investing Activities:
 
 

 
 
Proceeds from sales of AFS securities
 
107

 
2,329

Proceeds from maturities, calls and paydowns of AFS securities
 
1,355

 
1,077

Purchases of AFS securities
 
(1,205
)
 
(4,812
)
Proceeds from maturities, calls and paydowns of HTM securities
 
588

 
1,063

Purchases of HTM securities
 
(2,126
)
 
(1,891
)
Originations and purchases of loans and leases, net of principal collected
 
333

 
525

Other, net
 
242

 
(72
)
Net cash from investing activities
 
(706
)
 
(1,781
)
 
 
 
 
 
Cash Flows From Financing Activities:
 
 

 
 
Net change in deposits
 
1,104

 
1,383

Net change in short-term borrowings
 
613

 
537

Proceeds from issuance of long-term debt
 
3,947

 

Repayment of long-term debt
 
(4,645
)
 
(1,137
)
Net cash from common stock transactions
 
(74
)
 
(18
)
Net proceeds from preferred stock issued
 

 
451

Cash dividends paid on common stock
 
(243
)
 
(211
)
Cash dividends paid on preferred stock
 
(43
)
 
(37
)
Other, net
 
(14
)
 
10

Net cash from financing activities
 
645

 
978

Net Change in Cash and Cash Equivalents
 
97

 
(933
)
Cash and Cash Equivalents at Beginning of Period
 
3,936

 
3,711

Cash and Cash Equivalents at End of Period
 
$
4,033

 
$
2,778

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
151

 
$
189

Income taxes
 
21

 
91

Noncash investing activities:
 
 

 
 
Transfers of loans to foreclosed assets
 
138

 
125


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

7


NOTE 1. Basis of Presentation
 
See the Glossary of Defined Terms at the beginning of this Report for terms used throughout the consolidated financial statements and related notes of this Form 10-Q.
 
General
 
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, 2016 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. Such reclassifications had no effect on previously reported cash flows, shareholders' equity or net income.
 
Use of Estimates in the Preparation of Financial Statements
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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 goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.
 
Changes in Accounting Principles and Effects of New Accounting Pronouncements

Standards Adopted During Current Period - BB&T adopted the following guidance effective January 1, 2017, none of which were material to the consolidated financial statements:

Stock Compensation - eliminated the concept of additional paid-in capital pools for equity-based awards and requires that the related excess tax benefits and tax deficiencies be recognized in earnings and classified as an operating activity in the statement of cash flows. The excess tax benefit for equity-based awards that vested or were exercised during the three months ended March 31, 2017 was $35 million. The guidance also allows entities to make a one-time policy election to account for forfeitures when they occur, which BB&T has elected to do. Additionally, to retain equity classification, the guidance permits tax withholding up to the maximum statutory tax rate instead of the minimum statutory tax rate. Cash paid in lieu of shares for tax withholding purposes is classified as a financing activity in the Statement of Cash Flows.

Investments - eliminated the requirement to retroactively adjust the financial statements when a change in ownership or influence causes an existing investment to qualify for the equity method of accounting. The guidance also requires the investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.

Derivatives and Hedging - clarified that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. An entity performing the assessment will be required to assess the embedded call or put options solely in accordance with the pre-existing decision sequence.

Business Combinations - provided clarification on the definition of a business and criteria to aid in the assessment of whether an integrated set of assets and activities constitutes a business.

Standards Not Yet Adopted - the adoption of the following guidance is not expected to be material to the consolidated financial statements unless otherwise specified:


8


Statement of Cash Flows - requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance will only affect the Consolidated Statements of Cash Flows. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

Statement of Cash Flows - clarifies the classification within the statement of cash flows for certain transactions, including debt extinguishment costs, zero-coupon debt, contingent consideration related to business combinations, insurance proceeds, equity method distributions and beneficial interests in securitizations. The guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that cannot be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

Liabilities - requires companies to recognize breakage on prepaid stored-value products in accordance with the recently issued guidance on Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

Revenue from Contracts with Customers - requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, the new guidance is not expected to have a material impact on the components of the Consolidated Statement of Income most closely associated with financial instruments, including securities gains/losses and interest income. The Company is currently in the process of quantifying the potential impact of changes to the presentation and timing of certain items within noninterest income, and the related changes to disclosures that may be required. The Company has not identified material changes to noninterest income. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017.

Financial Instruments - requires the majority of equity investments to be measured at fair value with changes in fair value recognized in net income, excluding equity investments that are consolidated or accounted for under the equity method of accounting. The new guidance allows equity investments without readily determinable fair values to be measured at cost minus impairment, with a qualitative assessment required to identify impairment. For financial instruments recorded at amortized cost, the new guidance requires public companies to use exit prices to measure the fair value for disclosure purposes, eliminates the disclosure requirements related to measurement assumptions and requires separate presentation of financial assets and liabilities based on form and measurement category. In addition, for liabilities measured at fair value under the fair value option, the changes in fair value due to changes in instrument-specific credit risk should be recognized in OCI. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

Leases - requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet. The new guidance also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. Upon adoption, the Company expects assets and liabilities will likely be materially higher; however, the Company is still in the process of determining the magnitude of the increases and its impact on the Consolidated Financial Statements. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

Credit Losses - replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance account for expected credit losses at the acquisition date that represents a component of the purchase price allocation. For AFS debt securities where the fair value is less than cost, any credit impairment will be recorded through an allowance for expected credit losses. Upon adoption, the Company expects that the ACL will likely be materially higher; however, the Company is still in the process of determining the magnitude of the increase and its impact on the Consolidated Financial Statements. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Intangibles—Goodwill and Other - simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.


9


Premium Amortization on Purchased Callable Debt Securities - shortens the amortization period for the premium to the earliest call date. This guidance would not require an accounting change for securities purchased at a discount. This guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost - requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost will be required to be presented in a separate line item. The guidance also specifies that only the service cost component will be eligible for capitalization. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

NOTE 2. Acquisitions and Divestitures
 
On April 1, 2016, BB&T acquired National Penn, resulting in the addition of $10.1 billion in assets and $6.6 billion of deposits. National Penn had 126 financial centers as of the acquisition date.

On April 1, 2016, BB&T purchased insurance broker Swett & Crawford from Cooper Gay Swett & Crawford for $461 million in cash.
 
See the Annual Report on Form 10-K for the year ended December 31, 2016 for additional information related to these transactions.

NOTE 3. Securities
 
 
March 31, 2017
 
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
3,666

 
$
4

 
$
75

 
$
3,595

GSE
 
189

 

 
8

 
181

Agency MBS
 
20,793

 
11

 
566

 
20,238

States and political subdivisions
 
1,990

 
53

 
43

 
2,000

Non-agency MBS
 
430

 
214

 

 
644

Other
 
10

 

 

 
10

Total AFS securities
 
$
27,078

 
$
282

 
$
692

 
$
26,668

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

 
$
19

 
$

 
$
1,117

GSE
 
2,197

 
15

 
25

 
2,187

Agency MBS
 
14,771

 
40

 
186

 
14,625

States and political subdivisions
 
95

 

 

 
95

Other
 
48

 
3

 

 
51

Total HTM securities
 
$
18,209

 
$
77

 
$
211

 
$
18,075

 

10


 
 
December 31, 2016
 
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
2,669

 
$
2

 
$
84

 
$
2,587

GSE
 
190

 

 
10

 
180

Agency MBS
 
21,819

 
13

 
568

 
21,264

States and political subdivisions
 
2,198

 
56

 
49

 
2,205

Non-agency MBS
 
446

 
233

 

 
679

Other
 
11

 

 

 
11

Total AFS securities
 
$
27,333

 
$
304

 
$
711

 
$
26,926

 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,098

 
$
20

 
$

 
$
1,118

GSE
 
2,197

 
14

 
30

 
2,181

Agency MBS
 
13,225

 
40

 
180

 
13,085

States and political subdivisions
 
110

 

 

 
110

Other
 
50

 
2

 

 
52

Total HTM securities
 
$
16,680

 
$
76

 
$
210

 
$
16,546

 
Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded 10% of shareholders' equity at March 31, 2017. The FNMA investments had total amortized cost and fair value of $14.6 billion and $14.2 billion, respectively. The FHLMC investments had total amortized cost and fair value of $8.3 billion and $8.1 billion, respectively.
 
The following table reflects changes in credit losses on securities with OTTI where a portion of the unrealized loss was recognized in OCI:
 
Three Months Ended March 31,
(Dollars in millions)
2017
 
2016
Balance at beginning of period
$
21

 
$
42

Credit losses on securities with previously recognized OTTI

 

Reduction for securities sold/settled during the period
(1
)
 
(23
)
Credit recoveries through yield

 
(1
)
Balance at end of period
$
20

 
$
18

 
The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.
 
 
March 31, 2017
 
 
AFS
 
HTM
(Dollars in millions)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
274

 
$
273

 
$

 
$

Due after one year through five years
 
1,935

 
1,943

 
1,740

 
1,762

Due after five years through ten years
 
2,605

 
2,526

 
1,625

 
1,612

Due after ten years
 
22,264

 
21,926

 
14,844

 
14,701

Total debt securities
 
$
27,078

 
$
26,668

 
$
18,209

 
$
18,075

 

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:
 
 
March 31, 2017
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
2,142

 
$
75

 
$

 
$

 
$
2,142

 
$
75

GSE
 
181

 
8

 

 

 
181

 
8

Agency MBS
 
14,363

 
343

 
5,006

 
223

 
19,369

 
566

States and political subdivisions
 
187

 
3

 
380

 
40

 
567

 
43

Total
 
$
16,873

 
$
429

 
$
5,386

 
$
263

 
$
22,259

 
$
692

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

GSE
 
$
1,733

 
$
25

 
$

 
$

 
$
1,733

 
$
25

Agency MBS
 
8,042

 
184

 
285

 
2

 
8,327

 
186

Total
 
$
9,775

 
$
209

 
$
285

 
$
2

 
$
10,060

 
$
211

 
 
December 31, 2016
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
 
$
2,014

 
$
84

 
$

 
$

 
$
2,014

 
$
84

GSE
 
180

 
10

 

 

 
180

 
10

Agency MBS
 
14,842

 
342

 
5,138

 
226

 
19,980

 
568

States and political subdivisions
 
365

 
7

 
314

 
42

 
679

 
49

Total
 
$
17,401

 
$
443

 
$
5,452

 
$
268

 
$
22,853

 
$
711

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

GSE
 
$
1,762

 
$
30

 
$

 
$

 
$
1,762

 
$
30

Agency MBS
 
7,717

 
178

 
305

 
2

 
8,022

 
180

Total
 
$
9,479

 
$
208

 
$
305

 
$
2

 
$
9,784

 
$
210

 
The unrealized losses on GSE securities and Agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.
 
At March 31, 2017, the majority of the unrealized loss on states and political subdivisions securities was the result of fair value hedge basis adjustments that are a component of amortized cost. These securities in an unrealized loss position are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. At March 31, 2017, none of these securities had credit impairment.
 

12


NOTE 4. Loans and ACL

During the first quarter of 2017, an other lending subsidiaries portfolio totaling $244 million was acquired.

The following tables present loans and leases HFI by aging category:
 
 
March 31, 2017
 
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
51,241

 
$
22

 
$

 
$
344

 
$
51,607

CRE-income producing properties
 
14,727

 
11

 

 
43

 
14,781

CRE-construction and development
 
3,832

 
1

 

 
17

 
3,850

Dealer floor plan
 
1,460

 

 

 
7

 
1,467

Other lending subsidiaries
 
7,767

 
15

 

 
9

 
7,791

Retail:
 
 
 
 
 
 
 
 
 


Direct retail lending
 
11,849

 
55

 
7

 
66

 
11,977

Revolving credit
 
2,544

 
20

 
10

 

 
2,574

Residential mortgage-nonguaranteed
 
28,222

 
272

 
64

 
167

 
28,725

Residential mortgage-government guaranteed
 
418

 
129

 
374

 
5

 
926

Sales finance
 
10,503

 
51

 
5

 
6

 
10,565

Other lending subsidiaries
 
7,223

 
200

 

 
59

 
7,482

PCI
 
749

 
29

 
82

 

 
860

Total
 
$
140,535

 
$
805

 
$
542

 
$
723

 
$
142,605

 
 
December 31, 2016
 
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
51,329

 
$
27

 
$

 
$
363

 
$
51,719

CRE-income producing properties
 
14,492

 
6

 

 
40

 
14,538

CRE-construction and development
 
3,800

 
2

 

 
17

 
3,819

Dealer floor plan
 
1,413

 

 

 

 
1,413

Other lending subsidiaries
 
7,660

 
21

 

 
10

 
7,691

Retail:
 
 

 
 

 
 

 
 

 
 
Direct retail lending
 
11,963

 
60

 
6

 
63

 
12,092

Revolving credit
 
2,620

 
23

 
12

 

 
2,655

Residential mortgage-nonguaranteed
 
28,378

 
393

 
79

 
172

 
29,022

Residential mortgage-government guaranteed
 
324

 
132

 
443

 

 
899

Sales finance
 
11,179

 
76

 
6

 
6

 
11,267

Other lending subsidiaries
 
6,931

 
301

 

 
65

 
7,297

PCI
 
784

 
36

 
90

 

 
910

Total
 
$
140,873

 
$
1,077

 
$
636

 
$
736

 
$
143,322



13


The following tables present the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance:
 
 
March 31, 2017
(Dollars in millions)
 
Commercial & Industrial
 
CRE - Income Producing Properties
 
CRE - Construction and Development
 
Dealer Floor Plan
 
Other Lending Subsidiaries
Commercial:
 
 
 
 
 
 
 
 
 
 
Pass
 
$
49,696

 
$
14,279

 
$
3,742

 
$
1,458

 
$
7,692

Special mention
 
459

 
134

 
49

 

 
50

Substandard - performing
 
1,108

 
325

 
42

 
2

 
40

Nonperforming
 
344

 
43

 
17

 
7

 
9

Total
 
$
51,607

 
$
14,781

 
$
3,850

 
$
1,467

 
$
7,791

 
 
Direct Retail Lending
 
Revolving Credit
 
Residential Mortgage
 
Sales Finance
 
Other Lending Subsidiaries
Retail:
 
 
 
 
 
 
 
 
 
 
Performing
 
$
11,911

 
$
2,574

 
$
29,479

 
$
10,559

 
$
7,423

Nonperforming
 
66

 

 
172

 
6

 
59

Total
 
$
11,977

 
$
2,574

 
$
29,651

 
$
10,565

 
$
7,482

 
 
December 31, 2016
(Dollars in millions)
 
Commercial & Industrial
 
CRE - Income Producing Properties
 
CRE - Construction and Development
 
Dealer Floor Plan
 
Other Lending Subsidiaries
Commercial:
 
 
 
 
 
 
 
 
 
 
Pass
 
$
49,921

 
$
14,061

 
$
3,718

 
$
1,404

 
$
7,604

Special mention
 
314

 
124

 
38

 

 
33

Substandard-performing
 
1,121

 
313

 
46

 
9

 
44

Nonperforming
 
363

 
40

 
17

 

 
10

Total
 
$
51,719

 
$
14,538

 
$