BB&T Earnings 2018-09-30

BBT 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 form10-q_3q18.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q

_____________________________

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2018

Commission File Number: 1-10853

_____________________________

BB&T CORPORATION

(Exact name of registrant as specified in its charter)

_____________________________



North Carolina	56-0939887
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



200 West Second Street Winston-Salem, North Carolina	27101
(Address of principal executive offices)	(Zip Code)

(336) 733-2000

(Registrant's telephone number, including area code)

______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically 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 ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

At September 30, 2018, 770,619,748 shares of the registrant's common stock, $5 par value, were outstanding.



TABLE OF CONTENTS
BB&T CORPORATION
FORM 10-Q
September 30, 2018
		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. Securities	11
	Note 3. Loans and ACL	12
	Note 4. Goodwill and Other Intangible Assets	17
	Note 5. Loan Servicing	17
	Note 6. Deposits	18
	Note 7. Long-Term Debt	19
	Note 8. Shareholders' Equity	19
	Note 9. AOCI	20
	Note 10. Income Taxes	20
	Note 11. Benefit Plans	21
	Note 12. Commitments and Contingencies	21
	Note 13. Fair Value Disclosures	22
	Note 14. Derivative Financial Instruments	27
	Note 15. Computation of EPS	31
	Note 16. Operating Segments	31
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management)	48
Item 4.	Controls and Procedures	54
PART II - Other Information
Item 1.	Legal Proceedings (see Note 12)	21
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds (see Share Repurchase Activity)	53
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	54

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
BHCA	Bank Holding Company Act of 1956, as amended
Branch Bank	Branch Banking and Trust Company
BSA/AML	Bank Secrecy Act/Anti-Money Laundering
BU	Business Unit
CB-Commercial	Community Banking Commercial, an operating segment
CB-Retail	Community Banking Retail and Consumer Finance, an operating segment
CCAR	Comprehensive Capital Analysis and Review
CD	Certificate of deposit
CDI	Core deposit intangible assets
CEO	Chief Executive Officer
CFO	Chief Financial 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
CRO	Chief Risk Officer
CRMC	Credit Risk Management Committee
CROC	Compliance Risk Oversight Committee
DIF	Deposit Insurance Fund administered by the FDIC
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act
DOL	United States Department of Labor
EPS	Earnings per common share
EVE	Economic value of equity
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FATCA	Foreign Account Tax Compliance Act
FDIC	Federal Deposit Insurance Corporation
FHA	Federal Housing Administration
FHC	Financial Holding Company
FHLB	Federal Home Loan Bank
FHLMC	Federal Home Loan Mortgage Corporation
FINRA	Financial Industry Regulatory Authority
FNMA	Federal National Mortgage Association
FRB	Board of Governors of the Federal Reserve System
FS&CF	Financial Services and Commercial Finance, an operating segment
FTE	Full-time equivalent employee
FTP	Funds transfer pricing
GAAP	Accounting principles generally accepted in the United States of America
GNMA	Government National Mortgage Association
Grandbridge	Grandbridge Real Estate Capital, LLC

BB&T Corporation 1



Term	Definition
GSE	U.S. government-sponsored enterprise
HFI	Held for investment
HMDA	Home Mortgage Disclosure Act
HTM	Held-to-maturity
IDI	Insured depository institution
IH&PF	Insurance Holdings and Premium Finance, an operating segment
IPV	Independent price verification
IRC	Internal Revenue Code
IRS	Internal Revenue Service
ISDA	International Swaps and Derivatives Association, Inc.
LCR	Liquidity Coverage Ratio
LHFS	Loans held for sale
LIBOR	London Interbank Offered Rate
MBS	Mortgage-backed securities
MRLCC	Market Risk, Liquidity and Capital Committee
MSR	Mortgage servicing right
MSRB	Municipal Securities Rulemaking Board
N/A	Not applicable
NCCOB	North Carolina Office of the Commissioner of Banks
NIM	Net interest margin, computed on a TE basis
NM	Not meaningful
NPA	Nonperforming asset
NPL	Nonperforming loan
NSFR	Net stable funding ratio
NYSE	NYSE Euronext, Inc.
OAS	Option adjusted spread
OCI	Other comprehensive income (loss)
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
Patriot Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCI	Purchased credit impaired loans
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
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
TBA	To be announced
TDR	Troubled debt restructuring
TE	Taxable-equivalent
U.S.	United States of America
U.S. Treasury	United States Department of the Treasury
UPB	Unpaid principal balance
VaR	Value-at-risk
VIE	Variable interest entity

2 BB&T Corporation

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	general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, slower deposit and/or asset growth, and a deterioration in credit quality and/or a reduced demand for credit, insurance or other services;
l	disruptions to the national or global financial markets, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies, the economic instability and recessionary conditions in Europe, the eventual exit of the United Kingdom from the European Union;
l	changes in the interest rate environment, including interest rate changes made by the Federal Reserve, as well as cash flow reassessments may reduce net interest margin and/or the volumes and values of loans and deposits as well as the value of other financial assets and liabilities;
l	competitive pressures among depository and other financial institutions may increase significantly;
l	legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Act may adversely affect the businesses in which BB&T is engaged;
l	local, state or federal taxing authorities may take tax positions that are adverse to BB&T;
l	a reduction may occur in BB&T's credit ratings;
l	adverse changes may occur in the securities markets;
l	competitors of BB&T may have greater financial resources or develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T;
l	cybersecurity risks could adversely affect BB&T's business and financial performance or reputation, and BB&T could be liable for financial losses incurred by third parties due to breaches of data shared between financial institutions;
l	higher-than-expected costs related to information technology infrastructure or a failure to successfully implement future system enhancements could adversely impact BB&T's financial condition and results of operations and could result in significant additional costs to BB&T;
l	natural or other disasters, including acts of terrorism, could have an adverse effect on BB&T, materially disrupting BB&T's operations or the ability or willingness of customers to access BB&T's products and services;
l	costs related to the integration of the businesses of BB&T and its merger partners may be greater than expected;
l	failure to execute on strategic or operational plans, including the ability to successfully complete and/or integrate mergers and acquisitions or fully achieve expected cost savings or revenue growth associated with mergers and acquisitions within the expected time frames could adversely impact financial condition and results of operations;
l	significant litigation and regulatory proceedings could have a material adverse effect on BB&T;
l	unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries could result in negative publicity, protests, fines, penalties, restrictions on BB&T's operations or ability to expand its business and other negative consequences, all of which could cause reputational damage and adversely impact BB&T's financial conditions and results of operations;
l	risks resulting from the extensive use of models;
l	risk management measures may not be fully effective;
l	deposit attrition, customer loss and/or revenue loss following completed mergers/acquisitions may exceed expectations; and
l	widespread system outages, caused by the failure of critical internal systems or critical services provided by third parties, could adversely impact BB&T's financial condition and results of operations.

These and other risk factors are more fully described in this report and in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 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)	September 30, 2018			December 31, 2017
Assets
Cash and due from banks	$	2,123		$	2,243
Interest-bearing deposits with banks	748			343
Cash equivalents	135			127
Restricted cash	147			370
AFS securities at fair value	24,286			24,547
HTM securities (fair value of $20,263 and $22,837 at September 30, 2018 and December 31, 2017, respectively)	21,082			23,027
LHFS at fair value	1,022			1,099
Loans and leases	146,690			143,701
ALLL	(1,538		)	(1,490		)
Loans and leases, net of ALLL	145,152			142,211
Premises and equipment	2,154			2,055
Goodwill	9,832			9,618
CDI and other intangible assets	789			711
MSRs at fair value	1,179			1,056
Other assets	14,236			14,235
Total assets	$	222,885		$	221,642
Liabilities
Deposits	$	154,556		$	157,371
Short-term borrowings	9,652			4,938
Long-term debt	23,236			23,648
Accounts payable and other liabilities	5,434			5,990
Total liabilities	192,878			191,947
Commitments and contingencies (Note 12)
Shareholders' Equity
Preferred stock, $5 par, liquidation preference of $25,000 per share	3,053			3,053
Common stock, $5 par	3,853			3,910
Additional paid-in capital	7,221			7,893
Retained earnings	17,673			16,259
AOCI, net of deferred income taxes	(1,852		)	(1,467		)
Noncontrolling interests	59			47
Total shareholders' equity	30,007			29,695
Total liabilities and shareholders' equity	$	222,885		$	221,642
Common shares outstanding	770,620			782,006
Common shares authorized	2,000,000			2,000,000
Preferred shares outstanding	126			126
Preferred shares authorized	5,000			5,000

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

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 September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017
Interest Income
Interest and fees on loans and leases	$	1,772	$	1,591		$	5,064	$	4,632
Interest and dividends on securities	283		276			868		806
Interest on other earning assets	14		10			52		38
Total interest income	2,069		1,877			5,984		5,476
Interest Expense
Interest on deposits	172		91			438		240
Interest on short-term borrowings	29		15			72		22
Interest on long-term debt	181		124			497		323
Total interest expense	382		230			1,007		585
Net Interest Income	1,687		1,647			4,977		4,891
Provision for credit losses	135		126			420		409
Net Interest Income After Provision for Credit Losses	1,552		1,521			4,557		4,482
Noninterest Income
Insurance income	448		397			1,365		1,336
Service charges on deposits	183		179			527		523
Mortgage banking income	79		114			272		311
Investment banking and brokerage fees and commissions	116		103			338		299
Trust and investment advisory revenues	71		68			215		206
Bankcard fees and merchant discounts	72		70			213		204
Checkcard fees	56		54			165		159
Operating lease income	37		36			110		109
Income from bank-owned life insurance	27		28			88		89
Other income	150		117			347		321
Securities gains (losses), net
Gross realized gains	—		17			1		17
Gross realized losses	—		(17		)	—		(17		)
OTTI charges	—		—			—		—
Non-credit portion recognized in OCI	—		—			—		—
Total securities gains (losses), net	—		—			1		—
Total noninterest income	1,239		1,166			3,641		3,557
Noninterest Expense
Personnel expense	1,104		1,051			3,217		3,154
Occupancy and equipment expense	189		198			570		589
Software expense	70		62			202		177
Outside IT services	33		34			97		122
Regulatory charges	37		40			116		115
Amortization of intangibles	33		34			97		108
Loan-related expense	28		32			83		98
Professional services	33		27			95		87
Merger-related and restructuring charges, net	18		47			70		93
Loss (gain) on early extinguishment of debt	—		—			—		392
Other expense	197		220			601		654
Total noninterest expense	1,742		1,745			5,148		5,589
Earnings
Income before income taxes	1,049		942			3,050		2,450
Provision for income taxes	210		294			598		702
Net income	839		648			2,452		1,748
Noncontrolling interests	7		8			13		12
Dividends on preferred stock	43		43			130		130
Net income available to common shareholders	$	789	$	597		$	2,309	$	1,606
Basic EPS	$	1.02	$	0.75		$	2.98	$	2.00
Diluted EPS	$	1.01	$	0.74		$	2.94	$	1.97
Cash dividends declared per share	$	0.405	$	0.330		$	1.155	$	0.930
Basic weighted average shares outstanding	771,562		794,558			775,642		804,424
Diluted weighted average shares outstanding	781,867		806,124			786,140		816,029

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 September 30,					Nine Months Ended September 30,
Unaudited (Dollars in millions)	2018			2017		2018			2017
Net income	$	839		$	648	$	2,452		$	1,748
OCI, net of tax:
Change in unrecognized net pension and postretirement costs	(12		)	8		15			29
Change in unrealized net gains (losses) on cash flow hedges	20			9		124			(27		)
Change in unrealized net gains (losses) on AFS securities	(155		)	18		(522		)	90
Other, net	1			2		(2		)	4
Total OCI	(146		)	37		(385		)	96
Total comprehensive income	$	693		$	685	$	2,067		$	1,844
Income Tax Effect of Items Included in OCI:
Change in unrecognized net pension and postretirement costs	$	(5	)	$	3	$	4		$	17
Change in unrealized net gains (losses) on cash flow hedges	6			5		40			(16		)
Change in unrealized net gains (losses) on AFS securities	(48		)	9		(163		)	51
Other, net	—			—		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, January 1, 2017	809,475		$	3,053	$	4,047		$	9,104		$	14,809		$	(1,132	)	$	45		$	29,926
Net income	—		—		—			—			1,736			—			12			1,748
OCI	—		—		—			—			—			96			—			96
Issued in connection with equity awards, net	7,201		—		37			67			—			—			—			104
Repurchase of common stock	(27,755	)	—		(139		)	(1,101		)	—			—			—			(1,240		)
Cash dividends declared on common stock	—		—		—			—			(747		)	—			—			(747		)
Cash dividends declared on preferred stock	—		—		—			—			(130		)	—			—			(130		)
Equity-based compensation expense	—		—		—			109			—			—			—			109
Other, net	—		—		—			13			(12		)	—			(14		)	(13		)
Balance, September 30, 2017	788,921		$	3,053	$	3,945		$	8,192		$	15,656		$	(1,036	)	$	43		$	29,853
Balance, January 1, 2018	782,006		$	3,053	$	3,910		$	7,893		$	16,259		$	(1,467	)	$	47		$	29,695
Net income	—		—		—			—			2,439			—			13			2,452
OCI	—		—		—			—			—			(385		)	—			(385		)
Issued in connection with equity awards, net	4,163		—		21			(22		)	—			—			—			(1		)
Repurchase of common stock	(15,549	)	—		(78		)	(752		)	—			—			—			(830		)
Cash dividends declared on common stock	—		—		—			—			(895		)	—			—			(895		)
Cash dividends declared on preferred stock	—		—		—			—			(130		)	—			—			(130		)
Equity-based compensation expense	—		—		—			113			—			—			—			113
Other, net	—		—		—			(11		)	—			—			(1		)	(12		)
Balance, September 30, 2018	770,620		$	3,053	$	3,853		$	7,221		$	17,673		$	(1,852	)	$	59		$	30,007

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 (Dollars in millions)	Nine Months Ended September 30,
Unaudited (Dollars in millions)	2018			2017
Cash Flows From Operating Activities:
Net income	$	2,452		$	1,748
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses	420			409
Depreciation	316			305
Loss (gain) on early extinguishment of debt	—			392
Amortization of intangibles	97			108
Equity-based compensation expense	113			109
(Gain) loss on securities, net	(1		)	—
Net change in operating assets and liabilities:
LHFS	77			499
Trading and equity securities	(503		)	(341		)
Other assets, accounts payable and other liabilities	221			(342		)
Other, net	(214		)	72
Net cash from operating activities	2,978			2,959
Cash Flows From Investing Activities:
Proceeds from sales of AFS securities	294			4,896
Proceeds from maturities, calls and paydowns of AFS securities	2,919			3,707
Purchases of AFS securities	(3,630		)	(4,700		)
Proceeds from maturities, calls and paydowns of HTM securities	1,919			1,845
Purchases of HTM securities	(39		)	(8,640		)
Originations and purchases of loans and leases, net of principal collected	(3,657		)	(121		)
Other, net	(539		)	(189		)
Net cash from investing activities	(2,733		)	(3,202		)
Cash Flows From Financing Activities:
Net change in deposits	(2,806		)	(4,084		)
Net change in short-term borrowings	4,714			6,510
Proceeds from issuance of long-term debt	1,770			5,500
Repayment of long-term debt	(1,845		)	(6,984		)
Repurchase of common stock	(830		)	(1,240		)
Cash dividends paid on common stock	(895		)	(747		)
Cash dividends paid on preferred stock	(130		)	(130		)
Other, net	(153		)	121
Net cash from financing activities	(175		)	(1,054		)
Net Change in Cash, Cash Equivalents and Restricted Cash	70			(1,297		)
Cash, Cash Equivalents and Restricted Cash, January 1	3,083			4,424
Cash, Cash Equivalents and Restricted Cash, September 30	$	3,153		$	3,127
Supplemental Disclosure of Cash Flow Information:
Net cash paid (received) during the period for:
Interest expense	$	948		$	540
Income taxes	(34		)	276
Noncash investing activities:
Transfers of loans to foreclosed assets	183			203

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, 2017 should be referred to in connection with these unaudited interim consolidated financial statements.

Reclassifications

The Consolidated Statements of Cash Flows has been reclassified to include restricted cash in cash and cash equivalents. Certain other amounts reported in prior periods' consolidated financial statements have been reclassified to conform to the current presentation.

Use of Estimates in the Preparation of Financial Statements

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

Derivative Financial Instruments

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

Revenue Recognition

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

Insurance income

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

Transaction and service based revenues

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

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
Revenue from Contracts with Customers Jan 1, 2018	Requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.	BB&T adopted this guidance using the modified retrospective approach for in-scope contracts at the date of adoption. The impact was not material.
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost Jan 1, 2018	Requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost are required to be presented in a separate line item.	The service cost component is included in personnel expense and the other components of net benefit costs are included in other expense in the Consolidated Statements of Income. The prior period was reclassified to conform to the current presentation. See Note 11. Benefit Plans.
Derivatives and Hedging Jan 1, 2018	Expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements.	BB&T early adopted this guidance using the modified retrospective approach. The impact was not material. New required disclosures have been included in Note 14. Derivative Financial Instruments.
Standards Not Yet Adopted
Leases Jan 1, 2019	Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors.	BB&T expects assets and liabilities will increase $800 million to $1.2 billion, with no material impact to its Consolidated Statements of Income. BB&T expects to adopt on a prospective basis.
Credit Losses Jan 1, 2020	Replaces the incurred loss impairment methodology with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated loans will receive an allowance for expected credit losses. Any credit impairment on AFS debt securities for which the fair value is less than cost will be recorded through an allowance for expected credit losses. The standard also requires expanded disclosures related to credit losses and asset quality.	BB&T expects that the ACL could be materially higher; however, the magnitude of the increase and its impact has not yet been quantified and depends on economic conditions at the time of adoption. Implementation efforts continue with the development, testing and refinement of core models, including the impact of various economic scenarios and reversion techniques, sourcing of data for disclosure requirements, monitoring of guidance interpretation, and consideration of relevant internal processes and controls.

10 BB&T Corporation

NOTE 2. Securities

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



September 30, 2018 (Dollars in millions)	Amortized Cost		Gross Unrealized				Fair Value
September 30, 2018 (Dollars in millions)	Amortized Cost		Gains		Losses		Fair Value
AFS securities:
U.S. Treasury	$	2,505	$	—	$	127	$	2,378
GSE	210		—		12		198
Agency MBS	21,582		3		1,213		20,372
States and political subdivisions	764		24		17		771
Non-agency MBS	335		194		—		529
Other	37		1		—		38
Total AFS securities	$	25,433	$	222	$	1,369	$	24,286
HTM securities:
U.S. Treasury	$	1,099	$	—	$	15	$	1,084
GSE	2,199		—		71		2,128
Agency MBS	17,775		31		764		17,042
States and political subdivisions	8		—		—		8
Other	1		—		—		1
Total HTM securities	$	21,082	$	31	$	850	$	20,263

December 31, 2017 (Dollars in millions)	Amortized Cost		Gross Unrealized				Fair Value
December 31, 2017 (Dollars in millions)	Amortized Cost		Gains		Losses		Fair Value
AFS securities:
U.S. Treasury	$	2,368	$	—	$	77	$	2,291
GSE	187		—		8		179
Agency MBS	20,683		8		590		20,101
States and political subdivisions	1,379		37		24		1,392
Non-agency MBS	384		192		—		576
Other	8		—		—		8
Total AFS securities	$	25,009	$	237	$	699	$	24,547
HTM securities:
U.S. Treasury	$	1,098	$	8	$	—	$	1,106
GSE	2,198		11		22		2,187
Agency MBS	19,660		33		222		19,471
States and political subdivisions	28		—		—		28
Other	43		2		—		45
Total HTM securities	$	23,027	$	54	$	244	$	22,837

Certain securities issued by FNMA and FHLMC exceeded 10% of shareholders' equity at September 30, 2018. The FNMA investments had total amortized cost and fair value of $13.6 billion and $12.9 billion, respectively. The FHLMC investments had total amortized cost and fair value of $9.9 billion and $9.4 billion, respectively.

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
September 30, 2018 (Dollars in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	481	$	479	$	1	$	1
Due after one year through five years	2,114		1,991		3,190		3,109
Due after five years through ten years	561		547		687		660
Due after ten years	22,277		21,269		17,204		16,493
Total debt securities	$	25,433	$	24,286	$	21,082	$	20,263

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
September 30, 2018 (Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AFS securities:
U.S. Treasury	$	452	$	8	$	1,926	$	119	$	2,378	$	127
GSE	33		1		165		11		198		12
Agency MBS	4,052		111		15,949		1,102		20,001		1,213
States and political subdivisions	146		1		272		16		418		17
Total	$	4,683	$	121	$	18,312	$	1,248	$	22,995	$	1,369
HTM securities:
U.S. Treasury	$	1,084	$	15	$	—	$	—	$	1,084	$	15
GSE	900		24		1,081		47		1,981		71
Agency MBS	6,869		266		8,549		498		15,418		764
Total	$	8,853	$	305	$	9,630	$	545	$	18,483	$	850

	Less than 12 months				12 months or more				Total
December 31, 2017 (Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
AFS securities:
U.S. Treasury	$	634	$	4	$	1,655	$	73	$	2,289	$	77
GSE	9		—		170		8		179		8
Agency MBS	5,077		64		13,920		526		18,997		590
States and political subdivisions	201		1		355		23		556		24
Total	$	5,921	$	69	$	16,100	$	630	$	22,021	$	699
HTM securities:
GSE	$	1,470	$	12	$	290	$	10	$	1,760	$	22
Agency MBS	10,880		77		4,631		145		15,511		222
Total	$	12,350	$	89	$	4,921	$	155	$	17,271	$	244

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.

NOTE 3. Loans and ACL

The following tables present loans and leases HFI by aging category:



	Accruing
September 30, 2018 (Dollars in millions)	Current		30-89 Days Past Due		90 Days Or More Past Due		Nonperforming		Total
Commercial:
Commercial and industrial	$	59,449	$	35	$	—	$	238	$	59,722
CRE	21,416		4		—		46		21,466
Lease financing	2,021		1		—		6		2,028
Retail:
Residential mortgage	29,824		510		367		120		30,821
Direct	11,498		59		6		55		11,618
Indirect	16,972		418		6		72		17,468
Revolving credit	3,031		27		12		—		3,070
PCI	436		21		40		—		497
Total	$	144,647	$	1,075	$	431	$	537	$	146,690

12 BB&T Corporation



	Accruing
December 31, 2017	Current		30-89 Days Past Due		90 Days Or More Past Due		Nonperforming		Total
Commercial:
Commercial and industrial	$	58,852	$	41	$	1	$	259	$	59,153
CRE	21,209		8		1		45		21,263
Lease financing	1,906		4		—		1		1,911
Retail:
Residential mortgage	27,659		472		465		129		28,725
Direct	11,756		65		6		64		11,891
Indirect	16,745		412		6		72		17,235
Revolving credit	2,837		23		12		—		2,872
PCI	567		27		57		—		651
Total	$	141,531	$	1,052	$	548	$	570	$	143,701

The following table presents the carrying amount of loans by risk rating. PCI loans are excluded because their related ALLL is determined by loan pool performance and revolving credit loans are excluded as the loans are charged-off rather than reclassifying to nonperforming:



	September 30, 2018						December 31, 2017
(Dollars in millions)	Commercial & Industrial		CRE		Lease Financing		Commercial & Industrial		CRE		Lease Financing
Commercial:
Pass	$	58,609	$	21,122	$	2,016	$	57,700	$	20,862	$	1,881
Special mention	173		57		2		268		48		6
Substandard-performing	702		241		4		926		308		23
Nonperforming	238		46		6		259		45		1
Total	$	59,722	$	21,466	$	2,028	$	59,153

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$51.78	763	$39,530

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-02-07	Enter Agreement, Officers, Exhibits
8-K	2019-02-07	Other Events, Exhibits
8-K	2019-01-29	Amend Bylaw, Exhibits
8-K	2019-01-17	Earnings, Exhibits
8-K	2018-12-31	Officers
8-K	2018-12-10	Regulation FD, Exhibits
8-K	2018-12-06	Other Events, Exhibits
8-K	2018-10-22	Officers, Exhibits
8-K	2018-10-18	Earnings, Exhibits
8-K	2018-09-13	Regulation FD, Exhibits
8-K	2018-08-07	Regulation FD, Exhibits
8-K	2018-07-19	Earnings, Exhibits
8-K	2018-06-28	Other Events
8-K	2018-06-05	Other Events, Exhibits
8-K	2018-06-01	Other Events, Exhibits
8-K	2018-04-24	Shareholder Vote, Exhibits
8-K	2018-04-19	Earnings, Exhibits
8-K	2018-01-18	Earnings, Exhibits
8-K	2017-12-31

ZION	Zions Bancorporation
CPF	Central Pacific Financial
MSBI	Midland States Bancorp
CATC	Cambridge Bancorp
CFFI	C & F Financial
OPBK	OP Bancorp
STND	Standard Avb Financial
CBAN	Colony Bankcorp
SSFN	Stewardship Financial
OPHC	Optimumbank Holdings

EX-12	ex12-earn2fixedcharge_3q18.htm
EX-31.1	ex311-certification_3q18.htm
EX-31.2	ex312-certification_3q18.htm
EX-32	ex32-certification_3q18.htm