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, 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 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   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
¨
(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   ý
At March 31, 2018 , 779,751,860 shares of the registrant's common stock, $5 par value, were outstanding.


 


TABLE OF CONTENTS
FORM 10-Q
March 31, 2018
 
 
 
Page No.
PART I - Financial Information
 
Glossary of Defined Terms
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets (Unaudited)
 
Consolidated Statements of Income (Unaudited)
 
Consolidated Statements of Comprehensive Income (Unaudited)
 
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
 
Consolidated Statements of Cash Flows (Unaudited)
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
Note 1. Basis of Presentation
 
Note 2. Securities
 
Note 3. Loans and ACL
 
Note 4. Goodwill and Other Intangible Assets
 
Note 5. Loan Servicing
 
Note 6. Deposits
 
Note 7. Long-Term Debt
 
Note 8. Shareholders' Equity
 
Note 9. AOCI
 
Note 10. Income Taxes
 
Note 11. Benefit Plans
 
Note 12. Commitments and Contingencies
 
Note 13. Fair Value Disclosures
 
Note 14. Derivative Financial Instruments
 
Note 15. Computation of EPS
 
Note 16. Operating Segments
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II - Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
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


Table of Contents

Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes.  
Term
 
Definition
2017 Repurchase Plan
 
Plan for the repurchase of up to $1.93 billion of BB&T's common stock
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
CET1
 
Common equity Tier 1
CFPB
 
Consumer Financial Protection Bureau
CMO
 
Collateralized mortgage obligation
Colonial
 
Collectively, certain assets and liabilities of Colonial Bank acquired by BB&T in 2009
Company
 
BB&T Corporation and subsidiaries (interchangeable with "BB&T" above)
CRA
 
Community Reinvestment Act of 1977
CRE
 
Commercial real estate
CRMC
 
Credit Risk Management Committee
CROC
 
Compliance Risk Oversight Committee
DIF
 
Deposit Insurance Fund administered by the FDIC
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
DOL
 
United States Department of Labor
EPS
 
Earnings per common share
EVE
 
Economic value of equity
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FATCA
 
Foreign Account Tax Compliance Act
FDIC
 
Federal Deposit Insurance Corporation
FHA
 
Federal Housing Administration
FHC
 
Financial Holding Company
FHLB
 
Federal Home Loan Bank
FHLMC
 
Federal Home Loan Mortgage Corporation
FINRA
 
Financial Industry Regulatory Authority
FNMA
 
Federal National Mortgage Association
FRB
 
Board of Governors of the Federal Reserve System
FS&CF
 
Financial Services and Commercial Finance, an operating segment
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

1

Table of Contents

Term
 
Definition
HTM
 
Held-to-maturity
IDI
 
Insured depository institution
IH&PF
 
Insurance Holdings and Premium Finance, an operating segment
IPV
 
Independent price verification
IRC
 
Internal Revenue Code
IRS
 
Internal Revenue Service
ISDA
 
International Swaps and Derivatives Association, Inc.
LCR
 
Liquidity Coverage Ratio
LHFS
 
Loans held for sale
LIBOR
 
London Interbank Offered Rate
MBS
 
Mortgage-backed securities
MRLCC
 
Market Risk, Liquidity and Capital Committee
MSR
 
Mortgage servicing right
MSRB
 
Municipal Securities Rulemaking Board
N/A
 
Not applicable
National Penn
 
National Penn Bancshares, Inc., acquired by BB&T effective April 1, 2016
NIM
 
Net interest margin, computed on a TE basis
NM
 
Not meaningful
NPA
 
Nonperforming asset
NPL
 
Nonperforming loan
NSFR
 
Net stable funding ratio
NYSE
 
NYSE Euronext, Inc.
OAS
 
Option adjusted spread
OCI
 
Other comprehensive income (loss)
OREO
 
Other real estate owned
ORMC
 
Operational Risk Management Committee
OT&C
 
Other, Treasury and Corporate
OTTI
 
Other-than-temporary impairment
Parent Company
 
BB&T Corporation, the parent company of Branch Bank and other subsidiaries
Patriot Act
 
Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
PCI
 
Purchased credit impaired loans as well as assets of Colonial Bank acquired from the FDIC during 2009, which were formerly covered under loss sharing agreements
PSU
 
Performance share units
Re-REMICs
 
Re-securitizations of Real Estate Mortgage Investment Conduits
RMC
 
Risk Management Committee
RMO
 
Risk Management Organization
RSU
 
Restricted stock unit
RUFC
 
Reserve for unfunded lending commitments
SBIC
 
Small Business Investment Company
SEC
 
Securities and Exchange Commission
Short-Term Borrowings
 
Federal funds purchased, securities sold under repurchase agreements and other short-term borrowed funds with original maturities of less than one year
Simulation
 
Interest sensitivity simulation analysis
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

Table of Contents

ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
(Dollars in millions, except per share data, shares in thousands)
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Cash and due from banks
$
1,869

 
$
2,243

Interest-bearing deposits with banks
912

 
343

Cash equivalents
132

 
127

Restricted cash
198

 
370

AFS securities at fair value
25,017

 
24,547

HTM securities (fair value of $21,829 and $22,837 at March 31, 2018 and December 31, 2017, respectively)
22,390

 
23,027

LHFS at fair value
1,189

 
1,099

Loans and leases
143,017

 
143,701

ALLL
(1,498
)
 
(1,490
)
Loans and leases, net of ALLL
141,519

 
142,211

Premises and equipment
2,078

 
2,055

Goodwill
9,617

 
9,618

CDI and other intangible assets
679

 
711

MSRs at fair value
1,119

 
1,056

Other assets
14,010

 
14,235

Total assets
$
220,729

 
$
221,642

Liabilities
 
 
 
Deposits
$
158,196

 
$
157,371

Short-term borrowings
4,321

 
4,938

Long-term debt
23,410

 
23,648

Accounts payable and other liabilities
5,140

 
5,990

Total liabilities
191,067

 
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
3,899

 
3,910

Additional paid-in capital
7,593

 
7,893

Retained earnings
16,712

 
16,259

AOCI, net of deferred income taxes
(1,645
)
 
(1,467
)
Noncontrolling interests
50

 
47

Total shareholders' equity
29,662

 
29,695

Total liabilities and shareholders' equity
$
220,729

 
$
221,642

 
 
 
 
Common shares outstanding
779,752

 
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.

3

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
Unaudited
 
March 31,
(Dollars in millions, except per share data, shares in thousands)
 
2018
 
2017
Interest Income
 
 
 
 
Interest and fees on loans and leases
 
$
1,605

 
$
1,501

Interest and dividends on securities
 
291

 
258

Interest on other earning assets
 
25

 
16

Total interest income
 
1,921

 
1,775

Interest Expense
 
 
 
 
Interest on deposits
 
118

 
69

Interest on short-term borrowings
 
20

 
2

Interest on long-term debt
 
150

 
95

Total interest expense
 
288

 
166

Net Interest Income
 
1,633

 
1,609

Provision for credit losses
 
150

 
148

Net Interest Income After Provision for Credit Losses
 
1,483

 
1,461

Noninterest Income
 
 
 
 
Insurance income
 
436

 
458

Service charges on deposits
 
165

 
168

Mortgage banking income
 
99

 
103

Investment banking and brokerage fees and commissions
 
113

 
91

Trust and investment advisory revenues
 
72

 
68

Bankcard fees and merchant discounts
 
69

 
59

Checkcard fees
 
52

 
51

Operating lease income
 
37

 
36

Income from bank-owned life insurance
 
31

 
29

Other income
 
106

 
108

Securities gains (losses), net
 
 
 
 
Gross realized gains
 

 

Gross realized losses
 

 

OTTI charges
 

 

Non-credit portion recognized in OCI
 

 

Total securities gains (losses), net
 

 

Total noninterest income
 
1,180

 
1,171

Noninterest Expense
 
 
 
 
Personnel expense
 
1,039

 
1,035

Occupancy and equipment expense
 
194

 
193

Software expense
 
65

 
58

Outside IT services
 
32

 
49

Regulatory charges
 
40

 
39

Amortization of intangibles
 
33

 
38

Loan-related expense
 
29

 
30

Professional services
 
30

 
22

Merger-related and restructuring charges, net
 
28

 
36

Loss (gain) on early extinguishment of debt
 

 
392

Other expense
 
196

 
210

Total noninterest expense
 
1,686

 
2,102

Earnings
 
 
 
 
Income before income taxes
 
977

 
530

Provision for income taxes
 
186

 
104

Net income
 
791

 
426

Noncontrolling interests
 
3

 
5

Dividends on preferred stock
 
43

 
43

Net income available to common shareholders
 
$
745

 
$
378

Basic EPS
 
$
0.96

 
$
0.47

Diluted EPS
 
$
0.94

 
$
0.46

Cash dividends declared per share
 
$
0.375

 
$
0.300

Basic weighted average shares outstanding
 
779,617

 
809,903

Diluted weighted average shares outstanding
 
791,005

 
822,719


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

4

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
BB&T CORPORATION AND SUBSIDIARIES
 
 
Three Months Ended
Unaudited
 
March 31,
(Dollars in millions)
 
2018
 
2017
Net income
 
$
791

 
$
426

OCI, net of tax:
 
 

 
 

Change in unrecognized net pension and postretirement costs
 
14

 
9

Change in unrealized net gains (losses) on cash flow hedges
 
78

 
(2
)
Change in unrealized net gains (losses) on AFS securities
 
(268
)
 
(2
)
Other, net
 
(2
)
 
2

Total OCI
 
(178
)
 
7

Total comprehensive income
 
$
613

 
$
433

 
 
 
 
 
Income Tax Effect of Items Included in OCI:
 
 
 
 
Change in unrecognized net pension and postretirement costs
 
$
4

 
$
7

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

 
(1
)
Change in unrealized net gains (losses) on AFS securities
 
(84
)
 
(1
)
Other, net
 
1

 


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


5

Table of Contents

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

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
421

 

 
5

 
426

OCI

 

 

 

 

 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
782,006

 
$
3,053

 
$
3,910

 
$
7,893

 
$
16,259

 
$
(1,467
)
 
$
47

 
$
29,695

Add (Deduct):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
788

 

 
3

 
791

OCI

 

 

 

 

 
(178
)
 

 
(178
)
Stock transactions:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued in connection with equity awards, net
3,599

 

 
18

 
(31
)
 

 

 

 
(13
)
Repurchase of common stock
(5,853
)
 

 
(29
)
 
(291
)
 

 

 

 
(320
)
Cash dividends declared on common stock

 

 

 

 
(292
)
 

 

 
(292
)
Cash dividends declared on preferred stock

 

 

 

 
(43
)
 

 

 
(43
)
Equity-based compensation expense

 

 

 
31

 

 

 

 
31

Other, net

 

 

 
(9
)
 

 

 

 
(9
)
Balance, March 31, 2018
779,752

 
$
3,053

 
$
3,899

 
$
7,593

 
$
16,712

 
$
(1,645
)
 
$
50

 
$
29,662


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

6

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T CORPORATION AND SUBSIDIARIES
Unaudited
 
Three Months Ended March 31,
(Dollars in millions)
 
2018
 
2017
Cash Flows From Operating Activities:
 
 
 
 
Net income
 
$
791

 
$
426

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

 
 
Provision for credit losses
 
150

 
148

Depreciation
 
105

 
99

Loss (gain) on early extinguishment of debt
 

 
392

Amortization of intangibles
 
33

 
38

Equity-based compensation expense
 
31

 
30

(Gain) loss on securities, net
 

 

Net change in operating assets and liabilities:
 
 

 
 
LHFS
 
(90
)
 
499

Trading and equity securities
 
10

 
(644
)
Other assets, accounts payable and other liabilities
 
(583
)
 
(886
)
Other, net
 
(139
)
 
56

Net cash from operating activities
 
308

 
158

Cash Flows From Investing Activities:
 
 

 
 
Proceeds from sales of AFS securities
 
95

 
107

Proceeds from maturities, calls and paydowns of AFS securities
 
959

 
1,355

Purchases of AFS securities
 
(1,863
)
 
(1,205
)
Proceeds from maturities, calls and paydowns of HTM securities
 
626

 
588

Purchases of HTM securities
 
(39
)
 
(2,126
)
Originations and purchases of loans and leases, net of principal collected
 
385

 
333

Other, net
 
40

 
201

Net cash from investing activities
 
203

 
(747
)
Cash Flows From Financing Activities:
 
 

 
 
Net change in deposits
 
830

 
1,104

Net change in short-term borrowings
 
(617
)
 
613

Proceeds from issuance of long-term debt
 
7

 
3,947

Repayment of long-term debt
 
(41
)
 
(4,645
)
Net cash from common stock transactions
 
(344
)
 
(74
)
Cash dividends paid on common stock
 
(292
)
 
(243
)
Cash dividends paid on preferred stock
 
(43
)
 
(43
)
Other, net
 
17

 
(14
)
Net cash from financing activities
 
(483
)
 
645

Net Change in Cash, Cash Equivalents and Restricted Cash
 
28

 
56

Cash, Cash Equivalents and Restricted Cash, January 1
 
3,083

 
4,424

Cash, Cash Equivalents and Restricted Cash, March 31
 
$
3,111

 
$
4,480

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
$
256

 
$
151

Income taxes
 
15

 
21

Noncash investing activities:
 
 

 
 
Transfers of loans to foreclosed assets
 
67

 
138


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

7

Table of Contents

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

Cash and cash equivalents includes restricted cash for the Consolidated Statements of Cash Flows. 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 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 MSRs, goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.

Derivative Financial Instruments

BB&T historically assessed the effectiveness of accounting hedges using the long-haul method. In conjunction with the adoption of new hedge accounting guidance, the shortcut method was added to the methods BB&T uses to assess effectiveness. The selection of methods depends on the facts and circumstances specific to each hedge. The shortcut method is applied to hedges that achieve perfect offset. For hedges that are not eligible for the shortcut method, an initial quantitative analysis is performed to demonstrate that the hedges are expected to be highly effective in off-setting corresponding changes in either the fair value or cash flows of the hedged item. At least quarterly thereafter, analyses are performed to ensure that each hedge remains highly effective. Quantitative analyses referred to as a long-haul methodology 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 March 31, 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.

8



Changes in Accounting Principles and Effects of New Accounting Pronouncements
Standard/
Adoption Date
Description
Effects on the Financial Statements
Standards Adopted During the Current Period
Revenue from Contracts with Customers
Jan 1, 2018
Requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
BB&T adopted this guidance using the modified retrospective approach for in-scope contracts at the date of adoption. The impact was not material.
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
Jan 1, 2018
Requires that the service cost component of net benefit costs of pension and postretirement benefit plans be reported in the same line item as other compensation costs in the Consolidated Statements of Income. The other components of net benefit cost are required to be presented in a separate line item.

The service cost component is included in personnel expense and the other components of net benefit costs are included in other expense in the Consolidated Statements of Income. The prior period was reclassified to conform to the current presentation. See Note 11. Benefit Plans.
Derivatives and Hedging
Jan 1, 2018
Expands the risk management activities that qualify for hedge accounting, and simplifies certain hedge documentation and assessment requirements. Eliminates the concept of separately recording hedge ineffectiveness, and expands disclosure requirements.
BB&T early adopted this guidance using the modified retrospective approach. The impact was not material. New required disclosures have been included in Note 14. Derivative Financial Instruments.
Standards Not Yet Adopted
Leases
Jan 1, 2019
Requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet, requires additional disclosures by lessees, and contains targeted changes to accounting by lessors.
BB&T expects assets and liabilities will likely be significantly higher. Implementation efforts are ongoing, including implementation of software solutions.
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.
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. The standard also requires expanded disclosures related to credit losses and asset quality.

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 present the amortized cost, gross unrealized gains and losses, and fair values of AFS and HTM securities:
March 31, 2018
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
AFS securities:
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
2,441

 
$

 
$
106

 
$
2,335

GSE
 
187

 

 
11

 
176

Agency MBS
 
21,605

 
3

 
921

 
20,687

States and political subdivisions
 
1,194

 
28

 
23

 
1,199

Non-agency MBS
 
363

 
215

 

 
578

Other
 
41

 
1

 

 
42

Total AFS securities
 
$
25,831

 
$
247

 
$
1,061

 
$
25,017

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

 
$

 
$
4

 
$
1,094

GSE
 
2,198

 
5

 
50

 
2,153

Agency MBS
 
19,069

 
30

 
542

 
18,557

States and political subdivisions
 
24

 

 

 
24

Other
 
1

 

 

 
1

Total HTM securities
 
$
22,390

 
$
35

 
$
596

 
$
21,829


9


December 31, 2017
 
Amortized Cost
 
Gross Unrealized
 
Fair Value
(Dollars in millions)
 
 
Gains
 
Losses
 
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 investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded 10% of shareholders' equity at March 31, 2018 . The FNMA investments had total amortized cost and fair value of $14.6 billion and $14.0 billion , respectively. The FHLMC investments had total amortized cost and fair value of $10.5 billion and $10.1 billion , respectively.
 
Changes in credit losses on securities with OTTI where a portion of the unrealized loss was recognized in OCI were immaterial for all periods presented.

The amortized cost and estimated fair value of the securities portfolio by contractual maturity are shown in the following table. The expected life of MBS may differ from contractual maturities because borrowers have the right to prepay the underlying mortgage loans with or without prepayment penalties.
March 31, 2018
 
AFS
 
HTM
(Dollars in millions)
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
462

 
$
460

 
$

 
$

Due after one year through five years
 
544

 
534

 
2,699

 
2,665

Due after five years through ten years
 
2,266

 
2,161

 
863

 
840

Due after ten years
 
22,559

 
21,862

 
18,828

 
18,324

Total debt securities
 
$
25,831

 
$
25,017

 
$
22,390

 
$
21,829

 
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, 2018
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
AFS securities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
 
$
697

 
$
9

 
$
1,637

 
$
97

 
$
2,334

 
$
106

GSE
 
9

 

 
167

 
11

 
176

 
11

Agency MBS
 
7,304

 
198

 
13,273

 
723

 
20,577

 
921

States and political subdivisions
 
203

 
1

 
343

 
22

 
546

 
23

Total
 
$
8,213

 
$
208

 
$
15,420

 
$
853

 
$
23,633

 
$
1,061

 
 
 
 
 
 
 
 
 
 
 
 
 
HTM securities:
 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
1,094

 
$
4

 
$

 
$

 
$
1,094

 
$
4

GSE
 
1,455

 
37

 
287

 
13

 
1,742

 
50

Agency MBS
 
12,396

 
313

 
4,339

 
229

 
16,735

 
542

Total
 
$
14,945

 
$
354

 
$
4,626

 
$
242

 
$
19,571

 
$
596


10


December 31, 2017
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in millions)
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
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

 
The unrealized losses on U.S. Treasury securities, GSE securities and Agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans.
 
At March 31, 2018 , 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 are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. At March 31, 2018 , none of these securities had credit impairment.
 
NOTE 3. Loans and ACL

The following tables present loans and leases HFI by aging category:
March 31, 2018
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonaccrual
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
58,844

 
$
31

 
$

 
$
257

 
$
59,132

CRE
 
21,420

 
10

 

 
67

 
21,497

Lease financing
 
1,872

 
1

 

 
13

 
1,886

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
27,845

 
400

 
420

 
127

 
28,792

Direct
 
11,550

 
55

 
6

 
64

 
11,675

Indirect
 
16,329

 
272

 
5

 
74

 
16,680

Revolving credit
 
2,734

 
21

 
11

 

 
2,766

PCI
 
517

 
24

 
48

 

 
589

Total
 
$
141,111

 
$
814

 
$
490

 
$
602

 
$
143,017

December 31, 2017
 
Accruing
 
 
 
 
(Dollars in millions)
 
Current
 
30-89 Days Past Due
 
90 Days Or More Past Due
 
Nonaccrual
 
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



11


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:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Commercial & Industrial
 
CRE
 
Lease Financing
 
Commercial & Industrial
 
CRE
 
Lease Financing
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
$
57,844

 
$
21,127

 
$
1,867

 
$
57,700

 
$
20,862

 
$
1,881

Special mention
 
155

 
29

 
2

 
268

 
48

 
6

Substandard-performing
 
876

 
274

 
4

 
926

 
308

 
23

Nonperforming
 
257

 
67

 
13

 
259

 
45

 
1

Total
 
$
59,132

 
$
21,497

 
$
1,886

 
$
59,153

 
$
21,263

 
$
1,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
 
Direct
 
Indirect
 
Residential Mortgage
 
Direct
 
Indirect
Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Performing
 
$
28,665

 
$
11,611

 
$
16,606

 
$
28,596

 
$
11,827

 
$
17,163

Nonperforming
 
127

 
64

 
74

 
129

 
64

 
72

Total
 
$
28,792


$
11,675

 
$
16,680


$
28,725

 
$
11,891

 
$
17,235


The following tables present activity in the ACL:
Three Months Ended March 31, 2018
 
Balance at
Jan 1, 2018
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Mar 31, 2018
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
522

 
$
(23
)
 
$
8

 
$
15

 
$
522

CRE
 
160

 
(6
)
 
2

 
19

 
175

Lease financing
 
9

 
(1
)
 

 
2

 
10

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
209

 
(4
)
 

 
11

 
216

Direct
 
106

 
(19
)
 
6

 
6

 
99

Indirect
 
348

 
(107
)
 
15

 
91

 
347

Revolving credit
 
108

 
(21
)
 
5

 
12

 
104

PCI
 
28

 

 

 
(3
)
 
25

ALLL
 
1,490

 
(181
)
 
36

 
153

 
1,498

RUFC
 
119

 

 

 
(3
)
 
116

ACL
 
$
1,609

 
$
(181
)
 
$
36

 
$
150

 
$
1,614

Three Months Ended March 31, 2017
 
Balance at
Jan 1, 2017
 
Charge-Offs
 
Recoveries
 
Provision (Benefit)
 
Balance at
Mar 31, 2017
(Dollars in millions)
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
530

 
$
(33
)
 
$
7

 
$
20

 
$
524

CRE
 
145

 
(1
)
 
6

 
(9
)
 
141

Lease financing
 
7

 
(1
)
 

 
4

 
10

Retail:
 
 
 
 
 
 
 
 
 


Residential mortgage
 
227

 
(12
)
 

 
8

 
223

Direct
 
103

 
(14
)
 
6

 
7

 
102

Indirect
 
327

 
(107
)
 
17

 
101

 
338

Revolving credit
 
106

 
(21
)
 
5

 
13

 
103

PCI
 
44

 

 

 
2

 
46

ALLL
 
1,489

 
(189
)
 
41

 
146

 
1,487

RUFC
 
110

 

 

 
2

 
112

ACL
 
$
1,599

 
$
(189
)
 
$
41

 
$
148

 
$
1,599


12



The following table provides a summary of loans that are collectively evaluated for impairment:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Recorded Investment
 
Related ALLL
 
Recorded Investment
 
Related ALLL
Commercial:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
58,793

 
$
497

 
$
58,804

 
$
494

CRE
 
21,391

 
164

 
21,173

 
154

Lease financing
 
1,873

 
9

 
1,910

 
9

Retail:
 
 
 
 
 
 
 
 
Residential mortgage
 
27,953

 
149

 
27,914

 
143

Direct
 
11,601

 
92

 
11,815

 
98

Indirect
 
16,383

 
293

 
16,935

 
296

Revolving credit
 
2,737

 
93

 
2,842

 
97

PCI
 
589

 
25

 
651

 
28

Total
 
$
141,320

 
$
1,322

 
$
142,044

 
$
1,319


The following tables set forth certain information regarding impaired loans, excluding PCI and LHFS, that were individually evaluated for impairment:
As of / For The Three Months Ended March 31, 2018
 
UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
(Dollars in millions)
 
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
376

 
$
140

 
199

 
$
25

 
$
348

 
$
1

CRE
 
109

 
21

 
85

 
11

 
109

 

Lease financing
 
14

 
1

 
12

 
1

 
3

 

Retail:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
886

 
133

 
706

 
67

 
825

 
8

Direct
 
97

 
25

 
49

 
7

 
75

 
1

Indirect
 
306

 
5

 
292

 
54

 
298

 
11

Revolving credit
 
29

 

 
29

 
11

 
29

 

Total
 
$
1,817

 
$
325

 
$
1,372

 
$
176

 
$
1,687

 
$
21

As of / For The Year Ended December 31, 2017
 
UPB
 
Recorded Investment
 
Related ALLL
 
Average Recorded Investment
 
Interest Income Recognized
(Dollars in millions)
 
 
Without an ALLL
 
With an ALLL
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
381

 
$
136

 
213

 
$
28

 
$
424

 
$
6

CRE
 
91

 
26

 
64

 
6

 
109

 
3

Lease financing
 
1

 

 
1

 

 
3

 

Retail:
 
 
 
 

 
 

 
 

 
 

 
 

Residential mortgage
 
860

 
132

 
679

 
67

 
895

 
37

Direct
 
99

 
22

 
54

 
8

 
78

 
4

Indirect
 
308

 
6

 
294

 
52

 
269

 
41

Revolving credit
 
30

 

 
30

 
10

 
29

 
1

Total
 
$
1,770

 
$
322

 
$
1,335

 
$
171

 
$
1,807

 
$
92



13


The following table presents a summary of TDRs, all of which are considered impaired:
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
Performing TDRs:
 
 
 
 
Commercial:
 
 
 
 
Commercial and industrial
 
$
38

 
$
50

CRE
 
12

 
16

Lease financing
 

 

Retail:
 
 
 
 
Residential mortgage
 
627

 
605

Direct
 
59

 
62

Indirect
 
277

 
281

Revolving credit
 
29

 
29

Total performing TDRs
 
1,042

 
1,043

Nonperforming TDRs (also included in NPL disclosures)
 
196

 
189

Total TDRs
 
$
1,238

 
$
1,232

ALLL attributable to TDRs
 
$
145

 
$
142


The following table summarizes the primary reason loan modifications were classified as TDRs and includes newly designated TDRs as well as modifications made to existing TDRs. Balances represent the recorded investment at the end of the quarter in which the modification was made. Rate modifications include TDRs made with below market interest rates that also include modifications of loan structures.
Three Months Ended March 31,
 
2018
 
2017
 
 
Types of Modifications
 
Impact To ALLL
 
Types of Modifications
 
Impact To ALLL
(Dollars in millions)
 
Rate
 
Structure
 
 
Rate
 
Structure
 
Newly Designated TDRs:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
10

 
$
10

 
$

 
$
22

 
$
31

 
$
1

CRE
 
19

 
1

 

 
6

 
2

 

Lease financing
 

 

 

 

 

 

Retail:
 
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
 
82

 
10

 
5

 
128

 
6

 
6

Direct
 
2

 

 

 
3

 
1

 

Indirect
 
42

 
1

 
5

 
41

 
2

 
4

Revolving credit
 
5

 

 
1

 
5

 

 
1

Re-modification of Previously Designated TDRs
 
21

 
5

 

 
45

 
9

 


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 $23 million and $28 million for the three months ended March 31, 2018 and 2017 , respectively. Payment default is defined as movement of the TDR to nonaccrual status, foreclosure or charge-off, whichever occurs first.

Unearned income, discounts and net deferred loan fees and costs were immaterial. Residential mortgage loans in process of foreclosure were $298 million at March 31, 2018 and $288 million at December 31, 2017 .

NOTE 4. Goodwill and Other Intangible Assets

The following table, which excludes fully amortized intangibles, presents information for identifiable intangible assets:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
CDI
 
$
605

 
$
(423
)
 
$
182

 
$
605

 
$
(409
)
 
$
196

Other, primarily customer relationship intangibles
 
1,171

 
(674
)
 
497

 
1,211

 
(696
)
 
515

Total
 
$
1,776

 
$
(1,097
)
 
$
679

 
$
1,816

 
$
(1,105
)
 
$
711



14


NOTE 5. Loan Servicing
 
Residential Mortgage Banking Activities
 
The following tables summarize residential mortgage banking activities:
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
UPB of residential mortgage and home equity loan servicing portfolio
 
$
117,827

 
$
118,424

UPB of residential mortgage loans serviced for others, primarily agency conforming fixed rate
 
88,746

 
89,124

Mortgage loans sold with recourse
 
473

 
490

Maximum recourse exposure from mortgage loans sold with recourse liability
 
245

 
251

Indemnification, recourse and repurchase reserves
 
36

 
37

As of / For The Three Months Ended
 

(Dollars in millions)
 
Mar 31, 2018
 
Mar 31, 2017
UPB of residential mortgage loans sold from LHFS
 
$
2,553

 
$
3,579

Pre-tax gains recognized on mortgage loans sold and held for sale
 
39

 
31

Servicing fees recognized from mortgage loans serviced for others
 
65

 
68

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
 
4.00

 
4.01


The following table presents a roll forward of the carrying value of residential MSRs recorded at fair value:
Three Months Ended March 31,
 
 
(Dollars in millions)
 
2018
 
2017
Residential MSRs, carrying value, January 1
 
$
914

 
$
915

Additions
 
28

 
38

Change in fair value due to changes in valuation inputs or assumptions:
 
 
 
 
Prepayment speeds
 
61

 
17

OAS
 
2

 

Servicing costs
 

 
9

Realization of expected net servicing cash flows, passage of time and other
 
(32
)
 
(33
)
Residential MSRs, carrying value, March 31
 
$
973

 
$
946

 
 
 
 
 
Gains (losses) on derivative financial instruments used to mitigate the income statement effect of changes in residential MSR fair value
 
$
(63
)
 
$
(20
)
 
The sensitivity of the fair value of the residential MSRs to changes in key assumptions is included in the accompanying table:
 
 
March 31, 2018
 
December 31, 2017
 
 
Range
 
Weighted
Average
 
Range
 
Weighted
Average
(Dollars in millions)
 
Min
 
Max
 
 
Min
 
Max
 
Prepayment speed
 
6.0
%
 
8.7
%
 
7.9
%
 
7.1
%
 
10.1
%
 
9.1
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(28
)
 
 
 
 
 
$
(31
)
Effect on fair value of a 20% increase
 
 
 
 
 
(55
)
 
 
 
 
 
(60
)
 
 
 
 
 
 
 
 
 
 
 
 
 
OAS
 
8.3
%
 
8.9
%
 
8.5
%
 
8.4
%
 
8.9
%
 
8.5
%
Effect on fair value of a 10% increase
 
 
 
 
 
$
(30
)
 
 
 
 
 
$
(28
)
Effect on fair value of a 20% increase
 
 
 
 
 
(58
)
 
 
 
 
 
(54
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of loans serviced for others:
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-rate residential mortgage loans
 
 
 
 
 
99.2
%
 
 
 
 
 
99.1
%
Adjustable-rate residential mortgage loans
 
 
 
 
 
0.8

 
 
 
 
 
0.9

Total
 
 

 
 

 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average life
 
 

 
 

 
6.9 years

 
 
 
 
 
6.4 years



15


The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the above table, the effect of an adverse variation in one assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another, which may magnify or counteract the effect of the change.
 
Commercial Mortgage Banking Activities

The following table summarizes commercial mortgage banking activities for the periods presented:
(Dollars in millions)
Mar 31, 2018
 
Dec 31, 2017
UPB of CRE mortgages serviced for others
$
27,472

 
$
28,441

CRE mortgages serviced for others covered by recourse provisions
4,175

 
4,153

Maximum recourse exposure from CRE mortgages sold with recourse liability
1,225

 
1,218

Recorded reserves related to recourse exposure
5

 
5

CRE mortgages originated during the year-to-date period
1,383

 
6,753

Commercial MSRs at fair value
146

 
142


NOTE 6. Deposits
 
The composition of deposits is presented in the following table:
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
Noninterest-bearing deposits
 
$
55,085

 
$
53,767

Interest checking
 
27,217

 
27,677

Money market and savings
 
62,169

 
62,757

Time deposits
 
13,725

 
13,170

Total deposits
 
$
158,196

 
$
157,371

 
 
 
 
 
Time deposits greater than $250,000
 
$
3,194

 
$
2,622

 
NOTE 7. Long-Term Debt

The following table presents a summary of long-term debt:
 
 
Mar 31, 2018
 
Dec 31, 2017
 
 
 
 
 
 
Stated Rate
 
Effective Rate
 
Carrying
 
Carrying
(Dollars in millions)
 
Maturity
 
Min
 
Max
 
 
Amount
 
Amount
BB&T Corporation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2018
to
2024
 
2.05
%
 
6.85
%
 
3.20
%
 
$
8,490

 
$
8,562

Floating rate senior notes
 
2018
 
2022
 
1.99

 
2.99

 
2.60

 
2,547

 
2,547

Fixed rate subordinated notes
 
2019
 
2022
 
3.95

 
5.25

 
2.33

 
919

 
933

Branch Bank:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate senior notes
 
2018
 
2022
 
1.45

 
2.85

 
2.89

 
5,617

 
5,653

Floating rate senior notes
 
2019
 
2020
 
2.17

 
2.30

 
2.32

 
1,149

 
1,149

Fixed rate subordinated notes
 
2025
 
2026
 
3.63

 
3.80

 
3.96

 
2,064

 
2,119

FHLB advances (1)
 
2018
 
2034
 

 
5.50

 
1.85

 
2,451

 
2,480

Other long-term debt
 
 
 
 
 
 
 
 
 
 
 
173

 
205

Total long-term debt
 
 
 
 
 
 
 
 
 
 
 
$
23,410

 
$
23,648

(1)
FHLB advances had a weighted average maturity of 3.6 years at March 31, 2018 .

The effective rates above reflect the impact of fair value hedges and debt issuance costs. Subordinated notes with a remaining maturity of one year or greater qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.

During 2017, Branch Bank terminated FHLB advances totaling $2.9 billion of par value, which resulted in a pre-tax loss on early extinguishment of debt totaling $392 million .


16


NOTE 8. Shareholders' Equity

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, 2018
 
12,948

 
$
33.90

Granted
 
3,414

 
49.11

Vested
 
(3,413
)
 
33.54

Forfeited
 
(75
)
 
34.65

Nonvested at March 31, 2018
 
12,874

 
38.03

Expected to vest at March 31, 2018
 
11,862

 
38.03


NOTE 9. AOCI

The following table summarizes activity in AOCI:
(Dollars in millions)
Unrecognized Net Pension and Postretirement Costs
 
Unrealized Net Gains (Losses) on Cash Flow Hedges
 
Unrealized Net Gains (Losses) on AFS Securities
 
Other, net
 
Total
AOCI balance, January 1, 2017
$
(764
)
 
$
(92
)
 
$
(259
)
 
$
(17
)
 
$
(1,132
)
OCI before reclassifications, net of tax
(2
)
 
3

 
(1
)
 
1

 
1

Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
17

 
(8
)
 
(1
)
 
1

 
9

Tax effect
6

 
(3
)
 

 

 
3

Amounts reclassified, net of tax
11

 
(5
)
 
(1
)
 
1

 
6

Total OCI, net of tax
9

 
(2
)
 
(2
)
 
2

 
7

AOCI balance, March 31, 2017
$
(755
)
 
$
(94
)
 
$
(261
)
 
$
(15
)
 
$
(1,125
)
 
 
 
 
 
 
 
 
 
 
AOCI balance, January 1, 2018
$
(1,004
)
 
$
(92
)
 
$
(356
)
 
$
(15
)
 
$
(1,467
)
OCI before reclassifications, net of tax


70


(282
)
 
(2
)
 
(214
)
Amounts reclassified from AOCI:
 
 
 
 
 
 
 
 
 
Before tax
18

 
11

 
19

 

 
48

Tax effect
4

 
3

 
5

 

 
12

Amounts reclassified, net of tax
14

 
8

 
14

 

 
36

Total OCI, net of tax
14

 
78

 
(268
)
 
(2
)
 
(178
)
AOCI balance, March 31, 2018
$
(990
)
 
$
(14
)
 
$
(624
)
 
$
(17
)
 
$
(1,645
)
Primary income statement location of amounts reclassified from AOCI
Other expense
 
Net interest income
 
Net interest income
 
Net interest income
 
 

NOTE 10. Income Taxes

The effective tax rates for the three months ended March 31, 2018 and 2017 were 19.0% and 19.6% , respectively. The current quarter tax provision reflects the lower federal income tax rate enacted with tax reform in December of 2017. The earlier quarter includes the tax benefits associated with using the marginal income tax rate for the loss on the early extinguishment of debt.

NOTE 11. Benefit Plans

The components of net periodic benefit cost for defined benefit pension plans are summarized in the following table:
Three Months Ended March 31,
 
 
 
 
(Dollars in millions)
Location
2018
 
2017
Service cost
Personnel expense
$
60

 
$
52

Interest cost
Other expense
50

 
49

Estimated return on plan assets
Other expense
(112
)
 
(93
)
Amortization and other
Other expense
20

 
20

Net periodic benefit cost
 
$
18

 
$
28



17


BB&T makes contributions to the qualified pension plans in amounts between the minimum required for funding and the maximum deductible for federal income tax purposes. Discretionary contributions totaling $144 million were made during the three months ended March 31, 2018 . There are no required contributions for the remainder of 2018 , though BB&T may elect to make additional discretionary contributions.

NOTE 12. Commitments and Contingencies

The following table summarizes certain commitments and contingencies. Refer to Note 13. Fair Value Disclosures for amounts related to off-balance sheet financial instruments.
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
Investments in affordable housing projects:
 
 
 
 
Carrying amount
 
$
2,018

 
$
1,948

Amount of future funding commitments included in carrying amount
 
935

 
928

Lending exposure
 
526

 
561

Tax credits subject to recapture
 
455

 
471

Private equity investments
 
469

 
471

Future funding commitments to private equity investments
 
134

 
143

 
Legal Proceedings

The nature of BB&T's business ordinarily results in a certain amount of claims, litigation, investigations and legal and administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. BB&T believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management's judgment as to what is in the best interests of BB&T and its shareholders.
 
On at least a quarterly basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed utilizing the latest information available. For those matters where it is probable that BB&T will incur a loss and the amount of the loss can be reasonably estimated, and is more than nominal, a liability is recorded in the consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a loss is not probable or the amount of the loss is not estimable, legal reserves are not accrued. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, management believes that the established legal reserves are adequate and the liabilities arising from legal proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of operations or consolidated cash flows of BB&T.
 
Pledged Assets
 
Certain assets were pledged to secure municipal deposits, securities sold under agreements to repurchase, borrowings and borrowing capacity, subject to any applicable asset discount, at the FHLB and FRB as well as for other purposes as required or permitted by law. The following table provides the total carrying amount of pledged assets by asset type, of which the majority are pursuant to agreements that do not permit the other party to sell or repledge the collateral. Assets related to employee benefit plans are excluded from the following table.
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
Pledged securities
 
$
13,257

 
$
14,636

Pledged loans
 
73,998

 
74,718



18


NOTE 13. Fair Value Disclosures

The following tables present fair value information for assets and liabilities measured at fair value on a recurring basis:
March 31, 2018
 
 
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 

 
 

 
 

 
 

Trading and equity securities
 
$
623

 
$
368

 
$
255

 
$

AFS securities:
 
 

 
 
 
 
 
 
U.S. Treasury
 
2,335

 

 
2,335

 

GSE
 
176

 

 
176

 

Agency MBS
 
20,687

 

 
20,687

 

States and political subdivisions
 
1,199

 

 
1,199

 

Non-agency MBS
 
578

 

 
137

 
441

Other
 
42

 

 
42

 

Total AFS securities
 
25,017

 

 
24,576

 
441

LHFS
 
1,189

 

 
1,189

 

MSRs
 
1,119

 

 

 
1,119

Derivative assets:
 


 
 
 
 
 
 
Interest rate contracts
 
196

 
1

 
184

 
11

Foreign exchange contracts
 
3

 

 
3

 

Total derivative assets
 
199

 
1

 
187

 
11

Private equity investments
 
400

 

 

 
400

Total assets
 
$
28,547

 
$
369

 
$
26,207

 
$
1,971

Liabilities:
 
 

 
 

 
 

 
 

Derivative liabilities:
 
 

 
 

 
 

 
 

Interest rate contracts
 
$
409

 
$

 
$
405

 
$
4

Foreign exchange contracts
 
3

 

 
3

 

Total derivative liabilities
 
412

 

 
408

 
4

Securities sold short
 
113

 

 
113

 

Total liabilities
 
$
525

 
$

 
$
521

 
$
4

December 31, 2017
 
 
 
 
 
 
 
 
(Dollars in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Trading and equity securities
 
$
633

 
$
363

 
$
270

 
$

AFS securities:
 
 

 
 

 
 

 
 

U.S. Treasury
 
2,291

 

 
2,291

 

GSE
 
179

 

 
179

 

Agency MBS
 
20,101

 

 
20,101

 

States and political subdivisions
 
1,392

 

 
1,392

 

Non-agency MBS
 
576

 

 
144

 
432

Other
 
8

 
6

 
2

 

Total AFS securities
 
24,547

 
6

 
24,109

 
432

LHFS
 
1,099

 

 
1,099

 

MSRs
 
1,056

 

 

 
1,056

Derivative assets:
 
 
 
 
 
 
 
 
Interest rate contracts
 
440

 

 
434

 
6

Foreign exchange contracts
 
3

 

 
3

 

Total derivative assets
 
443

 

 
437

 
6

Private equity investments
 
404

 

 

 
404

Total assets
 
$
28,182

 
$
369

 
$
25,915

 
$
1,898

Liabilities:
 
 

 
 

 
 

 
 

Derivative liabilities:
 
 

 
 

 
 

 
 

Interest rate contracts
 
$
708

 
$

 
$
705

 
$
3

Foreign exchange contracts
 
6

 

 
6

 

Total derivative liabilities
 
714

 

 
711

 
3

Securities sold short
 
120

 

 
120

 

Total liabilities
 
$
834

 
$

 
$
831

 
$
3


19



Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level valuation input hierarchy. The following discussion focuses on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities.

A third-party pricing service is generally utilized in determining the fair value of the securities portfolio. Management independently evaluates the fair values provided by the pricing service through comparisons to other external pricing sources, review of additional information provided by the pricing service and other third party sources for selected securities and back-testing to compare the price realized on any security sales to the daily pricing information received from the pricing service. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.
 
Trading 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 below.
 
U.S. Treasury securities: Treasury securities are valued using quoted prices in active over-the-counter markets.
 
GSE securities and agency MBS: GSE pass-through securities are valued using market-based pricing matrices that reference observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE CMOs are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.
 
States and political subdivisions: These securities are valued using market-based pricing matrices that reference observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.
 
Non-agency MBS: Pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above. Non-agency MBS also include investments in Re-REMIC trusts that primarily hold non-agency MBS, which are valued based on broker pricing models that use baseline securities yields and tranche-level yield adjustments to discount cash flows modeled using market convention prepayment speed and default assumptions.
 
Other securities: These securities consist primarily of 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.
 
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.

20


 
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.

Activity for Level 3 assets and liabilities is summarized below:
(Dollars in millions)
 
Non-agency MBS
 
MSRs
 
Net Derivatives
 
Private Equity Investments
Balance at January 1, 2017
 
$
507

 
$
1,052

 
$
(13
)
 
$
362

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
9

 
37

 
(4
)
 
5

Included in unrealized net holding gains (losses) in OCI
 
(18
)
 

 

 

Purchases
 

 

 

 
68

Issuances
 

 
38

 
15

 

Sales
 

 

 

 
(18
)
Settlements
 
(18
)
 
(39
)
 
12

 
(4
)
Transfers out of Level 3
 

 

 

 
(13
)
Balance at March 31, 2017
 
$
480

 
$
1,088

 
$
10

 
$
400

 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
$
432

 
$
1,056

 
$
3

 
$
404

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
Included in earnings
 
(1
)
 
68

 

 
6

Included in unrealized net holding gains (losses) in OCI
 
23

 

 

 

Purchases
 

 

 

 
24

Issuances
 

 
37

 
(5
)
 

Sales
 

 

 

 
(24
)
Settlements
 
(13
)
 
(42
)
 
9

 
(10
)
Balance at March 31, 2018
 
$
441

 
$
1,119

 
$
7

 
$
400

 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) included in earnings for the period, attributable to assets and liabilities still held at March 31, 2018
 
$
(1
)
 
$
68

 
$
5

 
$
12

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

BB&T’s policy is to recognize transfers between levels as of the end of a reporting period. There were no transfers between Level 1 and Level 2 for 2018 and 2017 .
 
The non-agency MBS categorized as Level 3 represent ownership interest 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 March 31, 2018 , the fair value of Re-REMIC non-agency MBS represented a discount of 16.3% to the fair value of the underlying securities owned by the Re-REMIC trusts.

The majority of private equity investments are in SBIC qualified funds, which primarily focus on equity and subordinated debt investments in privately-held middle market companies. The majority of these VIE investments are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates on an approximately ratable basis through 2026 , is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. As of March 31, 2018 , restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. These investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 5 x to 15 x, with a weighted average of 9 x, at March 31, 2018 .

The following table details the fair value and UPB of LHFS that were elected to be carried at fair value:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Fair Value
 
Aggregate UPB
 
Difference
 
Fair Value
 
Aggregate UPB
 
Difference
LHFS reported at fair value
 
$
1,189

 
$
1,180

 
$
9

 
$
1,099

 
$
1,084

 
$
15

 
Excluding government guaranteed, LHFS that were in nonaccrual status or 90 days or more past due and still accruing interest were not material at March 31, 2018 .

21



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).
As of / For The Three Months Ended March 31,
 
2018
 
2017
(Dollars in millions)
 
Carrying Value
 
Valuation Adjustments
 
Carrying Value
 
Valuation Adjustments
Impaired loans
 
$
185

 
$
(12
)
 
$
255

 
$
(8
)
Foreclosed real estate
 
40

 
(66
)
 
49

 
(66
)
 
For financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instrument. Values obtained relate to one trading unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various instruments.
 
An active market does not exist for certain financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following assumptions were used to estimate the fair value of these financial instruments.
 
Cash and cash equivalents and restricted cash : For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.
 
HTM securities: The fair values of HTM securities are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.
 
Loans receivable : The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly transactions in the current market. For commercial loans and leases, discount rates may be adjusted to address additional credit risk on lower risk grade instruments. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.

Deposit liabilities : The fair values for demand deposits are equal to the amount payable on demand. Fair values for CDs are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. BB&T has developed long-term relationships with its deposit customers, commonly referred to as CDIs, that have not been considered in the determination of the deposit liabilities' fair value.
 
Short-term borrowings : The carrying amounts of short-term borrowings, excluding securities sold short, approximate their fair values.
 
Long-term debt : The fair values of long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

Contractual commitments : The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of guarantees and letters of credit are estimated based on the counterparties' creditworthiness and average default rates for loan products with similar risks. These respective fair value measurements are categorized within Level 3 of the fair value hierarchy. Retail lending commitments are assigned no fair value as BB&T typically has the ability to cancel such commitments by providing notice to the borrower.
 

22


Financial assets and liabilities not recorded at fair value are summarized below:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
Fair Value Hierarchy
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
HTM securities
Level 2
$
22,390

 
$
21,829

 
$
23,027

 
$
22,837

Loans and leases HFI, net of ALLL
Level 3
141,519

 
140,461

 
142,211

 
141,664

Financial liabilities:
 
 

 
 

 
 

 
 

Time deposits
Level 2
13,725

 
13,775

 
13,170

 
13,266

Long-term debt
Level 2
23,410

 
23,495

 
23,648

 
23,885


The following is a summary of selected information pertaining to off-balance sheet financial instruments:
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Notional/Contract Amount
 
Fair
Value
 
Notional/Contract Amount
 
Fair
Value
Commitments to extend, originate or purchase credit
 
$
69,814

 
$
324

 
$
67,860

 
$
259

Residential mortgage loans sold with recourse
 
473

 
5

 
490

 
5

Other loans sold with recourse
 
4,175

 
5

 
4,153

 
5

Letters of credit
 
2,460

 
22

 
2,466

 
21


NOTE 14. 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.
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

23


Impact of Derivatives on the Consolidated Balance Sheets

The fair values of derivative instruments are presented on a gross basis in other assets or other liabilities in the Consolidated Balance Sheets. Master netting arrangements allows counterparties to offset certain net derivative assets and liabilities with a defaulting party in determining the net termination amount. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a daily basis to secure the aggregate net exposure. Cash collateral is recorded in restricted cash and interest-bearing deposits in the Consolidated Balance Sheet. BB&T utilizes the London Clearinghouse to clear swaps that are required to be cleared under the Dodd-Frank Act. Effective January 16, 2018, the London Clearinghouse rules were modified to treat variation margin payments as settlements of exposure instead of collateral. At March 31, 2018 , settlements are applied against the fair value of the related derivative contracts in the table below.

The following table presents the notional amount and estimated fair value of derivative instruments:
 
 
 
 
March 31, 2018
 
December 31, 2017
 
 
Hedged Item or Transaction
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
(Dollars in millions)
 
 
 
Gain
 
Loss
 
 
Gain
 
Loss
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed swaps
 
3 mo. LIBOR funding
 
$
6,500

 
$

 
$

 
$
6,500

 
$

 
$
(126
)
Fair value hedges:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Receive fixed swaps
 
Long-term debt
 
15,571

 
1

 
(130
)
 
15,538

 
118

 
(166
)
Options
 
Long-term debt
 
6,087

 

 
(1
)
 
6,087

 

 
(1
)
Pay fixed swaps
 
Commercial loans
 
392

 
2

 

 
416

 
5

 
(1
)
Pay fixed swaps
 
Municipal securities
 
231

 

 
(55
)
 
231

 

 
(76
)
Total
 
 
 
22,281

 
3

 
(186
)
 
22,272

 
123

 
(244
)
Not designated as hedges:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Client-related and other risk management:
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
10,800

 
61

 
(150
)
 
10,880

 
141

 
(61
)
Pay fixed swaps
 
 
 
11,033

 
27

 
(40
)
 
10,962

 
59

 
(155
)
Other
 
 
 
1,722

 
3

 
(4
)
 
1,658

 
4

 
(4
)
Forward commitments
 
 
 
4,116

 
8

 
(6
)
 
3,549

 
3

 
(2
)
Foreign exchange contracts
 
506

 
3

 
(3
)
 
470

 
3

 
(6
)
Total
 
 
 
28,177

 
102

 
(203
)
 
27,519

 
210

 
(228
)
Mortgage banking:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments
 
1,641

 
11

 
(4
)
 
1,308

 
7

 
(3
)
When issued securities, forward rate agreements and forward commitments
 
3,502

 
9

 
(8
)
 
3,124

 
4

 
(3
)
Other
 
 
 
336

 
2

 

 
182

 
1

 

Total
 
 
 
5,479

 
22

 
(12
)
 
4,614

 
12

 
(6
)
MSRs:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
5,599

 

 

 
4,498

 
15

 
(86
)
Pay fixed swaps
 
 
 
5,226

 

 

 
3,418

 
32

 
(13
)
Options
 
 
 
4,275

 
67

 
(11
)
 
4,535

 
50

 
(11
)
When issued securities, forward rate agreements and forward commitments
 
1,077

 
5

 

 
1,813

 
1

 

Other
 
 
 
35

 

 

 
3

 

 

Total
 
 
 
16,212

 
72

 
(11
)
 
14,267

 
98

 
(110
)
Total derivatives not designated as hedges
 
49,868

 
196

 
(226
)
 
46,400

 
320

 
(344
)
Total derivatives
 
 
 
$
78,649

 
199

 
(412
)
 
$
75,172

 
443

 
(714
)
Gross amounts not offset in the Consolidated Balance Sheets:
 
 
 
 

 
 

 
 

 
 

 
 

Amounts subject to master netting arrangements not offset due to policy election
 
 
 
(81
)
 
81

 
 

 
(297
)
 
297

Cash collateral (received) posted
 
 

 
(39
)
 
162

 
 

 
(20
)
 
344

Net amount
 
 
 
 

 
$
79

 
$
(169
)
 
 

 
$
126

 
$
(73
)
 

24


The following table presents additional information for fair value hedging relationships:
 
 
March 31, 2018
 
December 31, 2017
 
 
Hedged Items Currently Designated
 
Hedged Items No Longer Designated
 
Hedged Items Currently Designated
 
Hedged Items No Longer Designated
(Dollars in millions)
 
Carrying Amount
 
Hedge Basis Adjustment
 
Carrying Amount
 
Hedge Basis Adjustment
 
Carrying Amount
 
Hedge Basis Adjustment
 
Carrying Amount
 
Hedge Basis Adjustment
AFS securities
 
$
350

 
$
58

 
$
138

 
$
5

 
$
391

 
$
69

 
$
142

 
$
5

Loans and leases
 
392

 
(7
)
 
112

 

 
500

 
(5
)
 
11

 

Long-term debt
 
15,960

 
(117
)
 
752

 
3

 
16,163

 
87

 
754

 
4


Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income

No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.
 
The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts. Prior amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
Three Months Ended March 31,
 
 
 
(Dollars in millions)
2018
 
2017
Pre-tax gain (loss) recognized in OCI:
 
 
 
Deposits
$
21

 
$

Long-term debt
72

 

Total
$
93

 
$
4

Pre-tax gain (loss) reclassified from AOCI into interest expense:
 
 
 
Deposits
$
(2
)
 
$

Long-term debt
(9
)
 

Total
$
(11
)
 
$
8


The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts. Prior period amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
Three Months Ended March 31,
 
 
 
(Dollars in millions)
2018
 
2017
AFS securities:
 
 
 
Amounts related to interest settlements
$
(2
)
 
$
(3
)
Recognized on derivatives
11

 

Recognized on hedged items
(11
)
 

Net income (expense) recognized
(2
)
 
(3
)
Loans and leases:
 
Amounts related to interest settlements

 
(1
)
Recognized on derivatives
3

 

Recognized on hedged items
(3
)
 

Net income (expense) recognized

 
(1
)
Long-term debt:


 


Amounts related to interest settlements
8

 
46

Recognized on derivatives
(181
)
 

Recognized on hedged items
192

 

Net income (expense) recognized
19

 
46

Net income (expense) recognized, total
$
17

 
$
42


25



The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
Three Months Ended March 31,
 
 
 
 
(Dollars in millions)
Location
2018
 
2017
Client-related and other risk management:
 
 

 
 

Interest rate contracts
Other noninterest income
$
15

 
$
11

Foreign exchange contracts
Other noninterest income
7

 
(2
)
Mortgage banking:
 
 
 
 
Interest rate contracts
Mortgage banking income
4

 
(15
)
MSRs:
 
 
 
 
Interest rate contracts
Mortgage banking income
(67
)
 
(20
)
Total
 
$
(41
)
 
$
(26
)

The following table presents information about BB&T's cash flow and fair value hedges:
(Dollars in millions)
 
Mar 31, 2018
 
Dec 31, 2017
Cash flow hedges:
 
 
 
 

Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
 
$
(13
)
 
$
(96
)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)
 
(1
)
 
3

Estimated portion of net after-tax gain (loss) on active and terminated hedges to be reclassified from AOCI into earnings during the next 12 months
 

 
(25
)
Maximum time period over which BB&T has hedged a portion of the variability in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing instruments
 
4 years

 
5 years

Fair value hedges:
 
 

 
 
Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2019)
 
$
88

 
$
129

Portion of pre-tax net gain on terminated hedges to be recognized as a change in interest during the next 12 months
 
44

 
49

 
Derivatives Credit Risk – Dealer Counterparties
 
Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. The risk of loss is addressed by subjecting dealer counterparties to credit reviews and approvals similar to those used in making loans or other extensions of credit and by requiring collateral. Dealer counterparties operate under agreements to provide cash and/or liquid collateral when unsecured loss positions exceed minimal limits.
 
Derivative contracts with dealer counterparties settle on a monthly, quarterly or semiannual basis, with daily movement of collateral between counterparties required within established netting agreements. BB&T only transacts with dealer counterparties with strong credit standings.
 

26


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 the bank, 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. The following table summarizes collateral positions with central clearing counterparties:
(Dollars in millions)
Mar 31, 2018
 
Dec 31, 2017
Dealer Counterparties:
 
 
 
Cash collateral received from dealer counterparties
$
40

 
$
21

Derivatives in a net gain position secured by collateral received
41

 
22

Unsecured positions in a net gain with dealer counterparties after collateral postings
2

 
2

Cash collateral posted to dealer counterparties
163

 
172

Derivatives in a net loss position secured by collateral received
166

 
171

Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade
4

 

Central Clearing Parties:
 
 
 
Cash collateral, including initial margin, posted to central clearing parties
14

 
177

Derivatives in a net loss position
2

 
176

Securities pledged to central clearing parties
75

 
91

 

NOTE 15. Computation of EPS
 
Basic and diluted EPS calculations are presented in the following table:
Three Months Ended March 31,
 
 
 
 
(Dollars in millions, except per share data, shares in thousands)
 
2018
 
2017
Net income available to common shareholders
 
$
745

 
$
378

 
 
 
 
 
Weighted average number of common shares
 
779,617

 
809,903

Effect of dilutive outstanding equity-based awards
 
11,388

 
12,816

Weighted average number of diluted common shares
 
791,005

 
822,719

 
 
 
 
 
Basic EPS
 
$
0.96

 
$
0.47

Diluted EPS
 
$
0.94

 
$
0.46

 
 
 
 
 
Anti-dilutive awards
 
90

 
295

 

27


NOTE 16. 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, IH&PF and FS&CF. In addition, there is an OT&C segment. For additional information, see Note 19 of the Annual Report on Form 10-K for the year ended December 31, 2017 .

Three Months Ended March 31,
 
CB-Retail
 
CB-Commercial
 
FS&CF
(Dollars in millions)
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
837

 
$
842

 
$
464

 
$
406

 
$
159

 
$
130

Net intersegment interest income (expense)
 
49

 
34

 
70

 
101

 
18

 
40

Segment net interest income
 
886

 
876

 
534

 
507

 
177

 
170

Allocated provision for credit losses
 
122

 
129

 
37

 
4

 
(5
)
 
6

Segment net interest income after provision
 
764

 
747

 
497

 
503

 
182

 
164

Noninterest income
 
339

 
331

 
105

 
102

 
301

 
280

Noninterest expense
 
673

 
673

 
254

 
307

 
301

 
287

Income (loss) before income taxes
 
430

 
405

 
348

 
298

 
182

 
157

Provision (benefit) for income taxes
 
106

 
151

 
78

 
103

 
38

 
48

Segment net income (loss)
 
$
324

 
$
254

 
$
270

 
$
195

 
$
144

 
$
109

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
69,998

 
$
72,226

 
$
56,435

 
$
55,328

 
$
29,766

 
$
28,227

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IH&PF
 
OT&C (1)
 
Total
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Net interest income (expense)
 
$
26

 
$
23

 
$
147

 
$
208

 
$
1,633

 
$
1,609

Net intersegment interest income (expense)
 
(6
)
 
(4
)
 
(131
)
 
(171
)
 

 

Segment net interest income
 
20

 
19

 
16

 
37

 
1,633

 
1,609

Allocated provision for credit losses
 
1

 
2

 
(5
)
 
7

 
150

 
148

Segment net interest income after provision
 
19

 
17

 
21

 
30

 
1,483

 
1,461

Noninterest income
 
439

 
463

 
(4
)
 
(5
)
 
1,180

 
1,171

Noninterest expense
 
375

 
400

 
83

 
435

 
1,686

 
2,102

Income (loss) before income taxes
 
83

 
80

 
(66
)
 
(410
)
 
977

 
530

Provision (benefit) for income taxes
 
21

 
30

 
(57
)
 
(228
)
 
186

 
104

Segment net income (loss)
 
$
62

 
$
50

 
$
(9
)
 
$
(182
)
 
$
791

 
$
426

 
 
 
 
 
 
 
 
 
 
 
 
 
Identifiable assets (period end)
 
$
5,789

 
$
5,768

 
$
58,741

 
$
58,952

 
$
220,729

 
$
220,501

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

28


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T that are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," "could," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:
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 statements. Except to the extent required by applicable law or regulation, BB&T undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Readers should, however, consult any further disclosures of a forward-looking nature BB&T may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.


29

Table of Contents

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, 2017 for additional disclosures with respect to significant laws and regulations affecting BB&T.

On April 10, 2018, the banking regulators issued a proposal to simplify capital rules for large banks.  The proposal introduces a “stress capital buffer," which would in part integrate the forward-looking stress test results with the non-stress capital requirements. The result would produce capital requirements for large banking organization that are firm-specific and risk-sensitive and reduce the overall number of capital ratios that must be met. The stress capital buffer would equal the decrease in a firm’s CET1 capital ratio in CCAR plus four quarters of planned common stock dividends. A banks stress capital buffer requirement would be subject to a floor of 2.5% of risk-weighted assets. 

Executive Summary
 
Consolidated net income available to common shareholders for the first quarter of 2018 was $745 million . On a diluted per common share basis, earnings for the first quarter of 2018 were $0.94 , an increase of $0.48 compared to the first quarter of 2017 . First quarter 2018 results were negatively impacted by fee waivers and other costs associated with our system outage in February, which resulted in lost revenue of approximately $15 million and incremental noninterest expenses of approximately $5 million. Results for the first quarter of 2017 included a $392 million loss on the early extinguishment of debt.
 
BB&T's results of operations for the first quarter of 2018 produced an annualized return on average assets of 1.45% , an annualized return on average risk-weighted assets of 1.81% and an annualized return on average common shareholders' equity of 11.43% , compared to ratios for the same quarter of the prior year of 0.79% , 0.98% and 5.72% , respectively.

Total revenues on a TE basis were $2.8 billion for the first quarter of 2018 , an increase of $16 million compared to the same period in 2017 . This reflects an increase of $7 million in taxable-equivalent net interest income. Net interest margin was 3.44% , compared to 3.46% for the first quarter of 2017 .

The provision for credit losses was $150 million compared to $148 million in the first quarter of 2017 . Net charge-offs for the first quarter of 2018 totaled $145 million compared to $148 million for the earlier quarter. Asset quality remains strong despite a $42 million increase to NPAs compared to the fourth quarter of 2017 related to CRE lending and leasing, as well as an increase in foreclosed properties.

Noninterest income was up $9 million compared to the first quarter of 2017 . Noninterest expense was $1.7 billion for the first quarter of 2018 , down $416 million compared to the earlier quarter. This decrease was primarily driven by a loss of $392 million on the early extinguishment of debt in the earlier period. Excluding this item and merger-related and restructuring charges, noninterest expense was down $16 million as a result of tight expense control.

The provision for income taxes was $186 million for the first quarter of 2018 , compared to $104 million for the earlier quarter. This produced an effective tax rate for the first quarter of 2018 of 19.0% , compared to 19.6% for the first quarter of 2017 . The provision for income taxes for the current quarter reflects the new lower federal tax rate, whereas the earlier period includes the tax benefits associated with using the marginal income tax rate for the loss on the early extinguishment of debt. The current quarter also reflects $18 million in excess tax benefits from equity-based compensation plans compared to $35 million in the earlier quarter.

BB&T's CET1 capital ratio was 10.2% at March 31, 2018 . BB&T declared common dividends of $0.375 per share during the first quarter of 2018 , a 13.6% increase compared to the fourth quarter of 2017 . This resulted in a dividend payout ratio of 39.2% . The total payout ratio for the first quarter of 2018 was 82.1% .

In April, BB&T announced plans to acquire Regions Insurance, which will increase the retail insurance network in BB&T's core markets across the Southeast and newer markets in Texas, Louisiana and Indiana. The acquisition is expected to close in the third quarter of 2018.


30

Table of Contents

Analysis of Results of Operations

Net Interest Income and NIM
 
First Quarter 2018 compared to First Quarter 2017
 
Net interest income on a TE basis was $1.7 billion for the first quarter of 2018 , an increase of $7 million compared to the same period in 2017 . Interest income increased $129 million, which primarily reflects higher rates. Interest expense increased $122 million due to higher funding costs reflecting the impact of rate increases.
 
Net interest margin was 3.44% , compared to 3.46% for the first quarter of 2017. Average earning assets increased $2.0 billion , or 1.0% . The increase in average earnings assets reflects a $3.8 billion increase in average securities, partially offset by a $2.0 billion decrease in other earning assets. The decrease in other earning assets was primarily due to lower balances held at the Federal Reserve. Average interest-bearing liabilities decreased $254 million compared to the earlier quarter, as the growth in earning assets was funded by noninterest-bearing deposits, which increased $2.3 billion compared to the earlier quarter. Average interest-bearing deposits decreased $6.5 billion , which was partially offset by increases of $2.9 billion in average long-term debt and $3.4 billion in average short-term borrowings. Noninterest-bearing deposits increased due to organic growth. The annualized TE yield on the total loan portfolio for the first quarter was 4.57% , up 27 basis points compared to the earlier quarter. The annualized TE yield on the average securities portfolio for the first quarter was 2.44% , up two basis points compared to the earlier quarter.
 
The average annualized cost of interest-bearing deposits was 0.46% , up 20 basis points compared to the first quarter of 2017 . The average annualized rate on short-term borrowings was 1.43% , up 100 basis points . The average annualized rate on long-term debt was 2.54% , up 71 basis points . The higher rates on funding liabilities primarily reflect the impact of rate increases.

The following table sets forth the major components of net interest income and the related annualized yields and rates as well as the variances between the periods caused by changes in interest rates versus changes in volumes. Changes attributable to the mix of assets and liabilities have been allocated proportionally between the changes due to rate and the changes due to volume.


31

Table of Contents

Table 1
TE Net Interest Income and Rate / Volume Analysis (1)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
Average Balances (6)
 
Annualized Yield/Rate
 
Income/Expense
 
Increase
 
Change due to
(Dollars in millions)
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
(Decrease)
 
Rate
 
Volume
Assets
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total securities, at amortized cost: (2)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
 
$
3,538

 
$
4,730

 
1.77
%
 
1.72
%
 
$
15

 
$
20

 
$
(5
)
 
$
1

 
$
(6
)
GSE
 
2,385

 
2,386

 
2.23

 
2.22

 
13

 
13

 

 

 

Agency MBS
 
40,813

 
34,909

 
2.42

 
2.16

 
248

 
189

 
59

 
24

 
35

States and political subdivisions
 
1,215

 
2,091

 
3.78

 
5.13

 
11

 
27

 
(16
)
 
(6
)
 
(10
)
Non-agency MBS
 
375

 
432

 
7.73

 
18.85

 
7

 
20

 
(13
)
 
(11
)
 
(2
)
Other
 
48

 
59

 
2.28

 
1.89

 

 

 

 

 

Total securities
 
48,374

 
44,607

 
2.44

 
2.42

 
294

 
269

 
25

 
8

 
17

Other earning assets (3)
 
2,250

 
4,259

 
4.54

 
1.49

 
25

 
16

 
9

 
19

 
(10
)
Loans and leases, net of unearned income: (4)(5)
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Commercial and industrial
 
58,627

 
57,125

 
3.72

 
3.49

 
537

 
492

 
45

 
32

 
13

CRE
 
21,398

 
19,892

 
4.47

 
3.74

 
234

 
183

 
51

 
37

 
14

Lease financing
 
1,872

 
1,653

 
3.00

 
2.84

 
14

 
12

 
2

 
1

 
1

Residential mortgage
 
28,824

 
29,701

 
4.00

 
4.01

 
289

 
297

 
(8
)
 

 
(8
)
Direct
 
11,791

 
12,014

 
4.90

 
4.33

 
141

 
129

 
12

 
14

 
(2
)
Indirect
 
16,914

 
18,137

 
7.31

 
6.76

 
304

 
302

 
2

 
23

 
(21
)
Revolving credit
 
2,798

 
2,607

 
8.94

 
8.79

 
67

 
57

 
10

 
2

 
8

PCI
 
631

 
883

 
19.21

 
19.72

 
30

 
43

 
(13
)
 
(1
)
 
(12
)
Total loans and leases HFI
 
142,855

 
142,012

 
4.57

 
4.31

 
1,616

 
1,515

 
101

 
108

 
(7
)
LHFS
 
1,051

 
1,686

 
3.66

 
3.49

 
9

 
15

 
(6
)
 
1

 
(7
)
Total loans and leases
 
143,906

 
143,698

 
4.57

 
4.30

 
1,625

 
1,530

 
95

 
109

 
(14
)
Total earning assets
 
194,530

 
192,564

 
4.04

 
3.80

 
1,944

 
1,815

 
129

 
136

 
(7
)
Nonearning assets
 
26,889

 
27,397

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Total assets
 
$
221,419

 
$
219,961

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Liabilities and Shareholders' Equity
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-bearing deposits:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Interest-checking
 
$
27,270

 
$
29,578

 
0.37

 
0.18

 
25

 
13

 
12

 
13

 
(1
)
Money market and savings
 
61,690

 
64,857

 
0.44

 
0.23

 
67

 
37

 
30

 
32

 
(2
)
Time deposits
 
13,847

 
14,924

 
0.68

 
0.48

 
23

 
17

 
6

 
7

 
(1
)
Foreign deposits - interest-bearing
 
935

 
929

 
1.42

 
0.67

 
3

 
2

 
1

 
1

 

Total interest-bearing deposits
 
103,742

 
110,288

 
0.46

 
0.26

 
118

 
69

 
49

 
53

 
(4
)
Short-term borrowings
 
5,477

 
2,105

 
1.43

 
0.43

 
20

 
2

 
18

 
11

 
7

Long-term debt
 
23,677

 
20,757

 
2.54

 
1.83

 
150

 
95

 
55

 
40

 
15

Total interest-bearing liabilities
 
132,896

 
133,150

 
0.87

 
0.50

 
288

 
166

 
122

 
104

 
18

Noninterest-bearing deposits
 
53,396

 
51,095

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other liabilities
 
5,599

 
5,813

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Shareholders' equity
 
29,528

 
29,903

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total liabilities and shareholders' equity
 
$
221,419

 
$
219,961

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average interest-rate spread
 
 

 
 
 
3.16
%
 
3.30
%
 
 

 
 

 
 

 
 

 
 

NIM/net interest income
 
 

 
 
 
3.44
%
 
3.46
%
 
$
1,656

 
$
1,649

 
$
7

 
$
32

 
$
(25
)
Taxable-equivalent adjustment
 
 

 
 
 
 
 
 

 
$
23

 
$
40

 
 

 
 

 
 

(1)
Yields are stated on a TE basis utilizing the marginal income tax rates. The change in interest not solely due to changes in yield/rate or volume has been allocated on a pro-rata basis based on the absolute dollar amount of each.
(2)
Total securities include AFS and HTM securities.
(3)
Includes 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.

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Table of Contents

Provision for Credit Losses
 
First Quarter 2018 compared to First Quarter 2017
 
The provision for credit losses totaled $150 million for the first quarter of 2018 , compared to $148 million for the same period of the prior year.

Net charge-offs were $145 million for the first quarter of 2018 and $148 million for the first quarter of 2017 . Net charge-offs were 0.41% of average loans and leases on an annualized basis for the first quarter of 2018 , compared to 0.42% of average loans and leases for the same period in 2017 .

Noninterest Income
 
First Quarter 2018 compared to First Quarter 2017
 
Noninterest income for the first quarter of 2018 was up $9 million compared to the earlier quarter.

Investment banking and brokerage fees and commissions increased $22 million due to higher managed account fees and higher investment banking income. Insurance income decreased $22 million compared to the earlier quarter primarily due to lower performance-based commissions. Service charges on deposits was essentially flat , but was negatively impacted due to fee waivers associated with the system outage as previously mentioned. Other income was essentially flat , as increases from various sundry items were more than offset by a $22 million decrease in income related to assets for certain post-employment benefits, which is primarily offset in other income/expense categories.

Noninterest Expense
 
First Quarter 2018 compared to First Quarter 2017
 
Noninterest expense for the first quarter of 2018 was down $416 million compared to the earlier quarter primarily driven by a loss of $392 million on the early extinguishment of debt in the earlier period. Excluding this item and merger-related and restructuring charges, noninterest expense was down $16 million due to tight expense control.

Personnel expense was essentially flat compared to the earlier quarter as lower salaries expense driven by approximately 1,500 fewer FTEs was largely offset by higher pension service cost. Outside IT services decreased $17 million compared to the earlier quarter due to lower project-related expenses. Other expense decreased $14 million compared to the earlier quarter, primarily due to an increase in the expected return on pension plan assets due to higher plan assets.

Segment Results
 
See Note 16. Operating Segments herein and Note 19. Operating Segments in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 , for additional disclosures related to BB&T's reportable business segments. Fluctuations in noninterest income and noninterest expense incurred directly by the segments are more fully discussed in the "Noninterest Income" and "Noninterest Expense" sections above.
Table 2
Net Income by Reportable Segment
 
 
 
Three Months Ended March 31,
 
 
(Dollars in millions)
 
2018
 
2017
Community Banking Retail and Consumer Finance
 
$
324

 
$
254

Community Banking Commercial
 
270

 
195

Financial Services and Commercial Finance
 
144

 
109

Insurance Holdings and Premium Finance
 
62

 
50

Other, Treasury & Corporate
 
(9
)
 
(182
)
BB&T Corporation
 
$
791

 
$
426



33

Table of Contents

First Quarter 2018 compared to First Quarter 2017

Community Banking Retail and Consumer Finance

CB-Retail serves retail clients by offering a variety of loan and deposit products, payment services, bankcard products and other financial services by connecting clients to a wide range of financial products and services. CB-Retail includes Dealer Retail Services which originates loans on an indirect basis to consumers for the purchase of automobiles, boats and recreational vehicles. Additionally, CB-Retail includes specialty finance lending, small equipment leasing and other products for consumers. CB-Retail also includes Residential Mortgage Banking which originates and purchases mortgage loans to either hold for investment or sell to third-parties. BB&T generally retains the servicing rights to loans sold. Mortgage products include fixed and adjustable-rate government guaranteed and conventional loans used for the purpose of constructing, purchasing or refinancing residential properties. Substantially all of the properties are owner-occupied. Residential Mortgage Banking also includes Mortgage Warehouse Lending, which provides short-term lending solutions to finance first-lien residential mortgages held-for-sale by independent mortgage companies.

CB-Retail net income was $324 million for the first quarter of 2018, an increase of $70 million compared to the earlier quarter. Segment net interest income increased due to higher funding spreads on deposits and a change in mix to higher yielding loans, partially offset by lower credit spreads on loans. Noninterest income increased primarily due to higher bankcard fees and merchant discounts. The provision for income taxes declined $45 million due to a lower tax rate compared to the earlier quarter.

CB-Retail average loans and leases held for investment decreased $2.3 billion, or 3.5%, compared to the earlier quarter, primarily driven by a decline in sales finance loans due to the strategic decision to optimize the size of the portfolio and direct investments towards higher-yielding assets.

CB-Retail average total deposits decreased $392 million, or 0.5%, compared to the earlier quarter. Average noninterest-bearing deposits increased $1.5 billion while average time deposits and interest checking fell $1.3 billion and $467 million, respectively.

Community Banking Commercial

CB-Commercial serves large, medium and small business clients by offering a variety of loan and deposit products and by connecting clients to the combined organization’s broad array of financial services. CB-Commercial includes CRE lending, commercial and industrial lending, corporate banking, asset-based lending, dealer inventory financing, tax exempt financing, cash management and treasury services, and commercial deposit products.

CB-Commercial net income was $270 million for the first quarter of 2018, an increase of $75 million compared to the earlier quarter. Segment net interest income increased $27 million driven primarily by higher funding spreads on deposits, average noninterest-bearing deposit growth and average loan growth, partially offset by lower credit spreads on loans. The allocated provision for credit losses increased $33 million primarily due to a normalization in loss estimates and higher net charge-offs. Noninterest expense decreased $53 million driven primarily by a decline in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs, as well as lower allocated corporate expenses. The provision for income taxes declined $25 million compared to the earlier quarter due to a lower tax rate.

CB-Commercial average loans and leases held for investment increased $1.2 billion, or 2.3%, compared to the earlier quarter, driven primarily by an increase in average commercial real estate loans.

CB-Commercial average total deposits decreased $167 million, or 0.3%, compared to the earlier quarter. Noninterest bearing deposits increased $1.0 billion while average interest checking and money market and savings declined $791 million and $223 million, respectively.

Financial Services and Commercial Finance

FS&CF provides personal trust administration, estate planning, investment counseling, wealth management, asset management, corporate retirement services, capital markets and corporate banking services, specialty finance and corporate trust services to individuals, corporations, institutions, foundations and government entities. In addition, the segment includes BB&T Securities, a full-service brokerage and investment banking firm, which offers clients a variety of investment services, including discount brokerage services, equities, annuities, mutual funds and government bonds. The Corporate Banking Division originates and services large corporate relationships, syndicated lending relationships and client derivatives while the specialty finance products offered by FS&CF include equipment finance, tax-exempt financing for local governments and special-purpose entities, and full-service commercial mortgage banking lending.


34

Table of Contents

FS&CF net income was $144 million for the first quarter of 2018, an increase of $35 million compared to the earlier quarter. Noninterest income increased $21 million due to higher investment banking and brokerage fees and commissions, primarily driven by higher managed account fees and higher investment banking income. The allocated provision for credit losses decreased due to a decline in net charge-offs. Noninterest expense increased due to higher personnel expense primarily resulting from increased incentive expense. The provision for income taxes declined primarily due to a lower tax rate.

FS&CF average loans and leases held for investment increased $2.3 billion, or 9.5%, compared to the earlier quarter. Corporate Banking's average loans and leases held for investment increased $890 million, or 6.2%, compared to the earlier quarter, while BB&T Wealth's average loans and leases held for investment increased $271 million, or 17.1%. Average loans and leases held for investment at Governmental Finance increased $598 million, or 13.0%, compared to the earlier quarter and increased 14.5% and 14.0%, respectively, for Equipment Finance and Grandbridge.

FS&CF average total deposits decreased $3.7 million, or 11.5%, compared to the earlier quarter, primarily driven by an initiative to reduce non-core deposits that were indexed to LIBOR.

Insurance Holdings and Premium Finance

BB&T's insurance agency / brokerage network is the fifth largest in the world. IH&PF provides property and casualty, employee benefits and life insurance to businesses and individuals. It also provides small business and corporate services, such as workers compensation and professional liability, as well as surety coverage and title insurance. Additionally, IH&PF includes commercial and retail insurance premium finance.

IH&PF net income was $62 million for the first quarter of 2018, an increase of $12 million compared to the earlier quarter. Noninterest income decreased $24 million primarily due to lower performance-based commissions.

Noninterest expense decreased $25 million primarily due to declines in business referral expense, merger-related and restructuring charges and personnel expense. The provision for income taxes decreased compared to the earlier quarter due to a lower tax rate.

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.

OT&C generated a net loss of $9 million in the first quarter of 2018, compared to a net loss of $182 million in the earlier quarter. Segment net interest income decreased $21 million primarily due to an increase in the rate and average balances for long-term debt. The allocated provision for credit losses decreased due to a decline in the provision for PCI loans and a decrease in the provision for unfunded lending commitments. Noninterest expense decreased $352 million due to a $392 million loss on the early extinguishment of debt in the earlier period, partially offset by an increase in personnel expense due to a third quarter of 2017 change in approach for allocating capitalized loan origination costs. The benefit for income taxes fell $171 million primarily due to a decline in pre-tax loss and lower excess tax benefits from equity-based compensation plans.

Analysis of Financial Condition

Investment Activities
 
The total securities portfolio was $47.4 billion at March 31, 2018 , compared to $47.6 billion at December 31, 2017 . As of March 31, 2018 , the securities portfolio included $25.0 billion of AFS securities (at fair value) and $22.4 billion of HTM securities (at amortized cost).
 
The effective duration of the securities portfolio was 5.1 years at March 31, 2018 , compared to 4.7 years at December 31, 2017 . The duration of the securities portfolio excludes certain non-agency MBS.

See Note 2. Securities herein for additional disclosures related to BB&T's evaluation of securities for OTTI.


35

Table of Contents

Lending Activities
 
Loans HFI totaled $143.0 billion at March 31, 2018 , compared to $143.7 billion at December 31, 2017 . This decrease was primarily related to indirect loans and revolving credit loans. Management continuously evaluates the composition of the loan portfolio taking into consideration the current and expected market conditions, interest rate environment and risk profiles to optimize profitability. Based upon this evaluation, management may decide to focus efforts on growing or decreasing exposures in certain portfolios through both organic changes and portfolio acquisitions or sales.

The following table presents the composition of average loans and leases:
Table 3
Quarterly Average Balances of Loans and Leases
 
 
 
For the Three Months Ended
 
 
(Dollars in millions)
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
58,627

 
$
58,478

 
$
58,211

 
$
58,150

 
$
57,125

CRE
 
21,398

 
20,998

 
20,776

 
20,304

 
19,892

Lease financing
 
1,872

 
1,851

 
1,732

 
1,664

 
1,653

Retail:
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
28,824

 
28,559

 
28,924

 
29,392

 
29,701

Direct
 
11,791

 
11,901

 
11,960

 
12,000

 
12,014

Indirect
 
16,914

 
17,426

 
17,678

 
18,127

 
18,137

Revolving credit
 
2,798

 
2,759

 
2,668

 
2,612

 
2,607

PCI
 
631

 
689

 
742

 
825

 
883

Total average loans and leases HFI
 
$
142,855

 
$
142,661

 
$
142,691

 
$
143,074

 
$
142,012

 
Average loans held for investment for the first quarter of 2018 were $142.9 billion , up $194 million compared to the fourth quarter of 2017 .

Average commercial and industrial loans increased $149 million , as production late in the prior quarter led to higher average balances. This was partially offset by a seasonal decline in average mortgage warehouse loans. Average CRE increased $400 million due to growth in loans for income producing properties. In addition, average residential mortgage loans increased $265 million due to a change to retain a portion of the conforming mortgage production rather than selling substantially all such production.

Average indirect retail loans decreased $512 million , primarily due to seasonality, strategic optimization and directing investments toward higher-yielding assets.


36

Table of Contents

Asset Quality

The following tables summarize asset quality information for the past five quarters:
Table 4
Asset Quality
 
 
 
(Dollars in millions)
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
NPAs (1)
 
 
 
 
 
 
 
 
 
NPLs:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
257

 
$
259

 
$
288

 
$
300

 
$
355

CRE
67

 
45

 
41

 
50

 
60

Lease financing
13

 
1

 
2

 
3

 
4

Residential mortgage
127

 
129

 
141

 
131

 
172

Direct
64

 
64

 
64

 
65

 
66

Indirect
74

 
72

 
70

 
63

 
66

Total nonaccrual loans and leases HFI (1)(2)
602

 
570

 
606

 
612

 
723

Foreclosed real estate
40

 
32

 
46

 
48

 
49

Other foreclosed property
27

 
25

 
28

 
30

 
29

Total nonperforming assets (1)(2)
$
669

 
$
627

 
$
680

 
$
690

 
$
801

 
 
 
 
 
 
 
 
 
 
 
Performing TDRs (3):
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
38

 
$
50

 
$
62

 
$
50

 
$
51

CRE
12

 
16

 
22

 
24

 
25

Residential mortgage
627

 
605

 
609

 
603

 
771

Direct
59

 
62

 
63

 
63

 
65

Indirect
277

 
281

 
267

 
244

 
244

Revolving credit
29

 
29

 
29

 
29

 
29

Total performing TDRs (3)(4)
$
1,042

 
$
1,043

 
$
1,052

 
$
1,013

 
$
1,185

 
 
 
 
 
 
 
 
 
 
 
Loans 90 days or more past due and still accruing:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$

 
$
1

 
$

 
$

 
$

CRE

 
1

 

 

 

Residential mortgage (5)
420

 
465

 
409

 
401

 
438

Direct
6

 
6

 
9

 
7

 
7

Indirect
5

 
6

 
6

 
4

 
5

Revolving credit
11

 
12

 
11

 
10

 
10

PCI
48

 
57

 
70

 
71

 
82

Total loans 90 days or more past due and still accruing (5)
$
490

 
$
548

 
$
505

 
$
493

 
$
542

 
 
 
 
 
 
 
 
 
 
 
Loans 30-89 days past due:
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
31

 
$
41

 
$
47

 
$
32

 
$
36

CRE
10

 
8

 
8

 
3

 
12

Lease financing
1

 
4

 
1

 
2

 
1

Residential mortgage (6)
400

 
472

 
455

 
393

 
401

Direct
55

 
65

 
55

 
54

 
55

Indirect
272

 
412

 
358

 
341

 
251

Revolving credit
21

 
23

 
22

 
20

 
20

PCI
24

 
27

 
41

 
29

 
29

Total loans 30-89 days past due (6)
$
814

 
$
1,052

 
$
987

 
$
874

 
$
805

Excludes loans held for sale.
(1)
PCI loans are accounted for using the accretion method.
(2)
Sales of nonperforming loans totaled $33 million, $44 million, $19 million, $75 million and $74 million for the quarter ended March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively.
(3)
Excludes TDRs that are nonperforming totaling $196 million, $189 million, $203 million, $214 million and $218 million at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively. These amounts are included in total nonperforming assets.
(4)
Sales of performing TDRs, which were primarily residential mortgage loans, totaled $29 million, $44 million, $49 million, $203 million and $48 million for the quarter ended March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively.
(5)
Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 90 days or more totaling $23 million, $66 million, $45 million, $32 million and $29 million at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively.
(6)
Includes government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase that are past due 30-89 days totaling $1 million, $2 million, $2 million, $2 million and $2 million at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, respectively.

37

Table of Contents

Table 5
Asset Quality Ratios
 
 
 
As of / For the Three Months Ended
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
 
NPLs as a percentage of loans and leases HFI
 
0.42
%
 
0.40
%
 
0.42
%
 
0.43
%
 
0.51
%
NPAs as a percentage of:
 
 
 
 
 
 
 
 
 
 
Total assets
 
0.30

 
0.28

 
0.31

 
0.31

 
0.36

Loans and leases HFI plus foreclosed property
 
0.47

 
0.44

 
0.48

 
0.48

 
0.56

Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI
 
0.34

 
0.38

 
0.35

 
0.34

 
0.38

Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI
 
0.57

 
0.73

 
0.69

 
0.61

 
0.56

Net charge-offs as a percentage of average loans and leases HFI
 
0.41

 
0.36

 
0.35

 
0.37

 
0.42

ALLL as a percentage of loans and leases HFI
 
1.05

 
1.04

 
1.04

 
1.03

 
1.04

Ratio of ALLL to:
 
 
 
 
 
 
 
 
 
 
Net charge-offs
 
2.55x

 
2.89x

 
2.93x

 
2.80x

 
2.49x

NPLs
 
2.49x

 
2.62x

 
2.44x

 
2.43x

 
2.05x

 
 
 
 
 
 
 
 
 
 
 
Asset Quality Ratios (Excluding Government Guaranteed and PCI): (1)
Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI
 
0.04
%
 
0.05
%
 
0.05
%
 
0.05
%
 
0.06
%
Applicable ratios are annualized.
(1)
This asset quality ratio has been adjusted to remove the impact of government guaranteed mortgage loans and PCI. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios. Management believes the inclusion of such assets in this asset quality ratio results in distortion of this ratio such that it might not be reflective of asset collectibility or might not be comparable to other periods presented or to other portfolios that do not have government guarantees or were not impacted by purchase accounting.

Nonperforming assets totaled $669 million at March 31, 2018 , up $42 million compared to December 31, 2017 . Nonperforming loans and leases represented 0.42% of loans and leases held for investment, a slight increase compared to December 31, 2017 . The increase in nonperforming assets was primarily related to CRE lending and leasing, as well as an increase in foreclosed properties.

The following table presents activity related to NPAs:
Table 6
Rollforward of NPAs
 
 
 
Three Months Ended March 31,
 
 
(Dollars in millions)
 
2018
 
2017
Balance, January 1
 
$
627

 
$
813

New NPAs
 
363

 
387

Advances and principal increases
 
89

 
65

Disposals of foreclosed assets (1)
 
(119
)
 
(128
)
Disposals of NPLs (2)
 
(33
)
 
(74
)
Charge-offs and losses
 
(64
)
 
(71
)
Payments
 
(152
)
 
(147
)
Transfers to performing status
 
(41
)
 
(43
)
Other, net
 
(1
)
 
(1
)
Ending balance, March 31
 
$
669

 
$
801

(1) 
Includes charge-offs and losses recorded upon sale of $23 million and $61 million for the three months ended March 31, 2018 and 2017 , respectively.
(2)
Includes charge-offs and losses recorded upon sale of $10 million and $11 million for the three months ended March 31, 2018 and 2017 , respectively.

Loans 30-89 days past due and still accruing totaled $814 million at March 31, 2018 , down $238 million compared to the prior quarter. The decrease was primarily due to expected seasonality in indirect lending and residential mortgage.


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Loans 90 days or more past due and still accruing totaled $490 million at March 31, 2018 , down $58 million compared to the prior quarter, primarily due to a decrease in residential mortgage loans. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.34% at March 31, 2018 , compared to 0.38% 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 March 31, 2018 , an improvement of one basis point from the prior quarter.

Problem loans include loans on nonaccrual status or loans that are 90 days or more past due and still accruing as disclosed in Table 4 . In addition, for the commercial portfolio segment, loans that are rated special mention or substandard performing are closely monitored by management as potential problem loans. Refer to Note 3. Loans and ACL herein for additional disclosures related to these potential problem loans.
 
Certain residential mortgage loans have an initial period where the borrower is only required to pay the periodic interest. After the interest-only period, the loan will require the payment of both interest and principal over the remaining term. At March 31, 2018 , approximately $633 million of the outstanding balances of residential mortgage loans were in the interest-only phase. Approximately 96.1% of the interest-only balances will begin amortizing within the next three years.
 
Home equity lines, which are a component of the direct retail portfolio, generally require interest-only payments during the first 15 years after origination. After this initial period, the outstanding balance begins amortizing and requires the payment of both interest and principal. At March 31, 2018 , the direct retail lending portfolio includes $8.3 billion of variable rate home equity lines and $1.0 billion of variable rate other lines of credit. Approximately $6.4 billion of the variable rate home equity lines is currently in the interest-only phase and approximately 8.5% of these balances will begin amortizing within the next three years. Approximately $913 million of the outstanding balance of variable rate other lines of credit is in the interest-only phase and 15.2% of these balances will begin amortizing within the next three years. Variable rate home equity lines and other lines of credit typically reset on a monthly basis.
 
TDRs occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term and a concession has been granted to the borrower. As a result, BB&T will work with the borrower to prevent further difficulties and ultimately improve the likelihood of recovery on the loan. To facilitate this process, a concessionary modification that would not otherwise be considered may be granted, resulting in classification of the loan as a TDR. Refer to Note 1. Summary of Significant Accounting Policies in the Annual Report on Form 10-K for the year ended December 31, 2017 for additional policy information regarding TDRs.
 
Performing TDRs were essentially flat during the first quarter, as the commercial and industrial and CRE portfolios were down while government guaranteed residential mortgage loans increased.

The following table provides a summary of performing TDR activity: 
Table 7
Rollforward of Performing TDRs
 
 
 
(Dollars in millions)
 
2018
 
2017
Balance, January 1
 
$
1,043

 
$
1,187

Inflows
 
133

 
180

Payments and payoffs
 
(42
)
 
(62
)
Charge-offs
 
(17
)
 
(15
)
Transfers to nonperforming TDRs, net
 
(27
)
 
(24
)
Removal due to the passage of time
 
(14
)
 
(33
)
Non-concessionary re-modifications
 
(5
)
 

Sold and transferred to LHFS
 
(29
)
 
(48
)
Balance, March 31
 
$
1,042

 
$
1,185



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The following table provides further details regarding the payment status of TDRs outstanding at March 31, 2018 :
Table 8
Payment Status of TDRs
 
 
 
March 31, 2018
 
 
 
 
 
Past Due
 
Past Due
 
 
(Dollars in millions)
 
Current Status
 
30-89 Days
 
90 Days Or More
 
Total
Performing TDRs (1):
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
38

 
100.0
%
 
$

 
%
 
$

 
%
 
$
38

CRE
 
12

 
100.0

 

 

 

 

 
12

Retail:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
346

 
55.2

 
102

 
16.3

 
179

 
28.5

 
627

Direct
 
57

 
96.6

 
2

 
3.4

 

 

 
59

Indirect
 
239

 
86.3

 
38

 
13.7

 

 

 
277

Revolving credit
 
24

 
82.8

 
4

 
13.8

 
1

 
3.4

 
29

Total performing TDRs
 
716

 
68.7

 
146

 
14.0

 
180

 
17.3

 
1,042

Nonperforming TDRs (2)
 
98

 
50.0

 
28

 
14.3

 
70

 
35.7

 
196

Total TDRs
 
$
814

 
65.7

 
$
174

 
14.1

 
$
250

 
20.2

 
$
1,238

(1)
Past due performing TDRs are included in past due disclosures.
(2)
Nonperforming TDRs are included in NPL disclosures.

ACL

Activity related to the ACL is presented in the following tables:
Table 9
Activity in ACL
 
 
 
For The Three Months Ended
(Dollars in millions)
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Balance, beginning of period
$
1,609

 
$
1,601

 
$
1,602

 
$
1,599

 
$
1,599

Provision for credit losses (excluding PCI loans)
153

 
137

 
128

 
151

 
146

Provision (benefit) for PCI loans
(3
)
 
1

 
(2
)
 
(16
)
 
2

Charge-offs:
 

 
 

 
 

 
 

 
 

Commercial and industrial
(23
)
 
(23
)
 
(13
)
 
(26
)
 
(33
)
CRE
(6
)
 
(2
)
 
(4
)
 
(3
)
 
(1
)
Lease financing
(1
)
 
(1
)
 
(2
)
 
(1
)
 
(1
)
Residential mortgage
(4
)
 
(8
)
 
(7
)
 
(20
)
 
(12
)
Direct
(19
)
 
(15
)
 
(16
)
 
(16
)
 
(14
)
Indirect
(107
)
 
(104
)
 
(103
)
 
(88
)
 
(107
)
Revolving credit
(21
)
 
(19
)
 
(17
)
 
(19
)
 
(21
)
PCI

 

 
(1
)
 

 

Total charge-offs
(181
)
 
(172
)
 
(163
)
 
(173
)
 
(189
)
Recoveries:
 

 
 

 
 

 
 

 
 

Commercial and industrial
8

 
12

 
8

 
9

 
7

CRE
2

 
4

 
3

 
3

 
6

Lease financing

 
1

 
1

 

 

Residential mortgage

 
1

 

 
1

 

Direct
6

 
6

 
6

 
7

 
6

Indirect
15

 
13

 
14

 
16

 
17

Revolving credit
5

 
5

 
4

 
5

 
5

Total recoveries
36

 
42

 
36

 
41

 
41

Net charge-offs
(145
)
 
(130
)
 
(127
)
 
(132
)
 
(148
)
Balance, end of period
$
1,614

 
$
1,609

 
$
1,601

 
$
1,602

 
$
1,599

 
 
 
 
 
 
 
 
 
 
ALLL (excluding PCI loans)
$
1,473

 
$
1,462

 
$
1,451

 
$
1,455

 
$
1,441

ALLL for PCI loans
25

 
28

 
27

 
30

 
46

RUFC
116

 
119

 
123

 
117

 
112

Total ACL
$
1,614

 
$
1,609

 
$
1,601

 
$
1,602

 
$
1,599


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The ACL, which consists of the ALLL and the RUFC, totaled $1.6 billion at March 31, 2018 , essentially flat compared to December 31, 2017 .

The ALLL, excluding PCI, was $1.5 billion , up $11 million compared to December 31, 2017 . The allowance for PCI loans was $25 million , down $3 million compared to December 31, 2017 . As of March 31, 2018 , the total allowance for loan and lease losses was 1.05% of loans and leases held for investment, compared to 1.04% at December 31, 2017 . These amounts include acquired loans, which were marked to fair value and did not receive an ALLL at the acquisition date.

The ALLL was 2.49 times NPLs held for investment, compared to 2.62 times at December 31, 2017 . At March 31, 2018 , the ALLL was 2.55 times annualized quarterly net charge-offs, compared to 2.89 times at December 31, 2017.

Net charge-offs during the first quarter of 2018 totaled $145 million , or 0.41% of average loans and leases, compared to $148 million , or 0.42% of average loans and leases for the first quarter of 2017 .

Refer to Note 3. Loans and ACL for additional disclosures.

The following table presents an allocation of the ALLL at March 31, 2018 and December 31, 2017 . This allocation of the ALLL is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.
Table 10
Allocation of ALLL by Category
 
 
 
 
 
 
 
March 31, 2018
 
December 31, 2017
(Dollars in millions)
 
Amount
 
% Loans in each category
 
Amount
 
% Loans in each category
Commercial and industrial
 
$
522

 
41.4
%
 
$
522

 
41.1
%
CRE
 
175

 
15.0

 
160

 
14.8

Lease financing
 
10

 
1.3

 
9

 
1.3

Residential mortgage
 
216

 
20.1

 
209

 
20.0

Direct
 
99

 
8.2

 
106

 
8.3

Indirect
 
347

 
11.7

 
348

 
12.0

Revolving credit
 
104

 
1.9

 
108

 
2.0

PCI
 
25

 
0.4

 
28

 
0.5

Total ALLL
 
1,498

 
100.0
%
 
1,490

 
100.0
%
RUFC
 
116

 
 

 
119

 
 

Total ACL
 
$
1,614

 
 

 
$
1,609

 
 


Deposits
 
Deposits totaled $158.2 billion at March 31, 2018 , an increase of $825 million from December 31, 2017 . Noninterest-bearing deposits increased $1.3 billion and time deposits increased $555 million. These increases were partially offset by a $588 million decrease in money market and savings and a $460 million decrease in interest checking.

The following table presents the composition of average deposits for the last five quarters:
Table 11
Composition of Average Deposits
 
 
 
Three Months Ended
 

(Dollars in millions)
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
3/31/2017
Noninterest-bearing deposits
 
$
53,396

 
$
54,288

 
$
53,489

 
$
52,573

 
$
51,095

Interest checking
 
27,270

 
26,746

 
27,000

 
28,849

 
29,578

Money market and savings
 
61,690

 
61,693

 
61,450

 
64,294

 
64,857

Time deposits
 
13,847

 
13,744

 
13,794

 
14,088

 
14,924

Foreign office deposits - interest-bearing
 
935

 
1,488

 
1,681

 
459

 
929

Total average deposits
 
$
157,138

 
$
157,959

 
$
157,414

 
$
160,263

 
$
161,383

 
Average deposits for the first quarter were $157.1 billion , down $821 million compared to the prior quarter. Average noninterest-bearing deposits decreased $892 million , primarily due to decreases in commercial balances, partially offset by increases in personal and public funds balances.

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Interest checking increased $524 million , primarily due to increases in commercial and public funds balances. Average time deposits increased $103 million primarily due to increases in commercial balances. Average foreign office deposits decreased $553 million due to changes in the overall funding mix.

Noninterest-bearing deposits represented 34.0% of total average deposits for the first quarter, compared to 34.4% for the prior quarter and 31.7% a year ago. The cost of interest-bearing deposits was 0.46% for the first quarter, up six basis points compared to the prior quarter.

Borrowings
 
At March 31, 2018 , short-term borrowings totaled $4.3 billion , a decrease of $617 million compared to December 31, 2017 . Short-term borrowings fluctuate based on the Company's funding needs. Long-term debt totaled $23.4 billion at March 31, 2018 , a decrease of $238 million compared to December 31, 2017 .
 
Shareholders' Equity
 
Total shareholders' equity was $29.7 billion at March 31, 2018 , down $33 million from December 31, 2017 . Significant additions include net income of $791 million . Significant decreases include common and preferred dividends totaling $335 million, $320 million of share repurchases and the OCI net loss of $178 million, primarily due to declines in AFS securities valuations. BB&T's book value per common share at March 31, 2018 was $34.06 , compared to $34.01 at December 31, 2017 .
 
Merger-Related and Restructuring Activities
 
In conjunction with the consummation of an acquisition or the implementation of a restructuring initiative, BB&T typically accrues certain merger-related and restructuring expenses, which may include estimated severance and other personnel-related costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition or restructuring activity. Merger-related and restructuring accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at March 31, 2018 are expected to be utilized within one year, unless they relate to specific contracts that expire later. The following table presents a summary of merger-related and restructuring charges and the related accruals:
Table 12
Merger-Related and Restructuring Charges and Related Accruals
 
 
 
 
 
 
 
 
(Dollars in millions)
Accrual at Jan 1, 2018
 
Expense
 
Utilized
 
Accrual at Mar 31, 2018
Severance and personnel-related
$
14

 
$
3

 
$
(9
)
 
$
8

Occupancy and equipment (1)
20

 
18

 
(19
)
 
19

Professional services

 
1

 

 
1

Systems conversion and related costs (1)

 
5

 
(5
)
 

Other adjustments

 
1

 
(1
)
 

Total
$
34

 
$
28

 
$
(34
)
 
$
28

(1)
Includes asset impairment charges.

Critical Accounting Policies
 
The accounting and reporting policies of BB&T are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. BB&T's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in the consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting and reporting policies include accounting for the ACL, determining fair value of financial instruments, intangible assets, costs and benefit obligations associated with pension and postretirement benefit plans, and income taxes. Understanding BB&T's accounting policies is fundamental to understanding the consolidated financial position and consolidated results of operations. Accordingly, the critical accounting policies are discussed in detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 . Significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1. Summary of Significant Accounting Policies in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 . Additional disclosures regarding the effects of new accounting pronouncements are included in the "Basis of Presentation" Note included herein. There have been no other changes to the significant accounting policies during 2018 .
 

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Table of Contents

Risk Management
 
BB&T has a strong and consistent risk culture, based on established risk values, which promotes predictable and consistent performance within an environment of open communication and effective challenge. The strong culture influences all associates in the organization daily and helps them evaluate whether risks are acceptable or unacceptable while making decisions that balance quality, profitability and growth appropriately. BB&T’s effective risk management framework establishes an environment which enables it to achieve superior performance relative to peers, ensures that BB&T is viewed among the safest of banks and assures the operational freedom to act on opportunities.
 
BB&T ensures that there is an appropriate return for the amount of risk taken, and that the expected return is in line with its strategic objectives and business plan. Risk-taking activities are evaluated and prioritized to identify those that present attractive risk-adjusted returns while preserving asset value. BB&T only undertakes risks that are understood and can be managed effectively. By managing risk well, BB&T ensures sufficient capital is available to maintain and grow core business operations in a safe and sound manner.
 
Regardless of financial gain or loss to the Company, associates are held accountable if they do not follow the established risk management policies and procedures. Compensation decisions take into account an associate’s adherence to, and successful implementation of, BB&T’s risk values. The compensation structure supports the Company’s core values and sound risk management practices in an effort to promote judicious risk-taking behavior.
 
BB&T’s risk culture encourages transparency and open dialogue between all levels in the performance of organizational functions, such as the development, marketing and implementation of a product or service.
 
The principal types of inherent risk include compliance, credit, liquidity, market, operational, reputation and strategic risks. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for disclosures related to each of these risks under the section titled "Risk Management."
 
Market Risk Management
 
The effective management of market risk is essential to achieving BB&T’s strategic financial objectives. As a financial institution, BB&T’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in BB&T’s BUs. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, net income and capital and to offset the risk of price changes for certain assets recorded at fair value. At BB&T, market risk management also includes the enterprise-wide IPV function.
 
Interest Rate Market Risk (Other than Trading)
 
BB&T actively manages market risk associated with asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of appropriate maturity mixes of assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T’s portfolios of assets and liabilities that will produce reasonably consistent net interest income during periods of changing interest rates. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios.
 
The asset/liability management process is designed to achieve relatively stable NIM and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. Among other things, this process gives consideration to prepayment trends related to securities, loans and leases and certain deposits that have no stated maturity. Prepayment assumptions are developed using a combination of market data and internal historical prepayment experience for residential mortgage-related loans and securities, and internal historical prepayment experience for client deposits with no stated maturity and loans that are not residential mortgage related. These assumptions are subject to monthly review and adjustment, and are modified as deemed necessary to reflect changes in interest rates relative to the reference rate of the underlying assets or liabilities. On a monthly basis, BB&T evaluates the accuracy of its Simulation model, which includes an evaluation of its prepayment assumptions, to ensure that all significant assumptions inherent in the model appropriately reflect changes in the interest rate environment and related trends in prepayment activity. It is the responsibility of the MRLCC to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as to ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The MRLCC also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The MRLCC meets regularly to review BB&T’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impacts on earnings and liquidity as a result of fluctuations in interest rates are within acceptable tolerance guidelines.
 

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Table of Contents

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 March 31, 2018 , BB&T had derivative financial instruments outstanding with notional amounts totaling $78.6 billion , with a net fair value loss of $213 million . See Note 14. Derivative Financial Instruments for additional disclosures.
 
The majority of BB&T’s assets and liabilities are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Fluctuations in interest rates and actions of the FRB to regulate the availability and cost of credit have a greater effect on a financial institution’s profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, which is monitored by the MRLCC, management believes that BB&T is positioned to respond to changing needs for liquidity, changes in interest rates and inflationary trends.
 
Management uses the Simulation to measure the sensitivity of projected earnings to changes in interest rates. The Simulation projects net interest income and interest rate risk for a rolling two-year period of time. The Simulation takes into account the current contractual agreements that BB&T has made with its customers on deposits, borrowings, loans, investments and commitments to enter into those transactions. Furthermore, the Simulation considers the impact of expected customer behavior. Management monitors BB&T’s interest sensitivity by means of a model that incorporates the current volumes, average rates earned and paid, and scheduled maturities and payments of asset and liability portfolios, together with multiple scenarios that include projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, but management believes that it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap. In addition to the Simulation, BB&T uses EVE analysis to focus on projected changes in assets and liabilities given potential changes in interest rates. This measure also allows BB&T to analyze interest rate risk that falls outside the analysis window contained in the Simulation. The EVE model is a discounted cash flow of the portfolio of assets, liabilities, and derivative instruments. The difference in the present value of assets minus the present value of liabilities is defined as the economic value of equity.
 
The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies, as well as any enacted or prospective regulatory changes. BB&T’s current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with the information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals.

The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months assuming a gradual change in interest rates as described below. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing, deposit sensitivity, customer preferences and capital plans. The resulting change in net interest income reflects the level of interest rate sensitivity that income has in relation to the investment, loan and deposit portfolios.
Table 13
Interest Sensitivity Simulation Analysis
 
 
 
 
 
 
 
Interest Rate Scenario
 
Annualized Hypothetical Percentage Change in Net Interest Income
Linear Change in Prime Rate
 
Prime Rate
 
 
Mar 31, 2018
 
Mar 31, 2017
 
Mar 31, 2018
 
Mar 31, 2017
Up 200 bps
 
6.75
%
 
6.00
%
 
3.96
 %
 
3.85
 %
Up 100
 
5.75

 
5.00

 
2.53

 
2.61

No Change
 
4.75

 
4.00

 

 

Down 25
 
4.50

 
3.75

 
(1.02
)
 
(1.26
)
Down 100
 
3.75

 
3.00

 
(5.77
)
 
N/A

 
The MRLCC has established parameters related to interest sensitivity that prescribe a maximum negative impact on net interest income under different interest rate scenarios. In the event the results of the Simulation model fall outside the established parameters, management will make recommendations to the MRLCC on the most appropriate response given the current economic forecast. The following parameters and interest rate scenarios are considered BB&T’s primary measures of interest rate risk:
 
Maximum negative impact on net interest income of 2% for the next 12 months assuming a 25 basis point change in interest rates each month for four months followed by a flat interest rate scenario for the remaining eight month period.


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Table of Contents

Maximum negative impact on net interest income of 4% for the next 12 months assuming a 25 basis point change in interest rates each month for eight months followed by a flat interest rate scenario for the remaining four month period.

If a parallel rate change of 200 basis points cannot be modeled due to a low level of rates, a proportional limit applies, and the maximum negative impact on net interest income is adjusted on a proportional basis. Regardless of the proportional limit, the negative risk exposure limit will be the greater of the 4% or the proportional limit.
 
Management has also established a maximum negative impact on net interest income of 4% for an immediate 100 basis points parallel change in rates and 8% for an immediate 200 basis points parallel change in rates. Management currently only models up to a negative 100 basis point decline, and the maximum negative impact on net interest income is adjusted on a proportional basis. Regardless of the proportional limit, the negative risk exposure limit will be the greater of 4% or the proportional limit. These "interest rate shock" limits are designed to create an outer band of acceptable risk based upon a significant and immediate change in rates.

Management has temporarily suspended its interest rate exposure limits to declining interest rates. As the Federal Reserve has started to raise rates, competitive pressure on deposit rates has not materialized. As a result, asset repricing in excess of liability repricing is causing the measured exposure to declining rates to increase. Management evaluates its interest rate risk position each month.
 
Management must also consider how the balance sheet and interest rate risk position could be impacted by changes in balance sheet mix. Liquidity in the banking industry has been very strong during the current economic cycle. Much of this liquidity increase has been due to a significant increase in noninterest-bearing demand deposits. Consistent with the industry, Branch Bank has seen a significant increase in this funding source. The behavior of these deposits is one of the most important assumptions used in determining the interest rate risk position of BB&T. A loss of these deposits in the future would reduce the asset sensitivity of BB&T’s balance sheet as the Company increases interest-bearing funds to offset the loss of this advantageous funding source.

Beta represents the correlation between overall market interest rates and the rates paid by BB&T on interest-bearing deposits. BB&T applies an average beta of approximately 50% to its non-maturity interest 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. Due to current market conditions the actual deposit beta on non-maturity interest bearing deposits has been less than 20%; however, BB&T expects the beta to increase as rates continue to rise. BB&T regularly conducts sensitivity on other key variables to determine the impact they could have on the interest rate risk position. This allows BB&T to evaluate the likely impact on its balance sheet management strategies due to a more extreme variation in a key assumption than expected.
 
The following table shows the effect that the loss of demand deposits and an associated increase in managed rate deposits would have on BB&T’s interest-rate sensitivity position. For purposes of this analysis, BB&T modeled the incremental beta for the replacement of the lost demand deposits at 100%.
Table 14
Deposit Mix Sensitivity Analysis
 
 
 
 
 
Linear Change in Rates
 
Base Scenario at March 31, 2018 (1)
 
Results Assuming a Decrease in
Noninterest Bearing Demand Deposits
 
 
 
 
$1 Billion
 
$5 Billion
Up 200 bps
 
3.96
%
 
3.75
%
 
2.92
%
Up 100
 
2.53

 
2.40

 
1.89

(1) The base scenario is equal to the annualized hypothetical percentage change in net interest income at March 31, 2018 as presented in the preceding table.

If rates increased 200 basis points, BB&T could absorb the loss of $19.1billion, or 34.6%, of noninterest bearing deposits and replace them with managed rate deposits with a beta of 100% before becoming neutral to interest rate changes.
 

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Table of Contents

The following table shows the effect that the indicated changes in interest rates would have on EVE. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related and other assets, cash flows and maturities of derivative financial instruments, loan volumes and pricing and deposit sensitivity.
Table 15
EVE Simulation Analysis
 
 
 
 
 
Change in Interest Rates
 
EVE/Assets
 
Hypothetical Percentage
Change in EVE
 
Mar 31, 2018
 
Mar 31, 2017
 
Mar 31, 2018
 
Mar 31, 2017
Up 200 bps
 
11.9
%
 
12.2
%
 
(6.7
)%
 
1.3
 %
Up 100
 
12.4

 
12.3

 
(2.2
)
 
1.8

No Change
 
12.7

 
12.1

 

 

Down 25
 
12.7

 
11.9

 
(0.1
)
 
(1.1
)
Down 100
 
12.3

 
N/A

 
(3.5
)
 
N/A


Market Risk from Trading Activities
 
BB&T also manages market risk from trading activities which consists of acting as a financial intermediary to provide its customers access to derivatives, foreign exchange and securities markets. Trading market risk is managed through the use of statistical and non-statistical risk measures and limits. BB&T utilizes a historical VaR methodology to measure and aggregate risks across its covered trading BUs. This methodology uses two years of historical data to estimate economic outcomes for a one-day time horizon at a 99% confidence level. The average 99% one-day VaR and the maximum daily VaR for the three months ended March 31, 2018 and 2017 , respectively, were each less than $1 million. Market risk disclosures under Basel II.5 are available in the Additional Disclosures section of the Investor Relations site on BBT.com .

Liquidity
 
Liquidity represents the continuing ability to meet funding needs, including deposit withdrawals, timely repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as cash, cash equivalents and AFS securities, many other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity in national money markets, growing core deposits, the repayment of loans and the ability to securitize or package loans for sale.

BB&T monitors the ability to meet customer demand for funds under both normal and stressed market conditions. In considering its liquidity position, management evaluates BB&T’s funding mix based on client core funding, client rate-sensitive funding and national markets funding. In addition, management also evaluates exposure to rate-sensitive funding sources that mature in one year or less. Management also measures liquidity needs against 30 days of stressed cash outflows for Branch Bank and BB&T. To ensure a strong liquidity position, management maintains a liquid asset buffer of cash on hand and highly liquid unpledged securities. BB&T follows the FRB's enhanced prudential standards for purposes of determining the liquid asset buffer. BB&T’s policy is to use the greater of either 5% of total assets or a range of projected net cash outflows over a 30 day period. As of March 31, 2018 and December 31, 2017 , BB&T's liquid asset buffer was 15.1% and 14.3%, respectively, of total assets.
 
BB&T is considered to be a "modified LCR" holding company. BB&T would be subject to full LCR requirements if its assets were to increase above $250 billion or if it were to be considered internationally active. BB&T produces LCR calculations to effectively manage the position of High-Quality Liquid Assets and the balance sheet deposit mix to optimize BB&T's liquidity position. BB&T's LCR was approximately 144% at March 31, 2018 , compared to the regulatory minimum for such entities of 100%, which puts BB&T in full compliance with the rule. The LCR can experience volatility due to issues like maturing debt rolling into the 30 day measurement period, or client inflows and outflows. The daily change in BB&T’s LCR averaged less than 2% during 2018 with a maximum change of approximately 12%.
 
On April 27, 2016, the OCC, the FRB and the FDIC released a notice of proposed rulemaking for the US version of the net stable funding ratio. Under the proposal, BB&T will be a "modified NSFR" holding company. BB&T would be subject to full NSFR requirements if it has $250 billion or more in assets or $10 billion or more in total on-balance sheet foreign exposure. BB&T is evaluating the information in the proposal but does not currently expect a material impact on its results of operations or financial condition.


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Table of Contents

Parent Company
 
The purpose of the Parent Company is to serve as the primary source of capital for the operating subsidiaries, with assets primarily consisting of cash on deposit with Branch Bank, equity investments in subsidiaries, advances to subsidiaries, accounts receivable from subsidiaries, and other miscellaneous assets. The principal obligations of the Parent Company are payments on long-term debt. The main sources of funds for the Parent Company are dividends and management fees from subsidiary, repayments of advances to subsidiaries, and proceeds from the issuance of equity and long-term debt. The primary uses of funds by the Parent Company are for investments in subsidiaries, advances to subsidiaries, dividend payments to common and preferred shareholders, retirement of common stock and payments on long-term debt.
 
Liquidity at the Parent Company is more susceptible to market disruptions. BB&T prudently manages cash levels at the Parent Company to cover a minimum of one year of projected cash outflows which includes unfunded external commitments, debt service, common and preferred dividends and scheduled debt maturities without the benefit of any new cash infusions. Generally, BB&T maintains a significant buffer above the projected one year of cash outflows. In determining the buffer, BB&T considers cash requirements for common and preferred dividends, unfunded commitments to affiliates, being a source of strength to its banking subsidiary and being able to withstand sustained market disruptions that could limit access to the capital markets. At March 31, 2018 and December 31, 2017 , the Parent Company had 26 months and 29 months, respectively, of cash on hand to satisfy projected contractual cash outflows, and 21 months and 23 months, respectively, taking into account common stock dividends.

Branch Bank
 
BB&T carefully manages liquidity risk at Branch Bank. Branch Bank’s primary source of funding is customer deposits. Continued access to customer deposits is highly dependent on the confidence the public has in the stability of the bank and its ability to return funds to the client when requested. BB&T maintains a strong focus on its reputation in the market to ensure continued access to client deposits. BB&T integrates its risk appetite into its overall risk management framework to ensure the bank does not exceed its risk tolerance through its lending and other risk taking functions and thus risk becoming undercapitalized. BB&T believes that sufficient capital is paramount to maintaining the confidence of its depositors and other funds providers. BB&T has extensive capital management processes in place to ensure it maintains sufficient capital to absorb losses and maintain a highly capitalized position that will instill confidence in the bank and allow continued access to deposits and other funding sources. Branch Bank monitors many liquidity metrics including funding concentrations, diversification, maturity distribution, contingent funding needs and ability to meet liquidity requirements under times of stress.

Branch Bank has several major sources of funding to meet its liquidity requirements, including access to capital markets through issuance of senior or subordinated bank notes and institutional CDs, access to the FHLB system, dealer repurchase agreements and repurchase agreements with commercial clients, access to the overnight and term Federal funds markets, use of a Cayman branch facility, access to retail brokered CDs and a borrower in custody program with the FRB for the discount window. At March 31, 2018 , Branch Bank has approximately $80.0 billion of secured borrowing capacity, which represents approximately 7.8 times the amount of one year wholesale funding maturities.

Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions
 
Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 for discussion with respect to BB&T's quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Additional disclosures about BB&T's contractual obligations, commitments and derivative financial instruments are included in Note 12. Commitments and Contingencies , Note 13. Fair Value Disclosures and Note 14. Derivative Financial Instruments .

Capital
 
The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. BB&T’s principal goals related to the maintenance of capital are to provide adequate capital to support BB&T’s risk profile consistent with the Board-approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, achieve optimal credit ratings for BB&T and its subsidiaries and provide a competitive return to shareholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets.
 
Management regularly monitors the capital position of BB&T on both a consolidated and bank level basis. In this regard, management’s overriding policy is to maintain capital at levels that are in excess of the capital targets, which are above the regulatory "well capitalized" levels. Management has implemented stressed capital ratio minimum targets to evaluate whether capital ratios calculated with planned capital actions are likely to remain above minimums specified by the FRB for the annual CCAR. Breaches of stressed minimum targets prompt a review of the planned capital actions included in BB&T’s capital plan. 

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Table of Contents

Table 16
Capital Under Basel III
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum Capital
 
Well-Capitalized
 
Minimum Capital Plus Capital Conservation Buffer
 
BB&T Targets
 
 
 
2018
 
2019 (1)
 
Operating
 
Stressed
CET1 capital to risk-weighted assets
4.5
%
 
6.5
%
 
6.375
%
 
7.000
%
 
8.5
%
 
6.0
%
Tier 1 capital to risk-weighted assets
6.0

 
8.0

 
7.875

 
8.500

 
10.0

 
7.5

Total capital to risk-weighted assets
8.0

 
10.0

 
9.875

 
10.500

 
12.0

 
9.5

Leverage ratio
4.0

 
5.0

 
N/A
 
N/A
 
8.0

 
5.5

(1)
BB&T's goal is to maintain capital levels above the 2019 requirements.

While nonrecurring events or management decisions may result in the Company temporarily falling below its operating minimum guidelines for one or more of these ratios, it is management’s intent through capital planning to return to these targeted operating minimums within a reasonable period of time. Such temporary decreases below the operating minimums shown above are not considered an infringement of BB&T’s overall capital policy, provided a return above the minimums is forecast to occur within a reasonable time period.
Table 17
Capital Ratios (1)
 
 
 
 
 
(Dollars in millions, except per share data, shares in thousands)
 
Mar 31, 2018
 
Dec 31, 2017
Risk-based:
 
 
 
 
CET1 capital to risk-weighted assets
 
10.2
%
 
10.2
%
Tier 1 capital to risk-weighted assets
 
12.0

 
11.9

Total capital to risk-weighted assets
 
14.0

 
13.9

Leverage ratio
 
9.9

 
9.9

 
 
 
 
 
Non-GAAP capital measure (2):
 
 

 
 
Tangible common equity per common share
 
$
20.86

 
$
20.80

 
 
 
 
 
Calculation of tangible common equity (2):
 
 
 
 
Total shareholders' equity
 
$
29,662

 
$
29,695

Less:
 
 
 
 
Preferred stock
 
3,053

 
3,053

Noncontrolling interests
 
50

 
47

Intangible assets
 
10,296

 
10,329

Tangible common equity
 
$
16,263

 
$
16,266

 
 
 
 
 
Risk-weighted assets
 
$
176,948

 
$
177,217

Common shares outstanding at end of period
 
779,752

 
782,006

(1)
Current quarter regulatory capital information is preliminary.
(2)
Tangible common equity and related measures are non-GAAP measures that exclude the impact of intangible assets and their related amortization. These measures are useful for evaluating the performance of a business consistently, whether acquired or developed internally. BB&T's management uses these measures to assess the quality of capital and returns relative to balance sheet risk and believes investors may find them useful in their analysis of the Corporation. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies.

Capital levels remained strong at March 31, 2018 . BB&T declared total common dividends of $0.375 per share (up 13.6% from the fourth quarter) during the first quarter of 2018 , which resulted in a dividend payout ratio of 39.2% . The Company also completed $320 million of share repurchases during the first quarter of 2018 , which resulted in a total payout ratio of 82.1% .


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Table of Contents

Share Repurchase Activity
Table 18
Share Repurchase Activity
 
 
 
 
 
 
 
 
(Dollars in millions, except per share data, shares in thousands)
Total Shares Repurchased
 
Average Price Paid Per Share (1)
 
Total Shares Repurchased Pursuant to Publicly-Announced Plan (2)
 
Maximum Remaining Dollar Value of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
January 2018
4,759

 
$
54.67

 
4,757

 
$
380

February 2018
1,129

 
54.67

 
1,096

 
320

March 2018
25

 
54.62

 

 
320

Total
5,913

 
54.67

 
5,853

 
 
(1)
Excludes commissions.
(2)
Pursuant to the 2017 Repurchase Plan, announced on June 28, 2017, authorizing up to $1.88 billion of share repurchases over a one-year period ending June 30, 2018. In November 2017, the amount authorized was increased $53 million to $1.93 billion for the same one-year period.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Refer to "Market Risk Management" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this report, the management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective.
 
Changes in Internal Control over Financial Reporting

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 March 31, 2018 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 "Commitments and Contingencies" note in the "Notes to Consolidated Financial Statements."
 
ITEM 1A. RISK FACTORS
 
There have been no material changes to the risk factors disclosed in BB&T's Annual Report on Form 10-K for the year ended December 31, 2017 . Additional risks and uncertainties not currently known to BB&T or that management has deemed to be immaterial also may materially adversely affect BB&T's business, financial condition, and/or operating results.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
(c) Refer to "Share Repurchase Activity" in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein.


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Table of Contents

ITEM 6. EXHIBITS
 
 
 
 
 
Exhibit No.
 
Description
 
Location
10.1*
 
Form of LTIP Award Agreement for the BB&T Corporation 2012 Incentive Plan (effective 2018).
 
10.2*
 
Form of Performance Unit Award Agreement for the BB&T Corporation 2012 Incentive Plan (effective 2018).
 
12†
 
Statement re: Computation of Ratios.
 
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.
 
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.
 
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.
 
101.INS
 
XBRL Instance Document.
 
Filed herewith.
101.SCH
 
XBRL Taxonomy Extension Schema.
 
Filed herewith.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase.
 
Filed herewith.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase.
 
Filed herewith.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase.
 
Filed herewith.
101.DEF
 
XBRL Taxonomy Definition Linkbase.
 
Filed herewith.
* Management compensatory plan or arrangement.
† Exhibit filed with the Securities and Exchange Commission and available upon request.

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
BB&T CORPORATION
(Registrant)
 
 
 
 
 
Date:
April 30, 2018
 
By:
/s/ Daryl N. Bible
 
 
 
 
Daryl N. Bible
 
 
 
 
Senior Executive Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 
 
 
 
 
Date:
April 30, 2018
 
By:
/s/ Cynthia B. Powell
 
 
 
 
Cynthia B. Powell
 
 
 
 
Executive Vice President and Corporate Controller
 
 
 
 
(Principal Accounting Officer)

50


Exhibit 10.1
BB&T CORPORATION
2012 INCENTIVE PLAN
LTIP Award Agreement
(Senior Executive)

Name of Participant:
<<First Name>> <<MI>> <<Last Name>>
Grant Date:
February 20, 2018
Performance Period:
January 1, 2018 through December 31, 2020
THIS AGREEMENT (the “ Agreement ”), made effective as of February 20, 2018 (the “ Grant Date ”), between BB&T CORPORATION, a North Carolina corporation (“ BB&T ”), and <<First Name>> <<MI>> <<Last Name>> , an Employee (the “ Participant ”).
RECITALS :
BB&T desires to carry out the purposes of the BB&T Corporation 2012 Incentive Plan, as it may be amended and/or restated (the “ Plan ”), by affording the Participant a long-term incentive compensation opportunity as hereinafter provided.
In consideration of the foregoing, of the mutual promises set forth below and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
1. Incorporation of Plan . The rights and duties of BB&T and the Participant under this Agreement shall in all respects be subject to and governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any conflict between the provisions in the Agreement and those of the Plan, the provisions of the Plan shall govern. Unless otherwise provided herein, capitalized terms in this Agreement shall have the same definitions as set forth in the Plan. Notwithstanding the foregoing, as a result of changes to Section 162(m) by the Tax Cut and Jobs Act of 2017, the performance-based compensation provisions of Section 162(m) are inapplicable to this Agreement.
2.      Performance Award . Subject to the terms of this Agreement and the Plan, BB&T hereby grants the Participant an LTIP Award (the “ Award ”) in accordance with the following provisions:
(a)      Performance Period . The performance period (“ Performance Period ”) for the Award shall be January 1, 2018 through December 31, 2020.
(b)      Partial Performance Period .
(i)
(1) Death or Disability . If the Participant ceases to be a Participant in the Plan during the Performance Period due to the Participant’s termination of employment due to death or Disability, the Participant’s Award for the Performance Period shall be payable in accordance with this Agreement, based upon the attainment of the Absolute Performance Goal and at least the Threshold Level of Achievement and the application of the TSR Modifier as provided in Section 2(c) and Exhibit A herein, and prorated to reflect such





Participant’s actual number of full months of employment during the Performance Period; provided that, for the avoidance of doubt, in the case of a Change of Control, the Performance Period shall end as of the date of the Change of Control and payment shall be made (for Participants who are not Employees on the date of the Change of Control), within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated as provided in Section 2(b)(i)(3) below. For the avoidance of doubt, the phrase “termination of employment” means a Separation from Service.
(2)     Involuntary Termination Without Cause and Retirement . If the Participant ceases to be a Participant in the Plan during the Performance Period due to the Participant’s termination of employment (A) involuntarily by the Company and/or its Affiliates without Cause, or (B) due to Retirement, the Participant’s Award for the Performance Period shall be payable in accordance with this Agreement, based upon the attainment of the Absolute Performance Goal and at least the Threshold Level of Achievement and the application of the TSR Modifier as provided in Section 2(c) and Exhibit A herein, and prorated to reflect such Participant’s actual number of full months of employment during the Performance Period; provided that, for the avoidance of doubt, in the case of a Change of Control, the Performance Period shall end as of the date of the Change of Control and payment shall be made (for Participants who are not Employees on the date of the Change of Control), within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated as provided in Section 2(b)(i)(3) below. A termination shall be for “ Cause ” if the termination of the Participant’s employment by the Company and/or its Affiliates is on account of the Participant’s (x) dishonesty, theft or embezzlement; (y) refusal or failure to perform the Participant’s assigned duties for BB&T or an Affiliate in a satisfactory manner; or (z) engaging in any conduct that could be materially damaging to BB&T or its Affiliates without a reasonable good faith belief that such conduct was in the best interest of BB&T or any of its Affiliates. The determination of whether termination is for Cause shall be made by the Administrator (or its designee, to the extent permitted under the Plan), and its determination shall be final and conclusive. For the avoidance of doubt, the phrase “termination of employment” means a Separation from Service.

(3)     Change of Control . If, while the Participant is an Employee, there is a Change of Control during the Performance Period, the Performance Period shall, notwithstanding anything to the contrary elsewhere in this Agreement, end upon the date of the Change of Control and the Participant’s Award shall be paid within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated based on the Participant’s base salary received during the shortened Performance Period (that commenced on January 1, 2018, and ended on the date of the Change of Control) averaged over the original three (3) year Performance Period (“ Averaged Base Salary ”) as follows:
(aa)    the Participant’s Averaged Base Salary shall first be multiplied by the Participant’s Target % to arrive at a dollar amount (the “ Product ”);





(bb)     the Product shall then be divided by the number of months in the shortened Performance Period to arrive at a dollar amount (the “ Quotient ”);
(cc)     provided that the Absolute Performance Goal of Section 2(c)(i)(aa) is met for the completed calendar years during such shortened Performance Period (and if there are no completed calendar years during such shortened Performance Period, the Absolute Performance Goal of Section 2(c)(i)(aa) shall be deemed to be met), Participant’s Award shall be the sum of (1) and (2) as follows (and payable in accordance with Section 5(b) of this Agreement): (1) for completed calendar year(s) during the shortened Performance Period, an Award amount shall be calculated by multiplying the Quotient by the number of months in the completed calendar year(s) and then by the actual Level of Achievement attained during such completed calendar year(s) adjusted by the TSR Modifier for the completed calendar year(s) (and subject to the Maximum Award payment of 125% of the Participant’s Target %); and (2) for a partially completed calendar year in which a Change of Control occurs, an Award amount calculated by multiplying the Quotient by the number of months in the partially completed calendar year and then by the Target Level of Achievement for the Relative Performance Goal in Exhibit A .
(ii)
(1)     For purposes of Section 2(b)(i)(3) above, a “ Change of Control ” will be deemed to have occurred on the earliest of the following dates: (A) the date any person or group of persons (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), together with its affiliates, excluding employee benefit plans of BB&T and its Affiliates, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act) of securities of BB&T representing thirty percent (30%) or more of the combined voting power of BB&T’s then outstanding securities; or (B) the date when, as a result of a tender offer or exchange offer for the purchase of securities of BB&T (other than such an offer by BB&T for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any consecutive twelve- (12-) month period during the Performance Period of the Award constituted BB&T’s Board, plus new directors whose election or nomination for election by BB&T’s shareholders is approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such twelve- (12-) month period (collectively, the “ Continuing Directors ”), cease for any reason during such twelve- (12-) month period to constitute at least two-thirds of the members of such board of directors; (C) the date the shareholders of BB&T approve an agreement for the sale or disposition by BB&T of all or substantially all of BB&T’s assets within the meaning of Section 409A; or (D) the date that any one person, or more than one person acting as a group, acquires ownership of stock of BB&T that, together with stock held by such person or group constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of BB&T within the meaning of Section 409A.





(2)    Notwithstanding Section 2(b)(i)(3) and (ii)(1) above, the term “Change of Control” shall not include any event that is a “Merger of Equals.” For purposes of the Plan and this Agreement, the term “ Merger of Equals ” means any event that would otherwise qualify as a Change of Control if the event (including, if applicable, the terms and conditions of the related agreements, exhibits, annexes, and similar documents) satisfies all of the following conditions as of the date of such event: (A) the Board of BB&T or, if applicable, a majority of the Continuing Directors has, prior to the change in control event, approved the event; (B) at least fifty percent (50%) of the common stock of the surviving corporation outstanding immediately after consummation of the event, together with at least fifty percent (50%) of the voting securities representing at least fifty percent (50%) of the combined voting power of all voting securities of the surviving corporation outstanding immediately after the event shall be owned, directly or indirectly, by the persons who were the owners, directly or indirectly, of the common stock and voting securities of BB&T immediately before the consummation of such event in substantially the same proportions as their respective direct or indirect ownership immediately before such event of the common stock and voting securities of BB&T, respectively; (C) at least fifty percent (50%) of the directors of the surviving corporation immediately after the event shall be composed of directors who were Directors or Continuing Directors immediately before the event; and (D) the person who was the Chief Executive Officer (“ CEO ”) of BB&T immediately before the event shall be the CEO of the surviving corporation immediately after the event. If a transaction constitutes a Merger of Equals, then, notwithstanding the provisions of Section 2(b)(i)(3) and (ii)(1) above, the vesting of the Award will not be accelerated due to the Merger of Equals, but the Award shall instead continue to vest, if at all, in accordance with the provisions of Sections 2, 3 and 4 herein.
(c)      Performance Measures for Award . The pre-established three- (3-) year Performance Period’s Performance Measures (as defined in Section 2(c)(i) below) applicable to the Award, the Participant’s targeted percentage of the Participant’s average base salary during the Performance Period (“ Participant’s Target % ”), Levels of Achievement, and the potential projected cash payout to the Participant, based upon the Level of Achievement, are as follows:
(i)
Performance Measures and Relative TSR/TSR Modifier:
(aa)      Absolute Performance Goal : The average return on shareholders’ common equity for BB&T during the Performance Period determined in accordance with United States generally accepted accounting principles, as adjusted by BB&T (“ BB&T Adjusted GAAP ROCE ”), must be at least three percent (3%), and if less than three percent (3%) there will not be an Award payout.
(bb)      Relative Performance Goal : If the Absolute Performance Goal is achieved, the next Performance Measure shall be BB&T Adjusted GAAP ROCE relative to the average, by company, return on shareholders’ common equity, determined in accordance with United States generally accepted accounting principles, achieved by each company, as adjusted by BB&T, of





the Peer Group during the Performance Period (“ Peer Group Adjusted GAAP ROCE ”).
(cc)     Relative TSR/TSR Modifier : After the Level of Achievement of the Relative Performance Goal is determined by the Administrator as provided in this Agreement, the Relative TSR and TSR Modifier shall be determined and applied in accordance with the TSR Modifier chart in Exhibit A attached hereto and made a part hereof. As used in this Agreement, “ Relative Total Shareholder Return ” and “ Relative TSR ” means BB&T’s total Common Stock shareholder return performance rank defined as a percentile for the Performance Period relative to the range of the Peer Group members’ total common stock shareholder return for the Performance Period. Total shareholder return for BB&T and each Peer Group member shall be calculated based upon BB&T’s Common Stock and the Peer Group members’ common stock appreciation during the Performance Period plus the value of dividends on the ex-dividend dates during the Performance Period on such stock (which dividends shall be deemed to have been reinvested in such underlying stock) and using a trailing twenty (20) trading day average stock price to determine both the Performance Period beginning stock price and the Performance Period ending stock price.
(ii)
For purposes of the Relative Performance Goal of the Award, there shall be levels of achievement (“ Levels of Achievement ”), including, threshold (“ Threshold ”), target (“ Target ”), and maximum (“ Maximum ”). The Threshold Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the twenty-fifth (25th) percentile of the Peer Group Adjusted GAAP ROCE; the Target Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the fiftieth (50th) percentile of the Peer Group Adjusted GAAP ROCE; and the Maximum Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the sixty-second and a half (62.5) percentile of the Peer Group Adjusted GAAP ROCE. The Levels of Achievement range from the Threshold Level of Achievement to the Maximum Level of Achievement as illustrated in the Level of Achievement Chart attached hereto as Exhibit A and made a part hereof.
(iii)
For avoidance of doubt in the interpretation of the Exhibit A Level of Achievement Chart, there will not be an Award payout if the Threshold Level of Achievement is not attained for the Performance Period. If the Threshold Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be fifty percent (50%) of the Participant’s Target %. If the Target Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be one hundred percent (100%) of the Participant’s Target %. If the Maximum Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be one hundred twenty-five percent (125%) of the Participant’s Target %.
(iv)
The projected Award payout to the Participant, if either the Target Level of Achievement or if the Maximum Level of Achievement is attained for the





Performance Period, with potential Relative TSR at a fiftieth (50 th ) percentile for a Target payout and at a seventy-fifth (75 th ) percentile for a Maximum payout, is summarized in the following chart (with certain assumptions concerning the Participant’s base salary for 2018, 2019 and 2020):
2018 Base Salary 1
2019 Base Salary 1
2020 Base Salary 1
Participant’s
Target %
Target Payout (if Target Level of Achievement Attained and Relative TSR is 50th Percentile 2
Maximum Payout (if Maximum Level of Achievement is Attained and Relative TSR is 75th Percentile or greater) 2   
$_________
$_________
$_________
_________%
$________________ 3
$____________ 3


(v)
For purposes hereof, the term “ Peer Group ” means Comerica Incorporated; Fifth-Third Bancorp; Huntington Bancshares, Incorporated; KeyCorp; M&T Bank Corporation; PNC Financial Services Group, Inc.; Regions Financial Corporation; SunTrust Banks, Inc.; U.S. Bancorp; Zions Bancorporation; Wells Fargo & Company; and Citizens Financial Group, Inc.
3.      Vesting of Award . Subject to the terms of the Plan and the Agreement (including but not limited to the provisions of Sections 2, 4 and 5 herein), the Award shall be one hundred percent (100%) vested and, to the extent any Award payout is determined by the Administrator, earned on January 1, 2021, following the December 31, 2020 expiration of the Performance Period, provided that the Administrator has not determined that all or any part of the Award shall be cancelled or forfeited as a result of either (i) a significant, negative risk outcome as a result of a corporate or individual action, or (ii) BB&T incurring an aggregate operating loss for the Performance Period. The Administrator has sole authority to determine whether and to what degree the Award has vested and is payable and to interpret the terms and conditions of this Agreement and the Plan.
4.      Forfeiture of Award . Except as may be otherwise provided in the Plan or in this Agreement (including, without limitation, the provisions of Section 2(b) herein), in the event that the employment of the Participant with BB&T or an Affiliate terminates for any reason and the Award has not vested pursuant to Section 3, then the Award, to the extent not vested as of the Participant’s termination of employment date, shall be forfeited immediately upon such termination, and the Participant shall have no further rights with respect to the Award. The Administrator (or its designee, to the extent permitted under the Plan) shall have sole discretion to determine if a Participant’s rights have terminated pursuant to the Plan and this Agreement, including but not limited to the authority to determine the basis for the Participant’s termination of employment. The Participant expressly acknowledges and agrees that, except as otherwise provided in this Agreement, the termination of the Participant’s employment shall result in forfeiture of the Award and any underlying payout to the extent the Award has not vested as of the Participant’s termination of employment date.
________________________
1
Solely for illustration purposes, projections assume certain salary increases on April 1 st of each year. Projections do not reflect negative discretion reductions by the Administrator.
2
The projected payouts will change based upon the Participant’s actual base salary for 2018, 2019 and 2020.
3
Pursuant to the terms of the Plan, in the Administrator’s discretion the Award may be payable in cash, in shares of Common Stock, or in a combination of both.






5.      Award Payout .
(a)      The amount of the Award payout, if any, shall be determined by the Administrator following the end of the Performance Period in accordance with the terms of this Agreement and the Plan including, without limitation, all applicable adjustments to the calculation of the Performance Goals.
(b)      The Award payout determined pursuant to Section 5(a) shall be payable, and paid, in cash, shares of Common Stock, or a combination of cash and shares of Common Stock, as determined by the Administrator in its sole discretion.
(c)      Award payout shall, upon vesting of the Award, be made to the Participant (or in the event of the Participant’s death, to the Participant’s beneficiary or beneficiaries) in a lump sum within two and one-half (2 ½) months following the end of the Performance Period; or if a Change of Control occurs during the Performance Period, payment shall be made in a lump sum within two and one-half (2 ½) months following the Change of Control (provided that if such two and one-half (2 ½) month period begins in one calendar year and ends in another, the Participant (or the Participant’s beneficiary or beneficiaries) shall not have the right to designate the calendar year of payment). Notwithstanding the foregoing, if the Participant is or may be a Specified Employee, a distribution due to Separation from Service may not be made until within the thirty- (30-) day period commencing with the first day of the seventh month following the month of Separation from Service, or, if earlier, the date of death of the Participant (with all such payments that otherwise would have been made during such six- (6-) month period to be made during the seventh month following Separation from Service), in each case except as may be otherwise permitted under Section 409A.
6.      No Right to Continued Employment or Service . Neither the Plan, the grant of the Award, nor any other action related to the Plan shall confer upon the Participant any right to continue in the employment or service of BB&T or an Affiliate or affect in any way with the right of BB&T or an Affiliate to terminate the Participant’s employment or service at any time. Except as otherwise expressly provided in the Plan or this Agreement or as determined by the Administrator, all rights of the Participant with respect to the Award shall terminate upon termination of the employment or service of the Participant with BB&T or an Affiliate. The grant of the Award does not create any obligation on the part of BB&T or an Affiliate to grant any further awards. So long as the Participant shall continue to be an Employee of BB&T or an Affiliate, the Award shall not be affected by any change in the duties or position of the Participant.
7.      Nontransferability of Award and Shares . The Award, and any Award payout, shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession. The designation of a beneficiary in accordance with Plan procedures does not constitute a transfer; provided, however, that unless disclaimer provisions are specifically included in a beneficiary designation form accepted by the Administrator, no beneficiary of the Participant may disclaim the Award.
8.      Superseding Agreement; Binding Effect . This Agreement supersedes any statements, representations or agreements of BB&T with respect to the grant of the Award or any related rights, and the Participant hereby waives any rights or claims related to any such statements, representations or agreements. This Agreement does not supersede or amend any existing confidentiality agreement, nonsolicitation agreement, noncompetition agreement, employment agreement or any other similar agreement between the Participant and BB&T or an Affiliate, including, but not limited to, any restrictive covenants contained in such agreements.
9.      Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without regard to the principles of conflicts of law, and in accordance with applicable United States federal laws.





10.      Amendment and Termination; Waiver . Subject to the terms of the Plan, this Agreement may be amended or terminated only by the written agreement of the parties hereto. The waiver by BB&T of a breach of any provision of the Agreement by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant. Notwithstanding the foregoing, the Administrator shall have unilateral authority to amend the Plan and this Agreement (without Participant consent) to the extent necessary to comply with applicable law or changes to applicable law (including but in no way limited to Section 409A and federal securities laws), and the Participant hereby consents to any such amendments to the Plan and this Agreement.
11.      Issuance of Shares; Rights as Shareholder . The Participant and the Participant’s legal representatives, legatees or distributees shall not be deemed to be the holder of any Shares subject to the Award and shall not have any voting rights, dividend rights or other rights of a shareholder unless and until such Shares have been issued to the Participant or them. No Shares subject to the Award shall be issued at the time of grant of the Award. Shares subject to the Award shall be issued in the name of the Participant (or, if the Participant is deceased, in the name of the Participant’s beneficiary or beneficiaries) as soon as practicable after, and only to the extent that, the Award has vested and if such distribution is otherwise permitted under the terms of Section 5 herein. Neither dividends nor dividend equivalent rights shall be granted in connection with the Award, and the Award shall not be adjusted to reflect the distribution of any dividends on the Common Stock (except as may be otherwise provided under the Plan). No dividends on the Shares shall be payable prior to both (i) the vesting of the Award and (ii) the issuance and distribution of Shares to the Participant .
12.      Withholding; Tax Matters .
(a)      BB&T or an Affiliate shall report all income and withhold all required local, state, federal, foreign income and other taxes and any other amounts required to be withheld by any governmental authority or law from any amount payable in cash with respect to the Award. Prior to the delivery or transfer of any shares of Common Stock or any other benefit conferred under the Plan, BB&T shall require the Participant to pay to BB&T in cash the amount of any tax or other amount required by any governmental authority to be withheld and paid over by BB&T or an Affiliate to such authority for the account of such recipient. Notwithstanding the foregoing, the Administrator may establish procedures to permit a recipient to satisfy such obligation in whole or in part, and any local, state, federal, foreign or other income, employment and other tax obligations relating to the Award, by electing (the “ election ”) to have BB&T withhold shares of Common Stock from any shares of Common Stock to which the recipient is entitled. The number of shares of Common Stock to be withheld shall have a Fair Market Value as of the date that the amount of tax to be withheld is determined as nearly equal as possible to the amount of such obligations being satisfied. Each election must be made in writing to the Administrator in accordance with election procedures established by the Administrator, including, without limitation, procedures established by the Administrator after BB&T’s adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718) dated March, 2016.
(b)      BB&T has made no warranties or representations to the Participant with respect to the tax consequences (including but not limited to income tax consequences) related to the Award or the payout, if any, pursuant to the Award, and the Participant is in no manner relying on BB&T or its representatives for an assessment of such tax consequences. The Participant acknowledges that there may be adverse tax consequences with respect to the Award and that the Participant should consult a tax advisor. The Participant acknowledges that the Participant has been advised that the Participant should consult with the Participant’s own attorney, accountant, and/or tax advisor regarding the decision to enter into this Agreement and the consequences thereof. The Participant also acknowledges that BB&T has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the Participant.





13.      Administration . The authority to construe and interpret this Agreement and the Plan, and to administer all aspects of the Plan, shall be vested in the Administrator, and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any interpretation of the Agreement by the Administrator and any decision made by it with respect to the Agreement are final and binding on the parties hereto.
14.      Notices . Any and all notices under this Agreement shall be in writing and sent by hand delivery or by certified or registered mail (return receipt requested and first-class postage prepaid), in the case of BB&T, to its Human Systems Division, 200 West Second Street (27101), PO Box 1215, Winston-Salem, NC 27102, attention: Human Systems Division Manager, and in the case of the Participant, to the last known address of the Participant as reflected in BB&T’s records.
15.      Severability . The provisions of this Agreement are severable; and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
16.      Compliance with Laws; Restrictions on Award and Shares of Common Stock . BB&T may impose such restrictions on the Award and any shares of Common Stock relating to the payout of the Award as it may deem advisable, including without limitation restrictions under the federal securities laws, federal tax laws, the requirements of any stock exchange or similar organization and any blue sky, state or foreign securities laws applicable to such Award or shares of Common Stock. Notwithstanding any other provision in the Plan or this Agreement to the contrary, BB&T shall not be obligated to issue, deliver or transfer any shares of Common Stock, make any other distribution of benefits under the Plan, or take any other action, unless such delivery, distribution or action is in compliance with all applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). BB&T may cause a restrictive legend or legends to be placed on any certificate for shares of Common Stock issued pursuant to the Award in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel.
17.      Successors and Assigns . Subject to the limitations stated herein and in the Plan, this Agreement shall be binding upon and inure to the benefit of the Participant and the Participant’s executors, administrators and permitted transferees and beneficiaries and BB&T and its successors and assigns.
18.      Counterparts, Further Instruments . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
19.      Right of Offset . Notwithstanding any other provision of the Plan or this Agreement, subject to any applicable laws to the contrary, BB&T may reduce the amount of any benefit or payment otherwise payable to or on behalf of the Participant by the amount of any obligation of the Participant to BB&T or an Affiliate that is or becomes due and payable, and the Participant shall be deemed to have consented to such reduction; provided, however, that to the extent Section 409A is applicable, such offset shall not exceed the greater of Five Thousand Dollars ($5,000) or the maximum offset amount then permitted under Section 409A.
20.      Adjustment of Award .
(a)      The Administrator shall have authority to make adjustments to the terms and conditions of the Award in recognition of unusual or nonrecurring events affecting BB&T or any Affiliate, or the financial





statements of BB&T or any Affiliate, or of changes in applicable laws, regulations or accounting principles, if the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or necessary or appropriate to comply with applicable laws, rules or regulations.
(b)      Notwithstanding anything contained in the Plan or elsewhere in this Agreement to the contrary, (i) the Administrator, in order to comply with applicable law (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act) and any risk management requirements and/or policies adopted by BB&T, retains the right at all times to decrease or terminate the Award and payments under the Plan, and any and all amounts payable under the Plan or paid under the Plan shall be subject to clawback, forfeiture, and reduction to the extent determined by the Administrator as necessary to comply with applicable law and/or policies adopted by BB&T; and (ii) in the event any legislation, regulation(s), or formal or informal guidance require(s) any compensation payable under the Plan (including, without limitation, the Award) to be deferred, reduced, eliminated, or subjected to vesting, the Award shall be deferred, reduced, eliminated, paid in a different form or subjected to vesting or other restrictions as, and solely to the extent, required by such legislation, regulation(s), or formal or informal guidance.
21.      Award Conditions .
(a)      Notwithstanding anything in the Plan or this Agreement to the contrary, to the extent that either (i) the Administrator or the Board of Governors of the Federal Reserve System determines that any change to the Plan and/or this Agreement is required, necessary, advisable, or deemed appropriate to improve the risk sensitivity of the Award, whether by (a) adjusting the Award quantitatively or judgmentally based on the risk the Participant’s activities pose to BB&T or an Affiliate; (b) extending the Performance Period for determining the Award; (c) extending the Performance Period and adjusting for actual losses or other performance issues; or (d) otherwise as required by the Administrator or the Federal Reserve System; or (ii) the Administrator or the United States government (including, without limiting any agency thereof) determines that any change to the Plan and/or this Agreement is required, necessary, advisable, or deemed appropriate to comply with any applicable law, regulation, or requirement; then this Agreement and/or the Award shall be automatically amended to incorporate such change, without further action of the Participant, and the Administrator shall provide the Participant notice thereof.
(b)      Notwithstanding anything contained in the Plan or this Agreement to the contrary, to the extent that either the Administrator or the United States government (including, without limitation, any agency thereof) determines that the Award granted to the Participant pursuant to this Agreement is prohibited or substantially restricted by, or subjects BB&T or an Affiliate to any adverse tax consequences that BB&T or an Affiliate is not otherwise subject to on the Grant Date because of, any current or future United States law, any rule, regulation, or other authority, then this Agreement shall automatically terminate effective as of the Grant Date and the Award shall automatically be cancelled as of the Grant Date without further action on the part of the Administrator or the Participant and without any compensation to the Participant for such termination and cancellation. The Administrator agrees to provide notice to the Participant of any such termination and cancellation.

[Signature Page to Follow]







IN WITNESS WHEREOF, this Agreement has been executed in behalf of BB&T and by the Participant effective as of the Grant Date.

BB&T CORPORATION
By:
 
 
 
PARTICIPANT
 
 
 
<< First Name >>   << MI>> << Last Name >>  







EXHIBIT A
TO
BB&T CORPORATION
2012 INCENTIVE PLAN
LTIP Award Agreement
(Senior Executive)

(January 1, 2018 through December 31, 2020 Performance Period - 2021 Payout)

1.      Absolute Performance Goal : The Absolute Performance Goal is an average BB&T Adjusted GAAP ROCE of three percent (3%) for the Performance Period.

2.      Relative Performance Goal : If the Absolute Performance Goal is achieved, the Award payout for the Performance Period will then be evaluated by the Administrator against the Peer Group based upon BB&T Adjusted GAAP ROCE relative to Peer Group Adjusted GAAP ROCE pursuant to the following:

Level of Achievement
Percentile Performance
(BB&T Adjusted GAAP ROCE Relative to   Peer Group Adjusted GAAP ROCE )
Payout Percent of
Participant’s Target %
 
 
 
Threshold
25 th
50%
 
30 th
60%
 
35 th
70%
 
40 th
80%
 
45 th
90%
Target
50 th
100%
 
55 th
110%
 
60 th
120%
Maximum
62.5 or greater
125%

Straight line interpolation will be used to calculate payout percentages not specifically listed in the “Payout Percent of Participant’s Target %” column above. For performance that is less than the 25 th percentile, the payout percentage is 0%.

3.      Relative Total Shareholder Return (“TSR”) Modifier :

Relative TSR (Percentile Performance of BB&T TSR Relative to Peer Group TSR)
TSR Modifier
 
 
Less than 25th
20% Reduction in Award payout
50th
  0% Reduction or increase in Award payout
75 th  or greater
20% Increase in Award payout, provided that the maximum Award payout shall be 125% of Participant’s Target %
Straight line interpolation will be used to calculate TSR Modifier percentage reductions or increases not specifically listed in the “TSR Modifier” column above.





4.      Discretionary Decreases : The Administrator has the discretion to decrease Award payouts based on business factors, including but not limited to, industry conditions, performance relative to peers, regulatory developments, and changes in capital requirements.





Exhibit 10.2
BB&T CORPORATION
2012 INCENTIVE PLAN
Performance Unit Award Agreement
(Senior Executive)

Grant Date:
February 20, 2018
Performance Period:
January 1, 2018 through December 31, 2020
THIS AGREEMENT (the “ Agreement ”), made effective as of February 20, 2018 (the “ Grant Date ”), between BB&T CORPORATION, a North Carolina corporation (“ BB&T ”), for itself and its Affiliates, and the Employee (the “ Participant ”) specified in the above Notice of Grant and Agreement (the “ Notice of Grant ”), is made pursuant to and subject to the provisions of the BB&T Corporation 2012 Incentive Plan, as it may be amended and/or restated (the “ Plan ”).
RECITALS :
BB&T desires to carry out the purposes of the Plan by affording the Participant an opportunity to acquire shares of BB&T Common Stock, $5.00 par value per share (the “ Common Stock ”), as hereinafter provided.
In consideration of the foregoing, of the mutual promises set forth below and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:
1. Incorporation of Notice of Grant and Plan . The Notice of Grant is part of this Agreement and incorporated herein. The rights and duties of BB&T and the Participant under this Agreement shall in all respects be subject to and governed by the provisions of the Plan, the terms of which are incorporated herein by reference. In the event of any conflict between the provisions in the Agreement and those of the Plan, the provisions of the Plan shall govern. Unless otherwise provided herein, capitalized terms in this Agreement shall have the same definitions as set forth in the Plan. Notwithstanding the foregoing, as a result of changes to Section 162(m) of the Tax Cut and Jobs Act of 2017, the performance-based compensation provisions of Section 162(m) are inapplicable to this Agreement.
2.      Grant of Performance Units . Subject to the terms of this Agreement and the Plan, BB&T hereby grants the Participant an Award of Performance Units (the “ Award ”) for the number of whole shares of Common Stock at the Target Level of Achievement (the “ Shares ”) specified in the Notice of Grant and in accordance with the following provisions:
(a)      Performance Period . The performance period (“ Performance Period ”) for the Award shall be January 1, 2018 through December 31, 2020.
(b)      Partial Performance Period .
(i)
(1) Death or Disability . If the Participant ceases to be a Participant in the Plan during the Performance Period due to the Participant’s termination of employment due to death or Disability, the Participant’s Award for the





Performance Period shall be payable in accordance with this Agreement, based upon the attainment of the Absolute Performance Goal and at least the Threshold Level of Achievement and the application of the TSR Modifier as provided in Section 2(c) and Exhibit A herein; provided that, for the avoidance of doubt, in the case of a Change of Control, the Performance Period shall end as of the date of the Change of Control and payment shall be made (for Participants who are not Employees on the date of the Change of Control), within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated as provided in Section 2(b)(i)(3) below. For the avoidance of doubt, the phrase “termination of employment” means a Separation from Service.
(2)     Involuntary Termination Without Cause and Retirement . If the Participant ceases to be a Participant in the Plan during the Performance Period due to the Participant’s termination of employment (A) involuntarily by the Company and/or its Affiliates without Cause, or (B) due to Retirement, the Participant’s Award for the Performance Period shall be payable in accordance with this Agreement, based upon the attainment of the Absolute Performance Goal and at least the Threshold Level of Achievement and the application of the TSR Modifier as provided in Section 2(c) and Exhibit A herein; provided that, for the avoidance of doubt, in the case of a Change of Control, the Performance Period shall end as of the date of the Change of Control and payment shall be made (for Participants who are not Employees on the date of the Change of Control), within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated as provided in Section 2(b)(i)(3) below. A termination shall be for “ Cause ” if the termination of the Participant’s employment by the Company and/or its Affiliates is on account of the Participant’s (x) dishonesty, theft or embezzlement; (y) refusal or failure to perform the Participant’s assigned duties for BB&T or an Affiliate in a satisfactory manner; or (z) engaging in any conduct that could be materially damaging to BB&T or its Affiliates without a reasonable good faith belief that such conduct was in the best interest of BB&T or any of its Affiliates. The determination of whether termination is for Cause shall be made by the Administrator (or its designee, to the extent permitted under the Plan), and its determination shall be final and conclusive. For the avoidance of doubt, the phrase “termination of employment” means a Separation from Service.

(3)     Change of Control . If, while the Participant is an Employee, there is a Change of Control during the Performance Period, the Performance Period shall, notwithstanding anything to the contrary elsewhere in this Agreement, end upon the date of the Change of Control and the Participant’s Award shall be paid within two and one-half (2 ½) months following a Change of Control as provided in Section 5(b) herein, calculated as follows: provided that the Absolute Performance Goal of Section 2(c)(i)(aa) is met for the completed calendar year(s) during such shortened Performance Period (and if there are no completed calendar years during such shortened Performance Period, the Absolute Performance Goal of Section 2(c)(i)(aa) shall be deemed to be met), Participant’s Award shall be the sum of (1) and (2) as follows (and payable in





accordance with Section 5(b) of this Agreement): (1) for completed calendar year(s) during the shortened Performance Period, an Award amount shall be calculated by multiplying the Shares by a fraction, the numerator of which is the number of completed year(s) and the denominator of which is 3, and then by determining the actual Level of Achievement attained during such completed calendar year(s) adjusted by the TSR Modifier (and subject to the Maximum Award payment of 125% of the Shares) as provided in Section 2(c)(i)(cc) and Exhibit A , applied thereto for the completed calendar year(s) of the Performance Period; and (2) for the remaining uncompleted calendar year(s) in the Performance Period, an Award amount calculated by multiplying the Shares by a fraction, the numerator of which is the number of uncompleted calendar year(s) and the denominator of which is 3, and then multiplying the product thereof by the Target Level of Achievement for the Relative Performance Goal in Exhibit A .

(ii)
(1)     For purposes of Section 2(b)(i)(3) above, a “ Change of Control ” will be deemed to have occurred on the earliest of the following dates: (A) the date any person or group of persons (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), together with its affiliates, excluding employee benefit plans of BB&T and its Affiliates, is or becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act) of securities of BB&T representing thirty percent (30%) or more of the combined voting power of BB&T’s then outstanding securities; or (B) the date when, as a result of a tender offer or exchange offer for the purchase of securities of BB&T (other than such an offer by BB&T for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any consecutive twelve- (12-) month period during the Performance Period of the Award constituted BB&T’s Board, plus new directors whose election or nomination for election by BB&T’s shareholders is approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such twelve- (12-) month period (collectively, the “ Continuing Directors ”), cease for any reason during such twelve- (12-) month period to constitute at least two-thirds of the members of such board of directors; (C) the date the shareholders of BB&T approve an agreement for the sale or disposition by BB&T of all or substantially all of BB&T’s assets within the meaning of Section 409A; or (D) the date that any one person, or more than one person acting as a group, acquires ownership of stock of BB&T that, together with stock held by such person or group constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of BB&T within the meaning of Section 409A.
(2)    Notwithstanding Section 2(b)(i)(3) and (ii)(1) above, the term “Change of Control” shall not include any event that is a “Merger of Equals.” For purposes of the Plan and this Agreement, the term “ Merger of Equals ” means any event that would otherwise qualify as a Change of Control if the event (including, if applicable, the terms and conditions of the related agreements, exhibits, annexes, and similar documents) satisfies all of the following





conditions as of the date of such event: (A) the Board of BB&T or, if applicable, a majority of the Continuing Directors has, prior to the change in control event, approved the event; (B) at least fifty percent (50%) of the common stock of the surviving corporation outstanding immediately after consummation of the event, together with at least fifty percent (50%) of the voting securities representing at least fifty percent (50%) of the combined voting power of all voting securities of the surviving corporation outstanding immediately after the event shall be owned, directly or indirectly, by the persons who were the owners, directly or indirectly, of the common stock and voting securities of BB&T immediately before the consummation of such event in substantially the same proportions as their respective direct or indirect ownership immediately before such event of the common stock and voting securities of BB&T, respectively; (C) at least fifty percent (50%) of the directors of the surviving corporation immediately after the event shall be composed of directors who were Directors or Continuing Directors immediately before the event; and (D) the person who was the Chief Executive Officer (“ CEO ”) of BB&T immediately before the event shall be the CEO of the surviving corporation immediately after the event. If a transaction constitutes a Merger of Equals, then, notwithstanding the provisions of Section 2(b)(i)(3) and (ii)(1) above, the vesting of the Award will not be accelerated due to the Merger of Equals, but the Award shall instead continue to vest, if at all, in accordance with the provisions of Sections 2, 3 and 4 herein.
(c)      Performance Measures for Award . The pre-established three- (3-) year Performance Period’s Performance Measures (as defined in Section 2(c)(i) below) applicable to the Award and Levels of Achievement are as follows:
(i)
Performance Measures and Relative TSR/TSR Modifier:
(aa)      Absolute Performance Goal : The average return on shareholders’ common equity for BB&T during the Performance Period determined in accordance with United States generally accepted accounting principles, as adjusted by BB&T (“ BB&T Adjusted GAAP ROCE ”), must be at least three percent (3%), and if less than three percent (3%) there will not be an Award payout.
(bb)      Relative Performance Goal : If the Absolute Performance Goal is achieved, the next Performance Measure shall be BB&T Adjusted GAAP ROCE relative to the average, by company, return on shareholders’ common equity, determined in accordance with United States generally accepted accounting principles, achieved by each company, as adjusted by BB&T, of the Peer Group during the Performance Period (“ Peer Group Adjusted GAAP ROCE ”).
(cc)     Relative TSR/TSR Modifier : After the Level of Achievement of the Relative Performance Goal is determined by the Administrator as provided in this Agreement, the Relative TSR and TSR Modifier shall be determined and applied in accordance with the TSR Modifier chart in Exhibit A attached hereto and made a part hereof. As used in this Agreement, “ Relative Total Shareholder Return ” and “ Relative TSR ” means BB&T’s total Common





Stock shareholder return performance rank defined as a percentile for the Performance Period relative to the range of the Peer Group members’ total common stock shareholder return for the Performance Period. Total shareholder return for BB&T and each Peer Group member shall be calculated based upon BB&T’s Common Stock and the Peer Group members’ common stock appreciation during the Performance Period plus the value of dividends on the ex-dividend dates during the Performance Period on such stock (which dividends shall be deemed to have been reinvested in such underlying stock) and using a trailing twenty (20) trading day average stock price to determine both the Performance Period beginning stock price and the Performance Period ending stock price.
(ii)
For purposes of the Relative Performance Goal of the Award, there shall be levels of achievement (“ Levels of Achievement ”), including, threshold (“ Threshold ”), target (“ Target ”), and maximum (“ Maximum ”). The Threshold Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the twenty-fifth (25th) percentile of the Peer Group Adjusted GAAP ROCE; the Target Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the fiftieth (50th) percentile of the Peer Group Adjusted GAAP ROCE; and the Maximum Level of Achievement shall be a BB&T Adjusted GAAP ROCE of the sixty-second and a half (62.5) percentile of the Peer Group Adjusted GAAP ROCE. The Levels of Achievement range from the Threshold Level of Achievement to the Maximum Level of Achievement as illustrated in the Level of Achievement Chart attached hereto as Exhibit A and made a part hereof.
(iii)
For avoidance of doubt in the interpretation of the Exhibit A Level of Achievement Chart, there will not be an Award payout if the Threshold Level of Achievement is not attained for the Performance Period. If the Threshold Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be fifty percent (50%) of the Shares. If the Target Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be one hundred percent (100%) of the Shares. If the Maximum Level of Achievement is attained for the Performance Period, the Award payout to the Participant will, subject to the TSR Modifier of Exhibit A , be one hundred twenty-five percent (125%) of the Shares.
(iv)
For purposes hereof, the term “ Peer Group ” means Comerica Incorporated; Fifth-Third Bancorp; Huntington Bancshares, Incorporated; KeyCorp; M&T Bank Corporation; PNC Financial Services Group, Inc.; Regions Financial Corporation; SunTrust Banks, Inc.; U.S. Bancorp; Zions Bancorporation; Wells Fargo & Company; and Citizens Financial Group, Inc.
3.      Vesting of Award . Subject to the terms of the Plan and the Agreement (including but not limited to the provisions of Sections 2, 4 and 5 herein), the Award shall be 100% vested and, to the extent any Award payout is determined by the Administrator, earned on March 15, 2021, following the December 31, 2020 expiration of the Performance Period, provided that the Administrator has not determined that all or any part of the Award shall be cancelled or forfeited as a result of either (i) a significant, negative risk outcome as a result of a corporate or individual action, or (ii) BB&T incurring an aggregate operating loss





for the Performance Period. The Administrator has sole authority to determine whether and to what degree the Award has vested and is payable and to interpret the terms and conditions of this Agreement and the Plan.
4.      Forfeiture of Award . Except as may be otherwise provided in the Plan or in this Agreement (including, without limitation, the provisions of Section 2(b) herein), in the event that the employment of the Participant with BB&T or an Affiliate terminates for any reason and the Award has not vested pursuant to Section 3, then the Award, to the extent not vested as of the Participant’s termination of employment date, shall be forfeited immediately upon such termination, and the Participant shall have no further rights with respect to the Award. The Administrator (or its designee, to the extent permitted under the Plan) shall have sole discretion to determine if a Participant’s rights have terminated pursuant to the Plan and this Agreement, including but not limited to the authority to determine the basis for the Participant’s termination of employment. The Participant expressly acknowledges and agrees that, except as otherwise provided in this Agreement, the termination of the Participant’s employment shall result in forfeiture of the Award and any underlying payout to the extent the Award has not vested as of the Participant’s termination of employment date.
5.      Award Payout .
(a)      The amount of the Award payout, if any, shall be determined by the Administrator following the end of the Performance Period in accordance with the terms of this Agreement and the Plan including, without limitation, all applicable adjustments to the calculation of the Performance Goals.
(b)      The Award payout determined pursuant to Section 5(a) shall be payable, and paid, in shares of Common Stock.
(c)      Award payout shall, upon vesting of the Award, be made to the Participant (or in the event of the Participant’s death, to the Participant’s beneficiary or beneficiaries) in a lump sum within two and one-half (2 ½) months following the end of the Performance Period; or if a Change of Control occurs during the Performance Period, payment shall be made in a lump sum within two and one-half (2 ½) months following the Change of Control (provided that if such two and one-half (2 ½) month period begins in one calendar year and ends in another, the Participant (or the Participant’s beneficiary or beneficiaries) shall not have the right to designate the calendar year of payment). Notwithstanding the foregoing, if the Participant is or may be a Specified Employee, a distribution due to Separation from Service may not be made until within the thirty- (30-) day period commencing with the first day of the seventh month following the month of Separation from Service, or, if earlier, the date of death of the Participant (with all such payments that otherwise would have been made during such six- (6-) month period to be made during the seventh month following Separation from Service), in each case except as may be otherwise permitted under Section 409A.
6.      No Right to Continued Employment or Service . Neither the Plan, the grant of the Award, nor any other action related to the Plan shall confer upon the Participant any right to continue in the employment or service of BB&T or an Affiliate or affect in any way with the right of BB&T or an Affiliate to terminate the Participant’s employment or service at any time. Except as otherwise expressly provided in the Plan or this Agreement or as determined by the Administrator, all rights of the Participant with respect to the Award shall terminate upon termination of the employment or service of the Participant with BB&T or an Affiliate. The grant of the Award does not create any obligation on the part of BB&T or an Affiliate to grant any further awards. So long as the Participant shall continue to be an Employee of BB&T or an Affiliate, the Award shall not be affected by any change in the duties or position of the Participant.





7.      Nontransferability of Award and Shares . The Award, and any Award payout, shall not be transferable (including by sale, assignment, pledge or hypothecation) other than by will or the laws of intestate succession. The designation of a beneficiary in accordance with Plan procedures does not constitute a transfer; provided, however, that unless disclaimer provisions are specifically included in a beneficiary designation form accepted by the Administrator, no beneficiary of the Participant may disclaim the Award.
8.      Superseding Agreement; Binding Effect . This Agreement supersedes any statements, representations or agreements of BB&T with respect to the grant of the Award or any related rights, and the Participant hereby waives any rights or claims related to any such statements, representations or agreements. This Agreement does not supersede or amend any existing confidentiality agreement, nonsolicitation agreement, noncompetition agreement, employment agreement or any other similar agreement between the Participant and BB&T or an Affiliate, including, but not limited to, any restrictive covenants contained in such agreements.
9.      Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, without regard to the principles of conflicts of law, and in accordance with applicable United States federal laws.
10.      Amendment and Termination; Waiver . Subject to the terms of the Plan, this Agreement may be amended or terminated only by the written agreement of the parties hereto. The waiver by BB&T of a breach of any provision of the Agreement by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant. Notwithstanding the foregoing, the Administrator shall have unilateral authority to amend the Plan and this Agreement (without Participant consent) to the extent necessary to comply with applicable law or changes to applicable law (including but in no way limited to Section 409A and federal securities laws), and the Participant hereby consents to any such amendments to the Plan and this Agreement.
11.      Issuance of Shares; Rights as Shareholder . The Participant and the Participant’s legal representatives, legatees or distributees shall not be deemed to be the holder of any Shares subject to the Award and shall not have any voting rights, dividend rights or other rights of a shareholder unless and until such Shares have been issued to the Participant or them. No Shares subject to the Award shall be issued at the time of grant of the Award. Shares subject to the Award shall be issued in the name of the Participant (or, if the Participant is deceased, in the name of the Participant’s beneficiary or beneficiaries) as soon as practicable after, and only to the extent that, the Award has vested and if such distribution is otherwise permitted under the terms of Section 5 herein. Neither dividends nor dividend equivalent rights shall be granted in connection with the Award, and the Award shall not be adjusted to reflect the distribution of any dividends on the Common Stock (except as may be otherwise provided under the Plan). No dividends on the Shares shall be payable prior to both (i) the vesting of the Award and (ii) the issuance and distribution of Shares to the Participant .
12.      Withholding; Tax Matters .
(a)      BB&T or an Affiliate shall report all income and withhold all required local, state, federal, foreign income and other taxes and any other amounts required to be withheld by any governmental authority or law from any amount payable in cash with respect to the Award. Prior to the delivery or transfer of any shares of Common Stock or any other benefit conferred under the Plan, BB&T shall require the Participant to pay to BB&T in cash the amount of any tax or other amount required by any governmental authority to be withheld and paid over by BB&T or an Affiliate to such authority for the account of such recipient. Notwithstanding the foregoing, the Administrator may establish procedures to permit a recipient to satisfy such obligation in whole or in part, and any local, state, federal, foreign or other income, employment





and other tax obligations relating to the Award, by electing (the “ election ”) to have BB&T withhold shares of Common Stock from any shares of Common Stock to which the recipient is entitled. The number of shares of Common Stock to be withheld shall have a Fair Market Value as of the date that the amount of tax to be withheld is determined as nearly equal as possible to the amount of such obligations being satisfied. Each election must be made in writing to the Administrator in accordance with election procedures established by the Administrator, including, without limitation, procedures established by the Administrator after BB&T’s adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718) dated March, 2016.
(b)      BB&T has made no warranties or representations to the Participant with respect to the tax consequences (including but not limited to income tax consequences) related to the Award or the payout, if any, pursuant to the Award, and the Participant is in no manner relying on BB&T or its representatives for an assessment of such tax consequences. The Participant acknowledges that there may be adverse tax consequences with respect to the Award and that the Participant should consult a tax advisor. The Participant acknowledges that the Participant has been advised that the Participant should consult with the Participant’s own attorney, accountant, and/or tax advisor regarding the decision to enter into this Agreement and the consequences thereof. The Participant also acknowledges that BB&T has no responsibility to take or refrain from taking any actions in order to achieve a certain tax result for the Participant.
13.      Administration . The authority to construe and interpret this Agreement and the Plan, and to administer all aspects of the Plan, shall be vested in the Administrator, and the Administrator shall have all powers with respect to this Agreement as are provided in the Plan. Any interpretation of the Agreement by the Administrator and any decision made by it with respect to the Agreement are final and binding on the parties hereto.
14.      Notices . Any and all notices under this Agreement shall be in writing and sent by hand delivery or by certified or registered mail (return receipt requested and first-class postage prepaid), in the case of BB&T, to its Human Systems Division, 200 West Second Street (27101), PO Box 1215, Winston-Salem, NC 27102, attention: Human Systems Division Manager, and in the case of the Participant, to the last known address of the Participant as reflected in BB&T’s records.
15.      Severability . The provisions of this Agreement are severable; and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
16.      Compliance with Laws; Restrictions on Award and Shares of Common Stock . BB&T may impose such restrictions on the Award and any shares of Common Stock relating to the payout of the Award as it may deem advisable, including without limitation restrictions under the federal securities laws, federal tax laws, the requirements of any stock exchange or similar organization and any blue sky, state or foreign securities laws applicable to such Award or shares of Common Stock. Notwithstanding any other provision in the Plan or this Agreement to the contrary, BB&T shall not be obligated to issue, deliver or transfer any shares of Common Stock, make any other distribution of benefits under the Plan, or take any other action, unless such delivery, distribution or action is in compliance with all applicable laws, rules and regulations (including but not limited to the requirements of the Securities Act). BB&T may cause a restrictive legend or legends to be placed on any certificate for shares of Common Stock issued pursuant to the Award in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel.
17.      Successors and Assigns . Subject to the limitations stated herein and in the Plan, this Agreement shall be binding upon and inure to the benefit of the Participant and the Participant’s executors, administrators and permitted transferees and beneficiaries and BB&T and its successors and assigns.





18.      Counterparts, Further Instruments . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement.
19.      Right of Offset . Notwithstanding any other provision of the Plan or this Agreement, subject to any applicable laws to the contrary, BB&T may reduce the amount of any benefit or payment otherwise payable to or on behalf of the Participant by the amount of any obligation of the Participant to BB&T or an Affiliate that is or becomes due and payable, and the Participant shall be deemed to have consented to such reduction; provided, however, that to the extent Section 409A is applicable, such offset shall not exceed the greater of Five Thousand Dollars ($5,000) or the maximum offset amount then permitted under Section 409A.
20.      Adjustment of Award .
(a)      The Administrator shall have authority to make adjustments to the terms and conditions of the Award in recognition of unusual or nonrecurring events affecting BB&T or any Affiliate, or the financial statements of BB&T or any Affiliate, or of changes in applicable laws, regulations or accounting principles, if the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or necessary or appropriate to comply with applicable laws, rules or regulations.
(b)      Notwithstanding anything contained in the Plan or elsewhere in this Agreement to the contrary, (i) the Administrator, in order to comply with applicable law (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act) and any risk management requirements and/or policies adopted by BB&T, retains the right at all times to decrease or terminate the Award and payments under the Plan, and any and all amounts payable under the Plan or paid under the Plan shall be subject to clawback, forfeiture, and reduction to the extent determined by the Administrator as necessary to comply with applicable law and/or policies adopted by BB&T; and (ii) in the event any legislation, regulation(s), or formal or informal guidance require(s) any compensation payable under the Plan (including, without limitation, the Award) to be deferred, reduced, eliminated, or subjected to vesting, the Award shall be deferred, reduced, eliminated, paid in a different form or subjected to vesting or other restrictions as, and solely to the extent, required by such legislation, regulation(s), or formal or informal guidance.
21.      Award Conditions .
(a)      Notwithstanding anything in the Plan or this Agreement to the contrary, to the extent that either (i) the Administrator or the Board of Governors of the Federal Reserve System determines that any change to the Plan and/or this Agreement is required, necessary, advisable, or deemed appropriate to improve the risk sensitivity of the Award, whether by (a) adjusting the Award quantitatively or judgmentally based on the risk the Participant’s activities pose to BB&T or an Affiliate; (b) extending the Performance Period for determining the Award; (c) extending the Performance Period and adjusting for actual losses or other performance issues; or (d) otherwise as required by the Administrator or the Federal Reserve System; or (ii) the Administrator or the United States government (including, without limiting any agency thereof) determines that any change to the Plan and/or this Agreement is required, necessary, advisable, or deemed appropriate to comply with any applicable law, regulation, or requirement; then this Agreement and/or the Award shall be automatically amended to incorporate such change, without further action of the Participant, and the Administrator shall provide the Participant notice thereof.





(b)      Notwithstanding anything contained in the Plan or this Agreement to the contrary, to the extent that either the Administrator or the United States government (including, without limitation, any agency thereof) determines that the Award granted to the Participant pursuant to this Agreement is prohibited or substantially restricted by, or subjects BB&T or an Affiliate to any adverse tax consequences that BB&T or an Affiliate is not otherwise subject to on the Grant Date because of, any current or future United States law, any rule, regulation, or other authority, then this Agreement shall automatically terminate effective as of the Grant Date and the Award shall automatically be cancelled as of the Grant Date without further action on the part of the Administrator or the Participant and without any compensation to the Participant for such termination and cancellation. The Administrator agrees to provide notice to the Participant of any such termination and cancellation.
IN WITNESS WHEREOF , BB&T and the Participant have entered into this Agreement effective as of the Grant Date. Should the Participant fail to acknowledge his or her electronic acceptance of this Agreement, this Agreement may become null and void as of the Grant Date, and the Participant may forfeit any and all rights hereunder at the discretion of the Administrator.
* * *






EXHIBIT A
TO
BB&T CORPORATION
2012 INCENTIVE PLAN
Performance Unit Award Agreement
(Senior Executive)

(January 1, 2018 through December 31, 2020 Performance Period - 2021 Payout)

1.      Absolute Performance Goal : The Absolute Performance Goal is an average BB&T Adjusted GAAP ROCE of three percent (3%) for the Performance Period.

2.      Relative Performance Goal : If the Absolute Performance Goal is achieved, the Award payout for the Performance Period will then be evaluated by the Administrator against the Peer Group based upon BB&T Adjusted GAAP ROCE relative to Peer Group Adjusted GAAP ROCE pursuant to the following:

Level of Achievement
Percentile Performance
(BB&T Adjusted GAAP ROCE Relative to Peer Group Adjusted GAAP ROCE )
Payout Percent of
Participant’s Shares
 
 
 
Threshold
25 th
50%
 
30 th
60%
 
35 th
70%
 
40 th
80%
 
45 th
90%
Target
50 th
100%
 
55 th
110%
 
60 th
120%
Maximum
62.5 or greater
125%

Straight line interpolation will be used to calculate payout percentages not specifically listed in the “Payout Percent of Participant’s Shares” column above. For performance that is less than the 25 th percentile, the payout percentage is 0%.

3.      Relative Total Shareholder Return (“TSR”) Modifier :

Relative TSR (Percentile Performance of BB&T TSR Relative to Peer Group TSR)
TSR Modifier
 
 
Less than 25th
20% Reduction in Award payout
50th
0% Reduction or increase in Award payout
75 th  or greater
20% Increase in Award payout, provided that the maximum Award payout shall be 125% of the Participant’s Shares
Straight line interpolation will be used to calculate TSR Modifier percentage reductions or increases not specifically listed in the “TSR Modifier” column above.





4.      Discretionary Decreases : The Administrator has the discretion to decrease Award payouts based on business factors, including but not limited to, industry conditions, performance relative to peers, regulatory developments, and changes in capital requirements.



Exhibit 12
 
Computation of Ratio of Earnings To Fixed Charges
BB&T Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Year Ended December 31,
(Dollars in millions)
2018
 
2017
 
2017
 
2016
 
2015
 
2014
 
2013
Earnings:
 
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
$
977

 
$
530

 
$
3,326

 
$
3,500

 
$
2,917

 
$
3,127

 
$
3,283

Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges
307

 
192

 
921

 
843

 
819

 
843

 
967

Distributions from equity method investees
1

 
1

 
3

 
5

 
8

 
9

 
9

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized interest

 
1

 
2

 
3

 
2

 
1

 

Income (loss) from equity method investees
(4
)
 
(4
)
 
(11
)
 
(9
)
 
(3
)
 

 
9

Earnings
$
1,289

 
$
726

 
$
4,259

 
$
4,354

 
$
3,745

 
$
3,978

 
$
4,250

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits
118

 
69

 
344

 
251

 
233

 
239

 
301

Earnings, excluding interest on deposits
$
1,171

 
$
657

 
$
3,915

 
$
4,103

 
$
3,512

 
$
3,739

 
$
3,949

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
$
288

 
$
166

 
$
839

 
$
745

 
$
735

 
$
768

 
$
891

Capitalized interest

 
1

 
2

 
3

 
2

 
1

 

Interest portion of rent expense
19

 
25

 
80

 
95

 
82

 
74

 
76

Total fixed charges
$
307

 
$
192

 
$
921

 
$
843

 
$
819

 
$
843

 
$
967

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest on deposits
118

 
69

 
344

 
251

 
233

 
239

 
301

Total fixed charges, excluding interest on deposits
$
189

 
$
123

 
$
577

 
$
592

 
$
586

 
$
604

 
$
666

Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends/accretion on preferred stock (1)
53

 
53

 
240

 
239

 
203

 
210

 
222

Total fixed charges and preferred dividends
$
360

 
$
245

 
$
1,161

 
$
1,082

 
$
1,022

 
$
1,053

 
$
1,189

Total fixed charges and preferred dividends, excluding interest on deposits
$
242

 
$
176

 
$
817

 
$
831

 
$
789

 
$
814

 
$
888

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings to fixed charges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Including interest on deposits
4.20x

 
3.78x

 
4.62x

 
5.16x

 
4.57x

 
4.72x

 
4.40x

Excluding interest on deposits
6.20x

 
5.34x

 
6.79x

 
6.93x

 
5.99x

 
6.19x

 
5.93x

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings to fixed charges and preferred dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
Including interest on deposits
3.58x

 
2.96x

 
3.67x

 
4.02x

 
3.66x

 
3.78x

 
3.57x

Excluding interest on deposits
4.84x

 
3.73x

 
4.79x

 
4.94x

 
4.45x

 
4.59x

 
4.45x

(1)
Dividends on preferred stock have been grossed up by the effective tax rate for the period.





Exhibit 31.1
CERTIFICATIONS

I, Kelly S. King , certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of BB&T Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 30, 2018
/s/ Kelly S. King
Kelly S. King
Chairman and Chief Executive Officer




Exhibit 31.2
CERTIFICATIONS  

I, Daryl N. Bible , certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of BB&T Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 30, 2018
/s/ Daryl N. Bible
Daryl N. Bible
Senior Executive Vice President and
Chief Financial Officer





Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Chief Executive Officer and Chief Financial Officer of BB&T Corporation (the “Company”), do hereby certify that:
1.
The Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2018 (the “Form 10-Q ”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2018
/s/ Kelly S. King
Kelly S. King
Chairman and Chief Executive Officer
 
/s/ Daryl N. Bible
Daryl N. Bible
Senior Executive Vice President and
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to BB&T Corporation and will be retained by BB&T Corporation and furnished to the Securities and Exchange Commission or its staff upon request.