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EX-31.1 - EXHIBIT 31.1 - BB&T CORPexhibit311.htm
EX-12 - EXHIBIT 12 - BB&T CORPexhibit12.htm
EX-10.1 - EXHIBIT 10.1 - BB&T CORPexhibit101.htm
EX-32 - EXHIBIT 32 - BB&T CORPexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - BB&T CORPexhibit312.htm
 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2015

Commission file number: 1-10853

 

BB&T CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

   
North Carolina 56-0939887
(State of Incorporation)

(I.R.S. Employer

Identification No.)

 

   
200 West Second Street 27101

Winston-Salem, North Carolina

(Address of Principal Executive Offices)

(Zip Code)

(336) 733-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

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

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  [X]   No  [  ]

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

 

Large accelerated filer X      Accelerated filer         
         
Non-accelerated filer    (Do not check if a smaller reporting company) Smaller reporting company  

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  [  ]   No  [X]

At June 30, 2015, 733,480,586 shares of the Registrant’s common stock, $5 par value, were outstanding.

 

 

 
 
 

 

 

BB&T CORPORATION
FORM 10-Q
June 30, 2015
INDEX
      Page No.
PART I  
Item 1. Financial Statements  
  Consolidated Balance Sheets (Unaudited) 3
  Consolidated Statements of Income (Unaudited) 4
  Consolidated Statements of Comprehensive Income (Unaudited) 5
  Consolidated Statements of Changes in Shareholders' Equity (Unaudited) 6
  Consolidated Statements of Cash Flows (Unaudited) 7
  Notes to Consolidated Financial Statements (Unaudited)  
    Note 1. Basis of Presentation 8
    Note 2. Acquisitions and Divestitures 10
    Note 3. Securities 11
    Note 4. Loans and ACL 14
    Note 5. Goodwill 21
    Note 6. Loan Servicing 22
    Note 7. Deposits 24
    Note 8. Long-Term Debt 24
    Note 9. Shareholders' Equity 25
    Note 10. AOCI 26
    Note 11. Income Taxes 28
    Note 12. Benefit Plans 29
    Note 13. Commitments and Contingencies 29
    Note 14. Fair Value Disclosures 31
    Note 15. Derivative Financial Instruments 38
    Note 16. Computation of EPS 43
    Note 17. Operating Segments 43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45
Item 3. Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management) 70
Item 4. Controls and Procedures 78
PART II  
Item 1. Legal Proceedings 79
Item 1A. Risk Factors 79
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 79
Item 3. Defaults Upon Senior Securities - (not applicable.)  
Item 4. Mine Safety Disclosures - (not applicable.)  
Item 5. Other Information - (none to be reported.)  
Item 6. Exhibits 79
 
 

Glossary of Defined Terms

The following terms may be used throughout this Report, including the consolidated financial statements and related notes.

 

Term   Definition
2015 Repurchase Plan   Plan for the repurchase of up to 50 million shares of BB&T’s common stock
2006 Repurchase Plan   Plan for the repurchase of up to 50 million shares of BB&T’s common stock
ACL   Allowance for credit losses
Acquired from FDIC   Assets of Colonial Bank acquired from the Federal Deposit Insurance Corporation during 2009, which are currently covered or were formerly covered under loss sharing agreements
AFS   Available-for-sale
Agency MBS   Mortgage-backed securities issued by a U.S. government agency or GSE
ALLL   Allowance for loan and lease losses
American Coastal   American Coastal Insurance Company
AOCI   Accumulated other comprehensive income (loss)
Basel III   Global regulatory standards on bank capital adequacy and liquidity published by the BCBS
BB&T   BB&T Corporation and subsidiaries
BCBS   Basel Committee on Bank Supervision
BHC   Bank holding company
BHCA   Bank Holding Company Act of 1956, as amended
Branch Bank   Branch Banking and Trust Company
BU   Business Unit
CCAR   Comprehensive Capital Analysis and Review
CD   Certificate of deposit
CDI   Core deposit intangible assets
CFPB   Consumer Financial Protection Bureau
CEO   Chief Executive Officer
CRO   Chief Risk Officer
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
Directors’ Plan   Non-Employee Directors’ Stock Option Plan
Dodd-Frank Act   Dodd-Frank Wall Street Reform and Consumer Protection Act
EITSC   Enterprise IT Steering Committee
EPS   Earnings per common share
ERP   Enterprise resource planning
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
FTE   Fully taxable-equivalent
FTP   Funds transfer pricing
GAAP   Accounting principles generally accepted in the United States of America
GNMA   Government National Mortgage Association
1

 

Term   Definition
Grandbridge   Grandbridge Real Estate Capital, LLC
GSE   U.S. government-sponsored enterprise
HFI   Held for investment
HMDA   Home Mortgage Disclosure Act
HTM   Held-to-maturity
HUD-OIG   Office of Inspector General, U.S. Department of Housing and Urban Development
IDI   Insured depository institution
IMLAFA   International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
IPV   Independent price verification
IRA   Individual retirement account
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
NIM   Net interest margin
NPA   Nonperforming asset
NPL   Nonperforming loan
NPR   Notice of Proposed Rulemaking
NYSE   NYSE Euronext, Inc.
OAS   Option adjusted spread
OCC   Office of the Comptroller of the Currency
OCI   Other comprehensive income (loss)
OREO   Other real estate owned
ORMC   Operational Risk Management Committee
OTTI   Other-than-temporary impairment
Parent Company   BB&T Corporation, the parent company of Branch Bank and other subsidiaries
Patriot Act   Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
Peer Group   Financial holding companies included in the industry peer group index
Reform Act   Federal Deposit Insurance Reform Act of 2005
RMC   Risk Management Committee
RMO   Risk Management Organization
RSU   Restricted stock unit
RUFC   Reserve for unfunded lending commitments
S&P   Standard & Poor's
SBIC   Small Business Investment Company
SCAP   Supervisory Capital Assessment Program
SEC   Securities and Exchange Commission
Short-Term Borrowings   Federal funds purchased, securities sold under repurchase agreements and other short-term borrowed funds with original maturities of less than one year
Simulation   Interest sensitivity simulation analysis
TBA   To be announced
TDR   Troubled debt restructuring
U.S.   United States of America
U.S. Treasury   United States Department of the Treasury
UPB   Unpaid principal balance
VA   U.S. Department of Veterans Affairs
VaR   Value-at-risk
VIE   Variable interest entity
2

 

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except per share data, shares in thousands)
                   
          June 30,   December 31,
          2015   2014
Assets          
  Cash and due from banks $  1,607    $  1,639 
  Interest-bearing deposits with banks    824       529 
  Federal funds sold and securities purchased under resale agreements or similar          
    arrangements    190       157 
  Restricted cash    379       374 
  AFS securities at fair value    21,183       20,907 
  HTM securities (fair value of $19,455 and $20,313 at June 30, 2015          
     and December 31, 2014, respectively)    19,437       20,240 
  LHFS at fair value    2,469       1,423 
  Loans and leases    122,301       119,884 
  ALLL    (1,457)      (1,474)
    Loans and leases, net of ALLL    120,844       118,410 
                   
  Premises and equipment    1,900       1,827 
  Goodwill    7,141       6,869 
  Core deposit and other intangible assets    514       505 
  Residential MSRs at fair value    912       844 
  Other assets    13,617       13,110 
      Total assets $  191,017    $  186,834 
                   
Liabilities and Shareholders’ Equity          
  Deposits:          
    Noninterest-bearing deposits $  42,234    $  38,786 
    Interest-bearing deposits    90,549       90,254 
      Total deposits    132,783       129,040 
                   
  Short-term borrowings    3,883       3,717 
  Long-term debt    23,271       23,312 
  Accounts payable and other liabilities    5,948       6,388 
      Total liabilities    165,885       162,457 
                   
  Commitments and contingencies (Note 13)          
  Shareholders’ equity:          
    Preferred stock, $5 par, liquidation preference of $25,000 per share    2,603       2,603 
    Common stock, $5 par    3,667       3,603 
    Additional paid-in capital    6,667       6,517 
    Retained earnings    12,891       12,317 
    AOCI, net of deferred income taxes    (748)      (751)
    Noncontrolling interests    52       88 
      Total shareholders’ equity    25,132       24,377 
      Total liabilities and shareholders’ equity $  191,017    $  186,834 
                   
  Common shares outstanding    733,481       720,698 
  Common shares authorized    2,000,000       2,000,000 
  Preferred shares outstanding    107       107 
  Preferred shares authorized    5,000       5,000 

 

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

3

 

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in millions, except per share data, shares in thousands)
                                 
            Three Months Ended   Six Months Ended
              June 30,     June 30,
              2015      2014      2015      2014 
Interest Income                      
  Interest and fees on loans and leases $  1,249    $  1,295    $  2,486    $  2,590 
  Interest and dividends on securities    232       234       472       470 
  Interest on other earning assets    8       8       24       23 
      Total interest income    1,489       1,537       2,982       3,083 
Interest Expense                      
  Interest on deposits    55       60       110       120 
  Interest on short-term borrowings    1       1       2       2 
  Interest on long-term debt    121       133       246       271 
      Total interest expense    177       194       358       393 
Net Interest Income    1,312       1,343       2,624       2,690 
  Provision for credit losses    97       74       196       134 
Net Interest Income After Provision for Credit Losses    1,215       1,269       2,428       2,556 
Noninterest Income                      
  Insurance income    422       422       862       849 
  Service charges on deposits    154       158       299       308 
  Mortgage banking income    130       86       240       160 
  Investment banking and brokerage fees and commissions    108       92       202       180 
  Bankcard fees and merchant discounts    55       54       105       100 
  Trust and investment advisory revenues    57       55       113       109 
  Checkcard fees    43       42       82       80 
  Operating lease income    30       20       59       42 
  Income from bank-owned life insurance    27       25       57       52 
  FDIC loss share income, net    (64)      (88)      (143)      (172)
  Other income    58       92       141       175 
  Securities gains (losses), net                      
      Gross realized gains    2       ―         2       6 
      Gross realized losses    ―         ―         ―         (3)
      OTTI charges    (2)      ―         (2)      (23)
      Non-credit portion recognized in OCI    (1)      ―         (1)      22 
          Total securities gains (losses), net    (1)      ―         (1)      2 
      Total noninterest income    1,019       958       2,016       1,885 
Noninterest Expense                      
  Personnel expense    864       809       1,694       1,591 
  Occupancy and equipment expense    166       168       333       344 
  Loan-related expense    37       80       75       131 
  Software expense    46       42       90       85 
  Professional services    35       34       59       67 
  Outside IT services    29       31       59       58 
  Regulatory charges    25       30       48       59 
  Amortization of intangibles    23       23       44       46 
  Foreclosed property expense    14       10       27       19 
  Merger-related and restructuring charges, net    25       13       38       21 
  Loss on early extinguishment of debt    172       ―         172       ―   
  Other expense    217       294       436       498 
      Total noninterest expense    1,653       1,534       3,075       2,919 
Earnings                      
  Income before income taxes    581       693       1,369       1,522 
  Provision for income taxes    80       216       321       472 
      Net income    501       477       1,048       1,050 
  Noncontrolling interests    10       16       32       56 
  Preferred stock dividends    37       37       74       74 
      Net income available to common shareholders $  454    $  424    $  942    $  920 
EPS                      
      Basic $  0.63    $  0.59    $  1.30    $  1.29 
      Diluted $  0.62    $  0.58    $  1.29    $  1.27 
  Cash dividends declared $  0.27    $  0.24    $  0.51    $  0.47 
                                 
Weighted Average Shares Outstanding                      
      Basic    724,880       719,080       723,268       715,978 
      Diluted    734,527       728,452       733,002       726,388 

 

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

 

4

 

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in millions)
                               
          Three Months Ended   Six Months Ended
          June 30,   June 30,
          2015   2014   2015   2014
                               
Net Income $  501    $  477    $  1,048    $  1,050 
OCI, net of tax:                      
  Change in unrecognized net pension and postretirement costs    9       2       18       3 
  Change in unrealized net gains (losses) on cash flow hedges    73       (2)      19       9 
  Change in unrealized net gains (losses) on AFS securities    (107)      86       (50)      165 
  Net change in FDIC's share of unrealized gains/losses on AFS securities    9       3       19       9 
  Other, net    1       5       (3)      1 
    Total OCI    (15)      94       3       187 
    Total comprehensive income $  486    $  571    $  1,051    $  1,237 
                               
                               
Income Tax Effect of Items Included in OCI:
  Change in unrecognized net pension and postretirement costs $  5    $  1    $  11    $  2 
  Change in unrealized net gains (losses) on cash flow hedges    43       (1)      11       6 
  Change in unrealized net gains (losses) on AFS securities    (65)      53       (31)      98 
  Net change in FDIC's share of unrealized gains/losses on AFS securities    9       1       14       4 
  Other, net    ―         2       ―         1 

 

 

 

 

 

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

 

5

 

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
Six Months Ended June 30, 2015 and 2014
(Dollars in millions, shares in thousands)
                                                     
                                                   
          Shares of               Additional                   Total
          Common   Preferred   Common   Paid-In   Retained       Noncontrolling   Shareholders’
          Stock   Stock   Stock   Capital   Earnings   AOCI   Interests   Equity
Adjusted Balance, January 1, 2014  706,620    $  2,603    $  3,533    $  6,172    $  11,015    $  (593)   $  50    $  22,780 
Add (Deduct):                                            
  Net income  ―         ―         ―         ―         994       ―         56       1,050 
  Net change in AOCI  ―         ―         ―         ―         ―         187       ―         187 
  Stock transactions:                                            
    Issued in connection with equity awards  14,097       ―         71       209       ―         ―         ―         280 
    Shares repurchased in connection with equity awards  (2,177)      ―         (11)      (70)      ―         ―         ―         (81)
    Excess tax benefits in connection with equity awards  ―         ―         ―         49       ―         ―         ―         49 
    Issued in connection with dividend reinvestment plan  391       ―         2       13       ―         ―         ―         15 
    Issued in connection with 401(k) plan  653       ―         3       22       ―         ―         ―         25 
  Cash dividends declared on common stock  ―         ―         ―         ―         (336)      ―         ―         (336)
  Cash dividends declared on preferred stock  ―         ―         ―         ―         (74)      ―         ―         (74)
  Equity-based compensation expense  ―         ―         ―         56       ―         ―         ―         56 
  Other, net  ―         ―         ―         ―         ―         ―         (21)      (21)
Balance, June 30, 2014  719,584    $  2,603    $  3,598    $  6,451    $  11,599    $  (406)   $  85    $  23,930 
                                                     
Adjusted Balance, January 1, 2015  720,698    $  2,603    $  3,603    $  6,517    $  12,317    $  (751)   $  88    $  24,377 
Add (Deduct):                                            
  Net income  ―         ―         ―         ―         1,016       ―         32       1,048 
  Net change in AOCI  ―         ―         ―         ―         ―         3       ―         3 
  Stock transactions:                                            
    Issued in business combinations  7,847       ―         39       283       ―         ―         ―         322 
    Issued in connection with equity awards  6,249       ―         31       64       ―         ―         ―         95 
    Shares repurchased in connection with equity awards  (1,313)      ―         (6)      (45)      ―         ―         ―         (51)
    Excess tax benefits in connection with equity awards  ―         ―         ―         9       ―         ―         ―         9 
  Purchase of additional ownership interest in AmRisc, LP  ―         ―         ―         (219)      ―         ―         (3)      (222)
  Cash dividends declared on common stock  ―         ―         ―         ―         (368)      ―         ―         (368)
  Cash dividends declared on preferred stock  ―         ―         ―         ―         (74)      ―         ―         (74)
  Equity-based compensation expense  ―         ―         ―         58       ―         ―         ―         58 
  Other, net  ―         ―         ―         ―         ―         ―         (65)      (65)
Balance, June 30, 2015  733,481    $  2,603    $  3,667    $  6,667    $  12,891    $  (748)   $  52    $  25,132 

 

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

 

6

 

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
              Six Months Ended
              June 30,
              2015   2014
Cash Flows From Operating Activities:          
  Net income $  1,048    $  1,050 
  Adjustments to reconcile net income to net cash from operating activities:          
    Provision for credit losses    196       134 
    Adjustment to income tax provision    (107)      14 
    Depreciation    173       161 
    Loss on early extinguishment of debt    172       ―   
    Amortization of intangibles    44       46 
    Equity-based compensation expense    58       56 
    (Gain) loss on securities, net    1       (2)
    Net change in operating assets and liabilities:          
      LHFS    (1,044)      (470)
      Other assets    (739)      368 
      Accounts payable and other liabilities    180      (559)
    Other, net    64       79 
        Net cash from operating activities    46      877 
                       
Cash Flows From Investing Activities:          
  Proceeds from sales of AFS securities    754       1,172 
  Proceeds from maturities, calls and paydowns of AFS securities    2,708       1,921 
  Purchases of AFS securities    (3,486)      (1,644)
  Proceeds from maturities, calls and paydowns of HTM securities    1,733       726 
  Purchases of HTM securities    (945)      (3,067)
  Originations and purchases of loans and leases, net of principal collected    (1,704)      (4,079)
  Net cash received (paid) for business combinations    1,742       1,025 
  Proceeds from sales of foreclosed property    105       134 
  Other, net    (246)      270 
        Net cash from investing activities    661       (3,542)
                       
Cash Flows From Financing Activities:          
  Net change in deposits    277       2,883 
  Net change in short-term borrowings    143       (159)
  Proceeds from issuance of long-term debt    1,017       2,407 
  Repayment of long-term debt    (1,266)      (2,040)
  Cash dividends paid on common stock    (368)      (321)
  Cash dividends paid on preferred stock    (74)      (74)
  Other, net    (140)      252 
        Net cash from financing activities    (411)      2,948 
Net Change in Cash and Cash Equivalents    296       283 
Cash and Cash Equivalents at Beginning of Period    2,325       2,165 
Cash and Cash Equivalents at End of Period $  2,621    $  2,448 
                       
Supplemental Disclosure of Cash Flow Information:          
  Cash paid during the period for:          
    Interest $  360    $  397 
    Income taxes    440       384 
  Noncash investing activities:          
    Transfers of loans to foreclosed assets    249       228 
    Purchase of additional interest in AmRisc, LP    216       ―   
    Stock issued in business combinations    322       ―   

 

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

 

7

NOTE 1. Basis of Presentation

 

See the Glossary of Defined Terms at the beginning of this Report for terms used throughout the consolidated financial statements and related notes of this Form 10-Q.

 

General

 

These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with GAAP. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The information contained in the financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2014 should be referred to in connection with these unaudited interim consolidated financial statements.

 

Reclassifications

 

Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income.

 

Use of Estimates in the Preparation of Financial Statements

 

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

 

Changes in Accounting Principles and Effects of New Accounting Pronouncements

 

In May 2015, the FASB issued new guidance related to Insurance. The new guidance requires insurance companies to provide additional disclosures about the liability for unpaid claims and claim adjustment expenses. This guidance is effective for annual periods beginning after December 15, 2015. BB&T’s insurance operations primarily consist of agency/broker transactions; therefore, the adoption of this guidance is not expected to be material to the consolidated financial statements.

 

In May 2015, the FASB issued new guidance related to Fair Value Measurement. The new guidance eliminates the requirement to classify in the fair value hierarchy any investments for which fair value is measured at net asset value per share using the practical expedient. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.

 

In April 2015, the FASB issued new guidance related to Internal-Use Software. Under the new guidance, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

 

In April 2015, the FASB issued new guidance related to Debt Issuance Costs. The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance is effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated financial statements.

 

8

In February 2015, the FASB issued new guidance related to Consolidation. The new guidance provides an additional requirement for a limited partnership or similar entity to qualify as a voting interest entity, amending the criteria for consolidating such an entity and eliminating the deferral provided under previous guidance for investment companies. In addition, the new guidance amends the criteria for evaluating fees paid to a decision maker or service provider as a variable interest and amends the criteria for evaluating the effect of fee arrangements and related parties on a VIE primary beneficiary determination. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

 

In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance 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. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has proposed a one year deferral of the effective date. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

 

Effective January 1, 2015, the Company adopted new guidance related to Receivables. The new guidance requires that a government guaranteed mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. The adoption of this guidance was not material to the consolidated financial statements.

 

Effective January 1, 2015, the Company adopted new guidance related to Repurchase-to-Maturity Transactions and Repurchase Financings. The new guidance changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting. The guidance also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which results in secured borrowing accounting for the repurchase agreement. The adoption of this guidance was not material to the consolidated financial statements.

 

Effective January 1, 2015, the Company adopted new guidance related to Investments in Qualified Affordable Housing Projects. The Company used the retrospective method of adoption and has elected the proportional amortization method to account for these investments. The proportional amortization method allows an entity to amortize the initial cost of the investment in proportion to the amount of tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of the provision for income taxes. See Note 13 “Commitments and Contingencies” for the impact of the adoption of this guidance.

 

 

9

NOTE 2. Acquisitions and Divestitures

 

The following table summarizes the purchase price allocations for certain bank and branch acquisitions. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. The fair value estimates for the current-year acquisitions are considered preliminary and are subject to change for up to one year after the closing date of the acquisition as additional information becomes available.

 

          The Bank of Kentucky   Citi - 41 Branches in Texas   Citi - 21 Branches in Texas  
                                 
                    (Dollars in millions)  
  Period of acquisition           Q2 2015     Q1 2015     Q2 2014  
  Assets acquired:                          
    Cash, due from banks and fed funds sold         $  135    $  14    $  6   
    Securities            347       ―         ―     
    Loans            1,198       61       112   
    Goodwill            237       79       29   
    CDI            14       36       20   
    Other assets            98       48       16   
      Total assets acquired            2,029       238       183   
  Liabilities assumed:                          
    Deposits            1,558       1,907       1,228   
    Debt            73       ―         ―     
    Other liabilities            3       ―         ―     
      Total liabilities assumed            1,634       1,907       1,228   
  Consideration paid (received)         $  395    $  (1,669)   $  (1,045)  
                                     
  Cash paid (received)         $  73    $  (1,669)   $  (1,045)  
  Fair value of common stock issued            322       ―         ―     

 

The acquisition of The Bank of Kentucky provided 32 additional retail branches. The UPB of loans acquired from The Bank of Kentucky was $1.3 billion, and the acquired goodwill is expected to be non-deductible for income tax purposes.

 

BB&T has reached an agreement and received regulatory approval to acquire Susquehanna Bancshares, Inc. Closing is expected to occur on August 1, 2015.

 

During the second quarter of 2015, BB&T purchased additional ownership interest in AmRisc, LP. from the noncontrolling owners for cash and ownership of American Coastal. Since BB&T held a controlling interest in AmRisc, LP prior to this transaction, the total consideration less the establishment of a deferred tax asset was recognized as a charge to shareholders’ equity. BB&T will continue to consolidate AmRisc, LP and recognize a noncontrolling interest for the remaining interests held by the noncontrolling owners. The transfer of the ownership of American Coastal was accounted for as a sale, and the resulting pre-tax loss is included in other income in the Consolidated Statements of Income. The following table summarizes these transactions:

 

  Purchase of Additional Ownership of AmRisc, LP   Sale of American Coastal  
                       
  (Dollars in millions)  
  Fair value of American Coastal $  216    Fair value of American Coastal $  216   
  Cash paid    146    Net assets sold    (193)  
  Total consideration    362    Allocated goodwill    (49)  
  Deferred tax asset recognized    (140)     Pre-tax loss on sale    (26)  
              Income tax expense    (8)  
    Net charge to shareholders' equity $  222      After-tax net loss on sale $  (34)  

 

10

NOTE 3. Securities

 

          Amortized   Gross Unrealized   Fair  
  June 30, 2015   Cost   Gains   Losses   Value  
                                 
          (Dollars in millions)  
  AFS securities:                          
    U.S. Treasury   $  1,381    $  5    $  1    $  1,385   
    Agency MBS      16,655       62       283       16,434   
    States and political subdivisions      1,926       99       66       1,959   
    Non-agency MBS      217       26       —         243   
    Other      5       —         —         5   
    Securities acquired from FDIC      833       324       —         1,157   
      Total AFS securities   $  21,017    $  516    $  350    $  21,183   
                                 
  HTM securities:                          
    U.S. Treasury   $  1,097    $  25    $  —      $  1,122   
    GSE      5,395       17       114       5,298   
    Agency MBS      12,335       89       13       12,411   
    States and political subdivisions      21       1       —         22   
    Other      589       13       —         602   
      Total HTM securities   $  19,437    $  145    $  127    $  19,455   

 

          Amortized   Gross Unrealized   Fair  
  December 31, 2014   Cost   Gains   Losses   Value  
                                 
          (Dollars in millions)  
  AFS securities:                          
    U.S. Treasury   $  1,230    $  1    $  —      $  1,231   
    Agency MBS      16,358       93       297       16,154   
    States and political subdivisions      1,913       120       59       1,974   
    Non-agency MBS      232       32       —         264   
    Other      41       —         —         41   
    Securities acquired from FDIC      886       357       —         1,243   
      Total AFS securities   $  20,660    $  603    $  356    $  20,907   
                                 
  HTM securities:                          
    U.S. Treasury   $  1,096    $  23    $  —      $  1,119   
    GSE      5,394       17       108       5,303   
    Agency MBS      13,120       137       12       13,245   
    States and political subdivisions      22       2       —         24   
    Other      608       14       —         622   
      Total HTM securities   $  20,240    $  193    $  120    $  20,313   

 

The fair value of securities acquired from the FDIC included non-agency MBS of $853 million and $931 million as of June 30, 2015 and December 31, 2014, respectively, and states and political subdivisions securities of $304 million and $312 million as of June 30, 2015 and December 31, 2014, respectively. Effective October 1, 2014, securities subject to the commercial loss sharing agreement with the FDIC related to the Colonial acquisition were no longer covered by loss sharing; however, any gains on the sale of these securities through September 30, 2017 would be shared with the FDIC. Since these securities are in a significant unrealized gain position, they continue to be effectively covered as any declines in the unrealized gains of the securities down to a contractually specified amount would reduce the liability to the FDIC at the applicable percentage. The contractually-specified amount is the acquisition date fair value less any paydowns, redemptions or maturities and OTTI and totaled approximately $554 million at June 30, 2015. Any further declines below the contractually-specified amount would not be covered.

 

Certain investments in marketable debt securities and MBS issued by FNMA and FHLMC exceeded ten percent of shareholders’ equity at June 30, 2015. The FNMA investments had total amortized cost and fair value of $13.0 billion and $12.8 billion, respectively. The FHLMC investments had total amortized cost and fair value of $5.8 billion.

 

11

The following table reflects changes in credit losses on securities with OTTI (excluding securities acquired from the FDIC) where a portion of the unrealized loss was recognized in OCI:

 

          Three Months Ended   Six Months Ended  
          June 30,   June 30,  
            2015     2014     2015     2014  
                                 
          (Dollars in millions)  
  Balance at beginning of period $  61    $  76    $  64    $  78   
  Credit losses on securities without previously recognized OTTI    ―         ―         ―         1   
  Credit losses on securities with previously recognized OTTI    3       ―         3       ―     
  Reductions for securities sold/settled during the period    (4)      (3)      (7)      (6)  
  Credit recoveries through yield    (1)      (1)      (1)      (1)  
  Balance at end of period $  59    $  72    $  59    $  72   

 

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.

 

          AFS   HTM  
          Amortized   Fair   Amortized   Fair  
  June 30, 2015   Cost   Value   Cost   Value  
                                 
          (Dollars in millions)  
  Due in one year or less   $  271    $  271    $  1    $  1   
  Due after one year through five years      1,332       1,345       750       740   
  Due after five years through ten years      639       661       6,005       5,947   
  Due after ten years      18,775       18,906       12,681       12,767   
    Total debt securities   $  21,017    $  21,183    $  19,437    $  19,455   

 

The following tables present the fair values and gross unrealized losses of investments based on the length of time that individual securities have been in a continuous unrealized loss position:
                                               
            Less than 12 months   12 months or more   Total  
            Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
  June 30, 2015   Value   Losses   Value   Losses   Value   Losses  
                                               
            (Dollars in millions)  
  AFS securities:                                      
    U.S. Treasury securities   $  259    $  1    $  —      $  —      $  259    $  1   
    Agency MBS      4,151       45       5,946       238       10,097       283   
    States and political subdivisions      79       2       431       64       510       66   
      Total   $  4,489    $  48    $  6,377    $  302    $  10,866    $  350   
                                               
  HTM securities:                                      
    GSE   $  2,883    $  59    $  1,995    $  55    $  4,878    $  114   
    Agency MBS      2,166       11       387       2       2,553       13   
      Total   $  5,049    $  70    $  2,382    $  57    $  7,431    $  127   

 

12

 

            Less than 12 months   12 months or more   Total  
            Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
  December 31, 2014   Value   Losses   Value   Losses   Value   Losses  
                                               
            (Dollars in millions)  
  AFS securities:                                      
    Agency MBS   $  2,285    $  19    $  6,878    $  278    $  9,163    $  297   
    States and political subdivisions      13       ―         449       59       462       59   
      Total   $  2,298    $  19    $  7,327    $  337    $  9,625    $  356   
                                               
  HTM securities:                                      
    GSE   $  896    $  5    $  3,968    $  103    $  4,864    $  108   
    Agency MBS      1,329       5       800       7       2,129       12   
      Total   $  2,225    $  10    $  4,768    $  110    $  6,993    $  120   

 

The unrealized losses on GSE securities and agency MBS were the result of increases in market interest rates compared to the date the securities were acquired rather than the credit quality of the issuers or underlying loans. At June 30, 2015, one non-agency MBS had an immaterial amount of credit impairment.

 

At June 30, 2015, $61 million of the unrealized loss on states and political subdivisions securities was the result of fair value hedge basis adjustments that are a component of amortized cost. These securities in an unrealized loss position are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. At June 30, 2015, four of these securities had immaterial amounts of credit impairment.

 

 

 

 

 

 

 

13

NOTE 4. Loans and ACL

 

During the first quarter of 2014, approximately $8.3 billion of nonguaranteed, closed-end, first and second lien position residential mortgage loans, along with the related allowance, were transferred from direct retail lending to residential mortgage to facilitate compliance with a series of new rules related to mortgage servicing associated with first and second lien position mortgages collateralized by real estate.

 

During the third quarter of 2014, approximately $550 million of loans, which were primarily performing residential mortgage TDRs, with a related ALLL of $57 million were sold for a gain of $42 million. During the fourth quarter of 2014, approximately $140 million of loans, which were primarily residential mortgage NPLs, with a related ALLL of $19 million were sold for a gain of $24 million. Both gains were recognized as reductions to the provision for credit losses.

 

Effective October 1, 2014, loans subject to the commercial loss sharing agreement with the FDIC related to the Colonial acquisition were no longer covered by loss sharing. At June 30, 2015, these loans had a carrying value of $392 million, a UPB of $617 million and an allowance of $41 million and are included in acquired from FDIC loans. Loans with a carrying value of $600 million at June 30, 2015 continue to be covered by loss sharing and are included in the acquired from FDIC balance.

 

          Accruing            
                    90 Days Or          
              30-89 Days   More Past          
  June 30, 2015   Current   Past Due   Due   Nonaccrual   Total  
                                       
          (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $  43,393    $  16    $  ―      $  198    $  43,607   
    CRE-income producing properties      11,069       4       ―         59       11,132   
    CRE-construction and development      2,855       3       ―         16       2,874   
    Other lending subsidiaries      5,475       18       ―         12       5,505   
  Retail:                                
    Direct retail lending      8,583       41       10       41       8,675   
    Revolving credit      2,379       19       9       ―         2,407   
    Residential mortgage-nonguaranteed      28,605       362       60       188       29,215   
    Residential mortgage-government guaranteed      270       77       492       ―         839   
    Sales finance      10,423       53       4       13       10,493   
    Other lending subsidiaries      6,305       212       ―         45       6,562   
  Acquired from FDIC      837       31       124       ―         992   
      Total   $  120,194    $  836    $  699    $  572    $  122,301   

 

            Accruing            
                      90 Days Or          
                30-89 Days   More Past          
  December 31, 2014   Current   Past Due   Due   Nonaccrual   Total  
                                         
            (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $  41,192    $  23    $  ―      $  239    $  41,454   
    CRE-income producing properties      10,644       4       ―         74       10,722   
    CRE-construction and development      2,708       1       ―         26       2,735   
    Other lending subsidiaries      5,337       15       ―         4       5,356   
  Retail:                                
    Direct retail lending      8,045       41       12       48       8,146   
    Revolving credit      2,428       23       9       ―         2,460   
    Residential mortgage-nonguaranteed      29,468       392       83       164       30,107   
    Residential mortgage-government guaranteed      251       82       648       2       983   
    Sales finance      10,528       62       5       5       10,600   
    Other lending subsidiaries      5,830       222       ―         54       6,106   
  Acquired from FDIC      994       33       188       ―         1,215   
      Total   $  117,425    $  898    $  945    $  616    $  119,884   

 

14

 

The following tables present the carrying amount of loans by risk rating. Loans acquired from the FDIC are excluded because their related ALLL is determined by loan pool performance.
 
                CRE -   CRE -      
          Commercial   Income Producing   Construction and   Other Lending  
  June 30, 2015   & Industrial   Properties   Development   Subsidiaries  
                                 
          (Dollars in millions)  
  Commercial:                          
    Pass   $  41,951    $  10,657    $  2,761    $  5,464   
    Special mention      296       102       17       15   
    Substandard-performing      1,162       314       80       14   
    Nonperforming      198       59       16       12   
      Total   $  43,607    $  11,132    $  2,874    $  5,505   

 

          Direct Retail   Revolving   Residential   Sales   Other Lending  
          Lending   Credit   Mortgage   Finance   Subsidiaries  
                                       
          (Dollars in millions)  
  Retail:                                
    Performing   $  8,634    $  2,407    $  29,866    $  10,480    $  6,517   
    Nonperforming      41       ―         188       13       45   
      Total   $  8,675    $  2,407    $  30,054    $  10,493    $  6,562   

 

                CRE -   CRE -      
          Commercial   Income Producing   Construction and   Other Lending  
  December 31, 2014   & Industrial   Properties   Development   Subsidiaries  
                                 
          (Dollars in millions)  
  Commercial:                          
    Pass   $  40,055    $  10,253    $  2,615    $  5,317   
    Special mention      163       67       7       10   
    Substandard-performing      997       328       87       25   
    Nonperforming      239       74       26       4   
      Total   $  41,454    $  10,722    $  2,735    $  5,356   

 

            Direct Retail   Revolving   Residential   Sales   Other Lending  
            Lending   Credit   Mortgage   Finance   Subsidiaries  
                                         
            (Dollars in millions)  
  Retail:                                
    Performing   $  8,098    $  2,460    $  30,924    $  10,595    $  6,052   
    Nonperforming      48       ―         166       5       54   
      Total   $  8,146    $  2,460    $  31,090    $  10,600    $  6,106   

 

15

 

      ACL Rollforward  
        Beginning   Charge-         Provision     Ending  
  Three Months Ended June 30, 2015   Balance   Offs   Recoveries   (Benefit)   Other Balance  
                                         
        (Dollars in millions)  
  Commercial:                                    
    Commercial and industrial   $  448    $  (32)   $  13    $  28    $  ―    $  457   
    CRE-income producing properties      153       (4)      1       (9)      ―       141   
    CRE-construction and development      42       ―         2       (6)      ―       38   
    Other lending subsidiaries      22       (2)      1       ―         ―       21   
  Retail:                                    
    Direct retail lending      111       (13)      7       8       ―       113   
    Revolving credit      106       (19)      5       10       ―       102   
    Residential mortgage-nonguaranteed      200       (7)      1       3       ―       197   
    Residential mortgage-government guaranteed      30       (2)      ―         ―         ―       28   
    Sales finance      58       (5)      2       (1)      ―       54   
    Other lending subsidiaries      237       (55)      9       58       ―       249   
  Acquired from FDIC      57       ―         ―         ―         ―       57   
  ALLL      1,464       (139)      41       91       ―       1,457   
  RUFC      68       ―         ―         6       4     78   
  ACL   $  1,532    $  (139)   $  41    $  97    $  4  $  1,535   

 

      ACL Rollforward  
        Beginning   Charge-         Provision   Ending  
  Three Months Ended June 30, 2014   Balance   Offs   Recoveries   (Benefit)   Balance  
                                     
        (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $  423    $  (40)   $  10    $  30    $  423   
    CRE-income producing properties      136       (11)      3       (1)      127   
    CRE-construction and development      65       (3)      10       (13)      59   
    Other lending subsidiaries      16       (1)      1       1       17   
  Retail:                                
    Direct retail lending      120       (19)      7       16       124   
    Revolving credit      115       (18)      5       10       112   
    Residential mortgage-nonguaranteed      327       (20)      ―         17       324   
    Residential mortgage-government guaranteed      69       (1)      ―         (17)      51   
    Sales finance      45       (4)      2       1       44   
    Other lending subsidiaries      222       (46)      8       34       218   
  Acquired from FDIC      104       (4)      ―         (9)      91   
  ALLL      1,642       (167)      46       69       1,590   
  RUFC      80       ―         ―         5       85   
  ACL   $  1,722    $  (167)   $  46    $  74    $  1,675   

 

16

 

      ACL Rollforward  
  Six Months Ended June 30, 2015   Beginning Balance   Charge-Offs   Recoveries   Provision (Benefit)   Other   Ending Balance  
                                           
        (Dollars in millions)  
  Commercial:                                      
    Commercial and industrial   $  421    $  (46)   $  21    $  61    $  ―      $  457   
    CRE - income producing properties      162       (13)      3       (11)      ―         141   
    CRE - construction and development      48       (2)      6       (14)      ―         38   
    Other lending subsidiaries      21       (5)      2       3       ―         21   
  Retail:                                      
    Direct retail lending      110       (25)      15       13       ―         113   
    Revolving credit      110       (37)      10       19       ―         102   
    Residential mortgage-nonguaranteed      217       (18)      1       (3)      ―         197   
    Residential mortgage-government guaranteed      36       (2)      ―         (6)      ―         28   
    Sales finance      50       (11)      5       10       ―         54   
    Other lending subsidiaries      235       (119)      17       116       ―         249   
  Acquired from FDIC      64       (1)      ―         (6)      ―         57   
  ALLL      1,474       (279)      80       182       ―         1,457   
  RUFC      60       ―         ―         14       4       78   
  ACL   $  1,534    $  (279)   $  80    $  196    $  4    $  1,535   

 

      ACL Rollforward  
  Six Months Ended June 30, 2014   Beginning Balance   Charge-Offs   Recoveries   Provision (Benefit)   Other   Ending Balance  
                                           
        (Dollars in millions)  
  Commercial:                                      
    Commercial and industrial   $  454    $  (73)   $  19    $  23    $  ―      $  423   
    CRE - income producing properties      149       (19)      5       (8)      ―         127   
    CRE - construction and development      76       (7)      13       (23)      ―         59   
    Other lending subsidiaries      15       (2)      1       3       ―         17   
  Retail:                                      
    Direct retail lending      209       (38)      15       23       (85)      124   
    Revolving credit      115       (36)      10       23       ―         112   
    Residential mortgage-nonguaranteed      269       (41)      1       10       85       324   
    Residential mortgage-government guaranteed      62       (1)      ―         (10)      ―         51   
    Sales finance      45       (11)      5       5       ―         44   
    Other lending subsidiaries      224       (130)      16       108       ―         218   
  Acquired from FDIC      114       (7)      ―         (16)      ―         91   
  ALLL      1,732       (365)      85       138       ―         1,590   
  RUFC      89       ―         ―         (4)      ―         85   
  ACL   $  1,821    $  (365)   $  85    $  134    $  ―      $  1,675   

 

17

 

The following table provides a summary of loans that are collectively evaluated for impairment.
                                 
          June 30, 2015   December 31, 2014  
      Recorded Investment   Related ALLL   Recorded Investment   Related ALLL  
                                 
          (Dollars in millions)  
  Commercial:                          
    Commercial and industrial   $  43,300    $  424    $  41,120    $  379   
    CRE-income producing properties      11,009       131       10,583       147   
    CRE-construction and development      2,832       30       2,670       39   
    Other lending subsidiaries      5,493       18       5,351       20   
  Retail:                          
    Direct retail lending      8,585       91       8,048       86   
    Revolving credit      2,371       88       2,419       94   
    Residential mortgage-nonguaranteed      28,761       155       29,660       181   
    Residential mortgage-government guaranteed      511       2       622       4   
    Sales finance      10,473       50       10,579       46   
    Other lending subsidiaries      6,379       218       5,930       204   
  Acquired from FDIC      992       57       1,215       64   
      Total   $  120,706    $  1,264    $  118,197    $  1,264   

 

The following tables set forth certain information regarding impaired loans, excluding purchased impaired loans and LHFS, that were individually evaluated for reserves.
               
                            Average   Interest  
            Recorded       Related   Recorded   Income  
  As Of / For The Six Months Ended June 30, 2015   Investment   UPB   ALLL   Investment   Recognized  
                                         
            (Dollars in millions)  
  With no related ALLL recorded:                                
    Commercial:                                
      Commercial and industrial   $  88    $  120    $  ―      $  85    $  ―     
      CRE-income producing properties      24       33       ―         19       ―     
      CRE-construction and development      4       6       ―         10       ―     
      Other lending subsidiaries      ―         2       ―         1       ―     
    Retail:                                
      Direct retail lending      12       43       ―         13       ―     
      Residential mortgage-nonguaranteed      90       151       ―         107       2   
      Residential mortgage-government guaranteed      2       3       ―         3       ―     
      Sales finance      1       2       ―         1       ―     
      Other lending subsidiaries      3       7       ―         3       ―     
  With an ALLL recorded:                                
    Commercial:                                
      Commercial and industrial      219       225       33       237       2   
      CRE-income producing properties      99       100       10       108       2   
      CRE-construction and development      38       38       8       41       1   
      Other lending subsidiaries      12       13       3       6       ―     
    Retail:                                
      Direct retail lending      78       80       22       82       2   
      Revolving credit      36       36       14       38       1   
      Residential mortgage-nonguaranteed      364       376       42       345       8   
      Residential mortgage-government guaranteed      326       327       26       333       7   
      Sales finance      19       19       4       19       ―     
      Other lending subsidiaries      180       182       31       177       14   
        Total   $  1,595    $  1,763    $  193    $  1,628    $  39   

 

18

 

                            Average   Interest  
            Recorded       Related   Recorded   Income  
  As Of / For The Year Ended December 31, 2014   Investment   UPB   ALLL   Investment   Recognized  
                                         
            (Dollars in millions)  
  With no related ALLL recorded:                                
    Commercial:                                
      Commercial and industrial   $  87    $  136    $  ―      $  138    $  2   
      CRE-income producing properties      18       25       ―         36       ―     
      CRE-construction and development      14       21       ―         20       ―     
      Other lending subsidiaries      ―         1       ―         ―         ―     
    Retail:                                
      Direct retail lending      13       49       ―         14       1   
      Residential mortgage-nonguaranteed      87       141       ―         147       5   
      Residential mortgage-government guaranteed      3       4       ―         7       ―     
      Sales finance      1       2       ―         1       ―     
      Other lending subsidiaries      3       7       ―         3       ―     
  With an ALLL recorded:                                
    Commercial:                                
      Commercial and industrial      247       254       42       279       5   
      CRE-income producing properties      121       123       15       133       4   
      CRE-construction and development      51       52       9       65       2   
      Other lending subsidiaries      5       5       1       4       ―     
    Retail:                                
      Direct retail lending      85       87       24       95       5   
      Revolving credit      41       41       16       45       2   
      Residential mortgage-nonguaranteed      360       370       36       700       31   
      Residential mortgage-government guaranteed      358       358       32       402       17   
      Sales finance      20       21       4       20       1   
      Other lending subsidiaries      173       175       31       148       22   
        Total   $  1,687    $  1,872    $  210    $  2,257    $  97   

 

The following table provides a summary of TDRs, all of which are considered impaired.
                   
        June 30,   December 31,  
        2015   2014  
                   
        (Dollars in millions)  
  Performing TDRs:            
    Commercial:            
      Commercial and industrial $  75    $  64   
      CRE-income producing properties    21       27   
      CRE-construction and development    23       30   
    Direct retail lending    81       84   
    Sales finance    18       19   
    Revolving credit    36       41   
    Residential mortgage-nonguaranteed    273       261   
    Residential mortgage-government guaranteed    328       360   
    Other lending subsidiaries    172       164   
      Total performing TDRs    1,027       1,050   
  Nonperforming TDRs (also included in NPL disclosures)    127       126   
      Total TDRs $  1,154    $  1,176   
                   
  ALLL attributable to TDRs $  151    $  159   

 

19

 

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 in this table include TDRs made with below market interest rates that also include modifications of loan structures.

 

              Three Months Ended June 30,  
              2015   2014  
              Types of       Types of      
              Modifications   Impact To   Modifications   Impact To  
              Rate   Structure   Allowance   Rate   Structure   Allowance  
                                                 
              (Dollars in millions)  
Commercial:                                    
  Commercial and industrial $  40    $  10    $  1    $  49    $  10    $  1   
  CRE-income producing properties    2       10       ―         5       6       ―     
  CRE-construction and development    ―         9       ―         6       10       ―     
                                                 
Retail:                                    
  Direct retail lending    3       ―         1       8       1       1   
  Revolving credit    4       ―         1       6       ―         2   
  Residential mortgage-nonguaranteed    21       10       2       19       8       2   
  Residential mortgage-government guaranteed    49       ―         2       105       ―         4   
  Sales finance    ―         3       ―         1       1       ―     
  Other lending subsidiaries    29       ―         4       29       ―         3   

 

              Six Months Ended June 30,  
              2015   2014  
              Types of       Types of      
              Modifications   Impact To   Modifications   Impact To  
              Rate   Structure   Allowance   Rate   Structure   Allowance  
                                                 
              (Dollars in millions)  
Commercial:                                    
  Commercial and industrial $  49    $  24    $  2    $  68    $  29    $  2   
  CRE-income producing properties    4       13       ―         13       11       ―     
  CRE-construction and development    ―         12       ―         11       13       ―     
Retail:                                    
  Direct retail lending    6       ―         2       19       3       4   
  Revolving credit    8       ―         2       13       ―         3   
  Residential mortgage-nonguaranteed    44       22       5       51       17       13   
  Residential mortgage-government guaranteed    109       ―         4       144       ―         7   
  Sales finance    ―         5       ―         1       6       1   
  Other lending subsidiaries    60       ―         8       58       ―         8   
                                                 
Charge-offs and forgiveness of principal and interest for TDRs were immaterial for all periods presented.

 

The pre-default balance for modifications that experienced a payment default that had been classified as TDRs during the previous 12 months was $14 million and $17 million for the three months ended June 30, 2015 and 2014, respectively, and $35 million and $38 million for the six months ended June 30, 2015 and 2014, respectively. Payment default is defined as movement of the TDR to nonaccrual status, foreclosure or charge-off, whichever occurs first.

 

20

 

Changes in the carrying value and accretable yield of loans acquired from the FDIC are presented in the following table:
                                                   
      Six Months Ended June 30, 2015   Year Ended December 31, 2014
      Purchased Impaired   Purchased Nonimpaired   Purchased Impaired   Purchased Nonimpaired
      Accretable   Carrying   Accretable   Carrying   Accretable   Carrying   Accretable   Carrying
      Yield   Value   Yield   Value   Yield   Value   Yield   Value
                                                   
      (Dollars in millions)
Balance at beginning of period $  134    $  579    $  244    $  636    $  187    $  863    $  351    $  1,172 
  Accretion    (35)      35       (49)      49       (107)      107       (169)      169 
  Payments received, net    ―         (133)      ―         (174)      ―         (391)      ―         (705)
  Other, net    23       ―         9       ―         54       ―         62       ―   
Balance at end of period $  122    $  481    $  204    $  511    $  134    $  579    $  244    $  636 
                                                   
Outstanding UPB at end of period       $  728          $  704          $  864          $  860 

 

The following table presents additional information about BB&T’s loans and leases:
                   
        June 30,   December 31,  
        2015   2014  
                   
        (Dollars in millions)  
  Unearned income and net deferred loan fees and costs $  183    $  147   
  Residential mortgage loans in process of foreclosure    295       379   

 

NOTE 5. Goodwill and Other Intangible Assets

 

The changes in the carrying amounts of goodwill attributable to BB&T’s operating segments are reflected in the table below. During the second quarter of 2015, BB&T sold American Coastal, which resulted in the allocation and write-off of goodwill from the Insurance Services segment.

 

            Residential   Dealer                  
        Community   Mortgage   Financial   Specialized   Insurance   Financial      
        Banking   Banking   Services   Lending   Services   Services   Total  
                                                 
        (Dollars in millions)  
  Goodwill balance, January 1, 2015 $  4,634    $  326    $  111    $  88    $  1,518    $  192    $  6,869   
    Acquisitions    316       ―         ―         ―         3       ―         319   
    Allocated to sale of American Coastal    ―         ―         ―         ―         (49)      ―         (49)  
    Other adjustments    5       ―         ―         ―         (3)      ―         2   
  Goodwill balance, June 30, 2015 $  4,955    $  326    $  111    $  88    $  1,469    $  192    $  7,141   

 

The following table presents information for identifiable intangible assets subject to amortization:
                                                 
              June 30, 2015   December 31, 2014  
            Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount   Gross Carrying Amount   Accumulated Amortization   Net Carrying Amount  
                                                 
            (Dollars in millions)  
  CDI       $  743    $  (601)   $  142    $  693    $  (585)   $  108   
  Other, primarily customer relationship                                          
    intangibles          1,090       (718)      372       1,088       (691)      397   
    Total       $  1,833    $  (1,319)   $  514    $  1,781    $  (1,276)   $  505   

 

21

NOTE 6. Loan Servicing

 

Residential Mortgage Banking Activities

 

The following tables summarize residential mortgage banking activities. Mortgage and home equity loans managed exclude loans serviced for others with no other continuing involvement.

 

        June 30,   December 31,  
        2015   2014  
        (Dollars in millions)  
  Mortgage and home equity loans managed $  33,483    $  33,742   
  Less:            
    LHFS    2,184       1,317   
    Mortgage loans acquired from FDIC    626       668   
    Mortgage loans sold with recourse    619       667   
  Mortgage loans held for investment $  30,054    $  31,090   
                   
  UPB of mortgage loan servicing portfolio $  115,122    $  115,476   
  UPB of home equity loan servicing portfolio    6,040       6,781   
  UPB of residential mortgage and home equity loan servicing portfolio $  121,162    $  122,257   
  UPB of residential mortgage loans serviced for others (primarily agency            
    conforming fixed rate) $  89,235    $  90,230   
  Maximum recourse exposure from mortgage loans sold with recourse liability    335       344   
  Indemnification, recourse and repurchase reserves    83       94   
  FHA-insured mortgage loan reserve    85       85   

 

The potential exposure related to losses incurred by the FHA on defaulted loans ranges from $25 million to $105 million.

 

        As Of / For The  
        Six Months Ended June 30,  
        2015   2014  
                       
        (Dollars in millions)  
  UPB of residential mortgage loans sold from LHFS $  6,804      $  5,972     
  Pre-tax gains recognized on mortgage loans sold and held for sale    74         38     
  Servicing fees recognized from mortgage loans serviced for others    136         136     
  Approximate weighted average servicing fee on the outstanding balance of                
    residential mortgage loans serviced for others    0.29  %      0.30  %  
  Weighted average interest rate on mortgage loans serviced for others    4.16         4.23     

 

          Six Months Ended June 30,  
            2015     2014  
                     
          (Dollars in millions)  
  Residential MSRs, carrying value, January 1, $  844    $  1,047   
    Additions    68       66   
    Change in fair value due to changes in valuation inputs or assumptions:            
      Prepayment speeds    166       (100)  
      OAS    (70)      3   
      Servicing costs    (25)      ―     
    Realization of expected net servicing cash flows, passage of time and other    (71)      (62)  
  Residential MSRs, carrying value, June 30, $  912    $  954   
                     
  Gains (losses) on derivative financial instruments used to mitigate the            
    income statement effect of changes in fair value $  (38)   $  105   

 

22

 

The sensitivity of the fair value of the residential MSRs to changes in key assumptions is included in the accompanying table:
                                               
        June 30, 2015   December 31, 2014  
        Range   Weighted   Range   Weighted  
        Min   Max   Average   Min   Max   Average  
                                               
        (Dollars in millions)  
  Prepayment speed  4.8  %    7.7  %      7.0  %    10.8  %    12.8  %      12.0  %  
    Effect on fair value of a 10% increase             $  (26)                 $  (30)    
    Effect on fair value of a 20% increase                (51)                    (58)    
                                               
  OAS  10.5  %    12.4  %      11.0  %    9.1  %    9.9  %      9.3  %  
    Effect on fair value of a 10% increase             $  (37)                 $  (26)    
    Effect on fair value of a 20% increase                (72)                    (50)    
                                               
  Composition of loans serviced for others:                                        
    Fixed-rate residential mortgage loans                99.3  %                  99.4  %  
    Adjustable-rate residential mortgage loans                0.7                     0.6     
      Total                100.0  %                  100.0  %  
                                               
  Weighted average life                7.7  yrs                  5.7  yrs  

 

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 a particular 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

 

CRE mortgage loans serviced for others are not included in loans and leases on the accompanying Consolidated Balance Sheets. The following table summarizes commercial mortgage banking activities for the periods presented:

 

          June 30,   December 31,  
          2015   2014  
                     
          (Dollars in millions)  
  UPB of CRE mortgages serviced for others $  28,039    $  27,599   
  CRE mortgages serviced for others covered by recourse provisions    4,425       4,264   
  Maximum recourse exposure from CRE mortgages sold with recourse liability    1,331       1,278   
  Recorded reserves related to recourse exposure    8       7   
  Originated CRE mortgages during the year    3,264       5,265   

 

23

NOTE 7. Deposits

 

A summary of deposits is presented in the accompanying table:
                     
          June 30,   December 31,  
          2015   2014  
                     
          (Dollars in millions)  
  Noninterest-bearing deposits $  42,234    $  38,786   
  Interest checking    20,843       20,262   
  Money market and savings    55,269       50,604   
  Time deposits    14,437       19,388   
    Total deposits $  132,783    $  129,040   
                     
  Time deposits $100,000 and greater $  5,525    $  9,782   
  Time deposits $250,000 and greater    1,870       5,753   

 

NOTE 8. Long-Term Debt

 

            June 30,   December 31,  
            2015   2014  
                       
            (Dollars in millions)  
  BB&T Corporation:            
    3.95% senior notes due 2016 $  500    $  500   
    3.20% senior notes due 2016    1,000       1,000   
    2.15% senior notes due 2017    749       749   
    1.60% senior notes due 2017    749       749   
    1.45% senior notes due 2018    500       500   
    Floating rate senior notes due 2018 (LIBOR-based, 1.15% at June 30, 2015)    400       400   
    2.05% senior notes due 2018    599       599   
    6.85% senior notes due 2019    540       539   
    2.25% senior notes due 2019    648       648   
    Floating rate senior notes due 2019 (LIBOR-based, 0.94% at June 30, 2015)    450       450   
    2.45% senior notes due 2020    1,298       1,298   
    2.63% senior notes due 2020    999       ―     
    Floating rate senior notes due 2020 (LIBOR-based, 0.99% at June 30, 2015)    200       200   
    5.20% subordinated notes due 2015    934       933   
    4.90% subordinated notes due 2017    354       353   
    5.25% subordinated notes due 2019    586       586   
    3.95% subordinated notes due 2022    299       298   
                       
  Branch Bank:            
    1.45% senior notes due 2016    750       750   
    Floating rate senior notes due 2016 (LIBOR-based, 0.71% at June 30, 2015)    375       500   
    1.05% senior notes due 2016    500       500   
    1.00% senior notes due 2017    599       599   
    1.35% senior notes due 2017    750       750   
    2.30% senior notes due 2018    750       750   
    2.85% senior notes due 2021    700       699   
    5.63% subordinated notes due 2016    386       386   
    Floating rate subordinated notes due 2016 (LIBOR-based, 0.61% at June 30, 2015)    350       350   
    Floating rate subordinated note due 2017 (LIBOR-based, 0.58% at June 30, 2015)    262       262   
    3.80% subordinated notes due 2026    848       848   
                       
  FHLB advances to Branch Bank:            
    Varying maturities to 2034    5,577       6,496   
                       
  Other long-term debt    154       119   
                       
  Fair value hedge-related basis adjustments    465       501   
      Total long-term debt $  23,271    $  23,312   

 

24

 

The following table reflects the carrying amounts and effective interest rates for long-term debt:
                           
      June 30, 2015   December 31, 2014
      Carrying   Effective   Carrying   Effective
  Amount   Rate   Amount   Rate
                           
      (Dollars in millions)
BB&T Corporation fixed rate senior notes $  7,681     2.30  %   $  6,669    2.39  %
BB&T Corporation floating rate senior notes    1,050     1.08         1,050    1.07   
BB&T Corporation fixed rate subordinated notes    2,340     2.20         2,362    2.30   
Branch Bank fixed rate senior notes    4,074     1.56         4,060    1.72   
Branch Bank floating rate senior notes    375     0.76         500    0.72   
Branch Bank fixed rate subordinated notes    1,279     2.95         1,299    2.86   
Branch Bank floating rate subordinated notes    612     3.42         612    3.27   
FHLB advances (weighted average maturity of 5.3 years at June 30, 2015)    5,706     3.98         6,641    4.03   
Other long-term debt    154             119       
  Total long-term debt $  23,271          $  23,312       

 

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

 

During the second quarter of 2015, BB&T terminated FHLB advances totaling $931 million, which resulted in a pre-tax loss on early extinguishment of $172 million.

 

NOTE 9. Shareholders’ Equity

 

The activity relating to options and RSUs during the period is presented in the following tables:

 

          Wtd. Avg.  
          Exercise  
      Options   Price  
               
      (Shares in thousands)  
  Outstanding at January 1, 2015  28,374    $  35.09   
    Granted  434       38.22   
    Exercised  (2,775)      32.14   
    Forfeited or expired  (5,618)      38.66   
  Outstanding at June 30, 2015  20,415       34.58   
               
  Exercisable at June 30, 2015  18,687       34.73   
               
  Exercisable and expected to vest at June 30, 2015  20,296       34.59   

 

          Wtd. Avg.  
      Restricted Grant Date  
      Shares/Units   Fair Value  
               
      (Shares in thousands)  
  Nonvested at January 1, 2015  12,075    $  27.38   
    Granted  3,680       33.28   
    Vested  (3,400)      24.83   
    Forfeited  (193)      30.91   
  Nonvested at June 30, 2015  12,162       29.82   
  Expected to vest at June 30, 2015  11,158       29.83   

 

25

NOTE 10. AOCI

 

Three Months Ended June 30, 2015   Unrecognized Net Pension and Postretirement Costs   Unrealized Net Gains (Losses) on Cash Flow Hedges   Unrealized Net Gains (Losses) on AFS Securities   FDIC's Share of Unrealized (Gains) Losses on AFS Securities   Other, net   Total
                                     
            (Dollars in millions)
AOCI balance, April 1, 2015   $  (617)   $  (108)   $  209    $  (197)   $  (20)   $  (733)
  OCI before reclassifications, net of tax      1       60       (121)      5       1       (54)
  Amounts reclassified from AOCI:                                    
    Personnel expense      12       ―         ―         ―         ―         12 
    Interest income      ―         ―         22       ―         ―         22 
    Interest expense      ―         21       ―         ―         ―         21 
    FDIC loss share income, net      ―         ―         ―         6       ―         6 
    Securities (gains) losses, net      ―         ―         1       ―         ―         1 
      Total before income taxes      12       21       23       6       ―         62 
      Less: Income taxes      4       8       9       2       ―         23 
        Net of income taxes      8       13       14       4       ―         39 
  Net change in OCI      9       73       (107)      9       1       (15)
AOCI balance, June 30, 2015   $  (608)   $  (35)   $  102    $  (188)   $  (19)   $  (748)

 

Three Months Ended June 30, 2014   Unrecognized Net Pension and Postretirement Costs   Unrealized Net Gains (Losses) on Cash Flow Hedges   Unrealized Net Gains (Losses) on AFS Securities   FDIC's Share of Unrealized (Gains) Losses on AFS Securities   Other, net   Total
                                     
            (Dollars in millions)
AOCI balance, April 1, 2014   $  (302)   $  13    $  37    $  (229)   $  (19)   $  (500)
  OCI before reclassifications, net of tax      1       (14)      89       (6)      8       78 
  Amounts reclassified from AOCI:                                    
    Personnel expense      1       ―         ―         ―         ―         1 
    Interest income      ―         ―         (5)      ―         (5)      (10)
    Interest expense      ―         19       ―         ―         ―         19 
    FDIC loss share income, net      ―         ―         ―         14       ―         14 
      Total before income taxes      1       19       (5)      14       (5)      24 
      Less: Income taxes      ―         7       (2)      5       (2)      8 
        Net of income taxes      1       12       (3)      9       (3)      16 
  Net change in OCI      2       (2)      86       3       5       94 
AOCI balance, June 30, 2014   $  (300)   $  11    $  123    $  (226)   $  (14)   $  (406)

 

26

 

Six Months Ended June 30, 2015   Unrecognized Net Pension and Postretirement Costs   Unrealized Net Gains (Losses) on Cash Flow Hedges   Unrealized Net Gains (Losses) on AFS Securities   FDIC's Share of Unrealized (Gains) Losses on AFS Securities   Other, net   Total
                                     
            (Dollars in millions)
AOCI balance, January 1, 2015   $  (626)   $  (54)   $  152    $  (207)   $  (16)   $  (751)
  OCI before reclassifications, net of tax      3       (7)      (54)      7       (4)      (55)
  Amounts reclassified from AOCI:                                    
    Personnel expense      24       ―         ―         ―         ―         24 
    Interest income      ―         ―         6             1       7 
    Interest expense      ―         42       ―         ―         ―         42 
    FDIC loss share income, net      ―         ―         ―         19       ―         19 
    Securities (gains) losses, net      ―         ―         1       ―         ―         1 
      Total before income taxes      24       42       7       19       1       93 
      Less: Income taxes      9       16       3       7       ―         35 
        Net of income taxes      15       26       4       12       1       58 
  Net change in AOCI      18       19       (50)      19       (3)      3 
AOCI balance, June 30, 2015   $  (608)