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Comparison of Fiscal Years Ended December 31, 2017 and 2016 | The $9.3 million increase in research and development expense during the year ended December 31, 2017 as compared to the year ended December 31, 2016 principally reflects an $8.0 million increase in costs related to the VTL-308 and prior clinical trials, primarily in higher costs for subjects, sites, manufacturing, enrollment support activities and consulting. As enrollment started in the second quarter of 2016, 35 subjects were enrolled in the VTI-308 clinical trial in the year ended December 31, 2016, while 97 subjects were enrolled during the year ended December 31, 2017. Costs also increased by $1.2 million for activities to support a potential biologics license application, or BLA, submission in the future.The $2.1 million increase in general and administrative expense during the year ended December 31, 2017 as compared to the year ended December 31, 2016 was largely the result of a $1.9 million increase in compensation-related costs. In December 2017, our chief executive officer transitioned from being an employee to a consultant. As a result of the related transition and consulting agreements, we recorded $525,000 in severance costs and $674,000 in stock-based compensation related to stock option modifications. In total, stock-based compensation increased by $1.2 million in 2017 as compared to 2016 principally due to the stock option modifications and an increase in the number of options outstanding. |
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| | Year Ended December 31, | | | | | | | | Change | | | | | |
| | 2017 | | | | 2016 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 39,341 | | | $ | 30,046 | | | $ | 9,295 | | | 31 | % |
| General and administrative | 13,314 | | | | 11,220 | | | | 2,094 | | | | 19 | % |
| Total operating expenses | $ | 52,655 | | | $ | 41,266 | | | $ | 11,389 | | | 28 | % |
| IMUX/10-K/0001280776-19-000025 |
Comparison of Fiscal Years Ended December 31, 2015 and 2014 | Research and development expense increased by $0.3 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014. The higher research and development expenses were primarily attributable to increases of $3.1 million in third-party consulting and other service fees, $1.8 million in salaries, stock-based compensation and other compensation-related costs and $1.3 million in facilities costs and additional overhead allocations and costs, substantially offset by a reduction of $5.9 million in clinical trial and related costs.The increased third-party consulting and service fees are principally attributable to fees for clinical trial monitoring, for data management services, for analytical services in preparation for the evaluation of our VTI-208 clinical results and for activities to support a potential BLA filing. Higher salary and other compensation-related costs are principally due to increases in average headcount (i) in research to support mechanism of action and BLA activities, (ii) in manufacturing to support BLA activities, and (iii) for clinical trials as we moved certain third-party CRO activities in house and to support data management. These compensation related costs also included $486,000 for severance primarily related to a reduction in workforce following the termination of our VTI-210 and VTI-212 clinical trials and most of our BLA activities, and an increase of $381,000 for non-cash stock-based compensation costs, including costs for the extension of the post-termination option exercise period in conjunction with the workforce reduction.The decrease in clinical trial and related costs reflects the completion of enrollment in the VTI-208 clinical trial in January 2015, the termination of the VTI-210 and VTI-212 clinical trials in September 2015 and the transfer of certain CRO activities to company personnel in the year ended December 31, 2015 as compared to the year ended December 31, 2014. This decrease in clinical costs was also due to the change in our estimated clinical accrual, reducing our clinical costs by $750,000 in the year ended December 31, 2015. Costs of manufacturing materials and supplies also decreased by $448,000 due to the completion of enrollment in the VTI-208 clinical trial and the termination of the VTI-210 and VTI-212 clinical trials.The $1.5 million increase in general and administrative expense during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to a $1.8 million increase in salaries and wages and other compensation-related expenses principally due to higher stock-based compensation costs and increased average headcount to support our operations. These compensation-related costs included an increase of $1.1 million for non-cash stock-based compensation costs, including costs for the extension of the post-termination option exercise period and an increase of $115,000 for severance costs related to the reduction in workforce for the year ended December 31, 2015. In addition, our insurance and consulting costs increased by $213,000 and $136,000, respectively, in the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily reflecting higher costs associated with being a public company following our IPO in April 2014. These increases were partially offset by a $595,000 decrease in costs primarily due to a higher allocation of overhead to research and development.We expect our research and development costs to decline in 2016 relative to 2015 due to the anticipated timing of patient enrollment in the VTL-308 clinical trial during 2016, the reduction in workforce in late 2015 and a reduction in BLA-related activities. We expect general and administrative costs to increase in 2016 relative to 2015 primarily due to legal costs that we expect to incur related to the lawsuits which are more fully described in Note 4, "Commitments and Contingencies," in the notes to the consolidated financial statements. |
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| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2015 | | | | 2014 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 39,773 | | | $ | 39,479 | | | $ | 294 | | | 1 | % |
| General and administrative | 12,347 | | | | 10,863 | | | | 1,484 | | | | 14 | % |
| Total operating expenses | $ | 52,120 | | | $ | 50,342 | | | $ | 1,778 | | | 4 | % |
| IMUX/10-K/0001628280-16-012388 |
Comparison of Fiscal Years Ended December 31, 2014 and 2013 | The $17.7 million increase in research and development expense during the year ended December 31, 2014, as compared to the year ended December 31, 2013 was primarily associated with an increase in our phase 3 clinical trial activities for VTI-208 reflecting increases in the number of participating clinical sites and in the number of subjects enrolled. The higher costs were principally attributable to increases of $4.4 million in fees paid to clinical sites and related costs; $5.1 million in salaries and wages and other compensation related costs due to increased headcount, including a $1.1 million increase in stock-based compensation; $4.6 million in consulting and professional service fees; $1.6 million in manufacturing supplies and related costs; $714,000 in travel and conference expenses; and $1.3 million in facilities related costs, which includes depreciation, computer and equipment costs, utilities and lease expenses.The $1.2 million increase in general and administrative expense during the year ended December 31, 2014, as compared to the year ended December 31, 2013 was principally attributable to a $1.3 million increase in salaries and wages and other compensation related expenses due to increased headcount to support our operations, including a $453,000 increase in stock-based compensation, and higher insurance costs of $547,000 related to corporate insurance coverage increases. Such increases are due in part to support becoming a publicly-traded company in the second quarter of 2014. These increases were partially offset by a $640,000 reduction in recruiting costs in 2014 as compared to 2013.Other income (expense) primarily reflects the $2.6 million recognized as other income for the re-measurement of future purchase rights liabilities for the year ended December 31, 2014, as all remaining purchase rights liabilities outstanding at December 31, 2013 were exercised or terminated in conjunction with the completion of our IPO in April 2014. Other expense of $1.3 million for the year ended December 31, 2013 reflects the re-measurement of future purchase rights liabilities during the period. |
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| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2014 | | | | 2013 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 39,479 | | | $ | 21,787 | | | $ | 17,692 | | | 81 | % |
| General and administrative | 10,863 | | | | 9,615 | | | | 1,248 | | | | 13 | % |
| Total operating expenses | $ | 50,342 | | | $ | 31,402 | | | $ | 18,940 | | | 60 | % |
| IMUX/10-K/0001628280-16-012388 |
Contractual Obligations | As of December 31, 2015, our purchase obligations include existing purchase commitments for future minimum payments of $282,000 with a vendor for raw materials that will be used in manufacturing on an as needed basis. During the years ended December 31, 2015, 2014 and 2013, we purchased $1.2 million, $1.2 million and $724,000, respectively, of materials from this vendor. Our purchase obligations also include a purchase order with a vendor for a component of the ELAD device that will be manufactured and delivered on an agreed upon schedule during 2016 for a future payment of $225,000. During the years ended December 31, 2015, 2014 and 2013, we purchased $97,000, $105,000 and $131,000 of components from this vendor. Additionally, our purchase obligations include a purchase order with a vendor that will be installing an upgrade to our manufacturing facility with an agreed upon payment during 2016 of $114,000. We have not made any purchases from this vendor during the years ended December 31, 2015, 2014 and 2013. |
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| | Payments Due by Period | | | | | | | | | | | | | | | | | | |
| | Total | | | | Less Than1 Year | | | | 2-3Years | | | | 3-5Years | | | | More Than5 Years | | |
| | (In thousands) | | | | | | | | | | | | | | | | | | |
| Operating lease obligations | $ | 1,380 | | | $ | 889 | | | $ | 491 | | | $ | — | | | $ | — | |
| Purchase obligations | 621 | | | | 621 | | | | — | | | | — | | | | — | | |
| Total contractual obligations | $ | 2,001 | | | $ | 1,510 | | | $ | 491 | | | $ | — | | | $ | — | |
| IMUX/10-K/0001628280-16-012388 |
Comparison of Fiscal Years Ended December 31, 2016 and 2015 | Research and development expense decreased by $9.7 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. The reduction in research and development expenses resulted from an $8.3 million decrease in clinical trial and related consulting, manufacturing and outside service costs. We opened 38 sites during the year ended December 31, 2016 and enrolled 35 subjects in the VTL-308 clinical trial. Higher costs in the year ended December 31, 2015 reflected costs associated with locking the database for and analysis of the VTI-208 clinical trial, and costs associated with the opening of 42 sites and the enrollment of 38 subjects in the VTI-208, VTI-210 and VTI-212 clinical trials. In addition, research and development-related salaries and related compensation costs decreased by $1.3 million in the year ended December 31, 2016, primarily as a result of the reduction in staff and the recording of related severance costs in the third quarter of 2015.The $1.1 million decrease in general and administrative expense during the year ended December 31, 2016 as compared to the year ended December 31, 2015 was primarily the result of $503,000, $348,000 and $177,000 of lower salaries, for consulting and outside services and for travel costs, respectively, in part reflecting reductions in costs in conjunction with the reduction in staff completed in the fourth quarter of 2015. The decrease was also driven by a $250,000 reduction in audit and accounting fees and costs associated with being a public company and a $170,000 reduction in insurance costs. These decreases were partially offset by increased stock-based compensation of $640,000, primarily due to performance-based stock options that were granted in the fourth quarter of 2015. In addition, legal expenses increased by $223,000 in 2016, principally reflecting costs associated with securities litigation that was dismissed in 2016. We expect our research and development costs to increase significantly in 2017 relative to 2016 primarily due to the anticipated higher subject enrollment in the VTL-308 clinical trial during 2017 and due to increased activity related to a possible BLA filing. We expect general and administrative costs to increase slightly in 2017 as compared to 2016. |
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| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2016 | | | | 2015 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 30,046 | | | $ | 39,773 | | | $ | (9,727 | ) | | (24 | )% |
| General and administrative | 11,220 | | | | 12,347 | | | | (1,127 | | ) | | (9 | )% |
| Total operating expenses | $ | 41,266 | | | $ | 52,120 | | | $ | (10,854 | ) | | (21 | )% |
| IMUX/10-K/0001280776-17-000010 |
Comparison of Fiscal Years Ended December 31, 2015 and 2014 | Research and development expense increased by $0.3 million during the year ended December 31, 2015 as compared to the year ended December 31, 2014. The higher research and development expenses were primarily attributable to increases of $3.1 million in third-party consulting and other service fees, $1.8 million in salaries, stock-based compensation and other compensation-related costs and $1.3 million in facilities costs and additional overhead allocations and costs, substantially offset by a reduction of $5.9 million in clinical trial and related costs.The increased third-party consulting and service fees are principally attributable to fees for clinical trial monitoring, for data management services, for analytical services in preparation for the evaluation of our VTI-208 clinical results and for activities to support a potential BLA filing. Higher salary and other compensation-related costs are principally due to increases in average headcount (i) in research to support mechanism of action and BLA activities, (ii) in manufacturing to support BLA activities, and (iii) for clinical trials as we moved certain third-party CRO activities in house and to support data management. These compensation related costs also included $486,000 for severance primarily related to a reduction in workforce following the termination of our VTI-210 and VTI-212 clinical trials and most of our BLA activities, and an increase of $381,000 for non-cash stock-based compensation costs, including costs for the extension of the post-termination option exercise period in conjunction with the workforce reduction.The decrease in clinical trial and related costs reflects the completion of enrollment in the VTI-208 clinical trial in January 2015, the termination of the VTI-210 and VTI-212 clinical trials in September 2015 and the transfer of certain CRO activities to company personnel in the year ended December 31, 2015 as compared to the year ended December 31, 2014. This decrease in clinical costs was also due to the change in our estimated clinical accrual, reducing our clinical costs by $750,000 in the year ended December 31, 2015. Costs of manufacturing materials and supplies also decreased by $448,000 due to the completion of enrollment in the VTI-208 clinical trial and the termination of the VTI-210 and VTI-212 clinical trials.The $1.5 million increase in general and administrative expense during the year ended December 31, 2015 as compared to the year ended December 31, 2014 was primarily attributable to a $1.8 million increase in salaries and wages and other compensation-related expenses principally due to higher stock-based compensation costs and increased average headcount to support our operations. These compensation-related costs included an increase of $1.1 million for non-cash stock-based compensation costs, including costs for the extension of the post-termination option exercise period and an increase of $115,000 for severance costs related to the reduction in workforce for the year ended December 31, 2015. In addition, our insurance and consulting costs increased by $213,000 and $136,000, respectively, in the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily reflecting higher costs associated with being a public company following our IPO in April 2014. These increases were partially offset by a $595,000 decrease in costs primarily due to a higher allocation of overhead to research and development. |
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| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2015 | | | | 2014 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 39,773 | | | $ | 39,479 | | | $ | 294 | | | 1 | % |
| General and administrative | 12,347 | | | | 10,863 | | | | 1,484 | | | | 14 | % |
| Total operating expenses | $ | 52,120 | | | $ | 50,342 | | | $ | 1,778 | | | 4 | % |
| IMUX/10-K/0001280776-17-000010 |
Contractual Obligations | As of December 31, 2016, our purchase obligations include existing purchase commitments of $167,000 with a vendor for raw materials that will be used in manufacturing on an as needed basis. During the years ended December 31, 2016, 2015 and 2014, we purchased $943,000, $1.2 million and $1.2 million, respectively, of materials from this vendor. Our purchase obligations also include a purchase commitment of $119,000 with a vendor for a component used in our clinical trials that will be manufactured and delivered on an as agreed upon schedule during 2017. During the years ended December 31, 2016, 2015 and 2014, we purchased $118,000, $335,000 and $574,000, respectively, of materials from this vendor. In the course of normal business operations, we also enter into agreements with contract service providers and others. We can elect to discontinue the work under these contracts and purchase orders with notice. |
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| | Payments Due by Period | | | | | | | | | | | | | | | | | | |
| | Total | | | | Less Than1 Year | | | | 1-3Years | | | | 3-5Years | | | | More Than5 Years | | |
| | (In thousands) | | | | | | | | | | | | | | | | | | |
| Operating lease obligations | $ | 1,461 | | | $ | 771 | | | $ | 690 | | | $ | — | | | $ | — | |
| Purchase obligations | 286 | | | | 286 | | | | — | | | | — | | | | — | | |
| Total contractual obligations | $ | 1,747 | | | $ | 1,057 | | | $ | 690 | | | $ | — | | | $ | — | |
| IMUX/10-K/0001280776-17-000010 |
Item 6. Selected Financial Data. | The $17.7 million increase in research and development expense during the year ended December 31, 2014,
as compared to the year ended December 31, 2013 was primarily associated with an increase in our Phase 3 clinical trial activities for VTI-208 reflecting increases in the number of participating clinical sites and in the number of subjects
enrolled. The higher costs were principally attributable to increases of $4.4 million in fees paid to clinical sites and related costs; $5.1 million in salaries and wages and other compensation related costs due to increased headcount, including a
$1.1 million increase in stock-based compensation; $4.6 million in consulting and professional service fees; $1.6 million in manufacturing supplies and related costs; $714,000 in travel and conference expenses; and $1.3 million in facilities related
costs, which includes depreciation, computer and equipment costs, utilities and lease expenses. The $1.2 million increase in general and
administrative expense during the year ended December 31, 2014, as compared to the year ended December 31, 2013 was principally attributable to a $1.3 million increase in salaries and wages and other compensation related expenses due to
increased headcount to support our operations, including a $453,000 increase in stock-based compensation, and higher insurance costs of $547,000 related to corporate insurance coverage increases. Such increases are due in part to support becoming a
publicly-traded company in the second quarter of 2014. These increases were partially offset by a $640,000 reduction in recruiting costs in 2014 as compared to 2013. Other income (expense) primarily reflects the $2.6 million recognized as other income for the re-measurement of future purchase rights
liabilities for the year ended December 31, 2014, as all remaining purchase rights liabilities outstanding at December 31, 2013 were exercised or terminated in conjunction with the completion of our IPO in April 2014. Other expense of $1.3
million for the year ended December 31, 2013 reflects the re-measurement of future purchase rights liabilities during the period. Comparison of Fiscal Years Ended December 31, 2013 and 2012 The following table summarizes our operating expenses for the years ended December 31, 2013 and 2012 (dollars in thousands): |
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| | | **Year EndedDecember 31,** | | | | | | | | **Change** | | | | | | |
| | | **2014** | | | | **2013** | | | | **$** | | | | **%** | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Research and development | | $ | 39,479 | | | $ | 21,787 | | | $ | 17,692 | | | | 81 | % |
| General and administrative | | | 10,863 | | | | 9,615 | | | | 1,248 | | | | 13 | % |
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| Total operating expenses | | $ | 50,342 | | | $ | 31,402 | | | $ | 18,940 | | | | 60 | % |
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| IMUX/10-K/0001193125-15-098980 |
Item 6. Selected Financial Data. | The $16.7 million increase in research and development expense during the year ended December 31, 2013,
as compared to the year ended December 31, 2012, was principally associated with an increase in our Phase 3 clinical trial activities for VTI-208. The higher costs were primarily attributable to increases of $6.7 million in fees paid to CROs,
clinical sites, and other related costs, primarily due to subject enrollment that commenced in March 2013; $4.5 million in salaries and wages, stock-based compensation, and other compensation related costs due to increased headcount; $2.5 million in
manufacturing supplies and related costs; $1.7 million in consulting fees related to professional services; $0.7 million in travel costs to support our clinical trial activities; and $0.4 million of allocated facilities costs attributable to
additional clinical office space in 2013. The $5.1 million increase in general and administrative expense during the year ended
December 31, 2013, as compared to the year ended December 31, 2012, was primarily attributable to increases of $2.1 million in salaries and wages, stock-based compensation, and other compensation related expenses due to increased headcount
to support our operations; $1.0 million in consulting fees primarily related to professional services for accounting, marketing and information technology consultants; $0.7 million in expenses related to executive and board member recruitment; and
$0.5 million in facilities related to additional office space in 2013. The $413,000 decrease in interest expense for 2013, as compared to
2012, was attributable to no outstanding convertible notes or loans during 2013. Our convertible notes were converted into shares of our senior preferred stock in September 2012 and our term loan was repaid in October 2012. The $180,000 decrease in revaluation of preferred stock warrant liabilities was attributable to the final valuation adjustment of our
preferred stock warrant liabilities in 2012, as these warrants were converted to common stock warrants in connection with the junior preferred stock offering in February 2012. The $1.3 million recognized for the re-measurement of future purchase rights liabilities for the year ended December 31, 2013 was the
result of an increase in the estimated fair value of future purchase rights liabilities associated with our senior preferred stock financings and an increase during 2013 in the number of shares available under such rights from December 31, 2012
to December 31, 2013. The increase in the estimated fair value of the future purchase rights was primarily the result of an increase to our enterprise value offset in part by an increase in the number of shares of senior preferred stock
outstanding as of December 31, 2013 as compared to the prior year. Liquidity and Capital Resources Overview We have
incurred losses since inception and negative cash flows from operating activities for the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, we had an accumulated deficit of $150.8 million. We anticipate that we will
continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our ELAD System and incur additional costs associated with being a public company. In particular, we expect that our research
and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through a combination of equity offerings, debt financings,
government or other third-party financing, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To date, we have financed our operations through preferred equity financings, our initial public offering completed in April 2014 and our
follow-on public offering completed in October 2014. In January and February 2014, we raised an aggregate of $18.2 million in private placements through the issuance and sale of 2,296,016 shares of senior preferred stock at a price of $8.00 per
share. In April 2014, we completed our initial public offering selling 4,500,000 shares of our common stock and, in May 2014, the underwriters exercised their option to purchase an additional 675,000 shares of our common stock, at $12.00 per share.
In total, we received net proceeds of $57.8 million after underwriters discounts and commissions and before transaction-related costs of $5.8 million. In October 2014, we completed a follow-on public offering selling 2,000,000 shares of
our common stock and, in November 2014, the underwriters exercised a portion of their option and purchased an additional 50,000 shares of our common stock, at $17.50 per share. In total, we received net proceeds of $33.4 million after
underwriters discounts and commissions and before transaction-related costs of $511,000. As of December 31, 2014, we had cash
and cash equivalents of approximately $102.2 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with an intent to maximize liquidity and preserve capital. As of December 31, 2014,
such balances were held in cash and money market funds. Cash Flows The following table shows a summary of our cash flows for each of the three years ended December 31, 2014, 2013, and 2012 (in thousands): |
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| | | **Year EndedDecember 31,** | | | | | | | | **Change** | | | | | | |
| | | **2013** | | | | **2012** | | | | **$** | | | | **%** | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Research and development | | $ | 21,787 | | | $ | 5,097 | | | $ | 16,690 | | | | 327 | % |
| General and administrative | | | 9,615 | | | | 4,483 | | | | 5,132 | | | | 114 | % |
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| Total operating expenses | | $ | 31,402 | | | $ | 9,580 | | | $ | 21,822 | | | | 228 | % |
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| IMUX/10-K/0001193125-15-098980 |
Item 6. Selected Financial Data. | Net cash used in operating activities During the year ended December 31, 2014, operating activities used $40.8 million of cash. The use of cash was primarily related to our net
loss of $47.7 million adjusted for non-cash income of $2.6 million related to the re-measurement of future purchase rights liabilities, non-cash charges of $1.1 million and $2.5 million for depreciation and stock-based compensation,
respectively, and $5.8 million of net changes in our operating assets and liabilities. Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2014 consisted primarily of an increase of $5.5
million in accounts payable and accrued liabilities, reflecting an increase in clinical activities, related research and development expenditures and the timing of payments made by us to vendors since the beginning of the year. The decrease of
$279,000 in other current assets and prepaid expenses was attributable to a reduction in prepaid clinical costs of $737,000 related to the utilization of prepayments to our CROs, offset by an increase of $329,000 in prepaid expenses primarily
attributable to payments on corporate insurance policies. During the year ended December 31, 2013, operating activities used $28.6
million of cash. The use of cash primarily related to our net loss of $32.7 million, partially offset by $3.0 million of non-cash charges related to the re-measurement of future purchase rights, depreciation, deferred rent, and stock-based
compensation and $1.0 million of net changes in our operating assets and liabilities. Net cash provided by changes in our operating assets and liabilities during the year ended December 31, 2013 consisted primarily of an increase of
$2.2 million in accounts payable and accrued liabilities, reflecting an increase in clinical activities and the timing of payments made by us to vendors, partially offset by an increase in prepaid clinical costs of $841,000, an increase in
lease deposits of $198,000, and an increase of $102,000 related to other assets. During the year ended December 31, 2012, operating
activities used $9.2 million of cash. The use of cash during 2012 primarily related to our net loss of $6.7 million, adjusted for $3.1 million in non-cash income related to the re-measurement of future purchase rights, $473,000 of net changes in our
operating assets and liabilities, and adjustments to our net loss of $180,000 due to the non-cash revaluation of the preferred stock warrant liabilities, partially offset by $1.2 million of non-cash charges related to depreciation, interest, and
stock-based compensation. Changes in our operating assets and liabilities consisted primarily of a decrease of $231,000 in accounts payable and accrued liabilities, due primarily to the timing of payments made by us to vendors, and an increase in
prepaid expenses of $242,000 due primarily to increases in prepaid clinical costs of $54,000. Net cash (used in) provided by investing
activities During the year ended December 31, 2014, investing activities used $2.0 million of cash, primarily related to $1.4
million in purchases of capital equipment for manufacturing and clinical operations and a net increase of $631,000 in restricted cash requirements. The net increase in our restricted cash is primarily related to an increase in our clinical trial
obligations of $917,000, which was offset by $288,000 related to the elimination of certain restrictions associated with an agreement we entered into with certain investors in February 2012 related to the sale of junior preferred stock. During the year ended December 31, 2013, investing activities provided $11.9 million of cash, primarily related to sales of short-term
investments of $17.0 million, partially offset by $3.0 million of purchases of short-term investments, as well as $1.5 million in purchases of capital equipment and a $608,000 increase in restricted cash requirements primarily related to our
clinical trial obligations and lease arrangements. During the year ended December 31, 2012, investing activities used $14.6 million
of cash due to the purchase of $14.0 million in short-term investments, capital equipment purchases of $261,000, and an increase in restricted cash requirements of $355,000 associated with clinical trial obligations and potential corporate wind-down
and employee related expenses. Net cash provided by financing activities During the year ended December 31, 2014, financing activities provided $106.9 million of cash, which included net proceeds after
underwriters discounts and commissions, as applicable, and offering costs paid in 2014 of $55.0 million from our IPO, $32.9 million from our follow-on offering and $18.2 million from the sale of senior redeemable convertible preferred stock.
In addition to these equity offerings, we received proceeds of $852,000 related to the exercise of options during 2014. During the year ended December 31, 2013, financing activities provided $50.4 million of
cash, compared to $27.5 million during the year ended December 31, 2012. The increase in cash provided by financing activities during 2013 primarily related to the sale of additional senior preferred stock for $53.2 million, net of offering
costs. These increases were partially offset by deferred financing costs of $3.1 million related to our IPO, which was not completed until April 2014. Our 2012 financing activities included the sale of senior preferred stock for $21.1 million, net of offering costs, and proceeds of $6.9
million from a loan that was converted to senior preferred stock during 2012. These financings were partially offset by principal payments of $533,000 on our term loan, which was repaid in October 2012. To date, we have not generated any revenues from product sales, and we do not have any approved products. We do not know when, or if, we will
generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize the ELAD System. Even assuming no commercialization costs, we anticipate
that we will continue to incur losses for the foreseeable future, and we expect the losses to increase over the next year as we continue the development of, and seek regulatory approvals for, our ELAD System. We are subject to all of the risks
incident in the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial
additional funding in connection with our continuing operations. Based on our current business plan, we believe that our existing cash
and cash equivalents as of December 31, 2014 will be sufficient to fund our operations into the third quarter of 2016, assuming we do not begin building any significant commercial infrastructure during the period. Under this plan, our existing
cash and cash equivalents will be sufficient to fund development through the completion of enrollment and receipt of topline results from our VTI-208 Phase 3 clinical trial; however, we believe we will need additional funds to complete
enrollment in both our VTI-210 Phase 3 clinical trial and our VTI-212 Phase 2 clinical trial. This is a change from our prior projections of the fourth quarter of 2016 reflecting higher expected costs, principally related to preparations
for a potential filing of a biologics license application, or BLA. However, if the VTI-208 clinical trial has good results and we proceed to file the BLA and to prepare for market launch, we anticipate increasing our cash burn and raising additional
funds. A decision to build commercial infrastructure will be based on a variety of factors, most importantly the outcome of our clinical trials. If the VTI-208 clinical trial results do not support the filing of a BLA, we expect to focus on
conserving cash in order to enable completion of the VTI-210 clinical trial. The amount and timing of our actual expenditures also depend on numerous factors, including the rate of subject enrollment in our clinical trials, filing requirements with
various regulatory agencies, and any unforeseen cash needs. Our forecast of the period of time through which our financial resources will
be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors,
including, but not limited to: the scope, progress, results and costs of research and development and clinical trials related to
the ELAD System or any future product candidates; the cost and timing of scaling up and validating the manufacturing process for
the ELAD System or any other product candidates for commercialization; the cost and timing of commercialization activities,
including reimbursement, marketing, sales and distribution costs, both before and after product approval (if any); our ability to
establish new collaborations, licensing or other arrangements and the financial terms of such agreements; the number and
characteristics of any future product candidates we pursue; the costs involved with being a public company; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the
outcome of such litigation; and the timing, receipt and amount of sales of, or royalties on the ELAD System and any future product
candidates. Until such time, if ever, as we can generate substantial product revenues, we expect to
finance our cash needs through a combination of stock offerings, debt financings, collaborations and licensing arrangements. In any event, we do not expect to achieve revenue from product sales prior to the use of the net proceeds from our recently
completed initial public offering and follow-on public offering. We do not have any committed external source of funds. Additional funds may not be available on acceptable terms, if at all. To the extent that we raise additional capital through the
sale of equity securities, the ownership interest of our stockholders will be diluted and may be on terms that are not favorable to us or our stockholders. Debt financing, if available, may involve covenants restricting our operations or our ability
to incur additional debt or other terms that are not favorable to us or our stockholders. If we raise additional funds through collaborations and licensing arrangements with third parties, which we have no prior experience in, we may have to
relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope or
eliminate some or all of our development programs. We may have also have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technology that we would otherwise seek to
commercialize. Any of these factors could harm our operating results. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in
Item 303(a)(4) of Regulation S-K. Contractual Obligations Some of our most significant clinical trial expenditures are to investigative sites and to CROs. The agreements are cancellable by either party
at any time upon written notice and do not have any cancellation penalties, but do obligate us to reimburse the providers for any time or costs incurred through the date of termination. These items are not included in the table below. We lease
office and manufacturing space in San Diego, California. The following table summarizes our contractual obligations at December 31, 2014 and the effect such obligations are expected to have on our cash flow in future periods: |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **2014** | | | | **2013** | | | | **2012** | | |
| Cash (used in) provided by: | | | | | | | | | | | | |
| Operating activities | | $ | (40,825 | ) | | $ | (28,648 | ) | | $ | (9,244 | ) |
| Investing activities | | | (2,040 | ) | | | 11,909 | | | | (14,588 | ) |
| Financing activities | | | 106,918 | | | | 50,445 | | | | 27,501 | |
| IMUX/10-K/0001193125-15-098980 |
Item 6. Selected Financial Data. | As of December 31, 2014, our purchase obligations include existing purchase commitments for future
minimum payments of $391,000 with a vendor for raw materials that will be manufactured and utilized on an as needed basis. During the years ended December 31, 2014, 2013 and 2012, we purchased $1.2 million, $724,000 and $462,000, respectively,
of materials from this vendor. Our purchase obligations also include a purchase order with a vendor for cartridges that will be manufactured and delivered on an agreed upon schedule during 2015 for a future payment of $367,000. During the years
ended December 31, 2014 and 2013, we purchased $1.2 million and $439,000 of materials from this vendor. During the year ended 2012, we purchased no material from this vendor. If we cancel any future shipment, we would be required to pay 50% of the
scheduled invoice amount for that shipment. Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-15,
Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 will require management to assess,
at each annual and interim reporting period, the entitys ability to continue as a going concern. The amendments in ASU 2014-15 do not have any application to an entitys financial statements, but only to disclosure in the related notes.
ASU 2014-15 is effective for annual periods ending after December 15, 2016 and early application is permitted. We intend to apply ASU 2014-15 beginning with the first quarter of fiscal year 2016. In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915) Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, or ASU 2014-10, which eliminates the concept of a development stage entity in its entirety from current accounting guidance
and provides for certain amendments to the consolidation guidance in Topic 810 in the Accounting Standards Codification, or ASC. Prior to the issuance of this guidance, we were considered a development stage entity and as a result we included
certain inception-to-date disclosures in our financial statements. The guidance related to the elimination of the concept of a development stage entity is effective for public companies for annual reporting periods beginning after December 15,
2014, and interim periods therein. The amendment of the consolidation guidance in Topic 810 is effective for public companies for annual reporting periods beginning after December 15, 2015. Early adoption of the new standard is permitted. We
adopted ASU No. 2014-10 during the quarter ended June 30, 2014. As such, all inception-to-date disclosures have not been included in our consolidated financial statements.JOBS Act In April 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an
emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards
on the relevant dates on which adoption of such standards is required for other companies. |
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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **Payments Due by Period** | | | | | | | | | | | | | | | | | | |
| | | **Total** | | | | **Less Than1 Year** | | | | **2-3Years** | | | | **3-5Years** | | | | **More Than5 Years** | | |
| | | (In thousands) | | | | | | | | | | | | | | | | | | |
| Operating lease obligations | | $ | 2,200 | | | $ | 856 | | | $ | 1,344 | | | $ | | | | $ | | |
| Purchase obligations | | | 758 | | | | 758 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 2,958 | | | $ | 1,614 | | | $ | 1,344 | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | |
| IMUX/10-K/0001193125-15-098980 |
Comparison of Fiscal Years Ended December 31, 2017 and 2016 | The $9.3 million increase in research and development expense during the year ended December 31, 2017 as compared to the year ended December 31, 2016 principally reflects an $8.0 million increase in costs related to the VTL-308 and prior clinical trials, primarily in higher costs for subjects, sites, manufacturing, enrollment support activities and consulting. As enrollment started in the second quarter of 2016, 35 subjects were enrolled in the VTI-308 clinical trial in the year ended December 31, 2016, while 97 subjects were enrolled during the year ended December 31, 2017. Costs also increased by $1.2 million for activities to support a potential biologics license application, or BLA, submission in the future. The $2.1 million increase in general and administrative expense during the year ended December 31, 2017 as compared to the year ended December 31, 2016 was largely the result of a $1.9 million increase in compensation-related costs. In December 2017, our chief executive officer transitioned from being an employee to a consultant. As a result of the related transition and consulting agreements, we recorded $525,000 in severance costs and $674,000 in stock-based compensation related to stock option modifications. In total, stock-based compensation increased by $1.2 million in 2017 as compared to 2016 principally due to the stock option modifications and an increase in the number of options outstanding.We expect to continue to incur significant research and development costs to complete enrollment in the VTL-308 clinical trial and in support of BLA activities. We also expect general and administrative costs to remain relatively constant in 2018 compared to 2017 except for increases in stock-based compensation and costs associated with hiring a new chief executive officer in January 2018. In addition, with successful topline results from our VTL-308 clinical trial, we would expect to increase our research and development costs to support a BLA submission and our general and administrative costs as we begin to prepare for the potential commercialization of the ELAD System. |
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| | | | | | | | | | | | | | | |
| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2017 | | | | 2016 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 39,341 | | | $ | 30,046 | | | $ | 9,295 | | | 31 | % |
| General and administrative | 13,314 | | | | 11,220 | | | | 2,094 | | | | 19 | % |
| Total operating expenses | $ | 52,655 | | | $ | 41,266 | | | $ | 11,389 | | | 28 | % |
| IMUX/10-K/0001280776-18-000013 |
Comparison of Fiscal Years Ended December 31, 2016 and 2015 | Research and development expense decreased by $9.7 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. The reduction in research and development expenses resulted from an $8.3 million decrease in clinical trial and related consulting, manufacturing and outside service costs. We opened 38 sites during the year ended December 31, 2016 and enrolled 35 subjects in the VTL-308 clinical trial. Higher costs in the year ended December 31, 2015 reflected costs associated with locking the database for and analysis of the VTI-208 clinical trial, and costs associated with the opening of 42 sites and the enrollment of 38 subjects in the VTI-208, VTI-210 and VTI-212 clinical trials. In addition, research and development-related salaries and related compensation costs decreased by $1.3 million in the year ended December 31, 2016, primarily as a result of the reduction in staff and the recording of related severance costs in the third quarter of 2015.The $1.1 million decrease in general and administrative expense during the year ended December 31, 2016 as compared to the year ended December 31, 2015 was primarily the result of $503,000, $348,000 and $177,000 of lower salaries, for consulting and outside services and for travel costs, respectively, in part reflecting reductions in costs in conjunction with the reduction in staff completed in the fourth quarter of 2015. The decrease was also driven by a $250,000 reduction in audit and accounting fees and costs associated with being a public company and a $170,000 reduction in insurance costs. These decreases were partially offset by increased stock-based compensation of $640,000, primarily due to performance-based stock options that were granted in the fourth quarter of 2015. In addition, legal expenses increased by $223,000 in 2016, principally reflecting costs associated with securities litigation that was dismissed in 2016. |
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| | Year EndedDecember 31, | | | | | | | | Change | | | | | |
| | 2016 | | | | 2015 | | | | $ | | | | % | |
| Operating expenses: | | | | | | | | | | | | | | |
| Research and development | $ | 30,046 | | | $ | 39,773 | | | $ | (9,727 | ) | | (24 | )% |
| General and administrative | 11,220 | | | | 12,347 | | | | (1,127 | | ) | | (9 | )% |
| Total operating expenses | $ | 41,266 | | | $ | 52,120 | | | $ | (10,854 | ) | | (21 | )% |
| IMUX/10-K/0001280776-18-000013 |
Contractual Obligations | As of December 31, 2017, our purchase obligations include existing purchase commitments of $288,000 with a vendor for raw materials that will be used in manufacturing on an as needed basis. During the years ended December 31, 2017, 2016 and 2015, we purchased $1.1 million, $943,000 and $1.2 million, respectively, of materials from this vendor. Our purchase obligations also include a purchase commitment of $143,000 with a vendor for a component used in our clinical trials that will be manufactured and delivered on an as agreed upon schedule during 2018. During the years ended December 31, 2017, 2016 and 2015, we purchased $228,000, $139,000 and $106,000, respectively, of materials from this vendor. In the course of normal business operations, we also enter into agreements with contract service providers and others. We can elect to discontinue the work under these contracts and purchase orders with notice. |
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| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period | | | | | | | | | | | | | | | | | | |
| | Total | | | | Less Than1 Year | | | | 1-3Years | | | | 3-5Years | | | | More Than5 Years | | |
| | (In thousands) | | | | | | | | | | | | | | | | | | |
| Operating lease obligations | $ | 2,584 | | | $ | 1,073 | | | $ | 856 | | | $ | 655 | | | $ | — | |
| Purchase obligations | 431 | | | | 431 | | | | — | | | | — | | | | — | | |
| Total contractual obligations | $ | 3,015 | | | $ | 1,504 | | | $ | 856 | | | $ | 655 | | | $ | — | |
| IMUX/10-K/0001280776-18-000013 |
Comparison of Fiscal Years Ended December 31, 2020 and 2019 | Research and development expenses increased by $16.1 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019. The increase reflects (i) a $9.6 million increase in external development costs for IMU-838 related to the Phase 2 clinical trial in patients with COVID-19 since the trial was started in 2020, (ii) a $5.0 million increase in license fees, drug supply and Phase 1 costs related to IMU-856 since these trials have ramped up in 2020, (iii) a $2.1 million increase in drug supply, Phase 1 and preclinical costs related to IMU-935 since these trials have ramped up in 2020, (iv) a $1.5 million increase in personnel expenses, (v) a $0.7 million increase in drug supply costs related to IMU-838, and (vi) a $0.7 million increase for a bioequivalence study related to IMU-838. The increases were partially offset by (i) a $2.0 million decrease related to the Phase 2 clinical trial of IMU-838 in patients with RRMS as the clinical trial came to an end in 2020, and (ii) a $1.5 million decrease in costs related to a Phase 2 clinical trial in patients with Crohn’s disease. General and administrative expenses decreased by $4.2 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019. The decrease is primarily due to (i) $5.1 million lower stock compensation expense as a result of non-recurring costs recorded in 2019 related to the Transaction, (ii) $0.9 million of decreased legal, accounting and consultancy costs, and (iii) a $0.7 million decrease in travel costs due to worldwide travel restrictions in connection with the COVID-19 pandemic. The decrease was partially offset by (i) a $2.2 million increase in personnel expenses, and (ii) $0.3 million of increased costs across numerous categories.Total other income increased by $2.9 million during the twelve months ended December 31, 2020, as compared to the twelve months ended December 31, 2019. The increase is primarily attributable to (i) a $2.5 million foreign exchange gain on a $68.0 million intercompany loan between Immunic, Inc. and Immunic AG, and (ii) a $0.9 million increase in research and development tax incentives for clinical trials in Australia as a result of increased spending on clinical trials in Australia. This increase was partially offset by (i) the $0.4 million difference between the face value and fair value of the promissory note collected in full in September 2019 in connection with the sale of ELAD Assets, offset by the $0.1 million write-off of the investment in VTL China included in the ELAD Assets sale, and (ii) a $0.2 million decrease of recognized income attributable to reimbursements of research and development expenses in connection with the Daiichi Sankyo Agreement. |
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| | | | Years Ended December 31, | | | | | | | | | | | | Change | | | | | | | | |
| | | | 2020 | | | | | | 2019 | | | | | | $ | | | | | | % | | |
| Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | |
| Research and development | | | 38,637 | | | | | | 22,512 | | | | | | 16,125 | | | | | | 72 | | % |
| General and administrative | | | 10,334 | | | | | | 14,520 | | | | | | (4,186) | | | | | | (29) | | % |
| Total operating expenses | | | 48,971 | | | | | | 37,032 | | | | | | 11,939 | | | | | | 32 | | % |
| Loss from operations | | | (48,971) | | | | | | (37,032) | | | | | | (11,939) | | | | | | 32 | | % |
| Total other income | | | 4,954 | | | | | | 2,099 | | | | | | 2,855 | | | | | | 136 | | % |
| Net loss | | | (44,017) | | | | | | (34,933) | | | | | | (9,084) | | | | | | 26 | | % |
| IMUX/10-K/0001280776-21-000009 |
Other Commitments and Obligations | The purchase obligations above represent non-cancelable contractual obligations under certain agreements related to our development programs IMU-838, IMU-935 and IMU-856. |
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| | | | Payments Due by Period | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total | | | | | | Less Than1 Year | | | | | | 1-3Years | | | | | | 3-5Years | | | | | | More Than5 Years | | |
| | | | (In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating lease obligations | | | $ | 1,080 | | | | | $ | 348 | | | | | $ | 670 | | | | | $ | 62 | | | | | $ | — | |
| Purchase obligations | | | 1,234 | | | | | | 1,234 | | | | | | — | | | | | | — | | | | | | — | | |
| Total contractual obligations | | | $ | 2,314 | | | | | $ | 1,582 | | | | | $ | 670 | | | | | $ | 62 | | | | | $ | — | |
| IMUX/10-K/0001280776-21-000009 |
Acquisitions | (1) The purchase price for this hotel included the issuance of 412,174 Common Units in our Operating Partnership valued at the time of issuance at $3.7 million.(2) The amounts reflect actual total renovation costs.(3) The amounts reflect actual-to-date and estimated remaining costs to complete.The purchase price and renovation costs are funded by mortgage debt, advances on our senior unsecured revolving line of credit facility, cash and the issuance of Operating Partnership Common Units described in footnote 1 to the table above. Additional information about the mortgage debt financing is provided below in Outstanding Indebtedness Mortgage Loans.Of the total renovation costs detailed in the table above, $26.2 million have been incurred as of December 31, 2014. There is no assurance that our actual renovation costs will not exceed our estimates. |
| **Date Acquired** | | **Franchise/Brand** | | **Location** | | **Guestrooms as of December 31, 2014** | | **Purchase Price** | | | **Renovation Cost** | | | **Cost per Key** | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | |
| ***2014:*** | | | | | | | | | | | | | | | | |
| January 9 | | Hilton Garden Inn | | Houston (Galleria), TX | | 182 | | $ | 37,500 | | $ | 3,400 | (3) | $ | 225,000 | |
| January 10 | | Hampton Inn | | Santa Barbara (Goleta), CA | | 101 | | 27,900 | | (1) | 2,100 | | (3) | 297,000 | | |
| January 24 | | Four Points by Sheraton | | San Francisco, CA | | 101 | | 21,250 | | | 1,400 | | (3) | 224,000 | | |
| March 14 | | DoubleTree by Hilton | | San Francisco, CA | | 210 | | 39,060 | | | 4,500 | | (3) | 207,000 | | |
| August 15 | | Hilton Garden Inn | | Houston (Energy Corridor), TX | | 190 | | 36,000 | | | 3,200 | | (3) | 206,000 | | |
| September 9 | | Hampton Inn & Suites | | Austin, TX | | 209 | | 53,000 | | | 2,400 | | (3) | 265,000 | | |
| | | | | | | | | | | | | | | | | |
| *Total for the year ended December 31, 2014* | | | | *6 hotel properties* | | 993 | | $ | 214,710 | | $ | 17,000 | | $ | 233,000 | |
| | | | | | | | | | | | | | | | | |
| ***2013:*** | | | | | | | | | | | | | | | | |
| January 22 | | Hyatt Place | | Chicago (Hoffman Estates), IL | | 126 | | $ | 9,230 | | $ | 1,400 | (3) | $ | 84,000 | |
| January 22 | | Hyatt Place | | Orlando (Convention), FL | | 150 | | 12,252 | | | 1,900 | | (2) | 94,000 | | |
| January 22 | | Hyatt Place | | Orlando (Universal), FL | | 150 | | 11,843 | | | 1,900 | | (2) | 92,000 | | |
| February 11 | | IHG / Holiday Inn Express & Suites | | San Francisco, CA | | 252 | | 60,500 | | | 4,200 | | (2) | 257,000 | | |
| March 11 | | SpringHill Suites by Marriott | | New Orleans, LA | | 208 | | 33,095 | | | | | (2) | 159,000 | | |
| March 11 | | Courtyard by Marriott | | New Orleans (Convention), LA | | 202 | | 30,827 | | | 2,400 | | (2) | 164,000 | | |
| March 11 | | Courtyard by Marriott | | New Orleans (French Quarter), LA | | 140 | | 25,683 | | | 100 | | (2) | 184,000 | | |
| March 11 | | Courtyard by Marriott | | New Orleans (Metairie), LA | | 153 | | 23,539 | | | 2,500 | | (2) | 170,000 | | |
| March 11 | | Residence Inn by Marriott | | New Orleans (Metairie), LA | | 120 | | 19,890 | | | | | (2) | 166,000 | | |
| April 30 | | Hilton Garden Inn | | Greenville, SC | | 120 | | 15,250 | | | 100 | | (2) | 128,000 | | |
| May 21 | | IHG / Holiday Inn Express & Suites | | Minneapolis (Minnetonka), MN | | 93 | | 6,900 | | | 1,600 | | (2) | 91,000 | | |
| May 21 | | Hilton Garden Inn | | Minneapolis (Eden Prairie), MN | | 97 | | 10,200 | | | 2,300 | | (2) | 129,000 | | |
| May 23 | | Fairfield Inn & Suites by Marriott | | Louisville, KY | | 135 | | 25,023 | | | 2,500 | | (3) | 204,000 | | |
| May 23 | | SpringHill Suites by Marriott | | Louisville, KY | | 198 | | 39,138 | | | 3,600 | | (3) | 216,000 | | |
| May 23 | | Courtyard by Marriott | | Indianapolis, IN | | 297 | | 58,634 | | | | | (2) | 197,000 | | |
| May 23 | | SpringHill Suites by Marriott | | Indianapolis, IN | | 156 | | 30,205 | | | | | (2) | 194,000 | | |
| October 1 | | Hampton Inn & Suites | | Ventura (Camarillo), CA | | 116 | | 15,750 | | | 3,000 | | (3) | 162,000 | | |
| October 8 | | Hampton Inn & Suites | | San Diego (Poway), CA | | 108 | | 15,150 | | | 300 | | (3) | 143,000 | | |
| December 31 | | Hyatt Place | | Minneapolis, MN | | 213 | | 32,506 | | | | | (2) | 153,000 | | |
| | | | | | | | | | | | | | | | | |
| *Total for the year ended December 31, 2013* | | | | *19 hotel properties* | | 3,034 | | $ | 475,615 | | $ | 27,800 | | $ | 166,000 | |
| INN/10-K/0001104659-15-015814 |
33 | (1) The sale of these hotel properties included the assignment of the related ground leases.(2) The sale of this property included three adjacent land parcels totaling 5.64 acres.(3) We provided seller financing in the form of mortgage loans on these sales totaling $2.4 million. These mortgage loans mature in the first quarter of 2015. |
| **Disposition Date** | | **Franchise/Brand** | | **Location** | | **Gross Sales Price** | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | |
| ***2014:*** | | | | | | | | |
| January 17 | | AmericInn Hotel & Suites and Aspen Hotel & Suites | | Fort Smith, AR | | $ | 3,080 | (1) |
| September 9 | | Hampton Inn | | Fort Smith, AR | | 8,800 | | (1) |
| October 21 | | Country Inn & Suites and adjacent land parcels | | San Antonio, TX | | 7,900 | | (2) |
| Total 2014 | | | | | | $ | 19,780 | |
| | | | | | | | | |
| ***2013:*** | | | | | | | | |
| January 15 | | AmericInn Hotel & Suites | | Golden, CO | | $ | 2,600 | |
| February 15 | | Hampton Inn | | Denver, CO | | 5,500 | | |
| February 27 | | Land parcel | | Jacksonville, FL | | 1,900 | | |
| May 1 | | Holiday Inn and Holiday Inn Express | | Boise, ID | | 12,600 | | |
| May 30 | | Courtyard by Marriott | | Memphis, TN | | 4,225 | | |
| August 8 | | SpringHill Suites | | Lithia Springs, GA | | 2,400 | | |
| August 21 | | Land parcel | | Missoula, MT | | 750 | | |
| August 29 | | Fairfield Inn | | Lewisville, TX | | 1,960 | | |
| September 30 | | Fairfield Inn | | Lakewood, CO | | 2,800 | | |
| October 30 | | Fairfield Inn | | Emporia, KS | | 1,650 | | (3) |
| November 1 | | SpringHill Suites | | Little Rock, AR | | 4,500 | | |
| November 1 | | Land parcel | | El Paso, TX | | 2,400 | | |
| November 8 | | Fairfield Inn and AmericInn Hotel & Suites | | Salina, KS | | 3,000 | | |
| November 12 | | Hampton Inn, Fairfield Inn and land parcel | | Boise, ID | | 8,090 | | |
| November 18 | | Land parcel | | Houston, TX | | 2,500 | | |
| December 19 | | Holiday Inn Express | | Emporia, KS | | 1,775 | | (3) |
| Total 2013 | | | | | | $ | 58,650 | |
| INN/10-K/0001104659-15-015814 |
34 | (1) Includes Common Units in Summit Hotel OP, LP, the Companys operating partnership, held by limited partners (other than us and our subsidiaries) because the Common Units are redeemable for cash or, at our election, shares of our common stock.During the year ended December 31, 2014, FFO increased by $29.7 million, or 61%, over the prior year primarily due to an increase in revenues of $104.5 million during the year ended December 31, 2014 in comparison with the prior year, which resulted in an increase in net income for the year ended December 31, 2014 of $15.0 million over the prior year. The increase in revenues was the result of increases in Occupancy and ADR as discussed below under Results of Operations. |
| | | **2014** | | | **2013** | | | **2012** | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | |
| Net income (loss) | | $ | 20,923 | | $ | 5,897 | | $ | (2,270 | ) |
| Preferred dividends | | (16,588 | | ) | (14,590 | | ) | (4,625 | | ) |
| Depreciation and amortization | | 65,325 | | | 53,144 | | | 34,871 | | |
| Loss on impairment of assets | | 9,247 | | | 9,044 | | | 2,965 | | |
| Gain on disposal of assets | | (446 | | ) | (4,308 | | ) | (2,811 | | ) |
| Noncontrolling interest in joint venture | | (1 | | ) | (316 | | ) | | | |
| Adjustments related to joint venture | | (204 | | ) | (315 | | ) | | | |
| Funds from operations | | $ | 78,256 | | $ | 48,556 | | $ | 28,130 | |
| FFO per common share/unit | | $ | 0.90 | | $ | 0.66 | | $ | 0.69 | |
| | | | | | | | | | | |
| Weighted average diluted common shares/units (1) | | 86,590 | | | 73,241 | | | 40,912 | | |
| INN/10-K/0001104659-15-015814 |
Earnings Before Interest, Taxes, Depreciation and Amortization | During the year ended December 31, 2014, EBITDA increased by $30.0 million, or 36%, over the prior year primarily due to an increase in net income before depreciation and amortization of $27.2 million during the year ended December 31, 2014 in comparison with the prior year. The increase in net income before depreciation and amortization was primarily driven by an increase in revenues of $104.5 million during the year ended December 31, 2014 in comparison with the prior year. The increase in revenues was the result of increases in Occupancy and ADR as discussed below under Results of Operations. |
| | | **2014** | | | **2013** | | | **2012** | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | |
| Net income (loss) | | $ | 20,923 | | $ | 5,897 | | $ | (2,270 | ) |
| Depreciation and amortization | | 65,325 | | | 53,144 | | | 34,871 | | |
| Interest expense | | 26,968 | | | 20,311 | | | 15,764 | | |
| Interest income | | (690 | | ) | (83 | | ) | (35 | | ) |
| Income tax expense (benefit) | | 718 | | | 4,357 | | | (1,289 | | ) |
| Noncontrolling interest in joint venture | | (1 | | ) | (316 | | ) | | | |
| Adjustments related to joint venture | | (204 | | ) | (315 | | ) | | | |
| EBITDA | | $ | 113,039 | | $ | 82,995 | | $ | 47,041 | |
| INN/10-K/0001104659-15-015814 |
Comparison of 2014 to 2013 | The total portfolio information above includes revenues and expenses from the six hotels we acquired in 2014 (the 2014 Acquired Hotels) and the 19 hotel properties we acquired in 2013 (the 2013 Acquired Hotels) from the date of acquisition through December 31, 2014, and operating information (occupancy, ADR, and RevPAR) for the period each hotel was owned. Accordingly, the information does not reflect a full twelve months of operations in 2014 for the 2014 Acquired Hotels or a full twelve months of operations in 2013 for the 2013 Acquired Hotels. The combined 2014 Acquired Hotels and 2013 Acquired Hotels are referred to as the 2014/2013 Acquired Hotels.Revenues. Total revenues increased $104.5 million, or 35.0%, to $403.5 million in 2014, compared with $299.0 million in 2013. The growth was due to a $21.1 million increase in same-store revenues and an $83.7 million increase in revenues at the 2014/2013 Acquired Hotels.The same-store revenue increase of 9.6%, to $240.6 million in 2014 compared with $219.5 million in 2013, was due to a 220 basis point increase in occupancy in 2014 compared with 2013, and a 6.4% increase in ADR in 2014 compared with 2013. The increases in occupancy and ADR resulted in a 9.7% increase in same-store RevPAR to $84.42 in 2014 compared with $76.98 in 2013. These increases were due to the improving economy, our strong revenue and asset management programs, hotel industry fundamentals and renovations made at our hotel properties. |
| | | **2014** | | | | | | **2013** | | | | | | **Dollar Change** | | | | | | **Percentage Change** | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **Total Portfolio** | | | **Same-Store Portfolio** | | | **Total Portfolio** | | | **Same-Store Portfolio** | | | **Total Portfolio** | | | **Same-Store Portfolio** | | | **Total Portfolio** | | **Same-Store Portfolio** | |
| | | **(90 hotels)** | | | **(65 hotels)** | | | **(85 hotels)** | | | **(65 hotels)** | | | **(90/85 hotels)** | | | **(65 hotels)** | | | **(90/85 hotels)** | | **(65 hotels)** | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 403,466 | | $ | 240,627 | | $ | 298,958 | | $ | 219,489 | | $ | 104,508 | | $ | 21,138 | | 35.0 | % | 9.6 | % |
| Hotel operating expenses | | $ | 261,497 | | $ | 159,034 | | $ | 198,342 | | $ | 147,298 | | $ | 63,155 | | $ | 11,736 | | 31.8 | % | 8.0 | % |
| Occupancy | | 75.7 | | % | 75.4 | | % | 73.4 | | % | 73.2 | | % | n/a | | | n/a | | | 3.1 | % | 3.1 | % |
| ADR | | $ | 122.52 | | $ | 111.94 | | $ | 110.37 | | $ | 105.22 | | $ | 12.15 | | $ | 6.72 | | 11.0 | % | 6.4 | % |
| RevPAR | | $ | 92.71 | | $ | 84.42 | | $ | 81.03 | | $ | 76.98 | | $ | 11.68 | | $ | 7.44 | | 14.4 | % | 9.7 | % |
| INN/10-K/0001104659-15-015814 |
37 | Depreciation and Amortization. Depreciation and amortization expense increased $14.1 million, or 27.6%, to $65.3 million in 2014 compared with 2013, primarily due to depreciation associated with the 2014/2013 Acquired Hotels and increased amortization of capitalized renovation costs at existing hotel properties. The 2014 depreciation and amortization expense includes $63.3 million of fixed asset depreciation, $1.5 million of financing costs amortization, and $0.5 million of franchise fees amortization. The 2013 depreciation and amortization expense includes $48.9 million of fixed asset depreciation, $1.9 million of financing costs amortization, and $0.4 million of franchise fees amortization.Corporate General and Administrative. Corporate general and administrative expenses increased by $7.0 million, or 53.4%, to $19.9 million in 2014 compared with 2013. The increase is primarily due to an increase in equity-based compensation of $1.4 million, an increase in salaries and bonus expense of $2.7 million and increased professional fees of $2.6 million related to internal controls improvements and other matters.Other Income/Expense. Other expense, net increased $4.3 million, or 19.6%, in 2014 compared with 2013 primarily due to an increase in interest expense due to higher average debt outstanding. This increase was slightly offset by a reduction in debt transaction costs and an increase in interest income.Income Tax Expense/Benefit. Our total income tax expense (related to continuing operations and discontinued operations) in 2014 of $0.7 million consists of Alternative Minimum Tax (Federal) of $0.1 million and state taxes of $0.6 million. Included in state taxes are franchise taxes due in Texas of $0.4 million, which are based on gross receipts, and taxes due in other states of $0.2 million. Net operating losses of $6.6 million have been used in the current year to reduce our tax expense. Our total income tax expense (related to continuing operations and discontinued operations) in 2013 of $4.4 million is primarily due to our establishment of a valuation allowance related to net operating losses (NOLs) incurred by our TRS in 2011, 2012 and 2013. |
| | | | | | | | | **Percentage** | | **Percentage of Revenue** | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **2014** | | | **2013** | | | **Change** | | **2014** | | **2013** | |
| | | | | | | | | | | | | | |
| Rooms expense | | $ | 62,752 | | $ | 59,781 | | 5.0 | % | 26.1 | % | 27.2 | % |
| Other direct expense | | 33,193 | | | 29,620 | | | 12.1 | % | 13.8 | % | 13.5 | % |
| Other indirect expense | | 63,089 | | | 57,897 | | | 9.0 | % | 26.2 | % | 26.4 | % |
| Total hotel operating expenses | | $ | 159,034 | | $ | 147,298 | | 8.0 | % | 66.1 | % | 67.1 | % |
| INN/10-K/0001104659-15-015814 |
Comparison of 2013 to 2012 | The total portfolio information above includes revenues and expenses from the 2013 Acquired Hotels and the 19 hotel properties we acquired in 2012 (the 2012 Acquired Hotels) from the date of acquisition through December 31, 2013, and operating information (occupancy, ADR, and RevPAR) for the period each hotel was owned. Accordingly, the information does not reflect a full |
| | | **2013** | | | | | | **2012** | | | | | | **Percentage Change** | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **Total Portfolio (85 hotels)** | | | **Same-Store Portfolio (47 hotels)** | | | **Total Portfolio (66 hotels)** | | | **Same-Store Portfolio (47 hotels)** | | | **Total Portfolio (85/66 hotels)** | | **Same-Store Portfolio (47 hotels)** | |
| Total revenues | | $ | 298,958 | | $ | 146,078 | | $ | 161,700 | | $ | 136,775 | | 84.9 | % | 6.8 | % |
| Hotel operating expenses | | $ | 198,342 | | $ | 99,329 | | $ | 110,442 | | $ | 93,855 | | 79.6 | % | 5.8 | % |
| Occupancy | | 73.4 | | % | 72.3 | | % | 70.9 | | % | 70.9 | | % | 2.5 | % | 1.4 | % |
| ADR | | $ | 110.37 | | $ | 102.03 | | $ | 98.52 | | $ | 97.26 | | 12.0 | % | 4.9 | % |
| RevPAR | | $ | 81.03 | | $ | 73.79 | | $ | 69.88 | | $ | 68.98 | | 16.0 | % | 7.0 | % |
| INN/10-K/0001104659-15-015814 |
38 | Depreciation and Amortization. Depreciation and amortization expense increased $20.5 million, or 67.0%, to $51.2 million in 2013 compared with 2012, primarily due to renovations at existing hotel properties and depreciation associated with the 2013/2012 Acquired Hotels. The 2013 depreciation and amortization expense includes $48.9 million of fixed asset depreciation, $1.9 million of financing costs amortization, and $0.4 million of franchise fees amortization. The 2012 depreciation and amortization expense includes $28.0 million of fixed asset depreciation, $2.3 million of financing costs amortization, and $0.4 million of franchise fees amortization.Corporate General and Administrative. Corporate general and administrative expenses increased by $3.4 million, or 35.1%, to $12.9 million in 2013 compared with 2012. The increase is primarily due to an increase in equity-based compensation of $0.9 million, costs related to the development of corporate functions that did not exist prior to our IPO of $0.9 million, and costs related to the move of our corporate headquarters from Sioux Falls, SD, to Austin, TX of $0.6 million.Other Income/Expense. Our other income/expense increased $6.7 million, or 44.8%, in 2013 compared with 2012. The major component of other income/expense is interest expense, and the increase is primarily due to interest expense on new debt related to our 2013/2012 Acquisition Hotels.Income Tax Expense/Benefit. Our total income tax expense (in continuing operations and discontinued operations) in 2013 of $4.4 million is primarily due to our establishment of a valuation allowance related to net operating losses (NOLs) incurred at our TRS in 2011, 2012 and 2013. As a result of consecutive loss years we determined that it is more likely than not that we will not be able to recognize our NOLs before they expire. Our total income tax benefit (in continuing operations and discontinued operations) in 2012 of $1.3 million was the result of NOLs at our TRS. The net operating losses were primarily the result of the disruption at the several hotel properties rebranded in 2011. |
| | | | | | | | | **Percentage** | | **Percentage of Revenue** | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **2013** | | | **2012** | | | **Change** | | **2013** | | **2012** | |
| Rooms expense | | $ | 39,762 | | $ | 38,316 | | 3.8 | % | 27.2 | % | 28.0 | % |
| Other direct expense | | 19,698 | | | 17,757 | | | 10.9 | % | 13.5 | % | 13.0 | % |
| Other indirect expense | | 39,281 | | | 37,183 | | | 5.6 | % | 26.9 | % | 27.2 | % |
| Other expense | | 588 | | | 599 | | | (1.8 | )% | 0.4 | % | 0.4 | % |
| Total hotel operating expenses | | $ | 99,329 | | $ | 93,855 | | 5.8 | % | 68.0 | % | 68.6 | % |
| INN/10-K/0001104659-15-015814 |
40 | (1) The interest rates at December 31, 2014 above give effect to our use of interest rate derivatives, where applicable.(2) We entered into an interest rate derivative to effectively produce a fixed interest rate, however, the interest rate spread over LIBOR may change based upon our Leverage Ratio, as defined in the credit facility documents.(3) An interest rate derivative instrument effectively converts 85% of this loan to a fixed rate. |
| **Lender** | | **Interest Rate (1)** | | **Amortization Period (Years)** | | **Maturity Date** | | **Number of Properties Encumbered** | | **Principal Amount Outstanding** | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | |
| ***Senior Unsecured Credit Facility*** | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Deutsche Bank AG New York Branch | | | | | | | | | | | | |
| $225 Million Revolver | | 2.07% Variable | | n/a | | October 10, 2017 | | n/a | | $ | 125,000 | |
| $75 Million Term Loan | | 3.94% Fixed (2) | | n/a | | October 10, 2018 | | n/a | | 75,000 | | |
| | | | | | | | | | | | | |
| Total Senior Unsecured Credit Facility | | | | | | | | | | 200,000 | | |
| | | | | | | | | | | | | |
| ***Mortgage Loans*** | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| ING Life Insurance and Annuity | | 6.10% Fixed | | 20 | | March 1, 2019 | | 14 | | 62,327 | | |
| | | 4.55% Fixed | | 25 | | March 1, 2019 | | (cross-collateralized with other ING loan) | | 32,995 | | |
| KeyBank National Association | | 4.46% Fixed | | 30 | | February 1, 2023 | | 4 | | 28,489 | | |
| | | 4.52% Fixed | | 30 | | April 1, 2023 | | 3 | | 22,061 | | |
| | | 4.30% Fixed | | 30 | | April 1, 2023 | | 3 | | 21,403 | | |
| | | 4.95% Fixed | | 30 | | August 1, 2023 | | 2 | | 37,939 | | |
| Bank of America Commercial Mortgage | | 6.41% Fixed | | 25 | | September 1, 2017 | | 1 | | 8,157 | | |
| Merrill Lynch Mortgage Lending Inc. | | 6.38% Fixed | | 30 | | August 1, 2016 | | 1 | | 5,151 | | |
| GE Capital Financial Inc. | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 9,300 | | |
| | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,007 | | |
| MetaBank | | 4.25% Fixed | | 20 | | August 1, 2018 | | 1 | | 7,104 | | |
| Bank of Cascades | | 2.17% Variable | | 25 | | December 19, 2024 | | 1 | | 9,800 | | |
| | | 4.30% Fixed | | 25 | | December 19, 2024 | | (cross-collateralized with other Bank of Cascades note) | | 9,800 | | |
| Goldman Sachs | | 5.67% Fixed | | 25 | | July 6, 2016 | | 2 | | 13,787 | | |
| Compass Bank | | 4.57% Fixed (3) | | 20 | | May 17, 2018 | | 1 | | 12,505 | | |
| | | 2.57% Variable | | 25 | | May 6, 2020 | | 3 | | 24,637 | | |
| General Electric Capital Corp. | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 5,266 | | |
| | | 5.39% Fixed | | 25 | | April 1, 2020 | | 1 | | 6,167 | | |
| | | 4.82% Fixed | | 20 | | April 1, 2018 | | 1 | | 7,213 | | |
| | | 5.03% Fixed | | 25 | | March 1, 2019 | | 1 | | 9,775 | | |
| AIG | | 6.11% Fixed | | 20 | | January 1, 2016 | | 1 | | 12,938 | | |
| Greenwich Capital Financial Products, Inc. | | 6.20% Fixed | | 30 | | January 6, 2016 | | 1 | | 22,711 | | |
| Wells Fargo Bank, National Association | | 5.53% Fixed | | 25 | | October 1, 2015 | | 1 | | 3,523 | | |
| | | 5.57% Fixed | | 25 | | January 1, 2016 | | 1 | | 6,038 | | |
| U.S. Bank, NA | | 6.22% Fixed | | 30 | | November 1, 2016 | | 1 | | 17,536 | | |
| | | 6.13% Fixed | | 25 | | November 11, 2021 | | 1 | | 11,819 | | |
| | | 5.98% Fixed | | 30 | | March 8, 2016 | | 1 | | 13,085 | | |
| Total Mortgage Loans | | | | | | | | 49 | | 426,533 | | |
| | | | | | | | | | | | | |
| Total Debt | | | | | | | | 49 | | $ | 626,533 | |
| INN/10-K/0001104659-15-015814 |
Contractual Obligations | (1) Amounts shown include amortization of principal, maturities, and estimated interest payments. Interest payments on our variable rate debt have been estimated using the interest rates in effect at December 31, 2014, after giving effect to our interest rate swaps.(2) Primarily ground leases and corporate office leases.(3) This amount represents purchase orders and executed contracts for renovation projects at our hotel properties.(4) This represents the remaining amounts to be advanced under a note funding obligation carrying an interest rate of 10.0% per annum paid monthly, an initial maturity date of May 13, 2017 with an option to extend the maturity date until May 13, 2018.We have entered into a purchase agreement with a hotel property developer to acquire a Hampton Inn & Suites in downtown Minneapolis, MN for $38.7 million, which price includes change orders to date. The purchase is subject to certain conditions, including the completion of construction of the hotel in accordance with agreed upon architectural and engineering designs, receipt of a Hampton Inn & Suites franchise, and receipt of a certificate of occupancy. Therefore, there is no assurance that the acquisition will be completed. In January 2014, we issued a standby letter of credit for $13.1 million in support of this purchase agreement. This letter of credit was issued under our senior unsecured credit facility. We anticipate acquiring this hotel property in the first half of 2015. |
| | | **Payments Due By Period** | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **Total** | | | **Less than One Year** | | | **One to Three Years** | | | **Four to Five Years** | | | **More than Five Years** | | |
| | | | | | | | | | | | | | | | | |
| Debt obligations (1) | | $ | 779,782 | | $ | 41,530 | | $ | 282,547 | | $ | 150,471 | | $ | 305,234 | |
| Operating lease obligations (2) | | 54,681 | | | 841 | | | 1,728 | | | 1,452 | | | 50,660 | | |
| Purchase obligations (3) | | 7,086 | | | 7,086 | | | | | | | | | | | |
| Other long-term liabilities (4) | | 2,634 | | | 2,634 | | | | | | | | | | | |
| Total | | $ | 844,183 | | $ | 52,091 | | $ | 284,275 | | $ | 151,923 | | $ | 355,894 | |
| INN/10-K/0001104659-15-015814 |
LHFS | The decrease in the carrying amount attributable to covered
loans was due to the receipt of cash from the FDIC and the negative accretion due to the credit loss improvement partially reduced
by the offset to the provision for covered loans. The change in the carrying amount attributable to covered securities was due
to the offsets to the accretion of the discount and the amount of the increase in fair value of covered securities. The change
in the carrying amount attributable to the aggregate loss calculation is primarily due to accretion of the expected payment, which
is included in the “Accretion due to credit loss improvement” below. The fair values were based upon a discounted cash
flow methodology that was consistent with the acquisition date methodology. The fair value attributable to covered loans and the
aggregate loss calculation changes over time due to the receipt of cash from the FDIC, updated credit loss assumptions and the
passage of time. The fair value attributable to covered securities was based upon the timing and amount that would be payable to
the FDIC should they settle at the current fair value at the conclusion of the loss share agreement.The following table provides information related to the income
statement impact of covered loans and securities and the FDIC loss sharing asset recognized in the Colonial acquisition. The table
excludes all amounts related to other assets acquired and liabilities assumed in the acquisition. |
| Table 6 | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| FDIC Loss Share Receivable | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | December 31, | | | | | | | | | | | |
| | | | | 2012 | | | | | | 2011 | | | | | |
| | | | | Carrying Amount | | | Fair Value | | | Carrying Amount | | | Fair Value | | |
| | | | | (Dollars in millions) | | | | | | | | | | | |
| | Covered loans | | | $ | 1,107 | | $ | 751 | | $ | 1,532 | | $ | 1,351 | |
| | Covered securities | | | | (553) | | | (502) | | | (396) | | | (354) | |
| | Aggregate loss calculation | | | | (75) | | | (100) | | | (36) | | | (87) | |
| | | FDIC loss share receivable | | $ | 479 | | $ | 149 | | $ | 1,100 | | $ | 910 | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Interest income for 2012 on covered loans and securities
acquired in the Colonial acquisition decreased $284 million compared to 2011, primarily due to lower average covered loan balances.
The yield on covered loans for 2012 was 18.91% compared to 19.15% in 2011. At December 31, 2012, the accretable yield balance on
covered loans was $881 million. Accretable yield represents the excess of expected future cash flows above the current net carrying
amount of loans and will be recognized in income over the remaining life of the covered loans. Field: Page; Sequence: 37; Value: 2 During 2012, BB&T reduced the accretable yield balance
on covered loans by $72 million primarily due to changes in the expected lives of the underlying loans. During 2011, BB&T reclassified
$379 million from the nonaccretable balance to accretable yield on covered loans. This reclassification was primarily the result
of increased cash flow estimates resulting from improved loss expectations. These adjustments are recognized on a prospective basis
over the remaining lives of the loan pools.The provision for covered loans was $13 million in 2012,
a decrease of $58 million compared to 2011. This decrease resulted from the quarterly reassessment process.FDIC loss share income, net was $29 million worse than 2011
primarily due to a lower offset to the provision for covered loans.Interest income for 2011 on covered loans and securities
acquired in the Colonial acquisition increased $146 million compared to 2010, which was offset by a decrease in FDIC loss share
income. The majority of the increase is related to loans and reflects higher expected cash flows based on the quarterly cash flow
reassessment process. The yield on covered loans for 2011 was 19.15% compared to 13.22% in 2010. At December 31, 2011, the accretable
yield balance on these loans was $1.7 billion. Accretable yield represents the excess of future cash flows above the current net
carrying amount of loans and will be recognized into income over the remaining life of the covered and acquired loans. The increase
in interest income on securities compared to the prior year was primarily a result of security duration adjustments in the prior
year, which is offset in FDIC loss share income.During 2011 and 2010, BB&T reclassified $379 million
and $1.2 billion, respectively, from the nonaccretable balance to accretable yield on covered loans. These reclassifications were
primarily the result of increased cash flow estimates resulting from improved loss expectations. These amounts are recognized as
prospective yield adjustments and result in increased interest income over the remaining lives of the loan pools.The provision for covered loans was $71 million in 2011,
a decrease of $73 million compared to 2010. The provision expenses recorded during 2011 and 2010 resulted from the quarterly reassessment
process, which showed decreases in expected cash flows in certain loan pools that were partially offset by recoveries in other
previously impaired loan pools.FDIC loss share income, net decreased $173 million compared
to 2010 primarily due to the impact of cash flow reassessments that generated additional interest income and a reduction of amounts
due from the FDIC as a result of decreased loss projections on covered loans.FTE Net Interest Income and Rate / Volume AnalysisThe following table sets forth the major components of net
interest income and the related yields and rates for 2012, 2011 and 2010, 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. Field: Page; Sequence: 38; Value: 2 |
| Table 7 | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue, Net of Provision, Impact from Covered Assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | Years Ended December 31, | | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | |
| | | | | (Dollars in millions) | | | | | | | | |
| | Interest income-covered loans | | | $ | 765 | | $ | 1,053 | | $ | 933 | |
| | Interest income-covered securities | | | | 172 | | | 168 | | | 142 | |
| | | Total interest income | | | 937 | | | 1,221 | | | 1,075 | |
| | Provision for covered loans | | | | (13) | | | (71) | | | (144) | |
| | OTTI for covered securities | | | | (4) | | | ― | | | ― | |
| | FDIC loss share income, net | | | | (318) | | | (289) | | | (116) | |
| | | Adjusted net revenue | | $ | 602 | | $ | 861 | | $ | 815 | |
| | | | | | | | | | | | | |
| | FDIC loss share income, net: | | | | | | | | | | | |
| | | Offset to provision for covered loans | | $ | 11 | | $ | 57 | | $ | 115 | |
| | | Accretion due to credit loss improvement | | | (271) | | | (297) | | | (203) | |
| | | Offset to OTTI for covered securities | | | 3 | | | ― | | | ― | |
| | | Accretion for securities | | | (61) | | | (49) | | | (28) | |
| | | | Total | $ | (318) | | $ | (289) | | $ | (116) | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Field: Page; Sequence: 39; Value: 2 Provision for Credit LossesThe provision for credit losses recorded by BB&T in 2012
was $1.1 billion, a decrease of $133 million, or 11.2%, compared to the prior year. Included in the provision for credit losses
during 2012 was $13 million related to covered loans. The decrease in the provision for credit losses during 2012 compared to 2011
was primarily due to improving credit trends and outlook, as net charge-offs in 2012 decreased 22.0% compared to the prior year.
Improving credit conditions also resulted in an increase in the ratio of the ALLL to net charge-offs, which increased to 1.56 for
2012, compared to 1.36 for 2011.Net charge-offs were 1.14% of average loans and leases (or
1.15% excluding covered loans) for 2012 compared to 1.57% of average loans and leases (or 1.59% excluding covered loans) during
2011. Net charge-offs for 2011 included $87 million related to the transfer and sale of residential mortgage loans in the second
quarter. Excluding the charge-off related to this transfer, net charge-offs were 1.50% of average loans and leases for 2011. The
largest decreases in the provision for credit losses for 2012 were in the residential mortgage and CRE - ADC portfolios.The provision for credit losses recorded by BB&T in 2011
was $1.2 billion compared with $2.6 billion in 2010, which represents a decrease of 54.9% during 2011. Included in the provision
for credit losses during 2011 was $71 million related to covered loans. The provision for credit losses recorded for covered loans
reflects lower expected cash flows on certain loan pools compared to the original estimates. Approximately 80% of this provision
for credit losses is offset through a credit to noninterest income based on the provisions of the FDIC loss sharing agreements.
The decrease in the provision for credit losses during 2011 compared to 2010 was primarily due to improving credit trends and outlook,
as net charge-offs in 2011 decreased 34.3% compared to 2010.Net charge-offs were 1.57% of average loans and leases (or
1.59% excluding covered loans) for 2011 compared to 2.41% of average loans and leases (or 2.59% excluding covered loans) during
2010. Net charge-offs for 2011 included $87 million related to the transfer and sale of residential mortgage loans in the second
quarter. This compares to $605 million of net charge-offs recorded in 2010 related to commercial and residential mortgage loans
that were transferred to the held for sale portfolio. Excluding these items, net charge-offs were 1.50% and 1.97% of average loans
and leases for 2011 and 2010, respectively. The largest decreases in the provision for credit losses for 2011 were in the commercial
and residential mortgage portfolios.Noninterest Income Noninterest income is a significant contributor to BB&T’s
financial results. Noninterest income includes insurance income, service charges on deposit accounts, mortgage banking income,
investment banking and brokerage fees and commissions, trust and investment advisory revenues, gains and losses on securities transactions,
and commissions and fees derived from other activities. Management continues to focus on diversifying its sources of revenue to
further reduce BB&T’s reliance on traditional spread-based interest income, as fee-based activities are a relatively
stable revenue source during periods of changing interest rates. Field: Page; Sequence: 40; Value: 2 |
| Table 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| FTE Net Interest Income and Rate / Volume Analysis (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, 2012, 2011 and 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 vs. 2011 | | | | | | | | | 2011 vs. 2010 | | | | | | | |
| | | | | | | Average Balances | | | | | | | | | Yield/Rate | | | | | | | | | Income/Expense | | | | | | | | | Increase | | | Change due to | | | | | | Increase | | | Change due to | | | | |
| | | | | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | (Decrease) | | | Rate | | | Volume | | | (Decrease) | | | Rate | | | Volume | |
| | | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total securities, at amortized cost: (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GSEs | | | | | $ | 1,601 | | $ | 288 | | $ | 568 | | 1.64 | % | | 1.52 | % | | 3.67 | % | | $ | 26 | | $ | 4 | | $ | 21 | | $ | 22 | | $ | ― | | $ | 22 | | $ | (17) | | $ | (9) | | $ | (8) |
| | RMBS issued by GSE | | | | | | 30,848 | | | 25,305 | | | 22,310 | | 2.02 | | | 1.86 | | | 3.24 | | | | 624 | | | 472 | | | 723 | | | 152 | | | 43 | | | 109 | | | (251) | | | (338) | | | 87 |
| | States and political subdivisions | | | | | | 1,851 | | | 1,895 | | | 2,047 | | 5.83 | | | 5.72 | | | 5.49 | | | | 108 | | | 109 | | | 112 | | | (1) | | | 2 | | | (3) | | | (3) | | | 5 | | | (8) |
| | Non-agency RMBS | | | | | | 346 | | | 528 | | | 1,174 | | 5.76 | | | 6.72 | | | 5.87 | | | | 20 | | | 35 | | | 69 | | | (15) | | | (5) | | | (10) | | | (34) | | | 9 | | | (43) |
| | Other securities | | | | | | 505 | | | 658 | | | 313 | | 1.65 | | | 1.55 | | | 2.16 | | | | 8 | | | 10 | | | 7 | | | (2) | | | 1 | | | (3) | | | 3 | | | (2) | | | 5 |
| | Covered securities | | | | | | 1,183 | | | 1,249 | | | 1,198 | | 14.53 | | | 13.46 | | | 11.84 | | | | 172 | | | 168 | | | 142 | | | 4 | | | 13 | | | (9) | | | 26 | | | 20 | | | 6 |
| | | Total securities | | | | | 36,334 | | | 29,923 | | | 27,610 | | 2.64 | | | 2.67 | | | 3.89 | | | | 958 | | | 798 | | | 1,074 | | | 160 | | | 54 | | | 106 | | | (276) | | | (315) | | | 39 |
| Other earning assets (3) | | | | | | | 3,359 | | | 3,207 | | | 2,933 | | 0.91 | | | 0.62 | | | 0.55 | | | | 31 | | | 20 | | | 17 | | | 11 | | | 10 | | | 1 | | | 3 | | | 1 | | | 2 |
| Loans and leases, net of unearned income: (4)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial and industrial | | | | | 36,966 | | | 34,153 | | | 32,028 | | 3.96 | | | 4.23 | | | 4.45 | | | | 1,464 | | | 1,446 | | | 1,427 | | | 18 | | | (96) | | | 114 | | | 19 | | | (72) | | | 91 |
| | | CRE-other | | | | | 10,779 | | | 11,139 | | | 12,056 | | 3.81 | | | 3.81 | | | 3.87 | | | | 411 | | | 425 | | | 465 | | | (14) | | | ― | | | (14) | | | (40) | | | (7) | | | (33) |
| | | CRE-residential ADC | | | | | 1,665 | | | 2,769 | | | 4,693 | | 3.76 | | | 3.51 | | | 3.64 | | | | 63 | | | 97 | | | 171 | | | (34) | | | 7 | | | (41) | | | (74) | | | (6) | | | (68) |
| | Direct retail lending | | | | | | 15,270 | | | 13,850 | | | 14,033 | | 4.87 | | | 5.22 | | | 5.36 | | | | 744 | | | 722 | | | 751 | | | 22 | | | (50) | | | 72 | | | (29) | | | (19) | | | (10) |
| | Sales finance | | | | | | 7,680 | | | 7,202 | | | 6,766 | | 3.97 | | | 4.88 | | | 5.87 | | | | 305 | | | 352 | | | 397 | | | (47) | | | (69) | | | 22 | | | (45) | | | (69) | | | 24 |
| | Revolving credit | | | | | | 2,217 | | | 2,106 | | | 2,032 | | 8.41 | | | 8.77 | | | 8.74 | | | | 186 | | | 185 | | | 178 | | | 1 | | | (8) | | | 9 | | | 7 | | | 1 | | | 6 |
| | Residential mortgage | | | | | | 22,623 | | | 18,782 | | | 15,965 | | 4.37 | | | 4.80 | | | 5.38 | | | | 989 | | | 902 | | | 859 | | | 87 | | | (86) | | | 173 | | | 43 | | | (99) | | | 142 |
| | Other lending subsidiaries | | | | | | 9,525 | | | 8,280 | | | 7,778 | | 11.04 | | | 11.51 | | | 11.46 | | | | 1,051 | | | 953 | | | 892 | | | 98 | | | (40) | | | 138 | | | 61 | | | 4 | | | 57 |
| | | Total loans and leases held for investment (excluding covered loans) | | | | | 106,725 | | | 98,281 | | | 95,351 | | 4.88 | | | 5.17 | | | 5.39 | | | | 5,213 | | | 5,082 | | | 5,140 | | | 131 | | | (342) | | | 473 | | | (58) | | | (267) | | | 209 |
| | Covered loans | | | | | | 4,045 | | | 5,498 | | | 7,059 | | 18.91 | | | 19.15 | | | 13.22 | | | | 765 | | | 1,053 | | | 933 | | | (288) | | | (13) | | | (275) | | | 120 | | | 357 | | | (237) |
| | | Total loans and leases held for investment | | | | | 110,770 | | | 103,779 | | | 102,410 | | 5.40 | | | 5.91 | | | 5.93 | | | | 5,978 | | | 6,135 | | | 6,073 | | | (157) | | | (355) | | | 198 | | | 62 | | | 90 | | | (28) |
| | LHFS | | | | | | 2,963 | | | 2,183 | | | 2,377 | | 3.42 | | | 3.75 | | | 3.80 | | | | 101 | | | 82 | | | 90 | | | 19 | | | (8) | | | 27 | | | (8) | | | (1) | | | (7) |
| | | Total loans and leases | | | | | 113,733 | | | 105,962 | | | 104,787 | | 5.35 | | | 5.87 | | | 5.88 | | | | 6,079 | | | 6,217 | | | 6,163 | | | (138) | | | (363) | | | 225 | | | 54 | | | 89 | | | (35) |
| | | Total earning assets | | | | | 153,426 | | | 139,092 | | | 135,330 | | 4.61 | | | 5.06 | | | 5.36 | | | | 7,068 | | | 7,035 | | | 7,254 | | | 33 | | | (299) | | | 332 | | | (219) | | | (225) | | | 6 |
| | | Nonearning assets | | | | | 24,676 | | | 23,874 | | | 24,328 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total assets | | | $ | 178,102 | | $ | 162,966 | | $ | 159,658 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest-checking | | | | | $ | 19,904 | | $ | 18,614 | | $ | 16,477 | | 0.12 | | | 0.16 | | | 0.17 | | | | 25 | | | 30 | | | 29 | | | (5) | | | (7) | | | 2 | | | 1 | | | (2) | | | 3 |
| | Money market and savings | | | | | | 46,927 | | | 41,287 | | | 34,942 | | 0.18 | | | 0.31 | | | 0.50 | | | | 85 | | | 129 | | | 175 | | | (44) | | | (60) | | | 16 | | | (46) | | | (74) | | | 28 |
| | Certificates and other time deposits | | | | | | 31,647 | | | 28,825 | | | 33,699 | | 1.01 | | | 1.57 | | | 2.12 | | | | 319 | | | 453 | | | 715 | | | (134) | | | (175) | | | 41 | | | (262) | | | (168) | | | (94) |
| | Foreign office deposits - interest-bearing | | | | | | 214 | | | 647 | | | 1,913 | | 0.11 | | | (0.37) | | | (0.11) | | | | ― | | | (2) | | | (2) | | | 2 | | | 1 | | | 1 | | | ― | | | (2) | | | 2 |
| | | Total interest-bearing deposits | | | | | 98,692 | | | 89,373 | | | 87,031 | | 0.43 | | | 0.68 | | | 1.05 | | | | 429 | | | 610 | | | 917 | | | (181) | | | (241) | | | 60 | | | (307) | | | (246) | | | (61) |
| Federal funds purchased, securities sold under repurchase agreements and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | short-term borrowed funds | | | | | | 3,408 | | | 5,189 | | | 9,022 | | 0.26 | | | 0.27 | | | 0.28 | | | | 9 | | | 14 | | | 26 | | | (5) | | | (1) | | | (4) | | | (12) | | | (1) | | | (11) |
| Long-term debt | | | | | | | 20,651 | | | 22,257 | | | 21,653 | | 3.02 | | | 3.40 | | | 3.96 | | | | 624 | | | 757 | | | 856 | | | (133) | | | (81) | | | (52) | | | (99) | | | (122) | | | 23 |
| | | Total interest-bearing liabilities | | | | | 122,751 | | | 116,819 | | | 117,706 | | 0.86 | | | 1.18 | | | 1.53 | | | | 1,062 | | | 1,381 | | | 1,799 | | | (319) | | | (323) | | | 4 | | | (418) | | | (369) | | | (49) |
| | | Noninterest-bearing deposits | | | | | 28,925 | | | 22,945 | | | 19,742 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other liabilities | | | | | 6,949 | | | 5,935 | | | 5,324 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shareholders’ equity | | | | | 19,477 | | | 17,267 | | | 16,886 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total liabilities and shareholders’ equity | | | $ | 178,102 | | $ | 162,966 | | $ | 159,658 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average interest rate spread | | | | | | | | | | | | | | | 3.75 | % | | 3.88 | % | | 3.83 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NIM/ net interest income | | | | | | | | | | | | | | | 3.91 | % | | 4.06 | % | | 4.03 | % | | $ | 6,006 | | $ | 5,654 | | $ | 5,455 | | $ | 352 | | $ | 24 | | $ | 328 | | $ | 199 | | $ | 144 | | $ | 55 |
| Taxable-equivalent adjustment | | | | | | | | | | | | | | | | | | | | | | | | $ | 149 | | $ | 147 | | $ | 135 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Yields are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Total securities include securities available for sale and securities held to maturity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | Includes Federal funds sold, securities purchased under resale agreements or similar arrangements, 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, have been included for rate calculation purposes. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (5) | Nonaccrual loans have been included in the average balances. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Noninterest income was $3.8 billion for 2012, up 22.7% compared
to 2011. This increase was driven by record income generated by BB&T’s insurance, mortgage banking and investment banking
and brokerage lines of business. In addition, bankcard fees and merchant discounts and other income increased compared to the prior
year. These increases were partially offset by lower checkcard fees, a decrease in income related to the FDIC loss share receivable
and a reduction in net securities income. The major categories of noninterest income and fluctuations in these amounts are discussed
in the following paragraphs. These fluctuations include the impact of acquisitions.Income from BB&T’s insurance agency/brokerage operations
was the largest source of noninterest income in 2012. Insurance income was up 30.2% compared to 2011, primarily due to the acquisition
of Crump Insurance on April 2, 2012, which added approximately $234 million in revenues during 2012. The remainder of the increase
in insurance income is attributable to the impact of other acquisitions that closed during the fourth quarter of 2011 and firming
market conditions.Mortgage banking income
totaled $840 million in 2012 compared to $436 million in 2011. The increase in mortgage banking income was primarily due to an
increase in residential mortgage production revenues totaling $378 million, which was driven by higher gains on residential mortgage
production and sales. Included in mortgage banking income for 2012 is a negative valuation adjustment of $32 million related to
changes in assumptions for residential MSRs that are carried at fair value. Approximately $22 million of the decline in the valuation
of the residential MSRs was due to a revision in the servicing cost assumption based on an expectation of higher costs that continue
to impact the industry. The remainder of the net decrease is primarily due to the impact of an increase in OAS assumption changes
partially offset by prepayment speed changes, which are reflective of the current MSR market. This decrease was more than offset
by gains of $128 million from derivative financial instruments used to manage the economic risk. Service charges on deposit accounts, which totaled $566 million
in 2012, represent BB&T’s third largest category of noninterest revenue. Service charge revenues were essentially flat
compared to the prior year, reflecting the impact of pricing changes for routine services related to retail and commercial transaction
deposit products, such as monthly maintenance fees and commercial transaction deposit products, implemented in 2011 that were designed
to offset a reduction in service charges that occurred in 2010 as a result of a change in overdraft policies.Investment banking and brokerage fees and commissions increased
$32 million, or 9.6%, compared to 2011. This increase was largely driven by a higher level of investment banking activities and
higher brokerage fees and commissions. Checkcard fees decreased $86 million, or 31.7%, due to the Durbin Amendment to the Dodd-Frank
Act, which was implemented on October 1, 2011 and limited the rate banks could assess for debit card transactions. Bankcard fees
and merchant discounts increased $32 million in 2012, primarily the result of higher volumes for both retail and commercial bankcard
activities.FDIC loss share income reflects accretion of the FDIC receivable
due to credit loss improvement (including expense associated with the aggregate loss calculation) and accretion related to covered
securities, partially reduced by the offset to Field: Page; Sequence: 41; Value: 2 the provision for covered loans. Covered loans have experienced better performance
than originally anticipated, which has resulted in the recognition of additional interest income on a level yield basis over the
expected life of the corresponding loans. A significant portion of this increase in interest income is offset by a reduction in
noninterest income recorded in FDIC loss share income. For 2012, noninterest income was reduced by $271 million related to improvement
in loan performance, compared to a reduction of $297 million in 2011. These decreases in income were partially offset by increases
of $11 million and $57 million, respectively, which reflected 80% of the provision for credit losses recorded on covered loans
for 2012 and 2011.BB&T recognized $12 million in net securities losses
during 2012, compared to $62 million of net securities gains in 2011. The net securities losses during 2012 included $9 million
of OTTI charges and $3 million of net losses realized from securities sales. The net securities gains during 2011 included $174
million of net gains realized from securities sales and $112 million of OTTI charges. The OTTI charges recognized during 2011 were
due to weaker actual and forecasted collateral performance for non-agency RMBS. Refer to the “Analysis of Financial Condition
– Investment Activities” section for a detailed discussion of strategies executed during the years presented.Other income increased $105 million in 2012 compared to 2011,
primarily due to $149 million of losses and write-downs recorded in 2011 related to the sale of commercial NPLs. This increase
was partially offset by $42 million of increased write-downs on affordable housing investments in 2012 due to revised estimates
and processes used to value these investments.Noninterest income was $3.1 billion for 2011, down 21.3%
compared to 2010. The decline in noninterest revenue was due to fewer securities gains, lower income related to the FDIC loss share
receivable, lower service charges on deposit accounts and lower mortgage banking revenues, while bankcard fees and merchant discounts
and trust and investment advisory revenues grew compared to the prior year. The major categories of noninterest income and fluctuations
in these amounts are discussed in the following paragraphs. These fluctuations include the impact of acquisitions.Insurance income was up slightly in 2011 compared to 2010,
as pricing for premiums remained soft throughout the year.Service charges on deposit accounts totaled $563 million
in 2011, a decline of $55 million, or 8.9%, compared to 2010. The decrease in 2011 was largely a result of a decline in overdraft
fees as a result of mid-2010 changes to BB&T’s overdraft policies that were partially in response to new regulation.
In 2011, management implemented pricing changes for routine services related to retail and commercial transaction deposit products,
such as monthly maintenance fees and check enclosure fees, which partially offset the reduction in overdraft fees.Mortgage banking income
totaled $436 million in 2011 compared to $521 million in 2010, a decrease of $85 million. This decrease was primarily due to a
decline of $97 million in residential mortgage production revenues due to lower volumes and pricing in 2011 and the decision in
the third quarter of 2010 to retain a portion of 10 to 15 year mortgage production. This decline was partially offset by higher
servicing revenues as a result of growth in the servicing portfolio and higher revenues from commercial mortgage banking revenues.
Included in mortgage banking income for 2011 is a negative valuation adjustment of $341 million related to changes in assumptions
for residential MSRs that are carried at fair value. This was more than offset by gains of $394 million from derivative financial
instruments used to manage the economic risk. Approximately $284 million of the decline in the valuation of the residential MSRs
was due to increases in the prepayment speed assumption as a result of a decrease in interest rates. During 2011, management also
revised its servicing cost assumption based on changes to regulations and industry standards that impact the mortgage servicing
industry. The change in the servicing cost assumption resulted in a decline of approximately $30 million in the valuation of the
mortgage servicing asset.Investment banking and brokerage fees and commissions decreased
$19 million, or 5.4%, compared to 2010. This decrease was largely due to weaker market conditions during the year and a record
fourth quarter in 2010.Checkcard fees decreased slightly in 2011 compared to 2010,
due to the Durbin Amendment to the Dodd-Frank Act. The decrease resulting from the implementation was more than offset by higher
volumes during the year.Bankcard fees and merchant discounts increased $27 million
in 2011. The increased bankcard fees were the result of higher volumes for both retail and commercial bankcard activities.Trust and investment advisory revenues are based on the types
of services provided as well as the overall value of the assets managed, which is affected by stock market conditions. In 2011,
trust and investment advisory revenues increased $14 million, or 8.8%, due to improved market conditions. Field: Page; Sequence: 42; Value: 2 FDIC loss share income reflects the offset to the provision
for covered loans, accretion of the FDIC receivable due to credit loss improvement and accretion related to covered securities.
During 2011 and 2010, covered loans experienced better performance than originally anticipated resulting in additional interest
income. A significant portion of the increases in interest income for 2011 and 2010 was offset by reductions in noninterest income.
For 2011 and 2010, noninterest income was reduced by $297 million and $203 million, respectively, related to improvement in loan
performance. These decreases in income were partially offset by increases of $57 million and $115 million, respectively, which
reflected 80% of the provision for credit losses recorded on covered loans for 2011 and 2010.BB&T recognized $62 million in net securities gains during
2011. The net securities gains during 2011 included $174 million of net gains realized from securities sales and $112 million of
OTTI charges. The OTTI charges recognized during 2011 are due to weaker actual and forecasted collateral performance for non-agency
RMBS. BB&T recognized $554 million in net securities gains during 2010. The net securities gains recognized in 2010 included
$585 million of net gains realized from securities sales and $31 million of losses as a result of OTTI charges. The large decrease
in securities gains during 2011 compared to 2010 reflects the results of the balance sheet deleveraging strategy that was executed
during the second quarter of 2010 and the de-risking of the investment portfolio that began during the third quarter of 2010 and
was completed in the fourth quarter. Refer to the “Analysis of Financial Condition – Investment Activities” section
for a detailed discussion of strategies executed during the years presented.Other income decreased $60 million in 2011 compared to 2010,
primarily due to losses and write-downs on commercial loans that were transferred to the LHFS portfolio in 2010 in connection with
management’s NPL disposition strategy. There was a total of $149 million of losses and write-downs recorded in 2011 compared
to $90 million in 2010.Noninterest Expense The following table provides a breakdown of BB&T’s
noninterest expense: |
| The following table provides a breakdown of BB&T’s noninterest income: | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | |
| Table 9 | | | | | | | | | | | | | | | | | | |
| Noninterest Income | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | % Change | | | | | |
| | | | | | | | | | | | | | 2012 | | | 2011 | | |
| | | | | Years Ended December 31, | | | | | | | | | v. | | | v. | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | |
| | Insurance income | | | $ | 1,359 | | $ | 1,044 | | $ | 1,041 | | 30.2 | % | | 0.3 | % | |
| | Mortgage banking income | | | | 840 | | | 436 | | | 521 | | 92.7 | | | (16.3) | | |
| | Service charges on deposits | | | | 566 | | | 563 | | | 618 | | 0.5 | | | (8.9) | | |
| | Investment banking and brokerage fees and commissions | | | | 365 | | | 333 | | | 352 | | 9.6 | | | (5.4) | | |
| | Bankcard fees and merchant discounts | | | | 236 | | | 204 | | | 177 | | 15.7 | | | 15.3 | | |
| | Checkcard fees | | | | 185 | | | 271 | | | 274 | | (31.7) | | | (1.1) | | |
| | Trust and investment advisory revenues | | | | 184 | | | 173 | | | 159 | | 6.4 | | | 8.8 | | |
| | Income from bank-owned life insurance | | | | 116 | | | 122 | | | 123 | | (4.9) | | | (0.8) | | |
| | FDIC loss share income, net | | | | (318) | | | (289) | | | (116) | | 10.0 | | | 149.1 | | |
| | Securities gains (losses), net | | | | (12) | | | 62 | | | 554 | | (119.4) | | | (88.8) | | |
| | Other income | | | | 299 | | | 194 | | | 254 | | 54.1 | | | (23.6) | | |
| | | Total noninterest income | | $ | 3,820 | | $ | 3,113 | | $ | 3,957 | | 22.7 | | | (21.3) | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Personnel expense is the largest component of noninterest
expense and includes salaries, wages and incentives, as well as pension and other employee benefit costs. Total personnel expense
increased 14.6% during 2012, primarily the result of the Crump Insurance and BankAtlantic acquisitions during 2012. Other factors
contributing to this increase include normal salary increases, higher production-related incentives and commissions and other performance
incentives, and higher pension expense related to certain changes in actuarial assumptions. Additional disclosures relating to
BB&T’s benefit plans can be found in Note 14 “Benefit Plans” in the “Notes to Consolidated Financial
Statements.”Occupancy and equipment expense increased $34 million, or
5.5%, compared to 2011 primarily due to the acquisitions of Crump Insurance and BankAtlantic.Loan-related expense totaled $283 million, an increase of
$56 million compared to the prior year. This increase was primarily the result of higher investor-owned loan expense and provisions
for higher mortgage repurchase reserves. Field: Page; Sequence: 43; Value: 2 Foreclosed property expenses include the gain or loss on
sale of foreclosed property, valuation adjustments resulting from updated appraisals, and the ongoing expense of maintaining foreclosed
properties. Foreclosed property expense decreased $536 million, or 66.8% in 2012, primarily reflecting the impact of a more aggressive
approach to reducing the inventory of foreclosed property that was undertaken in the fourth quarter of 2011.Regulatory charges decreased $53 million in 2012 due to improved
credit quality, which led to lower deposit insurance premiums.Merger-related and restructuring charges increased $52 million
compared to the prior year as a result of the Crump Insurance and BankAtlantic acquisitions.Other expense increased $62 million compared to 2011, primarily
the result of higher advertising expenses, an increase in depreciation expense related to assets under operating leases to customers
driven by growth in BB&T’s equipment financing business, higher operating charge-offs in 2012 and increased referral
fee expense. The remaining noninterest expenses increased a net $13 million, or 3.3%, compared to 2011. Refer to Table 10 for additional
detail on fluctuations in other categories of noninterest expense.Management currently expects that total noninterest expense
should decline in the range of 1% to 2% in 2013 compared with 2012, largely driven by lower credit-related expenses.Personnel expense increased $111 million, or 4.2%, during
2011 compared to 2010. This increase included an additional $90 million for salaries and wages due to customary salary increases
and higher incentive expense resulting from improved performance and production-related businesses. The increase also included
higher pension and employee benefits expense of $21 million.Foreclosed property expense totaled $802 million in 2011,
an increase of $55 million compared to 2010. This increase was largely due to an increase of $78 million for losses and write-downs,
partially offset by a decrease of $23 million for maintenance and repair costs. Included in the losses and write-downs for 2011
was a $220 million liquidity valuation adjustment in the fourth quarter related to management’s decision to implement a more
aggressive shorter period disposition strategy for foreclosed properties. The carrying value of BB&T’s inventory of foreclosed
property decreased $723 million, or 57.4%, during 2011. This decline reflects management’s more aggressive efforts to liquidate
properties and fewer inflows.Loan-related expense totaled $227 million, an increase of
$26 million compared to 2010. This increase includes a $12 million increase for losses related to repurchase reserves on BB&T’s
investor owned servicing portfolio.The remaining noninterest expenses decreased a net $60 million,
or 2.8%, compared to 2010. This decrease includes lower merger-related and restructuring charges, as 2010 included charges related
to the Colonial acquisition and systems conversion. In addition, amortization of intangibles declined by $23 million, as intangibles
are amortized on an accelerated basis. Noninterest expense for 2011 also includes a $16 million loss from the sale of leveraged
leases and an $11 million charge for an increase to the indemnification reserve related to the 2008 sale of Visa stock. These increases
were partially offset by $19 million in lower advertising and other marketing expenses.Merger-Related and Restructuring Charges BB&T recorded certain merger-related and restructuring
charges during the years 2012, 2011 and 2010. These charges are reflected in BB&T’s Consolidated Statements of Income
as a category of noninterest expense.Merger-related and restructuring expenses or credits include:
severance and personnel-related costs or credits, which typically occur in corporate support and data processing functions; occupancy
and equipment charges or credits, which relate to costs or gains associated with lease terminations, obsolete equipment write-offs,
and the sale of duplicate facilities and equipment; and other merger-related and restructuring charges or credits, which include
expenses necessary to convert and combine the acquired branches and operations of merged companies, direct media advertising related
to the acquisitions, asset and supply inventory write-offs, investment banking advisory fees and other similar charges.At December 31, 2012 and 2011, there were $11 million and
$20 million, respectively, of merger-related and restructuring accruals. Merger-related and restructuring accruals are established
when the costs are incurred or once all requirements for a plan to dispose of certain business functions have been approved by
management. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems
conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. Other
accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of
lease contracts. Merger and restructuring Field: Page; Sequence: 44; Value: 2 accruals are re-evaluated periodically and adjusted
as necessary. The remaining accruals at December 31, 2012 are generally expected to be utilized during 2013, unless they relate
to specific contracts that expire in later years.Provision for Income Taxes BB&T’s provision for income taxes totaled $764
million, $296 million and $115 million for 2012, 2011 and 2010, respectively. BB&T’s effective tax rates for the years
ended 2012, 2011 and 2010 were 27.4%, 18.2% and 11.9%, respectively. The increases in the effective tax rate for 2012 compared
to 2011, and 2011 compared to 2010, reflect higher levels of pre-tax earnings relative to permanent income tax differences.BB&T has extended credit to and invested in the obligations
of states and municipalities and their agencies, and has made other investments and loans that produce tax-exempt income. The income
generated from these investments, together with certain other transactions that have favorable tax treatment, have reduced BB&T’s
overall effective tax rate from the statutory rate in all periods presented.Management currently expects the effective tax rate in the
first quarter of 2013 to be similar to the effective tax rate in the fourth quarter of 2012. |
| Table 10 | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Noninterest Expense | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | % Change | | | | | |
| | | | | | | | | | | | | | | 2012 | | | 2011 | | |
| | | | | | Years Ended December 31, | | | | | | | | | v. | | | v. | | |
| | | | | | 2012 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | |
| | | | | | (Dollars in millions) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Personnel expense | | | | $ | 3,125 | | $ | 2,727 | | $ | 2,616 | | 14.6 | % | | 4.2 | % | |
| | Occupancy and equipment expense | | | | | 650 | | | 616 | | | 608 | | 5.5 | | | 1.3 | | |
| | Loan-related expense | | | | | 283 | | | 227 | | | 201 | | 24.7 | | | 12.9 | | |
| | Foreclosed property expense | | | | | 266 | | | 802 | | | 747 | | (66.8) | | | 7.4 | | |
| | Regulatory charges | | | | | 159 | | | 212 | | | 211 | | (25.0) | | | 0.5 | | |
| | Professional services | | | | | 156 | | | 174 | | | 170 | | (10.3) | | | 2.4 | | |
| | Software expense | | | | | 138 | | | 118 | | | 117 | | 16.9 | | | 0.9 | | |
| | Amortization of intangibles | | | | | 110 | | | 99 | | | 122 | | 11.1 | | | (18.9) | | |
| | Merger-related and restructuring charges, net | | | | | 68 | | | 16 | | | 69 | | NM | | | (76.8) | | |
| | Other expense | | | | | 873 | | | 811 | | | 809 | | 7.6 | | | 0.2 | | |
| | | Total noninterest expense | | | $ | 5,828 | | $ | 5,802 | | $ | 5,670 | | 0.4 | | | 2.3 | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | The total securities portfolio increased $2.3 billion, or
6.4%, in 2012. This growth was primarily driven by purchases of investment securities in the fourth quarter of 2012 that were made
in response to slowing loan growth forecasts.As of December 31, 2012, approximately 18.3% of the securities
portfolio was variable rate. The effective duration of the securities portfolio was 2.8 years at December 31, 2012 compared to
3.3 years at the end of 2011. The duration of the securities portfolio excludes equity securities, auction rate securities, and
certain covered non-agency RMBS. During the first quarter of 2011, BB&T reclassified approximately $8.3 billion from securities
available for sale to securities held to maturity. Management determined that it has both the positive intent and ability to hold
these securities to maturity. The reclassification of these securities was accounted for at fair value. Management transferred
these securities to mitigate Field: Page; Sequence: 50; Value: 2 possible negative impacts on its regulatory capital under the proposed Basel III capital guidelines.
In addition, management purchased additional securities into the held-to-maturity portfolio based on its intent at the date of
purchase.RMBS issued by GSEs were 78.0% of the total securities portfolio
at year-end 2012. As of December 31, 2012, the available-for-sale securities portfolio also includes $1.6 billion of securities
that were acquired from the FDIC as part of the Colonial acquisition. These securities are covered by FDIC loss sharing agreements
and include $1.3 billion of non-agency RMBS and $326 million of municipal securities.During 2012, management sold $306 million of securities that
produced a realized loss of $3 million. In addition, BB&T recognized $9 million in charges for OTTI related to certain non-agency
RMBS and covered securities. In 2011, primarily in connection with strengthening its liquidity under the proposed Basel III liquidity
guidelines, management purchased a total of $13.4 billion of GNMA RMBS. Management also sold approximately $4.0 billion of securities
during 2011, which produced net securities gains of $174 million. In addition, BB&T recognized $112 million in charges for
OTTI during 2011 related to BB&T’s portfolio of non-agency RMBS. The OTTI charges were the result of weaker actual and
forecasted collateral performance for non-agency RMBS.In 2010, management executed two major strategies to strengthen
the balance sheet. In the second quarter of 2010, management executed a deleveraging strategy to better position BB&T’s
balance sheet for a rising rate environment and achieve a better mix of earning assets. In connection with this strategy, management
reduced the balance sheet by approximately $8 billion through the sale of securities. During the third and fourth quarters of 2010,
management executed a strategy to further de-risk the available-for-sale securities portfolio. The de-risking strategy was aimed
at further reducing the duration of the securities portfolio and reducing the risk of charges to OCI in a rising rate environment.
Also to further protect against the risk of a rising rate environment, management replaced a portion of the securities sold with
floating-rate securities. In addition, management sold approximately $400 million of non-agency RMBS to reduce the potential for
future credit losses. These strategies were the primary driver in generating net securities gains during 2010. Primarily in connection
with these strategies, BB&T sold a total of $31.3 billion in available-for-sale securities during 2010, which produced net
securities gains of $585 million. In addition, BB&T recognized $31 million in charges for OTTI related to BB&T’s
portfolio of non-agency RMBS. |
| Table 11 | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composition of Securities Portfolio | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | December 31, | | | | | | | | |
| | | | | | 2012 | | | 2011 | | | 2010 | | |
| | | | | | (Dollars in millions) | | | | | | | | |
| | Securities available for sale (at fair value): | | | | | | | | | | | | |
| | | GSE securities | | | $ | 290 | | $ | 306 | | $ | 103 | |
| | | RMBS issued by GSE | | | | 20,930 | | | 18,132 | | | 18,344 | |
| | | States and political subdivisions | | | | 2,011 | | | 1,923 | | | 1,909 | |
| | | Non-agency RMBS | | | | 312 | | | 368 | | | 515 | |
| | | Other securities | | | | 3 | | | 7 | | | 759 | |
| | | Covered securities | | | | 1,591 | | | 1,577 | | | 1,539 | |
| | Total securities available for sale | | | | | 25,137 | | | 22,313 | | | 23,169 | |
| | | | | | | | | | | | | | |
| | Securities held to maturity (at amortized cost): | | | | | | | | | | | | |
| | | GSE securities | | | | 3,808 | | | 500 | | | ― | |
| | | RMBS issued by GSE | | | | 9,273 | | | 13,028 | | | ― | |
| | | States and political subdivisions | | | | 34 | | | 35 | | | ― | |
| | | Other securities | | | | 479 | | | 531 | | | ― | |
| | Total securities held to maturity | | | | | 13,594 | | | 14,094 | | | ― | |
| | Total securities | | | | $ | 38,731 | | $ | 36,407 | | $ | 23,169 | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Lending Activities The primary goal of the BB&T lending function is to help
clients achieve their financial goals by providing quality loan products that are fair to the client and profitable to the Company.
Management believes that this purpose can best be accomplished by building strong, profitable client relationships over time, with
BB&T becoming an important contributor to the prosperity and well-being of its clients. In addition to the importance placed
on client knowledge and continuous involvement with clients, BB&T’s lending process incorporates the standards of a consistent
company-wide credit culture and an in-depth local market knowledge. Furthermore, the Company employs strict underwriting criteria
governing the degree of assumed risk and the diversity of the loan portfolio in terms of type, industry and geographical concentration.
In Field: Page; Sequence: 52; Value: 2 this context, BB&T strives to meet the credit needs of businesses and consumers in its markets while pursuing a balanced
strategy of loan profitability, loan growth and loan quality.The following table summarizes BB&T’s loan portfolio
based on the regulatory classification of the portfolio, which focuses on the underlying loan collateral, and differs from internal
classifications presented herein that focus on the primary purpose of the loan. Covered loans are included in their respective
categories. |
| Table 12 | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Securities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2012 | | | | | | | | | | | |
| | | | | | Available for Sale | | | | | | Held to Maturity | | | | | |
| | | | | | | | | Weighted | | | | | | Weighted | | |
| | | | | | Fair Value | | | Average Yield (1) | | | Amortized Cost | | | Average Yield (1) | | |
| | | | | | (Dollars in millions) | | | | | | | | | | | |
| | GSE securities: | | | | | | | | | | | | | | | |
| | | Within one year | | | $ | 188 | | 0.24 | % | | $ | ― | | ― | % | |
| | | One to five years | | | | 102 | | 0.23 | | | | ― | | ― | | |
| | | Five to ten years | | | | ― | | ― | | | | 3,600 | | 2.00 | | |
| | | After ten years | | | | ― | | ― | | | | 208 | | 1.22 | | |
| | | | Total | | | 290 | | 0.24 | | | | 3,808 | | 1.96 | | |
| | | | | | | | | | | | | | | | | |
| | RMBS issued by GSE: (2) | | | | | | | | | | | | | | | |
| | | One to five years | | | | 6 | | 5.59 | | | | ― | | ― | | |
| | | Five to ten years | | | | 144 | | 2.62 | | | | ― | | ― | | |
| | | After ten years | | | | 20,780 | | 2.14 | | | | 9,273 | | 2.13 | | |
| | | | Total | | | 20,930 | | 2.14 | | | | 9,273 | | 2.13 | | |
| | | | | | | | | | | | | | | | | |
| | Obligations of states and political subdivisions: (3) | | | | | | | | | | | | | | | |
| | | One to five years | | | | 23 | | 6.91 | | | | ― | | ― | | |
| | | Five to ten years | | | | 209 | | 6.15 | | | | 1 | | 1.74 | | |
| | | After ten years | | | | 1,779 | | 6.50 | | | | 33 | | 5.22 | | |
| | | | Total | | | 2,011 | | 6.47 | | | | 34 | | 5.14 | | |
| | | | | | | | | | | | | | | | | |
| | Non-agency RMBS: (2) | | | | | | | | | | | | | | | |
| | | After ten years | | | | 312 | | 5.93 | | | | ― | | ― | | |
| | | | Total | | | 312 | | 5.93 | | | | ― | | ― | | |
| | | | | | | | | | | | | | | | | |
| | Other securities: | | | | | | | | | | | | | | | |
| | | Within one year | | | | 2 | | ― | | | | ― | | ― | | |
| | | One to five years | | | | 1 | | 1.29 | | | | ― | | ― | | |
| | | Five to ten years | | | | ― | | ― | | | | 72 | | 1.37 | | |
| | | After ten years | | | | ― | | ― | | | | 407 | | 1.46 | | |
| | | | Total | | | 3 | | 0.37 | | | | 479 | | 1.45 | | |
| | | | | | | | | | | | | | | | | |
| | Covered securities: | | | | | | | | | | | | | | | |
| | | One to five years | | | | 2 | | 4.51 | | | | ― | | ― | | |
| | | Five to ten years | | | | 324 | | 3.81 | | | | ― | | ― | | |
| | | After ten years | | | | 1,265 | | 16.26 | | | | ― | | ― | | |
| | | | Total | | | 1,591 | | 13.71 | | | | ― | | ― | | |
| | | | | Total securities | $ | 25,137 | | 3.25 | | | $ | 13,594 | | 2.06 | | |
| | | | | | | | | | | | | | | | | |
| (1) | Yields are calculated on a taxable-equivalent basis using the statutory federal income tax rate of 35%. Yields for available-for-sale securities are calculated based on the amortized cost of the securities. | | | | | | | | | | | | | | | |
| (2) | For purposes of the maturity table, RMBS, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life of RMBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. | | | | | | | | | | | | | | | |
| (3) | Weighted-average yield excludes the effect of pay-fixed swaps hedging municipal securities. | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | The following table is based upon the regulatory classification
of loans and reflects the scheduled maturities of commercial, financial and agricultural loans, as well as real estate construction
loans: |
| Table 13 | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composition of Loan and Lease Portfolio | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | December 31, | | | | | | | | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | Commercial, financial and agricultural loans | | | $ | 23,863 | | $ | 21,452 | | $ | 20,490 | | $ | 19,076 | | $ | 17,489 | |
| | Lease receivables | | | | 1,114 | | | 1,067 | | | 1,158 | | | 1,092 | | | 1,315 | |
| | Real estate-construction and land development loans | | | | 5,900 | | | 7,714 | | | 10,969 | | | 15,353 | | | 18,012 | |
| | Real estate-mortgage loans | | | | 65,760 | | | 60,821 | | | 57,418 | | | 55,671 | | | 48,719 | |
| | Consumer loans | | | | 17,966 | | | 16,415 | | | 13,532 | | | 12,464 | | | 11,710 | |
| | | Total loans and leases held for investment | | | 114,603 | | | 107,469 | | | 103,567 | | | 103,656 | | | 97,245 | |
| | LHFS | | | | 3,761 | | | 3,736 | | | 3,697 | | | 2,551 | | | 1,424 | |
| | | Total loans and leases | | $ | 118,364 | | $ | 111,205 | | $ | 107,264 | | $ | 106,207 | | $ | 98,669 | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Scheduled repayments are reported in the maturity category
in which the payment is due. Determinations of maturities are based upon contract terms. BB&T’s credit policy typically
does not permit automatic renewal of loans. At the scheduled maturity date (including balloon payment date), the customer generally
must request a new loan to replace the matured loan and execute either a new note or note modification with rate, terms and conditions
negotiated at that time. Field: Page; Sequence: 53; Value: 2 BB&T’s loan portfolio is approximately 50% commercial
and 50% retail by design, and is divided into six major categories—commercial, direct retail, sales finance, revolving credit,
residential mortgage and other lending subsidiaries. In addition, BB&T has a portfolio of loans that were acquired in the
Colonial acquisition that are covered by FDIC loss sharing agreements. BB&T lends to a diverse customer base that is substantially
located within the Company’s primary market area. At the same time, the loan portfolio is geographically dispersed throughout
BB&T’s branch network to mitigate concentration risk arising from local and regional economic downturns. Refer to the
“Risk Management” section herein for a discussion of each of the loan portfolios and the credit risk management policies
used to manage the portfolios.The following table presents BB&T’s total loan
portfolio based upon BB&T’s lines of business, as discussed herein, rather than upon regulatory reporting classifications: |
| Table 14 | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Selected Loan Maturities and Interest Sensitivity | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | December 31, 2012 | | | | | | | | |
| | | | | | Commercial, | | | Real Estate: | | | | | |
| | | | | | Financial | | | Construction | | | | | |
| | | | | | and | | | and Land | | | | | |
| | | | | | Agricultural | | | Development | | | | | |
| | | | | | Loans | | | Loans | | | Total | | |
| | | | | | (Dollars in millions) | | | | | | | | |
| | Fixed Rate: | | | | | | | | | | | | |
| | | 1 year or less (1) | | | $ | 2,688 | | $ | 233 | | $ | 2,921 | |
| | | 1-5 years | | | | 2,699 | | | 772 | | | 3,471 | |
| | | After 5 years | | | | 3,793 | | | 1,074 | | | 4,867 | |
| | | | Total | | | 9,180 | | | 2,079 | | | 11,259 | |
| | Variable Rate: | | | | | | | | | | | | |
| | | 1 year or less (1) | | | | 3,508 | | | 1,395 | | | 4,903 | |
| | | 1-5 years | | | | 8,935 | | | 1,959 | | | 10,894 | |
| | | After 5 years | | | | 2,240 | | | 467 | | | 2,707 | |
| | | | Total | | | 14,683 | | | 3,821 | | | 18,504 | |
| | | | | Total loans and leases (2) | $ | 23,863 | | $ | 5,900 | | $ | 29,763 | |
| | | | | | | | | | | | | | |
| (1) | Includes loans due on demand. | | | | | | | | | | | | |
| (2) | The above table excludes: | | | | | | | | | (Dollars in millions) | | | |
| | (i) | consumer loans | | | | | | | | | $ | 17,966 | |
| | (ii) | real estate mortgage loans | | | | | | | | | | 65,760 | |
| | (iii) | LHFS | | | | | | | | | | 3,761 | |
| | (iv) | lease receivables | | | | | | | | | | 1,114 | |
| | | Total | | | | | | | | | $ | 88,601 | |
| TFC/10-K/0000092230-13-000023 |
LHFS | BB&T’s lending portfolio reflected broad-based
growth throughout 2012 with notable increases in the commercial and industrial, direct retail and residential mortgage lending
portfolios. Total loans were $118.4 billion at year-end 2012, up $7.2 billion, or 6.4%, compared to the balance at year-end 2011.
Covered loans decreased $1.6 billion, or 32.3%, during 2012.The following table presents BB&T’s average loans
for the years ended December 31, 2012 and 2011, segregated by major category: Field: Page; Sequence: 54; Value: 2 |
| **Table 15** | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composition of Loan and Lease Portfolio Based on Lines of Business | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | December 31, | | | | | | | | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | |
| | Commercial | | | $ | 51,017 | | $ | 49,165 | | $ | 48,886 | | $ | 49,820 | | $ | 50,480 | |
| | Direct retail lending | | | | 15,817 | | | 14,506 | | | 13,807 | | | 14,406 | | | 15,454 | |
| | Sales finance | | | | 7,736 | | | 7,401 | | | 7,050 | | | 6,290 | | | 6,354 | |
| | Revolving credit | | | | 2,330 | | | 2,212 | | | 2,127 | | | 2,016 | | | 1,777 | |
| | Residential mortgage | | | | 24,272 | | | 20,581 | | | 17,550 | | | 15,435 | | | 17,091 | |
| | Other lending subsidiaries | | | | 10,137 | | | 8,737 | | | 7,953 | | | 7,670 | | | 6,089 | |
| | | Total loans and leases held for investment | | | | | | | | | | | | | | | | |
| | | | (excluding covered loans) | | 111,309 | | | 102,602 | | | 97,373 | | | 95,637 | | | 97,245 | |
| | Covered | | | | 3,294 | | | 4,867 | | | 6,194 | | | 8,019 | | | ― | |
| | | Total loans and leases held for investment | | | 114,603 | | | 107,469 | | | 103,567 | | | 103,656 | | | 97,245 | |
| | LHFS | | | | 3,761 | | | 3,736 | | | 3,697 | | | 2,551 | | | 1,424 | |
| | | Total loans and leases | | $ | 118,364 | | $ | 111,205 | | $ | 107,264 | | $ | 106,207 | | $ | 98,669 | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Average total loans were $113.7 billion for 2012, up $7.8
billion compared to the prior year. Average commercial and industrial loans increased $2.8 billion, or 8.2%, in 2012 as compared
to 2011. The increase in the commercial and industrial portfolio was driven by investments in corporate banking in key national
markets and the expansion of vertical lending teams focused on targeted industries. Average CRE – other loans for 2012 decreased
$360 million, or 3.2%, compared to 2011. The average CRE – residential ADC portfolio declined $1.1 billion, or 39.9%, compared
to the average balance for 2011, as management continued to reduce exposure to higher risk real estate lending.Average direct retail loans increased 10.3% during 2012,
primarily due to increased demand for home equity loans and an increase in non-real estate loans generated through the wealth and
small business lending channels. This growth was partially offset by continued runoff of the residential lot/land component of
this portfolio as management has continued to reduce exposures to these types of loans. Average sales finance loans and average
revolving credit reflected 2012 growth rates of 6.6% and 5.3%, respectively. BB&T concentrates its efforts on the highest quality
borrowers in both of these product markets. The growth in average sales finance loans was primarily driven by an increase in prime
automobile lending, which reflects increased momentum in the new and used automobile markets during 2012.Average residential mortgage loans increased $3.8 billion,
or 20.5%, compared to 2011. The increase in residential mortgage loans was driven by a previous strategy that resulted in a higher
portion of 10 to 15 year mortgage production being retained in the held for investment loan portfolio. During the second quarter
of 2012, this strategy was modified such that the majority of future loan production is directed to the held for sale portfolio.
As a result, management expects slower growth in the residential mortgage loan portfolio during 2013.Average loans held by BB&T’s other lending subsidiaries
increased $1.2 billion, or 15.0%, compared to 2011. The growth in this portfolio was primarily in small ticket finance, equipment
leasing and nonprime automobile financing.Asset QualityThe following discussion excludes assets covered by FDIC
loss sharing agreements that provide for reimbursement to BB&T for the majority of losses incurred on those assets. Covered
loans, which are considered performing due to the application of the accretion method of accounting, were $3.3 billion at December
31, 2012 and $4.9 billion in the prior year. Covered foreclosed property totaled $254 million and $378 million at December 31,
2012 and 2011, respectively.NPAs, which include foreclosed real estate, repossessions
and nonaccrual loans, totaled $1.5 billion at December 31, 2012, compared to $2.5 billion at December 31, 2011. The decline in
NPAs of $914 million was driven by a decrease of $492 million in NPLs and $422 million in foreclosed property. The decline in NPLs
was broad-based, reflecting decreases in most loan portfolios, including a 34.5% decrease in commercial NPLs. The decline in foreclosed
property reflects a more Field: Page; Sequence: 55; Value: 2 aggressive approach to reducing the inventory of foreclosed property that was implemented during the fourth
quarter of 2011. The current inventory of foreclosed real estate as of December 31, 2012 includes land and lots, totaling $35 million
that have been held for approximately 15 months on average. The remaining foreclosed real estate of $72 million, which is primarily
single family residential and commercial real estate, had an average holding period of seven months. NPAs as a percentage of loans
and leases plus foreclosed property were 1.33% at December 31, 2012 compared with 2.29% at December 31, 2011.Management expects NPAs to improve at a modest pace during
the first quarter of 2013, assuming no significant economic deterioration during the quarter.The following table presents the changes in NPAs during 2012
and 2011. |
| **Table 16** | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composition of Average Loans and Leases | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Years Ended December 31, | | | | | | | | | | | |
| | | | | 2012 | | | | | | 2011 | | | | | |
| | | | | Balance | | | % of total | | | Balance | | | % of total | | |
| | | | | | (Dollars in millions) | | | | | | | | | | |
| | Commercial: | | | | | | | | | | | | | | |
| | | Commercial and industrial | | $ | 36,966 | | 32.4 | % | | $ | 34,153 | | 32.2 | % | |
| | | CRE - other | | | 10,779 | | 9.5 | | | | 11,139 | | 10.5 | | |
| | | CRE - residential ADC | | | 1,665 | | 1.5 | | | | 2,769 | | 2.6 | | |
| | Direct retail lending | | | | 15,270 | | 13.4 | | | | 13,850 | | 13.1 | | |
| | Sales finance | | | | 7,680 | | 6.8 | | | | 7,202 | | 6.8 | | |
| | Revolving credit | | | | 2,217 | | 1.9 | | | | 2,106 | | 2.0 | | |
| | Residential mortgage | | | | 22,623 | | 19.9 | | | | 18,782 | | 17.7 | | |
| | Other lending subsidiaries | | | | 9,525 | | 8.4 | | | | 8,280 | | 7.8 | | |
| | | Total average loans and leases held for | | | | | | | | | | | | | |
| | | | investment (excluding covered loans) | | 106,725 | | 93.8 | | | | 98,281 | | 92.7 | | |
| | Covered | | | | 4,045 | | 3.6 | | | | 5,498 | | 5.2 | | |
| | | Total average loans and leases held | | | | | | | | | | | | | |
| | | | for investment | | 110,770 | | 97.4 | | | | 103,779 | | 97.9 | | |
| | LHFS | | | | 2,963 | | 2.6 | | | | 2,183 | | 2.1 | | |
| | | Total average loans and leases | | $ | 113,733 | | 100.0 | % | | $ | 105,962 | | 100.0 | % | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Tables 18 and 19 summarize asset quality information for
the past five years. As more fully described below, this information has been adjusted to exclude past due loans that are subject
to FDIC loss sharing agreements and certain mortgage loans guaranteed by the government:
·In accordance with regulatory reporting standards, covered loans that are contractually past due
are reported as past due and still accruing based on the number of days past due. However, given the significant amount of acquired
loans that are past due but still accruing due to the application of the accretion method, BB&T has concluded that it is appropriate
to adjust Table 18 to exclude covered loans in summarizing total loans 90 days or more past due and still accruing and total loans
30-89 days past due and still accruing.
·BB&T has also concluded that the inclusion of covered loans in certain asset quality ratios
summarized in Table 19 including “Loans 30-89 days past due and still accruing as a percentage of total loans and leases,”
“Loans 90 days or more past due and still accruing as a percentage of total loans and leases,” “Nonperforming
loans and leases as a percentage of total loans and leases” and certain other asset quality ratios that reflect NPAs in the
numerator or denominator (or both) results in significant distortion to these ratios. In addition, because loan level charge-offs
related to the acquired loans are not recognized in the financial statements until the cumulative amounts exceed the original loss
projections on a pool basis, the net charge-off ratio for the acquired loans is not consistent with the net charge-off ratio for
other loan portfolios. The inclusion of these loans in the asset quality ratios described above could result in a lack of comparability
across quarters or years, and could negatively impact comparability with other portfolios that were not impacted by acquisition
accounting. BB&T believes that the presentation of asset quality measures excluding covered loans and related amounts from
both the numerator and denominator provides better perspective into underlying trends related to the quality of its loan portfolio.
Accordingly, the asset quality measures in Table 19 present asset quality information both on a consolidated basis as well as excluding
the covered assets and related amounts.
·In addition, BB&T has excluded mortgage loans that are guaranteed by the government, primarily
FHA/VA loans, from the asset quality metrics and ratios reflected on Tables 18 and 19, as these loans are recoverable through various
government guarantees. In addition, BB&T has recorded on the balance sheet Field: Page; Sequence: 56; Value: 2
certain amounts related to delinquent GNMA loans
serviced for others that BB&T has the option, but not the obligation, to repurchase and has effectively regained control. These
amounts are also excluded from asset quality metrics as reimbursement of insured amounts is proceeding in accordance with investor
guidelines. The amount of government guaranteed mortgage loans and GNMA loans serviced for others that have been excluded are noted
in the footnotes to Table 18.
Table 18
Asset Quality
(Excluding Covered Assets)
December 31,
2012
2011
2010
2009
2008
(Dollars in millions)
Nonaccrual loans and leases:
Commercial
$
886
$
1,352
$
1,426
$
1,651
$
845
Direct retail lending
132
142
191
197
89
Sales finance loans
7
7
6
7
7
Residential mortgage loans (1)
269
308
466
707
358
Other lending subsidiaries
86
63
60
96
97
Total nonaccrual loans and leases held for investment
1,380
1,872
2,149
2,658
1,396
Nonaccrual LHFS
―
―
521
5
―
Total nonaccrual loans and leases
1,380
1,872
2,670
2,663
1,396
Foreclosed real estate (2)
107
536
1,259
1,451
538
Other foreclosed property
49
42
42
58
79
Total NPAs (1)(2)
$
1,536
$
2,450
$
3,971
$
4,172
$
2,013
Loans 90 days or more past due and still accruing:
Commercial
$
1
$
2
$
20
$
7
$
86
Direct retail lending
38
56
79
87
117
Sales finance loans
10
18
27
30
26
Revolving credit loans
16
17
20
25
23
Residential mortgage loans (3)(4)
92
104
143
150
158
Other lending subsidiaries
10
5
6
12
14
Total loans 90 days or more past due and still
accruing (3)(4)(5)
$
167
$
202
$
295
$
311
$
424
Loans 30-89 days past due:
Commercial
$
56
$
121
$
315
$
377
$
594
Direct retail lending
145
162
190
222
270
Sales finance loans
56
75
95
126
146
Revolving credit loans
23
22
28
32
34
Residential mortgage loans (6)(7)
498
479
532
600
665
Other lending subsidiaries
290
273
248
306
313
Total loans 30 - 89 days past due (6)(7)(8)
$
1,068
$
1,132
$
1,408
$
1,663
$
2,022
(1)Excludes nonaccrual mortgage loans that are government guaranteed totaling $55 million and $17 million as of 2009 and 2008,
respectively. BB&T revised its nonaccrual policy related to FHA/VA guaranteed loans during 2010. The change in policy resulted
in a decrease in nonaccrual mortgage loans and an increase in mortgage loans 90 days past due and still accruing of approximately
$79 million.
(2)Excludes covered foreclosed real estate totaling $254 million, $378 million, $313 million and $160 million at December 31,
2012, 2011, 2010 and 2009, respectively.
(3)Excludes mortgage loans guaranteed by GNMA that are 90 days or more past due totaling $517 million, $426 million, $425 million,
$337 million and $74 million at December 31, 2012, 2011, 2010, 2009 and 2008, respectively.
(4)Excludes mortgage loans past due 90 days or more that are government guaranteed totaling $254 million, $206 million, $153 million,
$8 million and $7 million at December 31, 2012, 2011, 2010, 2009 and 2008, respectively. Includes past due mortgage LHFS.
(5)Excludes covered loans past due 90 days or more totaling $442 million, $736 million, $1.1 billion and $1.4 billion at December
31, 2012, 2011, 2010 and 2009, respectively.
(6)Excludes mortgage loans guaranteed by GNMA that are past due 30-89 days totaling $5 million, $7 million, $7 million, $10 million
and $12 million at December 31, 2012, 2011, 2010, 2009 and 2008, respectively. Field: Page; Sequence: 57; Value: 2 (7)Excludes mortgage loans past due 30-89 days that are government guaranteed totaling $96 million, $91 million, $83 million,
$23 million and $25 million at December 31, 2012, 2011, 2010, 2009 and 2008, respectively. Includes past due mortgage LHFS.
(8)Excludes covered loans past due 30-89 days totaling $135 million, $222 million, $363 million and $391 million at December 31,
2012, 2011, 2010 and 2009, respectively.Loans 90 days or more past due and still accruing
interest, excluding government guaranteed loans and covered loans, totaled $167 million at December 31, 2012, compared with $202
million at year-end 2011, a decline of 17.3%. Loans 30-89 days past due, excluding government guaranteed loans and covered loans,
totaled $1.1 billion at December 31, 2012, which was a decline of $64 million, or 5.7% compared to year-end 2011. Excluding government
guaranteed loans and covered loans, BB&T’s past due asset quality metrics are essentially at normalized levels. |
| Table 17 | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Rollforward of NPAs | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | Years Ended December 31, | | | | | |
| | | | | | | | 2012 | | | 2011 | | |
| | | | | | | | (Dollars in millions) | | | | | |
| | Balance at beginning of year | | | | | | $ | 2,450 | | $ | 3,971 | |
| | | New NPAs | | | | | | 2,449 | | | 3,216 | |
| | | Advances and principal increases | | | | | | 161 | | | 120 | |
| | | Disposals of foreclosed property | | | | | | (737) | | | (1,062) | |
| | | Loan sales (1) | | | | | | (754) | | | (1,139) | |
| | | Charge-offs and losses | | | | | | (1,002) | | | (1,719) | |
| | | Payments | | | | | | (669) | | | (634) | |
| | | Transfers to performing status | | | | | | (392) | | | (303) | |
| | | Other, net | | | | | | 30 | | | ― | |
| | Balance at end of year | | | | | | $ | 1,536 | | $ | 2,450 | |
| | | | | | | | | | | | | |
| (1) | Includes charge-offs and losses recorded upon sale of $219 million and $241 million for the years ended December 31, 2012 and 2011, respectively. | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | (1)Excludes mortgage loans guaranteed by GNMA. Refer to the footnotes of preceding table for related amounts.
(2)Excludes mortgage loans guaranteed by the government. Refer to the footnotes of preceding table for related amounts.
(3)Net charge-offs for 2011 and 2010 include $695 million and $236 million, respectively, related to BB&T’s NPA disposition
strategy. In connection with this strategy, approximately $271 million and $1.9 billion of problem loans Field: Page; Sequence: 58; Value: 2
were transferred from
loans held for investment to LHFS in 2011 and 2010, respectively. The disposition of all such loans was complete as of December
31, 2011.
(4)These asset quality ratios have been adjusted to remove the impact of covered loans and covered foreclosed property. Appropriate
adjustments to the numerator and denominator have been reflected in the calculation of these ratios.BB&T’s potential problem loans include loans on nonaccrual
status or past due as disclosed in Table 18. In addition, for its commercial portfolio segment, loans that are rated special mention
or substandard performing are closely monitored by management as potential problem loans. Refer to Note 4 “Allowance for
Credit Losses” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related
to these potential problem loans.TDRs generally occur when a borrower is experiencing, or
is expected to experience, financial difficulties in the near-term. As a result, BB&T will work with the borrower to prevent
further difficulties, and ultimately to 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 “Notes to Consolidated Financial Statements” for
additional policy information regarding TDRs.BB&T’s performing TDRs, excluding government guaranteed
mortgage loans, totaled $1.3 billion at December 31, 2012, an increase of $218 million, or 19.7%, compared with December 31, 2011.
This increase was attributable to guidance issued by a national bank regulatory agency during 2012 that requires certain loans,
which have been discharged in bankruptcy and not reaffirmed by the borrower, to be accounted for as a TDR and possibly as nonperforming,
regardless of their actual payment history and expected performance. BB&T’s primary regulators have not formalized how
this guidance will be applied to the entities that it regulates. However, based on a preliminary interpretation of this guidance,
BB&T classified $226 million of performing loans across all loan portfolios as TDRs during the fourth quarter of 2012. Approximately
77% of these loans have been current for two years or more and approximately 92% are less than 60 days past due. As a result, BB&T
concluded that it has a reasonable expectation of collection of principal and interest and therefore has classified these TDRs
as performing. BB&T’s exposure to the expected collateral shortfall has been considered in the ALLL recorded at December
31, 2012.In addition, BB&T classified approximately $44 million
of loans already on nonaccrual status as TDRs as a result of regulatory guidance described above. The classification of these loans
as TDRs had an insignificant impact on the allowance as these loans had been previously charged down to their estimated collateral
value less costs to sell.The following table provides a summary of performing TDR
activity during the years ended December 31, 2012 and 2011. |
| Table 19 | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Asset Quality Ratios | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | As Of / For The Years Ended December 31, | | | | | | | | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | |
| Asset Quality Ratios (including amounts related to | | | | | | | | | | | | | | | | | | |
| | covered loans and covered foreclosed property): | | | | | | | | | | | | | | | | | |
| | Loans 30 - 89 days past due and still accruing as a | | | | | | | | | | | | | | | | | |
| | | percentage of total loans and leases (1)(2) | | 1.02 | % | | 1.22 | % | | 1.65 | % | | 1.93 | % | | 2.05 | % | |
| | Loans 90 days or more past due and still accruing as a | | | | | | | | | | | | | | | | | |
| | | percentage of total loans and leases (1)(2) | | 0.52 | | | 0.84 | | | 1.34 | | | 1.60 | | | 0.43 | | |
| | Nonperforming loans and leases as a percentage of total | | | | | | | | | | | | | | | | | |
| | | loans and leases | | 1.17 | | | 1.68 | | | 2.49 | | | 2.51 | | | 1.42 | | |
| | NPAs as a percentage of: | | | | | | | | | | | | | | | | | |
| | | Total assets | | 0.97 | | | 1.62 | | | 2.73 | | | 2.61 | | | 1.32 | | |
| | | Loans and leases plus foreclosed property | | 1.51 | | | 2.52 | | | 3.94 | | | 4.02 | | | 2.03 | | |
| | Net charge-offs as a percentage of average loans | | | | | | | | | | | | | | | | | |
| | | and leases (3) | | 1.14 | | | 1.57 | | | 2.41 | | | 1.74 | | | 0.89 | | |
| | ALLL as a percentage of loans and leases | | | | | | | | | | | | | | | | | |
| | | held for investment | | 1.76 | | | 2.10 | | | 2.62 | | | 2.51 | | | 1.62 | | |
| | Ratio of ALLL to: | | | | | | | | | | | | | | | | | |
| | | Net charge-offs (3) | | 1.56 | x | | 1.36 | x | | 1.07 | x | | 1.47 | x | | 1.85 | x | |
| | | Nonperforming loans and leases held for investment | | 1.46 | | | 1.21 | | | 1.26 | | | 0.98 | | | 1.13 | | |
| | | | | | | | | | | | | | | | | | | |
| Asset Quality Ratios (excluding amounts related to | | | | | | | | | | | | | | | | | | |
| | covered loans and covered foreclosed property): (4) | | | | | | | | | | | | | | | | | |
| | Loans 30 - 89 days past due and still accruing as a | | | | | | | | | | | | | | | | | |
| | | percentage of total loans and leases (1)(2) | | 0.93 | % | | 1.06 | % | | 1.39 | % | | 1.69 | % | | 2.05 | % | |
| | Loans 90 days or more past due and still accruing as a | | | | | | | | | | | | | | | | | |
| | | percentage of total loans and leases (1)(2) | | 0.15 | | | 0.19 | | | 0.29 | | | 0.32 | | | 0.43 | | |
| | Nonperforming loans and leases as a percentage of total | | | | | | | | | | | | | | | | | |
| | | loans and leases | | 1.20 | | | 1.76 | | | 2.64 | | | 2.71 | | | 1.42 | | |
| | NPAs as a percentage of: | | | | | | | | | | | | | | | | | |
| | | Total assets | | 0.85 | | | 1.45 | | | 2.64 | | | 2.65 | | | 1.32 | | |
| | | Loans and leases plus foreclosed property | | 1.33 | | | 2.29 | | | 3.88 | | | 4.18 | | | 2.03 | | |
| | Net charge-offs as a percentage of average loans | | | | | | | | | | | | | | | | | |
| | | and leases (3) | | 1.15 | | | 1.59 | | | 2.59 | | | 1.79 | | | 0.89 | | |
| | ALLL as a percentage of | | | | | | | | | | | | | | | | | |
| | | loans and leases held for investment | | 1.70 | | | 2.05 | | | 2.63 | | | 2.72 | | | 1.62 | | |
| | Ratio of ALLL to: | | | | | | | | | | | | | | | | | |
| | | Net charge-offs (3) | | 1.50 | x | | 1.32 | x | | 1.01 | x | | 1.47 | x | | 1.85 | x | |
| | | Nonperforming loans and leases held for investment | | 1.37 | | | 1.13 | | | 1.19 | | | 0.98 | | | 1.13 | | |
| | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
LHFS | Payments and payoffs represent cash received from borrowers
in connection with scheduled principal payments, prepayments and payoffs of amounts outstanding. Transfers to nonperforming TDRs
represent loans that no longer meet the requirements necessary to reflect the loan in accruing status and as a result are subsequently
classified as a nonperforming TDR.TDRs may be removed due to the passage of time if they: (1)
did not include a forgiveness of principal or interest, (2) have performed in accordance with the modified terms (generally a minimum
of six months), (3) were reported as a TDR over a year end reporting period, and (4) reflected an interest rate on the modified
loan that was no less than a market rate at the date of modification. These loans were previously considered TDRs as a result of
structural concessions such as extended interest-only terms or an amortization period that did not otherwise conform to normal
underwriting guidelines. Field: Page; Sequence: 59; Value: 2 In addition, certain transactions may be removed from classification
as a TDR as a result of a subsequent non-concessionary re-modification. Non-concessionary re-modifications represent TDRs that
did not contain concessionary terms at the date of a subsequent renewal/modification and there was a reasonable expectation that
the borrower would continue to comply with the terms of the loan subsequent to the date of the re-modification. A re-modification
may be considered for such a re-classification if the loan has not had a forgiveness of principal or interest and the modified
terms qualify as more than minor such that the re-modified loan is considered a new loan. Alternatively, such loans may be considered
for reclassification in years subsequent to the date of the re-modification based on the passage of time as described in the preceding
paragraph.In connection with consumer loan TDRs, a NPL will be returned
to accruing status when current as to principal and interest and upon a sustained historical repayment performance (generally a
minimum of six months).The following table provides further details regarding the
payment status of TDRs outstanding at December 31, 2012:
Table 21
Troubled Debt Restructurings
December 31, 2012
Past Due
Past Due
Current Status
30-89 Days (1)
90 Days Or More (1)
Total
(Dollars in millions)
Performing TDRs:
Commercial loans:
Commercial and industrial
$
76
98.7
%
$
1
1.3
%
$
―
―
%
$
77
CRE - other
67
100.0
―
―
―
―
67
CRE - residential ADC
21
100.0
―
―
―
―
21
Direct retail lending
183
92.9
12
6.1
2
1.0
197
Sales finance
16
84.2
2
10.5
1
5.3
19
Revolving credit
45
80.4
5
8.9
6
10.7
56
Residential mortgage (2)
643
83.6
106
13.8
20
2.6
769
Other lending subsidiaries
104
86.0
17
14.0
―
―
121
Total performing TDRs (2)
1,155
87.0
143
10.8
29
2.2
1,327
Nonperforming TDRs (3)
60
25.0
24
10.0
156
65.0
240
Total TDRs (2)
$
1,215
77.5
$
167
10.7
$
185
11.8
$
1,567
(1)Past due performing TDRs are included in past due disclosures.
(2)Excludes mortgage TDRs that are government guaranteed totaling $315 million.
(3)Nonperforming TDRs are included in nonaccrual loan disclosures. |
| Table 20 | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Rollforward of Performing TDRs | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | Years Ended December 31, | | | | | |
| | | | | | | | | 2012 | | | 2011 | |
| | | | | | | | (Dollars in millions) | | | | | |
| | Balance at beginning of year | | | | | | $ | 1,109 | | $ | 1,476 | |
| | | Inflows | | | | | | 417 | | | 395 | |
| | | Change in regulatory guidance | | | | | | 226 | | | ― | |
| | | Payments and payoffs | | | | | | (187) | | | (334) | |
| | | Chargeoffs | | | | | | (36) | | | (43) | |
| | | Transfers from (to) nonperforming TDRs, net | | | | | | (50) | | | (206) | |
| | | Removal due to the passage of time | | | | | | (109) | | | (105) | |
| | | Non-concessionary re-modifications | | | | | | (43) | | | (74) | |
| | Balance at end of year | | | | | | $ | 1,327 | | $ | 1,109 | |
| TFC/10-K/0000092230-13-000023 |
ACL | Information related to BB&T’s ALLL for the last
five years is presented in the following table. Field: Page; Sequence: 61; Value: 2 |
| Table 22 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Allocation of ALLL by Category | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2012 | | | | | | 2011 | | | | | | 2010 | | | | | | 2009 | | | | | | 2008 | | | | |
| | | | | | | | % Loans | | | | | | % Loans | | | | | | % Loans | | | | | | % Loans | | | | | | % Loans | |
| | | | | | | | in each | | | | | | in each | | | | | | in each | | | | | | in each | | | | | | in each | |
| | | | | Amount | | | category | | | Amount | | | category | | | Amount | | | category | | | Amount | | | category | | | Amount | | | category | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at end of period applicable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | | $ | 774 | | 44.5 | % | | $ | 1,053 | | 45.7 | % | | $ | 1,536 | | 47.1 | % | | $ | 1,574 | | 48.2 | % | | $ | 912 | | 51.9 | % |
| | Direct retail lending | | | | 300 | | 13.8 | | | | 232 | | 13.5 | | | | 246 | | 13.3 | | | | 297 | | 13.8 | | | | 124 | | 15.9 | |
| | Sales finance | | | | 29 | | 6.8 | | | | 38 | | 6.9 | | | | 47 | | 6.8 | | | | 77 | | 6.1 | | | | 55 | | 6.5 | |
| | Revolving credit | | | | 102 | | 2.0 | | | | 112 | | 2.1 | | | | 109 | | 2.1 | | | | 127 | | 1.9 | | | | 94 | | 1.8 | |
| | Residential mortgage | | | | 328 | | 21.2 | | | | 365 | | 19.2 | | | | 298 | | 17.0 | | | | 131 | | 14.9 | | | | 91 | | 17.6 | |
| | Other lending subsidiaries | | | | 277 | | 8.8 | | | | 197 | | 8.1 | | | | 198 | | 7.7 | | | | 264 | | 7.4 | | | | 238 | | 6.3 | |
| | Covered | | | | 128 | | 2.9 | | | | 149 | | 4.5 | | | | 144 | | 6.0 | | | | ― | | 7.7 | | | | ― | | ― | |
| | Unallocated | | | | 80 | | ― | | | | 110 | | ― | | | | 130 | | ― | | | | 130 | | ― | | | | 60 | | ― | |
| | | Total ALLL | | | 2,018 | | 100.0 | % | | | 2,256 | | 100.0 | % | | | 2,708 | | 100.0 | % | | | 2,600 | | 100.0 | % | | | 1,574 | | 100.0 | % |
| | | RUFC | | | 30 | | | | | | 29 | | | | | | 47 | | | | | | 72 | | | | | | 33 | | | |
| | | Total ACL | | $ | 2,048 | | | | | $ | 2,285 | | | | | $ | 2,755 | | | | | $ | 2,672 | | | | | $ | 1,607 | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Funding Activities Deposits are the primary source of funds for lending and
investing activities. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities
also provide a stable source of funds. FHLB advances, other secured borrowings, Federal funds purchased and other short-term borrowed
funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. BB&T’s
funding activities are monitored and governed through BB&T’s overall asset/liability management process, which is further
discussed in the “Market Risk Management” section in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” herein. Following is a brief description of the various sources of funds used by BB&T.Deposits Deposits are attracted principally from clients within BB&T’s
branch network through the offering of a broad selection of deposit instruments to individuals and businesses, including noninterest-bearing
checking accounts, interest-bearing checking accounts, savings accounts, money market deposit accounts, CDs and individual retirement
accounts. Deposit account terms vary with respect to the minimum balance required, the time period the funds must remain on deposit
and service charge schedules. Interest rates paid on specific deposit types are determined based on (i) the interest rates
offered by competitors, (ii) the anticipated amount and timing of funding needs, (iii) the availability and cost of alternative
sources of funding, and (iv) anticipated future economic conditions and interest rates. Deposits are attractive sources of
funding because of their Field: Page; Sequence: 62; Value: 2 stability and relative cost. Deposits are regarded as an important part of the overall client relationship
and provide opportunities to cross-sell other BB&T services.Total deposits at December 31, 2012, were $133.1 billion,
an increase of $8.1 billion, or 6.5%, compared to year-end 2011. Noninterest-bearing deposits totaled $32.5 billion at December
31, 2012, an increase of $6.8 billion, or 26.4%, from December 31, 2011. The increase in noninterest-bearing deposits was broad
based in nature, with increases in deposits from personal, business and public funds clients. Interest checking and money market
and savings accounts increased $3.7 billion, or 5.6% compared to the prior year, while certificates and other time deposits declined
$2.3 billion, or 6.7%, during that same time period. For the year ended December 31, 2012, total deposits averaged $127.6
billion, an increase of $15.3 billion, or 13.6%, compared to 2011. Management currently expects more modest deposit growth in the
first quarter of 2013.The following table presents BB&T’s average deposits
for the years ended December 31, 2012 and 2011, segregated by major category: |
| Table 23 | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Analysis of ACL | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, | | | | | | | | | | | | | | |
| | | | | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | |
| | | | | | | **(Dollars in millions)** | | | | | | | | | | | | | |
| | Beginning balance | | | | $ | 2,285 | | $ | 2,755 | | $ | 2,672 | | $ | 1,607 | | $ | 1,015 | |
| | Provision for credit losses (excluding covered loans) | | | | | 1,044 | | | 1,119 | | | 2,494 | | | 2,811 | | | 1,445 | |
| | Provision for covered loans | | | | | 13 | | | 71 | | | 144 | | | ― | | | ― | |
| | | Charge-offs: | | | | | | | | | | | | | | | | | |
| | | | Commercial (1) | | | (732) | | | (898) | | | (1,508) | | | (720) | | | (276) | |
| | | | Direct retail lending | | | (224) | | | (276) | | | (338) | | | (349) | | | (156) | |
| | | | Sales finance | | | (26) | | | (32) | | | (48) | | | (72) | | | (59) | |
| | | | Revolving credit | | | (81) | | | (95) | | | (118) | | | (127) | | | (79) | |
| | | | Residential mortgage (2) | | | (136) | | | (269) | | | (394) | | | (280) | | | (96) | |
| | | | Other lending subsidiaries | | | (225) | | | (190) | | | (252) | | | (314) | | | (251) | |
| | | | Covered loans | | | (34) | | | (66) | | | ― | | | ― | | | ― | |
| | | | | Total charge-offs (1)(2) | | (1,458) | | | (1,826) | | | (2,658) | | | (1,862) | | | (917) | |
| | | | | | | | | | | | | | | | | | | | |
| | | Recoveries: | | | | | | | | | | | | | | | | | |
| | | | Commercial | | | 71 | | | 71 | | | 37 | | | 21 | | | 16 | |
| | | | Direct retail lending | | | 36 | | | 37 | | | 33 | | | 19 | | | 12 | |
| | | | Sales finance | | | 10 | | | 9 | | | 9 | | | 9 | | | 7 | |
| | | | Revolving credit | | | 18 | | | 19 | | | 16 | | | 12 | | | 11 | |
| | | | Residential mortgage | | | 3 | | | 5 | | | 4 | | | 5 | | | 1 | |
| | | | Other lending subsidiaries | | | 26 | | | 25 | | | 31 | | | 23 | | | 19 | |
| | | | | Total recoveries | | 164 | | | 166 | | | 130 | | | 89 | | | 66 | |
| | Net charge-offs (1)(2) | | | | | (1,294) | | | (1,660) | | | (2,528) | | | (1,773) | | | (851) | |
| | Other changes, net | | | | | ― | | | ― | | | (27) | | | 27 | | | (2) | |
| | Ending balance | | | | $ | 2,048 | | $ | 2,285 | | $ | 2,755 | | $ | 2,672 | | $ | 1,607 | |
| | | | | | | | | | | | | | | | | | | | |
| | ALLL (excluding covered loans) | | | | $ | 1,890 | | $ | 2,107 | | $ | 2,564 | | $ | 2,600 | | $ | 1,574 | |
| | Allowance for covered loans | | | | | 128 | | | 149 | | | 144 | | | ― | | | ― | |
| | RUFC | | | | | 30 | | | 29 | | | 47 | | | 72 | | | 33 | |
| | | Total ACL | | | $ | 2,048 | | $ | 2,285 | | $ | 2,755 | | $ | 2,672 | | $ | 1,607 | |
| | | | | | | | | | | | | | | | | | | | |
| (1) | Includes charge-offs of $464 million in commercial loans and leases during 2010 in connection with BB&T's NPL disposition strategy. | | | | | | | | | | | | | | | | | | |
| (2) | Includes charge-offs of $87 million and $141 million in residential mortgage loans during 2011 and 2010, respectively, in connection with BB&T's NPL disposition strategy. | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | The overall mix of deposits improved during 2012, with average
noninterest-bearing deposits representing 22.7% of average total deposits during 2012, compared to 20.4% during 2011. Deposit mix
was also positively impacted by certificates and other time deposits, which represented 24.8% of average total deposits during
2012, down from 25.7% of average total deposits during 2011. The average cost of interest-bearing deposits was 0.43% for 2012,
compared to 0.68% in the prior year. Management expects that deposit costs will continue to trend downward in 2013.The following table provides information regarding the scheduled
maturities of time deposits that are $100,000 and greater at December 31, 2012: |
| Table 24 | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Composition of Average Deposits | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | Years Ended December 31, | | | | | | | | | | | |
| | | | 2012 | | | | | | 2011 | | | | | |
| | | | Balance | | | % of total | | | Balance | | | % of total | | |
| | | | (Dollars in millions) | | | | | | | | | | | |
| | Noninterest-bearing deposits | | $ | 28,925 | | 22.7 | % | | $ | 22,945 | | 20.4 | % | |
| | Interest checking | | | 19,904 | | 15.6 | | | | 18,614 | | 16.6 | | |
| | Money market and savings | | | 46,927 | | 36.7 | | | | 41,287 | | 36.7 | | |
| | Certificates and other time deposits | | | 31,647 | | 24.8 | | | | 28,825 | | 25.7 | | |
| | Foreign office deposits - interest-bearing | | | 214 | | 0.2 | | | | 647 | | 0.6 | | |
| | | Total average deposits | $ | 127,617 | | 100.0 | % | | $ | 112,318 | | 100.0 | % | |
| TFC/10-K/0000092230-13-000023 |
ACL | Short-term Borrowings BB&T also uses
various types of short-term borrowings in meeting funding needs. While deposits remain the primary source for funding loan
originations, management uses short-term borrowings as a supplementary funding source for loan growth and other balance sheet
management purposes. Short-term borrowings were 1.9% of total funding on average in 2012 as compared to 3.2% in 2011. See
Note 8 “Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and Short-Term Borrowed Funds” in
the “Notes to Consolidated Financial Statements” herein for further disclosure. The types of short-term
borrowings that have been, or may be, used by the Company include Federal funds purchased, securities sold under repurchase
agreements, master notes, commercial paper, U.S. Treasury tax and loan deposit notes and short-term bank notes. All of
BB&T’s securities sold under repurchase agreements are reflected as collateralized borrowings on the balance sheet.
Short-term borrowings at the end of 2012 were $2.9 billion, a decrease of $702 million, or 19.7%, compared to year- Field: Page; Sequence: 63; Value: 2 end 2011.
Average short-term borrowings totaled $3.4 billion during 2012 compared to $5.2 billion last year, a decrease of 34.3%. The
decline in the balances during 2012 primarily reflects the strong deposit growth described previously.The following table summarizes certain pertinent information
for the past three years with respect to BB&T’s short-term borrowings: |
| | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Table 25 | | | | | | | | | | | |
| Scheduled Maturities of Time Deposits $100,000 and Greater | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | December 31, 2012 | | |
| | | | | | | | | | (Dollars in millions) | | |
| | Three months or less | | | | | | | | $ | 7,675 | |
| | Over three through six months | | | | | | | | | 4,163 | |
| | Over six through twelve months | | | | | | | | | 3,054 | |
| | Over twelve months | | | | | | | | | 4,436 | |
| | | Total | | | | | | | $ | 19,328 | |
| TFC/10-K/0000092230-13-000023 |
ACL | Long-term Debt BB&T uses long-term debt to provide both funding and,
to a lesser extent, regulatory capital. During 2012, long-term debt represented 11.6% of average total funding, compared to 13.7%
during 2011. At December 31, 2012, long-term debt totaled $19.1 billion, a decrease of $2.7 billion compared to year-end 2011.
The average cost of long-term debt was 3.02% in 2012, compared to 3.40% in 2011. See Note 10 “Long-Term Debt” in the
“Notes to Consolidated Financial Statements” herein for further disclosure.BB&T’s long-term debt consists primarily of FHLB
advances, which represented 47.1% of total outstanding long-term debt at December 31, 2012; senior notes of BB&T, which
represented 31.6% of the year-end balance; subordinated notes of BB&T, which represented 11.3% of the year-end balance; and
subordinated notes of Branch Bank, which represented 6.4% of total outstanding long-term debt at December 31, 2012. FHLB advances
are cost-effective long-term funding sources that provide BB&T with the flexibility to structure the debt in a manner that
aids in the management of interest rate risk and liquidity.The decrease in long-term
debt reflects the redemption of $3.3 billion of junior subordinated debt and the maturity of $1.0 billion in senior debt. The redemption
of the junior subordinated debt was initiated based on the early redemption provisions of the related trust preferred securities
due to the fact that they will no longer qualify for Tier 1 capital treatment. These decreases in long-term
debt were partially offset by the issuance of $2.3 billion of senior and subordinated notes with interest rates ranging from 1.45%
to 3.95%. Shareholders’ Equity Shareholders’ equity totaled $21.2 billion at December 31,
2012, an increase of $3.7 billion, or 21.4%, from year-end 2011. BB&T’s book value per common share at December 31,
2012 was $27.21, compared to $24.98 at December 31, 2011.The increase in shareholders’ equity during 2012 includes
$2.1 billion in net proceeds from the issuance of Tier 1 qualifying non-cumulative perpetual preferred stock. See Note 11 “Shareholders’
Equity” in the “Notes to Consolidated Financial Statements” herein for further disclosure. In addition, shareholders’
equity increased $1.4 billion due to BB&T’s earnings available to common shareholders retained after dividends declared,
and $113 million as a result of the issuance of additional shares and other transactions in connection with BB&T’s equity-based
compensation plans, 401(k) plan and dividend reinvestment plan. Accumulated other comprehensive income increased $154 million.
The increase in accumulated other comprehensive income was primarily due to a $335 million after-tax increase in the value of the
available for sale securities Field: Page; Sequence: 64; Value: 2 portfolio, partially offset by declines of $111 million related to pensions and other post-retirement
benefit plans and $61 million related to an increase in amounts attributable to the FDIC under loss share agreements.BB&T’s tangible book value per common share at
December 31, 2012 was $17.52 compared to $16.73 at December 31, 2011. As of December 31, 2012, measures of tangible
capital were not required by the regulators and, therefore, were considered non-GAAP measures. Refer to the section titled “Capital”
herein for a discussion of how BB&T calculates and uses these measures in the evaluation of the Company.Risk Management In the normal course of business BB&T encounters inherent
risk in its business activities. Risk is managed on a decentralized basis with risk decisions made as closely as possible to where
the source of risk occurs. Centrally, risk oversight is managed at the corporate level through oversight, policies and reporting.
The principal types of inherent risk include regulatory, credit, liquidity, market, operational, reputation and strategic risks.Regulatory risk Regulatory risk is the risk to earnings, capital, or reputation
arising from violations of, or nonconformance with current and changing laws, regulations, supervisory guidance, regulatory expectations,
or the rules, standards, or codes of conduct of self regulatory organizations.Credit risk Credit risk is the risk to earnings or capital arising from
the default, inability or unwillingness of a borrower, obligor, or counterparty to meet the terms of any financial obligation with
BB&T or otherwise perform as agreed. Credit risk exists in all activities where success depends on the performance of a borrower,
obligor, or counterparty. Credit risk arises when BB&T funds are extended, committed, invested, or otherwise exposed through
actual or implied contractual agreements, whether on or off the balance sheet. Credit risk also occurs when the credit quality
of an issuer whose securities or other instruments the bank holds deteriorates.BB&T has established the following general practices
to manage credit risk:
·limiting the amount of credit that individual lenders may extend to a borrower;
·establishing a process for credit approval accountability;
·careful initial underwriting and analysis of borrower, transaction, market and collateral risks;
·ongoing servicing and monitoring of individual loans and lending relationships;
·continuous monitoring of the portfolio, market dynamics and the economy; and
·periodically reevaluating the bank’s strategy and overall exposure as economic, market and other relevant conditions
change.The following discussion presents the principal types of
lending conducted by BB&T and describes the underwriting procedures and overall risk management of BB&T’s lending
function.Underwriting Approach Recognizing that the loan portfolio is a primary source of
profitability and risk, proper loan underwriting is critical to BB&T’s long-term financial success. BB&T’s
underwriting approach is designed to define acceptable combinations of specific risk-mitigating features that ensure credit relationships
conform to BB&T’s risk philosophy. Provided below is a summary of the most significant underwriting criteria used to
evaluate new loans and loan renewals:
·Cash flow and debt service coverage—cash flow adequacy is a necessary condition of creditworthiness, meaning that
loans must either be clearly supported by a borrower’s cash flow or, if not, must be justified by secondary repayment sources.
·Secondary sources of repayment—alternative repayment funds are a significant risk-mitigating factor as long as
they are liquid, can be easily accessed and provide adequate resources to supplement the primary cash flow source. Field: Page; Sequence: 65; Value: 2 ·Value of any underlying collateral—loans are generally secured by the asset being financed. Because an analysis
of the primary and secondary sources of repayment is the most important factor, collateral, unless it is liquid, does not justify
loans that cannot be serviced by the borrower’s normal cash flows.
·Overall creditworthiness of the customer, taking into account the customer’s relationships, both past and current,
with BB&T and other lenders—BB&T’s success depends on building lasting and mutually beneficial relationships
with clients, which involves assessing their financial position and background.
·Level of equity invested in the transaction—in general, borrowers are required to contribute or invest a portion
of their own funds prior to any loan advances.Commercial Loan and Lease Portfolio The commercial loan and lease portfolio represents the largest
category of the Company’s total loan portfolio. BB&T’s commercial lending program is generally targeted to serve
small-to-middle market businesses with sales of $250 million or less. In addition, BB&T’s Corporate Banking Group provides
lending solutions to large corporate clients. Traditionally, lending to small and mid-sized businesses has been among BB&T’s
strongest market segments.Commercial and small business loans are primarily originated
through BB&T’s Community Bank. In accordance with the Company’s lending policy, each loan undergoes a detailed
underwriting process, which incorporates BB&T’s underwriting approach, procedures and evaluations described above. Commercial
loans are typically priced with an interest rate tied to market indices, such as the prime rate or LIBOR. Commercial loans are
individually monitored and reviewed for any possible deterioration in the ability of the client to repay the loan. Approximately
90% of BB&T’s commercial loans are secured by real estate, business equipment, inventories and other types of collateral.Direct Retail Loan Portfolio The direct retail loan portfolio primarily consists of a
wide variety of loan products offered through BB&T’s branch network. Various types of secured and unsecured loans are
marketed to qualifying existing clients and to other creditworthy candidates in BB&T’s market area. The vast majority
of direct retail loans are secured by first or second liens on residential real estate and include both closed-end home equity
loans and revolving home equity lines of credit. Direct retail loans are subject to the same rigorous lending policies and procedures
as described above for commercial loans and are underwritten with note amounts and credit limits that ensure consistency with the
Company’s risk philosophy.Sales Finance Loan Portfolio The sales finance category primarily includes secured indirect
installment loans to consumers for the purchase of new and used automobiles, boats and recreational vehicles. Such loans are originated
through approved franchised and independent dealers throughout the BB&T market area. These loans are relatively homogenous
and no single loan is individually significant in terms of its size and potential risk of loss. Sales finance loans are subject
to the same rigorous lending policies and procedures as described above for commercial loans and are underwritten with note amounts
and credit limits that ensure consistency with the Company’s risk philosophy. In addition to its normal underwriting due
diligence, BB&T uses application systems and “scoring systems” to help underwrite and manage the credit risk in
its sales finance portfolio. Also included in the sales finance category are commercial lines, serviced by the Dealer Finance Department,
to finance dealer wholesale inventory (“Floor Plan Lines”) for resale to consumers. Floor Plan Lines are underwritten
by commercial loan officers in compliance with the same rigorous lending policies described above for commercial loans. In addition,
Floor Plan Lines are subject to intensive monitoring and oversight to ensure quality and to mitigate risk, including from fraud.Revolving Credit Loan Portfolio The revolving credit portfolio comprises the outstanding
balances on credit cards and BB&T’s checking account overdraft protection product, Constant Credit. BB&T markets
credit cards to its existing banking client base and does not solicit cardholders through nationwide programs or other forms of
mass marketing. Such balances are generally unsecured and actively managed.Residential Mortgage Loan Portfolio Branch Bank offers various types of fixed- and
adjustable-rate loans for the purpose of constructing, purchasing or refinancing residential properties. BB&T primarily
originates conforming mortgage loans and higher quality jumbo and construction-to-permanent loans for owner-occupied
properties. Conforming loans are loans that are underwritten in accordance with the underwriting standards set forth by FNMA
and FHLMC. They are generally collateralized by one-to- Field: Page; Sequence: 66; Value: 2 four-family residential real estate, typically have
loan-to-collateral value ratios of 80% or less, and are made to borrowers in good credit standing. Additionally,
BB&T’s Direct Retail Lending group provides home equity loans that can increase the loan-to-collateral value to 90%
or less for certain borrowers.Risks associated with the mortgage lending function include
interest rate risk, which is mitigated through the sale of a substantial portion of conforming fixed-rate loans in the secondary
mortgage market and an effective MSR hedging process. Borrower risk is lessened through rigorous underwriting procedures and mortgage
insurance. The right to service the loans and receive servicing income is generally retained when conforming loans are sold. Management
believes that the retention of mortgage servicing is a primary relationship driver in retail banking and a vital part of management’s
strategy to establish profitable long-term customer relationships and offer high quality client service. BB&T also purchases
residential mortgage loans from correspondent originators. The loans purchased from third-party originators are subject to the
same underwriting and risk-management criteria as loans originated internally.Other Lending Subsidiaries Portfolio BB&T’s other lending subsidiaries portfolio consists
of loans originated through six LOBs that provide specialty finance alternatives to consumers and businesses including: dealer-based
financing of equipment for small businesses and consumers, commercial equipment leasing and finance, direct and indirect consumer
finance, insurance premium finance, indirect nonprime automobile finance, and full-service commercial mortgage banking. BB&T
offers these services to bank clients as well as nonbank clients within and outside BB&T’s primary geographic market
area.BB&T’s other lending subsidiaries adhere to the
same overall underwriting approach as the commercial and consumer lending portfolio and also utilize automated credit scoring to
assist with underwriting credit risk. The majority of these loans are relatively homogenous and no single loan is individually
significant in terms of its size and potential risk of loss. The majority of the loans are secured by real estate, automobiles,
equipment or unearned insurance premiums. As of December 31, 2012, included in the other lending subsidiaries portfolio are
loans to nonprime borrowers of approximately $3.6 billion, or 3.0% of the total BB&T loan and lease portfolio. Of these, approximately
$262 million are residential real estate loans.Covered Loan Portfolio BB&T has $3.3 billion of loans covered by loss sharing
agreements with the FDIC, which are primarily CRE and residential mortgage loans. Refer to Note 3 “Loans and Leases”
in the “Notes to Consolidated Financial Statements” in this report for additional disclosures related to BB&T’s
covered loans.Liquidity risk Liquidity risk is the risk to ongoing operations arising
from the inability to accommodate liability maturities, deposit withdrawals, fund asset growth, or meet contractual obligations
when they come due. For additional information concerning BB&T’s management of liquidity risk, see the “Liquidity”
section of “Management’s Discussion and Analysis” herein.Market risk Market risk is the risk to earnings or capital arising from
changes in the market value of portfolios, securities, or other financial instruments due to changes in the level, volatility,
or correlations among financial market rates or prices, including interest rates, foreign exchange rates, equity prices, or other
relevant rates or prices. For additional information concerning BB&T’s management of market risk, see the “Market
Risk Management” section of “Management’s Discussion and Analysis” herein.Operational risk Operational risk is the risk to earnings or capital arising
from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk,
which is the risk of loss arising from defective transactions, litigation or claims made, or the failure to adequately protect
company-owned assets.Reputation risk Reputation risk is the risk to earnings, capital, enterprise
value, the BB&T brand, and public confidence arising from negative publicity or public opinion, whether real or perceived,
regarding BB&T’s business practices, products and services, transactions, or other activities undertaken by BB&T,
its representatives, or its partners. Reputation risk may impact BB&T’s clients, employees, communities or shareholders,
and is often a residual risk that arises when other risks are not managed properly. Field: Page; Sequence: 67; Value: 2 Strategic risk Strategic risk is the risk to earnings, capital, enterprise
value, and to the achievement of BB&T’s Vision, Mission, Purpose, and business objectives that arises from BB&T’s
business strategy, adverse business decisions, improper or ineffective implementation of decisions, or lack of responsiveness
to changes in business environment. Strategic risk is a function of the compatibility of BB&T’s strategic goals, the
business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation.Risk Governance The management of risk has always been an enterprise-wide
initiative at BB&T. It is part of BB&T’s mission statement that risk is managed to optimize the long-term return
to shareholders, while providing a safe and sound investment.The Chief Risk Officer leads the RMO, which designs, organizes
and manages BB&T’s risk framework. The management of risk begins at the business level through risk identification and
management programs. The RMO is responsible for ensuring effective risk management oversight, measurement, monitoring, reporting
and consistency of controls.Market Risk ManagementThe 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 lines of business. 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, and to offset the risk of price changes for certain assets
recorded at fair value. Market Risk Management also performs 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 back-testing, and are adjusted 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 interest rate
forecast 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 impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards.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 December 31, 2012, BB&T had derivative financial
instruments outstanding with notional amounts totaling $73.3 billion, with a net fair value of $13 million. See Note 19 “Derivative
Financial Instruments” in the “Notes to Consolidated Financial Statements” herein 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 Field: Page; Sequence: 68; Value: 2 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 model 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 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 Simulation analysis, BB&T uses EVE analysis to focus on projected changes in
capital 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 model. The EVE model is a discounted cash flow of the entire portfolio of BB&T’s
assets, liabilities, and derivatives instruments. The difference in the present value of assets minus the present value of liabilities
is defined as the economic value of BB&T’s 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 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 sensitivity that interest-sensitive income
has in relation to changing interest rates. |
| Table 26 | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Federal Funds Purchased, Securities Sold Under | | | | | | | | | | | | | | | | | | |
| Agreements to Repurchase and Short-Term Borrowed Funds | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | As Of / For The Years Ended December 31, | | | | | | | | | | | |
| | | | | | | | 2012 | | | | 2011 | | | | 2010 | | | |
| | | | | | | | (Dollars in millions) | | | | | | | | | | | |
| | Securities Sold Under Agreements to Repurchase: | | | | | | | | | | | | | | | | | |
| | | Maximum outstanding at any month-end during the year | | | | | $ | 813 | | | $ | 1,176 | | | $ | 2,299 | | |
| | | Balance outstanding at end of year | | | | | | 514 | | | | 619 | | | | 1,189 | | |
| | | Average outstanding during the year | | | | | | 651 | | | | 956 | | | | 1,620 | | |
| | | Average interest rate during the year | | | | | | 0.30 | % | | | 0.73 | % | | | 0.85 | % | |
| | | Average interest rate at end of year | | | | | | 0.33 | | | | 0.31 | | | | 0.96 | | |
| | | | | | | | | | | | | | | | | | | |
| | Federal Funds Purchased and Short-Term Borrowed Funds: | | | | | | | | | | | | | | | | | |
| | | Maximum outstanding at any month-end during the year | | | | | $ | 3,627 | | | $ | 9,350 | | | $ | 10,486 | | |
| | | Balance outstanding at end of year | | | | | | 2,350 | | | | 2,947 | | | | 4,484 | | |
| | | Average outstanding during the year | | | | | | 2,757 | | | | 4,233 | | | | 7,402 | | |
| | | Average interest rate during the year | | | | | | 0.20 | % | | | 0.10 | % | | | 0.10 | % | |
| | | Average interest rate at end of year | | | | | | 0.19 | | | | 0.17 | | | | 0.32 | | |
| TFC/10-K/0000092230-13-000023 |
ACL | 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 linear change in interest rates totaling 100 basis points over four months followed by a flat interest rate
scenario for the remaining eight month period.
·Maximum negative impact on net interest income of 4% for the next
12 months assuming a linear change of 200 basis points over eight months followed by a flat interest rate scenario for the remaining
four month period. Field: Page; Sequence: 69; Value: 2 These “interest rate ramp” limits are considered
BB&T’s primary measure of interest rate risk. If a rate change of 200 basis points cannot be modeled due to a low level
of rates, a proportional limit applies. Management currently only models a negative 25 basis point decline because larger declines
would have resulted in a Federal funds rate of less than zero. In a situation such as this, 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 1% or the proportional limit.Management has also established a maximum negative impact
on net interest income of 4% for an immediate 100 basis points change in rates and 8% for an immediate 200 basis points change
in rates. 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 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 downturn. 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 80% to its
managed rate deposits for determining its interest rate sensitivity. Managed rate deposits are high beta, premium money market
and interest checking accounts, which attract significant client funds when needed to support balance sheet growth. BB&T regularly
conducts sensitivity on other key variables to determine the impact they could have on the interest rate risk position. This discipline
informs management judgment and 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 beta at 100%. |
| Table 27 | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Interest Sensitivity Simulation Analysis | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | Interest Rate Scenario | | | | | | | | | Annualized Hypothetical Percentage | | | | | | | |
| | | | | Linear | | | Prime Rate | | | | | | | Change in Net Interest Income | | | | | | |
| | | | | Change in | | | December 31, | | | | | | | December 31, | | | | | | |
| | | | | Prime Rate | | | 2012 | | | 2011 | | | | 2012 | | | 2011 | | | |
| | | | | 2.00 | % | | 5.25 | % | | 5.25 | % | | | 3.16 | % | | 3.92 | % | | |
| | | | | 1.00 | | | 4.25 | | | 4.25 | | | | 2.04 | | | 2.27 | | | |
| | | | | No Change | | | 3.25 | | | 3.25 | | | | ― | | | ― | | | |
| | | | | (0.25) | | | 3.00 | | | 3.00 | | | | (0.13) | | | (0.55) | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | 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.
The resulting change in the EVE reflects the level of sensitivity that EVE has in relation to changing interest rates. Field: Page; Sequence: 70; Value: 2 |
| Table 28 | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Deposit Mix Sensitivity Analysis | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Results Assuming a Decrease in | | | | | |
| | | | | Increase in | | | | Base Scenario | | | Noninterest Bearing Demand Deposits | | | | | |
| | | | | Rates | | | | at December 31, 2012 (1) | | | $1 Billion | | | $5 Billion | | |
| | | | | 2.00 | % | | | 3.16 | % | | 2.92 | % | | 1.94 | % | |
| | | | | 1.00 | | | | 2.04 | | | 1.89 | | | 1.28 | | |
| | | | | | | | | | | | | | | | | |
| (1) | The base scenario is equal to the annualized hypothetical percentage change in net interest income at December 31, 2012 as presented in the preceding table. | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Market Risk from Trading ActivitiesBB&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, with overall
firm limits established through Board Policy. BB&T utilizes a historical VaR methodology to measure and aggregate risks across
its covered trading lines of business. This methodology uses one year of historical data to estimate economic outcomes for a one-day
time horizon at a 99% confidence level.The average VaR for the year ended December 31, 2012 was
less than $1 million. The maximum daily VaR was approximately $3 million, and the low daily VaR was less than $1 million during
the same period.LiquidityLiquidity represents BB&T’s continuing ability
to meet funding needs, primarily 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 securities available for sale, 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 capability to securitize or package loans
for sale. BB&T monitors key liquidity metrics at both the Parent Company and Branch Bank.Parent CompanyThe purpose of the Parent Company is to serve as the capital
financing vehicle for the operating subsidiaries. The assets of the Parent Company consist primarily 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 principal and interest payments on long-term debt. The main sources
of funds for the Parent Company are dividends and management fees from subsidiaries, repayments of advances to subsidiaries, and
proceeds from the issuance of 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 interest and principal
payments due on long-term debt.The primary source of funds used for Parent Company cash
requirements was dividends received from subsidiaries, which totaled $1.8 billion during 2012. In addition, the Parent Company
issued $2.0 billion of senior notes and $300 million of subordinated notes during 2012, repaid $1.5 billion of maturing long-term
debt and redeemed all of its junior subordinated debt to unconsolidated trusts. Funds raised through master note agreements with
commercial clients are placed in a note receivable at Branch Bank primarily for its use in meeting short-term funding needs and,
to a lesser extent, to support the short-term temporary cash needs of the Parent Company. At December 31, 2012 and 2011, master
note balances totaled $37 million and $296 million, respectively.The Parent Company had ten issues of senior notes outstanding
totaling $6.0 billion and four issues of subordinated notes outstanding totaling $2.2 billion at December 31, 2012.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 contractual
cash outflows which includes unfunded external commitments, debt service, 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 contractual
cash outflows. In determining the buffer, BB&T considers cash for common dividends, unfunded commitments to affiliates, being
a source of strength to its banking subsidiaries, and being able to withstand sustained market disruptions which may limit access
to the credit markets. Field: Page; Sequence: 71; Value: 2 As of December 31, 2012 and 2011, the Parent Company had 35 months and 23 months, respectively, of cash
on hand to satisfy projected contractual cash outflows as described above.Branch BankBranch 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. As of December 31, 2012, BB&T has approximately $53 billion of secured borrowing capacity,
which represents approximately 290% of one year wholesale funding maturities.BB&T also 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 non-client rate-sensitive 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. To ensure a strong liquidity position, management maintains a liquid
asset buffer of cash on hand and highly liquid unpledged securities. The Company has established a policy that the liquid asset
buffer would be a minimum of 5% of total assets, but intends to maintain the ratio well in excess of this level. As of December
31, 2012, and December 31, 2011, BB&T’s liquid asset buffer was 11.1% and 13.5%, respectively, of total assets.BB&T’s and Branch Bank’s ability to raise
funding at competitive prices is affected by the rating agencies’ views of BB&T’s and Branch Bank’s credit
quality, liquidity, capital and earnings. Management meets with the rating agencies on a routine basis to discuss the current outlook
for BB&T and Branch Bank. The ratings for BB&T and Branch Bank by the four major rating agencies are detailed in the table
below. |
| Table 29 | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| EVE Simulation Analysis | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Hypothetical Percentage | | | | | |
| | | | | | | | EVE/Assets | | | | | | Change in EVE | | | | | |
| | | | | Change in | | | December 31, | | | | | | December 31, | | | | | |
| | | | | Rates | | | 2012 | | | 2011 | | | 2012 | | | 2011 | | |
| | | | | 2.00 | % | | 7.5 | % | | 6.2 | % | | 16.6 | % | | 19.6 | % | |
| | | | | 1.00 | | | 7.2 | | | 5.9 | | | 11.9 | | | 13.3 | | |
| | | | | No Change | | | 6.5 | | | 5.2 | | | ― | | | ― | | |
| | | | | (0.25) | | | 6.2 | | | 4.9 | | | (4.1) | | | (4.9) | | |
| TFC/10-K/0000092230-13-000023 |
ACL | BB&T and Branch Bank have Contingency Funding Plans designed
to ensure that liquidity sources are sufficient to meet their ongoing obligations and commitments, particularly in the event of
a liquidity contraction. These plans are designed to examine and quantify the organization’s liquidity under various “stress”
scenarios. Additionally, the plans provide a framework for management and other critical personnel to follow in the event of a
liquidity contraction or in anticipation of such an event. The plans address authority for activation and decision making, liquidity
options and the responsibilities of key departments in the event of a liquidity contraction. The liquidity options available to
management could include seeking secured funding, asset sales, and under the most extreme scenarios, curtailing new loan originations.Management believes current sources of liquidity are adequate
to meet BB&T’s current requirements and plans for continued growth. See Note 5 “Premises and Equipment,”
Note 10 “Long-Term Debt” and Note 15 “Commitments and Contingencies” Field: Page; Sequence: 72; Value: 2 |
| Table 30 | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Ratings of BB&T Corporation and Branch Bank | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | S&P | | Moody's | | Fitch | | DBRS | |
| | BB&T Corporation: | | | | | | | | | | | |
| | | Commercial Paper | | | A-2 | | P-1 | | F1 | | R-1(low) | |
| | | Issuer | | | A- | | A2 | | A+ | | A(high) | |
| | | LT/Senior debt | | | A- | | A2 | | A+ | | A(high) | |
| | | Subordinated debt | | | BBB+ | | A3 | | A | | A | |
| | | Subordinated shelf short term | | | A-2 | | N/A | | F1 | | N/A | |
| | | | | | | | | | | | | |
| | Branch Bank: | | | | | | | | | | | |
| | | Bank financial strength | | | N/A | | B- | | a+ | | N/A | |
| | | Long term deposits | | | A | | A1 | | AA- | | AA(low) | |
| | | LT/Senior unsecured bank notes | | | A | | A1 | | A+ | | AA(low) | |
| | | Other long term senior obligations | | | A | | A1 | | A+ | | AA(low) | |
| | | Other short term senior obligations | | | A-1 | | P-1 | | F1 | | R-1(middle) | |
| | | Short term bank notes | | | A-1 | | P-1 | | F1 | | R-1(middle) | |
| | | Short term deposits | | | A-1 | | P-1 | | F1+ | | R-1(middle) | |
| | | Subordinated bank notes | | | A- | | A2 | | A | | A(high) | |
| | | | | | | | | | | | | |
| | Ratings Outlook: | | | | | | | | | | | |
| | | Credit Trend | | | Stable | | Stable | | Stable | | Stable | |
| TFC/10-K/0000092230-13-000023 |
ACL | BB&T’s significant commitments include investments
in affordable housing and historic building rehabilitation projects throughout its market area and private equity funds. Refer
to Note 1 “Summary of Significant Accounting Policies” and to Note 15 “Commitments and Contingencies” in
the “Notes to Consolidated Financial Statements” for further discussion of these commitments.In addition, BB&T enters into derivative contracts to
manage various financial risks. A derivative is a financial instrument that derives its cash flows, and therefore its value, by
reference to an underlying instrument, index or referenced interest rate. Derivative contracts are carried at fair value on the
Consolidated Balance Sheets with the fair value representing the net present value of expected future cash receipts or payments
based on market interest rates as of the balance sheet date. Derivative contracts are written in amounts referred to as notional
amounts, which only provide the basis for calculating payments between counterparties and are not a measure of financial risk.
Therefore, the derivative liabilities recorded on the balance sheet as of December 31, 2012 do not represent the amounts that may
ultimately be paid under these contracts. Further discussion of derivative instruments is included in Note 1 “Summary of
Significant Accounting Policies” and Note 19 “Derivative Financial Instruments” in the “Notes to Consolidated
Financial Statements.”In the ordinary course of business, BB&T indemnifies
its officers and directors to the fullest extent permitted by law against liabilities arising from litigation. BB&T also issues
standard representation and warranties in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities
and other similar arrangements. Counterparties in many of these indemnifications provide similar indemnifications to BB&T.
Although these agreements often do not specify limitations, BB&T does not believe that any payments related to these guarantees
would materially change the financial condition or results of operations of BB&T.BB&T holds public funds in certain states that do not
require 100% collateralization on public fund bank deposits. In these states, should the failure of another public fund depository
institution result in a loss for the public entity, the resulting shortfall would have to be absorbed on a pro-rata basis by the
remaining financial institutions holding public funds in that state.As a member of the FHLB, BB&T is required to maintain
a minimum investment in capital stock. The board of directors of the FHLB can increase the minimum investment requirements in the
event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase
in the minimum investment requirements outside of Field: Page; Sequence: 73; Value: 2 specified ranges requires the approval of the Federal Housing Finance Agency.
Because the extent of any obligation to increase BB&T’s investment in the FHLB depends entirely upon the occurrence of
a future event, potential future payments to the FHLB are not determinable.In the normal course of business, BB&T is also a party
to financial instruments to meet the financing needs of clients and to mitigate exposure to interest rate risk. Such financial
instruments include commitments to extend credit and certain contractual agreements, including standby letters of credit and financial
guarantee arrangements. Further discussion of these commitments is included in Note 15 “Commitments and Contingencies”
in the “Notes to Consolidated Financial Statements.”BB&T’s significant commitments and obligations
are summarized in the accompanying table. Not all of the commitments presented in the table will be used, thus the actual cash
requirements are likely to be significantly less than the amounts reported. |
| Table 31 | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Contractual Obligations and Other Commitments | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Less than | | | 1 to 3 | | | 3 to 5 | | | After 5 | | |
| | | | | | | Total | | | One Year | | | Years | | | Years | | | Years | | |
| | | | | | | **(Dollars in millions)** | | | | | | | | | | | | | | |
| | Long-term debt | | | | | $ | 18,825 | | $ | 1,655 | | $ | 3,046 | | $ | 6,318 | | $ | 7,806 | |
| | Operating leases | | | | | | 1,430 | | | 197 | | | 345 | | | 275 | | | 613 | |
| | Commitments to fund affordable housing investments | | | | | | 461 | | | 265 | | | 178 | | | 14 | | | 4 | |
| | Private equity commitments (1) | | | | | | 129 | | | 39 | | | 68 | | | 20 | | | 2 | |
| | Time deposits | | | | | | 31,624 | | | 21,130 | | | 7,795 | | | 2,698 | | | 1 | |
| | Contractual interest payments (2) | | | | | | 4,385 | | | 827 | | | 1,287 | | | 871 | | | 1,400 | |
| | | Total contractual cash obligations | | | | $ | 56,854 | | $ | 24,113 | | $ | 12,719 | | $ | 10,196 | | $ | 9,826 | |
| | | | | | | | | | | | | | | | | | | | | |
| (1) | Maturities are based on estimated payment dates. | | | | | | | | | | | | | | | | | | | |
| (2) | Includes accrued interest and future contractual interest obligations. Variable rate payments are based upon the rate in effect at December 31, 2012. | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Related Party Transactions The Company may extend credit to its officers and directors
in the ordinary course of business. These loans are made under substantially the same terms as comparable third-party lending arrangements
and are in compliance with applicable banking regulations.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.Management regularly monitors the capital position of BB&T
on both a consolidated and bank level basis. Capital ratios are determined using operating forecasts and plans as well as stressed
scenarios. In this regard, management’s overriding policy is to maintain capital at levels that are in excess of the operating
capital guidelines, which are above the regulatory “well capitalized” levels. Management has recently implemented stressed
capital ratio minimum guidelines to evaluate whether capital levels are sufficient to withstand the impact of plausible, severe
economic downturns or bank-specific events. The following table presents the minimum capital ratios: |
| Table 32 | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Summary of Significant Commitments | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | December 31, 2012 | | |
| | | | | | | | | | | | | | | | | | (Dollars in millions) | | |
| | Lending commitments | | | | | | | | | | | | | | | | $ | 43,760 | |
| | Letters of credit and financial guarantees written | | | | | | | | | | | | | | | | | 5,164 | |
| | | Total significant commitments | | | | | | | | | | | | | | | $ | 48,924 | |
| TFC/10-K/0000092230-13-000023 |
ACL | Payments of cash dividends to BB&T’s shareholders
and repurchases of common shares are the methods used to manage any excess capital generated. In addition, management closely monitors
the Parent Company’s double leverage ratio (investments in subsidiaries as a percentage of shareholders’ equity) with
the intention of maintaining the ratio below 125%. The active management of the subsidiaries’ equity capital, as described
above, is the process used to manage this important driver of Parent Company liquidity and is a key element in the management of
BB&T’s capital position.The capital of BB&T’s subsidiaries is regularly
monitored to determine if the levels that management believes are the most beneficial and efficient for their operations are maintained.
Management intends to maintain capital at Branch Bank at levels that will result in these subsidiaries being classified as “well-capitalized”
for regulatory purposes. Secondarily, it is Field: Page; Sequence: 74; Value: 2 management’s intent to maintain Branch Bank’s capital at levels that result
in regulatory risk-based capital ratios that are generally comparable with peers of similar size, complexity and risk profile.
If the capital levels of Branch Bank increase above these guidelines, excess capital may be transferred to the Parent Company,
subject to regulatory and other operating considerations, in the form of special dividend payments.While nonrecurring events or management decisions may result
in the Company temporarily falling below its minimum guidelines for one or more of these ratios, it is management’s intent
through capital planning to return to these targeted minimums within a reasonable period of time. Such temporary decreases below
these minimums are not considered an infringement of BB&T’s overall capital policy provided the Company and Branch Bank
remain “well-capitalized.”Risk-based capital ratios, which include Tier
1 Capital, Total Capital and Tier 1 Common Equity, are calculated based on regulatory guidance related to the measurement
of capital and risk-weighted assets. BB&T reevaluated its process related to calculating risk-weighted assets and
determined that certain adjustments, primarily related to the presentation of certain unfunded lending commitments, were
required in order to conform to regulatory guidance. These adjustments resulted in an increase to risk-weighted assets and a
decrease in BB&T’s risk-based capital ratios under the Basel I regulatory guidance. These adjustments had a minimal
impact on BB&T’s Basel III ratio as calculated based on the June 7, 2012 NPR.BB&T’s Tier 1 common equity ratio was 9.3% at
December 31, 2012. The acquisitions of Crump Insurance and BankAtlantic during the second and
third quarters of 2012, respectively, had a negative impact on regulatory capital, as a result of the intangible assets associated
with those acquisitions. This negative regulatory capital impact was offset by strong capital generation during 2012.BB&T regularly performs stress testing on its capital
levels and is required to periodically submit the company’s capital plans to the banking regulators. Management’s capital
deployment plan in order of preference is to focus on organic growth, dividends, strategic opportunities and share repurchases. |
| Table 33 | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| BB&T's Internal Capital Guidelines | | | | | | | |
| | | Operating | | | Stressed | | |
| | Tier 1 Capital Ratio | 9.5 | % | | 7.5 | % | |
| | Total Capital Ratio | 11.5 | | | 9.5 | | |
| | Tier 1 Leverage Capital Ratio | 6.5 | | | 5.0 | | |
| | Tangible Capital Ratio | 5.5 | | | 4.0 | | |
| | Tier 1 Common Equity Ratio | 8.0 | | | 6.0 | | |
| TFC/10-K/0000092230-13-000023 |
ACL | (1)The Company has revised its calculation of risk-weighted assets and adjusted the applicable ratios.
Field: Page; Sequence: 75; Value: 2 |
| Table 34 | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Capital Ratios (1) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | December 31, | | | | | | | |
| | | | | | | | 2012 | | | | 2011 | | | |
| | | | | | | | (Dollars in millions, except per share data) | | | | | | | |
| | Risk-based: | | | | | | | | | | | | | |
| | | Tier 1 | | | | | | 11.0 | % | | | 12.0 | % | |
| | | Total | | | | | | 13.9 | | | | 15.1 | | |
| | Leverage capital | | | | | | | 8.2 | | | | 9.0 | | |
| | | | | | | | | | | | | | | |
| | Non-GAAP capital measures (2): | | | | | | | | | | | | | |
| | | Tier 1 common equity as a percentage of tangible assets | | | | | | 6.9 | | | | 6.9 | | |
| | | Tier 1 common equity as a percentage of risk-weighted assets (3) | | | | | | 9.3 | | | | 9.4 | | |
| | | | | | | | | | | | | | | |
| | Calculations of Tier 1 common equity and tangible assets and related measures: | | | | | | | | | | | | | |
| | | Tier 1 equity | | | | | $ | 14,373 | | | $ | 14,913 | | |
| | | Less: | | | | | | | | | | | | |
| | | | Qualifying restricted core capital elements | | | | | 2,116 | | | | 3,250 | | |
| | | Tier 1 common equity | | | | | $ | 12,257 | | | $ | 11,663 | | |
| | | | | | | | | | | | | | | |
| | | Total assets | | | | | $ | 183,872 | | | $ | 174,579 | | |
| | | Less: | | | | | | | | | | | | |
| | | | Intangible assets, net of deferred taxes | | | | | 7,273 | | | | 6,406 | | |
| | | Plus: | | | | | | | | | | | | |
| | | | Regulatory adjustments, net of deferred taxes | | | | | 212 | | | | 421 | | |
| | | Tangible assets | | | | | $ | 176,811 | | | $ | 168,594 | | |
| | | | | | | | | | | | | | | |
| | | Total risk-weighted assets (3) | | | | | $ | 131,096 | | | $ | 124,507 | | |
| | | | | | | | | | | | | | | |
| | Tier 1 common equity | | | | | | $ | 12,257 | | | $ | 11,663 | | |
| | Outstanding shares at end of period (in thousands) | | | | | | | 699,728 | | | | 697,143 | | |
| | Tangible book value per common share | | | | | | $ | 17.52 | | | $ | 16.73 | | |
| | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | As of December 31, 2012, management currently estimates the
Tier 1 common ratio under the currently proposed U.S. Basel III standards to be 7.9%.
The proposed U.S. Basel III standards incorporate changes to the risk-weighting of loans secured by residential properties, requiring
consideration of loan-to-value ratios in determining risk-weighting. Management’s estimate of the Tier 1 common ratio under
the proposed U.S. Basel III standards does not include any mitigation strategies to improve capital levels, which management believes
will have a significant positive impact on this measure. The following table presents the calculation of the Tier 1 common equity
ratio under the proposed Basel III guidelines. |
| (2) | Tier 1 common equity ratios are non-GAAP measures. BB&T uses the Tier 1 common equity definition used in the SCAP assessment to calculate these ratios. Management uses these measures to assess the quality of capital and believes that investors may find them useful in their analysis of the Company. These capital measures are not necessarily comparable to similar capital measures that may be presented by other companies. |
| --- | --- |
| (3) | Risk-weighted assets are determined based on regulatory capital requirements. |
| TFC/10-K/0000092230-13-000023 |
ACL | Fourth Quarter ResultsConsolidated net income available to common shareholders
for the fourth quarter of 2012 totaling $506 million was up 29.4% compared to $391 million earned during the same period in 2011.
On a diluted per common share basis, earnings for the fourth quarter of 2012 were $0.71, up 29.1% compared to $0.55 for the same
period in 2011. BB&T’s results of operations for the fourth quarter of 2012 produced an annualized return on average
assets of 1.20% and an annualized return on average common shareholders’ equity of 10.51% compared to prior year ratios of
0.93% and 8.76%, respectively.Total revenues were $2.5 billion for the fourth quarter of
2012, up $122 million compared to the fourth quarter of 2011. The increase in total revenues included $24 million of higher taxable-equivalent
net interest income, which was primarily driven by a 21.4% decrease in funding costs from the same quarter of the prior year. NIM
was 3.84%, down 18 basis points compared to the fourth quarter of 2011, which reflects covered loan run-off and lower yields on
new loans and securities partially offset by lower funding costs. Noninterest income increased $98 million, primarily attributable
to a $108 million increase in insurance income and a $96 million increase in mortgage banking income, offset by a $103 million
decrease in net securities gains.Noninterest expenses were $1.5 billion for the fourth quarter
of 2012, a decrease of $130 million, or 8.0%, compared to the fourth quarter of 2011. The decrease in noninterest expenses was
primarily due to a $298 million decrease in foreclosed property expense, which was the result of losses and writedowns in the prior
year quarter when management implemented a more aggressive approach to reduce foreclosed real estate. This decrease was partially
offset by a $144 million increase in personnel expense primarily due to the Crump Insurance and BankAtlantic acquisitions, increased
production-related incentives and commissions and certain other increases in salaries and benefits. Field: Page; Sequence: 76; Value: 2 The provision for credit losses, excluding covered loans,
for the fourth quarter of 2012 totaled $256 million, compared to $223 million for fourth quarter of 2011. The increase in the
provision for credit losses reflects a smaller reserve release in the fourth quarter of 2012 than was recorded in the same quarter
of the prior year. Net charge-offs, excluding covered loans, for the fourth quarter of 2012 were $85 million lower than the fourth
quarter of 2011 reflecting improved credit quality. NPAs declined $914 million, or 37.3% compared to the fourth quarter of 2011.The provision for income taxes was $207 million for the fourth
quarter of 2012 compared to $84 million for the fourth quarter of 2011. The effective tax rate for the fourth quarter of 2012 was
27.4% compared to 17.4% for the prior year’s fourth quarter. The increase in the effective tax rate was primarily due to
higher levels of pre-tax earnings relative to permanent tax differences in 2012 compared to 2011.The accompanying table, “Quarterly Financial Summary—Unaudited,”
presents condensed information relating to quarterly periods in the years ended December 31, 2012 and 2011. |
| Table 35 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Estimated Basel III Capital Ratio Under Proposed U.S. Rules (1) | | | | | | | | |
| | | | | | | | | |
| | | | | | December 31, 2012 | | | |
| | | | | | | | | |
| | | | | | (Dollars in millions) | | | |
| | Tier 1 common equity under Basel I definition | | | | $ | 12,257 | | |
| | Adjustments: | | | | | | | |
| | | OCI related to AFS securities, defined benefit | | | | | | |
| | | | pension and other postretirement employee benefit plans | | | (385) | | |
| | | Other adjustments | | | | (9) | | |
| | Estimated Tier 1 common equity under proposed Basel III definition | | | | $ | 11,863 | | |
| | | | | | | | | |
| | Estimated risk-weighted assets under proposed Basel III definition | | | | $ | 150,300 | | |
| | Estimated Tier 1 common equity as a percentage of risk-weighted assets under proposed | | | | | | | |
| | | Basel III definition | | | | 7.9 | % | |
| | | | | | | | | |
| | | | | | | | | |
| (1) | The estimated Basel III capital ratio is a non-GAAP measure and reflects adjustments for the related elements as proposed by regulatory authorities, which are subject to change. BB&T management uses this measure to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. This capital measure is not necessarily comparable to similar capital measures that may be presented by other companies. | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 77; Value: 2 |
| Table 36 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Quarterly Financial Summary―Unaudited | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2012 | | | | | | | | | | | | 2011 | | | | | | | | | | |
| | | | | Fourth | | | Third | | | Second | | | First | | | Fourth | | | Third | | | Second | | | First | |
| | | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Quarter | |
| | | | | **(Dollars in millions, except per share data)** | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Summary of Operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest income | | | $ | 1,726 | | $ | 1,720 | | $ | 1,728 | | $ | 1,743 | | $ | 1,769 | | $ | 1,750 | | $ | 1,690 | | $ | 1,676 |
| | Interest expense | | | | 250 | | | 237 | | | 266 | | | 307 | | | 317 | | | 334 | | | 336 | | | 391 |
| | Provision for credit losses | | | | 252 | | | 244 | | | 273 | | | 288 | | | 272 | | | 250 | | | 328 | | | 340 |
| | Securities gains (losses), net | | | | ― | | | (1) | | | (2) | | | (9) | | | 103 | | | (39) | | | (2) | | | ― |
| | Other noninterest income | | | | 1,020 | | | 964 | | | 968 | | | 880 | | | 819 | | | 729 | | | 789 | | | 714 |
| | Noninterest expense | | | | 1,488 | | | 1,529 | | | 1,426 | | | 1,385 | | | 1,618 | | | 1,417 | | | 1,395 | | | 1,372 |
| | Provision for income taxes | | | | 207 | | | 177 | | | 191 | | | 189 | | | 84 | | | 68 | | | 91 | | | 53 |
| | Net income | | | | 549 | | | 496 | | | 538 | | | 445 | | | 400 | | | 371 | | | 327 | | | 234 |
| | Noncontrolling interest | | | | 13 | | | 2 | | | 20 | | | 14 | | | 9 | | | 5 | | | 20 | | | 9 |
| | Preferred stock dividends | | | | 30 | | | 25 | | | 8 | | | ― | | | ― | | | ― | | | ― | | | ― |
| | Net income available to common | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | shareholders | | $ | 506 | | $ | 469 | | $ | 510 | | $ | 431 | | $ | 391 | | $ | 366 | | $ | 307 | | $ | 225 |
| | Basic earnings per common share | | | $ | 0.72 | | $ | 0.67 | | $ | 0.73 | | $ | 0.62 | | $ | 0.56 | | $ | 0.52 | | $ | 0.44 | | $ | 0.32 |
| | Diluted earnings per common share | | | $ | 0.71 | | $ | 0.66 | | $ | 0.72 | | $ | 0.61 | | $ | 0.55 | | $ | 0.52 | | $ | 0.44 | | $ | 0.32 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selected Average Balances: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | | $ | 182,204 | | $ | 179,306 | | $ | 176,870 | | $ | 173,969 | | $ | 171,496 | | $ | 165,520 | | $ | 157,730 | | $ | 156,931 |
| | Securities, at amortized cost | | | | 36,383 | | | 35,260 | | | 37,114 | | | 36,589 | | | 35,867 | | | 31,567 | | | 27,060 | | | 25,059 |
| | Loans and leases (1) | | | | 117,103 | | | 115,609 | | | 111,760 | | | 110,403 | | | 108,523 | | | 105,658 | | | 104,341 | | | 105,294 |
| | Total earning assets | | | | 156,863 | | | 153,918 | | | 152,385 | | | 150,494 | | | 147,364 | | | 141,259 | | | 134,235 | | | 133,331 |
| | Deposits | | | | 131,762 | | | 128,695 | | | 125,348 | | | 124,606 | | | 121,925 | | | 115,056 | | | 106,466 | | | 105,614 |
| | Federal funds purchased, securities | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | sold under repurchase | | | | | | | | | | | | | | | | | | | | | | | | |
| | | agreements and short-term debt | | | 3,340 | | | 3,478 | | | 3,362 | | | 3,452 | | | 3,727 | | | 4,307 | | | 5,486 | | | 7,286 |
| | Long-term debt | | | | 18,689 | | | 19,682 | | | 22,544 | | | 21,720 | | | 21,689 | | | 22,347 | | | 23,114 | | | 21,879 |
| | Total interest-bearing liabilities | | | | 121,942 | | | 121,865 | | | 123,611 | | | 123,605 | | | 122,125 | | | 118,340 | | | 112,915 | | | 113,789 |
| | Shareholders' equity | | | | 21,188 | | | 20,125 | | | 18,737 | | | 17,829 | | | 17,755 | | | 17,551 | | | 17,072 | | | 16,673 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Loans and leases are net of unearned income and include LHFS. | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 97; Value: 2 |
| Changes in the carrying amount and accretable yield for purchased impaired and nonimpaired covered loans accounted for under the accretion method were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, 2012 | | | | | | | | | | | | Year Ended December 31, 2011 | | | | | | | | | | |
| | | | Purchased Impaired | | | | | | Purchased Nonimpaired | | | | | | Purchased Impaired | | | | | | Purchased Nonimpaired | | | | |
| | | | | | | Carrying | | | | | | Carrying | | | | | | Carrying | | | | | | Carrying | |
| | | | Accretable | | | Amount | | | Accretable | | | Amount | | | Accretable | | | Amount | | | Accretable | | | Amount | |
| | | | Yield | | | of Loans | | | Yield | | | of Loans | | | Yield | | | of Loans | | | Yield | | | of Loans | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of period | | | $ | 520 | | $ | 2,123 | | $ | 1,193 | | $ | 2,744 | | $ | 833 | | $ | 2,855 | | $ | 1,549 | | $ | 3,339 |
| | Accretion | | | (219) | | | 219 | | | (541) | | | 541 | | | (358) | | | 358 | | | (691) | | | 691 |
| | Payments received, net | | | ― | | | (942) | | | ― | | | (1,391) | | | ― | | | (1,090) | | | ― | | | (1,286) |
| | Other, net | | | (37) | | | ― | | | (35) | | | ― | | | 45 | | | ― | | | 335 | | | ― |
| Balance at end of period | | | $ | 264 | | $ | 1,400 | | $ | 617 | | $ | 1,894 | | $ | 520 | | $ | 2,123 | | $ | 1,193 | | $ | 2,744 |
| Outstanding unpaid principal balance | | | | | | | | | | | | | | | | | | | | | | | | | |
| | at end of period | | | | | $ | 2,047 | | | | | $ | 2,489 | | | | | $ | 3,269 | | | | | $ | 3,825 |
| TFC/10-K/0000092230-13-000023 |
ACL | Commitments to lend additional funds to clients with loans
classified as TDRs were immaterial at December 31, 2012 and 2011. The gross additional interest income that would have been earned
if the loans and leases classified as nonaccrual had performed in accordance with the original terms was approximately $70 million,
$93 million and $131 million in 2012, 2011 and 2010, respectively. The gross additional interest income that would have been earned
in 2012, 2011 and 2010 had performing TDRs performed in accordance with the original terms is immaterial. |
| The following table provides a summary of TDRs that continue to accrue interest and TDRs that have been placed in nonaccrual status: | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | |
| | | | | December 31, | | | | | |
| | | | | 2012 | | | 2011 | | |
| | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | |
| | Performing TDRs: | | | | | | | | |
| | | Commercial: | | | | | | | |
| | | | Commercial and industrial | $ | 77 | | $ | 74 | |
| | | | CRE - other | | 67 | | | 117 | |
| | | | CRE - residential ADC | | 21 | | | 44 | |
| | | Direct retail lending | | | 197 | | | 146 | |
| | | Sales finance | | | 19 | | | 8 | |
| | | Revolving credit | | | 56 | | | 62 | |
| | | Residential mortgage (1)(2) | | | 769 | | | 608 | |
| | | Other lending subsidiaries | | | 121 | | | 50 | |
| | | | Total performing TDRs (1)(2) | | 1,327 | | | 1,109 | |
| | Nonperforming TDRs (3) | | | | 240 | | | 280 | |
| | | | Total TDRs (1)(2)(3)(4) | $ | 1,567 | | $ | 1,389 | |
| | | | | | | | | | |
| | | | | | | | | | |
| (1) | Excludes mortgage TDRs held for investment that are government guaranteed totaling $313 million and $232 million at December 31, 2012 and 2011, respectively. | | | | | | | | |
| (2) | Excludes mortgage TDRs held for sale that are government guaranteed totaling $2 million and $4 million at December 31, 2012 and 2011, respectively. | | | | | | | | |
| (3) | Nonperforming TDRs are included in NPL disclosures. | | | | | | | | |
| (4) | All TDRs are considered impaired. The ALLL attributable to these TDRs, excluding TDRs that are government guaranteed, totaled $281 million and $266 million at December 31, 2012 and 2011, respectively. | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 98; Value: 2 NOTE 4. Allowance for Credit Losses
Beginning
Charge-
Ending
Year Ended December 31, 2012
Balance
Offs
Recoveries
Provision
Balance
(Dollars in millions)
Commercial:
Commercial and industrial
$
433
$
(337)
$
17
$
357
$
470
CRE - other
334
(205)
13
62
204
CRE - residential ADC
286
(190)
41
(37)
100
Other lending subsidiaries
11
(8)
2
8
13
Retail:
Direct retail lending
232
(224)
36
256
300
Revolving credit
112
(81)
18
53
102
Residential mortgage
365
(136)
3
96
328
Sales finance
38
(26)
10
7
29
Other lending subsidiaries
186
(217)
24
271
264
Covered
149
(34)
―
13
128
Unallocated
110
―
―
(30)
80
ALLL
2,256
(1,458)
164
1,056
2,018
RUFC
29
―
―
1
30
ACL
$
2,285
$
(1,458)
$
164
$
1,057
$
2,048
Beginning
Charge-
Ending
Year Ended December 31, 2011
Balance
Offs
Recoveries
Provision
Balance
(Dollars in millions)
Commercial:
Commercial and industrial
$
621
$
(323)
$
28
$
107
$
433
CRE - other
446
(273)
18
143
334
CRE - residential ADC
469
(302)
25
94
286
Other lending subsidiaries
21
(9)
3
(4)
11
Retail:
Direct retail lending
246
(276)
37
225
232
Revolving credit
109
(95)
19
79
112
Residential mortgage
298
(269)
5
331
365
Sales finance
47
(32)
9
14
38
Other lending subsidiaries
177
(181)
22
168
186
Covered
144
(66)
―
71
149
Unallocated
130
―
―
(20)
110
ALLL
2,708
(1,826)
166
1,208
2,256
RUFC
47
―
―
(18)
29
ACL
$
2,755
$
(1,826)
$
166
$
1,190
$
2,285
Beginning
Charge-
Ending
Year Ended December 31, 2010
Balance
Offs
Recoveries
Provision
Other
Balance
(Dollars in millions)
ALLL
$
2,600
$
(2,658)
$
130
$
2,663
$
(27)
$
2,708
RUFC
72
―
―
(25)
―
47
ACL
$
2,672
$
(2,658)
$
130
$
2,638
$
(27)
$
2,755
Field: Page; Sequence: 99; Value: 2
The following tables provide a breakdown of the ALLL and the recorded investment in loans based on the method for determining the allowance:
ALLL
December 31, 2012
December 31, 2011
Individually
Collectively
Individually
Collectively
Evaluated
Evaluated
Evaluated
Evaluated
for
for
for
for
Impairment
Impairment
Impairment
Impairment
(Dollars in millions)
Commercial:
Commercial and industrial
$
73
$
397
$
77
$
356
CRE - other
36
168
69
265
CRE - residential ADC
21
79
50
236
Other lending subsidiaries
1
12
1
10
Retail:
Direct retail lending
59
241
35
197
Revolving credit
24
78
27
85
Residential mortgage
130
198
152
213
Sales finance
6
23
1
37
Other lending subsidiaries
61
203
20
166
Covered
―
128
―
149
Unallocated
―
80
―
110
Total
$
411
$
1,607
$
432
$
1,824
Loans and Leases
December 31, 2012
December 31, 2011
Individually
Collectively
Individually
Collectively
Evaluated
Evaluated
Evaluated
Evaluated
for
for
for
for
Impairment
Impairment
Impairment
Impairment
(Dollars in millions)
Commercial:
Commercial and industrial
$
631
$
37,664
$
656
$
35,759
CRE - other
312
11,149
511
10,178
CRE - residential ADC
155
1,106
420
1,641
Other lending subsidiaries
3
4,135
5
3,621
Retail:
Direct retail lending
235
15,582
165
14,341
Revolving credit
56
2,274
62
2,150
Residential mortgage
1,187
23,085
931
19,650
Sales finance
22
7,714
10
7,391
Other lending subsidiaries
146
5,853
49
5,062
Covered
―
3,294
―
4,867
Total
$
2,747
$
111,856
$
2,809
$
104,660
BB&T monitors the credit quality of its commercial portfolio
segment using internal risk ratings. These risk ratings are based on established regulatory guidance. Loans with a Pass rating
represent those not considered a problem credit. Special mention loans are those that have a potential
weakness deserving management’s close attention. Substandard loans are those for which a well-defined weakness has been identified
that may put full collection of contractual cash flows at risk. Substandard loans are placed in nonaccrual status when BB&T
believes it is no longer probable it will collect all contractual cash flows. BB&T assigns an internal risk rating at loan
origination and reviews the relationship again on an annual basis or at any point management becomes aware of information affecting
the borrower’s ability to fulfill their obligations. Field: Page; Sequence: 100; Value: 2 BB&T monitors the credit quality of its retail portfolio
segment based primarily on delinquency status, which is the primary factor considered in determining whether a retail loan should
be classified as nonaccrual.The following tables illustrate the credit quality indicators associated with loans and leases held for investment. Covered loans are excluded from this analysis because their related allowance is determined by loan pool performance.
CRE -
Other
Commercial
Residential
Lending
December 31, 2012
& Industrial
CRE - Other
ADC
Subsidiaries
(Dollars in millions)
Commercial:
Pass
$
36,044
$
10,095
$
859
$
4,093
Special mention
274
120
41
13
Substandard - performing
1,431
1,034
233
29
Nonperforming
546
212
128
3
Total
$
38,295
$
11,461
$
1,261
$
4,138
Direct Retail
Revolving
Residential
Sales
Other Lending
Lending
Credit
Mortgage
Finance
Subsidiaries
(Dollars in millions)
Retail:
Performing
$
15,685
$
2,330
$
24,003
$
7,729
$
5,916
Nonperforming
132
―
269
7
83
Total
$
15,817
$
2,330
$
24,272
$
7,736
$
5,999
CRE -
Other
Commercial
Residential
Lending
December 31, 2011
& Industrial
CRE - Other
ADC
Subsidiaries
(Dollars in millions)
Commercial:
Pass
$
33,497
$
8,568
$
1,085
$
3,578
Special mention
488
234
60
5
Substandard - performing
1,848
1,493
540
35
Nonperforming
582
394
376
8
Total
$
36,415
$
10,689
$
2,061
$
3,626
Direct Retail
Revolving
Residential
Sales
Other Lending
Lending
Credit
Mortgage
Finance
Subsidiaries
(Dollars in millions)
Retail:
Performing
$
14,364
$
2,212
$
20,273
$
7,394
$
5,056
Nonperforming
142
―
308
7
55
Total
$
14,506
$
2,212
$
20,581
$
7,401
$
5,111
Field: Page; Sequence: 101; Value: 2
The following tables represent aging analyses of BB&T's past due loans and leases held for investment. Covered loans have been excluded from this aging analysis because they are covered by FDIC loss sharing agreements, and their related allowance is determined by loan pool performance due to the application of the accretion method.
Accruing Loans and Leases
90 Days Or
Nonaccrual
Total Loans And
30-89 Days
More Past
Loans And
Leases, Excluding
December 31, 2012
Current
Past Due
Due
Leases
Covered Loans
(Dollars in millions)
Commercial:
Commercial and industrial
$
37,706
$
42
$
1
$
546
$
38,295
CRE - other
11,237
12
―
212
11,461
CRE - residential ADC
1,131
2
―
128
1,261
Other lending subsidiaries
4,106
20
9
3
4,138
Retail:
Direct retail lending
15,502
145
38
132
15,817
Revolving credit
2,291
23
16
―
2,330
Residential mortgage (1)(2)
22,555
582
344
269
23,750
Sales finance
7,663
56
10
7
7,736
Other lending subsidiaries
5,645
270
1
83
5,999
Total (1)(2)
$
107,836
$
1,152
$
419
$
1,380
$
110,787 |
| The following table provides a summary of BB&T’s NPAs and loans 90 days or more past due and still accruing: | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | |
| | | | | December 31, | | | | | |
| | | | | 2012 | | | 2011 | | |
| | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | |
| | | | | | | | | | |
| | NPLs held for investment | | | $ | 1,380 | | $ | 1,872 | |
| | Foreclosed real estate (1) | | | | 107 | | | 536 | |
| | Other foreclosed property | | | | 49 | | | 42 | |
| | | | Total NPAs (excluding covered assets) (1) | $ | 1,536 | | $ | 2,450 | |
| | Loans 90 days or more past due and still accruing (excluding covered loans) (2)(3)(4) | | | $ | 167 | | $ | 202 | |
| | | | | | | | | | |
| | | | | | | | | | |
| (1) | Excludes covered foreclosed real estate totaling $254 million and $378 million as of December 31, 2012 and 2011, respectively. | | | | | | | | |
| (2) | Excludes mortgage loans guaranteed by GNMA that BB&T has the right, but not the obligation, to repurchase totaling $517 million and $426 million as of December 31, 2012 and 2011, respectively. | | | | | | | | |
| (3) | Excludes covered loans 90 days or more past due totaling $442 million and $736 million as of December 31, 2012 and 2011, respectively. | | | | | | | | |
| (4) | Excludes mortgage loans 90 days or more past due that are government guaranteed totaling $254 million and $206 million as of December 31, 2012 and 2011, respectively. | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 102; Value: 2
The following tables set forth certain information regarding BB&T's impaired loans, excluding purchased impaired loans and LHFS, that were evaluated for specific reserves.
Unpaid
Average
Interest
Recorded
Principal
Related
Recorded
Income
As Of / For The Year Ended December 31, 2012
Investment
Balance
Allowance
Investment
Recognized
(Dollars in millions)
With No Related Allowance Recorded:
Commercial:
Commercial and industrial
$
116
$
232
$
―
$
117
$
―
CRE - other
60
108
―
81
―
CRE - residential ADC
44
115
103
―
Retail:
Direct retail lending
19
73
―
19
1
Residential mortgage (1)
120
201
―
80
2
Sales finance
1
3
―
1
―
Other lending subsidiaries
2
6
―
3
―
With An Allowance Recorded:
Commercial:
Commercial and industrial
515
551
73
522
3
CRE - other
252
255
36
319
5
CRE - residential ADC
111
116
21
180
1
Other lending subsidiaries
3
3
1
4
―
Retail:
Direct retail lending
216
226
59
140
9
Revolving credit
56
56
24
59
2
Residential mortgage (1)
754
770
104
649
28
Sales finance
21
21
6
13
―
Other lending subsidiaries
144
146
61
66
2
Total (1)
$
2,434
$
2,882
$
385
$
2,356
$
53
Field: Page; Sequence: 103; Value: 2
Unpaid
Average
Interest
Recorded
Principal
Related
Recorded
Income
As Of / For The Year Ended December 31, 2011
Investment
Balance
Allowance
Investment
Recognized
(Dollars in millions)
With No Related Allowance Recorded:
Commercial:
Commercial and industrial
$
114
$
196
$
―
$
153
$
―
CRE - other
102
163
―
142
―
CRE - residential ADC
153
289
―
187
―
Retail:
Direct retail lending
19
74
―
23
1
Residential mortgage (1)
46
85
―
31
1
Sales finance
1
1
―
1
―
Other lending subsidiaries
2
4
―
1
―
With An Allowance Recorded:
Commercial:
Commercial and industrial
542
552
77
482
4
CRE - other
409
433
69
466
7
CRE - residential ADC
267
298
50
360
4
Other lending subsidiaries
5
5
1
4
―
Retail:
Direct retail lending
146
153
35
148
9
Revolving credit
62
61
27
62
3
Residential mortgage (1)
653
674
125
627
28
Sales finance
9
10
1
6
―
Other lending subsidiaries
47
50
20
35
2
Total (1)
$
2,577
$
3,048
$
405
$
2,728
$
59
(1)
Residential mortgage loans exclude $313 million and $232 million in government guaranteed loans and related allowance of $26 million and $27 million as of December 31, 2012 and 2011, respectively.
Field: Page; Sequence: 104; Value: 2 |
| | | | | | | Accruing Loans and Leases | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | 90 Days Or | | | Nonaccrual | | | Total Loans And | | |
| | | | | | | | | | 30-89 Days | | | More Past | | | Loans And | | | Leases, Excluding | | |
| | December 31, 2011 | | | | | Current | | | Past Due | | | Due | | | Leases | | | Covered Loans | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | (Dollars in millions) | | | | | | | | | | | | | | |
| | Commercial: | | | | | | | | | | | | | | | | | | | |
| | | Commercial and industrial | | | | $ | 35,746 | | $ | 85 | | $ | 2 | | $ | 582 | | $ | 36,415 | |
| | | CRE - other | | | | | 10,273 | | | 22 | | | ― | | | 394 | | | 10,689 | |
| | | CRE - residential ADC | | | | | 1,671 | | | 14 | | | ― | | | 376 | | | 2,061 | |
| | | Other lending subsidiaries | | | | | 3,589 | | | 25 | | | 4 | | | 8 | | | 3,626 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Retail: | | | | | | | | | | | | | | | | | | | |
| | | Direct retail lending | | | | | 14,146 | | | 162 | | | 56 | | | 142 | | | 14,506 | |
| | | Revolving credit | | | | | 2,173 | | | 22 | | | 17 | | | ― | | | 2,212 | |
| | | Residential mortgage (1)(2) | | | | | 19,406 | | | 560 | | | 307 | | | 308 | | | 20,581 | |
| | | Sales finance | | | | | 7,301 | | | 75 | | | 18 | | | 7 | | | 7,401 | |
| | | Other lending subsidiaries | | | | | 4,807 | | | 248 | | | 1 | | | 55 | | | 5,111 | |
| | | | Total (1)(2) | | | $ | 99,112 | | $ | 1,213 | | $ | 405 | | $ | 1,872 | | $ | 102,602 | |
| | | | | | | | | | | | | | | | | | | | | |
| (1) | Residential mortgage loans include $84 million and $81 million in government guaranteed loans 30-89 days past due, and $252 million and $203 million in government guaranteed loans 90 days or more past due as of December 31, 2012 and 2011, respectively. | | | | | | | | | | | | | | | | | | | |
| (2) | Residential mortgage loans exclude $5 million and $7 million in loans guaranteed by GNMA that BB&T has the option, but not the obligation, to repurchase which are past due 30-89 days at December 31, 2012 and 2011, respectively. Residential mortgage loans exclude $517 million and $426 million in loans guaranteed by GNMA that BB&T has the option, but not the obligation, to repurchase, which are past due 90 days or more at December 31, 2012 and 2011, respectively. | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | During 2012, a national bank regulatory agency issued guidance
that requires certain loans that had been discharged in bankruptcy and not reaffirmed by the borrower to be accounted for as TDRs
and possibly as nonperforming, regardless of their actual payment history and expected performance. As of December 31, 2012, the
Company’s primary regulators had not reached a final decision on how this guidance may apply to its regulated entities.
BB&T concluded that these loans should be classified as TDRs and these are included in “Other” in the above table.
BB&T has also concluded there is a reasonable expectation of collection of principal and interest and has classified these
loans as performing unless already classified as nonperforming.Charge-offs recorded at the modification date were $25 million
and $47 million for the year ended December 31, 2012 and 2011, respectively. The forgiveness of principal or interest for TDRs
recorded during the year ended December 31, 2012 and 2011 was immaterial.The following table summarizes the pre-default balance for
modifications that experienced a payment default that had been classified as TDRs during the previous 12 months. BB&T defines
payment default as movement of the TDR to nonaccrual status, foreclosure or charge-off, whichever occurs first.
Years Ended December 31,
2012
2011
(Dollars in millions)
Commercial:
Commercial and industrial
$
8
$
39
CRE - other
6
92
CRE - residential ADC
14
80
Retail:
Direct retail lending
8
16
Revolving credit
12
15
Residential mortgage
36
31
Sales finance
―
2
Other lending subsidiaries
12
5
If a TDR subsequently defaults, BB&T evaluates the TDR for possible impairment. As a result, the related allowance may be increased or charge-offs may be taken to reduce the carrying value of the loan.
Field: Page; Sequence: 105; Value: 2 NOTE 5. Premises and EquipmentA summary of premises and equipment is presented in the accompanying
table:
Estimated
December 31,
Useful Life
2012
2011
(Years)
(Dollars in millions)
Land and land improvements
$
547
$
508
Buildings and building improvements
40
1,235
1,220
Furniture and equipment
5 - 10
1,141
1,132
Leasehold improvements
555
521
Construction in progress
37
37
Capitalized leases on premises and equipment
59
52
Total
3,574
3,470
Less - accumulated depreciation and amortization
(1,686)
(1,615)
Net premises and equipment
$
1,888
$
1,855
BB&T has noncancelable leases covering certain premises
and equipment. Total rent expense applicable to operating leases was $215 million, $199 million and $188 million for 2012, 2011
and 2010, respectively. Rental income from owned properties and subleases was $8 million, $7 million and $8 million for 2012, 2011
and 2010, respectively. Future minimum lease payments for operating leases for the five years subsequent to 2012 are $197 million,
$181 million, $164 million, $147 million and $128 million. The payments for 2018 and later years total $613 million.NOTE 6. Goodwill
and Other Intangible Assets The changes in the carrying amounts of goodwill attributable
to each of BB&T’s operating segments are reflected in the table below. To date, there have been no goodwill impairments
recorded by BB&T.
Residential
Dealer
Community
Mortgage
Financial
Specialized
Insurance
Financial
Banking
Banking
Services
Lending
Services
Services
Total
(Dollars in millions)
Balance, January 1, 2011
$
4,537
$
7
$
111
$
94
$
1,067
$
192
$
6,008
Acquired goodwill, net
―
―
―
―
45
―
45
Contingent consideration
―
―
―
―
20
―
20
Other adjustments
5
―
―
―
―
―
5
Balance, December 31, 2011
$
4,542
$
7
$
111
$
94
$
1,132
$
192
$
6,078
Acquired goodwill, net
358
―
―
5
358
―
721
Contingent consideration
―
―
―
―
3
―
3
Other adjustments
―
―
―
―
2
―
2
Balance, December 31, 2012
$
4,900
$
7
$
111
$
99
$
1,495
$
192
$
6,804 |
| The following tables provide a summary of the primary reason current year loan modifications were classified as TDRs and their estimated impact on the ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| |
| | | | | | | | Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | 2012 | | | | | | | | | | | | 2011 | | | | | | | | |
| | | | | | | | Types of | | | | | | | | | | | | Types of | | | | | | | | |
| | | | | | | | Modifications (1) | | | | | | | | | Impact To | | | Modifications (1) | | | | | | Impact To | | |
| | | | | | | | Rate (2) | | | Structure | | | Other | | | ALLL | | | Rate (2) | | | Structure | | | ALLL | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | |
| | Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial and industrial | | | | | $ | 37 | | $ | 63 | | $ | 14 | | $ | ― | | $ | 29 | | $ | 68 | | $ | 5 | |
| | | CRE - other | | | | | | 60 | | | 45 | | | 7 | | | ― | | | 56 | | | 58 | | | 8 | |
| | | CRE - residential ADC | | | | | | 41 | | | 34 | | | 3 | | | (1) | | | 29 | | | 47 | | | 10 | |
| | | Other lending subsidiaries | | | | | | ― | | | ― | | | ― | | | ― | | | 1 | | | 1 | | | ― | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Retail: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Direct retail lending | | | | | | 38 | | | 17 | | | 82 | | | 35 | | | 51 | | | 5 | | | 9 | |
| | | Revolving credit | | | | | | 30 | | | ― | | | ― | | | 5 | | | 40 | | | ― | | | 8 | |
| | | Residential mortgage | | | | | | 106 | | | 88 | | | 135 | | | 22 | | | 142 | | | 35 | | | 17 | |
| | | Sales finance | | | | | | 4 | | | ― | | | 12 | | | 4 | | | 5 | | | 5 | | | 1 | |
| | | Other lending subsidiaries | | | | | | 106 | | | 2 | | | 17 | | | 35 | | | 37 | | | 7 | | | 15 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Includes modifications made to existing TDRs, as well as new modifications that are considered TDRs. Balances represent the recorded investment as of the end of the period in which the modification was made. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Includes TDRs made with a below market interest rate that also includes a modification of loan structure. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 106; Value: 2 During 2012, BB&T acquired the life and property and casualty
insurance divisions of Crump Group Inc. The changes in Insurance Services goodwill and other identifiable intangibles were primarily
the result of this acquisition, although the final purchase accounting has not been completed.During 2012, BB&T completed the acquisition of Fort Lauderdale,
Florida-based BankAtlantic. BB&T acquired approximately $1.7 billion in loans and assumed approximately $3.5 billion in deposits.
BB&T also assumed the seller’s obligations with respect to outstanding trust preferred securities, with an aggregate
principal balance of $285 million. In exchange for the assumption of these liabilities, BB&T received a 95% preferred interest
in a newly established LLC, which holds a pool of loans and other net assets. BankAtlantic Bancorp also provided BB&T with
an incremental $35 million guarantee to further assure BB&T’s recovery of the $285 million. The LLC’s assets will
be monetized over time and once BB&T has recovered $285 million in preference amount from the LLC plus a defined return, BB&T’s
interest in the LLC will terminate. The net purchase price received, excluding cash held by BankAtlantic, was $45 million, which
consisted of net liabilities assumed less a deposit premium of $316 million. The changes in Community Banking goodwill and CDI
were primarily the result of this acquisition, although the final purchase accounting has not been completed.At December 31, 2012, the weighted-average remaining life
of CDI and other identifiable intangibles was 7.9 years and 15.9 years, respectively. Estimated amortization expense of identifiable
intangible assets for each for the next five years total $105 million, $89 million, $75 million, $65 million and $56 million.NOTE 7. Loan ServicingResidential Mortgage Banking Activities The following tables summarize residential mortgage banking
activities for the periods presented: |
| The following table presents the gross carrying amounts and accumulated amortization for BB&T’s identifiable intangible assets subject to amortization: | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2012 | | | | | | | | | December 31, 2011 | | | | | | | | |
| | | | | Gross | | | | | | Net | | | Gross | | | | | | Net | | |
| | | | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying | | |
| | | | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | |
| | Identifiable intangible assets: | | | | | | | | | | | | | | | | | | | | |
| | | CDI | | $ | 672 | | $ | (522) | | $ | 150 | | $ | 626 | | $ | (484) | | $ | 142 | |
| | | Other (1) | | | 1,080 | | | (557) | | | 523 | | | 787 | | | (485) | | | 302 | |
| | | | Totals | $ | 1,752 | | $ | (1,079) | | $ | 673 | | $ | 1,413 | | $ | (969) | | $ | 444 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (1) | Other identifiable intangibles are primarily customer relationship intangibles. | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 107; Value: 2
As Of / For The
Years Ended December 31,
2012
2011
(Dollars in millions)
Unpaid principal balance of residential mortgage loans sold from the held for
sale portfolio
$
25,640
$
17,202
Pre-tax gains recognized on mortgage loans sold and held for sale
539
175
Servicing fees recognized from mortgage loans serviced for others
247
240
Approximate weighted average servicing fee on the outstanding balance of
residential mortgage loans serviced for others
0.32
%
0.34
%
Weighted average coupon interest rate on mortgage loans serviced for others
4.59
5.02
The unpaid principal balances of BB&T’s total residential
mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans. Mortgage loans serviced for
others are not included in loans and leases on the accompanying Consolidated Balance Sheets.During the years ended December 31, 2012 and 2011, BB&T
sold residential mortgage loans from the held for sale portfolio and recognized pre-tax gains including marking LHFS to fair value
and the impact of interest rate lock commitments. These gains are recorded in noninterest income as a component of mortgage banking
income. BB&T retained the related MSRs and receives servicing fees.At December 31, 2012 and 2011, BB&T had residential mortgage
loans sold with recourse liability. In the event of nonperformance by the borrower, BB&T has recourse exposure for these loans.
At both December 31, 2012 and 2011, BB&T has recorded reserves related to these recourse exposures. Payments made to date have
been immaterial.BB&T also issues standard representations and warranties
related to mortgage loan sales to GSEs. Although these agreements often do not specify limitations, BB&T does not believe that
any payments related to these warranties would materially change the financial condition or results of operations of BB&T.Residential MSRs are primarily recorded on the
Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income in
the Consolidated Statements of Income for each period. BB&T uses various derivative instruments to mitigate the income
statement effect of changes in fair value due to changes in valuation inputs and assumptions of its residential MSRs. The
following is an analysis of the activity in BB&T’s residential MSRs:
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Carrying value, January 1,
$
563
$
830
$
832
Additions
270
225
265
Change in fair value due to changes in valuation inputs or assumptions:
Prepayment speeds
19
(284)
(66)
Weighted average OAS
(36)
(20)
(28)
Servicing costs
(22)
(30)
(44)
Other
7
(7)
―
Other changes (1)
(174)
(151)
(129)
Carrying value, December 31,
$
627
$
563
$
830
Gains (losses) on derivative financial instruments used to mitigate the
income statement effect of changes in fair value
$
128
$
394
$
196
(1)
Represents the realization of expected net servicing cash flows, expected borrower payments and the passage of time.
During 2012, the prepayment speed assumptions were updated
as actual prepayments have slowed relative to modeled projections as interest rates have begun to stabilize and the higher coupon,
faster prepaying mortgage loans were refinanced over the past two years. Management also increased its OAS assumption to reflect
the return that management believes a market participant would require in the current market. The servicing costs assumptions have
also been increased due to the expectation of higher costs that continued to impact the industry.At December 31, 2012, the valuation of MSRs was based on
prepayment speeds ranging from 15.3% to 18.5% and OAS ranging from 8.22% to 8.35%. The sensitivity of the current fair value of
the residential MSRs to immediate 10% and 20% adverse changes in key economic assumptions is included in the accompanying table: Field: Page; Sequence: 108; Value: 2
December 31,
2012
2011
(Dollars in millions)
Fair value of residential MSRs
$
627
$
563
Composition of residential loans serviced for others:
Fixed-rate mortgage loans
99
%
99
%
Adjustable-rate mortgage loans
1
1
Total
100
%
100
%
Weighted average life
4.4
yrs
3.7
yrs
Prepayment speed
17.3
%
20.8
%
Effect on fair value of a 10% increase
$
(35)
$
(35)
Effect on fair value of a 20% increase
(67)
(66)
Weighted average OAS
8.3
%
6.9
%
Effect on fair value of a 10% increase
$
(17)
$
(12)
Effect on fair value of a 20% increase
(33)
(23)
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:
December 31,
2012
2011
(Dollars in millions)
Unpaid principal balance of CRE mortgages serviced for others
$
29,520
$
25,367
CRE mortgages serviced for others covered by recourse provisions
4,970
4,520
Maximum recourse exposure from CRE mortgages
sold with recourse liability
1,368
1,226
Recorded reserves related to recourse exposure
13
15
Originated CRE mortgages during the period - year to date
4,934
4,803
NOTE 8. Federal Funds Purchased, Securities Sold Under
Agreements to Repurchase and Short-Term Borrowed FundsFederal funds purchased, securities sold under agreements
to repurchase and short-term borrowed funds are summarized as follows:
December 31,
2012
2011
(Dollars in millions)
Federal funds purchased
$
4
$
12
Securities sold under agreements to repurchase
514
619
Master notes
37
296
Other short-term borrowed funds
2,309
2,639
Total
$
2,864
$
3,566
Federal funds purchased represent unsecured borrowings from
other banks and generally mature daily. Securities sold under agreements to repurchase are borrowings collateralized primarily
by securities of the U.S. government or its agencies. Master notes are unsecured, non-negotiable obligations of BB&T (variable
rate commercial paper) that mature in 270 days or less. Other short-term borrowed funds include unsecured bank notes that mature
in less than one year, bank obligations with Field: Page; Sequence: 109; Value: 2 a maturity of seven days that are collateralized by municipal securities and U.S.
Treasury tax and loan deposit notes payable to the U.S. Treasury upon demand.A summary of selected data related to Federal funds purchased,
securities sold under agreements to repurchase and short-term borrowed funds follows:
As Of / For The Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Maximum outstanding at any month-end during the year
$
4,385
$
10,473
$
11,690
Balance outstanding at end of year
2,864
3,566
5,673
Average outstanding during the year
3,408
5,189
9,022
Average interest rate during the year (1)
0.20
%
0.21
%
0.24
%
Average interest rate at end of year
0.22
0.20
0.46
(1)
Includes the impact of derivative activities.
NOTE 9. DepositsA summary of BB&T’s deposits is presented in the accompanying
table:
December 31,
2012
2011
(Dollars in millions)
Noninterest-bearing deposits
$
32,452
$
25,684
Interest checking
21,091
20,701
Money market and savings
47,908
44,618
Certificates and other time deposits
31,624
33,899
Foreign office deposits - interest-bearing
―
37
Total deposits
$
133,075
$
124,939
Time deposits $100,000 and greater
$
19,328
$
19,819
Field: Page; Sequence: 110; Value: 2 NOTE 10. Long-Term DebtLong-term debt comprised the following: |
| | | | | December 31, | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | 2012 | | | 2011 | | |
| | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | |
| | Mortgage loans managed or securitized (1) | | | $ | 29,882 | | $ | 26,559 | |
| | Less: Loans securitized and transferred to securities available for sale | | | | 4 | | | 4 | |
| | | LHFS | | | 3,547 | | | 3,394 | |
| | | Covered mortgage loans | | | 1,040 | | | 1,264 | |
| | | Mortgage loans sold with recourse | | | 1,019 | | | 1,316 | |
| | Mortgage loans held for investment | | | $ | 24,272 | | $ | 20,581 | |
| | Mortgage loans on nonaccrual status | | | $ | 269 | | $ | 308 | |
| | Mortgage loans 90 days or more past due and still accruing interest (2) | | | | 92 | | | 104 | |
| | Mortgage loans net charge-offs - year to date | | | | 133 | | | 264 | |
| | Unpaid principal balance of residential mortgage loans servicing portfolio | | | | 101,270 | | | 91,640 | |
| | Unpaid principal balance of residential mortgage loans serviced for others | | | | 73,769 | | | 67,066 | |
| | Maximum recourse exposure from mortgage loans sold with recourse liability | | | | 446 | | | 522 | |
| | Recorded reserves related to recourse exposure | | | | 12 | | | 6 | |
| | Repurchase reserves for mortgage loan sales to GSEs | | | | 59 | | | 29 | |
| | | | | | | | | | |
| (1) | Balances exclude loans serviced for others with no other continuing involvement. | | | | | | | | |
| (2) | Includes amounts related to residential mortgage LHFS and excludes amounts related to government guaranteed loans and covered mortgage loans. Refer to the Loans and Leases Note for additional disclosures related to past due government guaranteed loans. | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Excluding capitalized leases, future debt maturities total
$1.7 billion, $2.1 billion, $1.1 billion, $3.9 billion, and $2.5 billion for the next five years. The maturities for 2018 and later
years total $7.8 billion.In connection with the acquisition of BankAtlantic, BB&T
assumed $285 million in junior subordinated debt to unconsolidated trusts, which was redeemed prior to December 31, 2012. BB&T
has no junior subordinated debt outstanding as of December 31, 2012. Field: Page; Sequence: 111; Value: 2 NOTE 11. Shareholders’ Equity Preferred Stock Dividends on the preferred stock, if declared, accrue and
are payable quarterly, in arrears. For each issuance, BB&T issued depositary shares, each of which represents a fractional
ownership interest in a share of the Company’s preferred stock. The preferred stock has no stated maturity and redemption
is solely at the option of the Company in whole, but not in part, upon the occurrence of a regulatory capital treatment event,
as defined. In addition, the preferred stock may be redeemed in whole or in part, on any dividend payment date after five years
from the date of issuance. Under current rules, any redemption of the preferred stock is subject to prior approval of the FRB.
The preferred stock is not subject to any sinking fund or other obligations of the Company.The following table presents a summary of the preferred stock
as of December 31, 2012:
Issuance
Liquidation
Net
Dividend
Issue
Date
Amount
Proceeds
Rate
(Dollars in millions)
Series D Non-Cumulative Perpetual Preferred Stock
5/1/12
$
575
$
559
5.850
%
Series E Non-Cumulative Perpetual Preferred Stock
7/31/12
1,150
1,120
5.625
Series F Non-Cumulative Perpetual Preferred Stock
10/31/12
450
437
5.200
$
2,175
$
2,116
Equity-Based Plans At December 31, 2012, BB&T had options, restricted shares
and restricted share units outstanding from the following equity-based compensation plans: the 2012 Plan, the 2004 Plan, the Omnibus
Plan, the Directors’ Plan, and a plan assumed from an acquired entity. BB&T’s shareholders have approved all equity-based
compensation plans with the exception of the plan assumed from an acquired entity. As of December 31, 2012, the 2012 Plan is the
only plan that has shares available for future grants. The 2012 and 2004 Plans allow for accelerated vesting of awards for holders
who retire and have met all retirement eligibility requirements and in connection with certain other events.BB&T’s 2012 and 2004 Plans are intended to assist
the Company in recruiting and retaining employees, directors and independent contractors and to associate the interests of eligible
participants with those of BB&T and its shareholders. At December 31, 2012, there were 30.6 million non-qualified and incentive
stock options at exercise prices ranging from $16.88 to $44.20, 13.9 million restricted shares and restricted share units outstanding
under the 2004 Plan and 110 thousand restricted share units outstanding under the 2012 Plan. Awards outstanding under the 2004
and 2012 Plans vest as follows: (1) those granted prior to 2010 generally vest over five years and (2) those granted after 2009
generally vest over four years. Options outstanding have a ten year term. At December 31, 2012, there were no shares available
for future grants under the 2004 Plan and 34.9 million shares available for future grants under the 2012 Plan.At December 31, 2012, 14.7 million non-qualified and qualified
stock options at prices ranging from $32.66 to $43.25 were outstanding under the Omnibus Plan. All options under this plan are
fully vested and have a ten year term.BB&T measures the fair value of each option award on
the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants
awarded in 2012, 2011 and 2010, respectively. Substantially all of BB&T’s option awards are granted in February of each
year:
December 31,
2012
2011
2010
Assumptions:
Risk-free interest rate
1.5
%
1.7
%
2.0
%
Dividend yield
4.4
3.5
5.4
Volatility factor
33.0
37.2
36.0
Expected life
7.0
yrs
7.4
yrs
7.2
yrs
Fair value of options per share
$
6.07
$
7.45
$
5.60
BB&T determines the assumptions used in the Black-Scholes
option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
the grant; the dividend yield is based on the historical dividend yield of BB&T’s stock, adjusted to reflect the expected
dividend yield over the expected life of the option; the volatility factor is based on the historical volatility of BB&T’s
stock, adjusted to reflect the ways in which current information Field: Page; Sequence: 112; Value: 2 indicates that the future is reasonably expected to differ
from the past; and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures
and cancellations.BB&T measures the fair value of restricted shares based
on the price of BB&T’s common stock on the grant date and the fair value of restricted share units based on the price
of BB&T’s common stock on the grant date less the present value of expected dividends that are foregone during the vesting
period.A summary of selected data related to BB&T’s equity-based
compensation costs follows:
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Equity-based compensation expense
$
97
$
98
$
79
Income tax benefit from equity-based compensation expense
36
36
30
Intrinsic value of options exercised and RSUs that vested during the year
62
54
22
Grant date fair value of equity-based awards that vested during the year
88
76
39
December 31,
2012
2011
(Dollars in millions)
Unrecognized compensation cost related to equity-based awards
$
98
$
109
Weighted-average life over which compensation cost is expected to be recognized (years)
2.0
2.6
The following table details the activity during 2012 related to stock options awarded by BB&T:
Wtd. Avg.
Wtd. Avg.
Aggregate
Remaining
Exercise
Intrinsic
Contractual
Options
Price
Value
Life
(Dollars in millions, except per share amounts)
Outstanding at January 1, 2012
45,384,554
$
34.42
Granted
4,686,780
30.09
Exercised
(1,345,570)
23.70
Forfeited or expired
(3,334,690)
36.35
Outstanding at December 31, 2012
45,391,074
34.15
$
37
4.3
yrs
Exercisable at December 31, 2012
34,229,207
36.06
18
3.2
Exercisable and expected to vest at December 31, 2012
44,678,275
34.25
36
4.3
The following table details the activity related to restricted shares and restricted share units awarded by BB&T:
Wtd. Avg.
Grant Date
Shares/Units
Fair Value
Nonvested at January 1, 2012
13,462,630
$
19.47
Granted
2,614,405
25.79
Vested
(1,812,225)
30.60
Forfeited
(333,986)
19.24
Nonvested at December 31, 2012
13,930,824
19.26
At December 31, 2012, BB&T’s restricted shares
and restricted share units had a weighted-average life of 1.6 years. At December 31, 2012, management estimates that 12.5 million
restricted shares and restricted share units will vest over a weighted-average life of 1.7 years.Share Repurchase ActivityAt December 31, 2012, BB&T was authorized to repurchase
an additional 44 million shares under the June 27, 2006 Board of Directors’ authorization. No shares of common stock were
repurchased under this plan during 2012, 2011 or 2010. Field: Page; Sequence: 113; Value: 2 NOTE 12. Accumulated Other Comprehensive Income (Loss)
The balances in AOCI are shown in the following table:
December 31, 2012
December 31, 2011
Deferred
After-
Deferred
After-
Pre-Tax
Tax Expense
Tax
Pre-Tax
Tax Expense
Tax
Amount
(Benefit)
Amount
Amount
(Benefit)
Amount
(Dollars in millions)
Unrecognized net pension and postretirement costs
$
(1,146)
$
(432)
$
(714)
$
(965)
$
(362)
$
(603)
Unrealized net gains (losses) on cash flow hedges
(277)
(104)
(173)
(254)
(95)
(159)
Unrealized net gains (losses) on securities
available for sale
960
362
598
421
158
263
FDIC’s share of unrealized (gains) losses on
securities available for sale under loss
share agreements
(410)
(154)
(256)
(311)
(116)
(195)
Other, net
(30)
(16)
(14)
(37)
(18)
(19)
Total
$
(903)
$
(344)
$
(559)
$
(1,146)
$
(433)
$
(713)
As of December 31, 2012 and 2011, unrealized net losses on
securities available for sale, excluding covered securities, included $11 million and $55 million, respectively, of pre-tax losses
related to other-than-temporarily impaired non-agency RMBS where a portion of the loss was recognized in net income.NOTE 13. Income Taxes
The provision for income taxes comprised the following:
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Current expense:
Federal
$
252
$
83
$
161
State
67
26
18
Foreign
2
2
2
Total current expense
321
111
181
Deferred expense (benefit):
Federal
417
163
(65)
State
26
22
(1)
Total deferred expense (benefit)
443
185
(66)
Provision for income taxes
$
764
$
296
$
115
The foreign income tax expense is related to income generated
on assets controlled by a foreign subsidiary of Branch Bank.The reasons for the difference between the provision for
income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes were as follows: Field: Page; Sequence: 114; Value: 2
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Federal income taxes at statutory rate of 35%
$
977
$
570
$
339
Increase (decrease) in provision for income taxes as a result of:
State income taxes, net of Federal tax benefit
61
31
11
Federal tax credits
(126)
(115)
(105)
Tax exempt income
(133)
(135)
(125)
Nontaxable gain on termination of leveraged lease
(12)
(22)
(2)
Other, net
(3)
(33)
(3)
Provision for income taxes
$
764
$
296
$
115
Effective income tax rate
27.4
%
18.2
%
11.9
%
The tax effects of temporary differences that gave rise to
significant portions of the net deferred tax assets and liabilities are reflected in the table below. Net deferred tax assets are
included in other assets on the Consolidated Balance Sheets.
December 31,
2012
2011
(Dollars in millions)
Deferred tax assets:
ALLL
$
771
$
855
Postretirement plans
432
362
Equity-based compensation
144
130
Loan/securities basis difference
6
127
Foreclosed property write-downs
56
240
Net unrealized loss on cash flow hedges
105
95
Other
277
257
Total deferred tax assets
1,791
2,066
Deferred tax liabilities:
Net unrealized gain on securities available for sale
201
31
Lease financing
270
267
Prepaid pension plan expense
373
352
Loan fees and expenses
244
225
Depreciation
57
76
Identifiable intangible assets
161
92
Loan servicing rights
201
156
Derivatives and hedging
163
136
Other
70
89
Total deferred tax liabilities
1,740
1,424
Net deferred tax assets
$
51
$
642
On a periodic basis, BB&T evaluates its income tax positions
based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation
takes into consideration the status of current taxing authorities’ examinations of BB&T’s tax returns, recent positions
taken by the taxing authorities on similar transactions, if any, and the overall tax environment in relation to tax-advantaged
transactions. The following table presents changes in unrecognized tax benefits for the years ended December 31, 2012, 2011 and
2010. Field: Page; Sequence: 115; Value: 2
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Beginning balance of unrecognized tax benefits
$
301
$
292
$
179
Additions based on tax positions related to current year
14
―
―
Additions for tax positions of prior years
―
6
―
Settlements
(5)
(1)
―
Lapse of statute of limitations
―
―
(1)
Unrecognized deferred tax benefits from business acquisitions
(13)
4
114
Ending balance of unrecognized tax benefits
$
297
$
301
$
292
As of December 31, 2012, BB&T had $297 million of unrecognized
Federal and state tax benefits that would have impacted the effective tax rate if recognized. In addition, the Company had $37
million and $39 million in liabilities for tax-related interest recorded on its Consolidated Balance Sheets at December 31, 2012
and 2011, respectively. Total interest, net of the Federal benefit, related to unrecognized tax benefits recognized in the 2012,
2011 and 2010 Consolidated Statements of Income was immaterial. BB&T classifies interest and penalties related to income taxes
as a component of the provision for income taxes in the Consolidated Statements of Income.The IRS has completed its Federal income tax examinations
of BB&T through 2007. Various years remain subject to examination by state taxing authorities. In February 2010,
BB&T received an IRS statutory notice of deficiency for tax years 2002-2007 asserting a liability for taxes, penalties and
interest of approximately $892 million related to the disallowance of foreign tax credits and other deductions claimed by a subsidiary
in connection with a financing transaction. BB&T paid the disputed tax, penalties and interest in March 2010 and filed
a lawsuit seeking a refund in the U.S. Court of Federal Claims. The Court has scheduled the trial to begin March 4, 2013.
BB&T recorded a receivable in other assets for the amount of this payment, less the reserve considered necessary in accordance
with applicable income tax accounting guidance. On February 11, 2013, the U.S. Tax Court issued an adverse opinion in a case
between the Bank of New York Mellon Corporation and the IRS involving a transaction with a structure similar to BB&T’s
financing transaction. BB&T has confidence in its position because, among other reasons, BB&T will raise arguments
and issues in its case that were not considered by the Tax Court. Bank of New York Mellon has indicated it intends to appeal
the decision. Nonetheless, BB&T recognized a charge of approximately $281 million in the first quarter of 2013
as a result of its consideration of this adverse decision. As litigation progresses, it is reasonably possible changes in
the reserve for uncertain tax positions could range from a decrease of $496 million to an increase of $328 million within the next
12 months. Field: Page; Sequence: 116; Value: 2 NOTE 14. Benefit Plans Defined Benefit Retirement Plans BB&T provides a defined benefit retirement plan qualified
under the Internal Revenue Code that covers most employees. Benefits are based on years of service, age at retirement and the employee's
compensation during the five highest consecutive years of earnings within the last ten years of employment.In addition, supplemental retirement benefits are provided
to certain key officers under supplemental defined benefit executive retirement plans, which are not qualified under the Internal
Revenue Code. Although technically unfunded plans, a Rabbi Trust and insurance policies on the lives of the certain covered employees
are available to finance future benefits.The following are the significant actuarial assumptions that
were used to determine net periodic pension costs for the qualified pension plan:
December 31,
2012
2011
2010
Weighted average assumed discount rate
4.82
%
5.52
%
6.16
%
Weighted average expected long-term rate of return on plan assets
8.00
8.00
8.00
Assumed long-term rate of annual compensation increases (1)
4.50
4.50
4.50
(1)
Represents the rate to be achieved by 2015.
The weighted average expected long-term rate of return on
plan assets represents the average rate of return expected to be earned on plan assets over the period the benefits included in
the benefit obligation are to be paid. In developing the expected rate of return, BB&T considers long-term compound annualized
returns of historical market data for each asset category, as well as historical actual returns on the plan assets. Using this
reference information, the Company develops forward-looking return expectations for each asset category and a weighted average
expected long-term rate of return for the plan based on target asset allocations contained in BB&T's Investment Policy Statement.Financial data relative to the defined benefit pension plans
is summarized in the following tables for the years indicated. The qualified pension plan prepaid asset is recorded on the Consolidated
Balance Sheets as a component of other assets and the nonqualified pension plans accrued liability is recorded on the Consolidated
Balance Sheets as a component of other liabilities. The data is calculated using an actuarial measurement date of December 31.
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Net Periodic Pension Cost:
Service cost
$
120
$
105
$
83
Interest cost
110
103
93
Estimated return on plan assets
(200)
(197)
(178)
Net amortization and other
76
34
24
Net periodic benefit cost
106
45
22
Pre-Tax Amounts Recognized in Total Comprehensive Income:
Net actuarial loss (gain)
270
388
133
Net amortization
(76)
(34)
(24)
Net amount recognized in OCI
194
354
109
Total net periodic pension costs (income) recognized in
total comprehensive income, pre-tax
$
300
$
399
$
131 |
| | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | |
| | | | | | | December 31, | | | | | |
| | | | | | | 2012 | | | 2011 | | |
| | | | | | | | | | | | |
| | | | | | | (Dollars in millions) | | | | | |
| | BB&T Corporation: | | | | | | | | | | |
| | | 3.85% Senior Notes Due 2012 | | | | $ | ― | | $ | 1,000 | |
| | | 3.38% Senior Notes Due 2013 | | | | | 500 | | | 500 | |
| | | 5.70% Senior Notes Due 2014 | | | | | 510 | | | 510 | |
| | | 2.05% Senior Notes Due 2014 | | | | | 700 | | | 700 | |
| | | Floating Rate Senior Note Due 2014 (1) | | | | | 300 | | | 300 | |
| | | 3.95% Senior Notes Due 2016 | | | | | 500 | | | 499 | |
| | | 3.20% Senior Notes Due 2016 | | | | | 999 | | | 999 | |
| | | 2.15% Senior Notes Due 2017 | | | | | 748 | | | ― | |
| | | 1.60% Senior Notes Due 2017 | | | | | 749 | | | ― | |
| | | 1.45% Senior Notes Due 2018 | | | | | 499 | | | ― | |
| | | 6.85% Senior Notes Due 2019 | | | | | 539 | | | 538 | |
| | | 4.75% Subordinated Notes Due 2012 (2) | | | | | ― | | | 490 | |
| | | 5.20% Subordinated Notes Due 2015 (2) | | | | | 933 | | | 933 | |
| | | 4.90% Subordinated Notes Due 2017 (2) | | | | | 345 | | | 342 | |
| | | 5.25% Subordinated Notes Due 2019 (2) | | | | | 586 | | | 586 | |
| | | 3.95% Subordinated Notes Due 2022 (2) | | | | | 298 | | | ― | |
| | | | | | | | | | | | |
| | Branch Bank: | | | | | | | | | | |
| | | Floating Rate Subordinated Notes Due 2016 (2)(3) | | | | | 350 | | | 350 | |
| | | Floating Rate Subordinated Notes Due 2017 (2)(3) | | | | | 262 | | | 262 | |
| | | 4.875% Subordinated Notes Due 2013 (2) | | | | | 222 | | | 222 | |
| | | 5.625% Subordinated Notes Due 2016 (2) | | | | | 386 | | | 386 | |
| | | | | | | | | | | | |
| | FHLB Advances to Branch Bank: (4) | | | | | | | | | | |
| | | Varying maturities to 2034 | | | | | 8,994 | | | 8,998 | |
| | | | | | | | | | | | |
| | Junior Subordinated Debt to Unconsolidated Trusts (5) | | | | | | ― | | | 3,271 | |
| | | | | | | | | | | | |
| | Other Long-Term Debt | | | | | | 100 | | | 83 | |
| | | | | | | | | | | | |
| | Fair value hedge-related basis adjustments | | | | | | 594 | | | 834 | |
| | | | Total Long-Term Debt | | | $ | 19,114 | | $ | 21,803 | |
| | | | | | | | | | | | |
| (1) | This floating-rate senior note is based on LIBOR and had an effective rate of 1.01% at December 31, 2012. | | | | | | | | | | |
| (2) | Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations. | | | | | | | | | | |
| (3) | These floating-rate securities are based on LIBOR, but the majority of the cash flows have been swapped to a fixed rate. The effective rate paid on these securities including the effect of the swapped portion was 3.25% at December 31, 2012. | | | | | | | | | | |
| (4) | Certain of these advances have been swapped to floating rates from fixed rates or from fixed rates to floating rates. At December 31, 2012, the weighted average rate paid on these advances including the effect of the swapped portion was 3.58%, and the weighted average maturity was 6.9 years. | | | | | | | | | | |
| (5) | Securities that qualified under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations. | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 117; Value: 2
Qualified Pension Plan
Nonqualified Pension Plans
Years Ended December 31,
Years Ended December 31,
2012
2011
2012
2011
(Dollars in millions)
Projected benefit obligation, January 1,
$
2,055
$
1,696
$
207
$
182
Service cost
113
99
7
6
Interest cost
100
93
10
10
Actuarial (gain) loss
296
218
70
17
Benefits paid
(57)
(51)
(7)
(8)
Acquisitions
41
―
―
―
Projected benefit obligation, December 31,
$
2,548
$
2,055
$
287
$
207
Accumulated benefit obligation, December 31,
$
2,166
$
1,784
$
213
$
178
Qualified Pension Plan
Nonqualified Pension Plans
Years Ended December 31,
Years Ended December 31,
2012
2011
2012
2011
(Dollars in millions)
Fair value of plan assets, January 1,
$
2,478
$
2,484
$
—
$
—
Actual return on plan assets
295
45
—
—
Employer contributions
202
—
7
8
Benefits paid
(57)
(51)
(7)
(8)
Acquisitions
34
—
—
—
Fair value of plan assets, December 31,
$
2,952
$
2,478
$
—
$
—
Funded status at end of year
$
404
$
423
$
(287)
$
(207)
The following are the pre-tax amounts recognized in AOCI:
Qualified Pension Plan
Nonqualified Pension Plans
Years Ended December 31,
Years Ended December 31,
2012
2011
2012
2011
(Dollars in millions)
Prior service credit (cost)
$
1
$
1
$
(1)
$
(1)
Net actuarial gain (loss)
(993)
(864)
(128)
(63)
Net amount recognized
$
(992)
$
(863)
$
(129)
$
(64)
The expected amortization of unrecognized prior service credit
and unrecognized net actuarial losses for the qualified plan and nonqualified plans that are expected to be amortized from AOCI
into net periodic pension cost during 2013 are reflected in the following table:
Qualified
Nonqualified
Pension Plan
Pension Plans
(Dollars in millions)
Prior service credit (cost)
$
1
$
—
Net actuarial gain (loss)
(82)
(12)
Net amount expected to be amortized in 2013
$
(81)
$
(12)
Employer contributions to the qualified pension plan are
in amounts between the minimum required for funding standard accounts and the maximum amount deductible for federal income tax
purposes. Management is not required to make a contribution to the qualified pension plan during 2013; however, management elected
to make a discretionary contribution of $270 million in the first quarter of 2013, and may make additional contributions in 2013
if determined appropriate. For the nonqualified plans, the employer contributions are based on benefit payments. Field: Page; Sequence: 118; Value: 2 The following table reflects the estimated benefit payments
for the periods presented.
Qualified
Nonqualified
Pension Plan
Pension Plans
(Dollars in millions)
2013
$
64
$
9
2014
71
10
2015
78
11
2016
86
12
2017
94
13
2018-2022
613
83
BB&T's primary total return objective is to achieve returns
that, over the long term, will fund retirement liabilities and provide for the desired plan benefits in a manner that satisfies
the fiduciary requirements of the Employee Retirement Income Security Act of 1974. The plan assets have a long-term time horizon
that runs concurrent with the average life expectancy of the participants. As such, the Plan can assume a time horizon that extends
well beyond a full market cycle, and can assume an above-average level of risk, as measured by the standard deviation of annual
return. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth
volatility and help to generate a reasonable consistency of return. The investments are broadly diversified among economic sector,
industry, quality and size in order to reduce risk and to produce incremental return. Within approved guidelines and restrictions,
investment managers have wide discretion over the timing and selection of individual investments.BB&T periodically reviews its asset allocation and investment
policy and makes changes to its target asset allocation. BB&T has established guidelines within each asset category to ensure
the appropriate balance of risk and reward. The current target asset allocations for the plan assets include a range of 40% to
52% for U.S. equity securities, 10% to 20% for international equity securities, 25% to 40% for fixed income securities, and 0%
to 12% for alternative investments, which include real estate, hedge funds, private equities and commodities, with any remainder
to be held in cash equivalents.The fair value of BB&T's pension plan assets at December
31, 2012 and 2011, by asset category are reflected in the following tables. The three level fair value hierarchy that describes
the inputs used to measure these plan assets is defined in Note 18 "Fair Value Disclosures.” |
| The following are the significant actuarial assumptions that were used to determine benefit obligations: | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | |
| | | | | | | December 31, | | | | | |
| | | | | | | 2012 | | | 2011 | | |
| | Weighted average assumed discount rate | | | | | 4.25 | % | | 4.82 | % | |
| | Assumed rate of annual compensation increases (1) | | | | | 4.50 | | | 4.50 | | |
| | | | | | | | | | | | |
| (1) | Represents the rate to be achieved by 2015. | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 119; Value: 2 The following table presents the activity for Level 3 plan assets, all of which are in alternative investments:
Years Ended December 31,
2012
2011
2010
(Dollars in millions)
Balance at January 1,
$
99
$
124
$
92
Actual return on plan assets
7
9
9
Purchases, sales and settlements
(8)
(34)
23
Balance at December 31,
$
98
$
99
$
124
Defined Contribution PlansBB&T offers a 401(k) Savings Plan and other defined contribution
plans that permit employees to contribute from 1% to 50% of their cash compensation. For full-time employees who are 21 years of
age or older with one year or more of service, BB&T makes matching contributions of up to 6% of the employee's compensation.
BB&T's contribution to the 401(k) Savings Plan and nonqualified defined contribution plans totaled $97 million, $85 million
and $83 million for the years ended December 31, 2012, 2011 and 2010, respectively. BB&T also offers defined contribution plans
to certain employees of subsidiaries who do not participate in the 401(k) Savings Plan.Other benefitsThere are various other employment contracts, deferred compensation
arrangements and covenants not to compete with selected members of management and certain retirees. In addition, BB&T sponsors
a plan which provides certain retirees with a subsidy for purchasing health care and life insurance. In 2004, BB&T amended
this plan to eliminate the subsidy for those employees retiring after December 31, 2004. BB&T also reduced the subsidy paid
to employees who retired on or before December 31, 2004, were age 55 years or older, and had at least ten years of service. For
those employees, the subsidy is based upon years of service of the employee at the time of retirement. These plans and their obligations
are not material to BB&T’s financial statements.NOTE 15. Commitments and Contingencies BB&T utilizes a variety of financial instruments to meet
the financing needs of clients and to reduce exposure to fluctuations in interest rates. These financial instruments include commitments
to extend credit, letters of credit and financial guarantees and derivatives. BB&T also has commitments to fund certain affordable
housing investments and contingent liabilities related to certain sold loans.Commitments to extend, originate or purchase credit are primarily
lines of credit to businesses and consumers and have specified rates and maturity dates. Many of these commitments also have adverse
change clauses, which allow BB&T to cancel the commitment due to deterioration in the borrowers’ creditworthiness.The following table presents a summary of certain commitments and contingencies:
December 31,
2012
2011
(Dollars in millions)
Letters of credit and financial guarantees written
$
5,164
$
6,095
Carrying amount of the liability for letter of credit guarantees
30
27
Investments related to affordable housing and historic building rehabilitation projects
1,223
1,159
Amount of future funding commitments included in investments related to affordable
housing and historic rehabilitation projects
461
394
Lending exposure to these affordable housing projects
87
76
Tax credits subject to recapture related to affordable housing projects
193
161
Investments in private equity and similar investments
323
261
Future funding commitments to private equity and similar investments
129
129
Letters of credit and financial guarantees written are unconditional
commitments issued by BB&T to guarantee the performance of a customer to a third party. These guarantees are primarily issued
to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions,
the majority of which are to tax Field: Page; Sequence: 120; Value: 2 exempt entities. The credit risk involved in the issuance of these guarantees is essentially the
same as that involved in extending loans to clients and as such, the instruments are collateralized when necessary.BB&T invests in certain affordable housing and historic
building rehabilitation projects throughout its market area as a means of supporting local communities, and receives tax credits
related to these investments. BB&T typically acts as a limited partner in these investments and does not exert control over
the operating or financial policies of the partnerships. Branch Bank typically provides financing during the construction and development
of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project.
Tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level.
BB&T’s maximum potential exposure to losses relative to investments in VIEs is generally limited to the sum of the outstanding
balance, future funding commitments and any related loans to the entity. Loans to these entities are underwritten in substantially
the same manner as are other loans and are generally secured.BB&T has investments in and future funding commitments
to certain private equity and similar investments. BB&T’s risk exposure relating to such commitments is generally limited
to the amount of investments and future funding commitments made.A derivative is a financial instrument that derives its cash
flows, and therefore its value, by reference to an underlying instrument, index or interest rate. For additional disclosures related
to BB&T’s derivatives refer to Note 19 “Derivative Financial Instruments.”BB&T has sold certain mortgage-related loans that contain
recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred
after the disposal of the property. BB&T also issues standard representations and warranties related to mortgage loan sales
to GSEs. Refer to Note 7 “Loan Servicing” for additional disclosures related to these exposures.In the ordinary course of business, BB&T indemnifies
its officers and directors to the fullest extent permitted by law against liabilities arising from pending litigation. BB&T
also issues standard representations and warranties in underwriting agreements, merger and acquisition agreements, loan sales,
brokerage activities and other similar arrangements. Counterparties in many of these indemnification arrangements provide similar
indemnifications to BB&T. Although these agreements often do not specify limitations, BB&T does not believe that any payments
related to these guarantees would materially change the financial position or results of operations of BB&T.Legal Proceedings The nature of the business of BB&T’s banking and
other subsidiaries 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.The Company was a defendant in three separate cases primarily
challenging the Company’s daily ordering of debit transactions posted to customer checking accounts for the period from 2003
to 2010. The plaintiffs requested class action treatment; however, no class was certified. The court initially denied motions by
the Company to dismiss these cases and compel them to be submitted to individual arbitration. The Company then filed appeals in
all three matters. There were numerous subsequent procedural developments. These included an appeal to the U.S. Supreme Court in
one matter which resulted in a November 2011 decision that benefited the Company and two decisions in July 2012 in two other matters
by the U.S. Court of Appeals for the Eleventh Circuit ordering arbitration. Those latter two matters are now concluded. The first
remains pending and therefore, the issues raised by the motions and appeal in this one matter have not been finally decided. If
the motions or any appeals are ultimately granted, they would preclude class action treatment. Even if such an appeal is denied,
the Company believes it has meritorious defenses against this matter, including class certification. In addition, no damages have
been specified by the plaintiffs. Because of these circumstances, no specific loss or range of loss can currently be determined.On at least a quarterly basis, BB&T assesses its liabilities
and contingencies in connection with outstanding legal proceedings 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, BB&T records a
liability in its 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,
BB&T has not accrued legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently
available, advice of counsel and Field: Page; Sequence: 121; Value: 2 available insurance coverage, BB&T’s management
believes that its established legal reserves are adequate and the liabilities arising from BB&T’s legal proceedings
will not have a material adverse effect on the consolidated financial position, consolidated results of operations or consolidated
cash flows of BB&T. However, in the event of unexpected future developments, it is possible that the ultimate resolution of
these matters, if unfavorable, may be material to BB&T’s consolidated financial position, consolidated results of operations
or consolidated cash flows.NOTE 16. Regulatory Requirements and Other RestrictionsBranch Bank and BB&T FSB are required by the FRB to maintain
reserve balances in the form of vault cash or deposits with the FRB based on specified percentages of certain deposit types, subject
to various adjustments. At December 31, 2012, the net reserve requirement amounted to $266 million.Branch Bank is subject to laws and regulations that limit
the amount of dividends it can pay. In addition, both BB&T and Branch Bank are subject to various regulatory restrictions relating
to the payment of dividends, including requirements to maintain capital at or above regulatory minimums, and to remain “well-capitalized”
under the prompt corrective action regulations. BB&T does not expect that any of these laws, regulations or policies will materially
affect the ability of Branch Bank to pay dividends.BB&T is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and
possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on BB&T’s
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative measures of BB&T’s assets, liabilities and certain off-balance-sheet
items calculated pursuant to regulatory directives. BB&T’s capital amounts and classification also are subject to qualitative
judgments by the regulators about components, risk weightings and other factors. BB&T is in full compliance with these requirements.
Banking regulations also identify five capital categories for insured depository institutions: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized. At December 31, 2012 and 2011, BB&T and Branch
Bank were classified as “well-capitalized.”Quantitative measures established by regulation to ensure
capital adequacy require BB&T to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital to average tangible assets (leverage ratio).Risk-based capital ratios, which include Tier 1
Capital, Total Capital and Tier 1 Common Equity, are calculated based on regulatory guidance related to the measurement of
capital and risk-weighted assets. BB&T reevaluated its process related to calculating risk-weighted assets and determined
that certain adjustments, primarily related to the presentation of certain unfunded lending commitments, were required in
order to conform to regulatory guidance. These adjustments resulted in an increase to risk-weighted assets and a decrease in
BB&T’s risk-based capital ratios. |
| | | | | December 31, 2012 | | | | | | | | | | | | December 31, 2011 | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | (Dollars in millions) | | | | | | | | | | | |
| | Cash and cash-equivalents | | | $ | 89 | | $ | 89 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | U.S. equity securities (1) | | | | 1,226 | | | 1,226 | | | — | | | — | | | 1,072 | | | 1,072 | | | — | | | — | |
| | International equity securities (2) | | | | 570 | | | 462 | | | 108 | | | — | | | 439 | | | 336 | | | 103 | | | — | |
| | Fixed income securities | | | | 951 | | | 126 | | | 825 | | | — | | | 852 | | | 130 | | | 722 | | | — | |
| | Alternative investments | | | | 98 | | | — | | | — | | | 98 | | | 99 | | | — | | | — | | | 99 | |
| | | Total plan assets (3) | | $ | 2,934 | | $ | 1,903 | | $ | 933 | | $ | 98 | | $ | 2,462 | | $ | 1,538 | | $ | 825 | | $ | 99 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Includes 3.7 million and 3.6 million shares of BB&T common stock valued at $107 million and $92 million at December 31, 2012 and 2011, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Includes a common/commingled fund that consists of assets from several accounts, pooled together, to reduce management and administration costs. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (3) | Excludes accrued income of $18 million and $16 million at December 31, 2012 and 2011, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | As an approved seller/servicer, Branch Bank is required
to maintain minimum levels of shareholders’ equity, as specified by various agencies, including the United States Department
of Housing and Urban Development, GNMA, FHLMC and FNMA. At December 31, 2012 and 2011, Branch Bank’s equity was above all
required levels.At December 31, 2012 and 2011, BB&T had segregated cash
deposits totaling $36 million and $20 million, respectively. These deposits relate to monies held for the exclusive benefit of
clients, primarily at BB&T’s broker/dealer subsidiaries. Field: Page; Sequence: 122; Value: 2 NOTE 17. Parent Company Financial Statements
Parent Company
Condensed Balance Sheets
December 31, 2012 and 2011
2012
2011
(Dollars in millions)
Assets:
Cash and due from banks
$
4,239
$
3,564
Securities available for sale at fair value
27
29
Securities held to maturity
37
40
Investment in banking subsidiaries
21,189
20,853
Investment in other subsidiaries
1,837
1,572
Advances to / receivables from banking subsidiaries
44
615
Advances to / receivables from other subsidiaries
2,408
2,392
Other assets
246
268
Total assets
$
30,027
$
29,333
Liabilities and Shareholders' Equity:
Short-term borrowed funds
$
37
$
296
Short-term borrowed funds due to subsidiaries
-
72
Dividends payable
170
112
Accounts payable and other liabilities
30
116
Long-term debt
8,567
7,930
Long-term debt due to subsidiaries
-
3,327
Total liabilities
8,804
11,853
Total shareholders' equity
21,223
17,480
Total liabilities and shareholders' equity
$
30,027
$
29,333
Field: Page; Sequence: 123; Value: 2
Parent Company
Condensed Income Statements
Years Ended December 31, 2012, 2011 and 2010
2012
2011
2010
(Dollars in millions)
Income:
Dividends from banking subsidiaries
$
1,720
$
620
$
345
Dividends from other subsidiaries
81
278
321
Interest and other income from subsidiaries
79
107
138
Other income
1
8
4
Total income
1,881
1,013
808
Expenses:
Interest expense
239
334
445
Other expenses
52
34
38
Total expenses
291
368
483
Income before income taxes and equity in
undistributed earnings of subsidiaries
1,590
645
325
Income tax benefit
20
26
60
Income before equity in undistributed earnings of subsidiaries
1,610
671
385
Equity in undistributed earnings of subsidiaries in excess of
dividends from subsidiaries
418
661
469
Net income
2,028
1,332
854
Noncontrolling interests
49
43
38
Dividends on preferred stock
63
―
―
Net income available to common shareholders
$
1,916
$
1,289
$
816
Parent Company
Condensed Statements of Comprehensive Income
Years Ended December 31, 2012, 2011 and 2010
2012
2011
2010
(Dollars in millions)
Net Income
$
2,028
$
1,332
$
854
OCI, Net of Tax:
Unrealized net holding gains (losses) arising during the period on
securities available for sale
―
―
7
Change in unrecognized gains (losses) on cash flow hedges
(2)
(1)
―
Other, net
1
(8)
―
Total OCI
(1)
(9)
7
Total comprehensive income
$
2,027
$
1,323
$
861
Income Tax Effect of Items Included in OCI
Unrealized net holding gains (losses) arising during the period on
securities available for sale
$
―
$
―
$
3
Change in unrecognized gains (losses) on cash flow hedges
(1)
―
―
Other, net
―
(4)
―
Field: Page; Sequence: 124; Value: 2
Parent Company
Condensed Statements of Cash Flows
Years Ended December 31, 2012, 2011 and 2010
.
2012
2011
2010
(Dollars in millions)
Cash Flows From Operating Activities:
Net income
$
2,028
$
1,332
$
854
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in earnings of subsidiaries in excess of dividends
from subsidiaries
(418)
(661)
(469)
Net change in other assets
265
63
(147)
Net change in accounts payable and accrued liabilities
(71)
(3)
(24)
Other, net
(228)
20
(65)
Net cash from operating activities
1,576
751
149
Cash Flows From Investing Activities:
Proceeds from sales, calls and maturities of securities available for sale
26
49
87
Purchases of securities available for sale
(26)
(48)
(8)
Proceeds from maturities, calls and paydowns of securities held
to maturity
4
24
―
Investment in subsidiaries
(30)
(12)
(113)
Advances to subsidiaries
(10,785)
(20,306)
(37,341)
Proceeds from repayment of advances to subsidiaries
11,325
22,637
37,028
Net cash from business combinations
51
―
―
Net cash from investing activities
565
2,344
(347)
Cash Flows From Financing Activities:
Net change in long-term debt
(2,764)
1,121
765
Net change in short-term borrowed funds
(259)
(509)
(198)
Net change in advances from subsidiaries
(72)
69
3
Net proceeds from common stock issued
15
22
110
Net proceeds from preferred stock issued
2,116
―
―
Cash dividends paid on common and preferred stock
(564)
(446)
(415)
Other, net
62
―
―
Net cash from financing activities
(1,466)
257
265
Net Change in Cash and Cash Equivalents
675
3,352
67
Cash and Cash Equivalents at Beginning of Year
3,564
212
145
Cash and Cash Equivalents at End of Year
$
4,239
$
3,564
$
212
Field: Page; Sequence: 125; Value: 2 NOTE 18. Fair Value Disclosures BB&T carries various assets and liabilities at fair value
based on applicable accounting standards, including prime residential mortgage and commercial mortgage loans originated as LHFS.
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. These standards also established a three level fair value hierarchy that describes the inputs that
are used to measure assets and liabilities. Level 1 asset and liability fair values are based on quoted prices in active markets
for identical assets and liabilities. Level 2 asset and liability fair values are based on observable inputs that include: quoted
market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are
observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models and/or discounted
cash flow methodologies, as well as financial instruments for which the determination of fair value requires significant management
judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable
data.Assets and liabilities measured at fair value on a
recurring basis are summarized below:
Fair Value Measurements for Assets and
Liabilities Measured on a Recurring Basis
12/31/2012
Level 1
Level 2
Level 3
(Dollars in millions)
Assets:
Trading securities
$
497
$
302
$
194
$
1
Securities available for sale:
GSE securities
290
―
290
―
RMBS issued by GSE
20,930
―
20,930
―
States and political subdivisions
2,011
―
2,011
―
Non-agency RMBS
312
―
312
―
Other securities
3
2
1
―
Covered securities
1,591
―
597
994
LHFS
3,761
―
3,761
―
Residential MSRs
627
―
―
627
Derivative assets: (1)
Interest rate contracts
1,446
―
1,391
55
Foreign exchange contracts
5
―
5
―
Private equity and similar investments (1)(2)
323
―
―
323
Total assets
$
31,796
$
304
$
29,492
$
2,000
Liabilities:
Derivative liabilities: (1)
Interest rate contracts
$
1,434
$
―
$
1,433
$
1
Foreign exchange contracts
4
―
4
―
Short-term borrowed funds (3)
98
―
98
―
Total liabilities
$
1,536
$
―
$
1,535
$
1
Field: Page; Sequence: 126; Value: 2 |
| | | | | December 31, 2012 | | | | | | | | | | | | December 31, 2011 | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | Actual Capital | | | | | | Capital Requirements | | | | | | Actual Capital | | | | | | Capital Requirements | | | | |
| | | | | Ratio | | | **Amount** | | | Minimum | | | Well-Capitalized | | | Ratio | | | Amount | | | Minimum | | | Well-Capitalized | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 Capital (1): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | BB&T | | | 11.0 | % | | $ | 14,373 | | $ | 5,244 | | $ | 7,866 | | 12.0 | % | | $ | 14,913 | | $ | 4,980 | | $ | 7,470 |
| | Branch Bank | | | 11.6 | | | | 14,587 | | | 5,011 | | | 7,516 | | 12.8 | | | | 15,274 | | | 4,759 | | | 7,138 |
| Total Capital (1): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | BB&T | | | 13.9 | | | | 18,204 | | | 10,488 | | | 13,110 | | 15.1 | | | | 18,862 | | | 9,961 | | | 12,451 |
| | Branch Bank | | | 13.4 | | | | 16,809 | | | 10,022 | | | 12,527 | | 15.1 | | | | 17,915 | | | 9,517 | | | 11,897 |
| Leverage Capital: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | BB&T | | | 8.2 | | | | 14,373 | | | 7,001 | | | 8,751 | | 9.0 | | | | 14,913 | | | 6,614 | | | 8,267 |
| | Branch Bank | | | 8.6 | | | | 14,587 | | | 5,086 | | | 8,476 | | 9.5 | | | | 15,274 | | | 4,801 | | | 8,002 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The Company has revised its calculation of risk-weighted assets and adjusted the applicable ratios. | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | The following discussion focuses on the valuation techniques
and significant inputs used by BB&T in determining the Level 2 and Level 3 fair values of each significant class of assets
and liabilities.BB&T generally utilizes a third-party pricing service
in determining the fair value of its securities portfolio. 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.Specific valuation techniques and inputs used in determining
the fair value of each significant class of assets and liabilities follows:Trading securities: Trading securities are composed
of all types of debt and equity securities, but the majority consists of debt securities issued by the U.S. Treasury, GSEs, or
states and political subdivisions. The valuation techniques used for these investments are more fully discussed below.GSE securities and RMBS issued by GSE: These are debt
securities issued by GSEs. GSE pass-through securities are valued using market-based pricing matrices that are based on 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 are based on observable inputs including MSRB reported trades, issuer spreads,
material event notices and benchmark yield curves. Field: Page; Sequence: 127; Value: 2 Non-agency RMBS: 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.Other securities: These securities consist primarily
of mutual funds and 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.Covered securities: Covered securities are covered
by FDIC loss sharing agreements and consist of re-remic non-agency RMBS, municipal securities and non-agency RMBS. Covered state
and political subdivision securities and certain non-agency RMBS are valued in a manner similar to the approach described above
for these asset classes. The re-remic non-agency RMBS, which are categorized as Level 3, were valued based on broker dealer quotes
that reflected certain unobservable market inputs. Sensitivity to changes in the fair value of covered securities is significantly
offset by changes in BB&T’s indemnification asset from the FDIC. Subject to certain restrictions, the terms of the loss
sharing agreement associated with these re-remic non-agency RMBS provide that Branch Bank will be reimbursed by the FDIC for 95%
of any and all losses.LHFS: BB&T originates certain mortgage loans to
be sold to investors. These loans are carried at fair value based on BB&T’s election of the Fair Value Option. 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 loan held for sale.Residential MSRs: BB&T estimates the fair value
of residential MSRs using an OAS valuation model to project MSR cash flows over multiple interest rate scenarios, which are then
discounted at risk-adjusted rates. The OAS 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.Derivative assets and liabilities: BB&T uses derivatives
to manage various financial risks. The fair values of derivative financial instruments are determined based on quoted market prices,
dealer quotes and internal pricing models that are primarily sensitive to 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 BB&T does not expect to fund and include the value attributable to the net servicing fees.Private equity and similar investments: BB&T has
private equity and similar investments that are measured at fair value based on the investment’s net asset value. 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.Short-term borrowed funds: Short-term borrowed funds
represent debt securities sold short. These are entered into through BB&T’s brokerage subsidiary. These trades are executed
as a hedging strategy for the purposes of supporting institutional and retail client trading activities. Field: Page; Sequence: 128; Value: 2
Fair Value Measurements Using Significant Unobservable Inputs
Private
Equity and
Covered
Residential
Net
Similar
Year Ended December 31, 2012
Trading
Securities
MSRs
Derivatives
Investments
(Dollars in millions)
Balance at January 1, 2012
$
1
$
984
$
563
$
59
$
261
Total realized and unrealized gains (losses):
Included in earnings:
Interest income
―
48
―
―
―
Mortgage banking income
―
―
(32)
458
―
Other noninterest income
―
―
―
―
21
Included in unrealized net holding gains (losses)
in OCI
―
88
―
―
―
Purchases
4
―
―
―
101
Issuances
―
―
270
308
―
Sales
(4)
―
―
―
(59)
Settlements
―
(126)
(174)
(771)
(1)
Balance at December 31, 2012
$
1
$
994
$
627
$
54
$
323
Change in unrealized gains (losses) included in earnings for
the period, attributable to assets and liabilities still held
at December 31, 2012
$
―
$
48
$
(32)
$
54
$
12
Fair Value Measurements Using Significant Unobservable Inputs
Private
States &
Equity and
Political
Other
Covered
Residential
Net
Similar
Year Ended December 31, 2011
Trading
Subdivisions
Securities
Securities
MSRs
Derivatives
Investments
(Dollars in millions)
Balance at January 1, 2011
$
11
$
119
$
7
$
954
$
830
$
(25)
$
266
Total realized and unrealized gains (losses):
Included in earnings:
Interest income
―
―
―
54
―
―
―
Mortgage banking income
―
―
―
―
(341)
151
―
Other noninterest income
(3)
―
―
―
―
―
64
Included in unrealized net holding
gains (losses) in OCI
―
(9)
(1)
24
―
―
―
Purchases
7
―
―
―
―
―
61
Issuances
―
―
―
―
225
110
―
Sales
(14)
―
―
―
―
―
(112)
Settlements
―
(53)
(1)
(48)
(151)
(177)
(15)
Transfers into Level 3
―
―
―
―
―
―
1
Transfers out of Level 3
―
(57)
(5)
―
―
―
(4)
Balance at December 31, 2011
$
1
$
―
$
―
$
984
$
563
$
59
$
261
Change in unrealized gains (losses)
included in earnings for the period,
attributable to assets and liabilities
still held at December 31, 2011
$
―
$
―
$
―
$
54
$
(341)
$
59
$
39
Field: Page; Sequence: 129; Value: 2
Fair Value Measurements Using Significant Unobservable Inputs
Private
States &
Equity and
Political
Other
Covered
Residential
Net
Similar
Year Ended December 31, 2010
Trading
Subdivisions
Securities
Securities
MSRs
Derivatives
Investments
(Dollars in millions)
Balance at January 1, 2010
$
93
$
210
$
9
$
668
$
832
$
(20)
$
281
Total realized and unrealized gains (losses):
Included in earnings:
Interest income
―
―
―
61
―
―
―
Mortgage banking income
―
―
―
―
(138)
246
―
Other noninterest income
(1)
―
―
―
―
―
35
Included in OCI
―
12
(1)
225
―
―
―
Purchases, issuances and settlements
(5)
(87)
(1)
―
136
(251)
(50)
Transfers in and/or out of Level 3
(76)
(16)
―
―
―
―
―
Balance at December 31, 2010
$
11
$
119
$
7
$
954
$
830
$
(25)
$
266
Change in unrealized gains (losses)
included in earnings for the period,
attributable to assets and liabilities
still held at December 31, 2010
$
(2)
$
―
$
―
$
61
$
(138)
$
(25)
$
9
BB&T’s policy is to recognize transfers in and
transfers out of Levels 1, 2 and 3 as of the end of a reporting period. During the year ended December 31, 2012, BB&T did not
have any material transfer of securities between levels in the fair value hierarchy. During the year ended December 31, 2011, BB&T
transferred certain state and political subdivision securities out of Level 3 as a result of management’s decision to reclassify
them from available for sale to held to maturity classification, which is not recorded at fair value. During the year ended December
31, 2010, transfers from Level 3 to Level 2 were the result of increased observable market activity for these securities. There
were no gains or losses recognized as a result of the transfers of securities during the years ended December 31, 2012, 2011 or
2010. There were no significant transfers of securities between Level 1 and Level 2 for the years ended December 31, 2012, 2011
or 2010.The majority of BB&T’s private equity and similar
investments are in SBIC qualified funds. The significant investment strategies for these funds primarily focus on equity and subordinated
debt investments in privately-held middle market companies. The majority of these 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 through 2025, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership
changes among others. Excluding the investment of future funds, BB&T estimates these investments have a weighted average remaining
life of approximately three years; however, the timing and amount of distributions may vary significantly. As of December 31, 2012,
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. BB&T’s 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 5x to 11x, with a weighted average of 7x, at December 31, 2012. |
| | | | | | | | Fair Value Measurements for Assets and | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | Liabilities Measured on a Recurring Basis | | | | | | | | |
| | | | | 12/31/2011 | | | Level 1 | | | Level 2 | | | Level 3 | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | (Dollars in millions) | | | | | | | | |
| | Assets: | | | | | | | | | | | | | | |
| | | Trading securities | | $ | 534 | | $ | 298 | | $ | 235 | | $ | 1 | |
| | | Securities available for sale: | | | | | | | | | | | | | |
| | | | GSE securities | | 306 | | | ― | | | 306 | | | ― | |
| | | | RMBS issued by GSE | | 18,132 | | | ― | | | 18,132 | | | ― | |
| | | | States and political subdivisions | | 1,923 | | | ― | | | 1,923 | | | ― | |
| | | | Non-agency RMBS | | 368 | | | ― | | | 368 | | | ― | |
| | | | Other securities | | 7 | | | 6 | | | 1 | | | ― | |
| | | | Covered securities | | 1,577 | | | ― | | | 593 | | | 984 | |
| | | LHFS | | | 3,736 | | | ― | | | 3,736 | | | ― | |
| | | Residential MSRs | | | 563 | | | ― | | | ― | | | 563 | |
| | | Derivative assets: (1) | | | | | | | | | | | | | |
| | | | Interest rate contracts | | 1,518 | | | 1 | | | 1,457 | | | 60 | |
| | | | Foreign exchange contracts | | 7 | | | ― | | | 7 | | | ― | |
| | | Private equity and similar investments (1)(2) | | | 261 | | | ― | | | ― | | | 261 | |
| | | | Total assets | $ | 28,932 | | $ | 305 | | $ | 26,758 | | $ | 1,869 | |
| | | | | | | | | | | | | | | | |
| | Liabilities: | | | | | | | | | | | | | | |
| | | Derivative liabilities: (1) | | | | | | | | | | | | | |
| | | | Interest rate contracts | $ | 1,498 | | $ | ― | | $ | 1,497 | | $ | 1 | |
| | | | Foreign exchange contracts | | 8 | | | ― | | | 8 | | | ― | |
| | | Short-term borrowed funds (3) | | | 118 | | | ― | | | 118 | | | ― | |
| | | | Total liabilities | $ | 1,624 | | $ | ― | | $ | 1,623 | | $ | 1 | |
| | | | | | | | | | | | | | | | |
| (1) | These amounts are reflected in other assets and other liabilities on the Consolidated Balance Sheets. | | | | | | | | | | | | | | |
| (2) | Based on an analysis of the nature and risks of these investments, BB&T has determined that presenting these investments as a single class is appropriate. | | | | | | | | | | | | | | |
| (3) | Short-term borrowed funds reflect securities sold short positions. | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 130; Value: 2 |
| The following table details the fair value and unpaid principal balance of LHFS that were elected to be carried at fair value: | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | December 31, | | | | | | | | | | | | | | | | | |
| | | | | | 2012 | | | | | | | | | 2011 | | | | | | | | |
| | | | | | | | | Aggregate | | | | | | | | | Aggregate | | | | | |
| | | | | | | | | Unpaid | | | | | | | | | Unpaid | | | | | |
| | | | | | Fair | | | Principal | | | | | | Fair | | | Principal | | | | | |
| | | | | | Value | | | Balance | | | Difference | | | Value | | | Balance | | | Difference | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | |
| | LHFS reported at fair value (1) | | | | $ | 3,761 | | $ | 3,652 | | $ | 109 | | $ | 3,736 | | $ | 3,652 | | $ | 84 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The change in fair value is reflected in mortgage banking income. Excluding government guaranteed loans, there were no nonaccrual loans or loans 90 days or more past due and still accruing interest. | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Additionally, accounting standards require the disclosure
of the estimated fair value of financial instruments that are not recorded at fair value. A financial instrument is defined as
cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or
receive cash or another financial instrument from a second entity. For the financial instruments that BB&T does not record
at fair value, estimates of fair value are made at a point in time, based on relevant market data and information about the financial
instrument. Fair values are calculated based on the value of one trading unit without regard to any premium or discount that may
result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that
may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a
significant portion of BB&T’s 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 calculated 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 methods and assumptions were used by BB&T in estimating the fair value of these financial instruments.Cash and cash equivalents and segregated cash due from
banks: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.Securities held to maturity: The fair values of securities
held to maturity 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.FDIC loss share receivable: The fair value of the
FDIC loss share receivable was estimated using discounted cash flow analyses, applying a risk free interest rate that is adjusted
for the uncertainty in the timing and amount of these cash flows. The expected cash flows to/from the FDIC related to loans were
estimated using the same assumptions that were used in determining the accounting values for the related loans. The expected cash
flows to/from the FDIC related to securities are based upon the fair value of the related securities and the payment that would
be required if the securities were sold for that amount. The FDIC loss share agreements are not transferrable and, accordingly,
there is no market for this receivable.Deposit liabilities: The fair values for demand deposits,
interest-checking accounts, savings accounts and certain money market accounts are, by definition, 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. In addition, nonfinancial instruments such as core deposit intangibles are not recorded at fair value. BB&T
has developed long-term relationships with its customers through its deposit base and, in the opinion of management, these items
add significant value to BB&T. Field: Page; Sequence: 131; Value: 2 Federal funds purchased, securities sold under repurchase
agreements and short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements
and short-term borrowed funds approximate their fair values.Long-term debt: The fair values of long-term debt
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 BB&T’s 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. For fixed-rate loan commitments, fair values also consider the difference
between current levels of interest rates and the committed rates. 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 would be categorized within Level 3 of the fair value hierarchy.
Financial assets and liabilities not recorded at fair value are summarized below:
Carrying
Total
December 31, 2012
Amount
Fair Value
Level 2
Level 3
(Dollars in millions)
Financial assets:
Securities held to maturity (1)
$
13,594
$
13,848
$
13,810
$
38
Loans and leases, net of ALLL excluding covered loans
109,419
109,621
―
109,621
Covered loans, net of ALLL
3,166
3,661
―
3,661
FDIC loss share receivable
479
149
―
149
Financial liabilities:
Deposits
133,075
133,377
133,377
―
Long-term debt
19,114
20,676
20,676
―
Carrying
December 31, 2011
Amount
Fair Value
(Dollars in millions)
Financial assets:
Securities held to maturity (1)
$
14,094
$
14,098
Loans and leases, net of ALLL, excluding covered loans
100,495
100,036
Covered loans, net of ALLL
4,718
5,706
FDIC loss share receivable
1,100
910
Financial liabilities:
Deposits
124,939
125,317
Long-term debt
21,803
23,001
(1)
Excludes amounts deferred in OCI resulting from the transfer of securities available for sale to held to maturity.
The following is a summary of selected information pertaining to off-balance sheet financial instruments:
December 31,
2012
2011
Notional/
Notional/
Contract
Contract
Amount
Fair Value
Amount
Fair Value
(Dollars in millions)
Commitments to extend, originate or purchase credit
$
43,760
$
81
$
41,575
$
73
Residential mortgage loans sold with recourse
1,019
12
1,316
6
Other loans sold with recourse
4,970
13
4,520
15
Letters of credit and financial guarantees written
5,164
30
6,095
27
Field: Page; Sequence: 132; Value: 2 NOTE 19. Derivative Financial Instruments |
| The following tables provide information about certain financial assets measured at fair value on a nonrecurring basis: | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | December 31, | | | | | | |
| | | | | | | | | | 2012 | | | 2011 | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | (Dollars in millions) | | | | | | |
| | Assets that are still held (1): | | | | | | | | | | | | | | |
| | | Impaired loans, excluding covered | | | | | | | $ | 137 | | $ | 389 | | |
| | | Foreclosed real estate, excluding covered | | | | | | | | 107 | | | 536 | | |
| | | | | | | | | | | | | | | | |
| | | | | | | Years Ended December 31, | | | | | | | | | |
| | | | | | | 2012 | | | 2011 | | | 2010 | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | (Dollars in millions) | | | | | | | | | |
| | Negative valuation adjustments recognized (1): | | | | | | | | | | | | | | |
| | | Impaired loans, excluding covered | | | | $ | 109 | | $ | 348 | | $ | 602 | | |
| | | Foreclosed real estate, excluding covered | | | | | 180 | | | 550 | | | 496 | | |
| | | | | | | | | | | | | | | | |
| (1) | Classified as level 3 assets. | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 133; Value: 2 |
| The following tables set forth certain information concerning BB&T’s derivative financial instruments and related hedged items as of the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| **Derivative Classifications and Hedging Relationships** | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | **December 31, 2012** | | | | | | | | | **December 31, 2011** | | | | | | | |
| | | | | | | **Hedged Item or** | | **Notional** | | | **Fair Value** | | | | | | **Notional** | | | **Fair Value** | | | | |
| | | | | | | **Transaction** | | **Amount** | | | **Gain (1)** | | | **Loss (1)** | | | **Amount** | | | **Gain (1)** | | | **Loss (1)** | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | **(Dollars in millions)** | | | | | | | | | | | | | | | | |
| Cash Flow Hedges: (2) | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pay fixed swaps | | | | 3 month LIBOR funding | | $ | 6,035 | | $ | ― | | $ | (298) | | $ | 5,750 | | $ | ― | | $ | (307) |
| | | | | Total | | | | | 6,035 | | | ― | | | (298) | | | 5,750 | | | ― | | | (307) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Investment Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign exchange contracts | | | | | | | | ― | | | ― | | | ― | | | 73 | | | 1 | | | ― |
| | | | | Total | | | | | ― | | | ― | | | ― | | | 73 | | | 1 | | | ― |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Receive fixed swaps and option trades | | | | Long-term debt | | | 800 | | | 182 | | | ― | | | 2,556 | | | 254 | | | ― |
| | | Pay fixed swaps | | | | Commercial loans | | | 187 | | | ― | | | (7) | | | 98 | | | ― | | | (5) |
| | | Pay fixed swaps | | | | Municipal securities | | | 345 | | | ― | | | (153) | | | 355 | | | ― | | | (158) |
| | | | | Total | | | | | 1,332 | | | 182 | | | (160) | | | 3,009 | | | 254 | | | (163) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Not Designated as Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Client-related and other risk management: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | |
| | | | Receive fixed swaps | | | | | | 9,352 | | | 687 | | | ― | | | 9,176 | | | 703 | | | ― |
| | | | Pay fixed swaps | | | | | | 9,464 | | | ― | | | (717) | | | 9,255 | | | ― | | | (730) |
| | | | Other swaps | | | | | | 2,273 | | | 1 | | | (2) | | | 2,450 | | | ― | | | (6) |
| | | | Option trades | | | | | | 814 | | | 23 | | | (26) | | | 1,004 | | | 38 | | | (40) |
| | | | Futures contracts | | | | | | 109 | | | ― | | | ― | | | 240 | | | ― | | | ― |
| | | | Risk participations | | | | | | 204 | | | ― | | | ― | | | 150 | | | ― | | | ― |
| | | Foreign exchange contracts | | | | | | | 1,005 | | | 5 | | | (4) | | | 575 | | | 6 | | | (8) |
| | | | | Total | | | | | 23,221 | | | 716 | | | (749) | | | 22,850 | | | 747 | | | (784) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Mortgage Banking: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | |
| | | | Receive fixed swaps | | | | | | 114 | | | ― | | | (2) | | | 50 | | | 1 | | | ― |
| | | | Pay fixed swaps | | | | | | ― | | | ― | | | ― | | | 16 | | | ― | | | ― |
| | | | Interest rate lock commitments | | | | | | 6,064 | | | 55 | | | (1) | | | 4,977 | | | 60 | | | (1) |
| | | | When issued securities, forward rate agreements and forward | | | | | | | | | | | | | | | | | | | | | |
| | | | | commitments | | | | | 8,886 | | | 10 | | | (19) | | | 7,125 | | | 10 | | | (88) |
| | | | Option trades | | | | | | 70 | | | 6 | | | ― | | | 70 | | | 5 | | | ― |
| | | | Futures contracts | | | | | | 31 | | | ― | | | ― | | | 65 | | | 1 | | | ― |
| | | | | Total | | | | | 15,165 | | | 71 | | | (22) | | | 12,303 | | | 77 | | | (89) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | MSRs: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate contracts: | | | | | | | | | | | | | | | | | | | | | | |
| | | | Receive fixed swaps | | | | | | 5,178 | | | 110 | | | (27) | | | 5,616 | | | 154 | | | (1) |
| | | | Pay fixed swaps | | | | | | 5,389 | | | 7 | | | (94) | | | 4,651 | | | 1 | | | (111) |
| | | | Option trades | | | | | | 14,510 | | | 363 | | | (88) | | | 9,640 | | | 273 | | | (51) |
| | | | Futures contracts | | | | | | 30 | | | ― | | | ― | | | 38 | | | ― | | | ― |
| | | | When issued securities, forward rate agreements and forward | | | | | | | | | | | | | | | | | | | | | |
| | | | | commitments | | | | | 2,406 | | | 2 | | | ― | | | 3,651 | | | 18 | | | ― |
| | | | | Total | | | | | 27,513 | | | 482 | | | (209) | | | 23,596 | | | 446 | | | (163) |
| | | | | | Total nonhedging derivatives | | | | 65,899 | | | 1,269 | | | (980) | | | 58,749 | | | 1,270 | | | (1,036) |
| Total Derivatives | | | | | | | | $ | 73,266 | | $ | 1,451 | | $ | (1,438) | | $ | 67,581 | | $ | 1,525 | | $ | (1,506) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Derivatives in a gain position are recorded as Other assets and derivatives in a loss position are recorded as Other liabilities on the Consolidated Balance Sheets. | | | | | | | | | | | | | | | | | | | | | | | |
| (2) | Cash flow hedges are hedging the first unhedged forecasted settlements associated with the listed hedged item descriptions. | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
ACL | BB&T uses a variety of derivative instruments to manage
interest rate and foreign exchange risks. These instruments consist of interest-rate swaps, swaptions, caps, floors, collars, financial
forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. A derivative
is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index
or referenced interest rate. There are four areas of risk management addressed through the use of derivatives: balance sheet management,
mortgage banking operations, MSRs and client-related and other risk management activities. No portion of the change in fair value
of the derivative has been excluded from effectiveness testing. The ineffective portion was immaterial for all periods presented.Cash Flow Hedges BB&T’s floating rate business loans, overnight
funding, FHLB advances, medium-term bank notes and long-term debt expose it to variability in cash flows for interest payments.
The risk management objective for these floating rate assets and liabilities is to hedge the variability in the interest payments
and receipts on future cash flows for forecasted transactions. All of BB&T’s current cash flow hedges are hedging exposure
to variability in future cash flows for forecasted transactions related to the payment of variable interest on then existing financial
instruments.For a qualifying cash flow hedge, the portion of changes
in the fair value of the derivatives that has been highly effective is recognized in OCI until the related cash flows from the
hedged item are recognized in earnings. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective,
the gain or loss in OCI is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged
forecasted transaction is no longer probable of occurring during the forecast period or within a short period thereafter, hedge
accounting is ceased and any gain or loss included in OCI is reported in earnings immediately. At December 31, 2012, BB&T had
$173 million of unrecognized after-tax losses on derivatives classified as cash flow hedges recorded in OCI, compared to $159 million
of unrecognized after-tax losses at December 31, 2011.The estimated amount to be reclassified from OCI into earnings
during the next 12 months is a loss totaling approximately $59 million. This includes active hedges and gains and losses related
to hedges that were terminated early for which the forecasted transactions are still probable. The proceeds from these terminations
were included in cash flows from financing activities. Field: Page; Sequence: 134; Value: 2 Fair Value Hedges BB&T’s fixed rate long-term debt, CDs, FHLB advances,
loans and state and political subdivision securities produce exposure to losses in value as interest rates change. The risk management
objective for hedging fixed rate assets and liabilities is to convert the fixed rate paid or received to a floating rate. BB&T
accomplishes its risk management objective by hedging exposure to changes in fair value of fixed rate financial instruments primarily
through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective
as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged
item attributable to the risk being hedged.During the years ended December 31, 2012 and 2011, BB&T
terminated certain fair value hedges related to its long-term debt and municipal securities and received net proceeds of $85 million
and $185 million, respectively. When a hedge has been terminated but the hedged item remains outstanding, the proceeds from the
termination of these hedges have been reflected as part of the carrying value of the underlying debt/other financial instrument
and are being amortized to earnings over its estimated remaining life. The proceeds from these terminations were included in cash
flows from financing activities. During the years ended December 31, 2012 and 2011, BB&T recognized pre-tax benefits of $256
million and $205 million, respectively, through reductions of interest expense from previously unwound fair value debt hedges.Derivatives Not Designated As Hedges Derivatives not designated as hedges are those that are entered
into as either balance sheet risk management instruments or to facilitate client needs. Balance sheet risk management hedges are
those hedges that do not qualify to be treated as a cash flow hedge, a fair value hedge or a foreign currency hedge for accounting
purposes, but are necessary to economically manage the risk associated with an asset or liability.This category of hedges includes derivatives that hedge mortgage
banking operations and MSRs. For mortgage loans originated for sale, BB&T is exposed to changes in market rates and conditions
subsequent to the interest rate lock and funding date. BB&T’s risk management strategy related to its interest rate lock
commitment derivatives and LHFS includes using mortgage-based derivatives such as forward commitments and options in order to mitigate
market risk. For MSRs, BB&T uses various derivative instruments to mitigate the income statement effect of changes in the fair
value of its MSRs. For the year ended December 31, 2012, BB&T recorded a gain of $128 million related to these derivatives,
which was offset by a negative $32 million valuation adjustment related to the MSR. For the year ended December 31, 2011, BB&T
recorded a gain of $394 million related to these derivatives, which was offset by a negative $341 million valuation adjustment
related to the MSR.BB&T also held, as risk management instruments, other
derivatives not designated as hedges primarily to facilitate transactions on behalf of its clients, as well as activities related
to balance sheet management.Derivatives Credit Risk – Dealer CounterpartiesCredit risk related to derivatives arises when amounts receivable
from a counterparty exceed those payable to the same counterparty. BB&T addresses the risk of loss 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 negotiated
limits.As of December 31, 2012, BB&T had received cash collateral
from dealer counterparties totaling $44 million related to derivatives in a gain position of $40 million and had posted $639 million
in cash collateral to dealer counterparties to secure derivatives in a loss position of $650 million. In the event that BB&T’s
credit ratings had been downgraded below investment grade, the amount of collateral posted to these counterparties would have increased
by $12 million. As of December 31, 2011, BB&T had received cash collateral from dealer counterparties totaling $82 million
related to derivatives in a gain position of $79 million and had posted $639 million in cash collateral to dealer counterparties
to secure derivatives in a loss position of $669 million. In the event that BB&T’s credit ratings had been downgraded
below investment grade, the amount of collateral posted to these counterparties would have increased by $30 million.After collateral postings are considered, BB&T had no
unsecured positions in a gain with dealer counterparties at December 31, 2012, compared to $3 million at December 31, 2011. All
of BB&T’s 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 that are national market makers with strong credit ratings. Field: Page; Sequence: 135; Value: 2 Derivatives Credit Risk – Central Clearing PartiesBB&T also clears certain derivatives through central
clearing parties that require initial margin collateral, as well as additional collateral for trades in a net loss position. Initial
margin collateral requirements are established by central clearing parties 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. As of December 31, 2012, BB&T had posted $111 million in cash
collateral, including initial margin, related to the clearing of derivatives in an $11 million net loss position. As of December
31, 2011, BB&T had posted $145 million in cash collateral, including initial margin, related to the clearing of derivatives
in a $60 million net loss position. BB&T had no significant unsecured positions in a gain with central clearing parties at
December 31, 2012.NOTE 20. Computation of EPS
BB&T’s basic and diluted EPS calculations are presented in the following table:
Years Ended December 31,
2012
2011
2010
(Dollars in millions, except per share data,
shares in thousands)
Basic EPS:
Net income available to common shareholders
$
1,916
$
1,289
$
816
Weighted average number of common shares
698,739
696,532
692,489
Basic EPS
$
2.74
$
1.85
$
1.18
Diluted EPS:
Net income available to common shareholders
$
1,916
$
1,289
$
816
Weighted average number of common shares
698,739
696,532
692,489
Add:
Effect of dilutive outstanding equity-based awards
10,138
8,636
8,550
Weighted average number of diluted common shares
708,877
705,168
701,039
Diluted EPS
$
2.70
$
1.83
$
1.16
For the years ended December 31, 2012, 2011 and 2010, the
number of anti-dilutive awards was 36.6 million, 40.9 million and 36.8 million shares, respectively. Field: Page; Sequence: 136; Value: 2 NOTE 21. Operating Segments BB&T's operations are divided into six reportable business
segments: Community Banking, Residential Mortgage Banking, Dealer Financial Services, Specialized Lending, Insurance Services,
and Financial Services. These business segments have been identified based on BB&T’s organizational structure. The segments
require unique technology and marketing strategies and offer different products and services through a number of distinct branded
LOBs. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations
of these business segments.BB&T emphasizes revenue growth by focusing on client
service, sales effectiveness and relationship management along with an organizational focus on referring clients between LOBs.
The business objective is to provide BB&T’s entire suite of products to our clients with the end goal of providing our
clients the best financial experience in the marketplace. The segment results contained herein are presented based on internal
management accounting policies that were designed to support these strategic objectives. Unlike financial accounting, there is
no comprehensive authoritative body of guidance for management accounting equivalent to GAAP. The performance of the segments is
not comparable with BB&T’s consolidated results or with similar information presented by any other financial institution.
Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the
segments would perform if they operated as independent entities.The management accounting process uses various estimates
and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each
segment, BB&T allocates capital, funding charges and credits, an allocated provision for loan and lease losses, certain noninterest
expenses and income tax provisions to each segment, as applicable. To promote revenue growth, certain revenues of Residential Mortgage
Banking, Specialized Lending, Insurance Services, Financial Services and other segments are reflected in noninterest income in
the individual segment results and also allocated to Community Banking and Financial Services. These allocated revenues are reflected
in intersegment net referral fees and eliminated in Other, Treasury & Corporate. Additionally certain client groups of
the Community Bank have also been identified as clients of other LOBs within the business segments. These client groups include
the commercial clients being serviced within the Commercial Finance LOB that is part of the Specialized Lending segment and the
identified wealth and private banking clients of the Wealth Division within the Financial Services segment. The net interest income
and associated net FTP associated with these customers’ loans and deposits is accounted for in the Community Bank in the
respective line categories of net interest income (expense) and net intersegment interest income (expense). For the Commercial
Finance LOB and the Wealth Division, their NIM and net intersegment interest income has been combined in the net intersegment interest
income (expense) line with an appropriate offsetting amount to the Other, Treasury, and Corporate line item to ensure consolidated
totals reflect the Company’s total NIM for loans and deposits. Allocation methodologies are subject to periodic adjustment
as the internal management accounting system is revised and business or product lines within the segments change. Also, because
the development and application of these methodologies is a dynamic process, the financial results presented may be periodically
revised.BB&T utilizes an FTP system to eliminate the effect
of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury function.
The FTP system credits or charges the segments with the economic value or cost of the funds the segments create or use. The FTP
system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The net FTP credit
or charge, which includes intercompany interest income and expense, is reflected as net intersegment income (expense) in the accompanying
tables.The allocated provision for loan and lease losses is also
allocated to the relevant segments based on management’s assessment of the segments’ credit risks. During the first
quarter of 2011, management refined the process related to assigning the allocated provision between the Company’s operating
segments. Unlike the provision for loan and lease losses recorded pursuant to GAAP, the allocated provision is designed to achieve
a higher degree of correlation between the loan loss experience and the GAAP basis provision at the segment level, while at the
same time providing management with a measure of operating performance that gives appropriate consideration to the risks inherent
in each of the Company’s operating segments. Any over or under allocated provision for loan and lease losses is reflected
in Other, Treasury & Corporate to arrive at consolidated results.BB&T allocates expenses to the reportable segments based
on various methodologies, including volume and amount of loans and deposits and the number of full-time equivalent employees. Allocation
systems are refined from time to time along with further identification of certain cost pools. These cost pools and refinements
are implemented to provide for improved managerial reporting of cost to the appropriate business segments. A portion of corporate
overhead expense is not allocated, but is retained in corporate accounts and reflected as Other, Treasury & Corporate
in the accompanying tables. The majority of depreciation expense is recorded in support units and allocated to the segments as
part of allocated corporate expense. Income taxes are allocated to the various segments based on taxable income and statutory rates
applicable to the segment. Field: Page; Sequence: 137; Value: 2 Community Banking Community Banking serves individual and business clients
by offering a variety of loan and deposit products and other financial services. Community Banking is primarily responsible for
serving client relationships and, therefore, is credited with certain revenue from the Residential Mortgage Banking, Financial
Services, Insurance Services, Specialized Lending, and other segments, which is reflected in net referral fees.Residential Mortgage Banking Residential Mortgage Banking retains and services mortgage
loans originated by Community Banking as well as those purchased from various correspondent originators. Mortgage loan products
include fixed and adjustable rate government and conventional loans for the purpose of constructing, purchasing or refinancing
residential properties. Substantially all of the properties are owner occupied. BB&T generally retains the servicing rights
to loans sold. Residential Mortgage Banking earns interest on loans held in the warehouse and portfolio, earns fee income from
the origination and servicing of mortgage loans and recognizes gains or losses from the sale of mortgage loans.Dealer Financial Services Dealer Financial Services originates loans to consumers on
a prime and nonprime basis for the purchase of automobiles. Such loans are originated on an indirect basis through approved franchised
and independent automobile dealers throughout the BB&T market area and nationally through Regional Acceptance Corporation.
This segment also originates loans for the purchase of boats and recreational vehicles originated through dealers in BB&T’s
market area. In addition, financing and servicing to dealers for their inventories is provided through a joint relationship between
Dealer Financial Services and Community Banking.Specialized Lending BB&T's Specialized Lending consists of eight LOBs that
provide specialty finance products to consumers and businesses. These LOBs are a combination of LOBs and operating subsidiaries
of either the Company or Branch Bank. The LOBs include Commercial Finance, which contains commercial finance and mortgage warehouse
lending, and Governmental Finance, which is responsible for tax-exempt government finance. Operating subsidiaries include BB&T
Equipment Finance, which provides equipment leasing largely within BB&T’s banking footprint; Sheffield Financial, a division
of BB&T FSB (merged into Branch Bank on January 1, 2013), a dealer-based financer of equipment for both small businesses and
consumers; Lendmark Financial Services, a direct consumer finance lending company; Prime Rate Premium Finance Corporation, which
includes AFCO and CAFO, insurance premium finance LOBs that provide funding to businesses in the United States and Canada and to
consumers in certain markets within BB&T’s banking footprint; and Grandbridge, a full-service commercial mortgage banking
lender providing loans on a national basis. Branch Bank clients as well as nonbank clients within and outside BB&T’s
primary geographic market area are served by these eight LOBs. The Community Banking segment receives credit for referrals to these
LOBs with the corresponding charge retained as part of Other, Treasury & Corporate in the accompanying tables.Insurance Services BB&T's insurance agency / brokerage network is the eighth
largest in the world. Insurance Services provides property and casualty, life and health insurance to businesses and individuals.
It also provides small business and corporate services, such as workers compensation and professional liability, as well as surety
coverage and title insurance. In addition, Insurance Services underwrites a limited amount of property and casualty coverage. Community
Banking and Financial Services receive credit for insurance commissions on referred accounts, with the corresponding charge retained
in the corporate office, which is reflected as part of Other, Treasury & Corporate in the accompanying tables.Financial Services Financial Services provides personal trust administration,
estate planning, investment counseling, wealth management, asset management, employee benefits services, corporate banking and
corporate trust services to individuals, corporations, institutions, foundations and government entities. Financial Services also
offers clients investment alternatives, including discount brokerage services, equities, fixed-rate and variable-rate annuities,
mutual funds and governmental and municipal bonds through BB&T Investment Services, Inc., a subsidiary of Branch Bank.Financial Services includes a full-service brokerage and
investment banking firm that provides services in retail brokerage, equity and debt underwriting, investment advice, corporate
finance and equity research and facilitates the origination, trading and distribution of fixed-income securities and equity products
in both the public and private capital markets. Financial Field: Page; Sequence: 138; Value: 2 Services also has a public finance department that provides
investment banking services, financial advisory services and municipal bond financing to a variety of regional taxable and tax-exempt
issuers.Financial Services includes a group of BB&T-sponsored
private equity and mezzanine investment funds that invests in privately owned middle-market operating companies to facilitate growth
or ownership transition while leveraging the Community Banking network for referrals and other bank services. Financial Services
also includes the Corporate Banking Division that originates and services large corporate relationships, syndicated lending relationships
and client derivatives. Community Banking receives an interoffice credit for referral fees, with the corresponding charge reflected
as part of Other, Treasury & Corporate in the accompanying tables. Also captured within the net intersegment interest
income for Financial Services is the NIM for the loans and deposits assigned to the Wealth Management Division that are housed
in the Community Bank.Other, Treasury & Corporate Other, Treasury & Corporate is the combination of
the Other segment that represents operating entities that do not meet the quantitative or qualitative thresholds for disclosure;
BB&T’s Treasury function, which is responsible for the management of the securities portfolios, overall balance sheet
funding and liquidity, and overall management of interest rate risk; the corporate support functions that have not been allocated
to the business segments; merger-related charges or credits that are incurred as part of acquisition and conversion of acquired
entities; nonrecurring charges that are considered to be unusual in nature or infrequent and not reflective of the normal operations
of the segments; and intercompany eliminations including intersegment net referral fees and net intersegment interest income (expense).The substantial majority of the loan portfolio acquired in
the Colonial acquisition is covered by loss sharing agreements with the FDIC and is managed outside of the Community Banking segment.
The assets and related interest income from this loan portfolio have an expected finite business life and are therefore included
in the Other, Treasury & Corporate segment. Results for BankAtlantic were included in the Other, Treasury & Corporate
segment until the system conversion in October 2012. Historically, performance results of bank acquisitions prior to system conversion
are reported in this segment and on a post-conversion date are reported in the Community Banking segment.The following table discloses selected financial information
with respect to BB&T's reportable business segments for the years indicated: Field: Page; Sequence: 139; Value: 2 |
| The Effect of Derivative Instruments on the Consolidated Statements of Income | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Years Ended December 31, 2012, 2011 and 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Effective Portion | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Pre-tax Gain (Loss) | | | | | | | | | Location of | | Pre-tax Gain (Loss) Reclassified | | | | | | | |
| | | | | | | | | Recognized in OCI | | | | | | | | | Amounts Reclassified | | from AOCI into Income | | | | | | | |
| | | | | | | | | 2012 | | | 2011 | | | 2010 | | | from AOCI into Income | | 2012 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate contracts | | | | | | | $ | (84) | | $ | (225) | | $ | (233) | | Total interest income | | $ | 11 | | $ | 26 | | $ | 44 |
| | | | | | | | | | | | | | | | | | Total interest expense | | | (72) | | | (72) | | | (29) |
| | | | | | | | | | | | | | | | | | | | $ | (61) | | $ | (46) | | $ | 15 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Pre-tax Gain (Loss) | | | | | | | |
| | | | | | | | | | | | | | | | | | Location of Amounts | | Recognized in Income | | | | | | | |
| | | | | | | | | | | | | | | | | | Recognized in Income | | 2012 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Fair Value Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate contracts | | | | | | | | | | | | | | | | Total interest income | | $ | (21) | | $ | (21) | | $ | (19) |
| | | | | | | | | | | | | | | | | | Total interest expense | | | 288 | | | 314 | | | 179 |
| | | | | | | | | | | | | | | | | | | | $ | 267 | | $ | 293 | | $ | 160 |
| Not Designated as Hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Client-related and other risk management: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Interest rate contracts | | | | | | | | | | | | | | Other income | | $ | 35 | | $ | 10 | | $ | 5 |
| | | | Foreign exchange contracts | | | | | | | | | | | | | | Other income | | | 9 | | | 6 | | | 6 |
| | Mortgage Banking: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate contracts | | | | | | | | | | | | | | | Mortgage banking income | | | 59 | | | (70) | | | 33 |
| | MSRs: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate contracts | | | | | | | | | | | | | | | Mortgage banking income | | | 128 | | | 394 | | | 196 |
| | | | | | | | | | | | | | | | | | | | $ | 231 | | $ | 340 | | $ | 240 |
| TFC/10-K/0000092230-13-000023 |
ACL | Field: Page; Sequence: 140; Value: 2 |
| BB&T Corporation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reportable Segments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, 2012, 2011 and 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Community Banking | | | | | | | | | Residential Mortgage Banking | | | | | | | | | Dealer Financial Services | | | | | | | | | Specialized Lending | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income (expense) | | | | $ | 2,086 | | $ | 1,937 | | $ | 1,771 | | $ | 1,148 | | $ | 1,025 | | $ | 981 | | $ | 845 | | $ | 852 | | $ | 858 | | $ | 701 | | $ | 636 | | $ | 591 |
| Net intersegment interest income (expense) | | | | | 1,342 | | | 1,642 | | | 2,033 | | | (776) | | | (734) | | | (721) | | | (216) | | | (270) | | | (344) | | | (154) | | | (171) | | | (184) |
| Segment net interest income | | | | | 3,428 | | | 3,579 | | | 3,804 | | | 372 | | | 291 | | | 260 | | | 629 | | | 582 | | | 514 | | | 547 | | | 465 | | | 407 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allocated provision for loan and lease losses | | | | | 666 | | | 589 | | | 1,801 | | | 95 | | | 320 | | | 553 | | | 164 | | | 125 | | | 93 | | | 137 | | | 72 | | | 110 |
| Noninterest income | | | | | 1,125 | | | 1,016 | | | 1,200 | | | 753 | | | 349 | | | 457 | | | 7 | | | 7 | | | 4 | | | 228 | | | 211 | | | 176 |
| Intersegment net referral fees (expense) | | | | | 182 | | | 132 | | | 146 | | | (1) | | | ― | | | ― | | | ― | | | ― | | | ― | | | ― | | | ― | | | ― |
| Noninterest expense | | | | | 1,828 | | | 2,354 | | | 2,373 | | | 388 | | | 296 | | | 254 | | | 101 | | | 90 | | | 90 | | | 256 | | | 233 | | | 218 |
| Amortization of intangibles | | | | | 37 | | | 47 | | | 66 | | | ― | | | ― | | | ― | | | 1 | | | 1 | | | 1 | | | 5 | | | 6 | | | 6 |
| Allocated corporate expenses | | | | | 1,025 | | | 899 | | | 799 | | | 54 | | | 48 | | | 33 | | | 36 | | | 37 | | | 37 | | | 79 | | | 72 | | | 62 |
| Income (loss) before income taxes | | | | | 1,179 | | | 838 | | | 111 | | | 587 | | | (24) | | | (123) | | | 334 | | | 336 | | | 297 | | | 298 | | | 293 | | | 187 |
| Provision (benefit) for income taxes | | | | | 427 | | | 302 | | | 35 | | | 221 | | | (9) | | | (46) | | | 126 | | | 127 | | | 112 | | | 63 | | | 58 | | | 19 |
| Segment net income (loss) | | | | $ | 752 | | $ | 536 | | $ | 76 | | $ | 366 | | $ | (15) | | $ | (77) | | $ | 208 | | $ | 209 | | $ | 185 | | $ | 235 | | $ | 235 | | $ | 168 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Identifiable segment assets (period end) | | | | $ | 62,945 | | $ | 61,072 | | $ | 63,244 | | $ | 29,391 | | $ | 25,471 | | $ | 22,183 | | $ | 10,264 | | $ | 9,874 | | $ | 9,418 | | $ | 18,907 | | $ | 16,766 | | $ | 14,945 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Insurance Services | | | | | | | | | Financial Services | | | | | | | | | Other, Treasury and Corporate (1) | | | | | | | | | Total BB&T Corporation | | | | | | | |
| | | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | | | 2012 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income (expense) | | | | $ | 3 | | $ | 3 | | $ | 3 | | $ | 119 | | $ | 107 | | $ | 99 | | $ | 955 | | $ | 947 | | $ | 1,017 | | $ | 5,857 | | $ | 5,507 | | $ | 5,320 |
| Net intersegment interest income (expense) | | | | | 3 | | | 4 | | | 6 | | | 332 | | | 267 | | | 215 | | | (531) | | | (738) | | | (1,005) | | | ― | | | ― | | | ― |
| Segment net interest income | | | | | 6 | | | 7 | | | 9 | | | 451 | | | 374 | | | 314 | | | 424 | | | 209 | | | 12 | | | 5,857 | | | 5,507 | | | 5,320 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allocated provision for loan and lease losses | | | | | ― | | | ― | | | ― | | | 10 | | | (1) | | | 45 | | | (15) | | | 85 | | | 36 | | | 1,057 | | | 1,190 | | | 2,638 |
| Noninterest income | | | | | 1,365 | | | 1,040 | | | 1,033 | | | 725 | | | 694 | | | 657 | | | (383) | | | (204) | | | 430 | | | 3,820 | | | 3,113 | | | 3,957 |
| Intersegment net referral fees (expense) | | | | | ― | | | ― | | | ― | | | 29 | | | 20 | | | 16 | | | (210) | | | (152) | | | (162) | | | ― | | | ― | | | ― |
| Noninterest expense | | | | | 1,015 | | | 786 | | | 774 | | | 641 | | | 574 | | | 527 | | | 1,489 | | | 1,370 | | | 1,312 | | | 5,718 | | | 5,703 | | | 5,548 |
| Amortization of intangibles | | | | | 61 | | | 42 | | | 45 | | | 3 | | | 3 | | | 3 | | | 3 | | | ― | | | 1 | | | 110 | | | 99 | | | 122 |
| Allocated corporate expenses | | | | | 82 | | | 72 | | | 68 | | | 94 | | | 75 | | | 39 | | | (1,370) | | | (1,203) | | | (1,038) | | | ― | | | ― | | | ― |
| Income (loss) before income taxes | | | | | 213 | | | 147 | | | 155 | | | 457 | | | 437 | | | 373 | | | (276) | | | (399) | | | (31) | | | 2,792 | | | 1,628 | | | 969 |
| Provision (benefit) for income taxes | | | | | 69 | | | 46 | | | 52 | | | 171 | | | 164 | | | 139 | | | (313) | | | (392) | | | (196) | | | 764 | | | 296 | | | 115 |
| Segment net income (loss) | | | | $ | 144 | | $ | 101 | | $ | 103 | | $ | 286 | | $ | 273 | | $ | 234 | | $ | 37 | | $ | (7) | | $ | 165 | | $ | 2,028 | | $ | 1,332 | | $ | 854 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Identifiable segment assets (period end) | | | | $ | 3,297 | | $ | 2,350 | | $ | 2,294 | | $ | 9,184 | | $ | 7,413 | | $ | 6,053 | | $ | 49,884 | | $ | 51,633 | | $ | 38,944 | | $ | 183,872 | | $ | 174,579 | | $ | 157,081 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Includes financial data from subsidiaries below the quantitative and qualitative thresholds requiring disclosure. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-13-000023 |
EXHIBIT INDEX | Field: Page; Sequence: 143; Value: 2 |
| Exhibit No. | | Description | | Location |
| --- | --- | --- | --- | --- |
| 2.1 | | Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Colonial Bank, Montgomery, Alabama, the Federal Deposit Insurance Corporation and Branch Banking and Trust Company, dated as of August 14, 2009. | | Incorporated herein by reference to Exhibit 2.1 of the Current Report on Form 8-K, filed August 17, 2009. |
| 3(i) | | Articles of Incorporation of the Registrant, as Restated February 25, 2009, and amended May 10, 2010, April 27, 2012, July 24, 2012 and October 26, 2012. | | Incorporated herein by reference to Exhibit 3 (i) of the Quarterly Report on Form 10-Q, filed November 2, 2012. |
| 3(ii) | | Bylaws of the Registrant, as amended February 21, 2012. | | Incorporated herein by reference to Exhibit 3(ii) of the Current Report on Form 8-K, filed February 24, 2012. |
| 4.1 | | Articles of Incorporation of the Registrant, as Restated February 25, 2009 and amended May 10, 2010, April 27, 2012, July 24, 2012 and October 26, 2012. | | Incorporated herein by reference to Exhibit 3 (i) of the Quarterly Report on Form 10-Q, filed November 2, 2012. |
| 4.2 | | Articles of Incorporation of the Registrant, as Restated February 25, 2009 and amended May 10, 2010, April 27, 2012, July 24, 2012 and October 26, 2012. | | Incorporated herein by reference to Exhibit 3 (i) of the Quarterly Report on Form 10-Q, filed November 2, 2012. |
| 4.3 | | Indenture Regarding Senior Securities (including form of Senior Debt Security) between Registrant and U.S. Bank National Association (as successor in interest to State Street Bank and Trust Company), as trustee, dated as of May 24, 1996. | | Incorporated herein by reference to Exhibit 4(c) of Form S-3 Registration Statement No. 333-02899. |
| 4.4 | | First Supplemental Indenture, dated May 4, 2009, to the Indenture Regarding Senior Securities, dated as of May 24, 1996, between the Registrant and U.S. Bank National Association. | | Incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K, filed May 4, 2009. |
| 4.5 | | Indenture Regarding Subordinated Securities (including Form of Subordinated Debt Security) between the Registrant and U.S. Bank National Association (as successor in interest to State Street Bank and Trust Company), as trustee, dated as of May 24, 1996. | | Incorporated herein by reference to Exhibit 4(d) of Form S-3 Registration Statement No. 333-02899. |
| 4.6 | | First Supplemental Indenture, dated as of December 23, 2003, to the Indenture Regarding Subordinated Securities, dated as of May 24, 1996, between the Registrant and U.S. Bank National Association. | | Incorporated herein by reference to Exhibit 4.5 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 4.7 | | Second Supplemental Indenture, dated as of September 24, 2004, to the Indenture Regarding Subordinated Securities, dated as of May 24, 1996, between the Registrant and U.S. Bank National Association. | | Incorporated herein by reference to Exhibit 4.7 of the Annual Report on Form 10-K, filed February 26, 2010. |
| 4.8 | | Third Supplemental Indenture, dated May 4, 2009, to the Indenture Regarding Subordinated Securities, dated as of May 24, 1996, between the Registrant and U.S. Bank National Association. | | Incorporated herein by reference to Exhibit 4.6 of the Current Report on Form 8-K, filed May 4, 2009. |
| 10.1\* | | BB&T Corporation Amended and Restated Non-Employee Directors’ Deferred Compensation and Stock Option Plan (amended and restated January 1, 2005). | | Incorporated herein by reference to Exhibit 10.1 of the Annual Report on Form 10-K, filed February 28, 2008. |
| TFC/10-K/0000092230-13-000023 |
EXHIBIT INDEX | Field: Page; Sequence: 144; Value: 2 |
| 10.2\*† | | Form of Non-Employee Director Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated Non-Employee Directors’ Deferred Compensation and Stock Option Plan. | | Incorporated herein by reference to Exhibit 10.2 of the Annual Report on Form 10-K, filed February 25, 2011. |
| --- | --- | --- | --- | --- |
| 10.3\* | | BB&T Corporation 1995 Omnibus Stock Incentive Plan (as amended and restated through February 25, 2003). | | Incorporated herein by reference to Exhibit 99 of Form S-8 Registration Statement No. 333-116502. |
| 10.4\* | | 2008 Declaration of Amendment to BB&T Corporation 1995 Omnibus Stock Incentive Plan. | | Incorporated herein by reference to Exhibit 10.2.a of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.5\* | | 409A Declaration of Amendment to BB&T Corporation 1995 Omnibus Stock Incentive Plan. | | Incorporated herein by reference to Exhibit 10.2.b of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.6\* | | Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation 1995 Omnibus Stock Incentive Plan, as amended and restated. | | Incorporated herein by reference to Exhibit 10.5 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.7\* | | BB&T Corporation Amended and Restated 2004 Stock Incentive Plan, as amended (as amended through February 24, 2009). | | Incorporated herein by reference to the Appendix to the Proxy Statement for the 2009 Annual Meeting of Shareholders on Schedule 14A, filed March 13, 2009. |
| 10.8\* | | Form of Restricted Stock Unit Agreement (Performance-Based Vesting Component) for Executive Officers under the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (June 2010 Performance Award). | | Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed June 25, 2010. |
| 10.9\* | | Form of Performance Unit Award Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (3-Year Vesting). | | Incorporated herein by reference to Exhibit 10.6 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| 10.10\* | | Form of Non-Employee Director Restricted Stock Unit Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (5-Year Vesting). | | Incorporated herein by reference to Exhibit 10.6 of the Annual Report on Form 10-K, filed February 28, 2008. |
| 10.11\* | | Form of Non-Employee Director Restricted Stock Unit Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting). | | Incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| 10.12\* | | Form of Non-Employee Director Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (5-Year Vesting). | | Incorporated herein by reference to Exhibit 10.7 of the Annual Report on Form 10-K, filed February 28, 2008. |
| 10.13\* | | Form of Non-Employee Director Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting). | | Incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| |
| TFC/10-K/0000092230-13-000023 |
EXHIBIT INDEX | Field: Page; Sequence: 145; Value: 2 |
| 10.14\* | | Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (5-Year Vesting). | | Incorporated herein by reference to Exhibit 10.8 of the Annual Report on Form 10-K, filed February 28, 2008. |
| --- | --- | --- | --- | --- |
| 10.15\* | | Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting). | | Incorporated herein by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| 10.16\* | | Form of Restricted Stock Unit Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (5-Year Vesting). | | Incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed May 8, 2009. |
| 10.17\* | | Form of Restricted Stock Unit Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting). | | Incorporated herein by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| 10.18\* | | BB&T Corporation Amended and Restated Short-term Incentive Plan. | | Incorporated herein by reference to Exhibit 10.11 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.19\* | | First Amendment to BB&T Corporation Short-term Incentive Plan (January 1, 2009 Restatement). | | Incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed May 7, 2010. |
| 10.20\* | | Southern National Deferred Compensation Plan for Key Executives including amendments. | | Incorporated herein by reference to Exhibit 10.21 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.21\* | | BB&T Corporation Target Pension Plan. | | Incorporated herein by reference to Exhibit 10.13 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.22\* | | First Amendment to the BB&T Corporation Target Pension Plan. | | Incorporated herein by reference to Exhibit 10.23 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.23\*† | | Second Amendment to the BB&T Corporation Target Pension Plan. | | Incorporated herein by reference to Exhibit 10.24 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.24\*† | | Third Amendment to the BB&T Corporation Target Pension Plan. | | Incorporated herein by reference to Exhibit 10.25 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.25\* | | BB&T Corporation Non-Qualified Defined Benefit Plan. | | Incorporated herein by reference to Exhibit 10.14 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.26\* | | First Amendment to the BB&T Corporation Non-Qualified Defined Benefit Plan. | | Incorporated herein by reference to Exhibit 10.25 of the Annual Report on Form 10-K, filed February 25, 2011. |
| |
| TFC/10-K/0000092230-13-000023 |
EXHIBIT INDEX | Field: Page; Sequence: 146; Value: 2 |
| 10.27\*† | | Second Amendment to the BB&T Corporation Non-Qualified Defined Benefit Plan. | | Incorporated herein by reference to Exhibit 10.28 of the Annual Report on Form 10-K, filed February 25, 2011. |
| --- | --- | --- | --- | --- |
| 10.28\*† | | Third Amendment to the BB&T Corporation Non-Qualified Defined Benefit Plan. | | Incorporated herein by reference to Exhibit 10.29 of the Annual Report on Form 10-K, filed February 25, 2011. |
| 10.29\* | | BB&T Corporation Non-Qualified Defined Contribution Plan. | | Incorporated herein by reference to Exhibit 10.15 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.30\* | | BB&T Corporation Non-Qualified Deferred Compensation Trust Amended and Restated effective November 1, 2001 (including amendments). | | Incorporated herein by reference to Exhibit 10.16 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.31\* | | BB&T Corporation Non-Qualified Deferred Compensation Trust Amended and Restated effective November 1, 2001 (including amendments). | | Incorporated herein by reference to Exhibit 10.17 of the Annual Report on Form 10-K, filed February 28, 2008. |
| 10.32\* | | Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting with Clawback Provision). | | Incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed May 4, 2012. |
| 10.33\* | | Form of Employee Restricted Stock Unit Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (4-Year Vesting with Clawback Provision). | | Incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed May 4, 2012. |
| 10.34\* | | Form of Performance Unit Award Agreement for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan (3-Year Vesting 2012 - 2014). | | Incorporated herein by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q, filed May 4, 2012. |
| 10.35\* | | Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation 2012 Incentive Plan. | | Incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed August 7, 2012. |
| 10.36\* | | Form of Employee Restricted Stock Unit Agreement for the BB&T Corporation 2012 Incentive Plan. | | Incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed August 7, 2012. |
| 10.37\* | | Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Kelly S. King dated as of December 19, 2012. | | Incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed December 19, 2012. |
| 10.38\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Christopher L. Henson. | | Incorporated herein by reference to Exhibit 10.21 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.39\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Daryl N. Bible. | | Incorporated herein by reference to Exhibit 10.22 of the Annual Report on Form 10-K, filed February 27, 2009. |
| |
| TFC/10-K/0000092230-13-000023 |
EXHIBIT INDEX | Field: Page; Sequence: 147; Value: 2 |
| 10.40\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Ricky K. Brown. | | Incorporated herein by reference to Exhibit 10.23 of the Annual Report on Form 10-K, filed February 27, 2009. |
| --- | --- | --- | --- | --- |
| 10.41\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Barbara F. Duck. | | Incorporated herein by reference to Exhibit 10.24 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.42\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Donna C. Goodrich. | | Incorporated herein by reference to Exhibit 10.25 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.43\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Robert E. Greene. | | Incorporated herein by reference to Exhibit 10.26 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.44\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Clarke R. Starnes, III. | | Incorporated herein by reference to Exhibit 10.27 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.45\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Steven B. Wiggs. | | Incorporated herein by reference to Exhibit 10.28 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.46\* | | 2008 Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and C. Leon Wilson, III. | | Incorporated herein by reference to Exhibit 10.29 of the Annual Report on Form 10-K, filed February 27, 2009. |
| 10.47\* | | 2012 Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and Cynthia A. Williams | | Incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed November 2, 2012. |
| 10.48\* | | 2012 Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and William R. Yates | | Incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed November 2, 2012. |
| 11 | | Statement re computation of earnings per share | | Filed herewith as Note 20 to the consolidated financial statements. |
| 12† | | Statement re computation of ratios | | Filed herewith. |
| 21† | | Subsidiaries of the Registrant | | Filed herewith. |
| 22 | | Proxy Statement for the Annual Meeting of Shareholders | | Future filing incorporated herein by reference pursuant to General Instruction G(3). |
| 23† | | Consent of Independent Registered Public Accounting Firm | | Filed herewith. |
| 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | Filed herewith. |
| |
| TFC/10-K/0000092230-13-000023 |
Net Interest Income and NIM | (1)Yields are stated on a TE basis utilizing the marginal income tax rates for the periods presented. 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 Federal funds sold, securities purchased under resale agreements or similar arrangements, 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 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TE Net Interest Income and Rate / Volume Analysis (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2016, 2015 and 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 vs. 2015 | | | | | | | | | | | | 2015 vs. 2014 | | | | | | | | | | |
| | | Average Balances (7) | | | | | | | | | | | | Yield/Rate | | | | | | | | | Income/Expense | | | | | | | | | | | | Incr. | | | | Change due to | | | | | | | | Incr. | | | | Change due to | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | | 2015 | | | | 2014 | | | | (Decr.) | | | | Rate | | | | Vol. | | | | (Decr.) | | | | Rate | | | | Vol. | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total securities, at amortized cost: (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury | | $ | 3,061 | | | $ | 2,650 | | | $ | 1,969 | | | 1.67 | % | | 1.58 | % | | 1.51 | % | | $ | 51 | | | $ | 42 | | | $ | 30 | | | $ | 9 | | | $ | 2 | | | $ | 7 | | | $ | 12 | | | $ | 1 | | | $ | 11 | |
| GSE | | 3,601 | | | | 5,338 | | | | 5,516 | | | | 2.13 | | | 2.13 | | | 2.10 | | | 77 | | | | 113 | | | | 116 | | | | (36 | | ) | | — | | | | (36 | | ) | | (3 | | ) | | 2 | | | | (5 | | ) |
| Agency MBS | | 36,658 | | | | 30,683 | | | | 29,504 | | | | 2.05 | | | 1.98 | | | 2.00 | | | 750 | | | | 605 | | | | 589 | | | | 145 | | | | 22 | | | | 123 | | | | 16 | | | | (5 | | ) | | 21 | | |
| States and political subdivisions | | 2,361 | | | | 2,204 | | | | 2,122 | | | | 5.20 | | | 5.65 | | | 5.80 | | | 123 | | | | 125 | | | | 124 | | | | (2 | | ) | | (11 | | ) | | 9 | | | | 1 | | | | (4 | | ) | | 5 | | |
| Non-agency MBS | | 534 | | | | 751 | | | | 883 | | | | 14.56 | | | 13.51 | | | 14.23 | | | 78 | | | | 102 | | | | 126 | | | | (24 | | ) | | 7 | | | | (31 | | ) | | (24 | | ) | | (6 | | ) | | (18 | | ) |
| Other | | 64 | | | | 477 | | | | 547 | | | | 1.87 | | | 1.31 | | | 1.43 | | | — | | | | 7 | | | | 8 | | | | (7 | | ) | | 1 | | | | (8 | | ) | | (1 | | ) | | (1 | | ) | | — | | |
| Total securities | | 46,279 | | | | 42,103 | | | | 40,541 | | | | 2.33 | | | 2.36 | | | 2.45 | | | 1,079 | | | | 994 | | | | 993 | | | | 85 | | | | 21 | | | | 64 | | | | 1 | | | | (13 | | ) | | 14 | | |
| Other earning assets (3) | | 3,202 | | | | 2,768 | | | | 1,881 | | | | 1.64 | | | 1.39 | | | 2.13 | | | 53 | | | | 38 | | | | 40 | | | | 15 | | | | (2 | | ) | | 7 | | | | (2 | | ) | | (17 | | ) | | 15 | | |
| Loans and leases, net of unearned income: (4)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | 50,623 | | | | 44,648 | | | | 39,537 | | | | 3.33 | | | 3.21 | | | 3.35 | | | 1,687 | | | | 1,434 | | | | 1,325 | | | | 253 | | | | 55 | | | | 198 | | | | 109 | | | | (57 | | ) | | 166 | | |
| CRE-income producing properties | | 14,379 | | | | 11,806 | | | | 10,489 | | | | 3.73 | | | 3.66 | | | 3.49 | | | 536 | | | | 432 | | | | 366 | | | | 104 | | | | 8 | | | | 96 | | | | 66 | | | | 35 | | | | 31 | | |
| CRE-construction and development | | 3,742 | | | | 3,196 | | | | 2,616 | | | | 3.71 | | | 3.57 | | | 3.51 | | | 139 | | | | 114 | | | | 92 | | | | 25 | | | | 5 | | | | 20 | | | | 22 | | | | 7 | | | | 15 | | |
| Dealer floor plan | | 1,295 | | | | 1,068 | | | | 985 | | | | 2.08 | | | 1.85 | | | 1.87 | | | 27 | | | | 20 | | | | 18 | | | | 7 | | | | 3 | | | | 4 | | | | 2 | | | | — | | | | 2 | | |
| Direct retail lending (6) | | 11,796 | | | | 9,375 | | | | 8,249 | | | | 4.27 | | | 4.07 | | | 4.10 | | | 503 | | | | 381 | | | | 338 | | | | 122 | | | | 20 | | | | 102 | | | | 43 | | | | (1 | | ) | | 44 | | |
| Sales finance | | 9,914 | | | | 9,975 | | | | 9,022 | | | | 3.12 | | | 2.86 | | | 2.80 | | | 310 | | | | 286 | | | | 253 | | | | 24 | | | | 26 | | | | (2 | | ) | | 33 | | | | 6 | | | | 27 | | |
| Revolving credit | | 2,521 | | | | 2,406 | | | | 2,385 | | | | 8.77 | | | 8.76 | | | 8.70 | | | 221 | | | | 211 | | | | 208 | | | | 10 | | | | — | | | | 10 | | | | 3 | | | | 1 | | | | 2 | | |
| Residential mortgage (6) | | 30,184 | | | | 30,252 | | | | 31,528 | | | | 4.05 | | | 4.15 | | | 4.20 | | | 1,224 | | | | 1,255 | | | | 1,325 | | | | (31 | | ) | | (28 | | ) | | (3 | | ) | | (70 | | ) | | (16 | | ) | | (54 | | ) |
| Other lending subsidiaries | | 14,277 | | | | 12,291 | | | | 10,848 | | | | 8.22 | | | 8.68 | | | 9.08 | | | 1,173 | | | | 1,067 | | | | 985 | | | | 106 | | | | (59 | | ) | | 165 | | | | 82 | | | | (45 | | ) | | 127 | | |
| PCI | | 1,063 | | | | 1,083 | | | | 1,613 | | | | 19.55 | | | 16.57 | | | 17.22 | | | 208 | | | | 179 | | | | 278 | | | | 29 | | | | 32 | | | | (3 | | ) | | (99 | | ) | | (10 | | ) | | (89 | | ) |
| Total loans and leases HFI | | 139,794 | | | | 126,100 | | | | 117,272 | | | | 4.31 | | | 4.27 | | | 4.42 | | | 6,028 | | | | 5,379 | | | | 5,188 | | | | 649 | | | | 62 | | | | 587 | | | | 191 | | | | (80 | | ) | | 271 | | |
| LHFS | | 1,965 | | | | 1,702 | | | | 1,558 | | | | 3.34 | | | 3.63 | | | 4.19 | | | 66 | | | | 62 | | | | 65 | | | | 4 | | | | (5 | | ) | | 9 | | | | (3 | | ) | | (9 | | ) | | 6 | | |
| Total loans and leases | | 141,759 | | | | 127,802 | | | | 118,830 | | | | 4.30 | | | 4.26 | | | 4.42 | | | 6,094 | | | | 5,441 | | | | 5,253 | | | | 653 | | | | 57 | | | | 596 | | | | 188 | | | | (89 | | ) | | 277 | | |
| Total earning assets | | 191,240 | | | | 172,673 | | | | 161,252 | | | | 3.78 | | | 3.75 | | | 3.90 | | | 7,226 | | | | 6,473 | | | | 6,286 | | | | 753 | | | | 76 | | | | 667 | | | | 187 | | | | (119 | | ) | | 306 | | |
| Nonearning assets | | 27,705 | | | | 24,674 | | | | 23,843 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 218,945 | | | $ | 197,347 | | | $ | 185,095 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest checking | | $ | 27,595 | | | $ | 22,092 | | | $ | 18,731 | | | 0.14 | | | 0.08 | | | 0.07 | | | $ | 39 | | | $ | 18 | | | $ | 13 | | | $ | 21 | | | $ | 16 | | | $ | 5 | | | $ | 5 | | | $ | 2 | | | $ | 3 | |
| Money market and savings | | 62,966 | | | | 56,592 | | | | 49,728 | | | | 0.20 | | | 0.19 | | | 0.15 | | | 123 | | | | 107 | | | | 74 | | | | 16 | | | | 5 | | | | 11 | | | | 33 | | | | 22 | | | | 11 | | |
| Time deposits | | 16,619 | | | | 16,405 | | | | 22,569 | | | | 0.51 | | | 0.66 | | | 0.67 | | | 85 | | | | 107 | | | | 151 | | | | (22 | | ) | | (23 | | ) | | 1 | | | | (44 | | ) | | (1 | | ) | | (43 | | ) |
| Foreign office deposits - interest-bearing | | 1,034 | | | | 593 | | | | 722 | | | | 0.38 | | | 0.12 | | | 0.07 | | | 4 | | | | 1 | | | | 1 | | | | 3 | | | | 2 | | | | 1 | | | | — | | | | — | | | | — | | |
| Total interest-bearing deposits | | 108,214 | | | | 95,682 | | | | 91,750 | | | | 0.23 | | | 0.24 | | | 0.26 | | | 251 | | | | 233 | | | | 239 | | | | 18 | | | | — | | | | 18 | | | | (6 | | ) | | 23 | | | | (29 | | ) |
| Short-term borrowings | | 2,554 | | | | 3,221 | | | | 3,421 | | | | 0.35 | | | 0.15 | | | 0.13 | | | 9 | | | | 5 | | | | 5 | | | | 4 | | | | 5 | | | | (1 | | ) | | — | | | | — | | | | — | | |
| Long-term debt | | 22,791 | | | | 23,343 | | | | 22,210 | | | | 2.13 | | | 2.13 | | | 2.36 | | | 485 | | | | 497 | | | | 525 | | | | (12 | | ) | | — | | | | (12 | | ) | | (28 | | ) | | (54 | | ) | | 26 | | |
| Total interest-bearing liabilities | | 133,559 | | | | 122,246 | | | | 117,381 | | | | 0.56 | | | 0.60 | | | 0.65 | | | 745 | | | | 735 | | | | 769 | | | | 10 | | | | 5 | | | | 5 | | | | (34 | | ) | | (31 | | ) | | (3 | | ) |
| Noninterest-bearing deposits | | 49,255 | | | | 42,816 | | | | 37,327 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other liabilities | | 6,776 | | | | 6,414 | | | | 6,433 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders’ equity | | 29,355 | | | | 25,871 | | | | 23,954 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 218,945 | | | $ | 197,347 | | | $ | 185,095 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average interest rate spread | | | | | | | | | | | | | | 3.22 | % | | 3.15 | % | | 3.25 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NIM / net interest income | | | | | | | | | | | | | | 3.39 | % | | 3.32 | % | | 3.42 | % | | $ | 6,481 | | | $ | 5,738 | | | $ | 5,517 | | | $ | 743 | | | $ | 71 | | | $ | 662 | | | $ | 221 | | | $ | (88 | ) | | $ | 309 | |
| TE adjustment | | | | | | | | | | | | | | | | | | | | | | | $ | 160 | | | $ | 146 | | | $ | 143 | | | | | | | | | | | | | | | | | | | | | | | | | |
| TFC/10-K/0000092230-17-000021 |
Noninterest Income | Noninterest income was a record $4.5 billion for 2016, an increase of $453 million compared to 2015. This increase was across all categories and primarily reflects the impact from acquisitions.Income from BB&T’s insurance agency/brokerage operations was the largest source of noninterest income in 2016. Insurance income totaled $1.7 billion for 2016, an increase of $117 million compared to 2015. The increase was largely the result of the acquisition of Swett and Crawford on April 1, 2016, which was partially offset by the impact from selling American Coastal in 2015.FDIC loss share income improved by $111 million, primarily due to the termination of the loss sharing agreements during the third quarter of 2016. Other income totaled $362 million for 2016, an increase of $36 million from 2015. This increase is primarily due to the $26 million loss on sale of American Coastal during the second quarter of 2015, $19 million for client derivatives revenues and $10 million of trading gains. These increases were partially offset by lower partnerships and other investment income, which was the result of an opportunistic sale that resulted in a $28 million gain during the third quarter of 2015.Noninterest income was $4.0 billion for 2015, an increase of $163 million compared to 2014. This increase was driven by improved FDIC loss share income, higher mortgage banking income and higher operating lease income, partially offset by lower insurance income and lower other income.FDIC loss share income improved by $90 million, primarily due to a $58 million reduction in negative accretion related to credit losses on covered loans and a $20 million change in the offset to the provision for covered loans. Mortgage banking income increased $60 million, primarily due to higher volume and $17 million of higher MSR valuation adjustments.Operating lease income increased $29 million, primarily due to a larger leasing portfolio size as this business has continued to demonstrate steady growth.Income from BB&T’s insurance agency/brokerage operations was the largest source of noninterest income in 2015. Insurance income totaled $1.6 billion for 2015, a decline of $47 million compared to 2014. The second quarter sale of American Coastal resulted in a $79 million decline in insurance income, which was partially offset by higher volume in the property and casualty business.Other income totaled $326 million for 2015, a decline of $23 million from 2014. This decline is primarily due to the $26 million loss on sale of American Coastal during the second quarter of 2015 and $18 million of lower income related to assets for certain post-employment benefits (which is offset in personnel expense). These declines were partially offset by higher partnerships and other investment income, which was the result of an opportunistic sale that resulted in a $28 million gain during the third quarter of 2015. |
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| | | | | | | | | | | | | | | | | | | |
| Table 6 | | | | | | | | | | | | | | | | | | |
| Noninterest Income | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | | | | | | | | | % Change | | | | |
| | | | 2016 vs. 2015 | | | 2015 vs. 2014 | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | |
| Insurance income | | $ | 1,713 | | | $ | 1,596 | | | $ | 1,643 | | | 7.3 | % | | (2.9 | )% |
| Service charges on deposits | | 664 | | | | 631 | | | | 632 | | | | 5.2 | | | (0.2 | ) |
| Mortgage banking income | | 463 | | | | 455 | | | | 395 | | | | 1.8 | | | 15.2 | |
| Investment banking and brokerage fees and commissions | | 408 | | | | 398 | | | | 387 | | | | 2.5 | | | 2.8 | |
| Trust and investment advisory revenues | | 266 | | | | 240 | | | | 221 | | | | 10.8 | | | 8.6 | |
| Bankcard fees and merchant discounts | | 237 | | | | 218 | | | | 207 | | | | 8.7 | | | 5.3 | |
| Checkcard fees | | 195 | | | | 174 | | | | 163 | | | | 12.1 | | | 6.7 | |
| Operating lease income | | 137 | | | | 124 | | | | 95 | | | | 10.5 | | | 30.5 | |
| Income from bank-owned life insurance | | 123 | | | | 113 | | | | 110 | | | | 8.8 | | | 2.7 | |
| FDIC loss share income, net | | (142 | | ) | | (253 | | ) | | (343 | | ) | | (43.9 | ) | | (26.2 | ) |
| Securities gains (losses), net | | 46 | | | | (3 | | ) | | (3 | | ) | | NM | | | — | |
| Other income | | 362 | | | | 326 | | | | 349 | | | | 11.0 | | | (6.6 | ) |
| Total noninterest income | | $ | 4,472 | | | $ | 4,019 | | | $ | 3,856 | | | 11.3 | | | 4.2 | |
| TFC/10-K/0000092230-17-000021 |
Noninterest Expense | Noninterest expense totaled $6.7 billion for 2016, an increase of $455 million from 2015. This increase was primarily driven by higher personnel expense. Personnel expense is the largest component of noninterest expense and includes salaries, wages and incentives, as well as pension and other employee benefit costs. Personnel expense totaled $4.0 billion, a $495 million increase compared to 2015. This increase was driven by a $284 million increase in salaries, which was primarily due to additional headcount from acquisitions. Incentives expense was higher $110 million due to performance against targets and acquisitions. Personnel expense also increased due to a $48 million increase in pension expense that reflects higher amortization, service and interest costs. Additionally, personnel expense reflects a $26 million increase in payroll taxes as a result of higher salaries and incentives.Loss on early extinguishment of debt was down $173 million for 2016, as the prior year included a loss of $172 million, compared to a small gain for 2016.Occupancy and equipment expense totaled $786 million for 2016, compared to $708 million for 2015. The increase reflects the acquisition activity. Software expense was higher $32 million compared to 2015, primarily reflecting higher depreciation on recent investments.Outside IT services expense totaled $186 million for 2016, compared to $135 million in the prior year. This increase was due to higher costs related to projects.Loan-related expense totaled $95 million for 2016, a decrease of $55 million compared to the prior year. This decrease is largely the result of a release of $31 million in reserves during the fourth quarter of 2016, which was primarily driven by lower anticipated loan repurchase requests.Regulatory charges totaled $145 million for 2016, an increase of $44 million compared to the prior year. This increase reflects the impact from acquisitions and the surcharge assessed to large banks, which was implemented in the third quarter of 2016.Other expense decreased $40 million primarily due to a net benefit of $73 million in the third quarter related to the settlement of certain legacy mortgage matters involving the origination of mortgage loans insured by the FHA. In addition, business referral expense decreased $16 million primarily due to the sale of American Coastal in the prior year. Partially offsetting these decreases was a $50 million charitable contribution that was also made in the third quarter.Noninterest expense totaled $6.3 billion for 2015, an increase of $414 million from 2014. This increase was driven by higher personnel expense, merger-related and restructuring charges and loss on early extinguishment of debt, partially offset by lower loan-related expense.Personnel expense totaled $3.5 billion, a $289 million increase compared to 2014. This increase was driven by a $114 million increase in salaries, which was primarily due to additional headcount from acquisitions. Personnel expense also increased due to a $74 million increase in pension expense that reflects higher amortization, service and interest costs, partially offset by the estimated return on higher plan assets. Additionally, personnel expense reflects a $50 million increase in employee medical and insurance benefits and a $32 million increase in incentives.Merger-related and restructuring charges totaled $165 million, an increase of $119 million compared to 2014. This increase was primarily related to the Susquehanna acquisition, with additional amounts related to The Bank of Kentucky and the planned acquisition of National Penn.Loss on early extinguishment of debt was $172 million for 2015, compared to $122 million for 2014. The combined debt extinguishments for the two years totaled $2.0 billion of FHLB advances with a weighted average interest rate of 4.5%.Occupancy and equipment expense totaled $708 million for 2015, compared to $682 million for 2014. The increase reflects the acquisition activity occurring during the year.Loan-related expense totaled $150 million for 2015, a decrease of $117 million compared to the prior year. This decrease is largely the result of lower claims and charge-offs in the current year, as well as charges recorded in the prior year of $33 million related to the FHA-insured loan origination process and $27 million related to a review of mortgage lending processes. |
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| Table 7 | | | | | | | | | | | | | | | | | | |
| Noninterest Expense | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | | | | | | | | | % Change | | | | |
| | | | 2016 vs. 2015 | | | 2015 vs. 2014 | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | |
| Personnel expense | | $ | 3,964 | | | $ | 3,469 | | | $ | 3,180 | | | 14.3 | % | | 9.1 | % |
| Occupancy and equipment expense | | 786 | | | | 708 | | | | 682 | | | | 11.0 | | | 3.8 | |
| Software expense | | 224 | | | | 192 | | | | 174 | | | | 16.7 | | | 10.3 | |
| Outside IT services | | 186 | | | | 135 | | | | 115 | | | | 37.8 | | | 17.4 | |
| Amortization of intangibles | | 150 | | | | 105 | | | | 91 | | | | 42.9 | | | 15.4 | |
| Regulatory charges | | 145 | | | | 101 | | | | 106 | | | | 43.6 | | | (4.7 | ) |
| Professional services | | 102 | | | | 130 | | | | 139 | | | | (21.5 | ) | | (6.5 | ) |
| Loan-related expense | | 95 | | | | 150 | | | | 267 | | | | (36.7 | ) | | (43.8 | ) |
| Merger-related and restructuring charges, net | | 171 | | | | 165 | | | | 46 | | | | 3.6 | | | NM | |
| Loss (gain) on early extinguishment of debt | | (1 | | ) | | 172 | | | | 122 | | | | (100.6 | ) | | 41.0 | |
| Other expense | | 899 | | | | 939 | | | | 930 | | | | (4.3 | ) | | 1.0 | |
| Total noninterest expense | | $ | 6,721 | | | $ | 6,266 | | | $ | 5,852 | | | 7.3 | | | 7.1 | |
| TFC/10-K/0000092230-17-000021 |
Merger-Related and Restructuring Charges | The 2016 costs primarily reflect the acquisitions of National Penn and Swett & Crawford, while the 2015 activities were largely related to Susquehanna. |
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| Table 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Merger-related and Restructuring Accrual Activity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2016 | | | | | | | | | | | | | | | | Year Ended December 31, 2015 | | | | | | | | | | | | | | |
| | | Beginning Balance | | | | Expense | | | | Utilized | | | | Ending Balance | | | | Beginning Balance | | | | Expense | | | | Utilized | | | | Ending Balance | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance and personnel-related | | $ | 26 | | | $ | 51 | | | $ | (52 | ) | | $ | 25 | | | $ | 2 | | | $ | 60 | | | $ | (36 | ) | | $ | 26 | |
| Occupancy and equipment | | 11 | | | | 49 | | | | (39 | | ) | | 21 | | | | 7 | | | | 16 | | | | (12 | | ) | | 11 | | |
| Professional services | | 13 | | | | 14 | | | | (26 | | ) | | 1 | | | | 17 | | | | 34 | | | | (38 | | ) | | 13 | | |
| Systems conversion and related costs | | — | | | | 27 | | | | (26 | | ) | | 1 | | | | — | | | | 25 | | | | (25 | | ) | | — | | |
| Other adjustments | | 2 | | | | 30 | | | | (31 | | ) | | 1 | | | | 5 | | | | 30 | | | | (33 | | ) | | 2 | | |
| Total | | $ | 52 | | | $ | 171 | | | $ | (174 | ) | | $ | 49 | | | $ | 31 | | | $ | 165 | | | $ | (144 | ) | | $ | 52 | |
| TFC/10-K/0000092230-17-000021 |
Investment Activities | The securities portfolio totaled $43.6 billion at December 31, 2016, compared to $43.8 billion at December 31, 2015. The overall portfolio was relatively flat compared to the prior year, with a slight change in the mix between AFS and HTM as new purchases and reinvestments were directed to the AFS portfolio.As of December 31, 2016, approximately 7.5% of the securities portfolio was variable rate, compared to 12.4% as of December 31, 2015. The effective duration of the securities portfolio was 4.8 years at December 31, 2016, compared to 4.0 years at the end of 2015. The duration of the securities portfolio excludes equity securities and certain non-agency MBS acquired from the FDIC.Agency MBS represented 79.1% of the total securities portfolio at year-end 2016, compared to 73.7% as of prior year end. BB&T transferred $517 million of HTM securities to AFS during the third quarter of 2015. These securities, which were sold by the end of the third quarter, represented investments in student loans for which there was a significant increase in risk weighting as a result of the implementation of Basel III. |
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| Table 9 | | | | | | | | | | | | |
| Composition of Securities Portfolio | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | |
| | | (Dollars in millions) | | | | | | | | | | |
| AFS securities (at fair value): | | | | | | | | | | | | |
| U.S. Treasury | | $ | 2,587 | | | $ | 1,832 | | | $ | 1,231 | |
| GSE | | 180 | | | | 51 | | | | — | | |
| Agency MBS | | 21,264 | | | | 20,046 | | | | 16,154 | | |
| States and political subdivisions | | 2,205 | | | | 2,375 | | | | 2,286 | | |
| Non-agency MBS | | 679 | | | | 989 | | | | 1,195 | | |
| Other | | 11 | | | | 4 | | | | 41 | | |
| Total AFS securities | | 26,926 | | | | 25,297 | | | | 20,907 | | |
| | | | | | | | | | | | | |
| HTM securities (at amortized cost): | | | | | | | | | | | | |
| U.S. Treasury | | 1,098 | | | | 1,097 | | | | 1,096 | | |
| GSE | | 2,197 | | | | 5,045 | | | | 5,394 | | |
| Agency MBS | | 13,225 | | | | 12,267 | | | | 13,120 | | |
| States and political subdivisions | | 110 | | | | 63 | | | | 22 | | |
| Other | | 50 | | | | 58 | | | | 608 | | |
| Total HTM securities | | 16,680 | | | | 18,530 | | | | 20,240 | | |
| Total securities | | $ | 43,606 | | | $ | 43,827 | | | $ | 41,147 | |
| TFC/10-K/0000092230-17-000021 |
Investment Activities | (1)Yields represent interest computed using the effective interest method on a TE basis using marginal income tax rates and the amortized cost of the securities.(2)For purposes of the maturity table, MBS, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity. The expected life of MBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans.(3)Weighted-average yield excludes the effect of pay-fixed swaps hedging municipal securities. |
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| Table 10 | | | | | | | | | | | | | | |
| Securities Yields By Major Category and Maturity | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | December 31, 2016 | | | | | | | | | | | | |
| | | AFS | | | | | | | HTM | | | | | |
| | | Fair Value | | | | Effective Yield (1) | | | Amortized Cost | | | | Effective Yield (1) | |
| | | (Dollars in millions) | | | | | | | | | | | | |
| U.S. Treasury: | | | | | | | | | | | | | | |
| Within one year | | $ | 246 | | | 0.75 | % | | $ | — | | | — | % |
| One to five years | | 696 | | | | 1.23 | | | 1,098 | | | | 2.21 | |
| Five to ten years | | 1,645 | | | | 1.40 | | | — | | | | — | |
| Total | | 2,587 | | | | 1.29 | | | 1,098 | | | | 2.21 | |
| | | | | | | | | | | | | | | |
| GSE: | | | | | | | | | | | | | | |
| One to five years | | — | | | | — | | | 582 | | | | 2.29 | |
| Five to ten years | | 167 | | | | 1.49 | | | 1,615 | | | | 2.18 | |
| After ten years | | 13 | | | | 2.60 | | | — | | | | — | |
| Total | | 180 | | | | 1.57 | | | 2,197 | | | | 2.21 | |
| | | | | | | | | | | | | | | |
| Agency MBS: (2) | | | | | | | | | | | | | | |
| One to five years | | 4 | | | | 3.69 | | | — | | | | — | |
| Five to ten years | | 9 | | | | 2.22 | | | — | | | | — | |
| After ten years | | 21,251 | | | | 1.99 | | | 13,225 | | | | 2.26 | |
| Total | | 21,264 | | | | 1.99 | | | 13,225 | | | | 2.26 | |
| | | | | | | | | | | | | | | |
| States and political subdivisions: (3) | | | | | | | | | | | | | | |
| Within one year | | 18 | | | | 5.19 | | | — | | | | — | |
| One to five years | | 318 | | | | 5.91 | | | 3 | | | | 2.12 | |
| Five to ten years | | 759 | | | | 5.62 | | | 73 | | | | 1.16 | |
| After ten years | | 1,110 | | | | 6.33 | | | 34 | | | | 1.45 | |
| Total | | 2,205 | | | | 6.02 | | | 110 | | | | 1.28 | |
| | | | | | | | | | | | | | | |
| Non-agency MBS: (2) | | | | | | | | | | | | | | |
| After ten years | | 679 | | | | 18.12 | | | — | | | | — | |
| Total | | 679 | | | | 18.12 | | | — | | | | — | |
| | | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | | |
| Within one year | | 11 | | | | 0.17 | | | — | | | | — | |
| After ten years | | — | | | | — | | | 50 | | | | 2.16 | |
| Total | | 11 | | | | 0.17 | | | 50 | | | | 2.16 | |
| | | | | | | | | | | | | | | |
| Total securities | | $ | 26,926 | | | 2.66 | | | $ | 16,680 | | | 2.24 | |
| TFC/10-K/0000092230-17-000021 |
Lending Activities | Average loans held for investment for the fourth quarter of 2016 were $142.3 billion, up $1.1 billion compared to the third quarter of 2016. The increase was driven by sales finance loans. There was also modest growth in other lending subsidiaries loans, which was offset by a continued decline in residential mortgage loans.Average sales finance loans increased $1.3 billion, primarily due to a $1.0 billion portfolio acquisition late in the third quarter of 2016 and a $1.9 billion portfolio acquisition in the fourth quarter. These increases were partially offset by the continued effects of dealer pricing structure changes implemented during 2015 and also reflect the continued runoff of the auto lease portfolio obtained in connection with the Susquehanna acquisition.The following table excludes sales finance and retail other lending subsidiaries loans as the substantial majority of those loans have fixed interest rates: |
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| Table 11 | | | | | | | | | | | | | | | | | | | | |
| Quarterly Average Balances of Loans and Leases | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | 12/31/2016 | | | | 9/30/2016 | | | | 6/30/2016 | | | | 3/31/2016 | | | | 12/31/2015 | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 51,306 | | | $ | 51,508 | | | $ | 51,646 | | | $ | 48,013 | | | $ | 48,047 | |
| CRE-income producing properties | | 14,566 | | | | 14,667 | | | | 14,786 | | | | 13,490 | | | | 13,264 | | |
| CRE-construction and development | | 3,874 | | | | 3,802 | | | | 3,669 | | | | 3,619 | | | | 3,766 | | |
| Dealer floor plan | | 1,367 | | | | 1,268 | | | | 1,305 | | | | 1,239 | | | | 1,164 | | |
| Direct retail lending | | 12,046 | | | | 11,994 | | | | 12,031 | | | | 11,107 | | | | 10,896 | | |
| Sales finance | | 10,599 | | | | 9,339 | | | | 9,670 | | | | 10,049 | | | | 10,533 | | |
| Revolving credit | | 2,608 | | | | 2,537 | | | | 2,477 | | | | 2,463 | | | | 2,458 | | |
| Residential mortgage | | 30,044 | | | | 30,357 | | | | 30,471 | | | | 29,864 | | | | 30,334 | | |
| Other lending subsidiaries | | 14,955 | | | | 14,742 | | | | 13,961 | | | | 13,439 | | | | 13,281 | | |
| PCI | | 974 | | | | 1,052 | | | | 1,130 | | | | 1,098 | | | | 1,070 | | |
| Total loans and leases HFI | | 142,339 | | | | 141,266 | | | | 141,146 | | | | 134,381 | | | | 134,813 | | |
| LHFS | | 2,230 | | | | 2,423 | | | | 1,951 | | | | 1,247 | | | | 1,377 | | |
| Total loans and leases | | $ | 144,569 | | | $ | 143,689 | | | $ | 143,097 | | | $ | 135,628 | | | $ | 136,190 | |
| TFC/10-K/0000092230-17-000021 |
Lending Activities | (1)The weighted average remaining term for dealer floor plan is excluded as the balance primarily represents loans that are callable on demand.(2)Margin loans totaling $90 million have been excluded because they do not have a contractual end date and are callable on demand.As of December 31, 2016, approximately $258 million of variable rate residential mortgage loans are currently in an interest-only phase. Approximately 94.8% of these balances will begin amortizing within the next three years. Variable rate residential mortgage loans typically reset every 12 months beginning after a 3 to 10 year fixed period, with an annual cap on rate changes ranging from 2.0% to 6.0%.As of December 31, 2016, the direct retail lending portfolio includes $8.7 billion of variable rate home equity lines, $946 million of variable rate other lines of credit and $326 million of variable rate loans. 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 $788 million of the outstanding balance of variable rate other lines of credit is in the interest-only phase and 23.2% 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. BB&T monitors the performance of its home equity loans and lines secured by second liens similarly to other consumer loans and utilizes assumptions specific to these loans in determining the necessary ALLL. BB&T also receives notification when the first lien holder, whether BB&T or another financial institution, has initiated foreclosure proceedings against the borrower. When notified that the first lien is in the process of foreclosure, BB&T obtains valuations to determine if any additional charge-offs or reserves are warranted. These valuations are updated at least annually thereafter.BB&T has limited ability to monitor the delinquency status of the first lien, unless the first lien is held or serviced by BB&T. As a result, using migration assumptions that are based on historical experience and adjusted for current trends, BB&T estimates the volume of second lien positions where the first lien is delinquent and adjusts the ALLL to reflect the increased risk of loss on these credits. Finally, BB&T also provides additional reserves to second lien positions when the estimated combined current loan to value ratio for the credit exceeds 100%. As of December 31, 2016, BB&T held or serviced the first lien on 31.5% of its second lien positions.Scheduled repayments are reported in the maturity category in which the payment is due. Determinations of maturities are based on contract terms. BB&T’s credit policy typically does not permit automatic renewal of loans. At the scheduled maturity date (including balloon payment date), the customer generally must request a new loan to replace the matured loan and execute either a new note or note modification with rate, terms and conditions negotiated at that time.BB&T lends to a diverse customer base that is substantially located within the Company’s primary market area. At the same time, the loan portfolio is geographically dispersed throughout BB&T’s branch network to mitigate concentration risk arising from local and regional economic downturns. Refer to the "Risk Management" section for a discussion of each of the loan portfolios and the credit risk management policies used to manage the portfolios.The following table presents the loan portfolio based upon BB&T’s BUs: |
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| Table 12 | | | | | | | | | | | |
| Variable Rate Loans (Excluding PCI and LHFS) | | | | | | | | | | | |
| | | | | | | | | | | | |
| December 31, 2016 | | Outstanding Balance | | | | Wtd. Avg. Contractual Rate | | | Wtd. Avg. Remaining Term | | |
| | | (Dollars in millions) | | | | | | | | | |
| Commercial: | | | | | | | | | | | |
| Commercial and industrial | | $ | 35,851 | | | 2.60 | % | | 3.0 | | yrs |
| CRE-income producing properties | | 10,755 | | | | 3.27 | | | 4.6 | | |
| CRE-construction and development | | 3,597 | | | | 3.56 | | | 2.7 | | |
| Dealer floor plan (1) | | 1,413 | | | | 2.08 | | | NM | | |
| Other lending subsidiaries | | 797 | | | | 2.70 | | | 1.8 | | |
| Retail: | | | | | | | | | | | |
| Direct retail lending (2) | | 9,945 | | | | 3.72 | | | 8.4 | | |
| Revolving credit | | 2,352 | | | | 9.79 | | | NM | | |
| Residential mortgage-nonguaranteed | | 5,805 | | | | 3.50 | | | 24.6 | | |
| Residential mortgage-government guaranteed | | 25 | | | | 3.05 | | | 19.2 | | |
| TFC/10-K/0000092230-17-000021 |
Lending Activities | (1) During the first quarter of 2014, $8.3 billion of loans were transferred from direct retail lending to residential mortgage.Loans and leases HFI were $143.3 billion at December 31, 2016, an increase of $7.4 billion compared to the prior year. This increase reflects the impact of the April 1, 2016 acquisition of National Penn, which contributed $6.0 billion in loans. Commercial and industrial loans were up $3.3 billion, other lending subsidiaries loans were up $1.5 billion, CRE-income producing properties loans were up $1.1 billion and direct retail lending loans were up $952 million, all of which were primarily due to the acquisition of National Penn. Sales finance loans were up $940 million over the prior year, primarily due to a $1.0 billion portfolio acquisition late in the third quarter of 2016 and a $1.9 billion portfolio acquisition during the fourth quarter. These increases were partially offset by the continued effects of dealer pricing structure changes implemented during 2015 and also reflect the continued runoff of the auto lease portfolio obtained in connection with the Susquehanna acquisition.The $612 million decline in residential mortgage balances reflects the continuing strategy to sell conforming residential mortgage loan production.The PCI loan portfolio, which totaled $910 million at December 31, 2016, continued to runoff during the year, partially offset by the addition of $124 million of PCI loans in connection with the National Penn acquisition.The majority of loans are with clients in domestic market areas, which are primarily concentrated in the southeastern United States. International loans were immaterial as of December 31, 2016 and 2015. |
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| | | | | | | | | | | | | | | | | | | | | |
| Table 13 | | | | | | | | | | | | | | | | | | | | |
| Composition of Loan and Lease Portfolio | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Commercial: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 51,719 | | | $ | 48,430 | | | $ | 41,454 | | | $ | 38,508 | | | $ | 38,295 | |
| CRE-income producing properties | | 14,538 | | | | 13,421 | | | | 10,722 | | | | 10,228 | | | | 9,861 | | |
| CRE-construction and development | | 3,819 | | | | 3,732 | | | | 2,735 | | | | 2,382 | | | | 2,861 | | |
| Dealer floor plan | | 1,413 | | | | 1,215 | | | | 1,091 | | | | 904 | | | | 431 | | |
| Other lending subsidiaries | | 7,691 | | | | 6,795 | | | | 5,356 | | | | 4,502 | | | | 4,138 | | |
| Retail: | | | | | | | | | | | | | | | | | | | | |
| Direct retail lending (1) | | 12,092 | | | | 11,140 | | | | 8,146 | | | | 15,869 | | | | 15,817 | | |
| Sales finance | | 11,267 | | | | 10,327 | | | | 9,509 | | | | 8,478 | | | | 7,305 | | |
| Revolving credit | | 2,655 | | | | 2,510 | | | | 2,460 | | | | 2,403 | | | | 2,330 | | |
| Residential mortgage-nonguaranteed (1) | | 29,022 | | | | 29,663 | | | | 30,107 | | | | 23,513 | | | | 23,189 | | |
| Residential mortgage-government guaranteed | | 899 | | | | 870 | | | | 983 | | | | 1,135 | | | | 1,083 | | |
| Other lending subsidiaries | | 7,297 | | | | 6,726 | | | | 6,106 | | | | 5,960 | | | | 5,999 | | |
| PCI | | 910 | | | | 1,122 | | | | 1,215 | | | | 2,035 | | | | 3,294 | | |
| Total loans and leases HFI | | 143,322 | | | | 135,951 | | | | 119,884 | | | | 115,917 | | | | 114,603 | | |
| LHFS | | 1,716 | | | | 1,035 | | | | 1,423 | | | | 1,222 | | | | 3,761 | | |
| Total loans and leases | | $ | 145,038 | | | $ | 136,986 | | | $ | 121,307 | | | $ | 117,139 | | | $ | 118,364 | |
| TFC/10-K/0000092230-17-000021 |
Asset Quality | (1)Includes charge-offs and losses recorded upon sale of $210 million and $170 million for the year ended December 31, 2016 and 2015, respectively.(2)Includes charge-offs and losses recorded upon sale of $30 million and $17 million for the year ended December 31, 2016 and 2015, respectively.NPAs, which include foreclosed real estate, repossessions and NPLs, totaled $813 million at December 31, 2016 compared to $712 million (or $686 million excluding foreclosed real estate acquired from the FDIC) at December 31, 2015. This increase consisted of a $160 million increase in NPLs partially offset by a $59 million decrease in foreclosed real estate and other property.The increase in NPLs is primarily due to commercial and industrial NPLs that were downgraded as a result of a review of shared national credits in the energy lending portfolio during the first quarter, partially offset by the sale of several energy-related credits during the year. NPAs as a percentage of loans and leases plus foreclosed property were 0.57% at December 31, 2016 compared with 0.52% at December 31, 2015.The following tables summarize asset quality information for the past five years. |
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| | | | | | | | | |
| Table 15 | | | | | | | | |
| Rollforward of NPAs | | | | | | | | |
| | | Year Ended December 31, | | | | | | |
| | | 2016 | | | | 2015 | | |
| | | (Dollars in millions) | | | | | | |
| Balance at beginning of year | | $ | 686 | | | $ | 726 | |
| New NPAs | | 1,716 | | | | 1,266 | | |
| Advances and principal increases | | 253 | | | | 85 | | |
| Disposals of foreclosed assets (1) | | (516 | | ) | | (484 | | ) |
| Disposals of NPLs (2) | | (302 | | ) | | (165 | | ) |
| Charge-offs and losses | | (279 | | ) | | (246 | | ) |
| Payments | | (586 | | ) | | (358 | | ) |
| Transfers to performing status | | (179 | | ) | | (149 | | ) |
| Foreclosed real estate, included as a result of loss share termination | | 17 | | | | — | | |
| Other, net | | 3 | | | | 11 | | |
| Balance at end of year | | $ | 813 | | | $ | 686 | |
| TFC/10-K/0000092230-17-000021 |
Asset Quality | (1)During 2016, approximately $191 million of nonaccrual energy-related loans were sold.(2)During 2014, approximately $121 million of nonaccrual residential mortgage loans were sold.(3)During 2014, approximately $94 million of performing TDRs were transferred from direct retail lending to residential mortgage.(4)During 2014, approximately $540 million of performing residential mortgage TDRs were sold.BB&T’s performing TDRs totaled $1.2 billion at December 31, 2016, an increase of $188 million compared to the prior year. This increase includes a $148 million increase for residential mortgage loans, which was primarily the result of the permanent restructuring of certain mortgage loan modifications that successfully completed their trial periods and of implementing a change in the strategy of repurchasing loans from GNMA pools that BB&T has the right but not the obligation to repurchase.Loans 90 days or more past due and still accruing interest totaled $636 million at December 31, 2016, compared with $677 million at prior year-end, a decline of $41 million. This decline includes a $43 million reduction for past due government guaranteed residential mortgage loans, which reflects general improvements in credit quality within that portfolio.Loans 30-89 days past due totaled $1.1 billion at December 31, 2016, an increase of $46 million compared to the prior year, primarily due to higher loan balances. |
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| Table 16 | | | | | | | | | | | | | | | | | | | | |
| Asset Quality | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Nonaccrual loans and leases: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial (1) | | $ | 363 | | | $ | 237 | | | $ | 239 | | | $ | 363 | | | $ | 545 | |
| CRE-income producing properties | | 40 | | | | 38 | | | | 74 | | | | 113 | | | | 171 | | |
| CRE-construction and development | | 17 | | | | 13 | | | | 26 | | | | 51 | | | | 170 | | |
| Direct retail lending | | 63 | | | | 43 | | | | 48 | | | | 109 | | | | 132 | | |
| Sales finance | | 6 | | | | 7 | | | | 5 | | | | 5 | | | | 7 | | |
| Residential mortgage-nonguaranteed (2) | | 172 | | | | 173 | | | | 164 | | | | 243 | | | | 269 | | |
| Residential mortgage-government guaranteed | | — | | | | — | | | | 2 | | | | — | | | | — | | |
| Other lending subsidiaries | | 75 | | | | 65 | | | | 58 | | | | 51 | | | | 86 | | |
| Total nonaccrual loans and leases (1)(2) | | 736 | | | | 576 | | | | 616 | | | | 935 | | | | 1,380 | | |
| Foreclosed real estate | | 37 | | | | 82 | | | | 87 | | | | 71 | | | | 107 | | |
| Foreclosed real estate-acquired from FDIC | | 13 | | | | 26 | | | | 56 | | | | 121 | | | | 254 | | |
| Other foreclosed property | | 27 | | | | 28 | | | | 23 | | | | 47 | | | | 49 | | |
| Total NPAs (1)(2) | | $ | 813 | | | $ | 712 | | | $ | 782 | | | $ | 1,174 | | | $ | 1,790 | |
| | | | | | | | | | | | | | | | | | | | | |
| Performing TDRs: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 55 | | | $ | 49 | | | $ | 64 | | | $ | 77 | | | $ | 77 | |
| CRE-income producing properties | | 16 | | | | 13 | | | | 27 | | | | 50 | | | | 53 | | |
| CRE-construction and development | | 9 | | | | 16 | | | | 30 | | | | 39 | | | | 35 | | |
| Direct retail lending (3) | | 67 | | | | 72 | | | | 84 | | | | 187 | | | | 197 | | |
| Sales finance | | 16 | | | | 17 | | | | 19 | | | | 17 | | | | 19 | | |
| Revolving credit | | 29 | | | | 33 | | | | 41 | | | | 48 | | | | 56 | | |
| Residential mortgage-nonguaranteed (3)(4) | | 332 | | | | 288 | | | | 261 | | | | 785 | | | | 769 | | |
| Residential mortgage-government guaranteed | | 420 | | | | 316 | | | | 360 | | | | 376 | | | | 313 | | |
| Other lending subsidiaries | | 226 | | | | 178 | | | | 164 | | | | 126 | | | | 121 | | |
| Total performing TDRs (4) | | $ | 1,170 | | | $ | 982 | | | $ | 1,050 | | | $ | 1,705 | | | $ | 1,640 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loans 90 days or more past due and still accruing: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
| Direct retail lending | | 6 | | | | 7 | | | | 12 | | | | 33 | | | | 38 | | |
| Sales finance | | 6 | | | | 5 | | | | 5 | | | | 5 | | | | 10 | | |
| Revolving credit | | 12 | | | | 10 | | | | 9 | | | | 10 | | | | 16 | | |
| Residential mortgage-nonguaranteed | | 79 | | | | 55 | | | | 83 | | | | 69 | | | | 91 | | |
| Residential mortgage-government guaranteed | | 443 | | | | 486 | | | | 648 | | | | 807 | | | | 769 | | |
| Other lending subsidiaries | | — | | | | — | | | | — | | | | 5 | | | | 10 | | |
| PCI | | 90 | | | | 114 | | | | 188 | | | | 304 | | | | 442 | | |
| Total loans 90 days or more past due and still accruing | | $ | 636 | | | $ | 677 | | | $ | 945 | | | $ | 1,233 | | | $ | 1,377 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loans 30-89 days past due and still accruing: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 27 | | | $ | 36 | | | $ | 23 | | | $ | 35 | | | $ | 42 | |
| CRE-income producing properties | | 6 | | | | 13 | | | | 4 | | | | 8 | | | | 11 | | |
| CRE-construction and development | | 2 | | | | 9 | | | | 1 | | | | 2 | | | | 3 | | |
| Direct retail lending | | 60 | | | | 58 | | | | 41 | | | | 132 | | | | 145 | | |
| Sales finance | | 76 | | | | 72 | | | | 62 | | | | 56 | | | | 56 | | |
| Revolving credit | | 23 | | | | 22 | | | | 23 | | | | 23 | | | | 23 | | |
| Residential mortgage-nonguaranteed | | 393 | | | | 397 | | | | 392 | | | | 454 | | | | 477 | | |
| Residential mortgage-government guaranteed | | 132 | | | | 78 | | | | 82 | | | | 92 | | | | 89 | | |
| Other lending subsidiaries | | 322 | | | | 304 | | | | 237 | | | | 221 | | | | 290 | | |
| PCI | | 36 | | | | 42 | | | | 33 | | | | 88 | | | | 135 | | |
| Total loans 30-89 days past due and still accruing | | $ | 1,077 | | | $ | 1,031 | | | $ | 898 | | | $ | 1,111 | | | $ | 1,271 | |
| TFC/10-K/0000092230-17-000021 |
Asset Quality | (1)These asset quality ratios have been adjusted to remove the impact of government guaranteed and PCI assets. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios.The following table provides a summary of performing TDR activity: |
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| Table 17 | | | | | | | | | | | | | | |
| Asset Quality Ratios | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | As Of / For The Year Ended December 31, | | | | | | | | | | | | | |
| | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| Asset Quality Ratios: | | | | | | | | | | | | | | |
| Loans 30-89 days past due and still accruing as a percentage of loans and leases HFI | 0.75 | % | | 0.76 | % | | 0.75 | % | | 0.96 | % | | 1.11 | % |
| Loans 90 days or more past due and still accruing as a percentage of loans and leases HFI | 0.44 | | | 0.50 | | | 0.79 | | | 1.06 | | | 1.20 | |
| NPLs as a percentage of loans and leases HFI | 0.51 | | | 0.42 | | | 0.51 | | | 0.81 | | | 1.20 | |
| NPAs as a percentage of: | | | | | | | | | | | | | | |
| Total assets | 0.37 | | | 0.34 | | | 0.42 | | | 0.64 | | | 0.97 | |
| Loans and leases HFI plus foreclosed property | 0.57 | | | 0.52 | | | 0.65 | | | 1.01 | | | 1.56 | |
| Net charge-offs as a percentage of average loans and leases HFI | 0.38 | | | 0.35 | | | 0.46 | | | 0.69 | | | 1.17 | |
| ALLL as a percentage of loans and leases HFI | 1.04 | | | 1.07 | | | 1.23 | | | 1.49 | | | 1.76 | |
| Ratio of ALLL to: | | | | | | | | | | | | | | |
| Net charge-offs | 2.80 | x | | 3.36 | x | | 2.74 | x | | 2.19 | x | | 1.56 | x |
| NPLs | 2.03 | | | 2.53 | | | 2.39 | | | 1.85 | | | 1.46 | |
| | | | | | | | | | | | | | | |
| 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 | 0.07 | % | | 0.06 | % | | 0.09 | % | | 0.11 | % | | 0.15 | % |
| TFC/10-K/0000092230-17-000021 |
Asset Quality | Payments and payoffs include scheduled principal payments, prepayments and payoffs of amounts outstanding. Transfers to nonperforming TDRs represent loans that no longer meet the requirements necessary to reflect the loan in accruing status.TDRs may be removed due to the passage of time if they: (1) did not include a forgiveness of principal or interest, (2) have performed in accordance with the modified terms (generally a minimum of six months), (3) were reported as a TDR over a year end reporting period, and (4) reflected an interest rate on the modified loan that was no less than a market rate at the date of modification. These loans were previously considered TDRs as a result of structural concessions such as extended interest-only terms or an amortization period that did not otherwise conform to normal underwriting guidelines.In addition, certain loans may be removed from classification as a TDR as a result of a subsequent non-concessionary re-modification. Non-concessionary re-modifications represent TDRs that did not contain concessionary terms at the date of a subsequent renewal/modification and there was a reasonable expectation that the borrower would continue to comply with the terms of the loan subsequent to the date of the re-modification. A re-modification may be considered for such a re-classification if the loan has not had a forgiveness of principal or interest and the modified terms qualify as more than minor such that the re-modified loan is considered a new loan. Alternatively, such loans may be considered for reclassification in years subsequent to the date of the re-modification based on the passage of time as described in the preceding paragraph.In connection with consumer loan TDRs, a NPL will be returned to accruing status when current as to principal and interest and upon a sustained historical repayment performance (generally a minimum of six months). |
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| Table 18 | | | | | | | | |
| Rollforward of Performing TDRs | | | | | | | | |
| | | Year Ended December 31, | | | | | | |
| | | 2016 | | | | 2015 | | |
| | | (Dollars in millions) | | | | | | |
| Balance at beginning of year | | $ | 982 | | | $ | 1,050 | |
| Inflows | | 681 | | | | 448 | | |
| Payments and payoffs | | (216 | | ) | | (224 | | ) |
| Charge-offs | | (41 | | ) | | (44 | | ) |
| Transfers to nonperforming TDRs, net | | (68 | | ) | | (85 | | ) |
| Removal due to the passage of time | | (54 | | ) | | (31 | | ) |
| Non-concessionary re-modifications | | — | | | | (2 | | ) |
| Sold and transferred to LHFS | | (114 | | ) | | (130 | | ) |
| Balance at end of year | | $ | 1,170 | | | $ | 982 | |
| TFC/10-K/0000092230-17-000021 |
Asset Quality | (1)Past due performing TDRs are included in past due disclosures.(2)Nonperforming TDRs are included in NPL disclosures. |
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| Table 19 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payment Status of TDRs | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | |
| | | Current | | | | | | | Past Due 30-89 Days | | | | | | | Past Due 90 Days Or More | | | | | | | Total | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | |
| Performing TDRs (1): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 55 | | | 100.0 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 55 | |
| CRE-income producing properties | | 16 | | | | 100.0 | | | — | | | | — | | | — | | | | — | | | 16 | | |
| CRE-construction and development | | 9 | | | | 100.0 | | | — | | | | — | | | — | | | | — | | | 9 | | |
| Direct retail lending | | 64 | | | | 95.5 | | | 3 | | | | 4.5 | | | — | | | | — | | | 67 | | |
| Sales finance | | 15 | | | | 93.8 | | | 1 | | | | 6.2 | | | — | | | | — | | | 16 | | |
| Revolving credit | | 24 | | | | 82.8 | | | 4 | | | | 13.8 | | | 1 | | | | 3.4 | | | 29 | | |
| Residential mortgage-nonguaranteed | | 259 | | | | 78.0 | | | 47 | | | | 14.2 | | | 26 | | | | 7.8 | | | 332 | | |
| Residential mortgage-government guaranteed | | 170 | | | | 40.5 | | | 73 | | | | 17.4 | | | 177 | | | | 42.1 | | | 420 | | |
| Other lending subsidiaries | | 188 | | | | 83.2 | | | 38 | | | | 16.8 | | | — | | | | — | | | 226 | | |
| Total performing TDRs | | 800 | | | | 68.4 | | | 166 | | | | 14.2 | | | 204 | | | | 17.4 | | | 1,170 | | |
| Nonperforming TDRs (2) | | 101 | | | | 55.2 | | | 16 | | | | 8.7 | | | 66 | | | | 36.1 | | | 183 | | |
| Total TDRs | | $ | 901 | | | 66.6 | | | $ | 182 | | | 13.4 | | | $ | 270 | | | 20.0 | | | $ | 1,353 | |
| TFC/10-K/0000092230-17-000021 |
ACL | (1)During the first quarter of 2014, $8.3 billion of loans were transferred from direct retail lending to residential mortgage. Charge-offs and recoveries have been reflected in these line items based upon the date the loans were transferred.The ACL consists of the ALLL, which is presented separately on the Consolidated Balance Sheets, and the RUFC, which is included in other liabilities on the Consolidated Balance Sheets. The ACL totaled $1.6 billion at December 31, 2016, an increase of $49 million compared to the prior year.The ALLL amounted to 1.04% of loans and leases held for investment at December 31, 2016, compared to 1.07% at December 31, 2015. This decline is primarily due to the acquisitions of National Penn during 2016 and Susquehanna during 2015, which provided a total of $18.9 billion in loans and no related allowance as of the acquisition dates. The ratio of the ALLL to NPLs held for investment was 2.03x at December 31, 2016 compared to 2.53x at December 31, 2015.The energy portfolio totals approximately $1.2 billion and has allocated reserves of 11.7%. This portfolio does not include any offshore, second lien or mezzanine loans. The allowance includes the impact of the shared national credit review related to the energy lending portfolio.Net charge-offs totaled $532 million for 2016, compared to $436 million in 2015. Net charge-offs as a percentage of average loans and leases were 0.38% for 2016, compared to 0.35% in 2015. Net charge-offs increased by $59 million in the other lending subsidiaries portfolio, driven by an increase in loss severity associated with used car values and loan growth. Commercial and industrial net charge-offs increased $44 million, primarily due to the energy portfolio. |
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| Table 20 | | | | | | | | | | | | | | | | | | | | |
| Analysis of ACL | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Beginning balance | | $ | 1,550 | | | $ | 1,534 | | | $ | 1,821 | | | $ | 2,048 | | | $ | 2,285 | |
| Provision for credit losses (excluding PCI) | | 574 | | | | 430 | | | | 280 | | | | 587 | | | | 1,044 | | |
| Provision for PCI loans | | (2 | | ) | | (2 | | ) | | (29 | | ) | | 5 | | | | 13 | | |
| Charge-offs: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | (128 | | ) | | (81 | | ) | | (131 | | ) | | (248 | | ) | | (337 | | ) |
| CRE-income producing properties | | (8 | | ) | | (20 | | ) | | (31 | | ) | | (74 | | ) | | (150 | | ) |
| CRE-construction and development | | (1 | | ) | | (4 | | ) | | (11 | | ) | | (58 | | ) | | (245 | | ) |
| Direct retail lending (1) | | (53 | | ) | | (54 | | ) | | (69 | | ) | | (148 | | ) | | (224 | | ) |
| Sales finance | | (29 | | ) | | (26 | | ) | | (23 | | ) | | (23 | | ) | | (26 | | ) |
| Revolving credit | | (69 | | ) | | (70 | | ) | | (71 | | ) | | (85 | | ) | | (81 | | ) |
| Residential mortgage-nonguaranteed (1) | | (35 | | ) | | (40 | | ) | | (82 | | ) | | (79 | | ) | | (135 | | ) |
| Residential mortgage-government guaranteed | | (5 | | ) | | (6 | | ) | | (2 | | ) | | (2 | | ) | | (1 | | ) |
| Other lending subsidiaries | | (358 | | ) | | (286 | | ) | | (269 | | ) | | (255 | | ) | | (225 | | ) |
| PCI | | (15 | | ) | | (1 | | ) | | (21 | | ) | | (19 | | ) | | (34 | | ) |
| Total charge-offs | | (701 | | ) | | (588 | | ) | | (710 | | ) | | (991 | | ) | | (1,458 | | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Recoveries: | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | 40 | | | | 37 | | | | 42 | | | | 47 | | | | 17 | | |
| CRE-income producing properties | | 8 | | | | 7 | | | | 14 | | | | 20 | | | | 9 | | |
| CRE-construction and development | | 11 | | | | 11 | | | | 19 | | | | 31 | | | | 45 | | |
| Direct retail lending (1) | | 26 | | | | 29 | | | | 29 | | | | 38 | | | | 36 | | |
| Sales finance | | 12 | | | | 9 | | | | 9 | | | | 9 | | | | 10 | | |
| Revolving credit | | 20 | | | | 20 | | | | 19 | | | | 17 | | | | 18 | | |
| Residential mortgage-nonguaranteed (1) | | 3 | | | | 3 | | | | 7 | | | | 3 | | | | 3 | | |
| Other lending subsidiaries | | 49 | | | | 36 | | | | 33 | | | | 34 | | | | 26 | | |
| Total recoveries | | 169 | | | | 152 | | | | 172 | | | | 199 | | | | 164 | | |
| Net charge-offs | | (532 | | ) | | (436 | | ) | | (538 | | ) | | (792 | | ) | | (1,294 | | ) |
| Other changes, net | | 9 | | | | 24 | | | | — | | | | (27 | | ) | | — | | |
| Ending balance | | $ | 1,599 | | | $ | 1,550 | | | $ | 1,534 | | | $ | 1,821 | | | $ | 2,048 | |
| | | | | | | | | | | | | | | | | | | | | |
| ALLL (excluding PCI loans) | | $ | 1,445 | | | $ | 1,399 | | | $ | 1,410 | | | $ | 1,618 | | | $ | 1,890 | |
| Allowance for PCI loans | | 44 | | | | 61 | | | | 64 | | | | 114 | | | | 128 | | |
| RUFC | | 110 | | | | 90 | | | | 60 | | | | 89 | | | | 30 | | |
| Total ACL | | $ | 1,599 | | | $ | 1,550 | | | $ | 1,534 | | | $ | 1,821 | | | $ | 2,048 | |
| TFC/10-K/0000092230-17-000021 |
ACL | (1) During the first quarter of 2014, $8.3 billion in loans were transferred from direct retail lending to residential mortgage. |
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| Table 21 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allocation of ALLL by Category | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2016 | | | | | | | 2015 | | | | | | | 2014 | | | | | | | 2013 | | | | | | | 2012 | | | | | |
| | | Amount | | | | % Loans in each category | | | Amount | | | | % Loans in each category | | | Amount | | | | % Loans in each category | | | Amount | | | | % Loans in each category | | | Amount | | | | % Loans in each category | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at end of period applicable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and industrial | | $ | 500 | | | 36.1 | % | | $ | 466 | | | 35.8 | % | | $ | 422 | | | 34.6 | % | | $ | 454 | | | 33.2 | % | | $ | 470 | | | 33.4 | % |
| CRE-income producing properties | | 117 | | | | 10.1 | | | 135 | | | | 9.9 | | | 162 | | | | 8.9 | | | 149 | | | | 8.8 | | | 170 | | | | 8.6 | |
| CRE-construction and development | | 25 | | | | 2.7 | | | 37 | | | | 2.7 | | | 48 | | | | 2.3 | | | 76 | | | | 2.1 | | | 134 | | | | 2.5 | |
| Dealer floor plan | | 11 | | | | 1.0 | | | 8 | | | | 0.9 | | | 10 | | | | 0.9 | | | 8 | | | | 0.8 | | | 2 | | | | 0.4 | |
| Direct retail lending (1) | | 103 | | | | 8.4 | | | 105 | | | | 8.2 | | | 110 | | | | 6.8 | | | 209 | | | | 13.7 | | | 300 | | | | 13.8 | |
| Sales finance | | 38 | | | | 7.9 | | | 40 | | | | 7.6 | | | 40 | | | | 7.9 | | | 37 | | | | 7.3 | | | 27 | | | | 6.4 | |
| Revolving credit | | 106 | | | | 1.9 | | | 104 | | | | 1.8 | | | 110 | | | | 2.1 | | | 115 | | | | 2.1 | | | 102 | | | | 2.0 | |
| Residential mortgage-nonguaranteed (1) | | 186 | | | | 20.2 | | | 194 | | | | 21.8 | | | 217 | | | | 25.1 | | | 269 | | | | 20.3 | | | 296 | | | | 20.3 | |
| Residential mortgage-government guaranteed | | 41 | | | | 0.6 | | | 23 | | | | 0.6 | | | 36 | | | | 0.8 | | | 62 | | | | 1.0 | | | 32 | | | | 0.9 | |
| Other lending subsidiaries | | 318 | | | | 10.5 | | | 287 | | | | 9.9 | | | 255 | | | | 9.6 | | | 239 | | | | 9.0 | | | 277 | | | | 8.8 | |
| PCI | | 44 | | | | 0.6 | | | 61 | | | | 0.8 | | | 64 | | | | 1.0 | | | 114 | | | | 1.7 | | | 128 | | | | 2.9 | |
| Unallocated | | — | | | | — | | | — | | | | — | | | — | | | | — | | | — | | | | — | | | 80 | | | | — | |
| Total ALLL | | 1,489 | | | | 100.0 | % | | 1,460 | | | | 100.0 | % | | 1,474 | | | | 100.0 | % | | 1,732 | | | | 100.0 | % | | 2,018 | | | | 100.0 | % |
| RUFC | | 110 | | | | | | | 90 | | | | | | | 60 | | | | | | | 89 | | | | | | | 30 | | | | | |
| Total ACL | | $ | 1,599 | | | | | | $ | 1,550 | | | | | | $ | 1,534 | | | | | | $ | 1,821 | | | | | | $ | 2,048 | | | | |
| TFC/10-K/0000092230-17-000021 |
Deposits | Average deposits for the fourth quarter of 2016 were $160.1 billion, up $615 million compared to the prior quarter.Average noninterest-bearing deposits increased $862 million, primarily due to increases in commercial balances with smaller increases in public funds and personal balances.Interest checking increased $880 million, primarily due to increases in personal and commercial balances.Money market and savings decreased $451 million primarily due to commercial balances partially offset by increased personal balances.Average time deposits decreased $125 million as decreases in IRAs and personal balances were partially offset by higher commercial balances.Average foreign office deposits decreased $551 million due to lower overall funding needs.Noninterest-bearing deposits represented 32.1% of total average deposits for the fourth quarter, compared to 31.7% for the prior quarter and 30.9% a year ago. The cost of interest-bearing deposits was 0.22% for the fourth quarter, down one basis point compared to the prior quarter. |
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| Table 22 | | | | | | | | | | | | | | | | | | | | |
| Quarterly Composition of Average Deposits | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | 12/31/2016 | | | | 9/30/2016 | | | | 6/30/2016 | | | | 3/31/2016 | | | | 12/31/2015 | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | $ | 51,421 | | | $ | 50,559 | | | $ | 48,801 | | | $ | 46,203 | | | $ | 45,824 | |
| Interest checking | | 28,634 | | | | 27,754 | | | | 28,376 | | | | 25,604 | | | | 24,157 | | |
| Money market and savings | | 63,884 | | | | 64,335 | | | | 63,195 | | | | 60,424 | | | | 61,431 | | |
| Time deposits | | 15,693 | | | | 15,818 | | | | 18,101 | | | | 16,884 | | | | 16,981 | | |
| Foreign office deposits - interest-bearing | | 486 | | | | 1,037 | | | | 1,865 | | | | 752 | | | | 98 | | |
| Total average deposits | | $ | 160,118 | | | $ | 159,503 | | | $ | 160,338 | | | $ | 149,867 | | | $ | 148,491 | |
| TFC/10-K/0000092230-17-000021 |
Risk Management | The CRO leads the RMO, which designs, organizes and manages BB&T’s risk management framework. The RMO is responsible for ensuring effective risk management oversight, measurement, monitoring, reporting and consistency. The CRO has direct access to the Board of Directors and Executive Management. The CRO is responsible for identifying and communicating in a timely manner to the CEO and the Board of Directors meaningful risks and significant instances when the RMO’s assessment of risk differs from that of a BU, significant instances when a BU is not adhering to the risk governance framework, and BB&T’s risk profile in relation to its risk appetite on at least a quarterly basis. In the event that the CRO and CEO’s assessment of risk were to differ or if the CEO were to not adhere to the risk management framework, the CRO would have the responsibility to report such matters to the Board of Directors.The Executive Management-led enterprise risk committees provide oversight of the first and second lines of defense and communicate risk appetite and values to the RMO. The CRO and the enterprise risk committees approve policies, set risk limits and tolerances and monitor results.The RMC, CRMC, ORMC, CROC and the MRLCC are the enterprise risk committees and provide oversight of the risks as described in the common risk language. Executive Management members participate in all five committees.The risk management framework is composed of specialized risk functions focused on specific types of risk. The MRLCC, CRMC, CROC and ORMC provide oversight of market, liquidity, capital, credit, compliance, and operational risk while RMC provides a fully integrated view of all material risks across the company. The RMC provides oversight of all risks and its purpose is to review BB&T’s aggregate risk exposure, evaluate risk appetite, and evaluate risks not reviewed by other risk committees.The RMC is responsible for taking a broad view of risk, incorporating information from all risk functions. This combination of broad and specific focus provides the most effective framework for the management of risk. The RMC is chaired by the CRO and its membership includes all members of Executive Management, the General Auditor (ex officio) and senior leaders from Financial Management, the RMO and other areas.The principal types of inherent risk include compliance, credit, liquidity, market, operational, reputation and strategic risks. |
| | | | | |
| --- | --- | --- | --- | --- |
| | | | | |
| Risk Committees | Board of Directors | | | Executive Management |
| | | |
| 1st Line of Defense | 2nd Line of Defense | 3rd Line of Defense |
| Business Units | Risk Functions | Audit Services |
| | | |
| Chief Risk Officer | | |
| TFC/10-K/0000092230-17-000021 |
Branch Bank | BB&T and Branch Bank have Contingency Funding Plans designed to ensure that liquidity sources are sufficient to meet their ongoing obligations and commitments, particularly in the event of a liquidity contraction. These plans are designed to examine and quantify the organization’s liquidity under various "stress" scenarios. Additionally, the plans provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. The plans address authority for activation and decision making, liquidity options and the responsibilities of key departments in the event of a liquidity contraction. The liquidity options available to management could include seeking secured funding, asset sales, and under the most extreme scenarios, curtailing new loan originations.Management believes current sources of liquidity are adequate to meet BB&T’s current requirements and plans for continued growth. See the "Premises and Equipment," "Long-Term Debt" and "Commitments and Contingencies" notes in the "Notes to Consolidated Financial Statements" for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations. |
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| Table 28 | | | | | | | |
| Credit Ratings of BB&T Corporation and Branch Bank | | | | | | | |
| December 31, 2016 | | | | | | | |
| | | | | | | | |
| | S&P | | Moody's | | Fitch | | DBRS |
| BB&T Corporation: | | | | | | | |
| Commercial Paper | A-2 | | N/A | | F1 | | R-1(low) |
| Issuer | A- | | A2 | | A+ | | A(high) |
| LT/Senior debt | A- | | A2 | | A+ | | A(high) |
| Subordinated debt | BBB+ | | A2 | | A | | A |
| | | | | | | | |
| Branch Bank: | | | | | | | |
| Bank financial strength | N/A | | N/A | | a+ | | N/A |
| Long term deposits | N/A | | Aa1 | | AA- | | AA(low) |
| LT/Senior unsecured bank notes | A | | A1 | | A+ | | AA(low) |
| Long term issuer | A | | A1 | | A+ | | AA(low) |
| Other long term senior obligations | A | | N/A | | A+ | | AA(low) |
| Other short term senior obligations | A-1 | | N/A | | F1 | | R-1(middle) |
| Short term bank notes | A-1 | | P-1 | | F1 | | R-1(middle) |
| Short term deposits | N/A | | P-1 | | F1+ | | R-1(middle) |
| Subordinated bank notes | A- | | A2 | | A | | A(high) |
| | | | | | | | |
| Ratings Outlook: | | | | | | | |
| Credit Trend | Stable | | Stable | | Stable | | Stable |
| TFC/10-K/0000092230-17-000021 |
Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions | (1)Based on estimated payment dates.(2)Includes accrued interest, future contractual interest obligations and the impact of hedges in a loss position. Other derivatives are excluded. Variable rate payments are based upon the rate in effect at December 31, 2016.(3)Represents obligations to purchase goods or services that are enforceable and legally binding. Many of the purchase obligations have terms that are not fixed and determinable and are included in the table above based upon the estimated timing and amount of payment. In addition, certain of the purchase agreements contain clauses that would allow BB&T to cancel the agreement with specified notice; however, that impact is not included in the table above.(4)Although technically unfunded plans, Rabbi Trusts and insurance policies on the lives of certain of the covered employees are available to finance future benefit plan payments.BB&T’s commitments include investments in affordable housing and historic building rehabilitation projects throughout its market area and private equity funds. Refer to the "Summary of Significant Accounting Policies" note and the "Commitments and Contingencies" note in the "Notes to Consolidated Financial Statements" for further discussion of these commitments.In addition, BB&T enters into derivative contracts to manage various financial risks. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. Derivative contracts are carried at fair value on the Consolidated Balance Sheets with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. Derivative contracts are written in amounts referred to as notional amounts, which only provide the basis for calculating payments between counterparties and are not a measure of financial risk. Therefore, the derivative liabilities recorded on the balance sheet as of December 31, 2016 do not represent the amounts that may ultimately be paid under these contracts. Further discussion of derivative instruments is included in the "Summary of Significant Accounting Policies" note and the "Derivative Financial Instruments" note in the "Notes to Consolidated Financial Statements."In the ordinary course of business, BB&T indemnifies its officers and directors to the fullest extent permitted by law against liabilities arising from litigation. BB&T also issues standard representation and warranties in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities and other similar arrangements. Counterparties in many of these indemnifications provide similar indemnifications to BB&T. Although these agreements often do not specify limitations, BB&T does not believe that any payments related to these guarantees would materially change the financial condition or results of operations of BB&T.BB&T holds public funds in certain states that do not require 100% collateralization on public fund bank deposits. In these states, should the failure of another public fund depository institution result in a loss for the public entity, the resulting shortfall would have to be absorbed on a pro-rata basis by the remaining financial institutions holding public funds in that state.As a member of the FHLB, BB&T is required to maintain a minimum investment in capital stock. The board of directors of the FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase BB&T’s investment in the FHLB depends entirely upon the occurrence of a future event, potential future payments to the FHLB are not determinable.In the normal course of business, BB&T is also a party to financial instruments to meet the financing needs of clients and to mitigate exposure to interest rate risk. Such financial instruments include commitments to extend credit and certain contractual agreements, including standby letters of credit and financial guarantee arrangements. Further discussion of BB&T’s commitments is included in the "Commitments and Contingencies" note and the "Fair Value Disclosures" note in the "Notes to Consolidated Financial Statements." |
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| Table 29 | | | | | | | | | | | | | | | | | | | | |
| Contractual Obligations and Other Commitments | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Total | | | | Less than 1 Year | | | | 1 to 3 Years | | | | 3 to 5 Years | | | | After 5 Years | | |
| | | (Dollars in millions) | | | | | | | | | | | | | | | | | | |
| Long-term debt and capital leases | | $ | 21,728 | | | $ | 3,696 | | | $ | 6,208 | | | $ | 7,238 | | | $ | 4,586 | |
| Operating leases | | 1,619 | | | | 263 | | | | 449 | | | | 333 | | | | 574 | | |
| Commitments to fund affordable housing investments | | 738 | | | | 470 | | | | 233 | | | | 15 | | | | 20 | | |
| Private equity and other investments commitments (1) | | 200 | | | | 49 | | | | 98 | | | | 41 | | | | 12 | | |
| Time deposits | | 14,391 | | | | 7,929 | | | | 5,028 | | | | 1,411 | | | | 23 | | |
| Contractual interest payments (2) | | 3,401 | | | | 725 | | | | 1,260 | | | | 745 | | | | 671 | | |
| Purchase obligations (3) | | 968 | | | | 522 | | | | 356 | | | | 58 | | | | 32 | | |
| Nonqualified benefit plan obligations (4) | | 1,204 | | | | 15 | | | | 33 | | | | 38 | | | | 1,118 | | |
| Total contractual cash obligations | | $ | 44,249 | | | $ | 13,669 | | | $ | 13,665 | | | $ | 9,879 | | | $ | 7,036 | |
| TFC/10-K/0000092230-17-000021 |
Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements and Related Party Transactions | (1)Excludes the FHA-insured mortgage loan reserve of $85 million established during 2014 and settled in 2016. |
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| | | | | | | | | | | | | |
| Table 30 | | | | | | | | | | | | |
| Mortgage Indemnification, Recourse and Repurchase Reserves Activity (1) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | | | | | | | | | | |
| | | 2016 | | | | 2015 | | | | 2014 | | |
| | | (Dollars in millions) | | | | | | | | | | |
| Balance, at beginning of period | | $ | 79 | | | $ | 94 | | | $ | 72 | |
| Payments | | (2 | | ) | | (5 | | ) | | (23 | | ) |
| Expense | | (37 | | ) | | (15 | | ) | | 45 | | |
| Acquisitions | | — | | | | 5 | | | | — | | |
| Balance, at end of period | | $ | 40 | | | $ | 79 | | | $ | 94 | |
| TFC/10-K/0000092230-17-000021 |
Capital | (1) BB&T's goal is to maintain capital levels above the 2019 requirements. Payments of cash dividends and repurchases of common shares are the methods used to manage any excess capital generated. In addition, management closely monitors the Parent Company’s double leverage ratio (investments in subsidiaries as a percentage of shareholders’ equity). The active management of the subsidiaries’ equity capital, as described above, is the process used to manage this important driver of Parent Company liquidity and is a key element in the management of BB&T’s capital position.Management intends to maintain capital at Branch Bank at levels that will result in classification as "well-capitalized" for regulatory purposes. Secondarily, it is management’s intent to maintain Branch Bank’s capital at levels that result in regulatory risk-based capital ratios that are generally comparable with peers of similar size, complexity and risk profile. If the capital levels of Branch Bank increase above these guidelines, excess capital may be transferred to the Parent Company in the form of special dividend payments, subject to regulatory and other operating considerations.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.BB&T regularly performs stress testing on its capital levels and is required to periodically submit the company’s capital plans to the banking regulators. The FRB did not object to the Company’s 2016 capital plan, and the 2017 capital plan is expected to be submitted during April 2017. Management’s capital deployment plan in order of preference is to focus on 1) organic growth, 2) dividends and 3) acquisitions and/or share repurchases depending on opportunities in the marketplace and our interest and ability to proceed with acquisitions.Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Tier 1 Common Equity, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets. Branch Bank's capital ratios are presented in the following table: |
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| Table 32 | | | | | | | | | | | | | | | | | | | | | |
| Capital Requirements Under Basel III | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Minimum Capital | | | Well-Capitalized | | | Minimum Capital Plus Capital Conservation Buffer | | | | | | | | | | | | BB&T Target | |
| | | | | 2016 | | | 2017 | | | 2018 | | | 2019 (1) | | |
| CET1 to risk-weighted assets | | 4.5 | % | | 6.5 | % | | 5.125 | % | | 5.750 | % | | 6.375 | % | | 7.000 | % | | 8.5 | % |
| Tier 1 capital to risk-weighted assets | | 6.0 | | | 8.0 | | | 6.625 | | | 7.250 | | | 7.875 | | | 8.500 | | | 10.0 | |
| Total capital to risk-weighted assets | | 8.0 | | | 10.0 | | | 8.625 | | | 9.250 | | | 9.875 | | | 10.500 | | | 12.0 | |
| Leverage ratio | | 4.0 | | | 5.0 | | | N/A | | | N/A | | | N/A | | | N/A | | | 8.0 | |
| TFC/10-K/0000092230-17-000021 |