OREANDA-NEWS. BB&T Corporation (NYSE: BBT) today reported earnings for the fourth quarter of 2016. Net income available to common shareholders was $592 million, up 17.9% from the fourth quarter of 2015. Earnings per diluted common share were $0.72 for the fourth quarter of 2016. Excluding pre-tax merger-related and restructuring charges of $13 million ($8 million after tax), net income available to common shareholders was $600 million, or $0.73 per diluted share.

Net income available to common shareholders was $599 million ($0.73 per diluted share) for the third quarter of 2016 and $502 million ($0.64 per diluted share) for the fourth quarter of 2015.

For the full year, net income available to common shareholders was a record $2.3 billion, up 16.7% from 2015. Earnings per diluted share totaled $2.77 compared to $2.56 for 2015.

"We are pleased to report strong earnings for the fourth quarter," said Chairman and Chief Executive Officer Kelly S. King. "While higher interest rates created $34 million in pre-tax charges, revenue growth was strong, expense control was solid and we are well-positioned for future interest rate increases.

"Taxable-equivalent revenues were $2.8 billion, up 8.3% compared to the fourth quarter of 2015," King said. "Noninterest expense increased only 4.4% over the same period, reflecting strong leverage from acquisitions and excellent control of operating costs. Full year revenues were a record $11.0 billion, up 12.3% from 2015, and net income available to common shareholders of $2.3 billion was also a record.

"During the quarter, we repurchased 7.5 million shares through both open-market purchases and an accelerated share repurchase program. These transactions were approved by our board as part of our commitment to ensuring an optimal return for our shareholders.

"Earlier this month, we terminated $2.9 billion of higher-cost FHLB advances, resulting in a loss on early extinguishment of $392 million. This strategic action will lower our future borrowing costs and provide a boost to future margins and earnings."

Fourth Quarter 2016 Performance Highlights

  • Taxable-equivalent revenues were $2.8 billion for the fourth quarter, down $46 million from the third quarter of 2016
    • Net interest income on a taxable-equivalent basis was down $44 million
    • Net interest margin was 3.32%, down seven basis points
    • Noninterest income was essentially flat
    • Fee income ratio was 42.6%, compared to 41.9% for the prior quarter
  • Noninterest expense was $1.7 billion, down $43 million compared to the third quarter of 2016
    • Personnel expense was essentially flat
    • Loan-related expense included a $31 million release of mortgage repurchase reserves
    • Merger-related and restructuring charges decreased $30 million
    • GAAP efficiency ratio was 61.1%, compared to 61.7% for the prior quarter. Adjusted efficiency ratio was 59.5%, compared to 58.7% for the prior quarter
  • Average loans and leases held for investment were $142.3 billion compared to $141.3 billion for the third quarter of 2016
    • Average sales finance loans increased $1.3 billion, or 53.7% annualized, primarily due to portfolio purchases in the third and fourth quarters
    • Average other lending subsidiaries loans increased $213 million, or 5.7% annualized
    • Average residential mortgage loans decreased $313 million, or 4.1% annualized
  • Average deposits were $160.1 billion compared to $159.5 billion for the prior quarter
    • Average noninterest-bearing deposits increased $862 million, or 6.8% annualized
    • Average interest-checking deposits increased $880 million, or 12.6% annualized
    • Average interest-bearing deposit costs were 0.22%, down one basis point compared to the prior quarter
    • Deposit mix remained strong, with average noninterest-bearing deposits representing 32.1% of total deposits, compared to 31.7% in the prior quarter
  • Asset quality remained strong
    • Nonperforming assets decreased $30 million, driven by reductions in commercial and industrial nonperforming loans
    • Loans 90 days or more past due and still accruing were 0.44% of loans held for investment, compared to 0.42% in the prior quarter
    • Loans 30-89 days past due and still accruing were 0.75% of loans held for investment, compared to 0.69% in the prior quarter
    • The allowance for loan loss coverage ratio was 2.03 times nonperforming loans held for investment, versus 2.00 times in the prior quarter
    • The allowance for loan and lease losses was 1.04% of loans held for investment, down two basis points from the prior quarter
  • Capital levels remained strong across the board
    • Common equity tier 1 to risk-weighted assets was 10.2%, or 10.0% on a fully phased-in basis
    • Tier 1 risk-based capital was 12.0%
    • Total capital was 14.1%
    • Leverage capital was 10.0%

EARNINGS HIGHLIGHTS

                

(dollars in millions, except per share data)

              

Change 4Q16 vs.
   

4Q16

  

3Q16

  

4Q15

  

3Q16

  

4Q15

Net income available to common shareholders

  

$

592

  

$

599

  

$

502

  

$

(7)

  

$

90

Diluted earnings per common share

  

0.72

  

0.73

  

0.64

  

(0.01)

  

0.08
                     

Net interest income - taxable equivalent

  

$

1,606

  

$

1,650

  

$

1,542

  

$

(44)

  

$

64

Noninterest income

  

1,162

  

1,164

  

1,015

  

(2)

  

147

Total taxable-equivalent revenue

  

$

2,768

  

$

2,814

  

$

2,557

  

$

(46)

  

$

211

Less taxable-equivalent adjustment

  

41

  

40

  

38

        

Total revenue

  

$

2,727

  

$

2,774

  

$

2,519

        
                           
                           

Return on average assets

    

1.16%

    

1.15%

    

1.03%

  

0.01%

  

0.13%

Return on average risk-weighted assets

    

1.45

    

1.45

    

1.29

  

-

  

0.16

Return on average common shareholders' equity

    

8.75

    

8.87

    

8.06

  

(0.12)

  

0.69

Return on average tangible common shareholders' equity (1)

    

14.91

    

15.20

    

13.37

  

(0.29)

  

1.54

Net interest margin - taxable equivalent

    

3.32

    

3.39

    

3.35

  

(0.07)

  

(0.03)
                           
                             

(1)  Excludes certain items as detailed in the non-GAAP reconciliations in the Quarterly Performance Summary.

Fourth Quarter 2016 compared to Third Quarter 2016

Earnings for the fourth quarter included $34 million of pre-tax charges for securities duration adjustments and hedge ineffectiveness, which were primarily due to higher interest rates. Also impacting the fourth quarter earnings was a $31 million release of mortgage repurchase reserves, which was primarily driven by lower anticipated loan repurchase requests.

Total taxable-equivalent revenues were $2.8 billion for the fourth quarter of 2016, a decrease of $46 million compared to the prior quarter, which reflects a decrease of $44 million in taxable-equivalent net interest income, while noninterest income was essentially flat.

The net interest margin was 3.32% for the fourth quarter, down seven basis points compared to the prior quarter. Average earning assets decreased $1.3 billion, which primarily reflects a $2.3 billion decrease in average securities partially offset by an $880 million increase in average total loans. Average interest-bearing liabilities decreased $1.9 billion, resulting from a $1.9 billion decrease in long-term debt due to maturities. Additionally, interest-bearing deposits declined $247 million and average short-term borrowings increased $245 million.

The annualized yield on the total loan portfolio for the fourth quarter was 4.24%, down six basis points compared to the prior quarter due to lower rates on new production and reduced purchase accounting amortization. The annualized taxable-equivalent yield on the average securities portfolio for the fourth quarter was 2.13%, down 19 basis points compared to the prior quarter, primarily due to duration adjustments on non-agency mortgage-backed securities.

The average annualized cost of interest-bearing deposits was 0.22%, down one basis point compared to the prior quarter. The average annualized rate paid on long-term debt was 2.16%, up 11 basis points compared to the prior quarter, due to lower benefits from hedging.

Excluding acquired from FDIC and purchased credit impaired ("PCI") loans, the provision for credit losses was $133 million and net charge-offs were $136 million for the fourth quarter, compared to $150 million and $130 million, respectively, for the prior quarter. The fourth quarter included $14 million of net charge-offs for the sale of certain energy-related loans.

Noninterest income of $1.2 billion was essentially flat compared to the prior quarter as lower mortgage banking income was offset by improved FDIC loss share income following the termination of the related agreements in the third quarter, higher other income primarily from partnerships and other investments and higher insurance income.

Noninterest expense was $1.7 billion for the fourth quarter, down $43 million compared to the prior quarter, which reflects lower merger-related and restructuring charges and lower loan-related expense, partially offset by higher other expense.

The provision for income taxes was $287 million for the fourth quarter, compared to $273 million for the prior quarter. The effective tax rate for the fourth quarter was 30.9%, compared to 29.8% for the prior quarter.

Fourth Quarter 2016 compared to Fourth Quarter 2015

Total taxable-equivalent revenues were $2.8 billion for the fourth quarter of 2016, an increase of $211 million compared to the earlier quarter. This reflects an increase of $64 million in taxable-equivalent net interest income and an increase of $147 million in noninterest income. These increases primarily reflect the acquisitions during the past year.

Net interest margin was 3.32%, down three basis points compared to the earlier quarter. Average earning assets increased $9.4 billion, while average interest-bearing liabilities increased $3.0 billion; both increases were primarily driven by acquisition activity. The annualized yield on the total loan portfolio for the fourth quarter was 4.24%, down seven basis points compared to the earlier quarter. The annualized taxable-equivalent yield on the average securities portfolio for the fourth quarter was 2.13%, down 17 basis points compared to the earlier period. This decrease was primarily due to securities duration adjustments during 2016.

The average annualized cost of interest-bearing deposits was 0.22%, down two basis points compared to the earlier quarter. The average annualized rate paid on long-term debt was 2.16%, up five basis points compared to the earlier quarter primarily due to lower benefits from hedging.

Excluding acquired from FDIC and PCI loans, the provision for credit losses was $133 million, compared to $128 million in the earlier quarter. Net charge-offs for the fourth quarter of 2016, excluding loans acquired from the FDIC and PCI, totaled $136 million, compared to $130 million for the earlier quarter.

Noninterest income was $1.2 billion, an increase of $147 million from the earlier quarter, driven by higher insurance income, improved FDIC loss share income (following the termination of the related agreements in the third quarter) and higher investment banking and brokerage fees and commissions.

Noninterest expense for the fourth quarter of 2016 was $1.7 billion, up $71 million compared to the earlier quarter. This increase reflects higher personnel expense and various other categories of expense following the current year acquisitions, partially offset by lower merger-related and restructuring charges as the earlier quarter included activity related to the Susquehanna acquisition. Loan-related expense declined primarily due to repurchase reserve adjustments.

The provision for income taxes was $287 million for the fourth quarter of 2016, compared to $251 million for the earlier quarter. This produced an effective tax rate for the fourth quarter of 2016 of 30.9%, compared to 31.7% for the earlier quarter.

NONINTEREST INCOME

              

(dollars in millions)

              

% Change 4Q16 vs.
   

4Q16

  

3Q16

  

4Q15

  

3Q16

  

4Q15
               

(annualized)

    

Insurance income

  

$

419

  

$

410

  

$

380

  

8.7

  

10.3

Service charges on deposits

  

172

  

172

  

165

  

—

  

4.2

Mortgage banking income

  

107

  

154

  

104

  

(121.4)

  

2.9

Investment banking and brokerage fees and
commissions

  

108

  

101

  

91

  

27.6

  

18.7

Trust and investment advisory revenues

  

69

  

68

  

64

  

5.9

  

7.8

Bankcard fees and merchant discounts

  

60

  

61

  

56

  

(6.5)

  

7.1

Checkcard fees

  

50

  

50

  

47

  

—

  

6.4

Operating lease income

  

34

  

34

  

33

  

—

  

3.0

Income from bank-owned life insurance

  

26

  

35

  

27

  

(102.3)

  

(3.7)

FDIC loss share income, net

  

—

  

(18)

  

(52)

  

NM

  

(100.0)

Securities gains (losses), net

  

1

  

—

  

—

  

NM

  

NM

Other income

  

116

  

97

  

100

  

77.9

  

16.0

Total noninterest income

  

$

1,162

  

$

1,164

  

$

1,015

  

(0.7)

  

14.5
     
       

NM - not meaningful.

Fourth Quarter 2016 compared to Third Quarter 2016

Noninterest income was $1.2 billion for the fourth quarter, down $2 million compared to the prior quarter as lower mortgage banking income was offset by improved FDIC loss share income (following the termination of the related agreements in the third quarter), higher other income primarily from partnerships and other investments and higher insurance income due to seasonality.

Mortgage banking income decreased $47 million due to net mortgage servicing rights valuation adjustments and lower production volumes.

Other income increased $19 million, primarily due to higher income from partnerships and other investments, which is predominantly due to SBIC private equity investments.

Fourth Quarter 2016 compared to Fourth Quarter 2015

Noninterest income for the fourth quarter of 2016 was up $147 million compared to the earlier quarter. This increase was driven by higher insurance income, FDIC loss share income, investment banking and brokerage fees and commissions and other income.

Insurance income increased $39 million, primarily the result of the Swett & Crawford acquisition.

FDIC loss share income improved $52 million due to the termination of the loss sharing agreements during the third quarter.

Investment banking and brokerage fees and commissions increased $17 million due to strong activity in the current quarter.

Other income increased $16 million, primarily as a result of higher income from partnerships and other investments, which is predominantly due to SBIC private equity investments.

NONINTEREST EXPENSE

              

(dollars in millions)

              

% Change 4Q16 vs.
   

4Q16

  

3Q16

  

4Q15

  

3Q16

  

4Q15
               

(annualized)

    

Personnel expense

  

$

1,004

  

$

1,006

  

$

893

  

(0.8)

  

12.4

Occupancy and equipment expense

  

198

  

203

  

192

  

(9.8)

  

3.1

Software expense

  

57

  

63

  

52

  

(37.9)

  

9.6

Loan-related expense

  

(6)

  

33

  

37

  

NM

  

(116.2)

Outside IT services

  

50

  

51

  

41

  

(7.8)

  

22.0

Professional services

  

27

  

27

  

29

  

—

  

(6.9)

Amortization of intangibles

  

38

  

38

  

32

  

—

  

18.8

Regulatory charges

  

42

  

41

  

28

  

9.7

  

50.0

Foreclosed property expense

  

9

  

9

  

11

  

—

  

(18.2)

Merger-related and restructuring charges, net

  

13

  

43

  

50

  

NM

  

(74.0)

Other expense

  

236

  

197

  

232

  

78.8

  

1.7

Total noninterest expense

  

$

1,668

  

$

1,711

  

$

1,597

  

(10.0)

  

4.4
     

NM - not meaningful.

Fourth Quarter 2016 compared to Third Quarter 2016

Noninterest expense was $1.7 billion for the fourth quarter, down $43 million compared to the prior quarter. This change was driven by lower merger-related and restructuring charges and lower loan-related expense, partially offset by higher other expense.

Personnel expense was essentially flat, which includes a $12 million decline in equity-based compensation primarily due to a decrease for retirement eligible employees, partially offset by an $11 million increase in incentives expense primarily within the financial services segment based on performance relative to targets.

Merger-related and restructuring charges decreased $30 million compared to the prior quarter. The prior quarter included higher charges due to the systems conversion and integration of National Penn.

Loan-related expense decreased $39 million compared to the prior quarter largely due to a $31 million release of mortgage repurchase reserves, which was primarily driven by lower anticipated loan repurchase requests.

Other expense increased $39 million primarily due to a net benefit of $73 million in the prior quarter related to the settlement of certain legacy mortgage matters involving the origination of mortgage loans insured by the FHA. Partially offsetting this benefit was a $50 million charitable contribution that was also made in the third quarter.

Fourth Quarter 2016 compared to Fourth Quarter 2015

Noninterest expense for the fourth quarter of 2016 was up $71 million compared to the earlier quarter. This increase was driven by higher personnel expense, which was partially offset by declines in merger-related and restructuring charges and loan-related expense.

Personnel expense increased $111 million, driven by a $50 million increase in salaries, which reflects a 1,421 increase in full-time equivalent employees primarily resulting from acquisitions. Personnel expense also reflects a $35 million increase in incentives due to improved performance relative to target measures. Additionally, other personnel expenses were higher $26 million, primarily due to higher payroll taxes, insurance expense and pension expense.

Loan-related expense decreased $43 million compared to the prior quarter primarily due to the previously described release of $31 million related to mortgage repurchase reserves and $12 million due to a decrease in pre-foreclosure expenses.

Regulatory charges increased $14 million, primarily due to the FDIC's special assessment for larger institutions that became effective during the third quarter of 2016, as well as growth through acquisitions.

Merger-related and restructuring charges decreased $37 million, primarily the result of costs incurred for the Susquehanna acquisition in the earlier quarter.

LOANS AND LEASES - average balances

                

(dollars in millions)

                
   

4Q16

  

3Q16

  

Change

  

% Change
               

(annualized)

Commercial and industrial

  

$

51,306

  

$

51,508

  

$

(202)

  

(1.6)

CRE-income producing properties

  

14,566

  

14,667

  

(101)

  

(2.7)

CRE-construction and development

  

3,874

  

3,802

  

72

  

7.5

Dealer floor plan

  

1,367

  

1,268

  

99

  

31.1

Direct retail lending

  

12,046

  

11,994

  

52

  

1.7

Sales finance

  

10,599

  

9,339

  

1,260

  

53.7

Revolving credit

  

2,608

  

2,537

  

71

  

11.1

Residential mortgage

  

30,044

  

30,357

  

(313)

  

(4.1)

Other lending subsidiaries

  

14,955

  

14,742

  

213

  

5.7

Acquired from FDIC and PCI

  

974

  

1,052

  

(78)

  

(29.5)

Total loans and leases held for investment

  

$

142,339

  

$

141,266

  

$

1,073

  

3.0

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.

DEPOSITS - average balances

          

(dollars in millions)

                
   

4Q16

  

3Q16

  

Change

  

% Change
               

(annualized)

Noninterest-bearing deposits

  

$

51,421

  

$

50,559

  

$

862

  

6.8

Interest checking

  

28,634

  

27,754

  

880

  

12.6

Money market and savings

  

63,884

  

64,335

  

(451)

  

(2.8)

Time deposits

  

15,693

  

15,818

  

(125)

  

(3.1)

Foreign office deposits - interest-bearing

  

486

  

1,037

  

(551)

  

NM

Total deposits

  

$

160,118

  

$

159,503

  

$

615

  

1.5
                         

NM - not meaningful.

                      

Average deposits for the fourth quarter 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.

SEGMENT RESULTS

              

(dollars in millions)

              

Change 4Q16 vs.

Segment Net Income

  

4Q16

  

3Q16

  

4Q15

  

3Q16

  

4Q15

Community Banking

  

$

334

  

$

338

  

$

262

  

$

(4)

  

$

72

Residential Mortgage Banking

  

64

  

117

  

49

  

(53)

  

15

Dealer Financial Services

  

41

  

40

  

41

  

1

  

—

Specialized Lending

  

55

  

64

  

63

  

(9)

  

(8)

Insurance Holdings

  

34

  

23

  

36

  

11

  

(2)

Financial Services

  

122

  

83

  

104

  

39

  

18

Other, Treasury and Corporate

  

(7)

  

(23)

  

(13)

  

16

  

6

Total net income

  

$

643

  

$

642

  

$

542

  

$

1

  

$

101

Fourth Quarter 2016 compared to Third Quarter 2016

The financial information related to National Penn's operations was included in the Other, Treasury & Corporate segment until the systems conversion, which occurred during July 2016. The majority of National Penn's operations are now included in Community Banking.

Community Banking

Community Banking serves individual and business clients by offering a variety of loan and deposit products and other financial services. The segment is primarily responsible for acquiring and servicing client relationships.

Community Banking net income was $334 million for the fourth quarter of 2016, a decrease of $4 million compared to the prior quarter. Segment net interest income was up $12 million, primarily due to loan and deposit growth and the inclusion of National Penn for the full quarter, partially offset by lower credit spreads on loans. The allocated provision for credit losses was $26 million for the fourth quarter of 2016, compared to a benefit of $3 million in the prior quarter. This change was primarily the result of loan growth and a decline in the rate of improvement in credit trends in the commercial loan portfolio compared to the third quarter.

Residential Mortgage Banking

Residential Mortgage Banking originates and purchases mortgage loans to either hold for investment or sell to third-parties. BB&T generally retains the servicing rights to loans sold. Mortgage products include fixed and adjustable-rate government guaranteed and conventional loans used for the purpose of constructing, purchasing or refinancing residential properties. Substantially all of the properties are owner-occupied.

Residential Mortgage Banking net income was $64 million for the fourth quarter of 2016, a decrease of $53 million compared to the prior quarter. Noninterest income decreased $41 million, driven by lower net mortgage servicing rights valuation adjustments and lower saleable loan volume and margins. Noninterest expense increased $28 million, driven by the previously discussed settlement of certain FHA-insured loan matters in the prior quarter, partially offset by a reduction in mortgage repurchase reserves in the current quarter.

Dealer Financial Services

Dealer Financial Services originates loans to consumers for the purchase of automobiles. These loans are originated on an indirect basis through approved franchised and independent automobile dealers throughout BB&T's market area through BB&T Dealer Finance, and on a national basis through Regional Acceptance Corporation. Dealer Financial Services also originates loans for the purchase of recreational and marine vehicles. In conjunction with Community Banking, Dealer Financial Services provides financing and servicing to dealers for their inventories in Community Banking's footprint.

Dealer Financial Services net income was $41 million for the fourth quarter of 2016, essentially flat compared to the prior quarter. Results were driven by a $13 million increase in segment net interest income, partially attributable to the purchase of prime auto loans in the Dealer Finance portfolio during the current quarter. This increase was largely offset by an increase in the allocated provision for credit losses primarily due to seasonally higher net charge-offs in the Regional Acceptance loan portfolio.

Specialized Lending

Specialized Lending consists of businesses that provide specialty finance solutions to commercial and consumer clients including: commercial finance, mortgage warehouse lending, tax-exempt financing for local governments and special-purpose districts, equipment leasing, full-service commercial mortgage banking, commercial and retail insurance premium finance and small ticket dealer-based financing of equipment for consumers and small businesses.

Specialized Lending net income was $55 million for the fourth quarter of 2016, a decrease of $9 million compared to the prior quarter. The allocated provision for credit losses decreased $11 million, primarily due to the sale of a loan portfolio in the current quarter and lower net charge-offs in the commercial finance portfolio. Noninterest expense increased $17 million, primarily attributable to asset write-downs in the operating lease portfolio as well as restructuring charges. Specialized Lending average loans increased $247 million, or 5.4% annualized, primarily due to higher equipment finance, governmental finance and commercial mortgage loans.

Insurance Holdings

BB&T's insurance agency / brokerage network is the fifth largest in the United States and sixth largest in the world. Insurance Holdings provides property and casualty, life and health insurance to businesses and individual clients. It also provides small business and corporate products, such as workers compensation and professional liability, as well as surety coverage and title insurance.

Insurance Holdings net income was $34 million in the fourth quarter of 2016, an increase of $11 million compared to the prior quarter. Noninterest income increased $16 million, which primarily reflects seasonality in the commercial property and casualty insurance business and higher life insurance commissions.

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. In addition, Financial Services offers clients a variety of investment services, including discount brokerage services, equities, annuities, mutual funds and government bonds through BB&T Investment Services, Inc. The segment includes BB&T Securities, a full-service brokerage and investment banking firm, and the Corporate Banking Division, which originates and services large corporate relationships, syndicated lending relationships and client derivatives. The segment also includes the company's SBIC private equity investments.

Financial Services net income was $122 million in the fourth quarter of 2016, an increase of $39 million compared to the prior quarter. Noninterest income increased $29 million, primarily due to higher investment banking and client derivative income and higher income from SBIC private equity investments. The allocated provision for credit losses decreased $34 million, primarily attributable to the sale of certain energy loans during the current quarter.

Corporate Banking's average loan balances decreased $152 million, or an annualized 4.2%, compared to the prior quarter, while BB&T Wealth's average loan balances increased $35 million, or 8.0% annualized. The reduction in Corporate Banking's average loan balances was impacted by the sale of energy loans previously discussed and increased pay downs. Corporate Banking's average transaction account deposits decreased $101 million, or 17.2% on an annualized basis compared to the prior quarter. BB&T Wealth's average transaction account deposits grew $355 million, or 31.3% on an annualized basis.

Other, Treasury & Corporate

Net income in Other, Treasury & Corporate can vary due to the changing needs of the Corporation, including the size of the investment portfolio, the need for wholesale funding and income received from derivatives used to hedge the balance sheet. As previously discussed, Branch Bank entered into an agreement with the FDIC to terminate the loss share agreements during the prior quarter.

Other, Treasury & Corporate generated a net loss of $7 million for the fourth quarter of 2016, compared to a net loss of $23 million in the prior quarter. Segment net interest income decreased $58 million, partially attributable to a reduction in the securities portfolio. The allocated provision for credit losses decreased $19 million, primarily due to an increase in the reserve for unfunded lending commitments in the prior quarter driven by changes related to the mix of lines of credit, letters of credit and bankers' acceptances. Noninterest expense decreased $81 million as a result of lower charitable contributions expense, occupancy and equipment expense, software expense and merger-related and restructuring charges.

Fourth Quarter 2016 compared to Fourth Quarter 2015

Community Banking

Community Banking net income was $334 million for the fourth quarter of 2016, an increase of $72 million compared to the earlier quarter. Segment net interest income increased $131 million driven by acquisition activity, deposit growth and higher funding spreads on deposits, while noninterest income increased $16 million, primarily attributable to earlier acquisition activity. Intersegment net referral fees were up $12 million, primarily attributable to higher client referrals. The allocated provision for credit losses decreased $13 million, driven by lower commercial net charge-offs. Noninterest expense increased $36 million, driven by higher personnel and occupancy and equipment expense primarily attributable to the acquisitions. Allocated corporate expense increased $28 million compared to the earlier quarter driven by the acquisitions.

Residential Mortgage Banking

Residential Mortgage Banking net income was $64 million for the fourth quarter of 2016, an increase of $15 million compared to the earlier quarter. Segment net interest income and noninterest income decreased slightly during the current quarter. The allocated provision for credit losses increased, primarily due to an increase in performing TDRs driven by the strategy of repurchasing loans from GNMA pools that commenced during the second quarter. Noninterest expense decreased $40 million driven by the previously discussed reduction in mortgage repurchase reserves in the current quarter.

Dealer Financial Services

Dealer Financial Services net income was $41 million for the fourth quarter of 2016, flat compared to the earlier quarter. Results were driven by an $11 million increase in segment net interest income, partially attributable to a purchase of prime auto loans in the Dealer Finance portfolio during the current quarter, which was largely offset by an increase in the allocated provision for credit losses primarily due to higher net charge-offs in the Regional Acceptance loan portfolio due to increased loss severity.

Specialized Lending

Specialized Lending net income was $55 million for the fourth quarter of 2016, a decrease of $8 million compared to the earlier quarter. Segment net interest income was up due to growth in small ticket dealer-based finance, mortgage warehouse lending and commercial mortgage, partially offset by lower interest rates on new loans. Noninterest income increased slightly as a result of higher commercial mortgage banking income. Noninterest expense was up $19 million, primarily due to asset write-downs in the operating lease portfolio as well as restructuring charges.

Insurance Holdings

Insurance Holdings net income was $34 million for the fourth quarter of 2016, a decrease of $2 million compared to the earlier quarter. Noninterest income increased $40 million, which primarily reflects the addition of Swett and Crawford and higher employee benefit commissions. Noninterest expense increased $36 million, primarily due to the Swett & Crawford acquisition, which led to higher personnel expense and higher occupancy and equipment expense.

Financial Services

Financial Services net income was $122 million for the fourth quarter of 2016, an increase of $18 million compared to the earlier quarter. Segment net interest income increased $16 million, primarily driven by deposit growth and higher funding spreads on deposits for BB&T Wealth. Noninterest income increased $45 million, primarily due to higher investment banking and client derivative income and higher income from SBIC private equity investments. Noninterest expense increased $23 million, primarily due to higher personnel and professional services expense.

Other, Treasury & Corporate

Other, Treasury & Corporate generated a net loss of $7 million in the fourth quarter of 2016, compared to a net loss of $13 million in the earlier quarter. Segment net interest income decreased $102 million, primarily due to higher funding credits on deposits allocated to other segments and the inclusion of Susquehanna results for a portion of the earlier quarter. Noninterest income increased $44 million, driven by a $52 million improvement in FDIC loss share income as a result of terminating the loss share agreements in the third quarter of 2016. The segment allocated $48 million more of expense to other operating segments compared to the earlier quarter.

CAPITAL RATIOS (1)

                    
   

4Q16

  

3Q16

  

2Q16

  

1Q16

  

4Q15

Risk-based:

                    

Common equity Tier 1

  

10.2%

  

10.1%

  

10.0%

  

10.4%

  

10.3%

Tier 1

  

12.0

  

11.8

  

11.7

  

12.2

  

11.8

Total

  

14.1

  

14.0

  

13.9

  

14.6

  

14.3

Leverage

  

10.0

  

9.8

  

9.6

  

10.1

  

9.8
                       

(1)  Current quarter regulatory capital ratios are preliminary.

Capital levels remained strong at December 31, 2016. BB&T declared common dividends of $0.30 per share during the fourth quarter of 2016, which resulted in a dividend payout ratio of 41.0%. Capital ratios increased during the fourth quarter primarily due to earnings in excess of dividends. In addition, capital increased $197 million due to net proceeds for equity award transactions. BB&T completed $160 million (4.1 million shares) of open market share repurchases during the fourth quarter. The previously announced $200 million accelerated share repurchase ("ASR") program began in December and resulted in the retirement of 3.4 million shares. The program concluded in January 2017 with approximately 910,000 additional shares being retired. The conclusion of the ASR program in January does not impact capital as the full cost was charged to equity in the fourth quarter. The total payout ratio for the fourth quarter of 2016 was 101.9%.

BB&T's estimated common equity Tier 1 ratio under Basel III, on a fully-phased in basis, was approximately 10.0% at December 31, 2016 and 9.9% at September 30, 2016.

BB&T's liquidity coverage ratio was approximately 121% at December 31, 2016, compared to the regulatory minimum of 90%. In addition, the liquid asset buffer, which is defined as high quality unencumbered liquid assets as a percentage of total assets, was 12.6% at December 31, 2016.

ASSET QUALITY (1)

              

(dollars in millions)

                    
   

4Q16

  

3Q16

  

2Q16

  

1Q16

  

4Q15

Total nonperforming assets

  

$

813

  

$

843

  

$

886

  

$

903

  

$

712

Total performing TDRs

  

1,170

  

1,072

  

1,003

  

981

  

982

Total loans 90 days past due and still accruing

  

636

  

592

  

610

  

609

  

677

Total loans 30-89 days past due

  

1,077

  

980

  

914

  

825

  

1,031
                     

Nonperforming loans and leases as a percentage of loans 
     and leases held for investment

  

0.51%

  

0.53%

  

0.56%

  

0.58%

  

0.42%

Nonperforming assets as a percentage of total assets

  

0.37

  

0.38

  

0.40

  

0.42

  

0.34

Allowance for loan and lease losses as a percentage of loans 
     and leases held for investment

  

1.04

  

1.06

  

1.06

  

1.10

  

1.07

Net charge-offs as a percentage of average loans and leases, 
     annualized

  

0.42

  

0.37

  

0.28

  

0.46

  

0.38

Ratio of allowance for loan and lease losses to net charge-
     offs, annualized

  

2.47x

  

2.91x

  

3.88x

  

2.40x

  

2.83x

Ratio of allowance for loan and lease losses to 
     nonperforming loans and leases held for investment

  

2.03x

  

2.00x

  

1.90x

  

1.89x

  

2.53x
                       

(1)  Includes amounts related to government guaranteed GNMA mortgage loans that BB&T has the right but not the obligation to repurchase. See footnotes on the Credit Quality pages of the Quarterly Performance Summary for additional information.

Nonperforming assets totaled $813 million at December 31, 2016, down $30 million compared to September 30, 2016. The decrease was driven by a $50 million decline in nonperforming commercial and industrial loans, primarily due to the sale of several energy-related credits during the fourth quarter. This decrease was offset by smaller increases in consumer related portfolios, which were largely due to seasonal factors. At December 31, 2016, nonperforming loans and leases represented 0.51% of loans and leases held for investment, compared to 0.53% at September 30, 2016.

Performing TDRs were up $98 million during the fourth quarter, driven by a $72 million increase in residential mortgage loans. This increase was primarily the result of the permanent restructuring of certain mortgage loan modifications that successfully completed their trial periods.

Loans 30-89 days past due and still accruing totaled $1.1 billion at December 31, 2016, up $97 million compared to the prior quarter. This increase was primarily driven by seasonality in retail portfolios.

Loans 90 days or more past due and still accruing totaled $636 million at December 31, 2016, up $44 million compared to the prior quarter, primarily due to an increase in residential mortgage loans. The ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.44% at December 31, 2016, compared to 0.42% for the prior quarter. Excluding government guaranteed and acquired from FDIC and PCI loans, the ratio of loans 90 days or more past due and still accruing as a percentage of loans and leases was 0.07% at December 31, 2016, an increase of one basis point compared to the prior quarter.

Net charge-offs during the fourth quarter totaled $151 million, up $21 million compared to the prior quarter, primarily due to higher charge-offs on acquired from FDIC and PCI loans, loan sales and seasonal increases in the retail lending portfolio, partially offset by lower commercial net charge-offs. As a percentage of average loans and leases, annualized net charge-offs were 0.42%, compared to 0.37% in the prior quarter.

The allowance for loan and lease losses, excluding the allowance for loans acquired from the FDIC and PCI loans, was $1.4 billion, essentially flat compared to the prior quarter. As of December 31, 2016, the total allowance for loan and lease losses was 1.04% of loans and leases held for investment, two basis points lower compared to September 30, 2016.

The allowance for loan and lease losses was 2.03 times nonperforming loans and leases held for investment, compared to 2.00 times at September 30, 2016. At December 31, 2016, the allowance for loan and lease losses was 2.47 times annualized net charge-offs, compared to 2.91 times at September 30, 2016. The decrease in the charge-off coverage ratio was primarily due to the higher charge-offs in the acquired from FDIC and PCI portfolio.