Business context and reporting period
Truist Financial Corporation’s Form 10-K covers the fiscal year ended December 31, 2019. The company completed its merger with SunTrust on December 6, 2019, and changed its name from BB&T Corporation to Truist. Results include heritage BB&T for the full year but SunTrust only from the merger close; year-end balance-sheet figures include both companies. Accordingly, year-over-year comparisons are not like-for-like.
Truist is a Charlotte-headquartered financial services company operating in consumer banking and wealth, corporate and commercial banking, and insurance. It reported approximately 59,000 employees and 2,958 banking offices at year-end.
Financial performance and condition
Amounts below are U.S. dollars; figures are rounded. Annual results are for 2019 unless otherwise noted.
| Metric | 2019 | 2018 |
|---|---|---|
| Reported revenue | $12.568 billion | $11.558 billion |
| Net interest income | $7.313 billion | $6.682 billion |
| Net income | $3.237 billion | $3.257 billion |
| Net income available to common shareholders | $3.028 billion | $3.063 billion |
| Diluted EPS | $3.71 | $3.91 |
| Net interest margin (taxable-equivalent) | 3.42% | 3.46% |
| Return on average assets | 1.31% | 1.47% |
| Return on average common equity | 9.87% | 11.50% |
| Provision for credit losses | $615 million | $566 million |
| Net charge-offs / average loans | 0.40% | 0.36% |
Revenue rose 8.7%, while common net income declined 1.1% and diluted EPS declined 5.1%. The filing attributes much of the revenue and expense growth to the merger. Noninterest expense increased 14.5% to $7.934 billion; it included $360 million of merger-related and restructuring charges and $164 million of incremental merger operating expense. Truist also recorded $116 million of net securities losses and a $14 million after-tax gain on residential mortgage loan sales.
Fourth quarter: Taxable-equivalent revenue was $3.7 billion. Net income available to common shareholders was $702 million and diluted EPS was $0.75, versus $735 million and $0.95 in Q3. Q4 noninterest expense was $2.575 billion, including higher merger-related costs; NIM was 3.41%. The filing says Q4 net charge-offs were $192 million, compared with $143 million in Q3.
Cash flow: Net cash from operating activities was $1.520 billion, down from $4.349 billion in 2018. Investing activities provided $8.348 billion, including $6.256 billion of net cash received for mergers, acquisitions and divestitures; financing activities provided $5.353 billion. Cash and cash equivalents ended the year at $19.065 billion.
Balance sheet and funding: Total assets were $473.1 billion; loans and leases were $308.2 billion, deposits $334.7 billion, and securities $74.7 billion. Long-term debt was $41.3 billion and short-term borrowings $18.2 billion. These large increases from 2018 were primarily merger-related. The average cost of total deposits rose to 0.64% from 0.41%.
Credit and capital: Nonperforming assets were $684 million, up $99 million year over year; nonperforming loans held for investment were 0.15% of those loans. The allowance for credit losses was $1.889 billion, including $340 million for unfunded commitments. Truist’s CET1, Tier 1 and total risk-based capital ratios were 9.5%, 10.8% and 12.6%, respectively, versus 10.2%, 11.8% and 13.8% in 2018. The liquid-asset buffer was 16.5% of assets and the modified average LCR was 165% for Q4, above the 100% regulatory minimum. Truist and Truist Bank were classified as well-capitalized.
Material changes, outlook and risks
- Merger and integration: The merger added $235.7 billion of assets, including $154.0 billion of loans, and $170.7 billion of deposits. The preliminary purchase-price allocation included $14.3 billion of merger goodwill; fair-value estimates remained subject to adjustment. Management expects integration to continue over several years and identifies achieving synergies, integrating systems and operations, retaining staff and clients, and managing execution as key challenges. The filing provides no quantified earnings or synergy guidance.
- Strategic actions: Truist sold $4.3 billion of residential mortgage loans during Q3 and sold $33.2 billion of securities in Q4, recording $116 million in securities losses. It agreed to divest 30 branches, approximately $2.4 billion of deposits and $400 million of loans, subject to closing in 2020. The company announced a $60 billion lending and investment commitment to low- and moderate-income borrowers and communities over 2020–2022.
- Accounting change: CECL was adopted January 1, 2020. The filing estimates a $2.9 billion increase in the allowance for credit losses and a $2.1 billion after-tax decrease in retained earnings, to be reflected in Q1 2020 statements.
- Key risks: Integration costs, potential deposit or client attrition, credit deterioration, interest-rate and funding-cost changes, LIBOR transition, regulatory capital and liquidity requirements, litigation, cyber and operational disruptions, and competition. The filing also notes the then-recent coronavirus outbreak as a potential risk to borrowers and economic activity.
- Legal and regulatory matters: The company estimated reasonably possible legal losses in excess of accruals of up to approximately $210 million, while noting some matters could not be estimated. SunTrust Bank entered into an FRB consent order in November 2019 concerning legacy compliance issues. Truist’s internal-control assessment excluded SunTrust operations, which represented approximately 40% of consolidated assets and 5% of revenues; management concluded controls were effective for the operations assessed.
- Capital returns: Truist declared $1.71 per common share in dividends for 2019 and suspended share repurchases until capital ratios return to higher levels. Common dividends remain subject to regulatory and capital-plan constraints.
Most important facts for investors to verify
- Separate merger-driven growth from organic trends; SunTrust is included in 2019 results only after December 6, while year-end balances are combined.
- Track integration costs, deposit and client retention, branch divestiture completion, and whether expected merger benefits are realized.
- Review the final purchase-price allocation and CECL adoption impact, including the stated allowance and retained-earnings adjustments.
- Monitor credit quality, especially charge-offs, delinquency trends, and the effect of acquired loans and portfolio transfers on reported asset-quality measures.
- Assess capital and liquidity after the merger, including CET1, the tailored LCR, funding costs, and the conditions for resuming repurchases.
- Follow developments in the disclosed legal matters, the FRB consent order, and integration of SunTrust financial-reporting controls.