Business context and reporting period
This is BB&T Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. The request identifies Truist Financial Corp., but the filing is for BB&T Corporation; verify the issuer before relying on this summary. BB&T operated as a financial holding company through Branch Bank and nonbank subsidiaries.
Key financial metrics
Amounts are in millions of dollars unless otherwise indicated. Income-statement comparisons are year over year; balance-sheet comparisons are to December 31, 2014.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net interest income | $1,312 | $1,343 | $2,624 | $2,690 |
| Net interest margin (FTE) | 3.27% | 3.43% | 3.30% | 3.47% |
| Provision for credit losses | $97 | $74 | $196 | $134 |
| Noninterest income | $1,019 | $958 | $2,016 | $1,885 |
| Noninterest expense | $1,653 | $1,534 | $3,075 | $2,919 |
| Net income | $501 | $477 | $1,048 | $1,050 |
| Net income available to common shareholders | $454 | $424 | $942 | $920 |
| Diluted EPS | $0.62 | $0.58 | $1.29 | $1.27 |
- Returns: Q2 annualized return on average assets was 1.06%, return on average common equity 8.20%, and return on average tangible common equity 12.76%.
- Revenue and profitability: Management reported Q2 FTE total revenue of $2.4 billion, up $31 million year over year. Higher noninterest income more than offset lower FTE net interest income. Q2 income taxes were $80 million and the effective tax rate was 13.8%, versus $216 million and 31.2% in Q2 2014.
- Cash flow: For the first six months, operating cash flow was $46 million (versus $877 million in 2014), investing cash flow was $661 million (versus negative $3.542 billion), and financing cash flow was negative $411 million (versus $2.948 billion). Cash and cash equivalents ended the period at $2.621 billion.
- Balance sheet and funding: Total assets were $191.017 billion; loans and leases were $122.301 billion gross and $120.844 billion net of the loan-loss allowance. Deposits totaled $132.783 billion, including $42.234 billion noninterest-bearing. Short-term borrowings were $3.883 billion and long-term debt $23.271 billion. Shareholders’ equity was $25.132 billion.
- Credit: Allowance for loan and lease losses was $1.457 billion, or 1.19% of held-for-investment loans. Nonperforming assets were $729 million, 0.60% of loans plus foreclosed property. Q2 net charge-offs were $98 million, or 0.33% annualized; six-month net charge-offs were $199 million, versus $280 million in 2014.
- Capital and liquidity: June 30 regulatory ratios included Basel III Common Equity Tier 1 of 10.4%, Tier 1 of 12.1%, total capital of 14.3%, and leverage capital of 10.2%; the estimated fully phased-in standardized CET1 ratio was 10.2%. The liquid-asset buffer was 13.3% of assets. Management estimated the modified liquidity coverage ratio at 118%, above the then-applicable 90% minimum.
Material changes versus comparable periods
- Q2 common earnings rose $30 million year over year, while first-half net income was nearly flat. Q2 net interest income declined $31 million and FTE NIM fell 16 basis points, reflecting lower loan yields and runoff of acquired FDIC loans; funding costs declined.
- Q2 noninterest income increased $61 million, led by mortgage banking, FDIC loss-share income and investment banking and brokerage fees. First-half noninterest income rose $131 million.
- Noninterest expense increased $119 million in Q2 and $156 million in the first half. The principal unusual charge was a $172 million pre-tax loss from early termination of $931 million of higher-cost FHLB advances.
- Loans grew $2.4 billion from year-end, including $1.2 billion from The Bank of Kentucky acquisition; deposits grew $3.7 billion, including $1.6 billion from that acquisition. Excluding the acquisition, management cited commercial and other lending growth, partly offset by declining residential mortgage balances.
- Asset quality improved in several measures: NPAs fell from $782 million at year-end to $729 million; Q2 net charge-offs were lower than a year earlier. The allowance-to-loans ratio declined from 1.23% to 1.19%.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no numerical earnings or revenue guidance. Management described ongoing pressure on asset yields and NIM from the low-rate environment and runoff of higher-yielding acquired loans. BB&T expected to close its approved Susquehanna Bancshares acquisition on August 1, 2015.
- Tax litigation: A May 2015 appellate ruling reversed part of an IRS tax case and generated a $107 million Q2 tax benefit; other parts of the adverse ruling were affirmed. BB&T had paid the disputed amount and was evaluating its options. The filing says changes in unrecognized tax benefits, penalties and interest could produce a benefit of up to approximately $596 million, subject to the litigation outcome and timing.
- Other unusual items: The American Coastal sale generated a $26 million pre-tax loss and $34 million after-tax loss, or $0.05 per share. BB&T also purchased additional ownership in AmRisc. Q2 2014 results included $88 million of after-tax adjustments related to potential FHA-insured mortgage exposures and an income-tax reserve.
- Credit and market risks: Management cited energy-sector risk expectations in commercial lending and higher loss severity in the nonprime auto portfolio. Interest-rate sensitivity, deposit mix, mortgage prepayments and MSR valuation remain relevant exposures; securities unrealized losses were attributed principally to higher market rates. The filing also identifies economic, regulatory, cyber-security, litigation, merger integration and ERP implementation risks.
- Contingencies: Management considered legal reserves adequate and did not expect outstanding proceedings to have a material adverse effect based on currently available information, while cautioning that an unfavorable resolution could be material. FHA-related potential loss exposure was estimated at $25 million to $105 million; the FHA-insured mortgage loan reserve was $85 million.
- Capital returns: The board authorized a plan to repurchase up to 50 million shares, but no shares were repurchased under the plan during Q2. The quarterly common dividend declared was $0.27 per share.
Most important facts for investors to verify
- Confirm the issuer: this source is BB&T Corporation, not Truist Financial Corp.; confirm the intended filing and reporting period.
- Assess underlying earnings excluding the $107 million tax benefit, $172 million debt-extinguishment charge, and American Coastal sale loss; compare the filing’s reported and adjusted presentations where available.
- Review the IRS litigation status and potential tax-benefit range, including whether either party pursued further appeal.
- Track NIM, loan yields, acquired-FDIC runoff, deposit mix and the sustainability of mortgage banking and other fee income.
- Monitor credit trends, especially energy-related commercial exposures, nonprime auto losses, allowance adequacy and problem-loan measures.
- Verify acquisition completion and integration developments for Susquehanna, as well as the effects of The Bank of Kentucky acquisition and share-repurchase plans.