BB&T Corporation Form 10-Q Summary
Filing identity: The supplied filing is for BB&T Corporation, not Truist Financial Corp. The filing covers the quarter and nine months ended September 30, 2014; the financial statements are unaudited. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
BB&T is a financial holding company operating primarily through Branch Banking and Trust Company, alongside insurance and other financial services businesses. During the quarter, it agreed to acquire 41 Texas branches with approximately $2.3 billion in deposits and The Bank of Kentucky, a $1.9 billion bank with 32 branches. Earlier in 2014 it acquired 21 Texas branches from Citigroup.
Key financial metrics
| Metric | Q3 2014 / September 30, 2014 | Comparable period or balance |
|---|---|---|
| Net income available to common shareholders | $520 million | $268 million in Q3 2013; $503 million in Q3 2013 excluding its $235 million tax charge |
| Diluted EPS | $0.71 | $0.37 reported and $0.70 excluding the prior-year tax charge |
| Net interest income (FTE) and NIM | $1.385 billion; 3.38% | Down $69 million and 30 basis points year over year |
| Total revenue (FTE basis) | Approximately $2.3 billion | Down $38 million year over year |
| Provision for credit losses | $34 million reported; $46 million excluding covered loans | $92 million reported in Q3 2013; excluding covered loans, the provision fell $44 million |
| Noninterest expense | $1.556 billion | Up $85 million year over year, including a $122 million debt-extinguishment loss |
| Assets, loans, deposits | Assets $187.0 billion; loans and leases $118.7 billion; deposits $130.9 billion | At December 31, 2013: assets $183.0 billion; loans $115.9 billion; deposits $127.5 billion |
| Debt and shareholders’ equity | Long-term debt $22.4 billion; short-term borrowings $3.4 billion; equity $24.3 billion | At December 31, 2013: long-term debt $21.5 billion; short-term borrowings $4.1 billion; equity $22.8 billion |
| Credit quality | NPLs $784 million and NPAs $883 million, excluding covered assets; NPL ratio 0.67%; ALLL $1.504 billion | NPLs $935 million and NPAs $1.053 billion at December 31, 2013; ALLL $1.732 billion |
| Capital and liquidity | Tier 1 risk-based capital 12.4%; total risk-based capital 15.1%; Basel III common equity Tier 1 ratio estimated at 10.3%. Liquid asset buffer 14.3% of assets; estimated LCR 132% | Capital ratios increased from December 31, 2013; the LCR rule was due to take effect in 2016 |
For the nine months ended September 30, net income was $1.617 billion, net income available to common shareholders was $1.446 billion, and diluted EPS was $1.99. Net cash from operating activities was $1.504 billion, investing activities used $3.488 billion, and financing activities provided $1.836 billion. Cash and cash equivalents ended the period at $2.017 billion, down $148 million from the beginning of the period.
Material changes versus comparable periods
- Q3 common earnings rose $252 million year over year, but the comparison is substantially affected by the $235 million tax charge recorded in Q3 2013 and a $50 million tax benefit recognized in Q3 2014. Excluding the respective tax items, diluted EPS was $0.70 and $0.71.
- Net interest income and NIM declined as lower loan yields and runoff of higher-yielding covered loans outweighed lower funding costs. Management cited lower yields on new loans and the prior sale of a consumer lending subsidiary as additional factors.
- Quarterly noninterest income increased $31 million, principally from insurance income. For the nine-month period, noninterest income fell $172 million, largely because mortgage banking income declined $198 million.
- Credit indicators improved: nine-month net charge-offs excluding covered loans were $422 million versus $650 million in 2013, and NPAs declined from year-end. The allowance for credit losses fell to $1.567 billion from $1.821 billion.
- Loans and deposits grew from year-end. Average deposits in Q3 increased $1.0 billion from Q2, including growth in noninterest-bearing deposits; the Texas branch purchase contributed to deposit growth.
Outlook, commentary, risks and unusual items
- Management expected Q4 NIM to decline approximately 3–5 basis points, mainly from covered-asset runoff, and net interest income to decline slightly from Q3.
- Management expected average total loans to be down 1%–2% on an annualized basis in Q4 versus Q3, but up 1%–2% excluding residential mortgage lending. It expected Q4 net charge-offs of 45–50 basis points, modestly lower NPAs, noninterest expense below $1.4 billion, and an effective tax rate similar to Q3’s adjusted 26.5% rate.
- Management said it anticipated no further allowance releases and therefore expected higher provision expense. Q3’s $550 million residential mortgage loan sale, primarily performing TDRs, generated a $42 million provision benefit. The quarter also included the $122 million loss from extinguishing $1.1 billion of FHLB advances and the $50 million tax benefit.
- BB&T recorded an $85 million reserve for potential FHA-insured loan exposure; its estimated exposure was $25 million–$105 million, and a HUD-OIG review was ongoing with no claim asserted. It also recorded a $33 million increase to mortgage indemnification reserves.
- The company’s commercial Colonial loss-sharing coverage with the FDIC expired October 1, 2014. Commercial loans with a $741 million carrying value and certain other assets were no longer covered against losses; specified securities remained subject to gain-sharing provisions through September 2017.
- BB&T described pending IRS litigation over a financing transaction and said the related exposure was fully reserved. Depending on resolution, changes in unrecognized tax benefits, penalties and interest could produce a benefit of up to approximately $700 million; timing and outcome remain uncertain.
- Risks cited include economic and credit deterioration, interest-rate changes, regulatory and tax developments, litigation, cybersecurity, merger integration, and potential problems implementing a new ERP general-ledger system. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer and filing identity: the source document names BB&T Corporation, not Truist Financial Corp.
- Assess underlying earnings after separating the tax adjustments, loan-sale provision benefit, and debt-extinguishment loss from recurring results.
- Track NIM, loan yields, covered-asset runoff, loan growth, and whether the stated Q4 outlook was achieved.
- Review subsequent developments in the FHA/HUD-OIG matter, mortgage indemnification reserves, and IRS litigation.
- Monitor credit quality and allowance adequacy, especially the expected end of allowance releases and the expiration of commercial FDIC loss sharing.
- Validate capital and liquidity measures, noting that the Basel III capital ratios and LCR estimate were preliminary or based on management interpretations.