Business Context and Reporting Period
This is BB&T Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2013, with comparisons primarily to Q1 2012 and December 31, 2012. The request metadata identifies Truist Financial Corp.; the filing itself identifies BB&T Corporation, so the registrant identity should be verified.
Key Financial Metrics
Unless otherwise noted, amounts are in millions of dollars.
- Revenue and earnings: Management reported total revenue of approximately $2.5 billion, up $116 million year over year. Net interest income was $1,422 million, down $14 million; noninterest income was $1,001 million, up $130 million. Net income was $256 million versus $445 million; income available to common shareholders was $210 million versus $431 million. Diluted EPS was $0.29 versus $0.61.
- Tax item and adjusted results: Results included a $281 million income-tax charge relating to an uncertain tax position. Excluding it, management reported diluted EPS of $0.69, net income available to common shareholders of $491 million, and an effective tax rate of 27.1%, versus reported EPS of $0.29 and tax rate of 65.3%.
- Margins and expenses: Net interest margin was 3.76%, down 17 basis points year over year. Noninterest expense was $1,414 million, up 2.1%; personnel expense rose $87 million, while foreclosed-property expense fell $74 million.
- Credit and asset quality: Provision for credit losses was $272 million versus $288 million. Net charge-offs were $289 million, or 1.00% of average loans and leases, versus $352 million, or 1.28%. Nonperforming assets excluding covered assets were $1,413 million, down from $1,536 million at year-end; the ALLL was $1,975 million and total allowance for credit losses was $2,031 million.
- Cash flow: Operating activities provided $465 million versus $1,873 million in Q1 2012; investing activities provided $1,459 million versus using $2,255 million; financing activities used $2,465 million versus providing $90 million. Cash and cash equivalents ended the quarter at $3,212 million, down $541 million from the start of the period.
- Balance sheet and funding: Total assets were $180,837 million, down from $183,872 million at year-end. Loans and leases were $114,196 million, versus $114,603 million; total deposits were $131,352 million, versus $133,075 million. Long-term debt was $18,316 million, down from $19,114 million; short-term borrowings were $3,239 million, up from $2,864 million. Shareholders’ equity was $21,229 million.
- Capital and liquidity: Tier 1 and total risk-based capital ratios were 10.8% and 13.6%; Tier 1 common ratio was 9.2%. The estimated Tier 1 common ratio under proposed Basel III rules was 7.8%. The liquid-asset buffer was 10.3% of total assets; secured borrowing capacity was approximately $52 billion. The parent company reported 32 months of cash coverage for specified projected contractual outflows.
Material Changes Versus Prior Period
- Common earnings and diluted EPS fell sharply as the $281 million tax charge more than offset higher noninterest income and lower credit costs. Excluding the charge, management’s adjusted EPS was higher than the prior-year reported $0.61.
- Insurance income increased $94 million, including approximately $78 million from the Crump Insurance acquisition completed in April 2012. Insurance premiums also benefited from firmer market conditions.
- Mortgage banking income declined $36 million, mainly due to lower mortgage-servicing-right valuation adjustments. Lower yields and runoff of covered loans pressured net interest income and margin.
- Average loans held for investment grew 5.3% year over year and average deposits grew 4.7%, with increased noninterest-bearing deposits. Reported quarter-end deposits nevertheless declined from year-end.
- Credit indicators improved: nonperforming assets and net charge-offs declined, continuing a multi-quarter trend. Covered-loan provision, however, increased, reflecting deterioration in certain residential mortgage pools.
Outlook, Risks, and Unusual Items
- Management expected Q2 2013 NIM to decline by up to 10 basis points, citing covered-loan runoff and lower yields on new earning assets, partly offset by lower deposit costs.
- Management expected average loans held for investment to grow 2%–4% annualized in Q2, assuming relatively stable economic conditions; it expected deposit costs below 0.30% by year-end and NPAs to improve modestly, subject to no significant economic deterioration.
- The Federal Reserve objected to certain elements of BB&T’s capital plan. It did not object to continuation of the $0.23 quarterly common dividend or preferred dividends. A CCAR resubmission was due June 11, 2013; Moody’s and S&P moved their outlooks from stable to negative following the objection.
- The IRS tax dispute remained unresolved: BB&T had paid approximately $892 million of asserted taxes, penalties, and interest in 2010 and was seeking a refund. After an adverse Tax Court opinion in a similar case, BB&T recorded the $281 million charge. Its trial concluded April 2, 2013, with no decision yet; reasonably possible changes in uncertain tax positions over the next 12 months ranged from a $496 million benefit to a $328 million expense.
- Other principal risks identified include economic and credit deterioration, interest-rate and market changes, regulatory and tax developments, merger integration, competition, and cybersecurity. The filing reported no material change in previously disclosed risk factors. Management said disclosure controls were effective.
- After quarter-end, on May 1, BB&T issued $500 million of Series G preferred stock with a 5.20% annual dividend rate if declared.
Most Important Facts for Investors to Verify
- Confirm the filing is for BB&T Corporation, not the Truist entity named in the request metadata.
- Track the court outcome and subsequent accounting for the IRS dispute and related uncertain tax positions.
- Review the Federal Reserve’s response to the resubmitted capital plan, capital distributions, and rating outlooks.
- Assess whether margin pressure, covered-loan runoff, and deposit mix develop in line with management’s outlook.
- Monitor credit quality, particularly covered residential mortgage pools, allowance adequacy, and the pace of NPA improvement.