Filing summary
Entity check: The request identifies Truist Financial Corp, but the supplied Form 10-Q is for BB&T Corporation. Confirm the filing is for the intended issuer. The report covers the quarter ended September 30, 2009, was filed November 9, 2009, and presents unaudited results.
Business context and reporting period
BB&T was a financial holding company based in Winston-Salem, North Carolina, with banking and financial services operations across multiple U.S. states. The results include the FDIC-assisted acquisition of selected Colonial Bank assets and liabilities, completed August 14, 2009. The acquisition’s contribution to third-quarter results was described as not material.
Key financial metrics
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Net interest income | $1.237 billion | $1.088 billion | $3.521 billion | $3.173 billion |
| Net interest margin, FTE | 3.68% | 3.66% | 3.61% | 3.61% |
| Provision for credit losses | $709 million | $364 million | $2.086 billion | $917 million |
| Noninterest income | $940 million | $792 million | $2.964 billion | $2.390 billion |
| Noninterest expense | $1.320 billion | $1.005 billion | $3.570 billion | $2.899 billion |
| Net income | $157 million | $362 million | $683 million | $1.222 billion |
| Net income available to common shareholders | $152 million | $358 million | $544 million | $1.214 billion |
| Diluted EPS | $0.23 | $0.65 | $0.88 | $2.20 |
- Q3 annualized return on average assets was 0.40%, versus 1.05%; return on average common equity was 3.90%, versus 10.86%.
- At September 30, total assets were $165.3 billion; loans and leases were $107.0 billion, including $8.3 billion of Colonial covered loans. Total deposits were $114.5 billion and long-term debt was $21.3 billion.
- Deposits rose 16.1% from year-end 2008, to $114.5 billion, including growth from Colonial. Client deposits were $103.7 billion. The filing reports $2.391 billion of cash and cash equivalents at period end.
- For the nine months, operating cash flow was a use of $867 million, investing activities provided $7.682 billion, financing activities used $7.164 billion, and cash and cash equivalents declined $349 million. Investing cash flow included $4.478 billion of net cash acquired in business combinations.
- Tier 1 and total risk-based capital ratios were 11.1% and 15.6%; the Tier 1 common ratio was 8.4%. The latter is a non-GAAP measure. Management said capital remained above regulatory well-capitalized standards.
- Q3 cash dividends were $0.15 per share, compared with $0.47 a year earlier; nine-month dividends were $1.09, compared with $1.39.
Material changes versus comparable periods
- Q3 net income fell 56.6% year over year; nine-month net income fell 44.1%. Common earnings per diluted share declined 64.6% for Q3 and 60.0% for the nine-month period.
- Higher net interest income and fee income were outweighed by sharply higher credit provisions and operating expenses. Q3 noninterest income rose 18.7%, supported particularly by mortgage banking and insurance; noninterest expense rose 31.3%.
- Credit conditions worsened: Q3 net charge-offs were $446 million, or 1.71% of average loans on an annualized basis, versus $242 million, or 1.00%, a year earlier. Nonperforming assets reached $4.103 billion, versus $2.030 billion at year-end 2008.
- The allowance for loan and lease losses was $2.379 billion, or 2.29% of loans held for investment (2.49% excluding covered loans), compared with $1.574 billion, or 1.62%, at year-end 2008. The allowance was 0.92 times nonperforming loans.
- Total assets increased 8.8% from year-end 2008. The Colonial transaction materially expanded the balance sheet, including deposits, covered loans, goodwill and an FDIC loss-share receivable.
Outlook, commentary, risks, and unusual items
- Management reported that early-stage delinquencies and net charge-offs were broadly stable compared with Q2, but nonperforming assets and credit costs continued to rise. Housing-related exposures, especially in Georgia, Florida, and the Washington, D.C. area, were key concerns.
- Management expected further net interest margin improvement, in part from the Colonial acquisition. It also said it was not reinvesting securities portfolio cash flows and expected the portfolio to decline as a share of earning assets. No formal earnings guidance was provided.
- Colonial acquisition accounting remained preliminary. BB&T recorded a $3.3 billion FDIC loss-share receivable, about $690 million of goodwill, and a $176 million core deposit intangible. Management expected to complete its analysis of certain acquired loan estimates in Q4 2009. The FDIC agreements cover specified assets and losses but do not protect against all losses and have defined terms.
- The quarter included a $25 million pretax contingency reserve and a $12 million income tax benefit related to leveraged lease transactions. Nine-month results also included a $68 million FDIC special assessment, $47 million of accelerated amortization related to preferred stock repaid to Treasury, and $41 million of gains from early debt extinguishment. Nine-month securities gains were $200 million, net of $40 million in other-than-temporary impairment charges.
- The FDIC proposed requiring institutions to prepay three years of assessments; BB&T estimated its share at $650 million to $700 million under the proposal. The filing describes this as an estimate based on a proposed rule.
- BB&T repaid approximately $3.1 billion of Treasury preferred stock in June 2009 and repurchased the related warrant in July. It raised approximately $2.6 billion through common stock offerings during the year.
- Credit-rating agencies downgraded BB&T during 2009; reported outlooks varied by agency. The filing identifies economic weakness, real estate losses, interest-rate changes, acquisition integration, regulatory changes, and deposit or customer attrition as risks.
- The company disclosed IRS proposed adjustments related to foreign tax credits for 2002–2007. Management believed its position was appropriate and reserves adequate, but the outcome was uncertain and not expected to be resolved within 12 months. Legal proceedings were described as ordinary-course matters; management said current information did not indicate a material adverse effect, while noting an unfavorable resolution could be material.
- Disclosure-control evaluations excluded Colonial banking operations. Those acquired or assumed assets represented 8.5% of consolidated assets and 11.2% of consolidated liabilities; the filing reported no material revenue impact from Colonial for the period.
Most important facts for investors to verify
- Whether BB&T Corporation, rather than Truist Financial Corp, is the intended issuer and filing.
- Subsequent credit performance, charge-offs, nonperforming assets, and reserve adequacy, particularly in real estate and the identified regional concentrations.
- Final Colonial purchase accounting, acquired-loan cash-flow estimates, and actual FDIC reimbursements, including uncovered losses and agreement time limits.
- The final FDIC assessment rules and BB&T’s resulting payment and expense timing.
- Capital and funding trends after the stock issuances, Treasury preferred-stock repayment, debt issuance, and acquisition; the filing does not provide a standalone liquidity ratio.
- Resolution of the foreign-tax-credit dispute and other contingencies, and the adequacy of related reserves.