TRUIST FINANCIAL CORP quarterly report, Q1 FY2018

全文

Business Context and Reporting Period

BB&T Corporation (the registrant named in the filing; the filing does not identify Truist Financial Corp.) reported unaudited results for the quarter ended March 31, 2018. BB&T operated through its bank and nonbank subsidiaries across community banking, financial services and commercial finance, and insurance.

Financial Performance and Condition

  • Earnings: Net income was $791 million, versus $426 million in Q1 2017; net income available to common shareholders was $745 million. Diluted EPS was $0.94 versus $0.46. The filing attributes much of the comparison to a $392 million debt-extinguishment loss in the prior-year quarter.
  • Revenue and margin: Taxable-equivalent total revenue was approximately $2.8 billion, up $16 million year over year. GAAP net interest income was $1.633 billion; taxable-equivalent net interest income was $1.656 billion, up $7 million. Net interest margin was 3.44%, down from 3.46%. Higher loan and securities income was largely offset by higher funding expense.
  • Credit costs and asset quality: Provision for credit losses was $150 million versus $148 million. Net charge-offs were $145 million, or 0.41% of average loans, versus $148 million, or 0.42%. Nonperforming assets were $669 million, up $42 million from year-end, mainly reflecting commercial real estate, leasing and foreclosed properties. The allowance for credit losses was $1.614 billion; allowance for loan and lease losses was 1.05% of loans held for investment.
  • Expenses and taxes: Noninterest expense was $1.686 billion, down $416 million, primarily because Q1 2017 included the $392 million debt-extinguishment loss. Excluding that item and merger-related charges, BB&T said expenses declined $16 million. The effective tax rate was 19.0%, versus 19.6%; Q1 2018 reflected the lower federal tax rate.
  • Cash flow: Operating cash flow was $308 million, investing cash flow was $203 million and financing cash flow was negative $483 million. Cash, cash equivalents and restricted cash increased $28 million to $3.111 billion. These are banking-company cash-flow measures and should be considered alongside balance-sheet liquidity.
  • Balance sheet and funding: Total assets were $220.7 billion, down from $221.6 billion at year-end. Loans and leases were $143.0 billion; deposits were $158.2 billion, up $825 million. Short-term borrowings were $4.3 billion and long-term debt was $23.4 billion. Shareholders’ equity was $29.7 billion.
  • Capital and liquidity: CET1 capital ratio was 10.2%; total capital ratio was 14.0%. The liquidity buffer was 15.1% of assets and the reported LCR was approximately 144%, above the stated 100% regulatory minimum. Secured borrowing capacity at Branch Bank was approximately $80 billion.
  • Shareholder returns: BB&T declared a $0.375 common dividend per share, 13.6% above Q4 2017, and repurchased $320 million of shares. The dividend payout ratio was 39.2% and total payout ratio was 82.1%.

Material Changes Versus the Prior Comparable Period

  • Net income available to common shareholders nearly doubled and diluted EPS rose $0.48 year over year, but the comparison was materially affected by the prior-year $392 million debt-extinguishment loss.
  • Interest income increased $129 million, while interest expense rose $122 million, reflecting higher rates and funding costs. Net interest margin contracted 2 basis points.
  • Noninterest income increased $9 million. Higher investment banking and brokerage fees were partly offset by lower insurance income, including lower performance-based commissions.
  • Provision expense was nearly unchanged, and net charge-offs declined modestly; nonperforming assets nevertheless increased from Q4 2017.
  • Common shares outstanding fell to 779.8 million from 782.0 million at year-end, while common dividends and repurchases reduced equity.

Outlook, Commentary, Risks and Unusual Items

  • The filing provides no specific earnings or revenue guidance. Management described asset quality as strong, noted tight expense control, and said higher interest rates were lifting asset yields while also increasing funding costs. Deposit pricing and the behavior of noninterest-bearing deposits are important sensitivities.
  • In April 2018, BB&T announced plans to acquire Regions Insurance, with closing expected in Q3 2018. The transaction’s price and financial impact are not stated in the supplied filing text.
  • A February system outage led to approximately $15 million of lost revenue and $5 million of incremental noninterest expense, in addition to fee waivers.
  • Interest-rate exposure analysis showed projected net interest income sensitivity of +3.96% under a gradual 200-basis-point increase and -5.77% under a gradual 100-basis-point decrease. Management said it had temporarily suspended limits for declining-rate scenarios. A 200-basis-point increase produced a modeled 6.7% decline in economic value of equity.
  • Unrealized losses on securities were primarily attributed to higher market interest rates; the quarter’s OCI was negative $178 million, including a $268 million after-tax decline in unrealized AFS securities gains. Securities portfolio effective duration rose to 5.1 years from 4.7 years at year-end.
  • Management identified risks including economic and credit deterioration, interest-rate and funding changes, competition, regulatory or tax changes, cybersecurity and system outages, execution and integration of acquisitions, and litigation. It stated that legal reserves were adequate and that outstanding legal matters were not expected to have a material adverse effect, while acknowledging unfavorable outcomes could be material. No material changes to previously disclosed risk factors were reported.
  • BB&T expects the new credit-loss standard, scheduled for adoption in 2020, could materially increase the allowance; the effect had not been quantified. The 2019 lease standard was expected to significantly increase reported assets and liabilities.

Important Facts for Investors to Verify

  1. Confirm the issuer and filing: this document is BB&T Corporation’s Q1 2018 Form 10-Q, not a filing identified as Truist Financial Corp.
  2. Assess whether revenue and earnings improvement persists after accounting for the prior-year debt-extinguishment loss and the one-time system outage impacts.
  3. Monitor deposit pricing, deposit mix, funding costs and net interest margin as rates change.
  4. Track CRE and leasing-related nonperforming assets, charge-offs, and allowance coverage.
  5. Review securities valuation and capital effects if interest rates rise further, and evaluate the assumptions underlying interest-rate sensitivity estimates.
  6. Follow the Regions Insurance acquisition, including final terms, closing, integration costs and expected contribution.