Business context and reporting period
This filing is BB&T Corporation’s Form 10-K for the fiscal year ended December 31, 2015—not a filing under the later Truist Financial Corp. name. BB&T was a regional financial holding company headquartered in Winston-Salem, North Carolina, operating primarily through Branch Banking and Trust Company. Its businesses included banking, mortgage, consumer and commercial lending, insurance, wealth management, brokerage and specialty finance.
BB&T completed acquisitions of Susquehanna Bancshares, The Bank of Kentucky Financial Corporation and 41 Texas branches during 2015. At year-end, it reported $209.9 billion in assets and 2,139 banking offices.
Financial performance and position
| Metric | 2015 | 2014 | Change / context |
|---|---|---|---|
| Revenue, FTE basis | $9.757 billion | $9.373 billion | Up 4.1% |
| Net interest income, GAAP | $5.592 billion | $5.374 billion | Up 4.1%; FTE net interest income rose 4.0% |
| Net interest margin, FTE | 3.32% | 3.42% | Down 10 basis points |
| Net income | $2.123 billion | $2.206 billion | Down 3.8% |
| Net income available to common shareholders | $1.936 billion | $1.983 billion | Down 2.4% |
| Diluted EPS | $2.56 | $2.72 | Down 5.9% |
| Return on average assets | 1.08% | 1.19% | Down 11 basis points |
| Return on average common equity | 8.34% | 9.32% | Down 98 basis points |
| Provision for credit losses | $428 million | $251 million | Up $177 million |
| Net charge-offs | $436 million | $538 million | Down $102 million; 0.35% of average HFI loans versus 0.46% |
| Nonperforming assets | $712 million | $782 million | Down $70 million; 0.52% of loans and leases plus foreclosed property versus 0.65% |
| Total assets | $209.947 billion | $186.834 billion | Up $23.113 billion |
| Loans and leases, period-end | $136.986 billion | $121.307 billion | Up $15.679 billion |
| Deposits, period-end | $149.124 billion | $129.040 billion | Up $20.084 billion |
| Long-term debt, period-end | $23.769 billion | $23.312 billion | Up $457 million |
| Shareholders’ equity, period-end | $27.340 billion | $24.377 billion | Up $2.963 billion |
Net interest income benefited from acquisition-related and organic loan growth and lower funding costs, while yields on new loans and securities weighed on margin. Noninterest income rose 4.2% to $4.019 billion, including higher mortgage banking and FDIC loss-share income; insurance income declined following the sale of American Coastal. Noninterest expense increased 7.1% to $6.266 billion, mainly from acquisition-related staffing and costs.
Operating cash flow was $2.915 billion, compared with $3.210 billion in 2014. Investing activities used $1.638 billion, versus $4.015 billion; financing activities provided $109 million, versus $965 million. Cash and cash equivalents increased $1.386 billion to $3.711 billion. For a bank, these cash-flow totals should be read alongside balance-sheet funding and liquidity measures.
At year-end, BB&T’s Basel III common equity Tier 1, Tier 1 and total capital ratios were 10.3%, 11.8% and 14.3%, respectively; its leverage ratio was 9.8%. The reported liquidity coverage ratio was approximately 130%, above the 90% applicable minimum. The allowance for loan and lease losses was $1.460 billion, with a total credit-loss allowance including unfunded commitments of $1.550 billion. Common dividends declared were $1.05 per share, versus $0.95 in 2014; the common dividend payout ratio was 40.5%.
Material changes versus 2014
- Acquisitions materially expanded the balance sheet: period-end assets grew 12.4%, loans 12.9% and deposits 15.6%. Susquehanna contributed $18.3 billion in assets and $14.1 billion in deposits at acquisition; the other completed 2015 transactions also added loans, deposits and branches.
- FTE net interest income increased, but margin narrowed from 3.42% to 3.32% as asset yields fell. Lower deposit and debt costs partly offset the yield pressure.
- Credit costs rose from the unusually low prior-year level as allowance releases on 2014 loan sales did not recur and credit improvement stabilized. Despite the higher provision, net charge-offs and nonperforming assets declined.
- Noninterest expense rose $414 million, including merger-related and restructuring charges of $165 million versus $46 million, and a $172 million loss on early debt extinguishment versus $122 million.
- The effective tax rate fell to 27.2% from 29.5%, including a $107 million tax benefit from an appellate ruling in a long-running tax case.
Outlook, risks, contingencies and unusual items
- Outlook: The filing gives no specific earnings or revenue guidance. Management identified sustained low interest rates, intense competition, technology and changing customer preferences, regulatory and IT costs, geopolitical uncertainty and merger integration as near-term challenges. The company’s strategy included organic growth and disciplined acquisitions.
- Pending transactions: BB&T expected its National Penn acquisition to close April 1, 2016, subject to stated conditions. On February 24, 2016, it also reached an agreement to acquire CGSC North America Holdings; the excerpt gives no transaction value or closing date.
- Credit and market exposure: Oil-and-gas loans were approximately 1% of the loan portfolio; management warned that continued industry weakness could affect borrowers, collateral, delinquencies and charge-offs. Interest-rate changes, deposit attrition, securities values and mortgage prepayments may also affect earnings and liquidity.
- Legal and tax matters: BB&T was cooperating with a HUD-OIG and Department of Justice inquiry into FHA-insured lending; neither had asserted a claim in the filing. The company had recorded an $85 million FHA-related reserve in 2014 and described estimated potential exposure of $25 million to $105 million. The tax litigation remained unresolved; BB&T said potential changes in unrecognized tax benefits, penalties and interest could produce a benefit of up to approximately $596 million, with timing uncertain.
- FDIC loss-sharing: The company projected an approximately $170 million payment to the FDIC in 2019 under the aggregate loss calculation. The commercial loss-sharing period had expired, although specified gains remained subject to sharing through September 2017; single-family coverage continued through August 2019.
- Other notable items: BB&T recorded a $26 million pretax loss on the American Coastal sale and a $28 million gain from an opportunistic investment sale. It adopted proportional amortization accounting for qualifying affordable-housing investments in 2015. Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion.
- Risk disclosures: The filing highlights extensive regulation, capital and dividend restrictions, cybersecurity and system outages, third-party and operational risk, acquisition integration, competition, litigation, and severe weather or other disasters. BB&T reported prior denial-of-service attacks that affected website access but said they had not breached client data or account information.
Investor verification priorities
- Confirm the correct issuer and period: this is BB&T Corporation’s 2015 Form 10-K, not a Truist-branded filing.
- Assess whether acquired loan and deposit growth translates into sustainable earnings after integration costs, dilution and purchase-accounting effects.
- Track net interest margin, deposit mix and pricing, loan yields, and sensitivity to rising or falling interest rates.
- Review credit trends and reserve adequacy, particularly in oil and gas, commercial real estate, nonprime auto and mortgage exposures; note that 2015 acquisitions added loans without a related allowance at acquisition.
- Monitor the FHA investigation, tax litigation, FDIC settlement estimates and any changes to related reserves or contingencies.
- Verify National Penn and CGSC transaction status, costs, approvals and expected integration benefits; compare actual results with management’s stated strategy.
- Check capital and liquidity against regulatory requirements, planned distributions and acquisition needs, including the transition to higher LCR requirements.