BB&T Corporation (registrant identified in filing; 10-Q for quarter ended March 31, 2019)
Entity note: The supplied filing is BB&T Corporation’s 2019 first-quarter report, not a filing under the name Truist Financial Corp. It reports unaudited results for the three months ended March 31, 2019, with balance-sheet comparisons to December 31, 2018 and income-statement comparisons to Q1 2018.
Financial results and position
| Metric | Q1 2019 / March 31, 2019 | Comparable period / prior date |
|---|---|---|
| Total revenue, taxable-equivalent (TE) | $2.9 billion | Up $86 million from Q1 2018 |
| Net interest income | $1.696 billion GAAP; $1.720 billion TE | GAAP: $1.633 billion; TE: up $64 million year over year |
| Net interest margin | 3.51% | 3.44% in Q1 2018 |
| Net income / common earnings | $798 million / $749 million | $791 million / $745 million |
| Diluted EPS | $0.97 | $0.94 |
| Credit provision / net charge-offs | $155 million / $147 million | Provision: $150 million; charge-offs: $145 million |
| Total assets / loans held for investment | $227.7 billion / $149.1 billion | Assets: $225.7 billion; loans: $149.0 billion at Dec. 31, 2018 |
| Deposits / short-term borrowings / long-term debt | $159.8 billion / $6.3 billion / $24.7 billion | Deposits: $161.2 billion; borrowings: $5.2 billion; long-term debt: $23.7 billion |
| Shareholders’ equity | $30.9 billion | $30.2 billion at Dec. 31, 2018 |
- Q1 operating cash flow was negative $745 million, versus positive $308 million in Q1 2018; investing cash flow was negative $477 million and financing cash flow positive $207 million. Cash, cash equivalents and restricted cash ended at $3.0 billion, down $1.0 billion during the quarter.
- Profitability ratios: annualized return on assets was 1.43% (1.45% prior year) and return on average common equity was 11.08% (11.43%). The effective tax rate declined to 18.2% from 19.0%.
- Credit indicators remained relatively stable: nonperforming assets were $584 million, or 0.26% of assets; nonperforming loans were 0.35% of loans held for investment. Annualized net charge-offs were 0.40% of average loans, down one basis point year over year. Allowance for loan and lease losses was 1.05% of loans held for investment.
- Preliminary capital ratios at March 31 were CET1 10.3%, Tier 1 11.9%, total capital 14.2%, and leverage 10.1%. The liquid asset buffer was 14.8% of assets; preliminary modified average LCR was approximately 130%, above the 100% regulatory minimum applicable to BB&T.
Material changes versus Q1 2018 and prior quarter
- Net interest income increased as higher rates lifted loan yields, but funding costs also rose. Net interest margin improved seven basis points year over year; the average cost of total deposits rose to 0.64% from 0.30%.
- Noninterest income grew 1.9% to $1.202 billion. Insurance income rose $74 million, reflecting higher production and the Regions Insurance acquisition; mortgage banking income fell $36 million, primarily on lower residential loan sales and weaker commercial mortgage banking revenue.
- Noninterest expense rose 4.9% to $1.768 billion. Merger-related and restructuring charges increased $52 million to $80 million; excluding those charges, expense increased $30 million.
- Period-end deposits fell $1.4 billion from year-end, mainly from lower commercial time deposits. Long-term debt increased $1.0 billion, including new senior and subordinated debt issuance partly offset by maturities.
- Compared with Q1 2018, common earnings rose modestly and diluted EPS increased $0.03, despite higher expenses. Share repurchases under the 2018 plan were suspended pending completion of the proposed merger.
Outlook, commentary, risks and unusual items
- BB&T and SunTrust announced an all-stock merger of equals on February 7, 2019. SunTrust shareholders were to receive 1.295 BB&T shares per share. Closing was expected late in Q3 or in Q4 2019, subject to regulatory and shareholder approvals and other conditions. A mutual break-up fee of approximately $1.1 billion applies in customary circumstances. The filing gives no specific earnings guidance.
- Five lawsuits challenged disclosures related to the proposed merger and sought, among other relief, to prevent or rescind the transaction or obtain damages. BB&T said it believed the claims were without merit. Management otherwise stated that its legal reserves were adequate, while noting that an unfavorable resolution of proceedings could be material.
- The FRB terminated its cease-and-desist order concerning BB&T’s anti-money-laundering program in April 2019; the company reported no identified money-laundering activity and no related financial penalty.
- BB&T adopted lease accounting in Q1 2019, recognizing $860 million of right-of-use assets and $997 million of lease liabilities; the reported equity reduction was $40 million, with no material income-statement impact. The expected-credit-loss standard was scheduled for adoption in 2020; BB&T said the allowance could be materially higher, but had not quantified the impact.
- Key stated risks include merger approvals, timing and integration costs; economic and credit deterioration; interest-rate and LIBOR transition effects; competition, cyber and operational disruptions; regulatory or legal outcomes; and the risk that deposit attrition or merger-related costs exceed expectations.
Important facts for investors to verify
- Confirm the reporting entity: this source is BB&T Corporation’s 2019 Q1 10-Q, despite the request metadata naming Truist Financial Corp.
- Track SunTrust merger approvals, closing timing, integration spending, and any change in expected synergies or transaction conditions.
- Monitor deposit balances and pricing, loan growth and yields, and whether higher funding costs pressure net interest margin.
- Assess credit trends, especially charge-offs, delinquencies, nonperforming assets, and the transition to the expected-credit-loss accounting standard.
- Review liquidity, capital ratios, cash-flow volatility, and the effect of suspended share repurchases and ongoing dividends.