BB&T Corporation 2016 Form 10-K Summary
Entity note: The supplied filing is for BB&T Corporation, not Truist Financial Corp. It covers the fiscal year ended December 31, 2016; fourth-quarter figures are unaudited supplemental results.
Business context and reporting period
BB&T was a financial holding company headquartered in Winston-Salem, North Carolina, operating primarily through Branch Banking and Trust Company and nonbank subsidiaries. Its businesses included retail and commercial banking, insurance, mortgage banking, wealth management, brokerage and specialty lending. It reported 2,196 banking offices at year-end.
During 2016, BB&T acquired National Penn for approximately $1.6 billion and insurance broker Swett & Crawford for $461 million in cash. Results include acquisition-related activity and are therefore not purely organic comparisons.
Financial results and key metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Reported revenue | $10.793 billion | $9.611 billion |
| Net income | $2.442 billion | $2.123 billion |
| Net income available to common shareholders | $2.259 billion | $1.936 billion |
| Diluted EPS | $2.77 | $2.56 |
| Net interest margin (taxable-equivalent) | 3.39% | 3.32% |
| Return on average assets | 1.12% | 1.08% |
| Return on average common equity | 8.57% | 8.34% |
| Provision for credit losses | $572 million | $428 million |
| Noninterest expense | $6.721 billion | $6.266 billion |
- Taxable-equivalent revenue was $10.953 billion, up $1.196 billion. Taxable-equivalent net interest income rose $743 million to $6.481 billion; noninterest income increased $453 million to $4.472 billion.
- Operating cash flow was $2.672 billion; investing cash flow was negative $682 million; financing cash flow was negative $1.765 billion. Cash and cash equivalents increased $225 million to $3.936 billion.
- At year-end, total assets were $219.276 billion, loans and leases held for investment were $143.322 billion, deposits were $160.234 billion, and shareholders’ equity was $29.926 billion.
- Long-term debt was $21.965 billion, down from $23.769 billion. Short-term borrowings were $1.406 billion, down from $3.593 billion.
- BB&T’s year-end regulatory capital ratios were 10.2% CET1, 12.0% Tier 1 and 14.1% total capital. The company and bank were classified as well-capitalized.
- The liquidity buffer was 12.6% of total assets. BB&T’s modified Liquidity Coverage Ratio was approximately 121% at year-end, against a then-applicable 90% minimum; the minimum rose to 100% on January 1, 2017.
Material changes versus the prior comparable period
- Common net income rose 16.7% and diluted EPS increased from $2.56 to $2.77. Higher revenue and acquisition contributions were partly offset by higher expenses and credit costs.
- Loans and leases held for investment increased $7.4 billion and deposits rose $11.1 billion year over year, substantially reflecting National Penn and organic growth.
- Credit costs worsened: provision for credit losses increased $144 million, net charge-offs rose to $532 million from $436 million, and nonperforming loans increased. The ALLL-to-net-charge-offs ratio declined to 2.80x from 3.36x.
- Nonperforming assets were $813 million, versus $712 million at prior year-end (the filing notes $686 million excluding specified FDIC-acquired foreclosed real estate). NPAs were 0.57% of loans and leases plus foreclosed property, up from 0.52%.
- Noninterest expense increased $455 million, primarily from acquisition-related personnel, occupancy, technology and regulatory costs. Merger and restructuring charges were $171 million, compared with $165 million.
- The common dividend declared per share rose to $1.15 from $1.05. BB&T repurchased $520 million of common stock during the year; its total payout ratio was 64.0%.
Outlook, commentary, risks and unusual items
- No specific 2017 earnings or revenue guidance is provided. Management identified competition amid low interest rates, changing technology and customer preferences, global and geopolitical uncertainty, and regulatory and IT costs as near-term challenges.
- Management said potential regulatory relief and corporate tax reform were uncertain. It noted that a tax-rate reduction could require repricing deferred tax balances and create an income tax provision, while lowering the effective tax rate prospectively.
- Management estimated the DOL fiduciary rule could add expense and reduce revenue by $10–$15 million in 2017. Costs for new FDIC depositor-recordkeeping requirements were expected but not quantified.
- Branch Bank entered a December 2016 FDIC/North Carolina consent order, and BB&T entered a related cease-and-desist order in January 2017, requiring BSA/AML control improvements. The filing states no criminal activity had been identified and no financial penalty was levied. Management expected significant continuing investment in the program; the orders could constrain acquisitions and certain business activities.
- BB&T paid the FDIC approximately $230 million to terminate Colonial loss-sharing agreements early, recognized $18 million of pretax expense from the settlement, and will have no future loss- or gain-sharing under those agreements.
- A 2016 FHA mortgage-matters settlement involved an $83 million payment and a separate $71 million recovery, producing a reported $73 million net benefit. A $50 million charitable contribution also affected 2016 expenses. Fourth-quarter items included $34 million of pretax securities-duration and hedge-ineffectiveness charges and a $31 million release of mortgage repurchase reserves.
- After year-end, BB&T terminated $2.9 billion of higher-cost FHLB advances, recording a $392 million pretax early-extinguishment loss. This is a subsequent event, not a 2016 income-statement charge.
- Principal disclosed risks include credit deterioration—particularly energy-sector exposure and used-car loss severity—interest-rate and deposit-mix sensitivity, liquidity and ratings risk, cybersecurity and third-party systems, integration execution, litigation, and regulatory compliance. The energy portfolio was approximately $1.2 billion with allocated reserves of 11.7%.
Important facts for investors to verify
- Confirm the entity and period: this is BB&T Corporation’s 2016 Form 10-K, not a Truist filing.
- Separate acquisition-driven growth from organic growth and assess National Penn and Swett & Crawford integration, costs and realized synergies.
- Track energy and other commercial credit quality, nonperforming loans, charge-offs, reserve coverage and the effects of acquired loans recorded without an acquisition-date allowance.
- Review progress and regulatory status of the BSA/AML remediation orders, including any restrictions on acquisitions or other activities.
- Assess the post-year-end $392 million debt-extinguishment loss, expected funding-cost benefits, and resulting effects on earnings and capital.
- Reconcile reported and taxable-equivalent revenue, cash-flow movements, capital distributions and liquidity measures to the audited statements and applicable regulatory definitions.