BB&T Corporation Form 10-Q Summary — Quarter Ended September 30, 2015
Issuer note: The supplied filing is for BB&T Corporation, not an entity named Truist Financial Corp. It reports the quarter ended September 30, 2015; confirm the issuer and filing match the intended research subject.
Business context and reporting period
BB&T is a financial holding company operating primarily through Branch Banking and Trust Company. The filing presents unaudited third-quarter and nine-month results through September 30, 2015. Susquehanna Bancshares was acquired on August 1, 2015, and its results were included for two months; its financial data remained in Other, Treasury and Corporate pending systems conversion. BB&T also completed The Bank of Kentucky acquisition in the second quarter.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net interest income | $1.464B | $1.349B | $4.088B | $4.039B |
| Net interest margin | 3.35% (FTE) | 3.38% (FTE) | 3.31% (FTE) | 3.44% (FTE) |
| Noninterest income | $988M | $949M | $3.004B | $2.834B |
| Provision for credit losses | $103M | $34M | $299M | $168M |
| Noninterest expense | $1.594B | $1.539B | $4.669B | $4.458B |
| Net income | $533M | $553M | $1.581B | $1.603B |
| Net income available to common shareholders | $492M | $512M | $1.434B | $1.432B |
| Diluted EPS | $0.64 | $0.70 | $1.92 | $1.97 |
Third-quarter annualized returns were 1.04% on average assets, 1.32% on average risk-weighted assets, 8.14% on average common equity, and 13.23% on average tangible common equity. Quarter revenue on a fully taxable-equivalent basis was $2.5B, up $155M year over year, primarily reflecting the Susquehanna acquisition.
For the nine months, operating cash flow was $1.933B, versus $1.504B a year earlier; investing cash flow was $(639)M and financing cash flow was $(839)M. Cash and cash equivalents ended at $2.780B. These cash flow figures should be considered alongside the bank’s funding and liquidity measures.
At September 30, total assets were $208.8B, loans and leases were $135.5B, deposits were $147.8B, short-term borrowings were $2.6B, long-term debt was $24.9B, and shareholders’ equity was $27.3B. Compared with December 31, 2014, total assets increased $22.0B, loans $15.6B, deposits $18.8B, and long-term debt $1.6B; acquisition activity was a major driver. Total loans grew to $135.5B from $119.9B.
Credit metrics improved overall: nonperforming assets were $744M, or 0.55% of loans and leases plus foreclosed property, versus $782M and 0.65% at year-end 2014. Third-quarter net charge-offs were $107M, or 0.32% annualized; nine-month net charge-offs were $306M, versus $422M in 2014. The allowance for loan and lease losses was $1.458B, 1.08% of held-for-investment loans, compared with 1.23% at year-end; management attributed the ratio decline in part to acquired Susquehanna loans having no allowance at acquisition under purchase accounting.
Capital measures at September 30 included Basel III common equity Tier 1 of 10.1%, Tier 1 capital of 11.6%, total capital of 14.1%, and leverage capital of 9.9%. The estimated fully phased-in standardized common equity Tier 1 ratio was 9.8%. The liquid asset buffer was 13.3% of assets, and the modified Liquidity Coverage Ratio was approximately 136%, above the then-applicable 90% minimum. Parent-company cash covered 32 months of projected contractual cash outflows.
Material changes versus comparable periods
- Third-quarter common earnings fell $20M and diluted EPS fell $0.06 year over year despite higher net interest income and noninterest income. Higher credit-loss provision, expenses, and the larger share count contributed.
- Third-quarter NIM edged down to 3.35% from 3.38%; nine-month NIM declined to 3.31% from 3.44%, reflecting lower asset yields and runoff of higher-yielding FDIC-acquired assets, partly offset by lower funding costs.
- Nine-month common earnings were nearly flat at $1.434B versus $1.432B, while diluted EPS declined to $1.92 from $1.97.
- Higher provision reflected commercial and industrial risk considerations, including the energy sector, credit-trend stabilization, and higher unfunded commitment reserves. The quarter’s provision also compares with a prior-year period that included a mortgage-loan-sale reserve release.
- Acquisitions expanded the balance sheet and share count: BB&T issued 54 million shares in business combinations. Susquehanna contributed $14.1B of deposits and $12.9B of loans at acquisition.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management cited pressure from low interest rates, lower yields on new loans, and runoff of higher-yielding acquired assets. It expected Susquehanna systems conversion in the fourth quarter of 2015. A National Penn Bancshares acquisition was expected in 2016, subject to shareholder and regulatory approvals.
- Acquisition and restructuring costs: Third-quarter merger and restructuring charges were $77M; nine-month charges were $115M, primarily related to Susquehanna, The Bank of Kentucky, and AmRisc/American Coastal. The remaining $64M accrual was expected to be used within one year, except for certain longer-term contracts.
- Debt extinguishment: A $172M pretax loss was recorded in the second quarter after BB&T terminated $931M of higher-cost FHLB advances. The third quarter of 2014 had included a $122M loss on early debt extinguishment.
- Tax litigation: An appeals-court ruling generated a $107M tax benefit in the second quarter. BB&T sought U.S. Supreme Court review; changes in unrecognized tax benefits, penalties, and interest could result in a benefit of up to approximately $596M. Separately, the prior-year third quarter included a $50M tax benefit, affecting year-over-year tax comparisons.
- Other unusual transactions: Sale of American Coastal generated a $26M pretax loss ($34M after tax) and reduced insurance income. BB&T also recorded a $222M charge to shareholders’ equity for buying additional AmRisc ownership.
- Credit and legal risks: Management identified energy-sector credit risk, consumer delinquency and loss severity in certain portfolios, and acquisition integration and execution risk. The filing describes ordinary-course legal proceedings and states that established reserves are considered adequate, while acknowledging an unfavorable resolution could be material. The Colonial FDIC loss-share arrangements include ongoing obligations; BB&T projected approximately $183M payable to the FDIC in 2019 under the aggregate loss calculation.
- Other risks: Forward-looking risk factors include economic weakness, interest-rate changes, competition, regulatory and tax changes, cybersecurity, outages, disasters, litigation, and merger integration. Management noted a proposed FDIC assessment change could raise annual assessments by an estimated $40M–$50M.
Most important facts for investors to verify
- Confirm that BB&T’s 2015 filing is the intended filing for the requested company; the filing itself does not identify Truist Financial Corp.
- Separate organic growth from acquired growth, particularly for loans, deposits, revenue, expenses, and share count, and assess the timing and costs of Susquehanna integration.
- Review credit trends and reserve adequacy, including energy exposure, retail other-lending delinquencies, purchase-accounted Susquehanna loans, and the decline in allowance coverage as a percentage of loans.
- Assess sustainability of NIM and earnings given lower loan and securities yields, acquired-asset runoff, and funding-cost assumptions.
- Track the IRS litigation, possible tax-benefit changes, FDIC loss-share obligations, merger charges, and the projected 2019 FDIC payment.
- Check regulatory capital and liquidity measures against fully phased-in requirements, including the LCR transition and management’s capital targets.