10-QPeriod: Q2 FY2014

TRUIST FINANCIAL CORP Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 28, 2014For Securities:TFCTFC-POTFC-PRTFC-PI

Summary

Truist Financial Corporation (TFC), formerly BB&T Corporation, reported net income available to common shareholders of $425 million for the second quarter of 2014, a decrease from $547 million in the prior year's quarter. This decline was largely due to after-tax adjustments totaling $88 million, including an $85 million reserve for potential FHA-insured loan exposures and a $14 million tax adjustment related to an IRS examination. Excluding these one-time items, adjusted diluted earnings per share were $0.70, down from $0.77 in Q2 2013. Net interest income declined due to lower earning asset yields and runoff of higher-yielding covered assets, impacting the net interest margin (NIM) to 3.43% from 3.70% year-over-year. Noninterest income also decreased, primarily driven by lower mortgage banking income. However, provision for credit losses significantly improved, reflecting better credit quality, with net charge-offs excluding covered loans decreasing by 45.6%. Noninterest expense increased, largely due to the aforementioned FHA-insured loan exposure adjustments, though the company continued efforts to manage expenses, targeting an efficiency ratio in the 56% range. Average loans held for investment grew 7.2% annualized from the prior quarter, with strength in commercial and industrial, sales finance, and other lending portfolios. Average deposits also increased by 12.4% annualized, indicating strong core funding. The company's capital ratios remain robust, well above regulatory requirements, and book value per common share increased to $29.57. Overall, while facing some headwinds from regulatory adjustments and lower asset yields, the company demonstrated improved asset quality and solid deposit growth.

Financial Highlights

36 data points
Beta

Net Income

$477.00M

EPS (Diluted)

$0.58

Total Assets

$188.01B

Cash & Equivalents

$2.45B

Free Cash Flow

$245.00M

Financial Statements
Beta
Interest Expense$194.00M
Net Income$477.00M
EPS (Basic)$0.59
EPS (Diluted)$0.58
Shares Outstanding (Basic)719.08M
Shares Outstanding (Diluted)728.45M

Key Highlights

  • 1Net income available to common shareholders was $425 million for Q2 2014, down from $547 million in Q2 2013, impacted by $88 million in after-tax adjustments.
  • 2Adjusted diluted EPS was $0.70, down from $0.77 in the prior year's quarter, excluding specific reserve and tax adjustments.
  • 3Net interest margin (NIM) decreased to 3.43% from 3.70% year-over-year due to lower earning asset yields and covered asset runoff.
  • 4Provision for credit losses (excluding covered loans) decreased significantly by $96 million due to improved credit quality.
  • 5Average loans held for investment grew 7.2% on an annualized basis from the prior quarter, with growth in commercial and industrial, sales finance, and other lending segments.
  • 6Average deposits increased 12.4% annualized from the prior quarter, reflecting strong core funding.
  • 7Capital ratios remain strong, well above regulatory requirements, with Tier 1 common equity ratio at 10.2%.

Frequently Asked Questions

Net income decreased due to a combination of factors including lower net interest income driven by lower earning asset yields and covered asset runoff, a decline in noninterest income primarily from mortgage banking activities, and significant after-tax adjustments totaling $88 million related to potential FHA-insured loan exposures and a tax adjustment concerning an IRS examination. Excluding these items, adjusted earnings per share showed a more modest decline.

Asset quality continued to improve, with nonperforming assets (NPAs) decreasing for the 17th consecutive quarter and reaching their lowest level since December 31, 2007. NPAs as a percentage of loans and leases plus foreclosed property stood at 0.76% at June 30, 2014, down from 0.91% at December 31, 2013. The provision for credit losses, excluding covered loans, also saw a significant decrease, reflecting better credit quality across various loan portfolios.

Management expects NIM to decrease by approximately five to ten basis points in the third quarter of 2014, primarily due to the continued runoff of covered assets. Net interest income for the third quarter is expected to be relatively flat compared to the current quarter.

Average loans held for investment increased by 7.2% on an annualized basis from the first quarter, driven by growth in commercial and industrial, sales finance, and other lending segments. Average deposits also saw robust growth, increasing 12.4% annualized from the prior quarter, indicating strong core funding and a stable deposit mix.