Truist Financial Corporation · NYSE:TFC
Truist Financial — BB&T — Q4 2017 Earnings Presentation
34 slides from Truist Financial's earnings presentation, Jan 18, 2018
Slide 1: Fourth Quarter 2017 Earnings Conference Call
Fourth Quarter 2017 Earnings Conference Call January 18, 2018 Kelly S. King Chairman and Chief Executive Officer Daryl N. Bible Chief Financial Officer
Slide 2: Forward-Looking Information
Forward-Looking Information This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T. Forward-looking statements are
Slide 3: 2017 fourth quarter performance highlights
3 ▪ NPAs declined 7.8% vs. 3Q17 ▪ NCOs were 36 bps vs. 35 bps in 3Q17 and 42 bps vs. 4Q16 1 Includes non-GAAP measures; refer to non-GAAP reconciliation in the attached Appendix for adjusted measures 2 Adjusted noninterest expense excludes merger-related and restructuring charges and selected items
Slide 4: Selected items affecting earnings
4 Pre -Ta x After Tax Diluted EPS Impac t ($ in millions, except per share impact) Pre-Tax After-Tax Diluted EPS Impact Charitable contribution $ (100) $ (63) Revalue deferred income taxes & investments in affordable housing projects1 n/a 43 One-time bonus for associates (36) (23) Net impact of tax
Slide 5: Impact of tax reform and selected items on earnings
5 Impact of tax reform and selected items on earnings Quarter Ended December 31, 2017 Year Ended December 31, 2017 Tax Reform Actions Other Tax Reform Actions Other Reported Revalue1 Other2 Items3 Adjusted4 Reported Revalue1 Other2 Items3 Adjusted4 Net Interest Income $ 1,644 $ 1,644 $ 6,535 $ 6,535
Slide 6: Review of 4Q17 guidance
6 Category 4Q17 outlook Results Loans n Total down slightly vs. 3Q17 ü (0.1)%1 n Core up 2% – 4% annualized vs. 3Q17 ü 3.9%1 Credit quality n NCOs expected to be 40 – 50 bps ü+ 36 bps Net interest margin n GAAP margin down 3 – 5 bps vs. 3Q17 ü (5) bp n Core margin down 3 – 5 bps vs. 3Q17 ü (4) bp Ne
Slide 7: Strong core loan growth
7 4Q17 v. 3Q17 4Q17 Annualized Average Increase Balance (Decrease) Commercial: C&I $ 58,478 1.8 % CRE 20,998 4.2 Leasing 1,851 27.3 Subtotal-commercial 81,327 3.0 Retail: Residential mortgage 28,559 (5.0) Direct 11,901 (2.0) Indirect 17,426 (5.7) Subtotal-retail 57,886 (4.6) Revolving credit 2,759 1
Slide 8: Average deposits
8 ▪ Total deposits averaged $158.0 billion, an increase of $545 million vs. 3Q17 – Personal, 48.6% of total – Business, 38.9% of total – Public Funds, 8.1% of total ▪ Average noninterest-bearing deposits increased $799 million vs. 3Q17 with increases in all segments ▪ The percentage of noninterest-b
Slide 9: Asset quality remains excellent
9 ▪ Credit quality results reflect stable charge-offs and lower nonperformers – Net charge-offs totaled $130 million, up 2.4% vs. 3Q17 – Loans 90 days or more past due were flat when excluding government guaranteed and PCI loans – Loans 30-89 days past due increased 6.6% vs. 3Q17, largely due to exp
Slide 10: Allowance coverage ratios remain strong
10 ▪ Coverage ratios remain strong at 2.89x and 2.62x for the allowance to net charge-offs and NPLs, respectively ▪ The ALLL to loans ratio was 1.04%, unchanged vs. 3Q17 – Excluding loans acquired in business acquisitions, the ALLL to loans ratio was 1.11%, down 1 bp vs. 3Q17 ▪ The total provision f
Slide 11: Net interest margin
11 ▪ 4Q17 reported and core NIM decreased 5 bps and 4 bps respectively vs. 3Q17: – Core margin declined due to: – An increase in investment portfolio balances and lower investment portfolio yields due to duration adjustments – Higher yields on loans and favorable funding mix changes offset by higher
Slide 12: Fee income seasonally stronger
12 4Q17 4Q17 v. 3Q17 Increase (Decrease) 4Q17 v. 4Q16 Increase (Decrease) Insurance income $ 418 21.0% (0.2)% Service charges on deposits 183 8.9 6.4 Mortgage banking income 104 (34.8) (2.8) Investment banking and brokerage fees and commissions 111 30.8 2.8 Trust and investment advisory revenues 72
Slide 13: Noninterest expense and efficiency ratio
13 4Q17 4Q17 v. 3Q17 Increase (Decrease) 4Q17 v. 4Q16 Increase (Decrease) Personnel expense $ 1,044 7.7 % 4.0% Occupancy and equipment expense 195 (6.0) (1.5) Software expense 65 19.2 14.0 Outside IT services 38 46.7 (24.0) Amortization of intangibles 34 — (10.5) Regulatory charges 38 (19.8) (9.5) P
Slide 14: Capital, liquidity and payout ratio remain strong
14 ▪ 4Q17 dividend payout ratio was 42.1% ▪ 4Q17 total payout ratio was 102.8% ▪ Completed $373 million in share repurchases including a $53 million de minimis repurchase; $640 million in share repurchase authority remains through 2Q18 under CCAR 2017 ▪ Liquidity ratios remain strong – LCR was 138%
Slide 15: Community Banking Retail and Consumer Finance
15 Comments 1 Linked quarter growth rates annualized, except for originations and purchases 2 Production/origination amounts exclude portfolio acquisitions, unfunded commitments, and revolving credit 3 Purchases include portfolio acquisitions and mortgages acquired through correspondent channels 4 O
Slide 16: Community Banking Retail and Consumer Finance-continued
16 Community Banking Retail and Consumer Finance-continued ▪ Decreases in balances reflect previously announced optimization strategy for mortgage and auto portfolios ▪ In 4Q17 initiatives were undertaken to stabilize mortgage and auto portfolio balances starting in 1H18 ▪ Asset quality remains stro
Slide 17: Community Banking Commercial
17 Comments 1 Linked quarter growth rates annualized 2 Operating margin is calculated as net income before taxes and provision for credit losses divided by total revenues Community Banking Commercial ▪ Total commercial pipeline up 20.1% from September 30 ▪ Record 4Q17 total commercial loan productio
Slide 18: Community Banking Commercial-continued
18 Community Banking Commercial-continued ▪ Improving loan yields throughout 2017 due to the rise in short-term rates and the CRE portfolio growth ▪ Dealer Floor Plan portfolio grew 22.9% annualized and 21.8% vs. 3Q17 and 4Q16 due to continued focus on growing dealer relationships throughout the ban
Slide 19: Financial Services and Commercial Finance
19 Comments 1 Linked quarter growth rates annualized, except for production and sales 2 Operating margin is calculated as net income before taxes and provision for credit losses divided by total revenues Financial Services and Commercial Finance Summarized Results Inc (Dec) vs. 3Q17 Inc (Dec) vs. 4Q
Slide 20: Financial Services and Commercial Finance-continued
20 Financial Services and Commercial Finance-continued ▪ Average loan balances of $26.4 billion were 9.6% higher than 3Q17 and 9.9% higher than 4Q16 ▪ Average deposit balances of $28.2 billion were 8.4% higher than 3Q17 but 7.8% lower than 4Q16 due to an initiative that lasted through 3Q17 to lower
Slide 21: Insurance Holdings and Premium Finance
21 Provides property and casualty, life, and health insurance to business and individual clients. It also provides workers compensation and professional liability, as well as surety coverage, title insurance and premium finance. Comments 1 U.S. locations; count includes shared locations 2 EBITDA mar
Slide 22: 1Q18 and full-year 2018 outlook
22 1Q18 and full-year 2018 outlook Category 1Q18 Average total loans Up 1% - 3% annualized vs. 4Q17 Credit quality NCOs expected to be 35 - 45 bps Net interest margin GAAP margin down 1 - 3 bps vs 4Q17 Core margin stable vs. 4Q17 Noninterest income Up 1% - 3% vs. 1Q17 Expenses1 Flat vs. 1Q17 Effecti
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Slide 24: Appendix
Appendix
Slide 25: A-1 Purchase accounting marks and accretable yield
A-1 Acc. Yield PA Mark Acquired Loans1 Non-PCI Loans2 Liabilities3 Securities4 Balance, September 30, 2017 $ (352) $ (203) $ (32) $ (382) Net interest income: Normal accretion 25 16 5 14 Cash recoveries / early payoffs 11 13 — (9) Total net interest income 36 29 5 5 Other (21) — — — Balance, Decembe
Slide 26: A-2 Core Loan Growth
A-2 Core Loan Growth (Dollars in millions) Supplemental information 4Q17 v. 3Q17 Annualized Average Balance Increase 4Q17 3Q17 (Decrease) Total loans held for investment $ 142,661 $ 142,691 (0.1)% Less Optimizing: Indirect - prime 9,165 9,780 Residential mortgage 28,559 28,924 PCI 689 742 Subtotal-o
Slide 27: A-3 Loan Mapping
A-3 Loan Mapping (Dollars in millions) Supplemental information Prior C&I CRE-IPP CRE-C&D Dealer floor plan Direct retail lending Sales finance Revolving credit Residential mortgage Other lending subsidiaries PCI Total New: Commercial: C&I $ 51,854 $ 1,665 $ 4,959 $ 58,478 CRE $ 14,886 $ 4,643 1,469
Slide 28: A-4 Non-GAAP reconciliations: Efficiency ratio
A-4 Non-GAAP reconciliations Efficiency ratio (Dollars in millions) Quarter Ended Year-to-Date Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Dec. 31 Dec. 31 2017 2017 2017 2017 2016 2017 2016 Efficiency ratio numerator - noninterest expense - GAAP $ 1,855 $ 1,745 $ 1,742 $ 2,102 $ 1,668 $ 7,444 $ 6,721
Slide 29: A-5 Tangible common equity and related measures
A-5 Non-GAAP reconciliations Calculations of tangible common equity and related measures (Dollars in millions, except per share data, shares in thousands) As of / Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2017 2017 2017 2017 2016 Common shareholders' equity $ 26,595 $ 26,757 $ 27,254 $
Slide 30: A-6 Core net interest income and margin
A-6 Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 2017 2017 2017 2017 2016 Net interest income - GAAP $ 1,644 $ 1,647 $ 1,635 $ 1,609 $ 1,565 Taxable-equivalent adjustment 38 41 40 40 41 Net interest income - taxable-equivalent 1,682 1,688 1,675 1,649 1,606 Interest income - PCI loans (36)
Slide 31: A-7 Non-GAAP reconciliations: Diluted EPS
A-7 Non-GAAP reconciliations Diluted EPS (Dollars in millions, except per share data, shares in thousands) Quarter Ended Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Year Ended December 31, 2017 2017 2017 2017 2016 2017 2016 Net income available to common shareholders - GAAP $ 614 $ 597 $ 631 $ 378 $ 5
Slide 32: A-8 Non-GAAP reconciliations: Operating leverage
A-8 Non-GAAP reconciliations Operating leverage1 (Dollars in millions) Quarter Ended Dec. 31 Sept. 30 Annualized 2017 2017 Growth Revenue2 - GAAP $ 2,869 $ 2,813 7.9% Taxable equivalent adjustment 38 41 Securities (gains) losses, net 1 — Revenue2 - adjusted $ 2,908 $ 2,854 7.5% Noninterest expense -
Slide 33: A-9 Non-GAAP reconciliations: Performance ratios
A-9 Non-GAAP reconciliations Performance ratios (Dollars in millions, except per share data, shares in thousands) Quarter Ended Common Tangible Assets Equity Common Equity2 Net income - GAAP $ 667 Net income available to common shareholders - GAAP $ 614 $ 614 Charitable contribution, net of tax 63 6
Slide 34: A-10 Segment Realignment
A-10 Segment Realignment Community Banking – Retail & Consumer Finance CB – Retail Network Card-Based Services Residential Mortgage Mortgage Warehouse Dealer Finance Retail & Rec Regional Acceptance Sheffield & CEC Community Banking - Commercial CB – Commercial Dealer Commercial Services Insurance H