BB&T Corporation Q1 2010 Earnings Call Transcript

BB&T Corporation Q1 2010 Earnings Call Transcript
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BB&T Corporation (BBT)

Q1 2010 Earnings Call

April 22, 2010 8:00 am ET

Executives

Tamara Gjesdal – Senior Vice President of Investor Relations

Kelly S. King – Chairman of the Board, President & Chief Executive Officer

Daryl N. Bible – Chief Financial Officer & Senior Vice President

Analysts

Kevin Fitzsimmons – Sandler O’Neill & Partners, LLP

Brian Foran – Goldman Sachs

Kevin St. Pierre – Sanford C. Bernstein & Co., Inc.

Craig Siegenthaler – Credit Suisse

Robert Patten – Morgan, Keegan & Company, Inc.

Presentation

Operator

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Welcome to the BB&T Corporation first quarter earnings 2010 conference call on Thursday April 22, 2010. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Tamara Gjesdal, Senior Vice President of Investor Relations for BB&T Corporation.

Tamara Gjesdal

This call is being broadcast on the Internet from our website at

www.BBT.com/investor

. Whether you are joining us this morning by webcast or by dialing in directly, we are very pleased to have you with us. We have with us today Kelly King, our Chairman and Chief Executive Officer and Daryl Bible, our Chief Financial Officer who will review the financial results for the first quarter 2010 as well as provide a look ahead. After Kelly and Daryl have made their remarks, we will pause to have the operator come back on the line and explain how those who have dialed in to the call may participate in the question and answer session.

Before we begin, let me make a few preliminary comments. BB&T does not make predictions or forecasts, however, there may be statements made during the course of this call that express managements’ intentions, beliefs or expectations. BB&T’s actual results may differ materially from those contemplated by these forward-looking statements. Additional information concerning factors that could cause actual result to be materially different is contained in the company’s SEC filings.

Now, it is my pleasure to introduce our Chairman and Chief Executive Officer Kelly King.

Kelly S. King

As we typically do, I’m going to cover some quarterly highlights, talk more specifically about the performance of the first quarter, talk about a small number of unusual items, drill down in to the drivers of performance, give you an update on the Colonial integration and then Daryl will give you some more color on margin and balance sheet activity, purchase accounting issues, expenses and efficiency, taxes and capital and then of course we’ll have time for questions.

Overall, we think it was a really solid quarter. We made $0.27 versus a consensus of $0.23. It was flat to the fourth quarter but that’s really a positive because as you know, we typically have a down draft in the first quarter for seasonal reasons so that was good. Margins up to 3.88%, which is a nice increase and looks to have upward pressure going forward, Daryl will give you some detail on that.

Non-performing assets grew slower as we expected at 5.6% and overall we have some much better consumer trends which I’ll give you some detail on. Net interest income was up 14.7% which was good. Deposits slowed but that was really by design because frankly we have not had as much loan growth and so we’ve been able to slow deposit growth some and control our costs. Overall, Colonial is exceeding our expectations and I’ll give you a little more color on that.

If you look at the earnings, we did make $188 million, $0.27 a share. The ROA was .48 and return on common equity was 4.59%. Obviously, those are down from normalized levels but I will point out that they are meaningfully positive. If you look at our earnings power, we try to focus in on that each quarter. It’s a little complicated to look at now to try and get at the real purposes of that which is the kind of underlying earnings power of the organization.

If you kind of look at earnings power excluding bond gains, you remember Q1 last year we had large bond gains, excluding that our purchase accounting and OREO expenses is kind of flattish primarily because of a substantial reduction in mortgage which of course, we all expected. I wanted to kind of see how it looked if you take out the mortgage affect so if you also take out the mortgage affect, it’s interesting from Q1 to Q1 our earnings power went up from $788 to $888 which is a 12.7% increase which I think is more reflective of the kind of underlying earnings of the company which is reflective of good margin and good expense control and other factors.

We did have a small number of unusual items. I would mention to you we did settle a contingent liability during the quarter so we had a recovery of legal reserve of $11 million. We did have an adjustment of the estimate of Colonial occupancy expenses which reduced our run rate of expenses of $16 million and then on the other side we did have $17 million of pre-tax merger charges. So, the way we think about that is if you take away the $11 million on the potential liabilities, the $16 million on the occupancy expense, although I think that’s debatable, and then you deduct the $17 million or add back the $17 million on merger charges you can kind of come to something like a $10 million take away which would be about $0.01 a share. I am sure you will all do your own analysis but that’s kind of the way we look at it.

Looking at some of the drivers of performance, let’s look at credit quality. As we mentioned on non-performers we thought would continue to increase so excluding covered assets they increased from $4.2 billion to $4.4 billion, that’s a 5.6% increase which is a decline. As a percentage of assets that’s 2.86% from 2.68%. Charge offs excluding covered loans were 1.99%, just a basis point higher than the fourth quarter’s 1.98%. So we felt good about that. In looking at the provision, you’ll notice that our provision is down because of better credit quality. Provision was $575 but we did cover charge offs of $475 and added another $100 million to the allowance which is about $0.09 per share.

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