BB&T Reports Strong Q3 Loan Volume

The company moved aggressively to trim problem loans while increasing originations.
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BB&T Corporation

(BBT) - Get Report

on Thursday reported third-quarter net income of $210 million, or 30 cents a share, beating the consensus of 26 cents a share among analysts polled by Thomson Reuters.

In comparison, net income available to common shareholders was also $210 million, or 30 cents a share, during the second quarter, and $152 million, or 23 cents a share, during the third quarter of 2009.

CEO Kelly King said BB&T achieved "substantial growth in all non-real estate portfolios compared to last quarter."

Third-quarter net interest income was $1.3 billion, rising from $1.2 billion a year earlier. Noninterest income totaled $1.1 billion, up from $940 million during the third quarter of 2009.

The company's net interest margin - essentially the difference between a bank's average yield on loans and investment securities and its average cost for deposits and borrowings -- declined slightly from the previous quarter but was very high among large regional lenders at 4.09% during the third quarter. The margin was 4.12% in the second quarter and 3.68% in the third quarter of 2009.

A significant factor in the improving margin has been the continued growth in non-interest bearing deposits, which totaled $20.6 billion as of September 30, increasing from $19.8 billion the previous quarter and $18.7 billion a year earlier. The company also tred the margin improvement to "yields on loans purchased from legacy Colonial," referring to its acquisition of the failed

Colonial Bank

of Montgomery, Ala. in August 2009.

Nonperforming assets - including nonaccrual loans and repossessed real estate but excluding government-guaranteed assets - comprised 2.81% of total assets as of June 30, compared to 2.79% the previous quarter and 2.48% a year earlier. Net charge-offs - loan losses less recoveries - totaled $873 million during the third quarter, rising from $642 million in the second quarter and $446 million in the third quarter of 2009, as the company moved aggressively to trim problem assets by moving $1.3 billion in nonperformers to held-for-sale.

BB&T's provision for loan loss reserves during the third quarter was $770 million, resulting in a "release" of $103 million in loan loss reserves, which directly improved bottom line earnings and followed the trend for the largest U.S. bank holding companies, including


(C) - Get Report

, which released $1.8 billion from loan loss reserves;

Bank of America

(BAC) - Get Report

, which also released $1.8 billion from reserves;

Wells Fargo

(WFC) - Get Report

, which released $650 million from reserves; and

JPMorgan Chase

(JPM) - Get Report

, which released $1.7 billion from reserves during the third quarter.

BB&T's annualized ratio of net charge-offs to average loans for the third quarter was 3.31%, increasing from 2.48% the previous quarter and 1.71% a year earlier. Loan loss reserves covered 2.56% of total loans held for investment as of September 30.

Other highlights during the third quarter included net gains of $239 million on the sale of $10.7 billion in securities.

The company reported a preliminary Tier 1 risk-based ratio of 11.7% as of September 30, well above the 6% required for most banks to be considered


by regulators. The tangible common equity ratio was 7.0%.

King added that BB&T's "underlying businesses, in many ways, are performing better than ever, particularly in terms of client service delivery and market position.

BB&T's shares closed at 22.92 Wednesday, down 8% year-to-date. Out of 32 analysts covering BB&T, nine rate the shares a buy, 21 recommend holding the shares and two recommend investors sell the shares.


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.