BB&T Underreports Bad Loans

BB&T on Monday said it 'inadvertently' underreported the amount of soured home equity loans in its first-quarter financial report to investors.
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BB&T

(BBT) - Get Report

on Monday said it "inadvertently" underreported the amount of soured home equity loans in its first-quarter financial report to investors.

The Winston-Salem, N.C. bank said in a filing with the

Securities and Exchange Commission

that gross home equity charge-offs were incorrectly reported in earnings results as 1.09%, when the figure should have been 1.90%.

The change "had no effect on the overall reported results or consolidated charge-off ratios," BB&T said in the filing.

In addition, the percentage of gross charge-offs as calculated by home equity loans and lines by state were also raised to 1.66% from 1.17%, BB&T said.

Al Savastano, an analyst at Fox-Pitt Kelton Cochran Caronia Waller says the change "supports our investment thesis that North Carolina (27% of total loans) and South Carolina (8% of total loans) are later cycle credit events that are beginning to increase with unemployment expected to rise to 12% in North Carolina by summer and already over 11% in South Carolina," he writes in a note.

"As these two states have greater economic stress, we believe credit losses will show in BB&T's numbers at an accelerated rate," he adds.

Savastano is concerned that the company will have to cut its dividend as credit costs continue to pressure earnings.

BB&T

reported a profit of $271 million, or 48 cents per share, down 37% from the year-ago quarter. The results beat analysts' consensus expectation of a profit of 31 cents per share, according to Thomson Reuters.

Shares were closed down 4.2% to $22.14 on Monday. BB&T was faring better than two other Southern regional banks --

Regions Financial

(RF) - Get Report

sank 11.7% on Monday, while

SunTrust Banks

(STI) - Get Report

fell 8.5%.