BB&T Beats as Credit Improves, Releases Reserves

  • Third quarter EPS of 52 cents exceeds analysts' estimates.
  • $161 million reserve release.
  • Net interest income rises from Q2, but noninterest income continues decline.

NEW YORK ( TheStreet) - BB&T ( BBT) on Thursday reported third-quarter net income available to common shareholders of $366 million, or 52 cents a share, beating the average estimate of a 50-cent profit, among analysts polled by Thomson Reuters.

Earnings increased from $307 million, or 44 cents a share, during the second quarter, and $210 million, or 30 cents a share, in the third quarter of 2010.

The main factor in the earnings improvement was a continued decline in the provision for loan losses, to $250 million in the third quarter, from $328 million the previous quarter and $770 million a year earlier. BB&T released $161 million in loan loss reserves during the third quarter, which directly boosted earnings.
BB&T CEO Kelly S. King

BB&T CEO Kelly King said that the company's earnings improvement was "driven by significantly improved credit quality and improved net interest income. Net revenues totaled $2.1 billion this quarter, led by taxable-equivalent net interest income of $1.5 billion, up 8% compared to last year."

Third-quarter net interest income was $1.75 billion, increasing from $1.69 billion the previous quarter and $1.68 billion a year earlier, as "BB&T's average loans held for investment grew an annualized 4%," according to King, who also said that "all our leading indicators for loan growth are positive, with robust pipelines and solid momentum as we enter the fourth quarter."

Total deposits grew 9% quarter-over-quarter and 10% year-over-year, to $117.6 billion as of Sept. 30. Noninterest-bearing deposits grew 9% sequentially and 19% year-over-year, to $24.6 billion. The tax-adjusted third-quarter net interest margin was very competitive 4.09%, especially for a bank of BB&T's size with a diversified loan portfolio, declining from 4.15% the previous quarter but unchanged from a year earlier.

Noninterest income totaled $690 million in the third quarter, declining from $787 million in the second quarter and $1.1 billion in the third quarter of 2010, when BB&T booked $239 million in securities gains. The company reported $39 million in securities losses for the most recent quarter.

BB&T said that the sequential decline in noninterest income "included a $58 million decrease in insurance income, increased securities losses of $37 million and a decrease of $23 million in FDIC loss share income," which were "partially offset by an increase of $40 million in mortgage banking income."

The company reported that its "Tier 1 common capital ratio under the currently proposed Basel III capital standards was estimated to be 8.8% at September 30, 2011 compared to 8.3% at June 30, 2011. "

BB&T's shares were down 13% year-to-date, through Wednesday's close at $22.30. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 2.87%.

Out of 29 analysts covering BB&T, seven rate the shares a buy, 20 have neutral ratings, and two analysts recommend selling the shares.

The median 12-month price target among analysts polled by Thomson Reuters is $26.00, implying 17% upside for the shares.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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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 TheStreet.com 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.

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