BB & T (BBT)

Q3 2011 Earnings Call

October 20, 2011 8:00 am ET


Kelly S. King - Chairman, Chief Executive Officer, President, Member of Executive & Risk Management Committee, Chairman of Branch Banking & Trust Company and Chief Executive Officer of Branch Banking & Trust Company

Daryl N. Bible - Chief Financial Officer and Senior Executive Vice President

Tamera Gjesdal - Senior Vice President of Investor Relations

Clarke R. Starnes - Chief Risk Officer and Senior Executive Vice President


Craig Siegenthaler - Crédit Suisse AG, Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Matthew O'Connor - Deutsche Bank AG, Research Division

Nancy A. Bush - NAB Research, LLC, Research Division

L. Erika Penala - Merrill Lynch

Christopher W. Marinac - FIG Partners, LLC, Research Division

Christopher M. Mutascio - Stifel, Nicolaus & Co., Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Betsy Graseck - Morgan Stanley, Research Division

Michael Mayo - CLSA Asia-Pacific Markets, Research Division

Brian Foran - Nomura Securities Co. Ltd., Research Division

Ed Najarian - ISI Group Inc., Research Division



Greetings, ladies and gentlemen, and welcome to the BB&T Corporation Third Quarter 2011 Earnings Conference Call on October 20, 2011. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ms. Tamera Gjesdal, Senior Vice President of Investor Relations for BB&T Corporation. Thank you. You may begin, Tamera.

Tamera Gjesdal

Thank you, David, and good morning, everyone. And thanks to all of our listeners for joining us today. This call is being broadcast on the Internet from our website at We have with us today Kelly King, our Chairman and Chief Executive Officer; Daryl Bible, our Chief Financial Officer; and Clarke Starnes, our Chief Risk Officer, who will review the results for the third quarter of 2011, as well as provide a look ahead.

We will be referencing a slide presentation during our remarks today. A copy of the presentation, as well as our earnings release and supplemental financial information are available on the BB&T website. After Kelly, Daryl and Clarke have made their remarks, we will pause to have David come back on the line and explain how you may participate in the Q&A session.

Before we begin, let me remind you BB&T does not provide public earnings predictions or forecasts. However, there may be statements made during the course of this call that express management's 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 results to be materially different is contained on Slide 2 of our presentation and in the company's SEC filings.

Our presentation includes certain non-GAAP disclosures. Please refer to Page 2 and the appendix of our presentation for the appropriate reconciliations to GAAP. And now it is my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Kelly King.

Kelly S. King

Thank you, Tamera, and good morning, everybody. Thanks for joining our call. We recognize you all have a busy morning so thanks for being with us. We're very pleased to have a chance to talk to you about our quarter. We think it's a very strong quarter. In fact, it's the best quarter we've had in 3 years. So we're pretty pleased. I'm on Slide 3 if you're following along. I'll cover a few highlights.

So net income available to shareholders total $366 million, which is up 74.3% versus third quarter of '10. EPS was $0.52, up 73.3% versus Q3 '10. And if you look at versus Q2, we made $0.44 so it's annualized 72%, so very strong. And I would just point out with regards to earnings in general, as a highlight that we did start in the third quarter an expense in revenue optimization process. Well, basically, we're asking all of our business leaders to reconceptualize their businesses, recognize, and we think we'll employ a relatively protracted period of somewhat slow growth in the overall economy. And so we're really taking a hard look at our revenues and expenses and more from a conceptualization point of view versus perspectives. So we're pretty optimistic about what that will do in future periods with regard to earnings improvement.

Taking a look at revenues, we're very pleased that tax equivalent net interest income totaled $1.5 billion, it was about 18.3% versus our second quarter. Now that was substantially influenced by a substantial increase in securities and we did have some headwinds on the fee income side. We did have some OTTI negative impact. We had about a $37 million loss in writedown on loans held for sale, which we think is kind of onetime cleanup. We did have a typical seasonal insurance decline, which we see everytime this quarter, but it's pretty significant. And we did have a meaningful FDIC loss share at negative. But remember, that's more than offset in net interest income. So some headwinds on the fee side, but some very strong underlying fee income business performances as well.

So if you look at total revenues, second to third annualized, if you exclude OTTI and loss on held for sale, which are considered to be unusual, it would be up annualized about 3.5%, so pretty strong in this environment. We did again produce positive operating leverage. And as I've mentioned to you before, we continue to selectively hire revenue producers, so we continue to invest on our revenue production and feel relatively pretty good about it.

Credit quality, we just had another great quarter. Clarke will talk to you in more detail about it, but the highlight perspective, OREO, NPLs, performance TDRs, NPL inflows, watch list loans and charge-offs all declined, was another great quarter. NPA I'm very pleased to say decreased 11.5%, and NPA inflows decreased 12.1%, both stronger than we had originally given guidance on.

We had relatively strong loan growth given the environment we're in. Average total loan growth was 4.3% versus Q2. If you look at average loan growth, excluding ADC and covered and other acquired portfolios, it was at a very strong 7.4%. So we feel really good about that, and it was broad-based and at a fast pace and fast quarter. And so we're seeing good, strong loan growth in C&I, Direct Retail, specialized lending and mortgage. I'll give you a little detail on that. And right now we're seeing no signs of slowing, so our outlook is positive with regard to our loan book.

Deposits just continue to be phenomenal with noninterest-bearing deposits increasing $1.2 billion, or 21.8%, in the third. Average total deposits increased $8.6 billion, or 32%, so we're still seeing a flight of deposits into the banking system and certainly the stronger banks from a quality perspective.

If you look on Slide 4, we do have 3 unusual items I just wanted to mention to you. So I said we did have some loan write-downs, losses write-downs in our NPA held for sale. Remember, we've been working that down over the last year. We got a small amount left in there so we did take a cleanup mark on that. We expect that portfolio to be based in the next month or 2. But it was a pretax negative $37 million, which was negative $0.03. We sold a leveraged lease during the quarter, which produces a pretax $16 million loss in other income, but we also had a $32 million positive tax effect. Substantially, most of that was on the appositive effect on the side of the lease. There was some small additional independent true-ups but that was a positive $0.02. And then this -- we have some other than temporary impairment on some securities, which was $39 million pretax, or a negative $0.03 on EPS. We do not expect much any of that in the fourth. We just took a pretty aggressive position with regard to that in the third.

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