BB&T Focuses on Expenses as Revenue Declines

  • Third-quarter EPS of 37 cents, including 33-cent tax adjustment.
  • Adjusted third-quarter EPS of 70 cents matches consensus estimate.
  • Mortgage banking income down 31% from the second quarter.
  • Net interest margin narrows slightly.
  • Personnel and restructuring expenses decline.
  • Average portfolio loans grow 1% sequentially, 2% year over year.

NEW YORK ( TheStreet) -- BB&T ( BBT) on Thursday reported an expected decline in fee income that was partially offset by lower expenses.

The Winston-Salem, N.C., lender reported third-quarter net income available to common shareholders of $268 million, or 38 cents a share. The results included a previously announced tax adjustment of $235 million.

Excluding the tax adjustments, third-quarter operating earnings available to common shareholders were $503 million, or 70 cents a share, compared to $547 million, or 78 cents a share, in the second quarter, and $469 million, or 67 cents a share, in the third quarter of 2012.

The sequential operating earnings decline reflected a decline in mortgage revenue to $117 million in the third quarter from $168 million the previous quarter. This revenue decline was partially offset by a decline in personnel expenses to $805 million in the third quarter from $844 million in the second quarter. BB&T said the cut in personnel expenses was "primarily due to lower production-related compensation and other post-employment benefits expenses." That refers to the commission-based compensation for mortgage production staff.

The year-over-year earnings improvement mainly reflected a decline in the provision for credit losses, to $92 million in the third quarter from $244 million a year earlier. The second-quarter provision was $168 million. BB&T's loan loss reserves declined by $63 million during the third quarter.

BB&T's loan loss reserves covered 1.59% of total loans held for investment as of Sept. 30. This coverage ratio was down from 1.64% the previous quarter and 1.8% a year earlier. However, reserves covered 178% of nonperforming loans, increasing from 166% the previous quarter and 133% a year earlier.

Third-quarter net interest income on a taxable equivalent basis was $1.454 billion, up slightly from $1.452 billion in the second quarter but down from $1.520 billion in the third quarter of 2012. The net interest margin narrowed to 3.68% in the third quarter, from 3.70% the previous quarter and 3.94% a year earlier.

BB&T's average total loans -- excluding acquired loans covered by government guarantees -- grew 1% sequentially and 3% year-over-year, to $112.645 billion in the third quarter.

Among other large regional lenders, two stand out with stronger third-quarter loan growth. However, the comparisons are not necessarily fair, considering their differing geographic footprints.

U.S. Bancorp ( USB) of Minneapolis on Wednesday reported core loan growth of 2.2% during the third quarter from the second quarter, with average loans growing 7.5% year over year.

Huntington Bancshares ( HBAN) of Columbus, Ohio, on Thursday reported sequential loan growth of 2% during the third quarter, with average loans growing 5% year over year.

"BB&T posted solid results in a challenging environment this quarter," said CEO Kelly King in the company's earnings release. "Our 7% year-over-year growth in adjusted earnings was driven by a substantial improvement in credit quality to the best levels in almost six years," he said.

King said that BB&T was "pleased to achieve 3% annualized loan growth in a sluggish economic environment," and added that "While average total deposits were lower this quarter, noninterest-bearing deposits grew 8% annualized consistent with our mix improvement goals."

BB&T's coveted noninterest bearing deposits totaled $34.846 billion as of Sept .30 and made up 27% of total deposits as of Sept. 30, increasing from 24% a year earlier.

Jefferies analyst Ken Usdin, in a note to clients following the earnings release, called BB&T's third-quarter results "a bit soft," and predicted Thursday's market reaction would "be dictated by management's commentary on the expense trajectory" during the earnings conference call with analysts," which started at 8 a.m. EDT.

Usdin wrote that BB&T's "affiliate restructuring, along with lower future mortgage-related and regulatory costs, should provide a path for additional improvement over the next few quarters."

He rates BB&T a "hold," with a price target of $36.00.

BB&T's shares were down 1% in premarket trading to $33.92.

BBT Chart BBT data by YCharts

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.


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

>Contact by Email.

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.

If you liked this article you might like

You and I Are Not Doomed: Market Recon

You and I Are Not Doomed: Market Recon

Apple, Tesla and China's Economy - 5 Things You Must Know

Apple, Tesla and China's Economy - 5 Things You Must Know

Wall Street Futures Bump Higher on China GDP, Potential Apple Tax Law Boost

Wall Street Futures Bump Higher on China GDP, Potential Apple Tax Law Boost

European Stocks Gain, Wall Street Drifts But Global Markets Power Ahead

European Stocks Gain, Wall Street Drifts But Global Markets Power Ahead

Bonus White Paper: How to Play a Resurgent Banking Sector