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Mortgage fees help BB&T post $318M in profit
Despite drag of nonperforming assets and loan losses, bank beats analysts' expectations
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Published: April 18, 2009
BB&T Corp. shrugged off the burden of lower expectations again during its first quarter.
Amid an increasing number of analysts forecasting lower earnings and a hefty dividend cut this year, the bank reported $318 million in profit yesterday despite a sharp increase in nonperforming assets and loan losses. The net income, however, was down 26 percent from a year ago.
Those negatives were offset primarily by a surge in new and refinanced mortgage loans, increasing loan and fee revenues by a double-digit amount. Kelly King, the bank's president and chief executive, said that BB&T continues to gain deposits from what he considers weakened competition in its territory.
As a result, the bank posted diluted earnings of 48 cents a share, beating by 16 cents the average forecast of analysts surveyed by Zacks Investment Research.
The bank's share price rose 11.1 percent, or $2.35, to close at $23.42 yesterday.
King rated the performance as solid given the "numerous challenges facing the financial-services industry."
BB&T has loomed larger in the industry spotlight recently because it has been one of the few large banks to avoid a dramatic earnings hit or loss since the credit crisis began in mid-2008.
The bank did report during the quarter a 203 percent increase in its loan-loss provision to $676 million, a more than 300 percent increase in its unpaid loans to $388 million and a nearly tripling of nonperforming assets to $2.76 billion.
Those increases were driven by continued deterioration in housing-related credits, with the largest concentration of credit issues occurring in Georgia, Florida and metro Washington.
"Our overall earnings were relatively strong given the higher loan losses and additional loan loss reserves, and our capital levels and earnings power remains strong," King said.
"The increases were generally within the range we expected and reflect aggressive efforts to identify and resolve our problem credits," he said.
BB&T posted a 13 percent increase in loan revenue to $1.1 billion, benefiting from lower mortgage rates. Fee income jumped 34 percent to $1.03 billion, meaning that BB&T is drawing closer to a 50-50 split in revenue from loans and fees that many of its peers have achieved.
The bank also is drawing more analytical scrutiny since it is the largest bank in the country that has not reduced its dividend. It recently declared a 47-cent dividend for the second quarter.
For example, Christopher Mutascio, an analyst with Stifel Nicolaus & Co., reduced his rating from "Hold" to "Sell" on March 30 based on further expected losses tied to the deteriorating economy and surging jobless rates, particularly in the Carolinas, and the potential for a dividend cut.
Analysts said yesterday that King will have to cut the dividend this year if he wants to repay its $3.1 billion infusion of capital from the U.S. Treasury as fast "as humanly possible." The bank paid a $40 million dividend to the Treasury during the quarter.
"We fully understand how important the dividend is to our shareholders," King said. "Our dividend decisions will reflect our desire to remain well capitalized in these uncertain economic times and to develop a capital plan that allows us to repay the U.S. Treasury's capital investment."
BB&T had a fairly solid quarter overall despite the continuing deterioration of major housing markets in its territory, said Neena Mishra, an analyst for Zacks Investment Research.
"The one surprise is that it didn't take the opportunity to announce a dividend cut," Mishra said.
Tony Plath, a finance professor at UNC Charlotte, said that BB&T "threaded the needle just about perfectly for the quarter."
"It had a whopping increase in provision expense and charge-offs -- which everyone expected -- but they still beat their numbers by a substantial margin," Plath said. "I'd say they hit the ball solidly for the quarter, even with substantial weakness in the Southeastern region economy."
BB&T had total assets of $149.9 billion on March 31, down from $152 billion on Dec. 31.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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