BB&T to raise dividend after posting $501 million profit

BB&T

WINSTON-SALEM, N.C. — Another solid quarterly performance, spurred again by significant improvements in its loan portfolio, led BB&T Corp. to a $501 million profit in the first quarter, the bank reported today.

It also was the final piece of evidence management needed to recommend a 1 cent raise in the quarterly dividend, to 24 cents, to the board of directors.

BB&T, as well as most of the nation’s larger banks, gained Federal Reserve Bank permission March 26 to raise its dividend. Some analysts had projected BB&T would increase its dividend by 2 to 3 cents.

Likely with those expectations in mind, Kelly King, the bank’s chairman and chief executive, said in a statement that “we continue to have one of the highest dividend yields and payout ratios in the industry.”

The bank reported diluted earnings of 69 cents, up 40 cents from the first quarter of fiscal 2013, in which it took a $281 million tax-related adjustment. Excluding a 1-cent charge, earnings were 70 cents.

The average earnings forecast was 71 cents by 20 analysts surveyed by Zacks Investment Research.

King once again cited the bank’s diversified revenue stream for the increased profit.

“Insurance revenues were very strong for the quarter (up 17 percent to $427 million), credit results continued to improve and expenses were down $53 million compared with last quarter, reflecting improving expense control,” King said. “Commercial loan growth was strong, particularly commercial real estate lending for income producing properties.”

A major contributor to the profit increase was a 78 percent decline in its provision for loan losses to $60 million. Decreases to the provision are considered pivotal by analysts because it comes directly off banks’ bottom line for net income.

Nonperforming assets fell year over year from $1.41 billion to $986 million – the lowest level since 2007. Net charge-offs were $159 million on March 31, compared with $289 million on March 31, 2013.

All three signal an improving economy and more customers being able to stay current on mortgage and other loan payments. Financial institutions also have accelerated getting rid of bad loans for the past two years.

Analysts say fiscal 2014 will be pivotal in determining whether banks and credit unions can go back to relying on fee and loan revenue growth to bolster future profits. If not, banks could face flat revenue growth as their loan portfolio improvements diminish compared with the previous year.

For example, BB&T reported a 5.3 percent drop in loan revenue to $1.35 billion when excluding the impact of the provision. With the provision decline factored in, loan revenue rose 11.9 percent to $1.29 billion.

Revenue from fees dropped 9 percent to $911 million.

As with most banks, BB&T’s mortgage-banking fees were down sharply in the quarter, falling 59 percent to $74 million. That reflected a decline in consumer demand for mortgage loans and refinancing as interest rates have risen somewhat from recent historic lows.

“Consistent with industry trends, mortgage banking income declined as originations were down from last year’s record levels,” King said.

Non-interest expense was $1.4 billion, down $53 million compared to the prior quarter. The bank reported a $45 million decline in personnel expense, of which $37 million reflects lower production-related incentives and commissions, and adjustments to other incentive plans.

“We continue to expect improvement in the efficiency ratio as revenue growth is expected to outpace expense growth,” King said.

King said in April 2013 that BB&T had started a corporate restructuring aimed at lowering expenses that would include a reduction in its workforce and branches. King has said BB&T will not announce a large-scale expense initiative.

The bank did not mention having a specific reduction in its workforce during the first quarter. It previously announced reducing its number of community-banking regions from 37 to 23, and eliminating 192 job positions in the third quarter of 2013.

Most large banks – including Bank of America Corp., SunTrust Banks Inc. and Wells Fargo & Co. – have announced major job cuts within their mortgage-banking units. Banks had increased their mortgage-unit workforces to better handle refinancing requests when mortgage rates hit historic lows.

In September, Daryl Bible, the bank’s chief financial officer, said it will be the first half of 2014 “before we start to right-size the (mortgage banking) business,” a process that likely will include job cuts.

Tony Plath, a finance professor at UNC Charlotte, said that although he expects BB&T to have significantly fewer job cuts than its larger competitors, it still could eliminate 300 to 500 positions, primarily in North Carolina, since most of its mortgage-origination employees are in the state.

Earnings highlights

• Net income: $501 million compared with $210 million a year ago. The bank took a tax-related adjustment of $281 million in the first quarter of 2013.

• Diluted earnings: 69 cents compared with 29 cents a year ago.

• Average earnings forecast: 71 cents by 20 analysts surveyed by Zacks Investment Research. Analysts typically do not include onetime gains and charges in their forecasts.

• Noteworthy: BB&T management plans to request a 1 cent increase in the quarterly dividend to 24 cents. The board of directors will vote on the increase at the annual shareholder meeting April 29 in Winston-Salem.