BB&T Earnings: What You Might Have Missed
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
BB&T (NYSE: BBT) reported earnings on April 19, showing EPS up 91% versus last year. Headline earnings are one thing. Let's face it, most of us are busy and sometimes we skim the earnings report to get the highlights and then move on. Let me tell you what you might have overlooked if you just skimmed BB&T's most recent report.
First, BB&T continued to show why it is “The Rodney Dangerfield of Banks” as I've written before. The company has been growing at a pace that's far above some of its closest competition. After growing loans, deposits, and earnings, what did the stock do after their impessive earnings report? The stock is up just 2% since releasing earnings last week. At 12 times forward earnings, BB&T stock might not be the cheapest bank you can buy, but I haven't seen consistent quality across the board from many others.
BB&T managed to drive revenues up 19% in the most recent quarter. To put this in perspective, SunTrust (NYSE: STI) managed just 2.78% revenue growth, and Regions Financial (NYSE: RF) is expected to show a decline of over 20%. BB&T's revenue growth came from two sources, $152 million in additional net interest income, and $121 million in mortgage income. I would caution investors that mortgage income can be very cyclical, and this growth in mortgage income might not be sustainable. Generally speaking, mortgage bankers try to push everything they can to close by the end of the calendar year. It's not hard to imagine why, there are year end goals being pushed by management, and they want to end the year on a high note. Many times these deals can't get closed by the end of the year, and a chunk of them spill into the first quarter of the following year. This phenomenon, and the fact that refinance rates are near all time lows, has a lot to do with BB&T's mortgage revenue. While this is cyclical, even without this burst of mortgage revenue, the company still would have seen at least 8-10% growth which is very good.
Total loan growth was actually quoted in quarter-over-quarter numbers in the main section of BB&T's earnings release. I find that comparision much less relevant as cyclical factors come into play. Year-over-year comparison's are usually much more useful. On this score, BB&T saw loan growth in the mid to higher single digits in all major categories except mortgage loans. C&I (Commercial & Industrial) loans were up 7.7% and the company made a point to say this was part of “management's focus on growing this part of the portfolio”. Direct retail loans were up 7.3% year-over-year as a “result of continued demand for home equity loans”. Sales finance loans were up 6.2%, and a big driver of loan growth was mortgage lending up 17.5%. Investors again would do well to imagine these results without the huge growth in mortgage lending as noted before. Stripping this out, the bank still would have produced loan growth in the mid to high single digit range.
In the BB&T press release the big number I'm sure everyone saw, was charge offs dropped from 1.46% to 1.28%. What I didn't see mentioned until much further down, was the huge drop in non-performing loans, and past due loans in the last year. From the first quarter of 2011 to the current quarter, total non-performing assets and loans 90 days past due both dropped 40%+. Possibly important going forward is, the fact that over the last year the percentage of allowances for loan losses grew from 64.63% of non-performing assets, to just over 90% of non-performers. This is signficiant, because if BB&T sees continued improvement in loan quality, the company won't need to set aside as much for losses, thus increasing future earnings.
BB&T has grown average deposit by an astonishing amount. In my prior post mentioned above, I noted that BB&T had grown deposits by nearly 17% in the prior four quarters. The bank managed to beat this number with 18% average deposit growth. The most significant contributor was non-interest bearing deposits, which were up 24.7%. This shows that BB&T is not just paying up to get CD money, but is instead winning checking account business. Since this is the cheapest source of funding for a bank, if this trend continues we should also see BB&T's fee income move up in the future. You can also tell that the bank is benefiting from older CDs re-pricing, as the cost of CDs declined by 0.75%. The amazing part is even with a benefit of 0.75% less interest being paid on average, the bank brought in 22.8% more in CD funds.
BB&T is maintaining its string of strong growth in revenue, driven by improvements in loans, loan quality and deposits. BB&T stock has barely moved in the last few months, even with all of this positive news. Prior to the Great Recession, BB&T had raised its dividend for over 30 consecutive years. With the most recent raise, and performance like this quarter's, we are likely seeing the beginning of a new streak. I already have my long-term outperform call on BBT on CAPSCall. This most recent earnings report makes me an even firmer believer that, BB&T is headed in a brighter direction.
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