BB&T Corp. on Thursday boasted record profit in the second quarter, but analysts on an earnings call were focused on something else: the company’s expenses.
Noninterest expenses for the Winston-Salem-based bank rose 4.9 percent to $1.5 billion, at a time when other banks have lowered costs.
“Expenses were noisy” in the quarter, CEO Kelly King said on the earnings call. “I’d say overall it was a very solid quarter, especially given the kind of sluggish economy we have. Basically, frankly, everything looks good except expenses.”
Analysts questioned executives about when costs might start dropping.
“Are you still committed to having total expenses down this year?” asked analyst Ken Usdin of Jefferies & Co.
Chief Financial Officer Daryl Bible told analysts that expenses should fall throughout this year, noting that they stemmed, in part, from a second-quarter restructuring of BB&T’s banking network. The bank had been divided into 37 regions. That’s now down to 23, a move that has resulted not only in job cuts but also in severance pay.
Under the restructuring, BB&T slashed 14 regional president positions but grew the geographic footprint that its remaining regional presidents oversee. For instance, the president overseeing the Charlotte region now oversees a bigger area that includes Asheville.
Also contributing to the rise in second-quarter expenses: an increase in incentive payments, the result of bank employees exceeding their goals in mortgage banking, capital markets and insurance, Bible said.
The company’s purchase last year of Fort Lauderdale, Fla.-based BankAtlantic also increased personnel expenses in the second quarter. BB&T also is putting in new systems, which is adding to costs.
BB&T, the No. 3 bank by market share in Charlotte, said it earned $547 million, or 77 cents a share, in the quarter, ahead of analysts’ estimates of 74 cents per share.
Revenue was $2.49 billion, a 1.3 percent increase from a year ago and in line with analysts’ predictions.
BB&T, like other banks, set aside less money for bad loans in the quarter, a sign that loan delinquencies are decreasing. As other banks have done, BB&T grew its deposits in the quarter. Year over year, average deposits rose 3.7 percent, to $129.9 billion.
BB&T also saw a year-over-year rise in insurance, trust and investment advisory and investment banking incomes.
But residential mortgage banking income fell 7.7 percent, to $168 million, even though BB&T originated $9.3 billion in mortgages in the quarter, which was a record for the bank. BB&T sells most of its mortgages through securitization. As interest rates rise, though, the bank earns less on the sale of the securities.
Bible, the CFO, also said Thursday that the bank plans to close about 40 branches. None of the branches are in the Charlotte area, the bank said, although a drive-through-only site on Albemarle Road will close Aug. 23.
The bank is expanding in markets across the U.S., adding branches and staff. For example, it has put corporate banking staff in Dallas, Chicago, Cincinnati and San Francisco. It’s also opened a Dallas wealth-management office and added wealth-management advisers in Texas, Florida and North Carolina. In addition, the bank said it’s adding mortgage-lending staff in Alabama, Florida and Texas.
Roberts: 704-358-5248; Twitter: @DeonERoberts
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