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BB&T posts lower profit in 2nd quarter

DIFQEMH
DAVIS TURNER - BLOOMBERG NEWS
The Winston-Salem lender recorded profit of $425 million in the quarter, down 22 percent from $547 million a year earlier. BB&T cited the establishment of reserves in expectation of the audit survey as a key reason expenses were higher than the same quarter last year.

BB&T Corp. said Monday its second-quarter profit declined from a year ago as the lender set aside millions of dollars after learning the federal government will look into its mortgage practices.

The Winston-Salem lender recorded profit of $425 million in the quarter, down 22 percent from $547 million a year earlier. The bank cited the establishment of reserves in expectation of the audit survey as a key reason expenses were higher than the same quarter last year.

In announcing its latest quarterly results Monday, the third-largest bank by assets in the Charlotte area disclosed that it has been selected for an examination of its compliance with requirements for mortgages insured by the Federal Housing Administration.

The bank said it is awaiting the outcome of the audit and no claims have been made against it. The announcement of the examination comes as banks nationwide continue to reach large settlements with the government over mortgage practices in the run-up to the financial crisis.

BB&T said it established reserves of $85 million, before taxes, in preparation for the review by the U.S. Department of Housing and Urban Development. The audit hasn’t taken place yet, the bank said.

Other mortgage-related costs also hurt BB&T’s results in the second quarter. The lender said it recorded a $33 million pre-tax adjustment as it increased its estimated potential losses on FHA-insured loans that have not yet defaulted.

The mortgage-related costs helped lower earnings per share to 58 cents compared with 77 cents a year ago.

Revenue fell 7.5 percent from a year ago to $2.3 billion, in part because of a decline in mortgage originations that has hammered large and small banks nationwide as higher interest rates have lowered borrower demand to refinance.

BB&T’s mortgage banking income fell 49 percent from a year ago, to $86 million.

“Residential mortgage ... is kind of flattish,” CEO Kelly King said on an earnings call with analysts. “We expected it to stay kind of flattish.”

King said that despite a sluggish U.S. economy that continues to create challenges for lenders, the second quarter was “very solid.”

In the quarter, BB&T’s commercial and industrial loans increased to $39.4 billion, up 2.7 percent from a year ago.

BB&T, like other lenders, is also writing off fewer bad loans, an indication that more loans are being paid on time. Net charge-offs as a percentage of average loans and leases fell in the second quarter to their lowest levels since 2007, BB&T said.

Also on Monday, BB&T said it continues its expansion into Texas, where it has sought to grow market share. In the second quarter, it completed its acquisition of 21 Citibank branches in the state.

Last year, BB&T was 38th in Texas for market share, up from 55th in 2010, the year after it entered Texas through its Colonial Bank acquisition.

BB&T shares fell $1.57 Monday, or 4.04 percent, closing at $37.33.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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