BB&T’s Q1 Earnings Take 51% Hit on Tax Adjustment

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BB&T reported a 51% decline in first-quarter profits available to common investors, which dropped to $210 million, or 29 cents a diluted share, from $431 million, or 61 cents a diluted share, in 2012′s first quarter. The shortfall was caused by a higher tax rate (65%, as a result of a tax dispute, versus 30% a year earlier) that shaved 40 cents from earnings per share. Further, the latest quarter’s results reflected $30 million in preferred-stock dividends that were not present a year earlier.

Income before taxes rose 16% to $737 million. Net interest income edged lower by 1% to about $1.4 billion, as reported net interest margin narrowed by 17 basis points. Looking forward, we expect that margins will continue to contract amid the low interest-rate environment. Noninterest income (excluding securities gains and losses) gained 11%, helped by a 35% increase in insurance income. This line was lifted by BB&T’s 2012 Crump insurance acquisition, which wasn’t included in the year-earlier results.

Analysts continue to like the potential of the Crump deal to help diversify BB&T’s results, especially at a time when interest-based earnings will continue to face headwinds. Noninterest expenses rose 2% to $1.4 billion. They were also encouraged by the continuing improvement in the company’s credit quality, as nonperforming assets fell to 0.91% of total assets from 0.97% in the fourth quarter and 1.50% in the first quarter of 2012.

During a time of less-than-ideal conditions for banking, BB&T is trying to find ways to grow further. The company continues ahead with its commercial-banking push in Texas and is also expanding in corporate banking and in wealth management. While these efforts may take some time to fully bear fruit, we think they may eventually yield additional profits for the company. BB&T is also working on a resubmission of its capital plan after regulators rebuffed an earlier effort, seemingly for qualitative reasons. That occurred after BB&T changed how it tallied its risk-weighted assets. Analysts expect the bank to place a higher priority on increased dividend payouts than stock buybacks.

 

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