BB&T Corp. began what may prove to be its most pivotal strategic year on a record first-quarter earnings note Thursday.
BB&T, which is based in Winston-Salem, and Atlanta-based SunTrust Banks Inc. said Feb. 7 they will merge in a $66 billion megadeal to form the nation’s sixth largest traditional bank with $442 billion in total assets.
The deal requires shareholder and regulatory approvals and is projected to close in the fourth quarter, although congressional pushback on the formation of another potential “too big to fail” bank could delay federal regulatory approval until 2020.
The combined bank’s headquarters will be in Charlotte, though Winston-Salem would retain the community-banking operations and Atlanta would retain SunTrust’s corporate and investment banking operations.
BB&T reported net income of $749 million for the first quarter. When excluding merger-related and cost-cutting initiative expenses, adjusted net income was a record $813 million for the quarter.
Diluted earnings were up 3 cents to 97 cents. Excluding merger-related expenses, adjusted earnings were $1.05.
The average earnings forecast was $1.03 by 10 analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and losses in their forecasts.
As expected, BB&T’s chairman and chief executive Kelly King provided little commentary on the SunTrust megadeal in his prepared comments.
"First quarter was a great start to the year,” King said. “Our businesses continue to perform well, with record quarterly insurance revenues, increased net interest margin, solid loan growth, strong expense control, excellent asset quality, and strong capital and liquidity.”
"We continue to prepare for the integration of our company with SunTrust and are excited as our colleagues work together to create the premier financial institution.”
Unlike the first three quarters of fiscal 2018, BB&T’s fifth consecutive record quarterly performance was not driven significantly by the decline in federal corporate income-tax expense from 35% to 21% on Jan. 1, 2018.
For the first quarter, BB&T’s provision for income taxes was $177 million, compared with $186 million a year ago.
Noninterest expenses were up 4.9% to $1.77 billion.
BB&T had projected pre-SunTrust purchase announcement of spending up to $425 million in share repurchases in the first quarter. The banks said they would suspend share repurchases until the deal was completed.
Loan income rose 3.9% to $1.54 billion, while the provision for loan losses increased 3.3% to $155 million.
Fee income was up 1.9% to $1.2 billion.
The largest fee stream, insurance, was up 17% to a record $510 million. BB&T’s insurance agency and brokerage network is the fifth largest in the United States and sixth largest in the world. The bank completed July 3 its purchase of Regions Insurance Group for an undisclosed price.
Service charges on deposits climbed 3.5% to $171 million, while investment-banking and brokerage fees and commissions fell 1.8% to $11 million.
Mortgage banking was down 36.4% to $63 million, reflecting lower consumer demand as mortgage rates have increased this year. Some national and superregional banks have put less emphasis on mortgage lending in recent quarters, in part reflecting increased competition from online mortgage lenders.
The reduction in non-interest expenses was highlighted by a 56% drop in regulatory charges to $18 million. The regulatory charges decline reflected the elimination by the Trump administration of the special assessment for larger financial institutions.
Personnel expenses rose 4.6 percent to $1.09 billion, in large part because of salary increases awarded in early 2018.
Nonperforming assets were at $584 million on March 31 — the lowest amount since the second quarter of 2006, according to BB&T — compared with $585 million on Dec. 31 and $669 million on March 31, 2018.
Net charge-offs were $147 million in the first quarter, compared with $143 million in the fourth quarter and $145 million a year ago.
The banks expect $2 billion in one-time merger charges.
They forecast generating $1.6 billion in annual net cost synergies by 2022. The primary sources of cost savings are expected to be in facilities, information technology/systems, shared services, retail banking and third-party vendors.
The banks have significant branch overlap in the Southeast, particularly in the Carolinas, Georgia and Virginia. The banks said they have 740 branches within 2 miles of each other within their markets.
Since the end of 2016, BB&T’s “disrupt or die/disrupt to thrive” initiative has led to reductions in employees — down 1,876, or 5%, to 35,334 — and branches — down 325, or 14.8% to 1,871.
King said the bank has wrapped up the initiative, in part because of the megadeal announcement.
In the first quarter, BB&T’s work force dropped by 518 and the number of branches by eight.
It is probable that Winston-Salem and Atlanta are going to experience a sizable number of corporate-headquarter jobs transferring to Charlotte.
“We want to make it very clear we don’t have an expectation that there’s going to be some dramatic, immediate change in employment in Winston-Salem or Atlanta,” King said when announcing the deal.
“Rather, what we think will happen is that as our company grows and prospers, we’ll see gainful employment increases in Charlotte, Winston-Salem and Atlanta,” he said.
King plans to move to Charlotte, along with the members of BB&T’s executive-management team who will help form the combined bank’s entity. He said BB&T has not determined who will remain as the top executive in Winston-Salem.