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The growth-minded regional bank is biding its time until rates rise and its M&A deals close by slowing riskier types of lending and diversifying its income sources.
April 23 -
BB&T has received regulatory approval for its acquisition of Bank of Kentucky Financial, with the Federal Reserve providing a blueprint for approvals of future deals.
June 3 -
The Fed determined that the purchase of Susquehanna Bancshares, which would push BB&T's assets above $200 billion, will not pose a threat to the U.S. financial system. The approval could give more regional banks confidence to pursue bigger acquisitions.
July 7
BB&T's appetite for M&A deals remains as intense as ever.
The Winston-Salem, N.C., company recently received regulatory approval to buy the $19 billion-asset Susquehanna Bancshares in Lititz, Pa. That deal, scheduled to close within the next two weeks, will push BB&T's assets to about $210 billion. However, management made clear it is keen on further enlarging the company in 2016.
BB&T could add another $10 billion to $20 billion in assets next year through acquisitions, Chairman and Chief Executive Kelly King said during a conference call Thursday to discuss second-quarter results. "There are a number of institutions let's just say in the $5 billion to $20 billion range that I think are considering their strategic alternatives and may present some availabilities," he said.
Management is also on the hunt for insurance businesses as it looks to build on the existing operations of Susquehanna's insurance subsidiary, Addis Group.
M&A was a natural topic during BB&T's conference call.
While the company's overall profit rose 5% from a year earlier, to $501 million, revenue was relatively flat as Wall Street had expected. So analysts pushed management to provide more details on how Susquehanna and, to a smaller extent, Bank of Kentucky Financial would boost the bottom line. BB&T bought the $1.9 billion-asset Bank of Kentucky in June.
Susquehanna factored heavily in BB&T's forecast for its net interest margin, which shrunk by 16 basis points from a year earlier, to 3.27%. The deal is expected to boost the margin to around 3.35% by yearend, absent a rise in interest rates. BB&T also made moves in the second quarter, including the extinguishment of some debt, to become slightly less asset-sensitive.
King and his team were pressed to discuss plans for Susquehanna and a number of its fee-generating businesses.
King indicated that the Susquehanna deal could exceed the 3% earnings accretion projected for next year, noting that the forecast is based largely on cost-cutting moves.
"Based on what we know now having spent a lot of time up there, I'd be marginally more positive than I was to start with," he said, detailing visits to Pennsylvania to meet with Susquehanna's employees and clients.
"The cultural integration is going to be really smooth, so it's going to be a great merger," King added. "They have a really good, solid retail strategy, so we won't change that dramatically, frankly."
In addition to pursuing insurance acquisitions, BB&T plans to add products to Valley Forge Asset Management, Susquehanna's wealth and trust business, and Stratton Management, which handles equity and fixed-income instruments for high-net-worth clients.
"We think there's a lot of opportunity to provide more distribution through our company to help them move more product," Chris Henson, BB&T's chief operating officer, said during the call.
BB&T remains undecided on whether to keep Susquehanna's auto leasing business. BB&T, which offers sales finance services, is "still evaluating" its interest in consumer leasing, said Clarke Starnes, the company's chief risk officer. A decision will be made after the deal closes.
Analysts were also curious what King thought about other regional banks' attitudes toward M&A. There is a belief among some industry experts that BB&T's ability to get approval to buy Susquehanna could encourage more regionals to return to acquisitions.
"The fact that there may be some other competitors out there is not something I've spent a lot of time worrying about," King said.
"The partners that we talk to are ones that we've known a long time and our cultures are very, very similar," King added. "Our strategies are similar. There some great competitors out there and we won't get them all. We don't want them all. I think there's a very high probability of us being able to do what we like to do."
Meanwhile, BB&T's management team found opportunities to discuss how organic growth would contribute to the company's financial results. King, for instance, said during the call that total loans should increase at an annual rate of 3% to 5% in the third quarter without taking recent acquisitions into account.
The volume of commercial-and-industrial loans, where spreads were essentially flat during the second quarter, should strengthen. Commercial real estate lending has improved, due in part to a decrease in paydowns and "strong growth" in multifamily and hospitality projects, King said.
King also struck an upbeat tone when discussing BB&T's traditional markets in the Southeast, stating that the region's economy could expand at a 3.5% rate that would outpace most economists' projections for national GDP growth.
"Activity flows are moving," King said, noting that Florida is adding 800 people daily, while Texas, on average, is bringing in 1,000. Atlanta and North Carolina's coastal markets, which were hit hard during the last recession, have also turned the corner, he said.
