Even fire sale deals for failed institutions' deposits will not lure BB&T Corp. back into the bank acquisition business, given its most recent experience.
BB&T paid just $112,000 for $515 million in deposits once belonging to Haven Trust Bank, a Duluth, Ga., company that failed in mid-December. But Kelly S. King, the Winston-Salem, N.C., company's new chief executive, said the deal is not working out as planned.
Haven's deposits have been "as sticky as water," he said.
Haven had been paying high deposit rates, he said, and BB&T had "a very quick runoff" after it began bringing rates down. He characterized the deal merely as an inexpensive way to add four branches in a desirable long-term market. Mr. King succeeded long-time chief executive and now chairman John A. Allison on Jan. 1.
"We've looked at some deals, and there are some out there," he said of other failed-bank sales. "We are pretty conservative. The interesting thing is, when you look at even a deposit acquisition, and even if you take it at no premium, … you can't make the numbers work."
BB&T has no appetite for asset purchases unless it can secure a loss-sharing arrangement with the government. "We're not interested in increasing the risk in our balance sheet," Mr. King said. "We think we have enough, and we're not going to take a bunch of dilution. That likely says, in this kind of environment, that mergers are unlikely until we get better visibility on the other side of this correction."
Jefferson Harralson, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said BB&T's wholesale aversion to acquisitions could concern regulators. "It seems like BB&T is in the best position to buy because they're still making money and generating capital internally," he said in an interview. "If they're not buying, who is? This indicates that the cleanup will be much tougher and take a lot longer than most people think."
There could, however, be a strategic play involved, Mr. Harralson said. "It pays to be aloof right now because the deals will only get better over time" and could command more government backing, he said.
BB&T continued to stand out against other regional banking companies in the Southeast, this time turning a fourth-quarter profit while others spilled red ink. The $152 billion-asset company earned $284 million, down 20.7% from the third quarter and 30.9% from a year earlier. Earnings per share of 51 cents topped the average of analysts' estimates by 4 cents, according to Thomson Reuters.
SunTrust Banks Inc. in Atlanta on Thursday reported a loss of $379.2 million, or $1.08 a share, fueled by a sharp rise in problematic loans and reserves to shield against mortgage fraud. Regions Financial Corp. in Birmingham, Ala., on Tuesday had reported a loss of $6.24 billion.
BB&T has not been immune to troublesome loans, though its issues have stayed "manageable," Mr. King said. The loan-loss provision rose 45.1% from the third quarter and 53.5% from a year earlier, to $528 million. Net chargeoffs grew 29.8% from the third quarter and 182.9% from a year earlier, to $314 million.
The company's nonperforming assets increased 23.9% from the third quarter and 192% from a year earlier, to $2.03 billion. Though SunTrust and others attributed spikes in nonperforming assets to substantial deterioration last month, Mr. King said the jump at BB&T was largely due to special review of its residential development book and a decision to conservatively downgrade the condition of some loans. "We wanted to make sure we weren't fooling ourselves in terms of what the portfolio was like," he said.
In a note to clients, Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, expressed concern about deteriorating credit quality, calling the results "disappointing" after taking into account $66 million in securities gains, $17.7 million in hedging gains, and a $17 million tax benefit.
Mr. King also said the company is being realistic about repaying the Treasury Department for its $3.1 billion investment last quarter. He estimated it would be at least two years before the capital markets let BB&T raise enough money to buy out the government. BB&T can point to $1.6 billion in loans made since it received the funds in the fourth quarter, he said.
"We even have banners hanging on the outside of our branches saying we're making loans," he said. "So if you see somebody that says they can't get a loan, give them my number."
Mr. King also gave a forecast of sorts for 2009. Loan growth could increase by 5% to 7% from yearend 2008, while deposits may rise 4% to 6%, he said. Net chargeoffs are likely to peak at midyear and improve after that, he said.