BB&T accelerates cost-cutting to fund tech expansion

BB&T in Winston-Salem, N.C., is preaching short-term pain for long-term gain.

The $226 billion-asset company recorded more than $75 million in charges in the fourth quarter after accelerating job cuts and branch closings. Overall, BB&T shuttered 79 branches and reduced headcount by 381 employees.

To put those cuts into perspective, BB&T had closed 91 locations and eliminated 251 positions over the previous nine months.

In the past, such cost savings would have been routed directly to the bottom line, but BB&T this time around has been diverting about two-thirds of the savings to fund digital upgrades and other technology projects.

AB-011719-BBT.jpeg

The moves are necessary to stay competitive, Kelly King, BB&T’s chairman and CEO, said during a conference call Thursday to discuss quarterly results. Employee buy-in has been critical to making the company’s Disrupt to Thrive program succeed, he said.

“Our people are doing a really good job reconceptualizing their business,” King said. “It’s a whole new day and a new approach at BB&T.”

Want to hear more bank growth stories?

Management chose the Disrupt to Thrive name to “get everybody’s attention that this is a market where you simply have to make major tough decisions to pare away expenses from the old bank to build the new bank of the future,” King said.

While BB&T did not break down the job cuts by business line, it recorded severance charges across a number of divisions, including retail and consumer finance, commercial lending, treasury and corporate finance.

BB&T said it is planning more cuts, telling analysts during the conference call to expect up to $100 million in restructuring charges this year. Most of those charges would be tied to real estate as BB&T closes more branches and consolidates office space.

The effort “is in high gear,” King said. “We're getting substantial cost reductions out of this. We’re investing a substantial amount of that in our digital platform and other … investments that allow us to innovate for the future, which is critical to our success.”

While BB&T didn’t provide an update on its digital initiatives during the earnings call, executives discussed several efforts during an investor day in November. They told attendees that the company had spent $1 billion over time on three projects: a new general ledger, a new commercial loan system and a new data center.

Kelly King, chairman and CEO of BB&T Corp.
Truist CEO Kelly King received a 39% pay increase last year.

At the investor day, executives highlighted Financial Insights, an automated platform that conducts financial analysis for small-business and other commercial clients, and Voice of the Client, which allows customers to give real-time feedback to bank employees. BB&T also projected that it would conduct more than 300 marketing campaigns this year, with 95% having a digital component.

While those projects are expected to deliver long-term benefits, the restructuring charges took a 9% bite out of BB&T’s net income available to shareholders in the fourth quarter. Excluding the charges, BB&T’s earnings per share beat the $1.04 average forecast of analysts polled by FactSet by a penny.

A big reason for that performance was revenue, which increased by 2% from a year earlier to $2.9 billion. Net interest income increased by 3.7% to $1.7 billion, while noninterest income rose by 0.8%, to $1.2 billion.

Management said during the conference call that it expects revenue to increase by 2% to 4% in 2019, with about a third of the increase coming from fees. There is potential upside if the loan portfolio, which increased by 3% from a year earlier, continues to grow at a strong rate.

“We're having really good loan growth, and if we keep our margins stable, we're going to have strong” net interest income growth, Daryl Bible, BB&T’s chief financial officer, said during the call. “I would say fee businesses overall are showing strength, and loan growth is strong.”

For reprint and licensing requests for this article, click here.
Regional banks Digital banking Earnings Expense management North Carolina
MORE FROM AMERICAN BANKER