BB&T accelerates cost-cutting to fund tech expansion

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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.

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.”

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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.

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.”

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