Friday produced balance-sheet reshufflings by three regional banking companies.
Provident Bancshares Corp. in Baltimore, BB&T Corp. in Winston-Salem, N.C., and KeyCorp in Cleveland joined a growing list of banking companies offloading securities because of the interest rate environment. All three will take charges in the fourth quarter.
BB&T Corp. disclosed in a regulatory filing that it has sold about $2.5 billion of securities at a pretax loss of about $75 million in the fourth quarter, or 9 cents a share after taxes.
The $119 billion-asset BB&T said the decision followed a review by its market risk and liquidity committee concerning "changing market conditions" and the company's plan to consolidate its three bank charters. It said that it had replaced "substantially all of the assets" with higher-yielding securities and that the move should lead to higher net interest income by the end of next year.
KeyCorp said it would buy back $500 million of bonds and issue them at a lower rate to reduce its funding costs, a move that will force it to take a $24 million pretax charge this quarter. The $96 billion-asset company announced the plan as it unveiled agreements to sell its nonprime mortgage unit Champion Mortgage Co. to two buyers. (See story on page 24.)
Provident said it expects to take a $5 million charge this quarter, or 15 cents a share, to sell about $183 million of mortgage-backed securities yielding 4.4%. The $6.4 billion-asset company plans to repay $152 million of long- and short-term borrowings it had made at higher rates and that it would reinvest $36 million at market rates.
Provident also said that continued margin pressure and lower-than-expected deposit service fees would probably slice an additional 10 cents a share from earnings this quarter. It said it now expects earnings per share of $2.11 to $2.13. Analysts had expected $2.38 a share.
Shares of Provident fell 3.7% Friday. BB&T rose 0.4% and KeyCorp. closed up 0.1%, respectively.
Over the past few months a handful of banking companies, including Fifth Third Bancorp and PNC Financial Services Group Inc., have restructured their balance sheets and taken charges without hurting their stock prices, said Jeff Davis, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp.
He said more companies are likely to follow suit. "Because the bond market has rallied over the last three or four months, they can get out of the bonds at a smaller loss," he said.
Jared Shaw of Keefe, Bruyette & Woods Inc. said he thinks many banking companies had hoped to wait out the inverted yield curve but are starting to face up to it.
Mr. Shaw said that he was more surprised by the additional earnings-per-share contraction it forecast. "In my mind, that's the biggest news," he said.
Provident's net interest margin was 3.6% at the end of the third quarter and could contract to 3.4% this quarter, Mr. Shaw said. "If they didn't do this restructuring, I think the margin would have been even worse," he said.
Still, Collyn B. Gilbert, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., issued a research note Friday maintaining her "outperform" rating on the company.
Though she lowered her earnings-per-share estimate and price target, Ms. Gilbert said several factors should help fuel growth at Provident, including a cost-cutting program and potential business fallout from PNC's pending purchase of Mercantile Bankshares Corp., which she said has been Baltimore's premier commercial and industrial lender. (The PNC-Mercantile deal was announced in October and is expected to close in March.)
