uploads///Changes in BBTs portfolio mix

BB&T’s Loan Growth Is below the Average Rate


Apr. 9 2015, Updated 8:05 p.m. ET

Loans growing at a below average rate

BB&T’s (BBT) loan balances grew at a CAGR (compound annual growth rate) of 2.7% over the last five years. It grew at a 3.1% CAGR since 2010. Over the last year, loans grew at a 3.2% annualized rate—excluding residential mortgage. Mortgage balances declined due to management’s decision to sell all conforming loan production. The balances also declined due to the impact of the loan sales.

The loan growth rate pales compared to the 8% CAGR since 2010 for JPMorgan Chase (JPM) and PNC Financial (PNC). The CAGR was 6% for Wells Fargo (WFC), Citigroup, and US Bancorp. You may read more about JP Morgan’s loan growth in JP Morgan Leads in Loan and Deposit Growth. Together, these banks form ~25% of the Financial Select Sector SPDR ETF (XLF) and ~15% of the iShares U.S. Financials ETF (IYF).

Over the last five years, the average CAGR loan growth at large banks is 3%. BB&T’s 2.7% rate is slightly below this average.

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Changes in portfolio mix

BB&T is focusing on changing its loan portfolio mix. Selling conforming mortgage loans is a step in this direction. The above graph shows changes in the loan portfolio’s composition since 2007. It also shows BB&T’s target mix and the weighted peer mix.

Over the years, BB&T significantly reduced its exposure in land and construction loans. These loans are considered to be more risky compared to loans for existing built homes. Loans for existing built homes are more liquid. BB&T is also trying to reduce exposure in a related risky segment of consumer real estate loans. This is in line with the industry trend.

In contrast, the bank’s exposure to commercial and industrial loans and consumer loans increased over the years.

Lower deposits restricted loan growth?

Inorganic growth has been a major contributor to BB&T’s overall growth. It hasn’t acquired many banks since 2009. This could be why the bank’s loan growth is below the average. The completion of the Bank of Kentucky and Susquehanna acquisitions might boost the bank’s loan growth.

While it’s fine for a bank to grow inorganically, it’s equally important to have organic growth. BB&T recorded lower deposit growth compared to other leading peers. Deposit growth forms the basis for loan originations. As a result, this partially contributed to the bank’s lower loan growth.


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