"Imo, bbt is selling at about 7.5 times next year earnings. "
That's ~4$+ EPS and implies ~1.50% ROA. Ain't going to happen for 2013.
I can get to ~$3 EPS 2013 which is a v. generous 1.2% ROA for this bank. I think in the last 20 years it did 1.2% ROA 1,2 or 3 years from memory. BBT overpay for acquisitions. Colonial was a good one Crump just under ~2x revenue ...not so good in terms of price paid.
"Don't know how you reconcile increased provisioning vs. record low delinquencies"
Provisioning isn't coming down as fast as you would like as the NPLs are still missmarked imo - They took the Corrective mark on the OREO Q4 but the NPLs/TRDs still have work to do.
As King is now actively working to limit OREO Inflow all the chargeoff work has to be done at the front end(provisioning/chargeoff) vs bakend (foreclosure expense).
Just by the fact they they grow the average loan balances 1.5-2%/Q the provision gets to their 60-80bp target.
The oreo balance at 3/31 of $378 million are marked at around 72% which approximates 15% of the original appraisal That certainly can't be optimistic.
Their adc loan balance is $1.8 billion - reserve is around $400 million. Maybe there is an addition $600 million of bad adc stuff leaving $1.2 billion of good loans. The adc balance peaked at $9 billion.
Their net chargeoff this quarter excluding adc approximated their provisioning at 110 bsp even though delinquencies dropped 22% on link quarter and are at a record low. Charge-offs are already close to normalized levels on c&i loans 66 bsp on $36 billion, sales finance 21 bsp on $8 billion, residential real estate 78 bsp on $21 billion. That's almost 2/3 of their loan portfolio. The big chargeoff problem areas adc, cre and direct retail will dry up by the 4th quarter.
So excluding the dime of one time charges in the quarter, the bank earned $.71 assuming tax rate of 25%. As I said credit costs for the qtr. were still elevated by an estimated $.20 giving them $.91 in a normalized scenario. Not too far from the $1 eps estimate per quarter
Imo, the reason for the $285 million provision is obvious.
- You can add back all of King's one time charges but banking by its nature will always have one-off special charges.
- Agree OREO should be close to fairly marked -- finally.
- They just need to deal with the NPL/TDRs now which is why the provision is higher than your liking in my view.
- BBT will get close to 70BP provision just with portfolio loan growth over the next 4 quarters. There isn't going to be some huge provision erosion down to 76MM as you modeled previously for Q4-2011.
- MBS non-interest income will mean revert by Q3 imo. Bank CEO's asked about this mentioned a current refi boom that while still strong won't last. GOS spreads are at wides and volume is incredible at the moment. I believe it erroneous to project this out under the guise of 'market-share-gains'
Your $4+ EPS/1.5% ROA for 2013 isn't going to happen for BBT outside of some transformational acquisition.