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BB&T (BBT) Earnings Tops on Higher Revenues, Provisions Up

A substantial rise in interest income drove BB&T Corporation’s BBT first-quarter 2016 adjusted earnings of 69 cents per share. This outpaced the Zacks Consensus Estimate of 64 cents.

 



An improved net interest income and non-interest income led to the better-than-expected results. Further, loans and deposits witnessed a strong growth. However, higher operating expenses and a drastic rise in provision for loan losses due to a stressed energy sector exposure were the headwinds.

Results excluded certain merger-related and restructuring charges. After considering these, net income available to common shareholders was $527 million or 67 cents per share, compared with $488 million or 67 cents per share in the prior year quarter.

Performance in Detail

Total revenue (taxable equivalent basis) amounted to $2.58 billion, up 10.2% year over year. Moreover, it compared favorably with the Zacks Consensus Estimate of $2.57billion.

Tax-equivalent net interest income rose 16.4% year over year to $1.57 billion. Further, net interest margin increased 10 basis points (bps) from the prior-year quarter to 3.43%.

Non-interest income increased 1.9% year over year to $1.02 billion. The rise was primarily driven by improvement in all components except mortgage banking income, insurance income and other income.

Non-interest expense of $1.55 billion was up 8.6% from the year-ago quarter. This rise was mainly due to higher net merger-related and restructuring charges, amortization of intangibles and regulatory charges.

BB&T’s efficiency ratio came in at 58.3%, down from 58.5% in the prior-year quarter. A decline in efficiency ratio indicates improved profitability.

As of Mar 31, 2016, average deposits grew 15.7% year over year to $149.9 billion. Further, average loans and leases totaled $134.4 billion, up 13.1% year over year.

Credit Quality

BB&T’s credit quality witnessed deterioration during the quarter. Provision for loan losses increased 85.9% year over year to $184 million.

Also, as of Mar 31, 2016, total non-performing assets (NPAs) rose 18% year over year to $903 million. As a percentage of total assets, NPAs came in at 0.42%, up 2 bps year over year.

Similarly, net charge-offs stood at 0.46% of average loans and leases, up 12 bps year over year. However, allowance for loan and lease losses came in at 1.10% of total loans and leases held for investment, down 12 bps year over year.

Profitability and Capital Ratios

Profitability metrics deteriorated during the quarter. As of Mar 31, 2016, return on average assets was 1.09%, down from 1.18% in the prior-year quarter. Also, return on average common equity decreased to 8.45% from 9.05% as of Mar 31, 2015.

BB&T's capital ratios displayed weakness. As of Mar 31, 2016, Tier 1 risk-based capital ratio and tangible common equity ratio were 12.2% and 7.8%, respectively.

BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.2% as of Mar 31, 2016.

Our Take

We believe that BB&T’s growth trajectory will continue on the back of a robust loan and deposits improvement as well as a series of acquisitions. The inorganic growth will help the company generate operating leverage, going forward. Also, the company’s expansion path will be supported by its sturdy capital position, enhanced credit quality and stable capital deployment activities.

However, margin compression led by a prevalent low interest rate environment, weak cost-control and heightened regulatory issues will keep profitability under strain in the near term.

Currently, BB&T carries a Zacks Rank #3 (Hold).

Performance of Other Major Regional Banks

Comerica Inc.’s CMA first-quarter 2016 earnings per share of 34 cents lagged the Zacks Consensus Estimate of 42 cents. Higher expenses, lower non-interest income and increased provision for credit losses were the downsides. However, elevated net interest income and loans balances acted as tailwinds.

U.S. Bancorp USB reported first-quarter 2016 earnings per share of 76 cents beating the Zacks Consensus Estimate by a penny. Organic growth was driven by higher revenues along with elevated average loans and deposits. However, increase in expenses and provisions were a major drag.

SunTrust Banks, Inc. STI is scheduled to report fourth-quarter 2015 results on Apr 22.

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BB&T CORP (BBT): Free Stock Analysis Report
 
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