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BB&T Corporation’s (BBT - Analyst Report) third-quarter 2013 adjusted earnings per share came in at 70 cents, missing the Zacks Consensus Estimate by a penny. However, this compares favorably with 66 cents earned in the year-ago quarter.

Lower-than-expected results were mainly due to decline in the top line, partly offset by lower operating expenses. However, strength in both credit quality and capital ratios were the positives for the quarter. Moreover, the company witnessed growth in loans, but deposits fell marginally.

Considering tax adjustment of $235 million, BB&T’s net income available to common shareholders came in at $268 million, down 42.9% from $469 million in the prior-year quarter.

Performance in Detail

Total revenue came in at $2.36 billion, down 5.0% year over year. Moreover, it lagged the Zacks Consensus Estimate of $2.41 billion.

Tax-equivalent net interest income fell 4.3% year over year to $1.45 billion. The decrease was due to a fall in interest income, partially offset by lower funding costs.

Moreover, net interest margin fell 26 basis points (bps) year over year to 3.68%.

Non-interest income declined 6.0% year over year to $905 million. The decrease was mainly due to fall in mortgage banking income and other income, partially offset by increase in both insurance income and Federal Deposit Insurance Corporation loss share income.

Non-interest expense declined 3.8% year over year to $1.47 billion. The fall was mainly due to decrease in production-related incentives and commissions, post-employment benefits, pension expense, merger-related and restructuring charges as well as social security costs, partly offset by higher professional service expenses.

BB&T’s efficiency ratio in the reported quarter was 60.1%, up from 55.2% in the prior-year quarter. The increase indicates deterioration in profitability.

Average deposits declined marginally year over year to $127.9 billion. Similarly, average loans held for investment were $115.2 billion, up 2.2% year over year.

Credit Quality

BB&T’s credit quality continued to improve. As of Sep 30, 2013, total non-performing assets (NPAs) declined 32.4% year over year to $1.16 billion, due to decrease in both non-performing loans and leases. As a percentage of total assets, NPAs came in at 0.65%, down 32 bps year over year.

Similarly, excluding covered loans, net charge-offs were 0.49% of average loans and leases, down 59 bps from the year-ago quarter. Further, allowance for loan and lease losses was 1.51% of total loans and leases held for investment, down from 1.73% as of Sep 30, 2012. The decrease was primarily driven by improvement in the overall loan portfolio.

Moreover, provision for credit losses excluding covered loans was $92 million, down 62.2% from $244 million in the prior-year quarter.

Profitability and Capital Ratios

Profitability metrics deteriorated in the quarter. As of Sep 30, 2013, return on average assets was 0.68%, compared with 1.10% at the prior-year quarter end. Moreover, return on average common equity fell to 5.44% from 9.94% as of Sep 30, 2012.

However, BB&T's capital ratios were strong. As of Sep 30, 2013, Tier 1 risk-based capital ratio and tangible common equity ratio were 11.3% and 6.9%, respectively, compared with 10.6% and 6.7%, as of Sep 30, 2012.

BB&T's common equity Tier 1 ratio, under the currently proposed Basel III capital standards, was 9.0% as of Sep 30, 2013 based on the Federal Reserve's new comprehensive capital framework for banking organizations in the U.S.

Other Developments

In August, the Fed approved BB&T’s revised 2013 capital plan. Earlier this year, the Fed had rejected the capital plan due to certain unspecified qualitative factors.

The approved plan comprises a quarterly dividend payout 23 cents, up 15% from fourth-quarter 2012 and preferred dividend payouts.

Performances of Other Major Regional Banks

The Bank of New York Mellon Corporation’s (BK - Analyst Report) earnings beat the Zacks Consensus Estimate. Better-than-expected results were mainly driven by top-line growth, partially offset by higher operating expenses. Further, consistent improvement in credit quality and asset position as well as strong capital ratios were the tailwinds.

Comerica Incorporated’s (CMA - Analyst Report) earnings beat the Zacks Consensus Estimate. Results were driven by increased non-interest income and lower provisions for credit losses. Additionally, the company’s healthy capital position was a tailwind. However, a lower net interest income and a slight increase in expenses were the headwinds.

Northern Trust Corporation’s (NTRS - Analyst Report) earnings outpaced the Zacks Consensus Estimate. Better-than-expected results benefited from top-line growth, lower provision for credit losses and a strong capital position. Moreover, rise in assets under management and assets under custody were the positives. However, rise in operating expenses and a persistent low-interest rate environment were dampeners.

Our Viewpoint

Though the company has been growing both organically and inorganically, sluggish economic recovery, wide exposure to problem assets and various regulatory issues will restrict significant improvement in its financials going forward.

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

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