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BB&T Corp.’s (BBT - Analyst Report) first-quarter 2014 earnings per share of 69 cents lagged the Zacks Consensus Estimate of 71 cents. This was, however, up significantly from 29 cents earned in the year-ago quarter.

In the opening trade, BB&T’s stock price declined nearly 4.0%, reflecting negative response among investors. However, nothing conclusive can be inferred till we observe the company’s share price movement during the full trading session.

Lower-than-expected results were mainly driven by a decline in revenues, partially offset by prudent expense management. Improvement in credit quality, capital ratios and profitability ratios were the other quarterly tailwinds.

BB&T’s net income available to common shareholders was $501 million, up from $210 million in the prior-year quarter.

Performance in Detail

Total revenue came in at $2.29 billion, down 6.7% year over year. Moreover, it missed the Zacks Consensus Estimate of $2.33 billion.

Tax-equivalent net interest income fell 5.2% year over year to $1.38 billion. The decrease was due to a fall in interest income.

Moreover, net interest margin (NIM) fell 24 basis points (bps) year over year to 3.52%. The pressure on NIM persists primarily due to lower yield on total loan portfolio, partially offset by a fall interest-bearing liabilities and rise in average earnings assets.

Non-interest income declined 9.0% year over year to $911 million. The decrease was mainly due to fall in both mortgage banking income and Federal Deposit Insurance Corporation loss share income, partially offset by higher insurance income.

Non-interest expense dropped 0.8% year over year to $1.40 billion. The fall was mainly due to a 50% decrease in foreclosed property expenses. This directly reflects that the company is strategically avoiding risky ventures and instead, focusing on conventional banking activities.

BB&T’s efficiency ratio in the reported quarter was 59.3%, up from 56.4% in the prior-year quarter. An increase in efficiency ratio indicates decline in profitability.

Average deposits fell 3.6% year over year to $125.7 billion. However, average loans held for investment were $115.1 billion, up 1.6% year over year.

Credit Quality

BB&T’s credit quality showed marked improvement. As of Mar 31, 2014, total non-performing assets (NPAs) declined 30.2% year over year to $986 million. As a percentage of total assets, NPAs came in at 0.54%, down 25 bps year over year.

Similarly, excluding covered loans and government guaranteed loans, net charge-offs were 0.55% of average loans and leases, down 43 bps from the year-ago quarter. Further, allowance for loan and lease losses was 1.34% of total loans and leases held for investment, down from 1.65% as of Mar 31, 2013.

Profitability and Capital Ratios

Profitability metrics also showed improvement in the quarter. As of Mar 31, 2014, return on average assets was 1.29%, against 0.57% at the prior-year quarter end. Moreover, return on average common equity increased to 9.87% from 4.44% as of Mar 31, 2013.

BB&T's capital ratios were also strong. As of Mar 31, 2014, Tier 1 risk-based capital ratio and tangible common equity ratio were 12.1% and 7.6%, respectively, compared with 10.6% and 6.7%, as of Mar 31, 2013.

BB&T's estimated common equity Tier 1 ratio under Basel III, was approximately 10.0% at Mar 31, 2014, based on management's interpretation of the final rules adopted in Jul 2, 2013 by the Federal Reserve Board, which established a new comprehensive capital framework for U.S. banking organizations.

Our Viewpoint

Sluggish economic recovery, a low interest rate scenario and various regulatory issues will continue to limit top-line growth. Moreover, expense management will likely be more challenging due to the company’s plan to grow inorganically.

However, BB&T’s steady capital position and strong asset quality will expectedly bolster its financials in the quarters ahead.

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

Performance of Other Regional Banks

Comerica Incorporated’s (CMA - Analyst Report) first-quarter 2014 earnings of 73 cents per share beat the Zacks Consensus Estimate by a penny. The company’s results benefited from a decline in both operating expenses and provision for credit losses, partly offset by a decrease in net income.

The PNC Financial Services Group, Inc. (PNC - Analyst Report) reported first-quarter 2014 earnings per share of $1.82, which outpaced the Zacks Consensus Estimate $1.66 per share. Better-than-expected results for PNC Financial were mainly driven by decline in both non-interest expenses and provision for credit losses, partly offset by a fall in top line.

BankUnited, Inc. (BKU - Analyst Report) is slated to announce first-quarter 2014 results on Apr 24.

Read the Full Research Report on BBT
Read the Full Research Report on PNC
Read the Full Research Report on CMA
Read the Full Research Report on BKU


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