BB&T Corporation is scheduled to announce second-quarter 2016 results on Jul 21, before the opening bell.

Last quarter, a substantial rise in interest income helped drive BB&T’s earnings, which outpaced the Zacks Consensus Estimate. However, higher operating expenses and a drastic rise in provision for loan losses, ostensibly due to exposure to a stressed energy sector were the headwinds.

The earnings beat translated into improved share price movement. For the three month ended Jun 30, 2016, BB&T stock was up more than 5%, indicating that the company’s business activities were cheered by the investors.

However, analysts don’t seem to be happy with BB&T’s performance.in the just concluded quarter. The company witnessed five downward revisions in earnings estimates (versus two upward revisions) over the last 30 days. Notably, the Zacks Consensus Estimate of 65 cents remained stable over the last 7 days.

Notably, BB&T also doesn’t boast a decent earnings surprise history, as evident from the chart below:

BB&T CORP Price and EPS Surprise

BB&T CORP Price and EPS Surprise | BB&T CORP Quote

Factors to Impact Q2 Results

Will improvement in interest income support BB&T’s bottom line yet again? Or will it succumb to the challenging operating scenario this earnings season? Let’s check the factors that are expected to influence Q2 results:

Margin under Pressure: Assuming no changes in interest rates, BB&T expects GAAP net interest margin (NIM) to decrease marginally, given the run-off of PCI loans and the loss of a positive seasonal impact of interest income on benefit plans, offset by the National Penn acquisition. On the other hand, core NIM is expected to remain relatively stable.

Expenses to Rise Driven by Acquisitions: In the second quarter, BB&T expects non-interest expenses to be roughly $1.75 billion, including merger-related charges of $40–$50 million. The initial expense bases of National Penn and Swett & Crawford of roughly $100–$110 million will also add the overall expenses.

Also, additional expenses are expected from an increase in technology and IT expenses. Further, BB&T expects efficiency ratio to scale an up owing to the timing of acquisitions and the delayed timing of related cost savings and synergies.

Non-interest Income to Trend Up: Management projects total non-interest income (including both acquisitions) to increase around 9–11% on a year-over-year basis in second-quarter 2016. The decline in FDIC loss share account, and growth in insurance and investment banking income should be the contributing factors.

Loan Growth to Drive Revenues Up: BB&T projects overall loan growth of around 1–3% on a core basis in second-quarter 2016, while including the impact of National Penn acquisition, loan growth will be nearly 20%. Specifically, C&I loan portfolio is anticipated to grow in the mid-single digits, while CRE construction and development loan portfolio is likely to decline slightly. Therefore, driven by improved loans, we believe BB&T’s top line will witness moderate growth.

Asset Quality to Support Results: In the absence of energy deterioration, BB&T expects provision for loan losses in second-quarter 2016 to be in the low-to-mid range. Also, management expects provisions to grow in line with charge-offs (NCOs) as well as acquisition-driven new loan growth.

Management expects NCOs to remain within 0.35–0.45% range, while non-performing assets levels to remain stable sequentially, assuming no unexpected impact from spring redeterminations for the energy portfolio.

Earnings Whispers

Our proven model indicates that this time around the chances of BB&T surpassing the Zacks Consensus Estimate is quite low as it does not have the right combination of two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) to have a significantly higher chance of beating earnings.

Zacks ESP: The Earnings ESP for BB&T is -1.54%. This is because the Most Accurate estimate of 64 cents is below the Zacks Consensus Estimate of 65 cents.

Zacks Rank: BB&T’s Zacks Rank #3 increases the predictive power of ESP. But need to have a positive ESP to be sure of an earnings beat.

Further, the Zacks Consensus Estimate for the second quarter indicates a year-over-year fall of about 6.28%.

Stocks That Warrant a Look

Here are a few other finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.

The Earnings ESP for Hancock Holding Company is +4.55% and it carries a Zacks Rank #3. The company is scheduled to release results on Jul 20.

The Earnings ESP for M&T Bank Corporation (MTB Quick QuoteMTB - Free Report) is +0.48% and it carries a Zacks Rank #3. The company is slated to release results on Jul 20.

Federated Investors, Inc. has an Earnings ESP of +2.13% and a Zacks Rank #3. It is slated to report results on Jul 28.

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