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BB&T Corporation’s (BBT - Analyst Report) first-quarter 2013 earnings came in at 69 cents per share, marginally surpassing the Zacks Consensus Estimate of 67 cents. Moreover, this compares favorably with the year-ago earnings of 61 cents.

The year-over-year improvement was primarily attributable to growth in revenues and lower provision for credit losses, partially offset by a rise in operating expenses. Further, the overall credit quality and capital ratios exhibited improvement, while profitability ratios declined.

After adjusting an unresolved disputed tax liability of $281 million, BB&T’s net income available to common shareholders came in at $210 million. This compares unfavorably with the prior-year net income of $431 million.

Performance in Details

BB&T reported first-quarter total revenue of $2.46 billion, up 4.9% year over year. Revenues came in line with the Zacks Consensus Estimate.

Tax-equivalent net interest income waned 1.0% year over year to $1.46 billion. The decrease was attributable to a decline in interest income partially offset by lower funding costs.

However, net interest margin fell 17 basis points (bps) year over year to 3.76%.

Non-interest income surged 14.9% year over year to $1.0 billion. The surge was largely buoyed by increase in net securities gains, insurance income and other income, partially offset by decrease in mortgage banking income.

Non-interest expense rose 2.1% year over year to $1.41 billion. The rise was mainly attributable to an increase in personnel expenses and occupancy and equipment expenses as a result of the Crump Insurance and BankAtlantic acquisitions, partially offset by a decline in foreclosed property expenses.

BB&T’s efficiency ratio in the reported quarter stood at 56.4%, rising from 52.0% in the prior-year quarter. The increase indicates deterioration in profitability.

Average deposits for the reported quarter enhanced 4.7% year over year to $130.4 billion. Similarly, average loans held for investment stood at $113.2 billion, up 5.3% year over year.

Credit Quality

BB&T’s credit quality continued to show improvement. As of Mar 31, 2013, total non-performing assets (NPAs) declined 8.0% sequentially and 37.4% year over year to $1.41 billion due to decreases in non-performing loans and foreclosed real estate and other foreclosed property. As a percentage of total assets, NPAs came in at 0.80%, down 5 bps sequentially and 53 bps year over year.
Similarly, net charge-offs were 1.65% of average loans and leases, down 5 bps from the prior quarter and 32 bps from the year-ago quarter. Further, the allowance for loan and lease losses was 1.65% of total loans and leases held for investment, excluding covered loans, down from 1.70% as of Dec 31, 2012, and 1.97% as of Mar 31, 2012. The decrease was primarily driven by improvement in the quality of overall loan portfolio.

Moreover, provision for credit losses was $272 million, down 5.6% compared with $288 million in the prior-year quarter.

Profitability and Capital Ratios

Profitability metrics exhibited deterioration in 2013. As of Mar 31, 2013, return on average assets stood at 0.57% compared with 1.03% at the end of the prior-year period. Moreover, return on average common equity deteriorated to 4.44% from 9.75% as of Mar 31, 2012.

In 2013, BB&T's capital levels remained almost stable. As of Mar 31, 2013, the Tier 1 risk-based capital ratio and tangible common equity ratio were 10.8% and 7.1%, respectively, compared with 12.0% and 7.1%, as of Mar 31, 2012.

BB&T's Tier 1 common capital ratio, under the currently proposed Basel III capital standards, was 7.8% as of Mar 31, 2013 based on the proposed rules.

Performances of Other Major Regional Banks

The Bank of New York Mellon Corp. (BK - Analyst Report) marginally lagged the Zacks Consensus Estimate. The quarterly results were adversely affected by a rise in operating expenses and lower net interest income, partially offset by an almost stable fee income.  However, asset quality continued to show improvements and capital ratios remained healthy. Further, BNY Mellon’s asset position continued to improve.

Comerica Incorporated’s (CMA - Analyst Report) and M&T Bank Corporation’s (MTB - Analyst Report) first quarter earnings beat the Zacks Consensus Estimate. Comerica’s results reflected reduced expenses, partially offset by a decline in revenues. M&T Bank’s earnings were primarily aided by reduced provision for credit losses, partially offset by an increase in expenses and declining net interest and non-interest income.

Our Viewpoint

BB&T continues to progress well with its efforts to diversify. However, the company’s wide exposure to problem assets, a protracted economic recovery and various regulatory issues are expected to mar its top line improvement.

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

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