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Will BB&T (BBT) Q4 Earnings Fall Prey to Slow Loan Growth?

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BB&T Corporation (BBT - Free Report) is scheduled to report fourth-quarter and full-year 2015 results on Jan 21, before the market opens.

Last quarter, the company’s earnings per share missed the Zacks Consensus Estimate. Higher expenses and provision for loan losses were the undermining factors. However, a rise in revenues, supported by the Susquehanna acquisition as well as impressive growth in average loan and deposits, acted as tailwind.

BB&T recorded an earnings beat in two of the trailing four quarters with an average negative surprise of 0.08%.

Is BB&T likely to miss on earnings this quarter? Let’s see how things have shaped up for this announcement.

Factors Influencing Q4 Results

The Federal Reserve finally hiked interest rates in mid-December. However, the effect of the same is expected to be immaterial in the upcoming release.

BB&T predicts GAAP as well as core NIM in the quarter to remain stable on a sequential basis, given no improvement in the interest rate environment. This is expected to result in GAAP NIM in the mid-3.30% range for 2015.

However, the pressure on revenue generation is expected to ease slightly as BB&T expects the amount of FDIC loss share account to decline about $10–$15 million per quarter and reach around $40–$50 million in 2015.

Moreover, the company anticipates fee income to grow 3–5% in the quarter compared with second-quarter 2015. In addition, management projects insurance income to rise sequentially, driven by seasonal factors and new business production. This should lead to a rise in revenues in the quarter.

Also, insurance income is estimated to rise in the 6% range in 2015, while investment banking income is expected to increase 5–6%.

Nevertheless, loan growth is projected to be seasonally slow and relatively flat on a sequential basis in the quarter. Notably, C&I loan portfolio is anticipated to record modest growth, excluding acquisitions.

Further, the company anticipates seasonal factors to partly offset direct retail lending portfolio growth. Also, sales finance portfolio growth is likely to decline during the quarter similar to the third quarter of 2015, and residential portfolio is predicted to see further contraction, albeit at a slower pace.

On the expense front, elevated costs are projected to weigh on the company’s profitability with management expecting non-interest expenses (excluding the loss on debt restructuring and merger charges) to rise 6–8% in the quarter compared with second-quarter 2015 level. Further, core expenses (excluding merger-related costs) are estimated at roughly $1.55 billion.

Notably, non-controlling interest expense will fall $5–$15 million per quarter based on the impact of seasonality and the AmRisc investment. The company expects $60–$80 million in merger charges for the quarter.

Moving on to credit quality, management anticipates net charge-offs to remain within 0.35–0.45%, provided the economic scenario remains relatively stable. Going forward, management expects nonperforming assets to remain stable.

Further, the company noted presence of no energy-related non-accrual loans as well as second lien exposure to the same. Also, management projects provisions to grow in line with charge-offs as well as acquisition-driven new loan growth. Notably, provisions are projected to increase $25–$40 million in the quarter compared with second-quarter 2015 level.

Management anticipates efficiency ratio in 2015 to reflect year-over-year improvement. Also, management projects return on assets (ROA) in the range of 1.30–1.50% and return on equity (ROE) is expected within 13–15% in 2015.

Activities of BB&T during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined a penny to 69 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that BB&T is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because 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) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for BB&T is 0.00%. This is because the Most Accurate estimate of 69 cents per share stands at par with the Zacks Consensus Estimate.

Zacks Rank: BB&T’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are a few 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.

PrivateBancorp, Inc. has an Earnings ESP of +1.79% and carries a Zacks Rank #2. It is scheduled to report results on Jan 21.

Legg Mason Inc. (LM - Free Report) has an Earnings ESP of +0.99% and a Zacks Rank #3. The company will report results on Jan 22.

Capital One Financial Corporation (COF - Free Report) has an Earnings ESP of +0.62% and a Zacks Rank #3. It is scheduled to report on Jan 26.

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