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BB&T (BBT) Beats on Q3 Earnings & Revenues, Costs Rise
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A notable rise in the top line drove BB&T Corporation’s third-quarter 2016 adjusted earnings of 76 cents per share. This comfortably beat the Zacks Consensus Estimate of 70 cents.
An improved net interest income and non-interest income drove the better-than-expected results. Further, loans witnessed a strong growth. However, higher operating expenses and a rise in provision for credit losses were the headwinds.
Results excluded certain merger-related and restructuring charges. After considering these, net income available to common shareholders was $599 million or 73 cents per share, compared with $492 million or 64 cents per share in the prior-year quarter.
Total revenue (taxable equivalent basis) amounted to $2.81 billion, up 13.1% year over year. The figure outpaced the Zacks Consensus Estimate of $2.77 billion.
Tax-equivalent net interest income rose 9.9% year over year to $1.65 billion. Further, net interest margin increased 4 basis points (bps) from the prior-year quarter to 3.39%.
Non-interest income increased 17.8% year over year to $1.16 billion. Rise in mortgage banking income majorly contributed to the increase.
Non-interest expense of $1.71 billion was up 7.3% from the year-ago quarter. This increase was driven by higher regulatory charges while rise in occupancy and equipment expense, outside IT services and software expense was largely offset by declines in merger-related and restructuring charges, foreclosed property expense and professional services.
BB&T’s adjusted efficiency ratio came in at 58.7%, down from 59.8% in the prior-year quarter. A fall in efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2016, average deposits declined 0.5% from the prior month to $159.5 billion. Further, average loans and leases totaled $143.7 billion, up 0.4% sequentially.
Credit Quality Deteriorated
Provision for credit losses increased 43.7% year over year to $148 million.
Also, as of Sep 30, 2016, total non-performing assets (NPAs) rose 13.3% year over year to $843 million. As a percentage of total assets, NPAs came in at 0.38%, up 2 bps year over year.
Net charge-offs were 0.37% of average loans and leases, up 5 bps year over year. Allowance for loan and lease losses came in at 1.06% of total loans and leases held for investment, down 2 bps year over year.
Improved Profitability and Capital Ratios
As of Sep 30, 2016, return on average assets was 1.15%, up 11 bps year over year. Return on average common equity rose to 8.87% from 8.14% as of Sep 30, 2015.
As of Sep 30, 2016, Tier 1 risk-based capital ratio was 11.8%, compared with 11.7% in the year-ago quarter.
BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 9.9% as of Sep 30, 2016.
Our Take
We believe that BB&T’s growth trajectory will continue on the back of a robust loan and deposits improvement as well as a series of acquisitions. The inorganic growth will help the company generate operating leverage, going forward.
However, margin compression led by a prevalent low interest rate environment, weak cost-control and heightened regulatory issues will keep profitability under strain in the near term.
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses and provisions.
Backed by strong top-line growth, Wells Fargo & Company’s (WFC - Free Report) third-quarter 2016 recorded a positive earnings surprise of about 1%. Specifically, the company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Driven by improved trading and mortgage banking revenues, JPMorgan Chase & Co.’s (JPM - Free Report) third-quarter 2016 earnings of $1.58 per share handily surpassed the Zacks Consensus Estimate of $1.40. Improved fixed income and equity trading revenues, higher mortgage banking fees and growth in investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan supported top line.
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BB&T (BBT) Beats on Q3 Earnings & Revenues, Costs Rise
A notable rise in the top line drove BB&T Corporation’s third-quarter 2016 adjusted earnings of 76 cents per share. This comfortably beat the Zacks Consensus Estimate of 70 cents.
An improved net interest income and non-interest income drove the better-than-expected results. Further, loans witnessed a strong growth. However, higher operating expenses and a rise in provision for credit losses were the headwinds.
Results excluded certain merger-related and restructuring charges. After considering these, net income available to common shareholders was $599 million or 73 cents per share, compared with $492 million or 64 cents per share in the prior-year quarter.
Revenues & Expenses Rise
Total revenue (taxable equivalent basis) amounted to $2.81 billion, up 13.1% year over year. The figure outpaced the Zacks Consensus Estimate of $2.77 billion.
Tax-equivalent net interest income rose 9.9% year over year to $1.65 billion. Further, net interest margin increased 4 basis points (bps) from the prior-year quarter to 3.39%.
Non-interest income increased 17.8% year over year to $1.16 billion. Rise in mortgage banking income majorly contributed to the increase.
Non-interest expense of $1.71 billion was up 7.3% from the year-ago quarter. This increase was driven by higher regulatory charges while rise in occupancy and equipment expense, outside IT services and software expense was largely offset by declines in merger-related and restructuring charges, foreclosed property expense and professional services.
BB&T’s adjusted efficiency ratio came in at 58.7%, down from 59.8% in the prior-year quarter. A fall in efficiency ratio indicates an improvement in profitability.
As of Sep 30, 2016, average deposits declined 0.5% from the prior month to $159.5 billion. Further, average loans and leases totaled $143.7 billion, up 0.4% sequentially.
Credit Quality Deteriorated
Provision for credit losses increased 43.7% year over year to $148 million.
Also, as of Sep 30, 2016, total non-performing assets (NPAs) rose 13.3% year over year to $843 million. As a percentage of total assets, NPAs came in at 0.38%, up 2 bps year over year.
Net charge-offs were 0.37% of average loans and leases, up 5 bps year over year. Allowance for loan and lease losses came in at 1.06% of total loans and leases held for investment, down 2 bps year over year.
Improved Profitability and Capital Ratios
As of Sep 30, 2016, return on average assets was 1.15%, up 11 bps year over year. Return on average common equity rose to 8.87% from 8.14% as of Sep 30, 2015.
As of Sep 30, 2016, Tier 1 risk-based capital ratio was 11.8%, compared with 11.7% in the year-ago quarter.
BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 9.9% as of Sep 30, 2016.
Our Take
We believe that BB&T’s growth trajectory will continue on the back of a robust loan and deposits improvement as well as a series of acquisitions. The inorganic growth will help the company generate operating leverage, going forward.
However, margin compression led by a prevalent low interest rate environment, weak cost-control and heightened regulatory issues will keep profitability under strain in the near term.
BB&T CORP Price, Consensus and EPS Surprise
BB&T CORP Price, Consensus and EPS Surprise | BB&T CORP Quote
Currently, BB&T carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Performance of Other Major Regional Banks
The PNC Financial Services Group, Inc.’s (PNC - Free Report) third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses and provisions.
Backed by strong top-line growth, Wells Fargo & Company’s (WFC - Free Report) third-quarter 2016 recorded a positive earnings surprise of about 1%. Specifically, the company’s earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. Wells Fargo witnessed organic growth in revenues. Moreover, a strong capital position acted as a tailwind. However, higher provisions and expenses were the dampeners.
Driven by improved trading and mortgage banking revenues, JPMorgan Chase & Co.’s (JPM - Free Report) third-quarter 2016 earnings of $1.58 per share handily surpassed the Zacks Consensus Estimate of $1.40. Improved fixed income and equity trading revenues, higher mortgage banking fees and growth in investment banking income drove the results. Further, higher net interest income, perhaps attributable to the rise in loan supported top line.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>