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BB&T (BBT) Beats Q1 Earnings on Higher Revenues, Costs Rise

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BB&T Corporation’s (BBT - Free Report) first-quarter 2017 adjusted earnings of 74 cents per share surpassed the Zacks Consensus Estimate by a penny.

Better-than-expected results were primarily driven by an improvement in both net interest income and non-interest income. Deposits witnessed a decent growth in the quarter. Also, credit quality improved. However, escalated expenses remained a major headwind.

Results excluded certain merger-related and restructuring charges and other non-recurring items. After considering these, net income available to common shareholders was $378 million or 46 cents per share, compared with $527 million or 67 cents per share in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Total revenue for the quarter came in at $2.78 billion, up 9.2% year over year. Moreover, the figure marginally surpassed the Zacks Consensus Estimate of $2.77 billion.

Tax-equivalent net interest income rose 5.2% from the prior-year quarter to $1.65 billion. Also, net interest margin rose 3 basis points (bps) from the prior-year quarter to 3.46%.

Non-interest income jumped 15.3% year over year to $1.17 billion. Rise in almost all fee income components, except income from bank-owned life insurance, and investment banking and brokerage fees and commissions, led to the growth. Also, the quarter witnessed nil net securities gains and net FDIC loss share income.

Non-interest expense of $2.1 billion was up 36.1% from the year-ago quarter. This increase was driven by a rise in all cost components other than loan-related expense. Moreover, the quarter witnessed huge loss on early extinguishment of debt.

BB&T’s adjusted efficiency ratio came in at 58.0%, down from 58.8% in the prior-year quarter. A fall in efficiency ratio indicates a rise in profitability.

As of Mar 31, 2017, total deposits were $161.3 billion, up from $160.2 billion in the prior-quarter. However, total loans and leases were $143.9 billion, down 0.8% sequentially.

Credit Quality Improved

As of Mar 31, 2017, total non-performing assets (NPAs) were $801 million, down 11.3% year over year. As a percentage of total assets, NPAs came in at 0.36%, down 6 bps year over year. Moreover, net charge-offs were 0.42% of average loans and leases, down 4 bps year over year.

Also, during the quarter, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, down 6 bps year over year. Further, provision for credit losses was $148 million at the end of the quarter, down 19.6 % year over year.

Profitability & Capital Ratios Deteriorated

At the end of the reported quarter, return on average assets was 0.79%, down from 1.09% in the prior-year quarter. Return on average common equity declined to 5.72% from 8.45% as of Mar 31, 2016.

As of Mar 31, 2017, Tier 1 risk-based capital ratio was 12.0%, compared with 12.2% 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 10.1% as of Mar 31, 2017.

Share Repurchases

During the reported quarter, BB&T repurchased 4.4 million shares through open-market purchases.

Our Take

We believe BB&T to remain well positioned for revenue growth through strategic acquisitions. These efforts will also support bottom-line growth in the near term. Moreover, consistent growth in loans and deposits along with improving rate scenario will propel its organic growth trajectory.

However, such acquisitions are expected to keep costs toward the higher end, which might hurt profitability. Also, heightened regulatory issues remain a key concern.

BB&T Corporation Price, Consensus and EPS Surprise

BB&T Corporation Price, Consensus and EPS Surprise | BB&T Corporation Quote

Currently, BB&T carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Regional Banks

Bank of America Corporation’s (BAC - Free Report) first-quarter 2017 earnings of 41 cents per share handily outpaced the Zacks Consensus Estimate of 35 cents. Impressive growth in fixed income trading revenues, higher equity trading and significant rise in investment banking fees supported fee income. Further, modest loan growth and higher interest rates aided the rise in net interest income. However, mortgage banking income declined due to lower total mortgage production.

Comerica Inc.’s (CMA - Free Report) first-quarter 2017 adjusted earnings per share of $1.02 surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results reflect higher revenues and lower expenses. However, decline in loans remained a concern.

Among other Wall Street giants, SunTrust Banks, Inc. (STI - Free Report) is scheduled to report first-quarter 2017 earnings on Apr 21.

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