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Why Is BB&T (BBT) Down 3% Since Last Earnings Report?

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It has been about a month since the last earnings report for BB&T (BBT - Free Report) . Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BB&T due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BB&T Q1 Earnings Beat Estimates as Revenues Rise

BB&T’s first-quarter 2019 adjusted earnings of $1.05 per share surpassed the Zacks Consensus Estimate of $1.03. The figure also represented 8.2% growth compared with the year-ago figure.

Results benefited from growth in revenues. Moreover, loans and deposit balances improved during the quarter. However, higher provision for credit losses and rise in expenses were major headwinds.

Results excluded merger-related and restructuring charges. After considering these, net income available to common shareholders for the reported quarter was $749 million or 97 cents per share, up from $745 million or 94 cents per share in the prior-year quarter.

Revenues Improve, Expenses Increase

Total revenues were $2.90 billion, up 3% year over year. However, the figure marginally missed the Zacks Consensus Estimate of $2.91 billion.

Tax-equivalent net interest income increased 3.9% from the prior-year quarter to $1.72 billion. Net interest margin expanded 7 basis points (bps) from the prior-year quarter to 3.51%.

Non-interest income increased 1.9% year over year to $1.20 billion. This upside stemmed from an increase in insurance income, service charge on deposits, bankcard fees and merchant discounts, and checkcard fees.

Non-interest expenses were $1.77 billion, up 4.9% from the year-ago quarter. This increase was primarily due to rise in net merger-related and restructuring charges, mainly relating to the announced merger of equals with SunTrust Banks.

BB&T’s adjusted efficiency ratio was 56.6%, down from 57.3% in the year-ago quarter. A fall in efficiency ratio indicates rise in profitability.

As of Mar 31, 2019, average deposits were nearly $160.05 billion, up 1.4% from the fourth quarter of 2018. Average total loans and leases of $148.79 billion were up marginally from the prior-quarter end.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, total non-performing assets (NPAs) were $584 million, down 12.7% year over year. As a percentage of total assets, NPAs came in at 0.26%, down 4 bps.

Further, net charge-offs were 0.40% of average loans and leases, down 1 bps year over year.

Allowance for loan and lease losses was 1.05% of total loans and leases held for investment, unchanged from the year-earlier quarter. However, provision for credit losses increased 3.3% year over year to $155 million at the end of the reported quarter.

Profitability Ratios Worsen, Capital Ratios Mixed

At the end of the reported quarter, return on average assets was 1.43%, down from 1.45% in the prior-year quarter. Return on average common equity was 11.08%, down from 11.43% as of Mar 31, 2018.

As of Mar 31, 2019, Tier 1 risk-based capital ratio was 11.9%, down from 12% recorded in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.3% as of Mar 31, 2019, up from 10.2% as of Mar 31, 2018.

Outlook

Second-Quarter 2019

On a sequential basis, management projects GAAP and core NIM to decline 4-6 bps. Average total loans held for investment will likely be up 4-6% sequentially (on annualized basis).

Net interest income is projected to be up 2-3% year over year, driven by loan growth and an additional day in the quarter.

Non-interest income is expected to increase 5-7% year over year.

Excluding merger-related and restructuring charges, and other one-time items, expenses are expected to remain stable or rise 2% year over year.

Management expects effective tax rate of 20-21%.

Management projects NCOs to increase sequentially and be in the 35-45 bps range on the assumption that there is no deterioration in the economy. Also, loan loss provisions are expected to match NCOs, in addition to providing for loan growth.

2019

Total average loans held for investment are projected to rise in the range of 2-4%.

Management expects revenues (tax-equivalent basis) to grow in the 2-4% range.

Moreover, operating expenses are estimated to remain stable.

Management projects NCOs to be 30-50 bps range on the assumption that there is no deterioration in the economy.

Effective tax rate is projected to be 20%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, BB&T has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

BB&T has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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