BB&T (BBT) Posts In-Line Earnings in Q2, Provisions Stable

BB&T Corporation’s BBT second-quarter 2018 adjusted earnings of $1.01 was in-line with the Zacks Consensus Estimate. Moreover, the figure recorded 29.5% surge from the year-ago quarter.

Results reflected slight rise in revenues and lower operating expenses. Also, the balance sheet position remained strong during the quarter under review. Further, stable provisions supported results to some extent.

Results excluded merger-related and restructuring charges. After considering these, net income available to common shareholders for the reported quarter was $775 million or 99 cents per share, up from $631 million or 77 cents per share in the prior-year quarter.

Revenues Grow Slightly, Expenses Decline

Total revenues were $2.88 billion, up marginally year over year. However, the figure marginally lagged the Zacks Consensus Estimate of $2.89 billion.

Tax-equivalent net interest income increased slightly from the prior-year quarter to $1.68 billion. Net interest margin fell 2 basis points (bps) from the prior-year quarter to 3.45%.

Non-interest income increased marginally year over year to $1.22 billion. The rise was due to higher service charges on deposits, investment banking and brokerage fees and commissions, trust and investment advisory revenues, and checkcard fees.

Non-interest expenses of $1.72 billion fell 1.3% from the year-ago quarter. The decrease was due to a fall in almost all components of expenses except, personnel expenses, software expenses, regulatory charges, and net merger-related and restructuring charges, which witnessed rise.

BB&T’s adjusted efficiency ratio was 57.4%, down from 58.6% in the prior-year quarter. A fall in efficiency ratio indicates rise in profitability.

As of Jun 30, 2018, total deposits were nearly $159.48 billion, up marginally from the prior quarter. Total loans and leases of $147.80 billion were up 2.5% on a sequential basis.

Credit Quality: A Mixed Bag

As of Jun 30, 2018, total non-performing assets (NPAs) were $624 million, down 9.6% year over year. As a percentage of total assets, NPAs came in at 0.28%, down 3 bps.

Further, net charge-offs were 0.30% of average loans and leases, down 7 bps year over year. However, the allowance for loan and lease losses was 1.05% of total loans and leases held for investment, up 2 bps from the prior-year quarter.

Notably, provision for credit losses was $135 million at the end of the reported quarter, stable on a year-over-year basis.

Profitability Ratios Improve, Capital Ratios Deteriorate

At the end of the reported quarter, return on average assets was 1.49%, up from 1.22% in the prior-year quarter. Return on average common equity improved to 11.74% from 9.30% as of Jun 30, 2017.

As of Jun 30, 2018, Tier 1 risk-based capital ratio was 11.9%, down from 12.1% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.2% as of Jun 30, 2018, down from 10.3% as of Jun 30, 2017.

Share Repurchases

During the reported quarter, BB&T repurchased $310 million worth of shares through open-market purchases.

Our Take

BB&T remains well positioned for revenue growth through strategic acquisitions. Also, expected growth in loans, along with an improving rate scenario, is likely to propel its organic growth trajectory in the quarters ahead. However, such acquisitions are expected to keep costs toward the higher end, which might hurt profitability to some extent. Also, the company’s significant exposure toward risky loans remains a concern.

BB&T Corporation Price, Consensus and EPS Surprise
 

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

BB&T currently 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 Banks

Comerica CMA reported adjusted earnings per share of $1.90 in second-quarter 2018, up from the year-ago adjusted figure of $1.15. Including certain non-recurring items, earnings were $1.87. The Zacks Consensus Estimate was $1.62.

The PNC Financial Services Group PNC reported second-quarter 2018 earnings per share of $2.72, beating the Zacks Consensus Estimate of $2.58. Moreover, the bottom line reflected a 30% increase from the prior-year quarter.

Driven by top-line strength, Citigroup C delivered a positive earnings surprise of 5.2% in second-quarter 2018. Earnings from continuing operations per share of $1.62 for the reported quarter easily outpaced the Zacks Consensus Estimate of $1.54. Also, earnings were up 28% year over year.

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