A month has gone by since the last earnings report for BB&T Corporation BBT . Shares have added about 5.9% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is BBT due for a pullback? 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 on Lower Expenses, Revenues Up
BB&T Corporation's first-quarter 2018 adjusted earnings of 97 cents per share outpaced the Zacks Consensus Estimate of 92 cents. The figure recorded 31.1% surge from the year-ago quarter.
Results reflected a slight rise in revenues and lower operating expenses. However, higher credit costs and a decline in loan balance were the undermining factors.
Results excluded merger-related and restructuring charges. After considering these, net income available to common shareholders was $745 million or 94 cents per share, up from $378 million or 46 cents per share in the prior-year quarter.
Revenues Grow Slightly, Expenses Decline
Total revenues (taxable-equivalent) came in at $2.84 billion, up marginally year over year. The figure also outpaced the Zacks Consensus Estimate of $2.83 billion.
Tax-equivalent net interest income increased slightly from the prior-year quarter to $1.66 billion. Net interest margin fell 2 basis points (bps) from the prior-year quarter to 3.44%.
Non-interest income increased nearly 1% year over year to $1.18 billion. Higher investment banking and brokerage fees and commissions, and bankcard fees and merchant discounts were partly offset by decline in insurance income and mortgage banking income.
Non-interest expenses of $1.69 billion fell 19.8% from the year-ago quarter. The decrease was mainly due to lower outside IT services costs and net merger-related and restructuring charges, as well as absence of loss on early extinguishment of debt.
BB&T's adjusted efficiency ratio came in at 57.3%, down from 58.0% in the prior-year quarter. A fall in efficiency ratio indicates rise in profitability.
As of Mar 31, 2018, total deposits were nearly $158.2 billion, up marginally from the prior quarter. Total loans and leases of $144.2 billion were down slightly on a sequential basis.
Credit Quality: A Mixed Bag
As of Mar 31, 2018, total non-performing assets (NPAs) were $669 million, down 16.5% year over year. As a percentage of total assets, NPAs came in at 0.30%, down 6 bps.
Further, net charge-offs were 0.41% of average loans and leases, down 1 bp year over year. However, allowance for loan and lease losses came in at 1.05% of total loans and leases held for investment, up 1 bp from the prior-year quarter.
Also, provision for credit losses was $150 million at the end of the quarter, reflecting a 1.4% increase on a year-over-year basis.
Strong Profitability & Capital Ratios
At the end of the reported quarter, return on average assets was 1.45%, up from 0.79% in the prior-year quarter. Return on average common equity improved to 11.43% from 5.72% as of Mar 31, 2017.
As of Mar 31, 2018, Tier 1 risk-based capital ratio was 12%, on par with the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.2% as of Mar 31, 2018, down from 10.3% as of Mar 31, 2017.
During the reported quarter, BB&T repurchased $320 million worth shares through open-market purchases.
On a sequential basis, management projects GAAP NIM to be stable year over year while core margins are expected to increase.
Fee income is anticipated to be up 2% to 4% year over year. On an annualized basis, total loans are expected to be up 1-3% sequentially.
Excluding merger-related and restructuring charges, and other one-time items, management expects expenses to decline 1-3% year over year.
Management expects the effective tax rate to be 21%.
Management projects NCOs to increase sequentially and be in the range of 30-45 bps 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.
Also, total average loans are projected to rise in the range of 1-3%.
Management expects revenues (tax-equivalent basis) to grow in 2-4% range year over year in 2018. This includes the impact of Regions Insurance in second half of 2018.
Moreover, operating expenses are anticipated to remain stable and the effective tax rate to be 20-21%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter compared to one lower.
BB&T Corporation Price and Consensus
BB&T Corporation Price and Consensus | BB&T Corporation Quote
At this time, BBT has a subpar Growth Score of D, however its Momentum is doing a lot better with a B. The stock was also 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, BBT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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