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BB&T Q3 Earnings Down Y/Y on Higher Costs, Revenues Rise

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BB&T CorporationBBT reported third-quarter 2015 earnings of 64 cents per share. This compared unfavorably with the prior-year figure of 70 cents per share.

This included certain merger-related and restructuring charges. Excluding these, adjusted earnings per share came in at 70 cents. The Zacks Consensus Estimate was 66 cents per share.

Better-than-expected results were attributable to a rise in revenues, which were supported by the Susquehanna acquisition. Average loan and deposits growth remained impressive. However, higher expenses as well as provision for loan losses acted as the headwinds.

After considering the above mentioned charges, net income available to common shareholders totaled $492 million, down from $512 million in the prior-year quarter.

Performance in Detail

Total revenue (taxable equivalent basis) amounted to $2.49 billion, up 6.6% from the year-ago quarter tally. Moreover, it compared favorably with the Zacks Consensus Estimate of $2.46 billion.

Tax-equivalent net interest income rose 8.4% year over year to $1.50 billion. However, net interest margin inched down 3 basis points (bps) year over year to 3.35%.

Non-interest income grew 4.1% year over year to $988 million. The rise was primarily driven by higher operating lease income, investment banking and brokerage fees and commissions as well as trust and investment advisory revenues. These were, however, partly offset by a reduction in insurance income.

Non-interest expense was $1.59 billion, up 3.6% from the prior-year quarter. This rise was mainly triggered by higher net merger-related and restructuring charges, amortization of intangibles and foreclosed property expense; partially offset by a fall in loan-related expense.

BB&T's efficiency ratio came in at 59.2%, up from 58.7% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

As of Sep 30, 2015, average deposits grew 10.1% year over year to $143.8 billion. Moreover, average loans and leases totaled $132.5 billion, up 10% year over year.

Credit Quality

BB&T's credit quality continued to exhibit improvement except provision for loan losses that increased substantially year over year to $103 million.

Nonetheless, as of Sep 30, 2015, total non-performing assets (NPAs) fell 20.8% year over year to $744 million. As a percentage of total assets, NPAs came in at 0.36%, down 14 bps year over year.

Similarly, net charge-offs stood at 0.32% of average loans and leases, down 16 bps from the year-ago quarter. Further, allowance for loan and lease losses came in at 1.08% of total loans and leases held for investment, down 19 bps year over year.

Profitability and Capital Ratios

Profitability metrics deteriorated during the quarter. As of Sep 30, 2015, return on average assets was 1.04%, down from 1.18% in the prior-year quarter. Also, return on average common equity decreased to 8.14% from 9.45% as of Sep 30, 2014.

BB&T's capital ratios displayed weakness. As of Sep 30, 2015, Tier 1 risk-based capital ratio and tangible common equity ratio stood at 11.6% and 7.7%, respectively, as against 12.4% and 7.9% as of Sep 30, 2014.

BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.1% as of Sep 30, 2015.

Our Take

We believe that BB&T's growth trajectory will continue on the back of robust loan and deposits improvement as well as the series of acquisitions. The inorganic growth will help the company generate operating leverage going forward. Also, the company's expansion path will be supported by its sturdy capital position, enhanced credit quality and stable capital deployment activities.

Nonetheless, margin compression owing to the prevalent low interest rate environment, weak cost control and heightened regulatory issues will continue to keep profitability under strain in the near term.

Currently, BB&T carries a Zacks Rank #3 (Hold).

Performance of Other Major Regional Banks

Bank of America Corporation's BAC third-quarter 2015 earnings of 37 cents per share surpassed the Zacks Consensus Estimate of 34 cents. Better-than-expected results were driven by expense control and a marginal rise in mortgage banking income, asset management fees and card fees.

The PNC Financial Services Group, Inc. PNC reported yet another impressive quarter with an earnings surprise of 6.7%. Results were primarily driven by stable expenses, partially offset by decline in revenues and higher provisions. Also, loan and deposit balances exhibited growth.

SunTrust Banks, Inc. STI is scheduled to report third-quarter 2015 results on Oct 16.

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BB&T CORP (BBT): Free Stock Analysis Report

PNC FINL SVC CP (PNC): Free Stock Analysis Report

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BANK OF AMER CP (BAC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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