What's in Store for BB&T (BBT) this Earnings Season?

BB&T CorporationBBT is scheduled to report its third-quarter 2015 results on Oct 15, before the market opens.

Last quarter, earnings per share surpassed the Zacks Consensus Estimate. Better-than-expected results were attributable to a rise in non-interest income, aided by improvement in mortgage banking revenues. However, lower net interest income, a rise in operating expenses and increase in provision for loan losses acted as headwinds.

BB&T recorded an earnings beat in two of the trailing four quarters with an average surprise of 0.68%.

Is BB&T likely to miss on earnings this quarter? Let's see how things have shaped up for this announcement.

Factors Influencing Q3 Results

BB&T completed the acquisition of Susquehanna Bancshares, Inc. in August and integrated it into the company's Branch Banking and Trust Company segment. An impact of the same will be witnessed in the upcoming release.

BB&T expects GAAP net interest margin (NIM) to increase by 4-6 bps in the quarter, owing to the Susquehanna acquisition. However, the company anticipates flat core margin, given no improvement in the interest rates environment.

Moreover, the company projects insurance income and mortgage revenues to decline in the upcoming release. Though a partial quarter benefit of $25-$30 million will be achieved from the Susquehanna acquisition, overall fee income is expected to remain flat to down 2% in the quarter, keeping BB&T's top-line growth under pressure.

Also, the company's profitability is expected to remain under strain due to elevated costs. Management projects non-interest expenses (excluding the loss on debt restructuring and merger charges) to increase 3-5% in the upcoming release owing to the Susquehanna acquisition.

Notably, non-controlling interest expense will decrease $5-$15 million per quarter based on the impact of seasonality and the AmRisc investment. The company expects $60-$80 million in merger charges in the quarter.

However, the pressure anticipated on revenue generation this quarter is expected to ease slightly as BB&T predicts the amount of FDIC loss share account to decline about $10-$15 million per quarter during the year.

Further, consistent growth in loans and non-interest bearing deposits is expected to provide support to the overall organic growth strategy of the company. Management anticipates average loans to grow in the range of 3-5% (6-8% excluding mortgage) on an annualized basis in the quarter, driven by an improvement in corporate, retail lending and CRE segments. However, if the acquisition deals are taken into consideration, loan growth will be in the 30% range with period-end loans of around $135 billion in the quarter.

On the credit quality front, management expects net charge-offs to remain within 0.35%-0.40%, provided the economic scenario remains relatively stable. Going forward, management expects nonperforming assets to remain stable. Further, provisions are anticipated to increase $15-$30 million in the upcoming release, owing to portfolio growth and retail loan seasonality.

Activities of BB&T during the quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for the quarter declined by a penny to 67 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that BB&T is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for BB&T is -2.99%. This is because the Most Accurate estimate of 65 cents per share is below the Zacks Consensus Estimate of 67 cents per share.

Zacks Rank: BB&T's Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are a few banking stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +1.39% and carries a Zacks Rank #3. It is scheduled to report results on Oct 20.

SunTrust Banks, Inc. STI has an Earnings ESP of +1.21% and a Zacks Rank #3. The company will report results on Oct 16.

Capital One Financial Corporation COF has an Earnings ESP of +3.14% and a Zacks Rank #3. It is scheduled to report on Oct 22.

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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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