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BB&T's (BBT) Q3 Earnings & Revenues Beat, Expenses Rise

Zacks Equity Research

BB&T Corporation’s BBT third-quarter 2019 adjusted earnings of $1.07 per share surpassed the Zacks Consensus Estimate of $1.03. The bottom line also jumped 4% from the year-ago figure.

Results benefited from rise in revenues, driven by loan and deposit growth, and higher mortgage banking and investment banking fees. Also, lower provision for credit losses was a tailwind. However, rise in expenses and lower interest rates were the undermining factors.

Results excluded merger-related and restructuring charges, incremental operating expenses related to the merger, expenses related to the redemption of preferred stock and gain on the sale of residential mortgage loans. After considering these, net income available to common shareholders was $735 million or 95 cents per share, down from $789 million or $1.01 per share in the prior-year quarter.

Revenues & Expenses Increase

Total revenues were $3.00 billion, up 3% year over year. Also, the figure beat the Zacks Consensus Estimate of $2.97 billion.

Tax-equivalent net interest income increased marginally from the prior-year quarter to $1.72 billion. Net interest margin declined 10 basis points (bps) to 3.37%.

Non-interest income increased 5% year over year to $1.30 billion. This upside stemmed largely from an increase in insurance income, mortgage banking, and investment banking brokerage fees and commissions.

Non-interest expenses were $1.84 billion, up 6% from the year-ago quarter. This increase was primarily due to rise in personnel expense, professional services costs and software costs, partially offset by lower regulatory costs.

BB&T’s adjusted efficiency ratio was 57.1%, down from 57.3% in the year-ago quarter. A fall in efficiency ratio indicates rise in profitability.

As of Sep 30, 2019, average deposits were nearly $162 billion, up 1% sequentially. Average total loans and leases of $152 billion jumped marginally from the prior-quarter end.

Improving Credit Quality

As of Sep 30, 2019, total non-performing assets (NPAs) were $509 million, down 15% year over year. As a percentage of total assets, NPAs came in at 0.22%, down 5 bps.

Also, allowance for loan and lease losses was 1.05% of total loans and leases held for investment, unchanged year over year. Further, provision for credit losses declined 13% to $117 million.

However, net charge-offs were 0.41% of average loans and leases, up 6 bps.

Profitability Ratios Deteriorate, Capital Ratios Improve

At the end of the reported quarter, return on average assets was 1.41%, down from 1.49% in the prior-year quarter. Return on average common equity was 10.04%, down from 11.69%.

As of Sep 30, 2019, Tier 1 risk-based capital ratio was 12.2%, up from 11.9% recorded in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.6% as of Sep 30, 2019, up from 10.2%.

Our Take

BB&T remains well positioned for revenue growth through continued loan growth (as witnessed in the reported quarter). Also, its announced merger deal with SunTrust Banks STI is expected to be accretive to earnings and will result in substantial cost savings. Nevertheless, mounting operating costs are likely to hurt bottom-line growth to some extent.

BB&T Corporation Price, Consensus and EPS Surprise

 

BB&T Corporation Price, Consensus and EPS Surprise

BB&T Corporation price-consensus-eps-surprise-chart | 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

Driven by top-line strength, U.S. Bancorp USB delivered a positive earnings surprise of 3.6% in third-quarter 2019.  Earnings per share of $1.15 surpassed the Zacks Consensus Estimate of $1.11. Also, the reported figure is up 8.5% from the prior-year quarter.

PNC Financial PNC pulled off a positive earnings surprise of 5% in third-quarter 2019. Earnings per share of $2.94 surpassed the Zacks Consensus Estimate of $2.80. Further, the bottom line jumped 4.3% from the prior-year quarter.

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