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Rise in Interest Income to Drive BB&T's (BBT) Q3 Earnings?

Zacks Equity Research

BB&T Corporation’s BBT third-quarter 2017 results, slated on Thursday, Oct 19, are expected to witness a slight rise in tax equivalent net interest income (NII). This, in turn, will support the company’s revenues and bottom line.

Improvement in loan demand, particularly commercial and industrial, and consumer loans during quarter will support NII. On an annualized basis, BB&T expects total loans to grow 1-3% sequentially while core loan growth is anticipated to be in the range of 5-7%.

Further, BB&T expects to record stable core net interest margin (NIM). The Zacks Consensus Estimate for NIM of 3.46% reflects 1 basis point fall from the prior quarter. This is likely to be attributable to higher interest rates, which will be more than offset by marginally lower average interest earning assets (the Zacks Consensus Estimate for average earning assets is $193.3 billion).

Thus, the Zacks Consensus Estimate for NII of $1.68 billion shows marginal growth on a sequential basis. On the other hand, management expects NII to remain stable from the prior quarter.

Now, let’s check out a few other factors that might influence BB&T’s Q3 performance:

Lower non-interest income: BB&T has been witnessing continuous fall in mortgage banking fees as higher interest rates are leading to lower mortgage originations. However, an expected higher rate environment might have led to rise in demand for refinancing activities during the quarter, thus helping the company record some mortgage revenues. The Zacks Consensus Estimate for mortgage banking income of $106 million shows a jump of 12.8% sequentially.

Further, as deposit balance rises, the company will record an increase in service charge on deposits. The Zacks Consensus Estimate for service charge on deposits of $179 million reflects a rise of 1.7% from the last quarter.

However, BB&T is expected to record lower insurance income as hurricanes hit the U.S coast during the latter half of the quarter. The Zacks Consensus Estimate for insurance fees is $417 million, plunging 13.3% from the prior quarter.

Overall, total non-interest income is projected to witness a 3.4% sequential fall as the Zacks Consensus Estimate for the to-be-reported quarter is $1.18 billion while management projects the same to grow 1-3% year over year.

Expenses might increase modestly: Excluding merger-related and restructuring charges, BB&T expects expenses to remain flat or increase 2% on a year-over-year basis.

Asset quality to support results: BB&T expects loan loss provision to match net charge-offs (NCOs) in addition to providing for loan growth. Also, management expects NCOs rates to remain in the range of 0.35-0.45%.

Non-performing asset (NPAs) levels will likely remain stable with the prior quarter. Similarly, the Zacks Consensus Estimate for NPAs is $690 million, stable sequentially.

Here is what our quantitative model predicts:

According to our quantitative model, chances of BB&T beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better, which is required to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for BB&T is +0.43%.

Zacks Rank: BB&T carries a Zacks Rank #4 (Sell).

As it is we caution investors against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Notably, the Zacks Consensus Estimate for earnings the to-be-reported quarter has been revised 1.3% downward over the last 60 days to 78 cents, with four out of 12 estimates moving lower. However, the Zacks Consensus Estimate reflects a year-over-year improvement of 2.2%.

Also, the Zacks Consensus Estimate for sales of $2.84 billion indicates 2.6% growth from the prior-year quarter.

BB&T Corporation Price and EPS Surprise

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

Stocks That Warrant a Look

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

U.S. Bancorp USB is slated to release third-quarter results on Oct 18. It has an Earnings ESP of +0.26% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.08% and carries a Zacks Rank of 3. It is scheduled to report results on Oct 19.

Associated Banc-Corp ASB has an Earnings ESP of +1.92% and a Zacks Rank of 3. It is also slated to report results on Oct 19.

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