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Will Stable Interest Income Support BB&T (BBT) Q4 Earnings?

Zacks Equity Research

BB&T Corporation BBT is scheduled to report fourth-quarter and 2017 results on Jan 18, before the market opens. The company’s tax equivalent net interest income (NII), one of the main sources of revenues, is expected to remain more or less stable sequentially.

Even though, the fourth quarter witnessed an overall modest improvement in lending, per the Fed’s latest data, commercial and industrial loan growth has declined sequentially. Also, BB&T expects total loans, on an annualized basis, to decline sequentially, while core loan growth is anticipated to be in the range of only 2-4%.

Moreover, despite a higher rate environment, the company projects core and GAAP NIM to be down 3-5 bps sequentially in the quarter on expectations of higher funding cost and asset mix change.

Thus, the Zacks Consensus Estimate for tax-equivalent NII of $1.68 billion for the fourth quarter shows marginal decline on a sequential basis. Also, management expects NII to remain stable from the prior quarter.

Now, let’s check out other factors that might influence BB&T’s Q4 performance:

Slightly Higher Non-Interest Income: Refinancing boom is nearing its end and higher interest rates are leading to reduced mortgage originations. This time seasonality also hurt mortgage banking revenues. In fact, the Zacks Consensus Estimate for mortgage banking income of $102 million reflects a decline of 10.5% sequentially.

Also, despite rising deposit balances, the company is not expected to register a significant increase in service charge on deposits. The consensus estimate for service charge on deposits is $179 million, stable from the prior quarter.

However, BB&T is expected to register higher insurance income in the to-be-reported quarter. The Zacks Consensus Estimate for insurance fees is $422 million, rising 6.3% from the prior quarter.

Thus, overall, total non-interest income is projected to witness a slight sequential rise as the Zacks Consensus Estimate for the to-be-reported quarter is $1.17 billion.

Stable Expenses: Excluding merger-related and restructuring charges, BB&T expects expenses in the fourth quarter to remain flat 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 0.40-0.50%, up sequentially.

Here is what our quantitative model predicts:

According to our quantitative model, chances of BB&T beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a 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 +0.33%.

Zacks Rank: BB&T carries a Zacks Rank #2 (Buy).

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 79 cents, which reflects year-over-year improvement of 8.2%. However, the estimate has witnessed downward revision of 1.3% over the last 30 days.

The Zacks Consensus Estimate for sales of $2.84 billion indicates nearly 4% growth from the prior-year quarter.

BB&T Corporation Price and EPS Surprise

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

Other Stocks That Warrant a Look

Here are a few other 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.

The Bank of New York Mellon Corporation BK is slated to release fourth-quarter results on Jan 18. It has an Earnings ESP of +0.16% and carries a Zacks Rank #3.

Associated Banc-Corp ASB is slated to report results on Jan 25. It has an Earnings ESP of +0.64% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +1.31% and sports a Zacks Rank of 1. It is scheduled to report results on Jan 30.

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