BB&T Misses Q1 Earnings on Lower Revs - Analyst Blog

BB&T Corp.'s BBT first-quarter 2014 earnings per share of 69 cents lagged the Zacks Consensus Estimate of 71 cents. This was, however, up significantly from 29 cents earned in the year-ago quarter.

In the opening trade, BB&T's stock price declined nearly 4.0%, reflecting negative response among investors. However, nothing conclusive can be inferred till we observe the company's share price movement during the full trading session.

Lower-than-expected results were mainly driven by a decline in revenues, partially offset by prudent expense management. Improvement in credit quality, capital ratios and profitability ratios were the other quarterly tailwinds.

BB&T's net income available to common shareholders was $501 million, up from $210 million in the prior-year quarter.

Performance in Detail

Total revenue came in at $2.29 billion, down 6.7% year over year. Moreover, it missed the Zacks Consensus Estimate of $2.33 billion.

Tax-equivalent net interest income fell 5.2% year over year to $1.38 billion. The decrease was due to a fall in interest income.

Moreover, net interest margin NIM fell 24 basis points (bps) year over year to 3.52%. The pressure on NIM persists primarily due to lower yield on total loan portfolio, partially offset by a fall interest-bearing liabilities and rise in average earnings assets.

Non-interest income declined 9.0% year over year to $911 million. The decrease was mainly due to fall in both mortgage banking income and Federal Deposit Insurance Corporation loss share income, partially offset by higher insurance income.

Non-interest expense dropped 0.8% year over year to $1.40 billion. The fall was mainly due to a 50% decrease in foreclosed property expenses. This directly reflects that the company is strategically avoiding risky ventures and instead, focusing on conventional banking activities.

BB&T's efficiency ratio in the reported quarter was 59.3%, up from 56.4% in the prior-year quarter. An increase in efficiency ratio indicates decline in profitability.

Average deposits fell 3.6% year over year to $125.7 billion. However, average loans held for investment were $115.1 billion, up 1.6% year over year.

Credit Quality

BB&T's credit quality showed marked improvement. As of Mar 31, 2014, total non-performing assets (NPAs) declined 30.2% year over year to $986 million. As a percentage of total assets, NPAs came in at 0.54%, down 25 bps year over year.

Similarly, excluding covered loans and government guaranteed loans, net charge-offs were 0.55% of average loans and leases, down 43 bps from the year-ago quarter. Further, allowance for loan and lease losses was 1.34% of total loans and leases held for investment, down from 1.65% as of Mar 31, 2013.

Profitability and Capital Ratios

Profitability metrics also showed improvement in the quarter. As of Mar 31, 2014, return on average assets was 1.29%, against 0.57% at the prior-year quarter end. Moreover, return on average common equity increased to 9.87% from 4.44% as of Mar 31, 2013.

BB&T's capital ratios were also strong. As of Mar 31, 2014, Tier 1 risk-based capital ratio and tangible common equity ratio were 12.1% and 7.6%, respectively, compared with 10.6% and 6.7%, as of Mar 31, 2013.

BB&T's estimated common equity Tier 1 ratio under Basel III, was approximately 10.0% at Mar 31, 2014, based on management's interpretation of the final rules adopted in Jul 2, 2013 by the Federal Reserve Board, which established a new comprehensive capital framework for U.S. banking organizations.

Our Viewpoint

Sluggish economic recovery, a low interest rate scenario and various regulatory issues will continue to limit top-line growth. Moreover, expense management will likely be more challenging due to the company's plan to grow inorganically.

However, BB&T's steady capital position and strong asset quality will expectedly bolster its financials in the quarters ahead.

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

Performance of Other Regional Banks

Comerica Incorporated's CMA first-quarter 2014 earnings of 73 cents per share beat the Zacks Consensus Estimate by a penny. The company's results benefited from a decline in both operating expenses and provision for credit losses, partly offset by a decrease in net income.

The PNC Financial Services Group, Inc. PNC reported first-quarter 2014 earnings per share of $1.82, which outpaced the Zacks Consensus Estimate $1.66 per share. Better-than-expected results for PNC Financial were mainly driven by decline in both non-interest expenses and provision for credit losses, partly offset by a fall in top line.

BankUnited, Inc. BKU is slated to announce first-quarter 2014 results on Apr 24.