BB&T Corporation’s (BBT) third-quarter 2014 earnings per share of 71 cents came in line with the Zacks Consensus Estimate. Moreover, the figure came in slightly above the year-ago adjusted earnings per share of 70 cents. The year-ago quarter results included tax-related reserve adjustments of $235 million or 33 cents per share.
Results benefited from rise in non-interest income, partly offset by decline in net interest income as well as escalating expenses. Improvement in credit quality as well as growth in average loans and deposits reflected strength while profitability ratios weakened.
Net income available to common shareholders totaled $520 million, up 3.4% from the year-ago adjusted figure.
Performance in Detail
Total revenue amounted to $2.32 billion, down 1.6% year over year. However, it compared favorably with the Zacks Consensus Estimate of $2.29 billion.
Tax-equivalent net interest income decreased 4.7% year over year to $1.39 billion. The decline was driven by a reduction in interest income.
Moreover, net interest margin (NIM) fell 30 basis points (bps) year over year to 3.38%. The strain on NIM continues primarily due to lower yields on the total loan portfolio, partly offset by higher average earnings assets.
Non-interest income rose 3.4% year over year to $936 million. The increase was mainly attributable to a rise in insurance income, other income as well as trust and investment advisory revenues. However, this was partially mitigated by a decline in mortgage banking income and FDIC loss share income.
Non-interest expense climbed 5.8% year over year to $1.56 billion. The rise was primarily triggered by augmented loan-related expenses, outside IT services as well as net merger-related and restructuring charges. This was, however, partly offset by reduction in personal expenses, professional services and regulatory charges.
BB&T’s efficiency ratio came in at 59.7%, down from 60.1% in the prior-year quarter. A decrease in efficiency ratio indicates higher profitability.
Average deposits grew 2.1% year over year to $130.6 billion. Moreover, average loans and leases held for investment totaled $118.6 billion, up 3% from the year-ago quarter.
Credit Quality
BB&T’s credit quality continued to show improvement. As of Sep 30, 2014, total non-performing assets (NPAs) fell 24% year over year to $883 million. As a percentage of total assets, NPAs came in at 0.48%, down 17 bps year over year.
Similarly, excluding covered loans and government guaranteed loans, net charge-offs stood at 0.48% of average loans and leases, down 2 bps from the year-ago quarter. Further, allowance for loan and lease losses came in at 1.22% of total loans and leases held for investment, down 29 bps from the prior-year quarter.
Profitability and Capital Ratios
Profitability metrics deteriorated in the quarter. As of Sep 30, 2014, return on average assets stood at 1.19%, at par with the adjusted return of the prior-year quarter. Moreover, return on average common equity decreased to 9.60% from the adjusted return of 10.22% as of Sep 30, 2013.
BB&T's capital ratios displayed strength. As of Sep 30, 2014, Tier 1 risk-based capital ratio and tangible common equity ratio came in at 12.4% and 7.9%, respectively, compared with 11.3% and 6.9% as of Sep 30, 2013.
BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.3% at Sep 30, 2014, based on management's interpretation of the final rules adopted on Jul 2, 2013 by the Federal Reserve Board, which established a new comprehensive capital framework for U.S. banking organizations.
Our Take
BB&T’s top line remains stressed due to the prevalent low interest rate environment, slow economic recovery and regulatory pressure. Also, rising expenses continue to be a challenge, further aggravated by the bank’s inorganic growth strategies.
However, the bank’s steady capital position and strong asset quality are expected to bolster its financials in the upcoming quarters.
Currently, BB&T carries a Zacks Rank #3 (Hold).
Among other major regional banks, Comerica Inc. (CMA) and M&T Bank Corp. (MTB) are slated to release their third-quarter earnings results on Oct 17, while BankUnited, Inc. (BKU) is scheduled to report on Oct 23.
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