BB&T (BBT) Up 5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for BB&T (BBT). Shares have added about 5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BB&T due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

BB&T's Q4 Earnings Beat on Higher Revenues, Costs Down

BB&T Corporation’s fourth-quarter 2018 adjusted earnings of $1.05 per share surpassed the Zacks Consensus Estimate of $1.04. The figure also represents 25% growth from the year-ago tally.

Results reflect increased revenues and lower costs. Loans and deposit balances improved during the quarter. However, higher provisions curbed the company’s bottom-line growth.

Results excluded merger-related and restructuring charges. After considering these, net income available to common shareholders for the reported quarter was $754 million or 97 cents per share, up from $614 million or 77 cents per share in the prior-year quarter.

Adjusted earnings per share for 2018 came in at $4.05, up 30% from the prior year. The figure also outpaced the Zacks Consensus Estimate of $3.99. Net income was $306.3 million or $3.91 per share compared with $222 million or $2.74 per share recorded in 2017.

Revenues Grow, Expenses Decline

Total revenues came in at $2.94 billion, up 2.5% year over year. However, the figure marginally lagged the Zacks Consensus Estimate of $2.95 billion.

Total revenues for 2018 were $11.55 billion, up 2.1% year over year. However, the figure marginally lagged the Zacks Consensus Estimate of $11.57 billion.

Tax-equivalent net interest income increased 2.8% from the prior-year quarter to $1.73 billion. Net interest margin expanded 6 basis points (bps) from the prior-year quarter to 3.49%.

Non-interest income inched up nearly 1% year over year to $1.24 billion. The upside stemmed from increase in almost all components of fee revenues except mortgage banking income, income from bank-owned life insurance and other income.

Non-interest expenses came in at $1.78 billion, down 4% from the year-ago quarter. The decrease was due to a fall in almost all components of expenses, except personnel expenses, software expenses and professional services costs, merger-related and restructuring charges, and net professional services.

BB&T’s adjusted efficiency ratio was 56.5%, down from 57.2% in the year-ago quarter. A fall in efficiency ratio indicates rise in profitability.

As of Dec 31, 2018, average deposits were nearly $157.8 billion, up 1.4% from the third quarter. Total loans and leases of $147.5 billion were up 3.6% from the prior-quarter end.

Credit Quality: A Mixed Bag

As of Dec 31, 2018, total non-performing assets (NPAs) were $585 million, down 6.7% year over year. As a percentage of total assets, NPAs came in at 0.26%, down 2 bps.

Further, net charge-offs were 0.38% of average loans and leases, up 2 bps year over year.

However, the allowance for loan and lease losses was 1.05% of total loans and leases held for investment, up 1 basis point from the year-earlier quarter. Additionally, provision for credit losses increased 7.4% year over year to $146 million.

Profitability Ratios Improve, Capital Ratios Decline

At the end of the quarter, return on average assets was 1.43%, up from 1.19% in the prior-year quarter. Return on average common equity improved to 11.14% from 9.10% as of Dec 31, 2017.

As of Dec 31, 2018, Tier 1 risk-based capital ratio was 11.8%, down from 11.9% recorded in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.2% as of Dec 31, 2018, in line with Dec 31, 2017.

Share Repurchases

During the quarter under review, BB&T repurchased shares worth $375 million.



Outlook

First-Quarter 2019

On a sequential basis, management projects NIM on GAAP basis to remain stable, while core NIM will increase slightly.

Non-interest income is expected to increase 3-5% year over year. Average total loans held for investment will likely be up 1-3% sequentially.

Excluding merger-related and restructuring charges, and other one-time items, expenses are expected to rise 1-3% year over year.

Management expects effective tax rate of 20-21%.

Management projects NCOs to increase sequentially and be 35-45 bps range on the assumption that there is no deterioration in the economy. Also, loan loss provisions are expected to match NCOs, in addition to providing for loan growth.

The company intends to repurchase shares worth $425 million.

2019

Total average loans are projected to rise in the range of 2-4%.

Management expects revenues (tax-equivalent basis) to grow in the 2-4% range.

Moreover, operating expenses are estimated to remain stable.

Management projects NCOs to be 30-50 bps range on the assumption that there is no deterioration in the economy.

Effective tax rate is projected to be 20-21% range.