Higher Rates, Fee Income to Support BB&T's (BBT) Q1 Earnings

BB&T Corporation BBT is slated to announce first-quarter 2019 results on Apr 18, before market open. Per the Fed’s latest data, commercial and industrial loans (accounting for nearly 40% of the company’s total loans and leases) recorded substantial growth, with the quarter witnessing slight improvement in overall lending activities.

BB&T anticipates average total loans held for investment to be up 1-3% sequentially in the to-be-reported quarter. Driven by decent loan growth, earning assets are likely to rise too. The Zacks Consensus Estimate for average interest earning assets of $1.98 trillion indicates a marginal rise sequentially.

Also, management expects GAAP net interest margin to remain stable and core NIM to improve slightly from fourth-quarter 2018. However, flattening of yield curve and rise in deposit betas are expected to hurt net interest income (NII) growth, while relatively rates and loan growth will offer some support. The Zacks Consensus Estimate for NII of $1.68 billion reflects 1.3% decline from the prior quarter.

Now, let’s check out some of the other factors that are likely to influence BB&T’s results:

Fee income to provide modest support: BB&T is expected to witness an improvement in insurance income in the to-be-reported quarter. The Zacks Consensus Estimate for insurance commission of $503 million shows 3.3% increase on a sequential basis. The rise likely to be driven by acquisition of Regions Insurance Group in third-quarter 2018.

Also, bankcard fees and merchant discounts are estimated to be $74 million, stable sequentially.

However, BB&T is likely to register a fall in service charge on deposits. The consensus estimate for service charge on deposits is $177 million, down 4.3% from the prior quarter.

Additionally, higher interest rates and government shutdown during the quarter will likely result in a fall in refinancing activity and mortgage originations. Thus, the Zacks Consensus Estimate for mortgage banking income of $83 million is down 3.5% sequentially.

Also, investment banking, and brokerage fees and commissions are not likely to support fee income growth. The consensus estimate for the same is $115 million, reflecting a decline of 17.3% from the fourth quarter.

Overall, total non-interest income is projected to grow marginally from the prior quarter as the consensus estimate for the to-be-reported quarter is pegged at $1.24 billion.

Also, management expects non-interest income in the first quarter to increase 3.5% year over year.

Expenses to rise: Excluding merger-related and restructuring charges, and other one-time items, BB&T expects expenses to increase 1-3% year over year.

Asset quality might not be of much support: BB&T expects loan loss provision to match net charge-offs (NCOs) in addition to providing for loan growth. Further, management expects NCO rates to increase sequentially to the range of 35-45 basis points on the assumption of no deterioration in the economy.

The Zacks Consensus Estimate for non-performing assets of $585 million is on par with the prior quarter.

Other major development: In February, BB&T and SunTrust Banks STI announced a merger deal, which will lead to creation of the sixth largest commercial bank in the United States (in terms of assets and deposits). The all-stock deal, termed as “mergers of equals,” is valued at $66 billion. (Read more: Blockbuster Merger: BB&T, SunTrust to Create 6th Biggest US Bank)

Here is what our quantitative model predicts:

The chances of BB&T beating the Zacks Consensus Estimate this time are high as it has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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.

Earnings ESP: The Earnings ESP for BB&T is +0.32%.

Zacks Rank: BB&T carries a Zacks Rank #3, which increases the predictive power of ESP.

BB&T Corporation Price and EPS Surprise