Can Loan Growth & Insurance Fees Aid BB&T (BBT) Q1 Earnings?

BB&T Corporation (NYSE:BBT) is scheduled to report first-quarter 2018 results on Apr 19, before the market opens. Per the Fed’s latest data, commercial and industrial loans recorded solid growth on a sequential basis, though the quarter witnessed an overall modest improvement in lending activities.

In fact, BB&T expects total average loans, on an annualized basis, to grow 1-3% sequentially in the to-be-reported quarter. Driven by loan growth, earning assets are likely to rise too. The Zacks Consensus Estimate for average interest earning assets of $1.96 trillion for the first quarter indicates an increase of 1.5% sequentially.

Nonetheless, despite a higher rate environment, management expects GAAP net interest margin (NIM) to be down 1-3 basis points (bps) on a sequential basis. Notably, core NIM is expected to be stable, attributable to the adjustment on tax exempt assets from the new corporate tax rate change.

Thus, BB&T’s net interest income (NII), one of the primary sources of revenues, is not likely to aid earnings growth. The Zacks Consensus Estimate for NII of $1.62 billion for the to-be-reported quarter reflects 1.6% decline on a sequential basis.

Now, let’s check out other factors that are likely to influence BB&T’s Q1 performance:

Dismal fee income performance: Refinancing boom is nearing its end and higher interest rates are leading to a decline in mortgage originations. In fact, the Zacks Consensus Estimate for mortgage banking income of $94 million reflects a fall of 9.6% sequentially.

Also, despite rising deposit balances, the company is not expected to register an increase in service charge on deposits. Notably, the consensus estimate for service charge on deposits is $173 million, down 5.5% from the prior quarter.

However, BB&T is expected to register higher insurance income in the to-be-reported quarter. The consensus estimate for insurance fees of $462 million reflects 10.5% increase from the prior quarter.

Overall, total non-interest income is projected to witness a 2.4% fall as the Zacks Consensus Estimate for the to-be-reported quarter is $1.20 billion.

Stable expenses: Excluding merger-related and restructuring charges, BB&T expects expenses in the first quarter to remain flat on a year-over-year basis.

Asset quality is not 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 NCOs rates to increase sequentially and be in the range of 35-45 bps on the assumption of no deterioration in the economy.

The Zacks Consensus Estimate for non-performing assets of $634 million for the to-be-reported quarter shows 1.1% increase on a sequential basis.

Here is what our quantitative model predicts:

According to our quantitative model, chances of BB&T beating the Zacks Consensus Estimate in the first 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 +1.63%.

Zacks Rank: BB&T carries a Zacks Rank #3.

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 92 cents, which reflects year-over-year improvement of 24.3%. Also, the estimates have witnessed upward revision of 1.1% over the last 30 days.

The Zacks Consensus Estimate for sales of $2.83 billion indicates 1.7% growth from the prior-year quarter.

Other Stocks That Warrant a Look

Here are a few other bank 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.

U.S. Bancorp (NYSE:USB) has an Earnings ESP of +0.96% and carries a Zacks Rank of 3. It is scheduled to report results on Apr 18.

The Bank of New York Mellon Corporation (NYSE:BK) is slated to release first-quarter results on Apr 19. It has an Earnings ESP of +0.21% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Associated Banc-Corp (NYSE:ASB) is slated to report results on Apr 19. It has an Earnings ESP of +0.41% and carries a Zacks Rank #3.

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