Will Low Rates, Muted Lending Hurt BB&T's (BBT) Q3 Earnings?

BB&T Corporation (NYSE:BBT) is slated to announce third-quarter 2019 results on Oct 17, before the market opens. Per the Fed’s latest data, commercial and industrial loans (accounting for roughly 40% of the company’s total loans and leases) recorded muted growth in the third quarter, with the quarter not witnessing much improvement in overall lending activities.

BB&T anticipates average total loans held for investment (including the sale of residential mortgage loans) to have been down 4-6% sequentially (on an annualized basis) in the to-be-reported quarter. However, excluding the mortgage sale, average total loans held for investment are projected to have grown 4-6% sequentially.

Thus, driven by soft loan growth, earning assets in the to-be-reported quarter are likely to have risen too. The Zacks Consensus Estimate for average interest earning assets of $2.03 trillion suggests nearly 1.1% rise from the prior quarter’s reported figure.

However, decline in interest rates (two rate cuts in July and September) and flattening of the yield curve along with rising deposit betas are likely to have hurt BB&T’s net interest margin (NIM) in the third quarter. On a sequential basis, management expects GAAP and core NIM to have declined 4-8 basis points.

Moreover, the company anticipates net interest income (NII) to have been down marginally compared with the prior quarter. The Zacks Consensus Estimate for NII of $1.68 billion indicates a marginal decline from the prior quarter’s reported number.

Now, let’s check out some of the other factors that are likely to have influenced BB&T’s results in the third quarter:

Fee income to not provide much support: BB&T is expected to have witnessed a fall in insurance income in the to-be-reported quarter. The company anticipates insurance revenues to have declined 15-16% sequentially due to seasonality. In fact, the Zacks Consensus Estimate for insurance commission is pegged at $496 million, which indicates a decline of 12.4% sequentially.

Also, the consensus estimate for bankcard fees and merchant discounts is pegged at $76 million, suggesting a 1.3% decline from the prior quarter’s reported figure.

Further, while lower mortgage rates are expected to have led to an increase in refinancing activity in the third quarter, overall mortgage revenues are not likely to have increased significantly. The Zacks Consensus Estimate for mortgage banking income is pegged at $106 million, indicating a decline of 6.2% from the prior quarter’s reported figure.

Moreover, investment banking, and brokerage fees and commissions are not likely to have provided much support to overall fee income growth in the third quarter. The consensus estimate for the same is pegged at $123 million, indicating a decline of 6.1% from the second quarter’s reported figure.

However, BB&T is likely to have registered rise in service charge on deposits, as deposit balances are expected to have increased. The consensus estimate for service charge on deposits is pegged at $184 million, indicating 1.7% rise from the prior quarter’s reported number.

Thus, due to an anticipated decline in most of the components of fee income, total non-interest income is likely to have declined in the third quarter. The consensus estimate for the same is pegged at $1.30 billion, indicating a 4.2% decline from the prior quarter’s reported figure.

Expenses to rise marginally: Due to an increase in personnel expenses and BB&T’s efforts to improve digitization, overall costs have remained elevated over the past few quarters. In fact, as the company continues with its acquisitions and subsequent integrations along with branch consolidation efforts, costs are likely to have risen modestly in the third quarter.

Asset quality to remain strong: BB&T expects loan loss provisions to match net charge-offs (NCOs) in addition to providing for loan growth. Further, management expects NCO rates to have increased sequentially to 35-45 basis points on the assumption of no deterioration in the economy.

The Zacks Consensus Estimate for non-performing assets of $519 million indicates a decline of nearly 1% from the prior quarter’s reported figure.

Here is what our quantitative model predicts:

The chances of BB&T beating the Zacks Consensus Estimate this time are low as it does not have the right combination of the 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 -1.27%.

Zacks Rank: BB&T currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need a positive ESP to be sure of an earnings beat.

Notably, the Zacks Consensus Estimate for the company’s earnings for the third quarter is pegged at $1.03, which suggests no change from the year-ago quarter’s reported number. The consensus estimate for sales is pegged at $2.97 billion, which indicates 1.5% year-over-year growth.

Stocks That Warrant a Look

Here are a few finance 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.

Sallie Mae (NASDAQ:SLM) has an Earnings ESP of +24.09% and a Zacks Rank #3 at present. The company is slated to release results on Oct 23.

Federated Investors, Inc (NYSE:FII) is slated to release results on Oct 24. It currently has an Earnings ESP of +0.76% and a Zacks Rank #3.

T. Rowe Price Group, Inc (NASDAQ:TROW) is also expected to release results on Oct 24. It presently has an Earnings ESP of +0.11% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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