BB&T Corporation’s (BBT - Free Report) fourth-quarter 2017 adjusted earnings of 84 cents per share outpaced the Zacks Consensus Estimate of 80 cents. The bottom line recorded 7.7% improvement from the year-ago quarter.

Results reflected a rise in revenues driven by higher rates and loan growth. However, an increase in operating expenses and higher credit costs were the undermining factors.

Results excluded merger-related and restructuring charges and adjustments related to the tax reform. After considering these, net income available to common shareholders was $614 million or 77 cents per share compared with $592 million or 74 cents per share in the prior-year quarter.

For 2017, adjusted earnings of $3.14 per share beat the Zacks Consensus Estimate of $2.77. Also, the figure was up 9.4% year over year. After considering non-recurring items, net income available to common shareholders was $2.2 billion or $2.74 per share compared with $2.2 billion or $2.77 per share in 2016.

Revenues Improve on Modest Loans & Deposits Growth

Total revenues (taxable-equivalent) for the quarter came in at $2.91 billion, up 5% year over year. The figure also outpaced the Zacks Consensus Estimate of $2.84 billion.

For 2017, total revenues (taxable equivalent basis) were up 4.8% from the prior year to $11.5 billion. The figure was marginally above the Zacks Consensus Estimate of $11.4 billion.

Tax-equivalent net interest income rose 4.7% from the prior-year quarter to $1.68 billion. Also, net interest margin expanded 11 basis points (bps) from the prior-year quarter to 3.43%.

Non-interest income increased 5.4% year over year to $1.23 billion. Rise in all fee income components except insurance income and mortgage banking fees, drove the increase.

Non-interest expenses of $1.86 billion increased 11.2% from the year-ago quarter. The increase was primarily due to a rise in personnel expenses, net merger-related and restructuring charges and professional service costs.

BB&T’s adjusted efficiency ratio came in at 57.2%, down from 58.3% in the prior-year quarter. A fall in efficiency ratio indicates rise in profitability.

As of Dec 31, 2017, total deposits were nearly $157.4 billion, up marginally from the prior quarter. Also, total loans and leases of $144.8 billion were up slightly on a sequential basis.

Credit Quality Improved

As of Dec 31, 2017, total non-performing assets (NPAs) were $627 million, down 22.9% year over year. As a percentage of total assets, NPAs came in at 0.28%, down 9 bps year over year.

Also, during the quarter, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, on par with the prior-year quarter. Further, net charge-offs were 0.36% of average loans and leases, down 6 bps year over year.

However, provision for credit losses was $138 million at the end of the quarter, reflecting a 7% increase on a year-over-year basis.

Profitability Ratios Strong, Capital Ratios Weaken

At the end of the reported quarter, return on average assets was 1.19%, up from 1.16% in the prior-year quarter. Return on average common equity improved to 9.10% from 8.75% as of Dec 31, 2016.

As of Dec 31, 2017, Tier 1 risk-based capital ratio was 11.8%, down from 12.0% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.0% as of Dec 31, 2017, down from 10.2% as of Dec 31, 2016.

Share Repurchases

During the reported quarter, BB&T repurchased $373 million worth shares through open-market purchases.

Our Take

BB&T remains well positioned for revenue growth through strategic acquisitions. These efforts will also support bottom-line growth in the near term. Also, expected growth in loans, along with an improving rate scenario, is likely to propel its organic growth trajectory in the quarters ahead. However, such acquisitions are expected to keep costs toward the higher end, which might hurt profitability to some extent.

BB&T Corporation Price, Consensus and EPS Surprise

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Currently, BB&T carries a Zacks Rank #2 (Buy). 

Performance of Other Major Banks

Riding on higher revenues, The PNC Financial Services Group, Inc. (PNC - Free Report) reported a positive earnings surprise of 4.1% in fourth-quarter 2017. Adjusted earnings per share of $2.29 beat the Zacks Consensus Estimate of $2.20. Continued easing of pressure on net interest margin supported the company’s higher net interest income during the quarter. Also, non-interest income witnessed year-over-year growth. However, higher expenses hurt results to some extent.

Comerica Inc. (CMA - Free Report) pulled off a positive earnings surprise of 5.8% in fourth-quarter 2017. Adjusted earnings per share of $1.28 surpassed the Zacks Consensus Estimate of $1.21. Results reflected an increase in revenues supported by easing margin pressure and higher fee income. However, higher expenses and a fall in loans balance remained major headwinds.

U.S. Bancorp’s (USB - Free Report) fourth-quarter 2017 adjusted earnings per share of 88 cents surpassed the Zacks Consensus Estimate by a penny. Easing margin pressure on rising rates was witnessed in the quarter. Moreover, revenues improved on a year-over-year basis aided by rise in net interest income. Further, elevated average loans and deposit balances were tailwinds. However, escalating expenses and lower mortgage banking revenues were major drags.