The Best Big Bank
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've written in the past that BB&T Corp. (NYSE: BBT) doesn't get enough respect. Looking at the company's most recent earnings report, I can honestly say this might be the best big bank. I've already looked at the earnings of competitors such as Wells Fargo (NYSE: WFC) SunTrust (NYSE: STI) and JPMorgan Chase (NYSE: JPM) and none of these companies can compare to BB&T. If investors are looking for exposure to the banking sector, this bank should be on the top of their list.
BB&T did everything investors could have asked in the last quarter. Net revenues increased 21%, EPS increased 64%, and virtually every subcategory showed growth. While revenues were helped by the acquisition of the insurance divisions of Crump, this did not account for the total increase. You can see from the company's individual units that the bank is doing everything right.
Based on these Numbers Everyone Banks at BB&T
In looking at multiple banks' earnings reports, I have yet to come across one that can match BB&T's growth in deposits. For instance, Wells Fargo and JPMorgan Chase both saw average deposit growth of about 8%. Another local competitor to BB&T is SunTrust, which saw overall deposits remain flat on a year-over-year basis. BB&T, on the other hand, saw total deposits grow 17.7% year-over-year.
Impressively, the growth was spread across all deposit categories. Non-interest checking accounts, which are any bank's cheapest funding source, increased by 24.8%. The company said that about half of this increase was due to commercial accounts. Interest checking was also led by commercial deposits and increased 8.6%. Clients also brought more of their savings to BB&T, as money market and savings accounts increased 18.2%, and CD balances increased more than 20%.
It's clear that with the challenges in the economy, customers are choosing to put their money in the strongest bank they can find. With BB&T having won multiple awards for client service and the bank being recognized as one of the strongest financial institutions in the world, this reputation has become a differentiating factor for the company.
The Bank is Lending to Everyone, Too
As if BB&T's deposit growth were not impressive enough, the bank is also killing it when it comes to lending. Average loans increased 6.3% and among the different categories, only one saw a decrease on a year-over-year basis. While the company has some work to do to match Wells Fargo in the commercial lending area, the company increased this type of loan by 7.9% versus Wells Fargo's increase of 11%. Echoing a trend that I've seen play out at both Wells Fargo and JP Morgan, commercial real estate lending was down by 6.3%. Other categories that saw significant increases were: home equity lending up 10.4%, sales finance up 7%, credit card up 5.2%, and other lending up 16.7%.
The most impressive lending results were turned in by the company's residential mortgage unit, which showed an increase of 20.8%. This is particularly impressive when you consider that Wells Fargo increased originations by just 1.55% and BB&T produced nearly double the mortgage revenue of competitor SunTrust. This strong lending performance helped the company drive a 7% increase in net interest income. Between loans and deposits, the company managed a 3.95% net interest margin, which compared favorably to JPMorgan's margin of 2.36%, and Wells Fargo's margin of 3.91%.
The Company's Credit Quality is Excellent, Too
While most banks have seen an improvement in their credit quality over the last year, BB&T stands among the best in this category as well. The company's provision for credit losses dropped 17.3% and nonperforming assets were down over 43% year-over-year. With nonperforming loans at just 1.5% of total loans, the company is in a different league versus competitors like Wells Fargo showing non-performers at over 3%. While the company's credit quality is excellent, the bank is still maintaining a 121% ratio of provision for loan losses versus nonperforming assets.
The Balance Sheet is Stellar as Well
With BB&T showing loan and deposit growth and excellent credit quality, it should be no surprise that the company's balance sheet improved as well. The company showed an increase of 17.5% in their cash balances year-over-year. Securities available for sale increased 29.2% and securities held to maturity increased by 47.1%. Last but not least, the company cut its long-term debt by 3.5%.
As you can see, BB&T stands in a class of its own. What is amazing is in the last five days in the market, the company's stock has essentially gone nowhere on the back of this unbelievably positive earnings report. With the stock selling for a forward P/E ratio of 11.78 and with expected growth of nearly 13% going forward, investors need to take a hard look at the value that BB&T offers. The company's current dividend yield of about 2.5%, and the fact that prior to the financial crisis, the company increased its dividend for over 30 straight years, are just two additional reasons to consider the stock. BB&T is one of the largest banks in the country but gets no attention compared to its more well known competition. However, if the company continues reporting earnings like this, everyone will know this bank's name.
MHenage owns shares of JPMorgan Chase & Co. The Motley Fool owns shares of JPMorgan Chase & Co. and Wells Fargo & Company and has the following options: short APR 2012 $21.00 puts on Wells Fargo & Company, short APR 2012 $29.00 calls on Wells Fargo & Company, short OCT 2012 $33.00 puts on Wells Fargo & Company, and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.