BB&T: A Regional Favorite

03/16/2016 8:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

One of our long-time favorite regional banks, this Winston-Salem, NC-based banking firm has a history dating back to the Civil War, observes Jason Clark in The Prudent Speculator.

BB&T (BBT) now operates 2,139 financial centers in 15 states and is the 9th largest domestic bank by deposits and 6th largest by number of branches.

We like management’s wise decision to increase its provision for potential loan losses as the continued difficulty in the energy patch puts pressure on some loans. That said, BBT said that its oil and gas portfolio is currently just 1% of total loans.

Additionally, BB&T said that its overall credit quality continued to be strong and that its capital and liquidity strength was solid.

We note that BB&T’s history of relatively conservative loan underwriting helped the firm avoid catastrophic losses during the financial crisis and we believe should continue to help it avoid significant future losses.

Indeed, BB&T was one of the few US regional banks that endured the financial crisis without a single quarterly loss.

Given its history of lucrative deal-making, we have been pleased to see BB&T complete acquisitions of 41 branches in Texas from Citigroup (C), and the purchase of Bank of Kentucky (BKYF) and Susquehanna (SUSQ).

Bancshares also announced that it would buy National Penn Bancshares (NPBC) in order to further expand its footprint in the Mid-Atlantic area. The bank expects to close this acquisition on April 1.

In addition to its traditional lending businesses, we like the bank's ability to generate fee revenue, via its insurance operations, mortgage banking, investment banking and brokerage operations.

We think all of these businesses could realize improved revenue with a strengthened economy while helping to minimize the impact of low interest rates on asset yields in its lending business.

We believe that BBT’s current valuation is attractive. BBT trades with a forward earnings multiple of 11.5 and offers a 3.1% yield. Our current target price for BBT shares is $47.

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