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Morningstar | BB&T Continues Strong Results in 3Q; Excellent Core Growth for Average Loan Balances

Narrow-moat BB&T turned in an excellent third quarter, with an adjusted return on average assets of 1.52% and adjusted return on average tangible equity of 20.33%, both slight improvements over last quarter’s results. Loan growth was exceptionally strong, with core average loans up 5.8% annualized quarter over quarter. Core net interest margins expansion continued their steady upward climb, up 3 basis points quarter over quarter. The higher asset growth, combined with deposit betas that did not move during the quarter, have BB&T outperforming our short-term expectations. The bank is still exhibiting solid expense control, and after backing out the increase because of the Regions Insurance acquisition, adjusted expenses were actually down both quarter over quarter and year over year. BB&T is now more or less back to the strong, narrow-moat-type performance we have expected. We like where the bank is headed, and after making minor adjustments throughout our model, we are maintaining our fair value estimate of $52 per share. This is 2.5 times tangible book value as of the end of the quarter.

Credit quality remained pristine all around for the bank, with key measures of asset quality and credit costs remaining range-bound. Nonperforming assets were at their lowest relative level since the second quarter of 2006. Hurricane Florence did cause a slight increase in the number of delinquent loans, but overall the effect was minor, and the theme of the year is still historically low credit costs. Average loan growth was strong across the board, for both commercial and consumer. Noninterest income growth was quite strong, at 6.3% year over year, although this was partially due to the Regions Insurance acquisition. Even so, investment banking and brokerage fees were also quite strong during the quarter.

Overall, we expect the BB&T to continue to invest in its latest round of digital initiatives, leading to better and faster lending decisions, as well as expense saving over the long term. Eventually credit costs will have to increase, but for right now BB&T is firing on all cylinders.