EUR 850.00 For Business Accounts Only

Morningstar | Solid End to 2018 for BB&T, We See Much of the Same in 2019. See Updated Analyst Note from 17 Jan 2019

Narrow-moat BB&T turned in a good fourth quarter to cap off an excellent 2018 for the bank. Adjusted return on average assets was 1.53% while adjusted return on average tangible equity was 20.41%, both roughly on par with last quarter’s results. Earnings per share were $0.97 for the quarter and $3.91 for full-year results, up 26% and 43% over last year’s results, respectively. Loan growth was strong again, with average loans up 3.4% from fourth-quarter 2018 compared with fourth-quarter of 2017. Core net interest margins continued to expand, up 3 basis points compared with third-quarter results, and the bank remains asset sensitive. The bank is still exhibiting solid expense control, with adjusted expenses in the quarter roughly flat year over year. BB&T is now more or less back to the strong, narrow-moat type of operating efficiency we have expected. Further, the bank is achieving this while ramping up investments in technology and other organizational changes. After making minor adjustments throughout our model, we are maintaining our fair value estimate of $52 per share. This is 2.4 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 before the crisis. Noninterest income growth was okay for full-year results, up 2% year over year, although this was partially aided by the Regions Insurance acquisition. However, within these numbers were some good signs. The bank continues to make excellent progress within its investment banking and brokerage operations, hitting all-time highs for fee income within this segment. BB&T is also seeing strong bankcard fee growth, as well as strong growth within its revolving credit portfolio, good signs for the strength of the bank’s retail operations.

Management reiterated the full-year guidance it gave at the firm's investor day in 2018 and even remarked that it is better positioned from a loan growth perspective than it has been in roughly a decade. This was a positive sign for the overall health that the bank is seeing in the “main street” economy. 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.

For our recent analysis of deposit costs and net interest margins, please see our December 2018 Financial Services Observer, "The Return of the Bank: Net Interest Margins Reach a Turning Point."