Although BB&T's management has a solid reputation and has been working diligently to streamline the bank's operations, I didn't believe BB&T had enough oomph to be an outperformer. Plus, it didn't help that the bank posted an 8% decline in pre-provision net revenue (PPNR) in the April quarter. PPNR is the financial sector's equivalent of operating income.
The 8% decline in PPNR told me that although progress was being made, BB&T management was under pressure to heighten more cost-cutting measures. Last but not least, the April quarter also revealed signs of struggle in both residential and commercial lending.
With these issues at hand, I didn't go out of my way to fully endorse shares of BB&T ahead of the bank's second-quarter earnings report. My recommending the stock as a "hold" turned out to be a good call. While I'm still not ready to buy this stock at these levels, I'm willing to concede that progress is being made.
After having studied the recent earnings results from high-profile banks such as JPMorgan Chase
Elsewhere, BB&T posted a net interest margin (NIM) of 3.4%. It's not a great number, especially when considering that NIM was six basis points worse than the April quarter. But on a relative basis, that number held its own against money-center giant Wells Fargo
If you've been following my articles of late, fee income has been a struggle across each of the "big four" banks, including Citigroup
My prior concern about PPNR hasn't improved. While BB&T's overall operation seems more stabilized, it's nonetheless hard to defend how badly BB&T missed. Depending on whose estimates you're following, the PPNR shortfall was as high 8 cents. This seems to be a recurring theme. I'm not going to ignore that the 5% sequential increase in expenses didn't have a hand in the PPNR miss.
This brings up an interesting situation, however, and I don't want to speak out of both sides of my mouth. I know I've been praising the likes of JPMorgan and Wells Fargo, which have executed strongly due, in part, to conservative cost-cutting measures. I've said this while offering the caveat of how difficult it is to cut expenses while still trying to grow in a competitive banking environment.
So with that in mind, I'm willing to excuse BB&T here for the rise in expenses. Nor should it be an automatic slap on the wrist any time a bank's expenses rise. What's more, it doesn't escape me that the 5% increase in expenses coincided with BB&T's 3% beat on revenue. Equally impressive was the 4% year-over-year growth in loans. It's not a breathtaking number. But it also means that BB&T is not lagging behind its peers.
Essentially, management spent more this quarter to grow sales. Like it or not, this is a situation where I'm willing to accept the good with the bad. On the more positive side, progress continues to be made in synergizing BankAtlantic, which BB&T acquired last year. So, I don't expect the bank's struggles will persist for very long.
But until then, I'm going to remain "lukewarm" about these shares, which, in my opinion are now fairly priced.
At the time of publication, the author held no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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