Dan Werner: BB&T (BBT) is a $190 billion bank located in 16 states throughout the southeastern United States. Much like the other U.S. banks that we like, it has a high fee-revenue component, which mutes the impact of lower asset yields on loans and securities. With 40% of its revenue from fee-based sources, largely due to insurance operations, we think BB&T will fare better during this period of persistently low interest rates.
In terms of BB&T's moat, we think it has several cost advantages. With non-interest-bearing deposits representing 30% of total deposits, it has a low-cost funding. With an asset-sensitive balance sheet, any increase in rates will be positive for the bank going forward. Historically, BB&T has had low credit costs, with net charge-offs well below peer during the crisis, and still possesses strong credit quality today with lower nonperforming loans. It operates with a lower efficiency ratio, below 60%--all of which has led to a mid-double-digit tangible return on equity, which is 2.5 percentage points better than peers.
In the last year, BB&T has been a very active acquisitor as most regional banks have focused on organic growth. With the recent purchases of former Citigroup branches in Texas, the Bank of Kentucky, and Susquehanna Bancshares, these acquisitions have added $23 billion in assets in contiguous markets working to cross-sell a variety of products and services. Most recently, they announced the acquisition of National Penn Bancshares, a $9.6 billion bank in Eastern Pennsylvania, which includes very attractive markets around Philadelphia, giving it a top-four market share in the state of Pennsylvania.
With a 3% dividend yield and a 20% discount to our fair value estimate, we think that now is a good time for bank investors to consider BB&T for their portfolios.