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BB&T: Worth a Look for Bank Investors

With several competitive advantages, a 3% dividend yield, and a 20% discount to our fair value estimate, now's a good time to consider investing in this narrow-moat regional bank.

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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.

Dan Werner does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.