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5 Regional Banks to Watch Heading Into Earnings (Update 2)


Shares of BB&T (BBT) of Winston-Salem, N.C., closed at $31.39 Thursday, returning 9% during the first quarter, following a 19% return during 2012. The shares trade for twice tangible book value and for 10 times the consensus 2014 EPS estimate of $3.13. The consensus 2013 EPS estimate is $2.91.

Based on a quarterly payout of 23 cents, the shares have a dividend yield of 2.93%.

BB&T was dealt a sore blow on March 14, when the Federal Reserve announced it had rejected the bank's 2013 capital plan, based on "a qualitative assessment." Guggenheim Securities analyst Marty Mosby said in an interview on March 15 that "we believe BBT was penalized for requesting a dividend payout in excess of 30% of earnings. The Fed had warned banks that any requests that exceeded 30% of earnings on dividends or 100% of earnings in total capital distributions would receive increased scrutiny and they backed up this warning by making BBT this year's example."

"This was a surprise, since BBT passed the quantitative part of CCAR with a 7.8% post stress loss capital ratio and had sailed through previous reviews," Mosby said, adding that "BBT is not approved to execute any incremental capital distributions, including merger & acquisition requests," until it's revised capital plan is approved. BB&T will submit the revised plan by the end of the third quarter.

Despite the disappointment of having its capital plan rejected, BB&T has been one of the strongest among the large regional banks in the aftermath of the credit crisis. The company's return on tangible common equity has ranged from 8.22% to 20.45% over the past five years, according to Thomson Reuters Bank Insight.

BB&T will announce its first-quarter results on April 18, with analysts expecting the company to post EPS of 67 cents, declining from 71 cents in the fourth quarter, but increasing from 61 cents in the first quarter of 2012.

Excluding roughly 29 cents a share in "lumpy items," O'Connor estimates BB&T's first-quarter earnings will come to 70 cents a share.

"We expect core expenses to be down 3.6% with lower loan processing, professional services and foreclosed property expenses (we est -11% and -17%, and -12%, respectively)," O'Connor wrote. BB&T is also expected to see continued pressure on its net interest margin, in line with other regional banks, and O'Connor expects "reported noninterest income to be down 4.5% un-annualized q/q with seasonally lower insurance (we est -3.5% q/q), lower mortgage (we est -20%), seasonally lower service charge revenue, and other income flattish," according to the analyst's March 22 report.

BBT Chart BBT data by YCharts

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.
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