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BB&T Is Still a Strong Hold

NEW YORK ( TheStreet) -- Despite what has been a clear trend of solid operational performances, there was always something gnawing at me about BB&T (BBT - Get Report).

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.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/11998363/1/is-pepsi-better-than-coke.html"><em>Is Pepsi Better Than Coke?</em></a>]

After having studied the recent earnings results from high-profile banks such as JPMorgan Chase (JPM) and Bank of America (BAC), I've taken a different perspective on BB&T. For instance, it didn't bother me as much that BB&T only posted 1% year-over-year growth in revenue. Soft revenue has been a consistent trend within the sector. Besides, the 1% increase was still enough to beat Street estimates by as much as 3%.

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 (WFC), which posted a NIM of 3.46%. It was also a pleasant surprise that BB&T's posted 7% sequential increase in adjusted income, helped by a better-than-expected performance in its fee businesses.

If you've been following my articles of late, fee income has been a struggle across each of the "big four" banks, including Citigroup (C). While the entire sector struggled with mortgage lending, as did BB&T (down roughly 7%), BB&T is finding ways to offset the sluggishness in other areas such as insurance, which generated roughly 40% to BB&T's fee income. In that regard, management deserves plenty of credit. But it wasn't all good news.
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