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TheStreet Open House

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).

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 (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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