If most people think about North Carolina at all, it's usually in the context of the country's best barbecue or best college basketball (as much as it pains a Georgetown alum like me to admit that). What most people don't associate with North Carolina is banking, yet three of the country's largest banks -- Bank of America (NYSE: BAC), Wachovia (NYSE: WB), and BB&T (NYSE: BBT) -- call the Tar Heel State home.
The smallest of the three, BB&T, is the subject of today's piece since it reported earnings on Wednesday morning.
Net income climbed more than 20% for the first quarter as the company saw year-over-year growth in its mortgage and fee-based business and achieved better expense control. On a "cash basis" (an accounting treatment that removes amortization and nonrecurring items), the company reported $0.75 in earnings, up 17% from the prior year.
Sequentially, though, the picture wasn't quite as rosy. Fee revenue was weak, and the company's efficiency ratio climbed from the level seen in December. As a reminder, for a bank a higher efficiency ratio is bad, since it means non-interest expenses are rising.
Not surprisingly, the company's net interest margin was also down for the quarter, coming in a bit under 4%. Although a declining net interest margin is never really a good thing, BB&T management deserves some kudos for better-positioning its company than some other banking executives, as BB&T's net interest margin has held up better than many rivals'.
While analysts and investors found various nits to pick in the March quarter -- sequentially higher expenses but lower fee income, lower net interest margin and so on -- I'm a bit more sanguine. After all, BB&T is a company that has managed to pay a dividend every year since 1903 and has raised that dividend for 33 consecutive years. So it's going to take more than one less-than-perfect quarter for me to turn sour on its future prospects.
I personally happen to believe that those future prospects are pretty good. While mortgages are important to BB&T, commercial and retail loans are also a big part of the business -- a circumstance that should help shield the company from any possible slowdown in the mortgage market.
BB&T sports a pretty respectable return on assets and return on equity, a good dividend (yielding about 3.6% at present), and a reasonable valuation. Although the banking sector probably won't be too popular so long as net interest margins continue to be compressed, investors looking for a solid banking stock for the long term should probably do their due diligence on BB&T.
For more on banking, check out these other Foolish takes:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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