As fellow Fool Nate Parmelee recently related to me, many investors don't pay much attention to the banking sector because it's so boring. But to me, boring can often spell opportunity in the stock market.
No doubt about it--if banks are boring, BB&T (NYSE:BBT) is no exception. Operating earnings increased about 3% for the second quarter, although some one-time lease adjustments pushed the net income lower on a year-over-year basis. Both the annualized return on assets and annualized return on equity declined modestly in the quarter, although both numbers are still at respectable levels.
Looking through the business, loan growth was pretty solid in the quarter. Commercial loans continue to grow at a high single-digit clip, and mortgage lending is also still fairly solid. Of note, the bank saw some acceleration in the second quarter, which may bode well for the rest of the year.
Expenses and asset quality both remain solid. The company's efficiency ratio was basically steady, and the company also reported a decrease in non-performing assets (Bankspeak for bad loans).
What's more, there was strength in the fee and non-banking business as well. Overall non-interest income climbed about 4%, but that figure jumps to over 13% when declines in mortgage banking revenue are removed. Banking and brokerage fees climbed 27%, insurance commissions grew over 10%, and trust revenue was up over 16%.
On the mortgage side, reported revenues were down, but that has more to do with accounting rules than with any meaningful deterioration in the business. BB&T management continues to sound optimistic on the mortgage business. While acknowledging overheated conditions in a handful of markets, they didn't seem terribly concerned and reiterated their focus on avoiding what they called "dumb loans" in the mortgage business.
I can't argue with Nate that banking, on the whole, is sort of a sleepy business. There are no gee-whiz gadgets or gaudy presentations to delight the senses. But when it's done well, it's very lucrative, and I find that decidedly interesting.
BB&T has been at this for over a hundred years and is still going strong. Not only has the company preserved its interest margin better than most, but the company appears to be about to embark on further acquisitions that should grow the business. Couple a solid growth and execution record with a dividend yield of above 3%, and this might be an interesting idea for investors who don't mind a good boring stock or two.
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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).
