Southeastern-based bank and Income Investor selection AmSouth Bancorp
By every basic metric, the bank's health looks solid. Based on operating earnings, return on equity was 15.6%, return on assets was 1.6%, and the efficiency ratio was 53.8%. All three of those metrics are healthy for a bank, and either flat or a slight improvement on last year's performance (except for the efficiency ratio, which crept up slightly). Most importantly, the company's net interest margin fell from last year's 3.95% to 3.82%, but the 3.82% is flat with last quarter. The company expects to see a slow increase in its net interest margin, ending the year in the 3.85% to 3.9% range. Overall, the trend on net interest margin looks to be turning slightly positive, which bodes well for BB&T.
Another bright spot is non-interest income, up 17.7% versus last year. The biggest driver here is the company's insurance business, which generates substantial commission revenue and continues to gain market share. Backing out acquisitions, the non-interest income growth was still a healthy 15.1%.
Looking on the balance sheet (end of period), total deposit growth came in at 13.1%, but non-interest-bearing deposit growth was a bit slower at 6.1%. This isn't a huge surprise, since interest rates are up, but the more non-interest-bearing deposit growth for BB&T, the better. The company's asset quality remains strong, since non-performing assets decreased from last year and stayed flat with last quarter at 0.27%.
If I wanted to quibble, I could express disappointment in the increase in the efficiency ratio, but that's largely due to increased hiring and some stock-based compensation expense hitting in this quarter -- and that will be smaller the rest of the year. The real challenge to BB&T's success is that things are also going relatively well for other banks, including the community banks that BB&T likes to focus on as acquisition candidates. On its conference call, the company announced that it expects to close its acquisition of Main Street Banks
All things considered, I'm pretty happy with the company's reported quarter and the prospects for its next few quarters. I just wish the rest of the market wasn't so enthusiastic about the company's performance -- the stock is up more than 4% today -- but that's life. In truth, I think the shares are still reasonably valued. Today's rise in price has forced the company's dividend yield down to 3.6%, but hopefully investors will soon cool off a bit on BB&T and its performance.
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AmSouth Bancorp is a Motley Fool Income Investor recommendation.