BB&T Corporation (BBT), JPMorgan Chase & Co. (JPM): This Great Bank Needs To Focus on Its Strengths

BB&T continues to outperform their competition when it comes to non-performing loans. Wells Fargo & Co (NYSE:WFC) gets a lot of positive press about its lending operations, but with a non-performing loan percentage of 2.44%, Wells Fargo & Co (NYSE:WFC)’s comes in dead last. JPMorgan Chase & Co. (NYSE:JPM) is doing much better with a 1.6% ratio, and U.S. Bancorp scores even better with a ratio of just 1.35%. However, none of these companies can match BB&T at just 1.12%. In addition, BB&T’s total dollar value of non-performing loans decreased by more than 37%, a faster decrease than any of their peers.

BB&T’s small non-performing loan percentage is made even more impressive by the fact that they have set aside enough to cover 130% of these problem assets. If the bank’s problem loans continue to decline, they may be able to release even more of this reserve, which would add to earnings.

There are still two problems

The two issues I’ve noticed with the bank are fairly easy to see, and very easy to fix. The problem is, I don’t know if management wants to address these problems.

First, BB&T has been pushing hard for its lenders to get business loans. Not only are the dedicated business lender’s goals increasing, but traditional retail lenders are being given business-related loan goals as well. There are two big problems with this idea. The first is retail loans and traditional mortgage loans are growing faster than commercial loans. In the current quarter, retail loans grew by 7.1% and mortgage grew by 12.2%. By comparison, commercial loans grew by 3.88%.

The second part of this problem is, retail loans and mortgage loans carry much better yields than commercial loans. The bank’s average yield on commercial loans is about 3.8%. By comparison, BB&T’s mortgage loans yield 4.26% and retail loans yield 4.72%. When loans are growing faster and have better yields, you put your focus on that segment.

The second issue is more of an accounting question. BB&T has $28 billion in securities that are currently yielding 50% less than the company’s long-term debt cost. I’m not sure why the bank feels it’s a good idea to carry long-term debt, and then have these securities paying a yield of half as much.

The bottom line is, BB&T can make a lot of money for investors by just being a good old fashioned traditional bank. However, if management pushes employees toward loans that aren’t as profitable, and can’t manage the balance sheet appropriately, the stock could be held back. If you want to keep up with developments at BB&T, consider adding the symbol BBT to your personalized Watchlist today.

The article This Great Bank Needs To Focus on Its Strengths originally appeared on Fool.com and is written by Chad Henage.