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Tickers in this Article: BBT
BB&T Corp. (BBT) operates over 1400 branches in 11 states in the southeast and the District of Columbia. The company has also been a serial acquirer and is now the 10th largest U.S. based bank.

BB&T is more than just a commercial bank.

They have growing positions in many diversified financial services companies.

Over the past 10 years, in addition to the 30 banks and thrifts, BBT has acquired insurance brokers (57), broker/dealers (6), asset managers (4) and specialty lenders (15).

In December BBT struck once again, acquiring Coastal Financial for $395 million in stock.

This acquisition is unique for a couple of reasons.

First, the acquisition price is quite expensive at 3.5 times book value. Second, it gives BBT the top market position in the Myrtle Beach, SC market where it previously had been #5. BBT has filled a gap in its presence in a market area that is experiencing strong growth.

Finally, in many previous acquisitions, BBT has immediately gone in and closed many of the acquired branches. BBT's acquisition model is now to go in and expand its base by opening additional branches. As these branches grow and mature in these strong growth areas, BBT will be able to leverage the growing portfolio of financial services companies it has acquired.

Historically, BBT has been the low cost operator through the old acquisition model. Its operating expenses have been around 52% of revenues versus 58% for its peer group. While low expenses help earnings, BBT has slightly shifted its focus to stronger growth that should overcome the consequential slight rise in expenses.

Earnings have been growing in the mid-single digits despite the tight control on expenses. Currently, banking accounts for 83% of earnings. As the cross-selling of non-banking services, which are more profitable, continues to ramp up the growth rate may expand to 10-12%, higher than its peers.

The increase in earnings will also increase BBT's return on asset and equity. The returns have been solid as BBT has earned 1.5% on assets and 15% on equity. Current earnings estimates are for BBT to earn $3.15 in 2006 and $3.41 in 2007. Estimates for 2007 can reach $3.50 for 2007 if BBT can control net charge-offs.

Almost half of BBT's charge-offs come from its specialty lending business, even though it accounts for only 3% of total assets. Total losses from underwriting are low at 0.40% of total loans. If the standards hold, the upwards surprise on earnings could be higher.

For investors there are some additional positives. BBT pays a nice dividend as the stock yields about 3.8%, nearly twice the S&P average. As the earnings growth accelerates, institutional interest should increase. Currently institutional holdings are approximately 28%.

If the growth plan fails, there still may be salvation for investors. Late in the 4th quarter, CEO John Allison remarked that BBT will need to make a merger of equals to survive.

This is not a signal to sell as BBT may hit the skids but a nod to the competitive nature of the banking business. If the growth plan fails, BBT, in order to provide shareholders with an adequate return may have to put a for sale sign up. In fact, the CEO's comments can actually be interpreted that they already have.

BBT shares are off the radar screen for many investors and now is a good time to accumulate shares of a stock with a plan for accelerating growth and a high dividend yield.

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