DBRS: BB&T Corporation Generated Solid 4Q13 Earnings Despite Lower Core Revenues

Summary:

• 4Q13 earnings to common shareholders of $537 million, up from $268 million for 3Q13 ($503 million excluding a $235 million one-time tax adjustment), and from $506 million for 4Q12
• Credit improvement was sustained and broad-based resulting in additional reserve releases
• DBRS rates BB&T Corporation’s Issuer & Senior debt at A (high) with a Stable trend

DBRS, Inc. (DBRS) considers BB&T Corporation’s (BB&T or the Company) 4Q13 earnings to be solid, despite spread income pressure and the anticipated decrease in mortgage banking income. Notwithstanding these pressures, the Company’s high level of revenue diversification continues to provide earnings stability. Indeed, higher QoQ earnings reflected increased levels of insurance income, investment banking and brokerage fees and commissions. Higher earnings also reflected a $31 million gain on the sale of a consumer lending subsidiary, which contributed to a modest contraction in loans for 4Q13. DBRS considers BB&T’s sustained profitability, sound and improved credit quality, and solid funding and capital profile as supportive of its rating level.

On a QoQ basis, core revenues (excluding the sale of the consumer lending subsidiary) decreased by $11 million. As with most banks, BB&T’s spread income was pressured by a narrowing net interest margin (NIM). Lower spread income also reflected a $352 million, or 1.2% (annualized), decline in average loans held for investment, as loan growth was negatively impacted by the sale of the consumer lending subsidiary (approximately $500 million in loans). Importantly, BB&T expects 1Q14 loan growth to be approximately 2.0% to 3.0%. Meanwhile, NIM narrowed by 12 bps in 4Q13, mostly attributable to the sustained run-off of the covered loan portfolio and the sale of the consumer lending subsidiary.

Asset quality, excluding covered loans continues to improve, with nonperforming assets (NPAs) and net charge-offs declining during the quarter. Moderating NPAs drove a $70 million reserve release, which benefited earnings, up from $52 million for 3Q13. Despite the continued reserve release, BB&T’s reserve coverage remains sufficient at 1.5% of loans and leases held for investment. DBRS expects asset quality to continue to improve.

BB&T’s liquidity and capital profiles remain solid. Positively, BB&T was able to build its capital metrics with its tangible common equity to tangible assets ratio increasing to 7.3% at December 31, 2013. BB&T noted that its common equity Tier 1 ratio under Basel III was approximately 9.6%.

DBRS rates BB&T Corporation Issuer & Senior debt at A (high) with a Stable trend.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]