DBRS Confirms BB&T Corporation’s Senior Debt at A (high); Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings of BB&T Corporation (BB&T or the Company), including its Issuer & Senior Debt rating of A (high) and Short-Term Instruments rating of R-1 (low). These ratings remain on Stable trend. At the same time, DBRS took additional rating actions which are specified in the attached rating table. The rating actions follow a detailed review of the Company’s operating performance, financial fundamentals, and future prospects.

The ratings confirmation and Stable trend reflect BB&T’s well established, super-regional banking franchise, which is underscored by the sixth largest branch network in the United States, the Company’s sound and improving asset quality, solid funding and liquidity positions, and healthy capital profile. Ratings also consider BB&T’s pressured core earnings generation capacity.

Underpinning BB&T’s ratings is its large, well-entrenched community banking franchise led by a conservative and well-seasoned management team. The Company, with a footprint located across the Mid-Atlantic and Southeastern states, Texas, and the District of Columbia maintains a strong and defensible deposit franchise, holding a top five market position in seven of the twelve states that it serves. Importantly, the franchise maintains a robust business mix, which provides revenue diversification and some stability to earnings. The Company continues to grow its franchise through organic and acquisition means. Most recently, the Company announced its intent to acquire the $1.9 billion in assets, The Bank of Kentucky Financial Corporation, which would deepen its presence in the state of Kentucky. Moreover, BB&T announced its intent to acquire 41 Texas-based branches from CitiGroup, Inc., which on a pro forma basis, would bring its total Texas branch count to 123 branches.

As with most banks, BB&T’s core earnings generation remains pressured by the difficult operating environment. For 1H14, the Company’s adjusted income before provisions and taxes decreased by approximately 12%, YoY. Specifically, adjusted revenues declined 6% driven by lower mortgage banking income and continued net interest margin pressure, which narrowed by 26 bps to 3.47%. Margin compression more than offset solid loan growth, resulting in lower net interest income. Meanwhile, adjusted expenses (excluding indemnification and FHA related reserve expenses) were well managed in 1H14, declining approximately 2% from 1H13, due in part to a decrease in qualified pension plan expense, lower professional services expense, and the non-recurrence of a sizable level of expense related to systems improvement and special projects. As with other banks, BB&T continues to rationalize its expense base and has targeted an efficiency ratio below 60% in the short-term.

At the end of 2Q14, BB&T’s asset quality was sound and improved, reflecting lower levels of non-performing assets (NPAs), and low net charge-offs (NCOs). Specifically, NPAs decreased 28% over the last four quarters, and represented a manageable 0.76% of loans and other real estate owned (OREO) at June 30, 2014. Although the largest component was C&I loans, the decline in non-accrual loans was broad-based. Meanwhile, NCOs were a low 0.40% of average loans in 2Q14, likely reflecting a floor. Finally, DBRS notes that BB&T’s level of loan loss reserves remain acceptable, and represented 1.27% of total loans held for investment

Finally, BB&T’s capital profile remains sound and provides solid loss absorption capacity. At June 30, 2014, the Company’s regulatory capital ratios were all comfortably above “well capitalized” guidance levels, as defined by the regulators, and its tangible common equity ratio was a solid 7.7%. Moreover, under Basel III rules, BB&T’s estimated Tier I common ratio was 10.0%, well above the minimum.

BB&T Corporation, a bank holding company headquartered in Winston-Salem, North Carolina, reported $188.0 billion in assets at June 30, 2014.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (January 2014), DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013), and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013). These can be found at: http://www.dbrs.com/about/methodologies

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Mark Nolan
Rating Committee Chair: William Schwartz
Initial Rating Date: 19 December 2005
Most Recent Rating Update: 21 June 2013

For additional information on this rating, please refer to the linking document under Related Research.