DBRS: BB&T’s 3Q Sound, Reflecting Acquisitions and Organic Loan Growth

Summary:
• BB&T reported 3Q15 earnings to common shareholders of $492 million, up 8.4% sequentially, yet down 3.9% from 3Q14.
• During the quarter, the Company announced that it had entered into a definitive agreement to acquire National Penn Bancshares, Inc. (National Penn) with an expected close in mid-2016, subject to customary closing conditions including regulatory approvals and National Penn shareholder approval. It is DBRS’s view that the acquisition will strengthen BB&T’s mid-Atlantic footprint, especially in Pennsylvania.
• DBRS rates BB&T Corporation Issuer & Senior debt at A (high) with a Stable trend.

DBRS, Inc. (DBRS) views BB&T Corporation’s (BB&T or the Company) 3Q15 results as solid and reflective of its recent transactions and diverse set of businesses. Overall, the Company reported an 8.4% increase in sequential quarterly earnings, due primarily to contributions from its Susquehanna Bancshares Inc. (Susquehanna; closed on August 1, 2015) and The Bank of Kentucky (closed on June 19, 2015) acquisitions, as well as a 2Q15 charge related to the early extinguishment of higher cost debt. Importantly, balance sheet fundamentals remain strong, including modest organic loan growth (excluding acquisitions), sound asset quality, and solid liquidity and capital positions.

Overall, earnings were bolstered by the Susquehanna and The Bank of Kentucky acquisitions. On a sequential basis, improved revenues reflected higher spread income, driven by an increase in average loans, along with a wider net interest margin spurred by Susquehanna’s higher yielding loans. Although most of the loan growth was due to the acquisitions, BB&T still reflected organic loan growth. Meanwhile non-interest income declined quarter-over-quarter (QoQ), as improved results from most of BB&T’s fee line items, were more than offset by seasonally lower insurance income, and a decline in mortgage banking income. Finally, on an adjusted basis, which excludes merger and debt extinguishment charges, non-interest expense increased moderately, mostly reflecting Susquehanna’s expense base.

Balance sheet fundamentals remain solid, reflecting sound asset quality, and strong liquidity and capital positions. Indeed, at September 30, 2015, BB&T’s Liquidity Coverage Ratio was a high 136% and its estimated Basel III common equity Tier 1 ratio was a solid 9.8% (fully phased-in basis), despite the impact of the Susquehanna transaction.

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

Note:
All figures are in U.S. Dollars unless otherwise noted.