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

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) with a Stable trend. The rating actions follow a detailed review of the Company’s operating results, financial fundamentals and future prospects.

DBRS’s confirmation of BB&T’s ratings reflects the Company’s strong banking franchise, which provides a broad range of products and services to customers located across much of the southeastern and Mid-Atlantic states, as well as in Texas. Importantly, the Company continues to augment its franchise through selective acquisitions. Specifically, in August 2015, BB&T announced its intent to acquire National Penn Bancshares, Inc. (National Penn), a transaction that will bolster the Company’s Mid-Atlantic markets, deepening and extending markets gained with its recently closed Susquehanna Bancshares Inc. (Susquehanna) transaction. Despite some concern regarding successive acquisitions, which have the potential to elevate integration and operation risks, DBRS is comforted by BB&T’s successful track record of integrating numerous bank and non-bank acquisitions.

Ratings also consider BB&T’s pressured yet resilient earnings generation capacity, sound asset quality, and solid liquidity and capital profiles. The Stable trend reflects DBRS’s view that the Company’s sound operating fundamentals are sustainable, despite the difficult business environment, underscored by slow economic growth and low interest rates. DBRS notes that sustained improvement in core earnings generation, along with further franchise diversification, could result in positive rating actions. Conversely, ratings could come under pressure if BB&T reflects a sustained level of credit deterioration, or material reduction in capital levels, or if its recent acquisition integrations are poorly executed and the Company is unable to achieve the desired cost savings or revenue enhancements.

Underpinning BB&T’s ratings is its large, well-entrenched super-regional banking franchise led by a well-seasoned management team. Overall, the Company provides a broad menu of products and services that create a high degree of revenue diversification and significant cross-sell opportunities, as well as maintains a strong highly defensible deposit franchise. Indeed, BB&T holds a top five deposit market share position (pro-forma basis) in nine of the sixteen states that it serves. The Company continues to execute on its growth strategy, both though moderately sized acquisitions and organic means. Besides the Susquehanna and National Penn transactions over the last year and a half, BB&T bolstered its presence in Kentucky through the acquisition of The Bank of Kentucky Financial Corporation ($1.9 billion in assets), and in Texas, with the acquisition of 63 branches from Citigroup, Inc.

BB&T’s core earnings generation remains pressured by the low interest rate environment and slow and uneven economic growth. For 9M15, the Company’s core earnings or adjusted income before provisions and taxes (IBPT: DBRS’s core earnings measure) was modestly improved year-over-year (YoY), reflecting higher adjusted revenues, primarily driven by an increase in adjusted non-interest income and to a lesser degree spread income. Improved fee income was primarily driven by higher levels of mortgage banking income, investment banking and brokerage revenues, and operating lease income. Meanwhile, improved spread income mostly reflected broad-based loan growth, despite net interest margin compression. Overall, expenses remain well managed but have room for improvement. Finally, the Company’s core earnings for 2014 were stable with the prior year, as lower adjusted revenues were offset by a decrease in adjusted expenses.

As of September 30, 2015, BB&T’s asset quality was sound and improved, YoY, reflecting lower levels of non-performing assets (NPAs), and net charge-offs (NCOs). Specifically, NPAs represented a moderate 0.55% of loans and leases at September 30, 2015, down from 0.79% at September 30, 2014. Meanwhile, NCOs were a low 0.33% of average loans for 9M15, as compared to 0.48% for 9M14. Finally, BB&T’s level of loan loss reserves remains acceptable, representing 1.08% of total loans held for investment (excluding covered assets) and 249% of nonperforming loans, at September 30, 2015.

Sound liquidity and capital positions also underpin the rating. Deposits, which easily fund the loan portfolio, increased approximately 15% over the nine month period ending September 30, 2015. Moreover, the Company maintains a very high liquidity coverage ratio of 136% in part reflecting the impact of the Susquehanna acquisition. Meanwhile, capital remains solid, including a common equity Tier 1 ratio of 9.8% (fully phased-in basis), as of September 30, 2015.

BB&T Corporation, a bank holding company headquartered in Winston-Salem, North Carolina, reported $208.8 billion in assets at September 30, 2015.

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 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015), DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2015), and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015). 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: Roger Lister
Initial Rating Date: 19 December 2005
Most Recent Rating Update: 12 November 2014

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