DBRS Confirms BB&T Corporation at A (high); Trend Revised to Positive from Stable

DBRS, Inc. (DBRS) confirmed the ratings of BB&T Corporation (BB&T or the Company), including the Company’s Long-Term Issuer Rating of A (high) and Short-Term Issuer Rating of R-1 (low). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, Branch Banking and Trust Company (the Bank). The trend on all ratings has been revised to Positive from Stable. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The confirmation and Positive trend reflects BB&T’s well-established super-regional banking franchise that is led by a long-tenured management team, as well as its sustained better-than-peer financial performance, which is expected to continue, and strong balance sheet fundamentals. The ratings also consider expected normalizing credit trends within the loan portfolio and the Company’s Consent Order with the Federal Reserve (effective January 25, 2017) regarding deficiencies within its BSA/AML compliance program, which prohibits BB&T from making bank acquisitions. DBRS expects the Order will be lifted in the near to intermediate term, allowing BB&T to consider acquisitions again, which has been an important part of its growth and has enhanced its franchise strength.

RATING DRIVERS
If BB&T continues to generate top-tier financial results, while maintaining strong credit fundamentals, the ratings could be upgraded. Conversely, negative rating pressure could result from a sustained level of credit deterioration, or a material reduction in capital levels.

RATING RATIONALE
The Company’s strong banking franchise is underpinned by a deeply entrenched deposit base, covering the South and Mid-Atlantic regions. Overall, BB&T is the eighth largest U.S. financial institution, with a top-six deposit market share position in nine of the fifteen states that it serves. The Company offers a comprehensive set of products and services, providing significant revenue diversification.

Notably, BB&T produces a comparatively high level of fee income (42% of total revenue in 1Q18) led by its insurance brokerage business, which is the fifth largest globally and generates approximately 15% of the Company’s total revenue. DBRS views BB&T’s acquisition of Regions Insurance Group (announced in April and expected to close in 3Q18) favorably, as it will further strengthen the Company’s presence in the Southeast and expand into new markets, including Texas, Louisiana and Indiana, as well as provide expense take-out opportunities. Upon completion, the insurance business’s contribution to total revenue is expected to increase to about 17.5%, edging closer to the Company’s long-term target of 20%.

For 2017, BB&T reported $2.4 billion of net income, representing a ROA of 1.09%, which was in line with the prior year. DBRS views the Company’s 2017 performance favorably, especially when considering the ongoing loan portfolio optimization and substantial investments made in technology and BSA/AML-related compliance matters during the year. More recently, the Company generated $745 million of net income in 1Q18, representing a ROA of 1.45%. Bottom line results benefited from higher interest rates, a lower tax rate, strong fee income and well-controlled expenses. Looking ahead, DBRS expects strong and better-than-peer results to continue given the improved operating environment, benign credit conditions and management’s previous efforts around expenses.

BB&T’s credit fundamentals remain strong, providing key support to the ratings. Specifically, the Company continues to report very strong asset quality metrics, as non-performing assets and net charge-offs remain at historically low levels. Additionally, BB&T’s funding and liquidity profile, as well as capital position remain robust, with an LCR of 144% and CET1 ratio of 10.2% at the end of 1Q18.

BB&T Corporation, a bank holding company headquartered in Winston-Salem, North Carolina, reported $221 billion in assets at March 31, 2018.

The Grid Summary Grades for BB&T are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Very Strong/Strong; Risk Profile – Strong; Funding & Liquidity – Very Strong/Strong; Capitalisation – Strong.

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

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (May 2017) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018), which can be found on our website under 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.

Lead Analyst: Michael McTamney, CFA, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG – Global FIG
Initial Rating Date: 19 December 2005
Most Recent Rating Update: 2 August 2017

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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