DBRS Comments on Q3 2009 Earnings of BB&T Corporation– Senior at AA (low); Trend Negative

DBRS has today commented on the Q3 2009 earnings performance of BB&T Corporation (BB&T or the Company). DBRS rates BB&T’s Issuer & Senior Debt at AA (low) with a Negative trend.

BB&T reported net income of $157 million for the quarter, down from $208 million for the prior quarter and $362 million during Q3 2008. On a sequential quarter basis, the Company’s marginal increase in revenue was offset by higher expenses. BB&T’s linked quarter increase in revenues reflected a 9% increase in net interest income, driven by a 12 basis points (bps) widening of net interest margin (NIM) to 3.68% and a 5% increase in total average earning assets. Non-interest income contracted by 5.3% and was pressured by lower mortgage banking and insurance income. Provisions for loan loss reserves were up a modest 1%. More than offsetting the increase in revenues, non-interest expenses increased 12%, and reflected increases across most expense categories, including a sizeable 97% increase in foreclosed property expenses. The Company’s Q3 2009 expenses also reflected costs associated with BB&T’s August 14, 2009 acquisition of Colonial Bank from the Federal Deposit Insurance Corporation. On an annual quarter basis, the decrease in net income reflected higher non-interest expenses and provisions for loan loss reserves, which more than offset an increase in revenues. DBRS notes that on June 17, 2009, BB&T re-paid $3.1 billion in preferred stock to the U.S. Treasury Department. As such the Company did not make a preferred stock dividend payment during Q3 2009.

Given the steep downturn in the housing market and high unemployment, BB&T continues to struggle with its asset quality deterioration, especially within its residential acquisition development and construction (ADC) portfolio and more recently residential lot loan portfolio. On a geographic basis, the Company’s credit challenges remain concentrated in Georgia, Florida and the metro Washington D.C. area. Reflecting these headwinds, the Company’s non-performing assets, which includes covered FDIC loans and foreclosed property, increased to 3.78% of total loans and foreclosed property (at September 30, 2009), up from 3.29% at June 30, 2009 and 1.69% at September 30, 2008. Meanwhile, net charge-offs decreased to 1.71% of average loans, from 1.81% for Q2 2009.

The Company’s $6.3 billion ADC portfolio remains the most problematic with 12.0% of the portfolio currently on nonaccrual, up from 9.3% at June 30, 2009. Overall, management expects net loan losses, for the legacy portfolio to be in the 1.80% - 1.85% range for 2009. DBRS comments that BB&T’s allowance for loan loss reserves to non-performing assets was somewhat moderate at 58% (at September 30, 2009).

The Company’s solid, albeit stressed, earnings benefit from a diverse community-centered commercial and consumer banking business, a broad range of fee-based products and services that contribute over 40% to net revenues, and a solid, core deposit base, which represents 81% of net loans (at June 30, 2009). BB&T’s margin remains sound and compares favorably with other super-regional banks. For Q3 2009, BB&T’s NIM widened 12 bps to 3.68% from the prior quarter, driven by the accretive impact of the Colonial Bank acquisition and improved asset and liability pricing.

The company bolstered its capital position by issuing 38.5 million common shares on August 21, 2009, leading to net proceeds of $963 million. At September 30, 2009, BB&T’s Tier 1 and Total risk-based capital ratios were healthy, at an estimated 11.1% and 15.6%, respectively.

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

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.