DBRS Confirms BB&T Corporation and Related Entities at AA (low), Trend Remains Stable

DBRS has today confirmed the ratings of BB&T Corporation (BB&T or the Company) and its principal operating bank subsidiary, Branch Banking and Trust Company, including the Company’s Issuer & Senior Debt at AA (low). The trend for all ratings remains Stable. The rating action follows a review by DBRS of the Company’s operating performance, financial fundamentals and future prospects.

Increased credit costs notwithstanding, BB&T’s 2007 earnings performance remained solid. Asset quality was sound, albeit moderately impacted by the downturn in the housing and mortgage markets. The Company’s capital position continues to be adequate and falls within the range of other super-regionals. Moreover, BB&T’s holding company fundamentals on a stand-alone basis are acceptable and in line with its peers. The Stable trend reflects DBRS’s view that the Company has the franchise strengths, resources and management skills to continue producing solid operating results while maintaining a low risk profile.

Although negatively impacted by the downturn in the housing markets and increased credit costs, BB&T’s 2007 net income expanded by 13.5%. The significant increase was driven by a Q4 2006 $139 million (after tax) charge associated with providing additional tax reserves related to leveraged lease transactions and a $47 million (after tax) securities loss related to a portfolio restructuring. On an operating basis (excludes non-recurrent costs and credits), earnings inched up 2.5%. The improvement reflected solid loan growth and higher levels of fee revenues, partially offset by pressured net interest margin (NIM) and higher credit costs. DBRS comments that as housing markets continue to deteriorate and the economy leans towards a recession, BB&T’s credit cost will expand and continue to put pressure on earnings. However, DBRS expects that the Company’s fundamentals and earnings capacity will continue to fall in line with expectations for its ratings.

BB&T benefits from a powerful banking and financial services franchise in the demographically appealing high-growth southeastern United States, including top-tier deposit market shares. BB&T’s earnings stability arises from a diverse community-centered commercial and consumer banking business, a broad range of fee-based products and services that contribute about 42% to net revenues (for full-year 2007) and a solid, yet compressing core deposit base. Increased credit costs notwithstanding, profitability indicators – return on assets (ROA), return on equity (ROE), risk-adjusted return* and NIM – are all at or above the respective medians for those banks in BB&T’s peer group. DBRS notes that BB&T’s solid profitability results from higher-than-peer group average loan yield, abundant fees and commissions and good operating efficiency. Profitability also benefits from consistently healthy loan growth rates. Nonetheless, DBRS comments that core deposit growth has slowed and the Company has increased its utilization of more costly wholesale funding.

Although asset quality remains somewhat pressured by the downturn in the housing market, levels of non-performing assets and net charge-offs, while elevated remain in line with expectations for the peer. Increases in NPAs, on a year-over-year basis, were evident across most loan types, with the bulk of the increase within commercial loans, in particular, residential construction/development loans, and mortgage loans. The bulk of the increase in charge-offs was within the Company’s specialized lending portfolio, which includes sub-prime auto, the commercial and the direct retail portfolios. DBRS notes that BB&T’s loan portfolio is sufficiently diversified by both asset type and geography, and is more granular than that of most peers. Other than a moderately elevated exposure to commercial real estate excluding owner occupied loans (at about 266% of tangible common equity at December 31, 2007), the loan portfolio lacks material risk concentrations. That said, DBRS will continue to monitor CRE, especially residential construction and development loans.

In light of its fairly high dividend payout ratio, BBT’s regulatory capital ratios remain adequate and relatively consistent with the previous year. Due to its solid earnings capacity, DBRS expects BB&T to continue generating sufficient capital internally to support its operations.

The holding company’s stand-alone fundamentals are satisfactory. Double-leverage is moderately high, but not excessive, at 120% (at December 31, 2007), and parent company liquidity falls short of its goal of maintaining one year’s coverage of operating expenses and debt service obligations.

Positive rating momentum may result from improved and sustainable core earnings metrics and fee income contribution, improved asset quality metrics, and solid growth in the Company’s core deposit franchise. Negative rating pressure could result from higher loan concentration levels, a significant deterioration in asset quality, or capital depletion.

BB&T Corporation, a bank holding company with headquarters in Winston-Salem, North Carolina, reported $132.6 billion in assets at December 31, 2008.

• Risk-adjusted return: income before loss provisions/risk weighted assets.

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