DBRS Confirms BB&T Corporation 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.

Notwithstanding the declining economy, BB&T’s credit fundamentals remain sound and support its ratings and Stable trend. Although the Company’s loan portfolio is under stress and non-performing assets have risen to relatively high levels, they remain manageable, as indicated by BB&T’s increased, yet fairly moderate amount of net charge-offs (NCOs). Credit costs are more than supported by BB&T’s roughly $950 million of quarterly income before provisions and taxes (IBPT). Although BB&T’s regulatory capital compressed somewhat during Q2 2009, as a result of repaying $3.1 billion of TARP funds, the Company’s recent dividend reduction should help expedite capital growth. BB&T’s ratings are also underpinned by a demographically appealing footprint, which resides in eleven mid-Atlantic and Southeastern states, and sound liquidity position, buttressed by a solid core deposit base.

The principal challenges faced by BB&T are to sustain its IBPT, build capital and address the deterioration in its asset quality. Despite BB&T’s efforts to get ahead of its credit quality issues, DBRS remains concerned with its sustained level of deterioration. DBRS notes that BB&T’s ratings will be negatively pressured, if credit quality erosion and related costs steepen and capital is invaded.

BB&T continues to struggle with its asset quality deterioration, especially within its residential acquisition development and construction 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. At June 30, 2009, BB&T’s non-performing assets increased to a relatively high 3.29% of total loans, up from 2.72% at March 31, 2009. During Q2 2009, net charge-offs increased to 1.81% of average loans, from 1.58% for the prior quarter. Overall, management expects net loan losses 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 roughly 0.63% at June 30, 2009. Given the declining economy, DBRS anticipates higher future credit costs and expenses.

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 contributes over 40% to net revenues, and a solid, core deposit base, which represents 76% of net loans. BB&T’s margin remains sound and compares favorably with other super-regional banks. For Q2 2009, BB&T’s NIM was relatively stable at 3.56%.

Even after paying back TARP funds, BB&T’s Tier 1 and Total risk-based capital ratios were healthy, at an estimated 10.6% and 15.2%, respectively. DBRS anticipates that the Company will augment its capital position over the intermediate term, especially given the reduction in its common stock dividend by roughly 68% to $0.15 per share.

BB&T Corporation, a bank holding company with headquarters in Winston-Salem, North Carolina, reported $152.4 billion in assets at June 30, 2009.

Note:
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