BB&T Corp. (NYSE:BBT) is a multibank holding company with two primary bank subsidiaries, Branch Banking and Trust Co. and BB&T Financial FSB.

BBT just acquired the branches and some of the assets of Colonial Bank from the Federal Deposit Insurance Corp. As the final release of data from the FDIC approaches next week, let's review the ratings for BBT from the IRA Bank Monitor, looking both at current financial performance via our Stress Index and also how BBT looks based on "economic capital," a risk-based perspective on the bank's business similar to the Basel II regulatory framework.

As of Q1 2009, BBT had significantly lower levels of stress than the industry average in all categories and an overall Banking Stress Index score of 1.2, versus 2.4 for the entire industry. The base year for the Stress Index is 1995, which equals 1.

In key areas such as efficiency, ROE and chargeoffs, BBT has consistently outperformed its peers and displayed below-average levels of stress compared with the industry average.

Not surprisingly, the reported efficiency for BBT's bank units rose into the low 50% range from 49% in Q1 2009, indicating rising pressure on expenses.

BBT was still profitable in Q2 2009, with ROA and ROE still above peer average levels, but there will be continued pressure on earnings going through the end of 2009 as BBT and all U.S. banks attempt to manage through the worst credit environment in the country since the 1930s.

Looking at the preliminary Q2 Stress Index rating calculated by IRA, BBT shows elevated levels of stress in chargeoffs and efficiency compared with Q1 2009, albeit still below industry average levels.

For example, the stress score for chargeoffs for BBT's lead bank unit rose to 4.7 in Q2 2009 from 2 in Q1 2009. This result is consistent with the Q2 2009 financials released by BBT last week, which show chargeoffs at an annualized 1.81% versus average loans and leases, compared with 2.25% for the peer group calculated by The IRA Bank Monitor.

Nonperforming loans and leases as a percentage of total assets was 2.19% as of Q2 2009, again well below peer but still rising along with the deterioration in the marketplace. BBT's ratio of the allowance for loan and lease losses to nonperforming loans and leases was 1.01% in Q2 2009, down from 1.24% a year earlier, indicating the secular increase in nonperforming assets across the industry.

For the next several quarters, the key issue facing BBT and all banks is how much of current earnings must be diverted to allowances for future losses in order to keep key ratios such as loss reserves in line with regulatory norms.

Looking at the Economic Capital or "EC" profile for BBT, we calculated EC of $5.4 billion in Q1 2009, versus the Tier 1 risk-based capital of $11.6 billion for BBT's subsidiary banks as of that date.

This results in a ratio of EC to T1 RBC of just 0.45:1, suggesting a very conservative business model compared with the industry average. The distribution of EC between lending, trading and investing activities was relatively even, again suggesting balance in the bank's risk-taking operations.

For Q1 2009, we calculated a risk-adjusted return on capital or RAROC for BBT of 4.7%, suggesting that the bank is being adequately compensated for the risks that it takes in its business lines.

Overall, BBT is one of the stronger players in the large-bank peer group, displaying above-peer performance and below-average levels of stress compared with other banks of similar size.

That said, BBT is likely to display growing levels of stress as the industry reaches peak loss-rate experience at the end of 2009 or early in 2010.

BBT will be a bellwether of the performance of the U.S. banking sector and for when the worst is over for the credit markets generally.

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