BB&T Corporation (NYSE: BBT) is a bank holding company with operations in 11 Southern states and Washington D.C. . The company has $136.5 billion in assets under management, making it the 14th largest bank in the U.S. The bank mainly serves consumers and small, regional businesses. In the midst of the 2008 financial crisis, BB&T posted a 3rd quarter net income of $358M, a 19% decline from the previous year. Thus, while it has fared better than many other banks, BB&T has not escaped the effects of the credit crunch. It has suffered $364M in credit-related losses, and 9% of its gross loan portfolio was given to homebuilders, many of whom could not repay BB&T. In addition, BB&T faces deteriorating economic conditions in many Southern states, which curtail consumers' and businesses' willingness to take out loans with higher interest rates. These factors drag down the company's ability to maintain a high net interest margin, and therefore its profitability. However, in comparison to many other banks, BB&T has managed to retain a healthy margin at 3.7%.
In the aftermath of the Civil War, Eastern North Carolina lay tattered, battered and torn ... an easy mark for profiteers and politicians bent on destroying what little remained. There was no money, no law and precious little trust or faith in the once-proud institutions of the South.
Alpheus Branch, established a small mercantile business called Branch and Company. He joined forces in 1872 with Hadley. As private bankers, Branch and Hadley accepted time deposits, paid interest and loaned money to help rebuild the farms and small businesses in the community. With a place to borrow money at reasonable interest to buy seed and fertilizer, area farmers planted their fields in cotton and in the early 1880s, experimented with a new money crop, tobacco. In 1887, Branch bought Hadley’s interest in the bank for $81,000 and changed its name to Branch and Company, Bankers.
In 1889, Branch, and others secured a charter from the North Carolina Legislature to operate the Wilson Banking and Trust Company (later amended to the State Bank of Wilson and later to Branch Banking and Company). However, the charter was not implemented until 1900. Alpheus Branch died Jan. 3, 1893. The bank continued to grow in the years that followed. In 1900, Branch and Company, Bankers, was sold to Branch Banking and Company, holder of the state charter. On Dec. 20, 1902, the bank opened a savings department, paying four percent interest compounded quarterly.
Prior to 1900, virtually no trust business was conducted in North Carolina by institutions. The 1889 state charter authorized the bank to organize a trust department, but changes in the law delayed implementation until 1907, when Branch Banking and Company became the first bank in the state in engage actively in trust activities. In 1913, the charter was amended to change the name to Branch Banking and Trust Company.
By 1923, BB&T had exceeded $4 million in assets, a 307 percent increase since 1914. Four new offices were established, an insurance department opened in 1922, and the mortgage loan department began in 1923.
With the stock market crash of 1929, banks that had invested heavily in stocks began to fail. From January 1930 to January 1932, 131 state banks in North Carolina failed. By Dec. 30, 1931, the other seven banks in Wilson had closed. At BB&T, many customers withdrew funds to deposit at the Post Office in Postal Savings, the only apparent safe investment. What they didn’t know was that postal officials took that same money and deposited it in BB&T. While public confidence in banks had disintegrated, the government’s faith in BB&T had not.  BB&T continues to grow from mergers, acquisitions and new branches. ￼￼
BB&T is organized as a group of community banks. The company has more than 1,500 branches in North Carolina, South Carolina, Maryland, Virginia, West Virginia, Kentucky, Tennessee, Georgia, Florida, Alabama, Indiana and Washington, DC.
BB&T's strategy involves diversifying the company's revenues through mergers and acquisitions. This strategy has led to 5-year growth in average total assets, loans and deposits of 10.8%, 11.6%, and 11.2% respectively.
|PERIOD ENDING, in thousands||Jun 30, 2008||Mar 31, 2008||Dec 31, 2007||Sept 30, 2007|
|Cost of Revenue||$455,000||$564,000||$655,000||$679,000|
2007 was the 26th consecutive year that BB&T netted record earnings. 2007 net income was $1.73 billion, a 13.5% increase from 2006, and operating income totaled $1.75 billion, a 2.5% increase from 2006. BB&T increased its market share in every state while maintaining the lead in West Virginia. 
|Market Share 2007||Market Share 2006||Rank||% Increase in Deposits|
|Virginia/ Washington, D.C.||13.5%||13.1%||2||1.9%|
Additionally, BB&T increased the number of online banking clients by 21% and opened 35 new offices. By acquiring Coastal Financial of South Carolina and the mortgage banking firm, Collateral Real Estate Capital, BB&T was able to create a commercial mortgage servicing portfolio of $20 billion. 
BB&T is broken down into five major segments that have seen both loss and growth from FY 2006 to FY 2007.
BB&T has been hard hit by the 2008 Financial Crisis. The bank reported a 19% decline in net income in Q3 FY08, to $358M. In addition to problems related to the housing market, the bank has invested in construction projects that cannot now be completed because demand has fallen (9% of the company's gross loan book is allocated to residential homebuilder loans). Consequently, BB&T has lost money on the residential development loans given to these developers. The bank has set aside $330M to deal with bad loans, tripling the $88M that was set aside in 2007.
In comparison to other banks, however, BB&T has weathered the financial crisis well. Even taking into account the poor performance in the third quarter, the bank produced a return on equity of 11%, compared to 14% in FY07.
Regional banks generally have high exposure to regional housing markets, creating the belief among large investors that the risk in regional bank investment is unacceptably high. BB&T is heavily exposed to the housing markets of the Southern states, which have suffered immensely from the downturn. For example, housing prices in Washington, DC have declined by 24%, and prices in Florida have declined by as much as 34%.
In order to raise adequate capital, regional banks must sell more and more stocks at diluted prices. This in turn drives down prices even further, and make major investors even more hesitant about placing money into the banks. This is reflected in BB&T's historically low price/earnings ratio, suggesting that the stock is undervalued by investors. While BB&T has received approval to participate in the US Treasury's capital purchase program, the program enables the federal government to take a substantial stock stake in the company, and requires the bank to pay the government a hefty dividend. Despite these difficulties, however, BB&T has fared better than other banks in capital raising, mainly because it is less exposed to subprime loans (see above).
While the downturn in the financial markets has decreased the supply of credit, the downturn in the U.S. economy causes a decrease in the demand for credit. A key driver of BB&T's profits is the willingness of consumers to borrow money at a high interest rate. The company's interest rate margin was 3.66% in Q3 FY08.. However, deteriorating economic conditions force consumers to curtail their spending, and therefore their willingness to borrow money. The unemployment rate has reached 6.8%, and GDP growth for Q3 FY08 shrunk to 0.8%. . Consumer spending dropped by 6% in October, 2008 , and industrial production declined by 0.4%. States in the region served by by BT&T are suffering from recession.. A decrease in national consumption means a decrease in the demand for credit; though the company may try to keep its interest rates up because of the credit crunch, it's likely it will make fewer loans, and thus make less money overall.
|BB&T (BBT)||Wilmington Trust Corporation (WL)||SunTrust Banks (STI)||First Bancorp (FNLC)|
|Qtrly Rev Growth (yoy)||-2.60%||-12.20%||6.80%||7.00%|