BB&T Corporation BBT has announced an early termination of its loss share agreement with the Federal Deposit Insurance Corp. (FDIC). It had entered the agreement in 2009 through its subsidiary Branch Bank (Branch Banking and Trust Company).
The agreement was related to BB&T’s acquisition of selected assets and liabilities of Alabama-based failed Colonial Bank. It was BB&T’s largest ever transaction and strengthened its franchise in important markets and benefited shareholders as well.
The Branch Bank has agreed to pay $230 million in cash to terminate the agreement. Further, FDIC will no longer have a share in future benefits resulting from the covered assets.
Early Termination Impact on BB&T
Per BB&T’s Chief Financial Officer Daryl N. Bible, “The early termination of these agreements is beneficial for both BB&T and the FDIC, including the reduction of costs and accounting, reporting complexity and increased future earnings."
Early termination will result in elimination of indemnified assets and liabilities by FDIC, which resulted in a net liability of approximately $210 million at the end of second-quarter 2016.
Pursuant to the termination, BB&T will incur a pre-tax expense of around $20 million during the third quarter. Further, removal of FDIC’s amortization expense that amounted to $124 million for the first half of 2016 will have a positive impact on future earnings. The gain-sharing provision on securities totaling $943 million will also be eliminated.
Further, since BB&T will retain ownership of all related securities, assets and loans, it will solely recognize all future benefits and expenses resulting from those previously covered assets.
As of Jun 30, the bank owned $1.7 billion in assets acquired from the agency. The assets consist of $482 million in loans and $22 million in other assets that are still under loss sharing provisions.
BB&T is one of the many banks that recently took the decision to terminate a FDIC loss share agreement. The move indicates an improvement in credit market.
The BB&T’s stock gained 1.8% in the last trading session to close at $38.11.
Currently, BB&T Corporation carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include LCNB Corp. LCNB, Southern National Bancorp of Virginia Inc. SONA, both sporting a Zacks Rank #1 (Strong Buy) and Comerica Inc. CMA holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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