BB&T’s (BBT) Specialized Lending consists of businesses and subsidiaries that provide specialty finance products. It includes Commercial Finance and Governmental Finance. Commercial Finance provides working capital financing, supply chain financing, export-import finance, accounts receivable management, and credit enhancement.
Governmental Finance provides financing to meet local governments’ capital project needs. The segment provides services through a number of operating subsidiaries—including Sheffield Financial.
Sheffield Financial is the biggest subsidiary. It contributes to more than one-fourth of the segment’s revenue. It recorded strong loan growth over 40% in the last three years. Now, the growth moderated to 10%–20%. The subsidiary is a direct lender in three segments:
- Outdoor power equipment
- Power sports – including ATVs (all-terrain vehicle), snowmobiles, personal watercraft, motorcycles, and scooters
- One-axle trailers
Specialized lending through the various subsidiaries provides the bank with nationwide geographic diversification primarily in non-real estate lending. This reduces the risk associated with the bank’s lending portfolio.
Sale of subsidiary impacts net income
The above graph shows the segment’s revenue and income over the last three years. The segment’s net income decreased 5.9%—compared to 2013. The segment’s net interest income decreased by $120 million. This mainly reflected the sale of a consumer lending subsidiary during 4Q13. It also reflected lower credit spreads on loans during 2014. Net interest income forms the major chunk of segment’s total income.
Non-interest income increased. It was driven by higher operating lease income. Small ticket consumer finance, equipment finance, governmental finance, and commercial mortgage experienced strong growth—compared to 2013.
The sale of the specialized lending subsidiary also resulted in a decline in allocated provision for credit losses. Non-interest expense decreased. It was driven by lower personnel, occupancy and equipment, loan processing, and professional services expense.
Regions Financial (RF), SunTrust Bank (STI), and big banks like Wells Fargo (WFC), all offer specialty lending services. They compete with BB&T in this space. Together, these four banks form ~10.8% of the Financial Select Sector SPDR ETF (XLF) and ~8% of the iShares U.S. Financials ETF (IYF).