DBRS: BB&T Corporation Generated Solid 1Q14 Earnings Despite Revenue Pressure

Summary:
• 1Q14 earnings to common shareholders of $501 million, down from $537 million for 4Q13, yet up from $210 million for 1Q13.
• Credit quality continued to stabilize, resulting in sustained reserve releases, benefiting earnings.
• DBRS rates BB&T Corporation’s Issuer & Senior debt at A (high) with a Stable trend.

DBRS, Inc. (DBRS) considers BB&T Corporation’s (BB&T or the Company) 1Q14 earnings to be solid, notwithstanding sustained net interest margin (NIM) pressure, lower mortgage banking income, and the seasonal decrease in revenues from some businesses lines. Importantly, the Company’s high level of revenue diversification continues to provide earnings stability. Overall, BB&T’s balance sheet fundamentals are solid, reflecting stabilizing asset quality, an improving capital position and modest sequential average loan growth (held for investment).

On a quarter-on-quarter (QoQ) basis, revenues were down moderately, mostly impacted by lower levels of fee income and to a lesser degree, net interest income. Lower fee income reflected lower levels of mortgage banking income, investment banking & brokerage fees, and deposit service charges, partially offset by higher insurance income. Lower mortgage banking income was driven by a decrease in originations, while the decline in investment banking and brokerage fees was seasonal, down from record levels in the prior quarter.

During the quarter, BB&T’s spread income decreased modestly, QoQ, due to a 4 bps narrowing of NIM to 3.52%. The narrower NIM mostly reflected the impact of higher levels of securities, as the Company continues to strengthen its liquidity coverage ratio. Although management expects the investment portfolio to remain relatively flat going forward, NIM is expected to further narrow in 2Q14. Meanwhile, average loans and leases held for investment were up modestly, QoQ, driven by higher levels of commercial & industrial, and commercial real estate – income producing property exposures. Finally, BB&T’s expenses were well managed, down moderately QoQ.

Asset quality, excluding covered loans continues to improve, with nonperforming assets (NPAs) declining during the quarter. Moderating levels of NPAs drove sustained reserve releases, which benefited earnings. Meanwhile, levels of net charge-offs increased moderately due to a process change that resulted in accelerated recognition of non-prime automobile charge-offs. DBRS anticipates continuing stabilization in BB&T’s credit quality.

The Company’s funding and capital profiles remain solid. BB&T’s common equity Tier 1 ratio under Basel III was approximately 10.0% (fully phased-in basis), at March 31, 2014, well above the required minimum.

DBRS rates BB&T Corporation Issuer & Senior debt at A (high) with a Stable trend.

Notes:
All figures are in U.S. Dollars unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]