BB&T reports strong core results; Earnings reduced by mortgage and tax-related charges

WINSTON-SALEM, North Carolina, July 21, 2014 /PRNewswire/ -- BB&T Corporation (NYSE: BBT) today reported second quarter 2014 net income available to common shareholders of $425 million, compared to $547 million earned in the second quarter of 2013. Earnings per diluted common share totaled $0.58 compared to $0.77 in the second quarter last year. The current quarter's results were reduced by mortgage and tax-related reserve adjustments with an after-tax impact that totaled $88 million, or $0.12 per diluted share.

"While BB&T's results for the second quarter were negatively affected by mortgage and tax-related charges, our core results were strong, including 7% annualized growth in average loans and 12% annualized growth in average deposits during the quarter. In addition, revenue grew 3% annualized compared to last quarter and credit quality continued to improve," said Chairman and Chief Executive Officer Kelly S. King.

"Average loan growth was robust in nearly all loan portfolios," said King. "Commercial lending was up across the board during the second quarter, with C&I up 10%, CRE – construction and development up 18%, and CRE – income producing properties up more than 3%. The sales finance portfolio increased 26% during the quarter and the other lending subsidiaries portfolio was up 12%, reflecting seasonally stronger demand.

"Average deposits increased 12% on an annualized basis during the second quarter, and noninterest-bearing deposits were up 14%. Deposit mix has continued to improve, and the cost of interest-bearing deposits dropped one basis point.

"Credit quality continued to improve in the second quarter," said King. "Nonperforming assets, excluding covered assets, declined 7%. Net loan charge-offs fell to 0.40% of average loans and leases, excluding covered loans, which is 35 basis points lower than the same period of 2013 and is at its lowest level in seven years.

"We are also pleased to announce that BB&T completed the acquisition of 21 retail branches in Texas during the second quarter. This acquisition makes BB&T a top 20 bank in the state of Texas and will allow us to accelerate the growth of our franchise in this large and fast growing market. BB&T acquired $1.2 billion in deposits and $112 million in loans in connection with this acquisition.

"Late in the second quarter, BB&T was notified that its FHA-insured loan origination process would be the subject of an audit survey by the Department of Housing and Urban Development. While there are no findings from HUD at this time, in light of announcements made by other financial institutions related to the outcomes of similar audits and related matters and after further review of our exposure, we believe it is prudent to establish reserves in accordance with GAAP," said King. "This has been an industry issue for many FHA originators, and we believe this is the appropriate course of action for BB&T."

Second Quarter 2014 Performance Highlights

• Average total loans and leases held for investment increased 7.2% on an annualized basis compared to the first quarter of 2014
  • Average C&I loans increased 10.0%
  • Average sales finance loans increased 25.5%
  • Average CRE – construction and development loans increased 18.3%
  • Average loans in the other lending subsidiaries group increased 12.4%
  • Average CRE – income producing properties loans increased 3.5%
  • Average direct retail loans increased approximately 8% adjusted for last quarter's QM transfer
• Taxable equivalent revenues were $2.3 billion for the second quarter, an annualized increase of 3.0% compared to the first quarter
  • Net interest margin was 3.43%, down nine basis points compared with the prior quarter due to lower rates on new loans and securities, and covered loan runoff
  • Mortgage banking income was $12 million higher than the prior quarter driven by an increase in residential mortgage loan production and sales
  • Bankcard fees and merchant discounts increased $8 million to a record $70 million
• Average deposits increased $3.9 billion, or 12.4% annualized, compared to the prior quarter
  • Average noninterest-bearing deposits increased $1.2 billion, or 14.1%
  • Average interest-bearing deposit costs fell one basis point to 0.26%
  • Deposit mix continued to improve, with noninterest-bearing deposits representing 28.3% of total deposits compared to 25.8% in the same period of last year
• Asset quality continued to improve
  • Nonperforming assets, excluding covered assets, decreased $70 million, or 7.1%
  • Net charge-offs, excluding covered, were 0.40% of average loans for the quarter, the lowest level since 2007
  • The allowance for loan loss coverage ratio, excluding covered loans, increased to 1.78 times nonperforming loans held for investment in the second quarter compared to 1.70 times in the first quarter
• Capital levels remained strong across the board
  • Tier 1 common equity to risk-weighted assets was 10.2%
  • Tier 1 risk-based capital was 12.0%
  • Total capital was 14.3%
  • Basel III common equity tier 1 was 10.0%
  • Leverage capital remained strong at 9.5%
  • Tangible common equity to tangible assets was 7.7%

Earnings presentation and Quarterly Performance Summary

To listen to BB&T's live second quarter 2014 earnings conference call at 8 a.m. (ET) today, please call 1-888-632-5009 and enter the participant code 5184622. A presentation will be used during the earnings conference call and is available on our website at www.bbt.com. Replays of the conference call will be available by dialing 888-203-1112 (access code 4313363) until August 21, 2014.

The presentation, including an appendix reconciling non-GAAP disclosures, is available at www.bbt.com.

BB&T's second quarter 2014 Quarterly Performance Summary, which contains detailed financial schedules, is available on BB&T's website at www.bbt.com.

About BB&T

As of June 30, 2014, BB&T is one of the largest financial services holding companies in the U.S. with $188 billion in assets and market capitalization of $28.4 billion. Based in Winston-Salem, N.C., the company operates 1,844 financial centers in 12 states and Washington, D.C., and offers a full range of consumer and commercial banking, securities brokerage, asset management, mortgage and insurance products and services. A Fortune 500 company, BB&T is consistently recognized for outstanding client satisfaction by J.D. Power and Associates, the U.S. Small Business Administration, Greenwich Associates and others. More information about BB&T and its full line of products and services is available at www.bbt.com.

Capital ratios are preliminary. Credit quality data excludes covered and government guaranteed loans where applicable.

This news release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). BB&T's management uses these "non-GAAP" measures in their analysis of the Corporation's performance and the efficiency of its operations. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period. The company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. BB&T's management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company's underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Below is a listing of the types of non-GAAP measures used in this news release:

• Tangible common equity, Tier 1 common equity and related ratios are non-GAAP measures. The return on average risk-weighted assets is a non-GAAP measure. The Basel III common equity Tier I ratio reflects management's interpretation of the regulatory requirements, which is subject to change. BB&T's management uses these measures to assess the quality of capital and believes that investors may find them useful in their analysis of the Corporation.
• Asset quality ratios have been adjusted to remove the impact of acquired loans and foreclosed property covered by FDIC loss sharing agreements from the numerator and denominator of these ratios. Management believes that their inclusion may result in distortion of these ratios such that they might not be comparable to other periods presented or to other portfolios that were not impacted by purchase accounting.
• Fee income and efficiency ratios are non-GAAP in that they exclude securities gains (losses), foreclosed property expense, amortization of intangible assets, merger-related and restructuring charges, the impact of FDIC loss share accounting and other selected items. BB&T's management uses these measures in their analysis of the Corporation's performance. BB&T's management believes these measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods, as well as demonstrating the effects of significant gains and charges.
• Return on average tangible common shareholders' equity is a non-GAAP measure that calculates the return on average common shareholders' equity without the impact of intangible assets and their related amortization. This measure is useful for evaluating the performance of a business consistently, whether acquired or developed internally.
• Core net interest margin is a non-GAAP measure that adjusts net interest margin to exclude the impact of interest income and funding costs associated with loans and securities acquired in the Colonial acquisition. BB&T's management believes that the exclusion of the generally higher yielding assets acquired in the Colonial acquisition from the calculation of net interest margin provides investors with useful information related to the relative performance of the remainder of BB&T's earning assets.
• Diluted EPS has been adjusted to exclude the impact of certain adjustments. BB&T's management believes these adjustments increase comparability of period-to-period results and uses these measures to assess performance and believes investors may find them useful in their analysis of the Corporation.
• Adjusted net charge-offs and the adjusted ratio of net charge-offs to average loans are non-GAAP measures that adjust net charge-offs to exclude the impact of a process change that resulted in accelerated recognition of charge-offs in the non-prime automobile lending portfolio during the quarter ended March 31, 2014. BB&T's management believes these adjustments increase comparability of period-to-period results and believes that investors may find them useful in their analysis of the Corporation.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in BB&T's Second Quarter 2014 Quarterly Performance Summary, which is available on BB&T's website at www.bbt.com/financials.html.

This news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T that are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "plans," "projects," "may," "will," "should," "could," and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:

• general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit, insurance or other services;
• disruptions to the credit and financial markets, either nationally or globally, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies and the adverse effects of recessionary conditions in Europe;
• changes in the interest rate environment and cash flow reassessments may reduce NIM and/or the volumes and values of loans made or held as well as the value of other financial assets held;
• competitive pressures among depository and other financial institutions may increase significantly;
• legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Act may adversely affect the businesses in which BB&T is engaged;
• local, state or federal taxing authorities may take tax positions that are adverse to BB&T;
• a reduction may occur in BB&T's credit ratings;
• adverse changes may occur in the securities markets;
• competitors of BB&T may have greater financial resources and develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T;
• natural or other disasters could have an adverse effect on BB&T in that such events could materially disrupt BB&T's operations or the ability or willingness of BB&T's customers to access the financial services BB&T offers;
• costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected;
• expected cost savings or revenue growth associated with completed mergers and acquisitions may not be fully realized or realized within the expected time frames;
• significant litigation could have a material adverse effect on BB&T;
• deposit attrition, customer loss and/or revenue loss following completed mergers and acquisitions may be greater than expected;
• cyber-security risks, including "denial of service," "hacking" and "identity theft," could adversely affect our business and financial performance, or our reputation; and
• failure to implement part or all of the Company's new ERP system could result in impairment charges that adversely impact BB&T's financial condition and results of operations and could result in significant additional costs to BB&T.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statement. Except to the extent required by applicable law or regulation, BB&T undertakes no obligation to revise or update publicly any forward-looking statements for any reason.