Standard & Poor's Ratings Services today said it revised its outlook on BB&T Corp. to stable from negative. At the same time, we affirmed the 'A-/A-2' long- and short-term issuer credit ratings on BB&T Corp. and the 'A/A-1' ratings on Branch Banking & Trust Co.

We revised our outlook on BB&T to stable after the Federal Reserve did not object to the bank's 2014 capital distribution plan, which it submitted as per the Comprehensive Capital Analysis and Review (CCAR). "We recognize that, during the past year, BB&T's management has substantially enhanced certain of its risk-management processes and systems," said Standard & Poor's credit analyst Sunsierre Newsome. This effort followed the Fed's rejection of BB&T's capital plan in the March 2013 CCAR process because of "qualitative" issues. At that time, we had revised our ratings outlook on BB&T to negative.

Positively, we note BB&T's capital strength in the Federal Reserve's Dodd-Frank Stress Test, the results of which were released on March 26. Under the Fed's severely adverse scenario, BB&T's Tier 1 common ratio was 8.4% at year-end 2015, significantly higher than the 5% minimum.

BB&T continues to exhibit good financial performance, as evidenced in the first-quarter 2014 results, which support current ratings. In the first quarter, BB&T reported net income of $501 million, down from $537 million in fourth-quarter 2013 (or $518 million adjusted for the sale of a consumer lending subsidiary), and a return on average assets of 1.29%.

Asset quality continues to improve. Nonperforming assets (NPAs), by our measure, declined to 2.01% of total loans and other real estate owned from 2.14% the previous quarter. The net charge-off ratio was manageable at 0.55%, although it rose 6 basis points (bps) from the previous quarter because of a process change that resulted in accelerated recognition of charge-offs in the nonprime automobile lending portfolio. The net interest margin contracted 4 bps to 3.52% as a result of an increase in the investment portfolio to comply with new proposed liquidity rules. We expect its consistent profitability, improving asset quality, and adequate capital to support the ratings.

"The stable outlook reflects our view of BB&T's strong fee-based income, improving asset quality, and consistent earnings performance that should support adequate capital levels," said Ms. Newsome. If the economy in the company's core markets weakens and adjusted NPAs, excluding restructured loans, climb to near 2.5%, if net-charge offs approach 1%, or if our risk-adjusted capital ratio (RAC) declines and remains less than 7%, we could lower the ratings. Alternatively, we could raise the ratings if BB&T's financial performance improves materially, with its RAC ratio rising and remaining consistently above 10%.