Foolish Forecast: Will BB&T Bend or Buckle Up?

Southeast regional bank BB&T (NYSE: BBT  ) will report Q1 2007 financial results on April 19. Here's what to expect.

Word on the street:

• Analysts expect earnings to dip by a penny to $0.78 per share.
• The Motley Fool CAPS community has awarded this stock a two-star rating.

By the numbers:
Although shares are about 10% off its high, BB&T has dodged the subprime and Alt-A mortgage fallout that has caused competitors like HSBC (NYSE: HBC  ) , Washington Mutual (NYSE: WM  ) , and even M&T Bank (NYSE: MTB  ) (a company I'm a big fan of) to experience turbulence. At the end of 2006, BB&T's nonperforming assets (bad loans and foreclosed real estate) as a percentage of total assets were a minuscule 0.29%. BB&T's reserves (allowance for loan losses) amounted to a whopping 341% of non-accrual and restructured loans and leases -- indicating the company has maintained balance sheet strength. In other words, so far BB&T's credit quality has remained pristine. What has probably helped BB&T is that only 19% of its $83.5 billion in gross loans and leases were residential mortgage loans, and thus BB&T's exposure is somewhat mitigated.

One Fool says:
The stock market is relearning the meaning of the words "credit risk," and all eyes will be on credit quality. Investors should keep in mind, however, that even if credit quality is good, illiquidity can still hurt. For example, it appears that M&T's problems are due to its inability to sell certain Alt-A mortgages because of a lack of demand in the secondary market. In other words, even if M&T's loans are good, the company is still hurt by the lack of demand on a mark-to-market basis. In 2006, BB&T originated $9.9 billion in loans that were primarily underwritten according to Fannie Mae's (NYSE: FNM  ) and Freddie Mac's (NYSE: FRE  ) standards, which should bode well for the future.

BB&T has a strong track record, and its balance sheet seems conservative. That said, the stock market (with regard to financial service companies) is jittery right now and prone to indiscriminate selling at even the slightest whiff of credit problems, so investors should proceed with caution.

Further Foolishness:

• Foolish Forecast: BB&T Changes Its Tune
• BB&T Doesn't Sweat Stormy Environment

Wait! There's more. Be sure to read pre-earnings news and analysis for other Big Banks.

Washington Mutual and BB&T are Motley Fool Income Investor recommendations. Take a free trial to look at all the recommendations and find out what senior analyst James Early thinks about the current banking environment.

Fannie Mae is an Inside Value recommendation.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.