BB&T Corporation (BBT) reported fourth quarter operating earnings per share of 27 cents, substantially ahead of the Zacks Consensus Estimate of 20 cents and the reported figure of 23 cents in the prior quarter. However, earnings decreased from 51 cents in the year-ago quarter.

During the quarter, BB&T’s results were driven by strong mortgage banking operations, record insurance income, solid growth in net interest income along with an increase in average client deposits that reflected a continued improvement in deposit mix and the impact of the Colonial acquisition. However, significant weakness was experienced in non-performing assets, higher loan losses and additional loan loss reserves.

GAAP net income in the quarter was $185 million, down 35% from $284 million in the prior-year quarter but up 21.7% from $152 million in the third quarter of 2009.

For full year 2009, BB&T’s net income was $877 million, compared to $1.5 billion in 2008. Earnings per common share for 2009 were $1.15 as compared to $2.71 in 2008. Return on average assets was 0.56% while return on average common shareholders’ equity was 4.93% in 2009.

Tax-equivalent net interest income for the quarter was $1.36 billion, up 8.3% sequentially and 24.2% year-over-year. Operating net interest margin was 3.8% for the current quarter, up 12 basis points sequentially and 33 basis points from the prior-year quarter. Core non-interest income (which excludes securities gains and losses) for the quarter increased 20.2% year-over-year to $970 million, mainly due to an 86.8% increase in mortgage-related revenues and a 5.3% increase in insurance income.

Non-interest expense for the quarter increased 34.5% year-over-year to $349 million and included $115 million of additional foreclosed property expenses, an additional $34 million in FDIC insurance expense, increased pension costs of $17 million and $38 million for post-employment benefits expense that were offset by additional non-interest income. Excluding these items, BB&T’s non-interest expenses were down 1.2% year-over-year.

Credit metrics deteriorated further during the quarter. The provision for credit losses were $725 million, up $197 million year-over-year and exceeding net charge-offs by $237 million or 21 cents per share. The higher provision increased the allowance for loan and lease losses as a percentage of loans held for investment to 2.51% at Dec 31, 2009 compared with 2.29% at Sep 30, 2009. The increases in non-performing assets and the provision for credit losses were driven by a continued deterioration in housing related credits.
 
Non-performing assets as a percentage of total assets increased to 2.65% at Dec 31, 2009 from 2.48% at Sep 30, 2009. Annualized net charge-offs were 1.83% of average loans and leases, up from 1.71% in the third quarter of 2009.

Profitability metrics also suffered during the quarter, with return on average assets and return on average equity down to 0.47% and 4.52% as compared to 0.86% and 8.47%, respectively, at the end of the prior-year quarter. However, book value per common share increased to $23.47 from $23.41 in the sequential quarter and $23.16 in the year-ago quarter.

Tier 1 leverage ratio was 8.5% at Dec 31, 2009, up from 8.4% during the prior quarter and from 7.1% in the prior year quarter. In addition, BB&T’s Tier 1 risk-based capital and total risk-based capital ratios were 11.5% and 15.7%, respectively, up from 11.1% and 15.6%, respectively, at Sep 30, 2009. BB&T’s risk-based capital ratios were significantly higher than its peer average and remain well above the regulatory standards for well-capitalized banks.

Dividend Update

The board of directors of BB&T Corporation has declared a quarterly dividend of 15 cents per share for the first quarter of 2010. The dividend will be paid on Feb 1, 2010 to shareholders of record as of Jan 8, 2010. BB&T has been paying cash dividends to shareholders every year since 1903.

The Colonial Bank integration is progressing well with strong growth of $1.5 billion in client deposits in the former Colonial branches. All the remaining systems are scheduled to be converted by the end of the second quarter of 2010. Although credit losses and non-performing assets raise concerns over the company’s leverage, we believe BB&T will continue to benefit from expanded opportunities and increased client activity once the market recovery adopts a steady pace. Moreover, the Colonial Bank acquisition is expected to be accretive to the earnings in the future.

Read the full analyst report on “BBT”
Zacks Investment Research