(Update includes additional information from financial report; updated share prices throughout.)

BB&T Corp. ( BBT) shares sold off as much as 8.1% on Friday, after the North Carolina bank holding company reported second-quarter earnings below Wall Street's expectations.

BB&T reported a profit from continuing operations of $208 million. Net income available to common shareholders was $121 million, or 20 cents a share, which was slightly below the Thomson Reuters consensus estimate of 21 cents.

Net income a year earlier was $428 million, or 78 cents a share. Earnings in the first quarter of 2009 were $318 million, with $271 million available to common shareholders, or 48 cents a diluted share.

The stock, which fell as low as $20.53 on Friday, recently was trading down 6.7% to $20.83.

Second-quarter earnings were affected by a $47 million writedown associated with the company's repayment of the government's $3.1 billion preferred equity investment made through the Troubled Asset Relief Program. The company's bottom line also was hit by $14 million in accrued dividends paid on June 17, when the company exited TARP.

The bank reported a $701 million provision for loan losses in the second quarter, up from $683 million in the first quarter and $330 million a year earlier.

BB&T's return on average assets for the second quarter was 0.56%, compared to 0.86% for the first quarter and 1.28% a year earlier. The return on average common shareholders' equity was 3.43%, down from 8.29% the previous quarter and 13.27% in the second quarter of 2008.

As expected, credit quality continued to decline, as the company's reported nonperforming assets, including nonaccruing loans and repossessed real estate, comprised 2.19% of total assets, compared with 1.92% at March 31. The annualized ratio of net charge-offs to average loans was 1.81%, up from 1.58% in March and 0.72% a year earlier.

Here's a quick comparison of some of the company's credit quality measures. While most holding companies don't include loans past due 90 days or more but still accruing interest as nonperforming assets, we have done so here:

BB&T Corporation's Asset Quality ($millions)
June 2009 March 2009 June 2008
Nonaccrual Loans & Leases $2,091 $1,727 $1,016
Loans & Leases Past Due 90 days or more $329 $381 $282
Foreclosed Real Estate & Other Property $1,249 $1,023 $285
Total Nonperforming Assets $3,669 $3,131 $1,583
Total Assets $152,398 $143,425 $136,465
% Nonperforming Assets 2.41% 2.18% 1.16%
Net Charge-offs $451 $388 $170
Net Charge-offs/Avg. Loans (Annualized) 1.81% 1.58% 0.72%
Loan Loss Reserves/Total Loans Held for Investment 2.19% 1.94% 1.33%
Loan Loss Reserves/Nonperforming Loans 87.19% 89.64% 97.63%
Source: BB&T filings

A bright spot in BB&T's earnings release was that loans and leases delinquent 30 to 89 days and still accruing interest declined for the second straight quarter, to 1.70% of total loans and leases as of June 30. This ratio was 1.83% in March, 2.07% in December and 1.63% in June 2008.

While the repayment of the entire TARP investment is a feather in the company's cap, its regulatory capital ratios declined. The Tier 1 leverage ratio was 8.5% as of June 30, down from 9.35% the previous quarter. The total risk-based capital ratio was 15.2%, down from 17.07% in March. Of course, these ratios are still way above the 5% and 10% required for most banks to be considered well capitalized.

With the elimination of the Treasury's preferred stake in the company and a profitable second quarter, BB&T reported a tangible common equity ratio -- now a key focus for both the media and regulators -- of 6.5%, up from 5.6% in March.

CEO Kelly King touted the "aggressive measures" the company was taking in response to challenging credit conditions. He also emphasized "another outstanding quarter in mortgage banking production, with a record $8.5 billion in originations."

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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