BB&T's Earnings Rise on Lower Credit Costs

NEW YORK ( TheStreet) -- BB&T ( BBT) on Thursday reported earnings that came in ahead of expectations, as the company's credit costs declined.

The Winston-Salem, N.C., lender reported fourth-quarter net income available to common shareholders of $537 million, or 75 cents a share, beating the consensus EPS estimate of 71 cents, among analysts polled by Thomson Reuters.

Earnings increased from $268 million, or 37 cents a share, during the third quarter, and $506 million or 71 cents a share, during the fourth quarter of 2012.  The third-quarter results were lowered by a $235 million tax adjustment.  The year-over-year improvement mainly reflected a decline in the provision for credit losses, to $60 million during the fourth quarter, from $92 million the previous quarter and $252 million a year earlier.

BB&T's net interest income declined to $1.397 billion during the fourth quarter from $1.454 billion the previous quarter and $1.513 billion a year earlier.  The company's net interest margin -- the spread between the average yield on loans and investments and the average cost for deposits and borrowings -- narrowed to a tax-adjusted 3.56% during the fourth quarter, from 3.68% the previous quarter and 3.84% a year earlier.

While long-term interest rates rose considerably during 2013, in anticipation of the Federal Reserve's eventual tapering of its "QE3" purchases of long-term bonds, many banks are continuing to see margin pressure as certain loan types with rates indexed to short-term bench marks -- including home equity loans and equipment leases -- reprice lower, while most newly originated mortgage loans -- indexed to long-term rates --  are immediately sold to Fannie Mae ( FNMA) and Freddie Mac ( FMCC).

Noninterest income totaled $985 million during the fourth quarter, compared to $905 million the previous quarter and $1.020 billion a year earlier.  The sequential increase reflected "a $31 million net gain on the sale of a consumer lending subsidiary with approximately $500 million in loans, an $18 million increase in income related to assets for certain post-employment benefits that is offset in personnel expense, and a $16 million increase in insurance income," according to BB&T.

The year-over-year decline in noninterest income mainly resulted from a decline in mortgage banking income to $100 billion during the fourth quarter from $231 million during the fourth quarter of 2012.  This follows the industry trend, as rising long-term interest rates have curtailed the wave of mortage refinancing applications, while also reducing gain-on-sale margins.

BB&T's noninterest expense declined to $1.456 billion during the fourth quarter, from $1.471 billion the previous quarter and $1.488 billion a year earlier.

The bank's average loans held for investment, excluding loans acquired from failed banks with government loss-sharing agreements -- declined slightly during the fourth quarter but were up 2% year-over-year, to $112.6 billion.  Average commercial and industrial loans were roughly flat at $38.1 billion as of Dec. 31, while average commercial real estate loans grew 4% year-over-year to $11.5 billion.  Average sales finance loans -- that is, indirect vehicle loans made through dealers -- rose 3% sequentially and 20% year-over-year, to $9.3 billion in the fourth quarter.

The company's return on average assets for 2013 was 0.96%, declining from 1.14% the previous year, while its return on average tangible common equity (ROTCE) for 2013 was 13.61%, declining from 17.39% during 2012.  The lower ROTCE partially reflected a significant increase in the tangible common equity ratio to 7.3% as of Dec. 31, from 6.6% a year earlier. 

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