April 17 (Bloomberg) -- BB&T Corp., the largest U.S. commercial bank by deposits that hasn’t cut its dividend, gained 11 percent in New York trading after it posted a first-quarter profit and the bank’s chief executive officer said loan losses may be moderating.

Net income fell 26 percent to $318 million, or 48 cents a share, from $428 million, or 73 cents, a year earlier, the Winston-Salem, North Carolina-based lender said today in a statement. Excluding $150 million in gains from trading securities, BB&T earned 32 cents, matching the average estimate of 22 analysts surveyed by Bloomberg.

The bank rose $2.35 to $23.42 at 4:01 p.m. in New York Stock Exchange composite trading, after trading as high as $24.75.

Increases in nonperforming loans and credit losses “were generally within the range we expected and reflect aggressive efforts to identify and resolve our problem credits,” Kelly King, the bank’s chief executive officer, said in the statement. BB&T has seen declines in past-due loans in some portfolios, he said, though the bank expects “continued increases in nonperformers in this difficult environment.”

BB&T’s reliance on commercial real estate loans prompted Standard & Poor’s Corp. in March to lower its outlook to “negative” from “stable.” Analysts at Calyon Securities and Stifel Nicolaus also issued “sell” ratings citing deteriorating credit quality and BB&T’s reliance on markets in North Carolina, South Carolina and Georgia, where unemployment rates exceeded the U.S. average of 8.5 percent in March.

Stabilization

“They’re seeing early signs of stabilization,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC, which manages $2 billion in Bedford Hills, New York. “That doesn’t mean things are good, but it means things don’t appear to be getting worse,” His firm bought BB&T shares in September, then sold them in January.

BB&T reported $2.75 billion in loans for which it wasn’t receiving full payments, up from $989 million a year earlier. The company set aside $676 million in reserves for future losses with most of the problem loans involving housing-related projects in the bank’s Georgia, Florida and Washington, D.C., markets.

House prices are stabilizing in those three markets with sales particularly strong to entry-level buyers aided by government tax credits, King said during a conference call today. Mortgage lending makes up 17 percent of BB&T’s total lending, the bank said.

Unemployment

U.S. unemployment is likely to peak at about 9.5 percent next year, King said.

BB&T said its ratio of tangible common equity to assets rose to 5.7 percent from 5.3 percent as of Dec. 31. Regulators view the ratio as a measure of a bank’s ability to absorb loan losses.

BB&T expects to repurchase its $3.1 billion in preferred shares sold to the U.S. Treasury “as soon as humanly possible,” King said today. He criticized the bank-rescue plan for having a “negative impact on our people and strategies.” BB&T is devising a capital strategy that will include plans to buy back the government’s preferred shares, he said.

The bank raised its quarterly dividend last August by a penny to 47 cents per share, while Bank of America Corp. and Fifth Third Bancorp and Regions Financial Corp. have slashed their payouts to a penny. About 60 percent of BB&T’s shares are held by individual investors, double the average percentage of the 20 largest U.S. banks, according to a March 30 report by Chris Mutascio, a Stifel Nicolaus analyst.

Loan Losses

BB&T should trim its dividend to preserve capital, Paul Miller, an analyst at FBR Capital Markets Inc., said in a Bloomberg TV interview. “It was a decent earnings number, but we continue to be concerned about loan losses, which continue to increase,” he said.

The bank’s net interest margin, the spread between interest paid on deposits and received on loans, increased to 3.57 percent from 3.47 percent during the previous quarter. BB&T’s net interest income increased 13 percent to $1.15 billion.

Noninterest income gained 21 percent, buoyed by record mortgage-related revenue of $188 million. The bank made $7.4 billion in home loans during the quarter, more than doubling the $3.6 billion issued in the first quarter of 2008.

Insurance income rose 19 percent because of increased commissions and acquisitions, the bank said. BB&T is the fifth largest U.S. insurance brokerage, according to Business Insurance magazine.

First Horizon

BB&T’s earnings contrasted with First Horizon National Corp., which reported a first-quarter loss of $82.8 million, or 39 cents per share, compared with a profit of $7.9 million, or 6 cents per share, in the first quarter of 2008. The loss exceeded an average loss estimate of 30 cents by 14 analysts surveyed by Bloomberg.

First Horizon, which is Tennessee’s largest bank, reported $208.3 million in loans considered uncollectible, up from $191.2 million in the previous quarter ended Dec. 31. The 8.1 percent increase in nonperforming loans was the smallest in eight quarters, the bank said.

First Horizon, which is based in Memphis, set aside $300 million as a provision for loan losses, up from $280 million in the previous quarter.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: April 17, 2009 16:17 EDT