Yet another bank has fallen victim to a drop in mortgage banking. This morning, BB&T (NYSE:BBT) reported pre-tax earnings that grew on a year-over-year basis even though revenue from its residential lending operations fell by 44.5% compared to the third quarter of 2012.
After excluding a previously announced $235 million negative tax adjustment, the North Carolina-based bank earned $0.70 per diluted share of common stock in the third quarter, comfortably beating last year's EPS of $0.66 per share.
"BB&T posted solid results in a challenging environment this quarter," said chairman and chief executive officer Kelly King. "Our 7% growth in adjusted earnings was driven by a substantial improvement in credit quality to the best levels in almost six years."
The bank's earnings followed virtually an identical pattern to that of its regional banking peers. Revenues were pummeled from the aforementioned drop in income from mortgage-banking activities. Relative to the same quarter last year, BB&T saw its top line decline by $124 million, or 5.1%.
The drop was split between net interest income, which accounted for $66 million of the fall, and noninterest income, which accounted for the remaining $58 million. The latter felt the brunt of the ongoing trends in the housing market, as mortgage-banking income alone dropped by $94 million.
BB&T's earnings before taxes nevertheless improved thanks to lower expenses and, even more importantly, loan-loss provisions. The former were down by $58 million while the latter dropped by $152 million. Holding provisions steady, in other words, would have resulted in a pre-tax loss of $66 million.
For investors, the best news resides on the loan and credit quality fronts. For the three months ended Sept. 30, average loans at the bank grew by 3% on an annualized basis. In addition, BB&T's net charge-off ratio, which measures the proportion of delinquent loans that are actually expensed, fell to 0.49%, which is largely considered a normalized level, even in relatively good times.
Shares of the bank are down by 1.7% at the time of writing.