Bloomberg News

SunTrust Falls as Mortgage-Repurchase Costs, Expenses Rise

October 21, 2011

(Updates share price in second paragraph.)

Oct. 21 (Bloomberg) -- SunTrust Banks Inc. fell the most among the biggest U.S. banks in New York trading after reporting higher mortgage-repurchase costs and operating expenses.

SunTrust dropped 3.3 percent, the biggest decline in the 81-company Standard and Poor’s 500 Financials Index, to $18.57 at the close of trading after falling as much 6.6 percent earlier today. The index slipped 3.3 percent.

“Operating losses related to mortgage services continues to be elevated, and even outside that increase, you still had total expenses higher,” Stephen Moss, an analyst at Janney Montgomery Scott LLC in Philadelphia, who rates the stock “neutral,” said in a phone interview. “Bank investors are looking for operating efficiencies. Outlook is not that good in the short-run here.”

SunTrust, the 10th-biggest bank by assets, said third- quarter profit climbed 41 percent as it made lower loan-loss provisions. Revenue declined 5 percent to $2.2 billion from $2.3 billion, the Atlanta-based lender said today in a statement.

Operating losses related to mortgage servicing increased by $45 million in the third quarter compared with a year earlier. Mortgage repurchase costs were $117 million, an increase of $27 million over the prior quarter.

Net income rose to $215 million, or 39 cents a share, from $153 million, or 17 cents, in the same period a year earlier, according to statement. The average estimate of 32 analysts surveyed by Bloomberg was for 35 cents.

SunTrust Chief Executive Officer William H. Rogers, who succeeded James M. Wells III in the post on June 1, announced a plan in July to cut expenses $300 million by 2013.

Expenses Increase

Non-interest expenses increased 1 percent to $1.56 billion in the third quarter compared with the second quarter, and rose 4 percent from the year-earlier period on higher mortgage- related costs, $41 million more for compensation and additional hiring, according to the statement.

SunTrust plans to bolster mobile and automated teller machine banking while reducing the number of branches to cut expenses, Rogers said in a conference call after results were announced. “This is not a widespread branch reduction exercise, though it will include some branch rationalization and core changes to our branch staffing model.”

Credit-loss provisions fell 44 percent to $347 million from $615 million in the year earlier. Net charge-offs fell 29 percent to $492 million from $690 million and nonperforming loans were down $1.1 billion, or 26 percent. Net charge-offs fell 29 percent to $492 million from $690 million and nonperforming loans were down $1.1 billion, or 26 percent.

Net Interest Income

Net interest income increased 1 percent to $1.29 billion in the third quarter from the previous quarter because of one more day in the third quarter, the bank said. Net interest income rose 2 percent from the year earlier as the bank paid lower rates on deposits, according to the statement.

Non interest income fell to $903 million for the third quarter from $1 billion in the year earlier due to lower net gains on the sale of investment securities, and lower investment-banking and mortgage-related income.

The net interest margin, the difference between what a bank pays in deposits and charges for loans, narrowed to 3.49 percent from 3.53 percent in the second quarter and widened from 3.41 percent the year earlier.

Tier 1 capital ratio fell to 11 percent from 14 percent in the year earlier.

--With assistance from Howard Mustoe in London. Editors: William Ahearn, Dan Kraut

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net;

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net;


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