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Reggie Middleton on Suntrust’s Q3-09 Earnings

Courtesy of Reggie Middleton

For all of you momentum chasing, non-calculating, never touched a spreadsheet, CNBC luvin’, James Cramer watchin’ bulls out there, I have a feeling you will be hearing a lot of I told’ja so’s over the next 12 months. I express this in jest (yes, I’m a part time comedian), but there is a serious streak here as well. I believe the equity prices are soaring on top of near, or actually, insolvent companies.

Well, hopefully by now you have heard of the Doo Doo 32 (As I see it, these 32 banks and thrifts are in deep doo-doo!), of which Suntrust was a founding member. Well, they are even on the board of the The Doo Doo 32, revisited. Click the links, they’re worth the read. Since Suntrust reported today, I though I would go over some of the numbers but before I do let’s get the flavor from the main stream media…

 
 

SunTrust posts 3Q loss but sees some signs improve   22 Oct 2009  -  The Associated Press: ATLANTA – SunTrust Banks Inc. on Thursday posted a big third-quarter loss as it set aside more money to cover bad loans, but said the rate at which mortgages were slipping into delinquency slowed for the first time in a year.

The bank reported a loss of $377.1 million, or 76 cents per share, compared with a year-ago profit of $304.4 million, or 87 cents per share.

The latest quarter included charges of 16 cents per share related to the valuation of certain debt.

Analysts polled by Thomson Reuters, on average, forecast a loss of 65 cents per share. Analysts typically do not include one-time gains or charges in their estimates. #ff0000;">Why don’t these analysts have thier banks part with a fraction of that record trading revenue (I’ll be getting to that in my next post) and subscribe to BoomBustBlog!?

Net interest income, or money earned from traditional banking operations like deposits, slipped slightly to $1.17 billion from $1.18 billion. Total deposits reached $114.5 billion, up 14 percent from last year.

The bank more than doubled its provision for loan losses — money set aside to cover souring loans — to $1.13 billion, from $503.7 million in the 2008 quarter.

Loans considered past due, or non-performing loans, were $5.44 billion. That’s up from $3.29 billion in the 2008 quarter, but down marginally from the prior quarter. SunTrust said the dip from the June period was the first decline since the credit crisis began in 2007, and the increase in residential mortgage loans slowed substantially from the rate seen in the past four quarters.

Restructured loans that were in good standing rose 31 percent to $1.34 billion. Early stage delinquencies, or loans that are 30 days past due, declined on both a sequential and year-over-year basis.

The bank wrote off more than $1 billion in loans as going unpaid, compared with $392 million last year. The total largely reflected reworked loans for residential construction and mortgages, along with additional charge-offs for corporate borrowers in cyclical industries, the banks said.

Noninterest income, or money earned from fees and charges, dropped nearly 40 percent to $775.1 million from $1.29 billion a year ago. The company said the decline was due to gains generated in last year’s quarter when it contributed company-owned stock to the SunTrust charitable foundation, sold a subsidiary and recorded gains on certain debt and hedges, which swing to a loss this year. Trading accounts profit and commissions also fell.

Chairman and CEO James M. Wells III said the quarter’s results "reflected the difficult operating environment for more traditional banks." The recession was reflected in lower fee income and weak loan demand as consumers and businesses work to pay off debt, he said. Some trends indicate that the economy is improving, but he said it will take time before that is reflected in the bank’s results.

SunTrust shares slid 25 cents to $20.51 in morning trading. They ended Wednesday’s session down 30 percent since the start of the year.

Reggie’s SunTrust 3rd Quarter Suntrust Review 

SunTrust Bank Inc (STI) reported another dismal performance, continuing its poor run for another quarter this year. The bank’s loan portfolio contracted and its non interest income declined significantly, while loan portfolio continued to be plagued with rising loan losses and charge-offs.

The bank reported 3Q2009 net loss per diluted share of $0.76 compared with net loss per diluted share of $0.41 per share in 2Q09. A significant decline in non-interest income, down 27.7% q-o-q to $775.1 million coupled with higher provision for loan losses ($0.19 per share) in 3Q09 led to an overall contraction in the bank’s profitability. The impact was partially offset by 4.4% q-o-q growth in net interest income to $1.1 billion in 3Q09.

In 3Q-09 STI’s net charge-offs increased to $1.0 billion or 3.3% of average loans (up 17.8% q-o-q) off higher charge-offs from residential mortgage and additional charge-offs related to large corporate borrowers in cyclical industries. Non-performing loans declined marginally to $5.4 billion or 4.67% of total loans as of September 30, 2009 led by reduction in nonaccrual commercial loans.

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STI’s total net revenues declined 11.5% q-o-q to $1.9 billion in 3Q09 compared with $2.2 billion in 2Q09 led by significant decline in non-interest income. Non-interest income decreased compared to the previous quarter off non-recurring gains of $112.1 million and $156.9 million recorded from the sale of Visa shares and recovery from impaired mortgage servicing rights in 2Q2009. Excluding the impact of aforementioned items, the Bank’s non-interest income contracted 3.4% q-o-q to $775.1 million in 3Q09 as compared to $802.7 million in 2Q09. In 3Q09, non-interest revenues accounted for 40.5% of the total net revenues against 49.6% in 2Q09.

Net interest income increased 4.4% q-o-q to $1,137.5 million in 3Q09 compared with $1,089.7 million in 2Q09 propelled by higher net interest margin which increased 16bps q-o-q to 3.10%. This positive impact was offset by decline in average earning assets, down 2.4% q-o-q to $149.6 billion in 3Q09 compared with $153.2 billion in 2Q09. Further, as decline in total net revenues exceeded the decline in overall expenses, the Bank’s efficiency ratio deteriorated 385 basis points q-o-q to 73.5% in 3Q09 as compared to 69.7% in 2Q09.

Net losses to common shareholders were $133.5 million higher in 3Q09, driven by $106.5 million after-tax increase in provision for loan losses coupled with decline in non-interest revenues.

The credit losses continue to weigh on STI’s performance with gross charge-offs increasing to $1,046 million (annualized charge off rate of 3.6%) in 3Q09 from $835 million (annualized charge off rate of 2.7%) in 2Q09 and $420 million (annualized charge off rate of 1.3%) in 3Q08, while the provisions for loan losses were $1,134 million in 3Q09 (annualized rate of 3.9%) against $962 million (annualized rate of3.1%) in 2Q09 and $504 million (annualized rate of1.6%) in 3Q08.

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stiq3_chargeoff.png 

Non-performing loans declined marginally to $5,444 million (4.67% of total loans) at the end of 3Q09 from $5,504 million (4.48% of total loans) at the end of 2Q09 but relatively remained high when compared with $3,290 million (2.60% of total loans) at the end of 3Q08. Total non-performing assets increased, and stood at $6,095 million (5.23% of total loans) compared with $6,165 million (5.02% of total loans) at the end of 2Q09 and $3,690 billion (2.91% of total loans) at the end of 3Q08. However, the 90 days past due loans increased to $1,509 million at the end of 3Q09 from $1,411 million at the end of 2Q09 and $772 million at the end of 3Q08. The surge in 90 days past due loans and shrinkage in tangible equity led to Texas ratio inching to 58.0% against 57.8% in 2Q09 and 40.8% in 3Q08. This is very high for a $130 billion dollar – oops that’s $116 billion this quarter (loan assets) bank. Watch out for this one! The FDIC couldn’t hold this one, even with a handle attached to it – see I’m going to try not to say I told you so…. Remember you hear it here first! If a bank the size of Suntrust goes down, the floor will fall out beneath the market and make last March look like a bull market! Thus far, WaMu was the largest pure lender to fall to the Asset Securitization Crisis (yes, I coined the term – go ahead and click the link for the play by play), but now the FDIC and related entities have shot their wad (excuse my Mandarin). No amount of loss sharing with private entities will conceal the chain reaction and loss of trust that will probably ensue. Of course, there would be no loss of trust if the government made the big banks take their medicine up front, but I guess nobody likes the taste of castor oil – or reduced bonuses/compensation/control.

stiq3_credit_quality.png

Loans and Deposits

Owing to tough credit and lending conditions, the total loan portfolio declined to $116.5 billion from $122.8 billion in 2Q09 and $126.7 billion at the end of 3Q09. The decline was largely contributed by reduced lending in commercial loans and real estate loans segments. However, the total deposits increased to $119.3 billion from $118.8 billion in 2Q09 and $115.9 billion at the end of 3Q09. Consequently, the loan to deposit ratio declined to 97.6% from 103.4% in 2Q09 and 109.3% at the end of 3Q09.

stiq3_loans_deposits.png

Tier 1 capital

In spite of decline in Tier 1 common equity owing to 3Q09 losses, the Tier 1 common equity ratio improved to 7.45% from 7.34% at the end of 2Q09 and 5.83% at the end of 1Q09 largely owing to the decline in risk weighted assets.


Here is some Suntrust research for subscribers:

Sun Trust Bank Report Sun Trust Bank Report 2008-08-30 06:39:22 391.89 Kb

STI update STI update 2009-09-03 06:33:37 1.08 Mb

Sun Trust Banks Simulated Government Stress Test Sun Trust Banks Simulated Government Stress Test 2009-05-05 11:37:13 1016.17 Kb

 Shall we revisit how I felt about those stress tests that Suntrust failed to fail????

The Treasury with their stress tests, lacking any form of realistic stress:

  • #87b876 ;">America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario
  • #87b876 ;">Regarding Housing Price Decline, You Ain’t Seen Nothing Yet
  • #217a03; ;">The Real Stress Test Results
  • and #217a03 ;">Reggie Middleton Releases More Goldman Sachs Secrets that Tim Geithner Might not Share with You!
  • as well as #217a03; ;">The Truth About the Banks Has Been Released: the open source spreadhseet edition
  • #217a03 and ;">Welcome to the Big Bank Bamboozle!
  • #87b876];">The Re-Release of the Open Source Mortgage Default Model

 


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