SunTrust Banks Inc. delivered a relatively unsurprising third-quarter report Friday, even though it was a month late because the company found it would have to restate first-half results upward as a result of errors in calculating loan-loss reserves.
Executives said little new about the problems. Instead, they talked about the $152 billion-asset Atlanta company's financial performance and the opportunities they see, including those created by its acquisition of National Commerce Financial Corp. of Memphis.
Net income grew 11% from a year earlier, to $369 million. Earnings per share rose 10%, to $1.30, but were a penny below analysts' expectations, according to Thomson First Call. Some analysts attributed the miss to $18 million of securities losses and a higher-than-expected tax rate.
L. Phillip Humann, SunTrust's chairman and chief executive, laid out a National Commerce integration timetable that calls for major systems conversions in the second quarter. SunTrust may not get much of the expected $117 million of annual cost savings until then.
On Friday it disclosed that the $7 billion acquisition would shave 6 cents a share from fourth-quarter profits. Some analysts said that reduction would be slightly more than they expected.
Mr. Humann said SunTrust expects to meet previous projections that the acquisition would cut 10 cents from per-share earnings next year but add 8 cents in 2006.
"The process of combining our two organizations is continuing, and it's going very, very well," he said. "We remain on track to achieve the merger's strategic, business, and financial goals."
SunTrust said it plans to begin converting some systems in the first quarter, including its payroll and accounting, brokerage, and consumer lending platforms. But it will not close 61 National Commerce branches and convert branch systems until April.
A SunTrust spokesman said that 107 employees at National Commerce's loan services and mortgage operations in Durham, N.C., have been notified that their jobs will be eliminated early next year. He said no other merger-related layoffs have been announced so far.
SunTrust appears to be pushing ahead with one of National Commerce's plans -to open branches inside Wal-Mart stores in Georgia and Florida. Some analysts had wondered if SunTrust would alter the plan, which would put it in competition with itself in those two states.
In response to a question Friday, James Wells 3d, a SunTrust vice chairman, said it has opened "three or four" branches in Wal-Mart stores under the agreement, which National Commerce announced in April.
SunTrust and Wal-Mart Stores Inc. are in discussions over how to proceed, and the relationship is "going quite well," Mr. Wells said.
Many analysts were left struggling to gauge the acquisition's impact. SunTrust did not report National Commerce's third-quarter results, even though the deal closed Oct. 1.
William R. Reed Jr., a vice chairman and National Commerce's former CEO, gave no details during Friday's conference call, except to say its results "mirrored a lot of SunTrust's metrics on the loan side and on the deposit side." Nat Commerce's capital markets unit was "a little lighter" than in the past two quarters, he said.
Analysts said National Commerce may have used the quarter to clean up its balance sheet or take other actions to prepare itself for the purchase.
Thomas McCandless, an analyst at Deutsche Bank Securities, called the lack of figures "very disappointing." Not knowing how National Commerce did in its final quarter makes it difficult to determine where the earnings dilution will come this quarter and in the future, said Mr. McCandless, who has a "hold" rating on SunTrust's shares.
Richard X. Bove, an analyst at Punk Ziegel & Co. in New York, called the lack of data on National Commerce "off-putting" and said the companies' cultural differences could make the integration rocky.
National Commerce is "more run-and-gun" in its marketing, while SunTrust takes a more traditional approach, he said.
Those concerns, along with the possibility that SunTrust could face deeper regulatory scrutiny over loan-loss reserves, have dampened his enthusiasm for the stock, which Mr. Bove rates "market perform." (On Wednesday, SunTrust said it would fire three executives and reassign another in connection with the matter.)
As Mr. Humann has been doing for a month, he tried Friday to put the best face on the restatement. "The good news, if I can use that phrase, is that I don't expect this accounting issue, as serious as it may be, to have a meaningful impact on our earnings capacity or financial performance," he said.
John Pandtle, an analyst at Raymond James & Associates Inc. of St. Petersburg, Fla., had other, more basic concerns. SunTrust has continued to lose market share, and recent trends, including sluggish corporate loan growth and a lack of improvement in the net interest margin, are not encouraging, he said. "They're entering 2005 with even less earnings momentum than … we originally anticipated," said Mr. Pandtle.
