SunTrust Banks Inc. said Thursday that it faced a deposit drain early in the third quarter but was able to reverse it by pushing money market accounts while benefiting from deposit runs at several competitors.
During an earnings conference call Thursday, James Wells 3rd, SunTrust's chairman, president, and chief executive, also indicated that the $174.8 billion-asset Atlanta company may have to do as some other firms have done and cut its dividend.
There is no "deep need" for capital, but "the level of economic uncertainty" makes it more prudent to examine SunTrust's capital structure, Mr. Wells said.
He also said the board had approved his company's application to sell preferred stock to the federal government. (See related story.)
In a noisy quarter, expenses held back results for SunTrust. Earnings fell 42.2% from the second quarter and 25.5% from a year earlier, to $307.3 million, or 60 a share, which missed the average estimate of analysts by 28 cents, according to Thomson Reuters.
The loan-loss provision climbed 12.4% from the second quarter and 242.6% from a year earlier, to $503.7 million.
Net chargeoffs rose 21.5% from the second quarter and 278% from a year earlier, to $392.1 million. Nonaccrual loans rose 25.3% from the second quarter and 237% from a year earlier, to $3.29 billion.
Thomas Freeman, SunTrust's chief credit officer, said during the conference call that three-fourths of the nonaccruals were tied to mortgages and residential construction, and that there was little evidence that problems had infiltrated other loan portfolios.
The growth rate in nonaccrual loans has started to slow, Mr. Freeman said, though chargeoffs are likely to continue rising as SunTrust deals with problematic loans.
Deposits fell 0.6% from the second quarter but rose 3% from a year earlier, to $101.8 billion.
Mark Chancy, SunTrust's chief financial officer, said during the conference call that deposits fell to "just over" $100 billion at the end of August as a result of intense competition and a "general strain" on depositors' liquidity. SunTrust relied more on money market products to retain funds while benefiting from news-fueled deposit runoff at several competitors, he said. "Since then balances have continued to grow."
Average loans rose slightly from the second quarter and 5.1% from a year earlier, to $125.6 billion, mostly in commercial-related categories. Mr. Chancy said SunTrust was "intentionally shrinking" its mortgage, construction, and indirect auto portfolios.
It recorded several special items in the third quarter, including $341 million of mark-to-market gains on public debt and related hedges and an $82 million gain from selling its fuel card business. Those items offset $173 million of expected losses tied to addressing issues with auction-rate securities and $137 million of mark-to-market losses on illiquid securities and loan warehouses.
Noninterest expenses rose 21% from the second quarter and 29.7% from a year earlier, to $1.7 billion. The results included $20 million of expenses tied to Visa Inc. litigation, $38.1 million of real estate and collections expenses, and $48 million of reserves tied to mortgage application fraud at SunTrust's Twin Rivers Mortgage Reinsurance Co.