SunTrust Banks Inc. swung to a loss in the third quarter because of an expansion in loan-loss provisions and writedowns as the weak economy continued to weigh on traditional banking at the Atlanta regional.
Although some big banks have been posting strong results for the most recent period, regional ones don't have the same level of capital-markets activity to offset weak traditional banking, which will remain under pressure until serious improvement in the economy and joblessness.
Many regionals, SunTrust included, have been hit hard by the housing crisis because of their exposure to local construction and commercial real estate as well as effects from high unemployment. However, SunTrust had seen encouraging signs in deposit growth, early-stage delinquencies and net interest margins, which are a key measure of profitability.
"Continued recession-related earnings pressures included higher credit costs, softer fee income and generally weak loan demand, as consumers deleverage and businesses pay down existing credit lines and defer investments," Chairman and Chief Executive James M. Wells III said Thursday.
But Wells said he was "tentatively optimistic" about how the improving economy will effect the company, noting net interest margin expanded, operating expenses fell and, importantly, nonperforming loans and early-stage loan delinquency levels stabilized.
SunTrust posted a loss of $316.9 million, or 76 cents a share, compared with a profit $312.4 million, or 87 cents a share, a year earlier. The latest results included 16 cents a share of mark-to-market losses on the public debt and related hedges.
Revenue decreased 21% to $1.94 billion.
A survey of analysts by Thomson Reuters predicted a loss of 65 cents a share on revenue of $2.11 billion.
Tier 1 capital ratio, a key measure of financial strength, rose to 12.55% from 8.15% a year earlier and from 12.23% in the previous quarter.
Loan-loss provisions more than doubled to $1.13 billion from a year earlier and climbed nearly a fifth from the previous quarter. Net charge-offs, loans the bank doesn't expect to collect, rose to 3.33% of average loans from 1.24% and 2.59% respectively. Nonperforming loans, or those in danger of default, rose to 4.67% of total loans plus other real estate and repossessed assets, up from 2.6% and up from 4.5%.
SunTrust shares closed Wednesday at $20.76 and weren't active premarket. Although it has more than tripled from an all-time low in February, the stock remains down by 30% for 2009.