SunTrust Banks Inc. (STI) filed Quarterly Report for the period ended 2009-09-30.
SunTrust Banks Inc. is a commercial banking organization. The company provides a wide range of services to meet the financial needs of its growing customer base in Alabama Florida Georgia Maryland Tennessee Virginia and the District of Columbia. Its primary businesses include traditional deposit and credit services as well as trust and investment services. (Company Press Release) Suntrust Banks Inc. has a market cap of $9.81 billion; its shares were traded at around $19.66 with and P/S ratio of 1.1. The dividend yield of Suntrust Banks Inc. stocks is 0.2%. Suntrust Banks Inc. had an annual average earning growth of 2.3% over the past 10 years.
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available to common shareholders, or $3.41 per common share. The net loss during the quarter was primarily a result of increased provisioning for loan and lease losses and $131.3 million, or $0.16 per common share, of market valuation losses on our public debt and related hedges carried at fair value as the credit markets continue to improve and credit spreads narrowed. The nine month period also included a $714.8 million, after tax, or $1.72 per common share, non-cash goodwill impairment charge.
During the second quarter, in response to the SCAP, we successfully completed our capital plan and initiatives, generating $2.3 billion of capital and exceeding the target of $2.2 billion established by the Federal Reserve. The transactions utilized to raise the capital included the issuance of common stock, the purchase of certain preferred stock and hybrid debt securities, and the sale of Visa Class B shares. These capital raising transactions increased Tier 1 common equity by $2.1 billion and were the driving factor in the increase in our Tier 1 common equity ratio to 7.49% at September 30, 2009 compared to 5.83% at December 31, 2008. During the second quarter, we completed all required capital initiatives and believe that relative to the more adverse scenario additional capital will be achieved through a combination of lower losses and higher earnings than projected by SCAP. As a result of the successful capital plan and initiatives, we have the ability and desire to repay the U.S. government for funds borrowed in the form of preferred stock issued by us under the Troubled Asset Relief Program (“TARP”). However, our repayment of TARP funds is predicated on approval by our primary regulator, the Federal Reserve. For the three and nine months ended September 30, 2009, we declared $60.6 million and $182.1 million, respectively, in dividends payable to the U.S. Treasury. See additional discussion of SCAP and the capital plan and initiatives in the “Capital Resources” section of this MD&A.
In the third quarter, average loans declined $4.3 billion, or 3.5%, compared to the second quarter and have declined $7.8 billion, or 6.1%, since the fourth quarter of 2008. Our aggressive effort to reduce exposure to construction lending continued in the third quarter, as evidenced by the 15.9% decline in average quarterly balances versus the previous quarter and the 48.4% decline compared to the third quarter of last year. The majority of the overall decline in loans, though, is coming from the commercial loan category which declined over $3 billion, or 8.3%, during the third quarter. This reduction continued the trend of declining line of credit utilization among our mid-size and larger corporate clients due to improved access to capital markets and lower working capital needs. For example, our large corporate client line utilization has dropped from an average of 34% in the fourth quarter of last year to 26% during the third quarter of 2009. The decline in the remaining loan categories is primarily due to weak loan demand as a result of the economic environment, which has caused clients to be focused on capital preservation and an allocation of excess funds for debt reduction. We remain focused on extending credit to qualified borrowers as businesses and consumers work through the current economic downturn. Despite this reduction, new loan originations, commitments, and renewals of commercial and consumer loans were approximately $22 billion during the quarter and $72 billion year to date, with residential mortgage originations leading the way.
During the third quarter, we increased our holdings of U.S. Treasury and agency securities by over $4 billion in light of the increased liquidity from higher deposits and lower loan balances. In addition, agency mortgage-backed securities (“MBS”) declined by approximately $2 billion. This decline was related to sales later in the third quarter where we had the opportunity to manage the portfolio’s duration by selling bonds at a gain and repositioning the MBS portfolio into securities that we believe have higher relative value. As a result of the securities sales, we realized $55.7 million in gains during the quarter. Since quarter end, we have purchased agency MBS to replace the securities sold and we will continue to look for additional opportunities in the fourth quarter.
The allowance for loan losses increased $673.0 million from year end, increasing to 2.61% of total loans, up 75 basis points from year end, due to an increase in provisioning as a result of further deterioration in the housing market coupled with the decline in total loans. Compared to the previous quarter, the allowance for loan losses increased $128.0 million, which compares favorably to the $161.0 million, $384.0 million, and $410.0 million increase recognized over the previous three quarters. While consumer-related early stage delinquencies remained stable, loss severities related to the underlying residential properties continued to increase. The provision for loan losses was $1.1 billion during the quarter, which is a 17.8% increase when compared to the second quarter and a 14.1% increase compared to the first quarter. Net charge-offs increased to $1.0 billion in the third quarter of 2009 compared to $801.2 million in the second quarter and $610.1 million in the first quarter. The majority of our credit losses relate to loans secured by residential real estate. However, we are seeing some signs of weakness in our commercial client base related to stress on their revenues and overall profitability, particularly those in cyclical industries that are more directly impacted by the current recessionary conditions. The increase in net charge-offs during the quarter was primarily related to large corporate borrowers in economically cyclical industries, residential mortgages, and the resolution of loan workouts related to the home builder portfolio. Annualized net charge-offs during the quarter were 3.33% of average loans, up from 2.59% in the second quarter, and 1.97% in the first quarter. While net charge-offs remain elevated, early stage delinquencies have decreased in almost all loan categories in the past three quarters relative to their peak at year end. We continue to employ extensive loan workout programs that are designed to help clients stay in their homes by re-working residential mortgages and home equity loans to achieve payment structures that borrowers can afford. We have implemented numerous loss mitigation efforts and are working to effectively manage elevated levels of nonperforming loans. Our nonperforming loans decreased $59.6 million and accruing restructured loans increased $418.6 million from prior quarter, but both remain elevated from year end levels as a result of the continued recessionary environment. The decrease in nonperforming loans, the first quarterly decrease since the credit crisis began in 2007, was mainly due to a reduction in nonaccrual commercial loans as the result of charge-offs recognized during the quarter and the transfer of certain loans out of nonaccrual due to improved performance. While not a primary driver of the improvement, our proactive mortgage loan modification programs have had a positive influence on these delinquency and nonperforming loan trends. The increase in restructured loans is due to us taking proactive steps to responsibly modify loans in order to mitigate loss exposure to borrowers experiencing financial difficulty. See additional discussion of credit and asset quality in the “Loans”, “Allowance for Loan and Lease Losses”, “Provision for Loan Losses”, and “Nonperforming Assets” sections of this MD&A.
declined $99.1 million, or 6.5%, from the second quarter primarily as a result of the FDIC special assessment recorded in the second quarter that did not recur in the third quarter. When excluding the $751.2 million non-cash goodwill impairment charge recorded in the first quarter of 2009 and the $78.2 million FDIC special assessment recorded in the second quarter of 2009, noninterest expense decreased in the nine month period compared to the comparable period in the prior year, primarily due to our vigilance on expense management. See additional discussion of our financial performance in the “Consolidated Financial Results” section of this MD&A.
STI is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, Brian Rogers of T Rowe Price Equity Income Fund, Brian Rogers of T Rowe Price Equity Income Fund, Michael Price of MFP Investors LLC, David Dreman of Dreman Value Management, Charles Brandes of Brandes Investment, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, John Paulson of Paulson & Co., Steve Mandel of Lone Pine Capital, Warren Buffett of Berkshire Hathaway, John Keeley of Keeley Fund Management, George Soros of Soros Fund Management LLC, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc.
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