SunTrust Swings to Loss, BB&T Beats

SunTrust ( STI) swung to a loss as BB&T ( BBT) beat modest expectations, but both southern banks built cushions to stay ahead of loan losses in the fourth quarter.

SunTrust reported a loss of $379.2 million, or $1.08 a share, for the fourth quarter compared to a year-earlier profit of $3.3 million, or 1 cent a share. It also slashed its dividend to 10 cents a share.

Analysts, on average, expected the company to post a profit of 7 cents a share, according to Thomson Reuters. Shares were trading down 11.5% to $13.46 on Thursday.

On the other hand, BB&T, one of the few stalwarts throughout the credit crisis, reported a 31% decline in profit available to common shareholders to $284 million, or 51 cents a share. That beat the consensus analyst estimate of 47 cents a share for the quarter, according to Thomson Reuters. Shares recently were down 3.8% to $18.96.

The bottom lines of both companies were weighed by provisioning against loan losses. Atlanta-based SunTrust's poor results were fueled by significant credit-related charges that reflected the "dramatic deterioration" in the economy during the fourth quarter, it said.

"The fact that SunTrust is not alone in paying the price of a deteriorating economy on our business and our clients does not make today's results any less painful to report," SunTrust's chairman and CEO James Wells III, said in a statement. Wells noted that increased unemployment and continued declines in home values drove loan delinquencies significantly higher during the fourth quarter of 2008, resulting in higher than expected credit losses.

"We are under no illusions as to the severity of this credit cycle," he added. "Managing successfully through it remains our number one priority."

SunTrust recorded a provision of $962.5 million for the fourth quarter. Net loans charged off totaled $552.5 million, or 1.72% of average loans, up from 1.24% of loans in the third quarter. SunTrust said the increase results from further deterioration in consumer residential real estate, residential construction loans as well as commercial related charge-offs.

Additionally, SunTrust said it recorded $236.1 million in charges related to losses stemming from borrower misrepresentations and insurance claim denials as well as another $100 million related to mortgage reinsurance reserves. It also recorded markdowns totaling $145 million due to falling market valuations on certain loans and securities.

"Through this cycle, we will continue to take the steps appropriate to maintain the company's fundamental financial strength that is never more important than in a time of economic stress and uncertainty," Wells said. "At the same time, our people will continue to focus on serving our clients' needs, making good loans, generating core deposits, and running our business more efficiently. While understandably eclipsed right now by recession-related credit concerns, the positive momentum generated by these efforts will help us deliver the long-term shareholder value to which we remain committed."

Winston-Salem, N.C.-based BB&T said it took a $528 million provision for credit losses, compared to $184 million in extra reserves set aside a year earlier. Net charge-offs totaled $314 million in the quarter, it said. BB&T cited continued deterioration in residential real estate markets and the overall economy "with the largest concentration of credit issues occurring in Georgia, Florida and metro Washington, D.C."

Nonperforming assets, as a percentage of total assets, increased to 1.34% at Dec. 31, 2008, compared to 1.20% at Sept. 30.

"The year 2008 was very challenging and credit deterioration remains a significant concern," CEO Kelly King said in a statement. "Even though the cost of the current credit cycle has depressed earnings, our overall results reflect a number of positive developments and demonstrate that BB&T is gaining market share and growing."

Still Kelly acknowledged that nonperforming assets and credit losses increased further during the quarter as a result of the distressed residential real estate markets and downturn in the economy.

"While it is difficult to know the full extent of the economic downturn and the resulting impact on BB&T's credit quality, we expect further increases in nonperforming assets and net charge-offs into 2009," he said.

BB&T, which received $3.1 billion through TARP last quarter, said it had "incrementally increased loans and investments" with the capital received. Loans and leases rose $2 billion during the quarter as "the pace of loan growth accelerated late in the quarter," it said.

BB&T's Tier-1 capital ratio totaled 12% at the end of December.

BB&T's profit available to common shareholders includes "dividends and accretion on preferred stock," but excludes "merger-related and restructuring charges" and other nonrecurring items, BB&T said. Excluding dividends and preferred stock the company's net income would have been $305 million for the quarter compared to $411 million, or 75 cents a share, in the year-earlier period.

The company's full year profit fell 13% to $1.5 billion, or $2.71 a share, compared to 2007.

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