The bank’s chairman and CEO, William Rogers Jr., credited improving economic conditions in SunTrust’s focus markets as it executes its “strategic priorities," including the ongoing diversification of the loan portfolio through increases in C&I and commercial real estate loans.
Targeted loan growth and sales of government-guaranteed residential loans in the second quarter resulted in a 2% decline in average loans compared to the same quarter of 2012.
Total revenue was $2.1 billion for the second quarter, a decrease of $14 million, or 1%, compared to the prior quarter, “primarily driven by lower mortgage-related and net interest income,” while in the same quarter of 2012 was “partially offset by a reduction in the mortgage repurchase provision.”
The volume of nonperforming loans and nonperforming assets reached their lowest levels since the third quarter of 2007.
Asset quality continued to improve as nonperforming loans decreased 22% during the quarter to 0.94% of total loans at June 30, compared to 1.21% last quarter and 1.97% in 2Q12. Together nonperforming loans and net charge-offs, which decreased to 0.59% of average loans down from 0.76% in 1Q13 and 1.14% in 2Q12, “were at their lowest levels in over five years.”
Nonperforming loans totaled $1.1 billion at June 30, down $326 million, or 22%, relative to the prior quarter, “led by declines in residential mortgages and home equity loans.”
To comply with recent regulatory guidance during the fourth quarter of 2012, SunTrust transferred $232 million of such loans to nonperforming status. REO totaled $198 million at the end of the quarter, down 11% from 1Q13 and down 40% from a year ago. Early-stage residential loan delinquencies also decreased 7 bps from the prior quarter to 0.71% at June 30.
Improved credit risk helped decrease credit loss provisions by 31%, compared to the previous quarter. At June 30, the allowance for loan losses was $2.1 billion, representing 1.75% of total loans, and 4 bps lower from March 31, 2013. Reflecting the continued improvement in asset quality, executives said, the allowance for loan losses during the current quarter decreased to $27 million. SunTrust’s estimated capital ratios at June 30 were “well above current regulatory requirements.”
At June 30, the reserve for mortgage repurchases totaled $363 million, down $150 million from the prior quarter thanks to a higher pace of resolving repurchases of older vintage loans with the GSEs that led to higher charge-offs and lower pending demands, executives said.
Mortgage production income during the quarter was $133 million compared to $159 million for the prior quarter and $103 million for the second quarter of last year following declines in gain-on-sale revenue as mortgage interest rates increased sharply in late May and through June.
Closed mortgage production volume was $9.1 billion, up 3% compared to the prior quarter, while the mix of purchase volume increased to 34% compared to 20% in the prior quarter.
Changes in the portfolio size and structure that resulted in “reduced net hedging gains” brought mortgage servicing income down to $1 million for the second quarter, down from $38 million for the first quarter and $70 million for the second quarter of 2012.
At June 30, the servicing portfolio was $140 billion compared to $153 billion at June 30, 2012, mostly due to “the elevated level of refinance volume and the sale of certain loans in the portfolio.”
“A specific mortgage-related legal matter,” the company said, caused a $33 million sequential quarter increase in operating losses. At the same time noninterest expenses increased 2% compared to 2Q12 “due to a specific mortgage-related operating loss and higher collection expenses” deriving from the resolution of defaulted mortgages.
Average performing loans were $120 billion for the current quarter, an increase of $0.6 billion, or 1%, from the prior quarter, driven by growth in C&I and commercial real estate loans, “partially offset by a decrease in government guaranteed residential mortgage loans.”
