SunTrust Banks expects to spend less money in the future to resolve problems with its mortgage lending and servicing practices, but a penalty of more than $1.3 billion, announced last week, hurt its profits this quarter.
SunTrust made $189 million in the quarter, including the impact of the penalties and a $96 million increase in its allowance for payments it makes when a loan becomes delinquent. That’s an 82 percent decrease from the $1.08 billion it made in the third quarter of 2012, though that period included profits from an accelerated sell-off of Coca-Cola stock.
But the numbers mask an actual improvement in SunTrust’s core business. Without the extra profits or penalties, SunTrust — Atlanta’s largest headquartered bank — would have made $358 million available to common shareholders in the third quarter, 14 percent more than what it would have made last year.
The bank’s nonperforming loans continue to improve, and are the lowest they have been in six years. Both loans and deposits are up. But a slowdown in refinancing volume led the bank to announce earlier this week that it is laying off 800 mortgage workers, about 20 percent of its employees there.
The decision to do so is “tough,” SunTrust Chairman and CEO William H. Rogers Jr. said during a company call. Chris Marinac, managing principal and director of research for FIG Partners, said the pullback is normal for the typical housing cycle.
Though SunTrust said it is continuing to keep costs down, Marinac said the bank is not making as much money as it should be.
“They have some catching up to do compared to their peers,” he said.
Expenses are still a challenge, he said. Marinac also questioned whether the money SunTrust paid to a number of federal agencies to resolve its mortgage problems would be the end of the payments. An investigation into its administration of the Home Affordable Modification Program, which lets working homeowners lower monthly mortgage payments to make them more affordable, remains active.
“I wish I had an end in sight for this,” he said.
Rogers said the mortgage actions help reduce business uncertainty. To that end, he also praised the conclusion of the government shutdown and debt ceiling crisis.
“Our hope is the government can reach a bipartisan agreement on ways to permanently close the budget gap,” he said. “This is a fragile, but very real recovery predicated on consumer and business confidence.”
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