Magazine article American Banker

2Q Earnings: Two in the South Expect Lending Issues to Linger

Magazine article American Banker

2Q Earnings: Two in the South Expect Lending Issues to Linger

Article excerpt

SunTrust Banks Inc.'s earnings surpassed Wall Street estimates, and BB&T Corp.'s met expectations, but both Southeastern companies reported a surge in problem loans and predicted credit would continue to drag down results the rest of the year.

As with most banking companies this quarter, worsening credit quality pushed hard against earnings momentum for both SunTrust and BB&T, which were forced to set aside more funds to cover potential loan losses.

"The unpredictability and the timing of loan specific chargeoffs makes it difficult to predict how the aggregate quarter-by-quarter trend will look," said Greg Ketron, SunTrust's head of investor relations.

Thomas Freeman, its chief credit officer, said nonperforming assets within the alternative-A portfolio are about to peak, but he predicted home equity loans would continue to deteriorate throughout the year.

SunTrust's loan-loss provision grew 85.5% from the previous quarter, to $104.7 million, and surpassed second-quarter net chargeoffs by 18.6%. BB&T's provision rose 23.9% from the first quarter, to $88 million, and surpassed net chargeoffs by 15.8%.

Executives at both companies conceded that earnings growth would be hard to come by for several more quarters.

"Our primary challenges are continued margin decline and increasing loan-loss provisioning," said John A. Allison, BB&T's chairman and chief executive. "We think we're near the bottom."

James Wells 3rd, SunTrust's president and CEO, said the $180.3 billion-asset Atlanta company is simply trying to "hold its ground" until the environment improves. "We've still held to our longer-term objectives" of cutting costs and repositioning the capital structure, though continued deterioration in credit quality could throw those plans off.

SunTrust's earnings rose 30.7% from the first quarter and 25. …

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