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Lending

Mortgages not all bad news for Suntrust Banks’ earnings

Mortgage-servicing income buoys earnings

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Despite a decline in mortgage production income, Suntrust Banks’ (STI) first-quarter earnings were partially offset by increases in investment baking, mortgage servicing and wealth management related income.

The bank posted a first-quarter net income available to shareholders of $393 million, or 73 cents per share, a 16% increase from a year ago. 

"Our 16% earnings per share growth over the past year reflects progress in several key areas--expense management, credit quality improvement, and increased lending to clients," said William Rogers, chairman and CEO of SunTrust Banks. 

"To deliver further profitable growth, we are focusing our efforts on meeting more of our clients' needs and expanding relationships in key growth areas, while continuing our expense management discipline," Rogers added.

Mortgage production income for the current quarter hit $43 million, up from $31 million the prior quarter but drastically down from $159 million for the first quarter of 2013.

According to the bank’s earnings, “The $12 million sequential quarter increase was driven by a decline in the mortgage repurchase provision and higher mark-to-market valuation gains on certain loans carried at fair value, partially offset by a decline in origination fees.”

Meanwhile, mortgage production volume fell from $3.9 billion last quarter to $3.1 billion in the current quarter primarily due to a reduction in refinance activity. 

Compared to the first quarter of 2013, mortgage production income tumbled $116 million, which is attributed to a 65% drawback in production volume and a decline in gain on sale margins.

In addition, the mortgage repurchase provision was $5 million during the current quarter and the mortgage repurchase reserve was $83 million at March 31, 2014. 

However, on the positive side, mortgage-servicing income reached $54 million in the current quarter compared to $38 million in both the prior quarter and the first quarter of 2013.

“The $16 million increase compared to the prior quarter was due to a slower pace of loan prepayments and improved net hedge performance, whereas the increase compared to the first quarter of 2013 was primarily due to a slower pace of loan prepayments,” the earnings stated.

The servicing portfolio was $135 billion at March 31, 2014 compared to $142 billion at March 31, 2013.

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