SunTrust Banks Inc., which has been forced to prop up two of its troubled money market funds, reported fourth quarter earnings today of just $3.3 million — that’s $.01 per share — as the Altanta-based bank reeled from the cost of bailing out its funds as well as the cost of increasing borrower defaults. The fourth quarter earnings represented a 98 percent drop from earnings of $506.4 million, or $1.39 per share, one year earlier. The money-fund bailout contributed to the lion’s share of the quarterly loss, with the bank taking a $555 million writedown on assets — mostly ABS — that it purchased from its two troubled money market funds. More direct mortgage banking-related costs, however, also affected the bottom line. First, the good: mortgage-related income actually increased $23.3 million, or 41.2 percent compared to the fourth quarter of 2006, SunTrust said. Higher servicing income generated from the servicing portfolio, which increased over 15 percent in 2007, and a $19.2 million gain on sale of mortgage servicing rights drove the jump in segment income. Offsetting the net increase were $78 million in valuation losses on mortgages held-for-sale. SunTrust said it transfered approximately $840 million in residential real estate loans into its own portfolio from loans held for sale during the fourth quarter, citing a “lack of marketability of the loans and SunTrust’s intent to hold these loans to maturity.” NPAs outstrip loss reserves Residential mortgages totalled $32.8 billion at year’s end, with 11 percent of the portfolio in home equity loans and another 12 percent in prime seconds. Non-performing assets in residential mortgages reached $841 million, SunTrust said, with $276 million of that total coming from Alt-A firsts held in portfolio. The bank also reported that 2.29 percent of its $14.9 billion HELOC portfolio was more than 30 days delinquent, primarily due to weakness in HELOCs originated by third parties. See the investor presentation here. Credit quality continued to deteriorate such that non-performing assets at the end of Q4 are now greater than remaining loss reserves — usually a signal that larger provision charges will be needed in future quarters. Total NPAs reached $1.46 billion, or 1.19 percent of total loans, in the fourth quarter; that compares to $1.0 billion, or 0.83 percent of total loans in Q3. The allowance for loan and lease losses, net of charge-offs, reached $1.29 billion — 1.05 percent of total loans — in the fourth quarter; that compares to 0.91 percent in Q3. SunTrust was up nearly 3 percent in morning trading on the New York Stock Exchange, to $62.63 at 11:24am US EST. For more information, visit Disclosure: The author held no positions in STI at the time this story was published.

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