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SunTrust (STI) Beats on Q1 Earnings, Provisions & Costs Rise

Zacks

SunTrust Banks, Inc.'s STI first-quarter 2017 adjusted earnings of 87 cents per share outpaced the Zacks Consensus Estimate of 84 cents. Also, the figure was up 4% year over year.

Results reflected an improvement in net interest income and non-interest income. Further, modest loan and deposit growth acted as a tailwind. However, an increase in provision for credit losses and higher operating expenses were the downsides.

Net income available to common shareholders was $451 million, up 5% year over year.



Increase in Revenues Supported Results, Costs Rise

Total revenue for the quarter grew 7% from the prior-year quarter to $2.21 billion. Further, the reported figure was above the Zacks Consensus Estimate of $2.20 billion.

Net interest income (FTE basis) increased 6% year over year to $1.4 billion. The rise was attributable to growth in average earning assets and higher net interest margin (NIM).

NIM was up 5 basis points (bps) year over year to 3.09%, reflecting higher earning asset yields and favorable impact of continued positive mix shift in the loan portfolio.

Non-interest income was $847 million, up 8% from the prior-year quarter. The increase was largely driven by higher investment banking income, partially offset by lower mortgage-related revenues.

Non-interest expenses were up 11% from the year-ago quarter to $1.47 billion. The rise was mainly due to increase in most expense categories, other than equipment costs and marketing and customer development expenses.

Credit Quality: A Mixed Bag

Total non-performing assets were $858 million as of Mar 31, 2017, down 26% from prior-year quarter. The fall was mainly attributable to the continued resolution of problem energy credits. Non-performing loans fell 15 bps year over year to 0.55% of total loans held for investment.

However, provision for credit losses jumped 18% from the year-ago quarter to $119 million. Also, rate of net charge-offs increased 7 bps year over year to 0.32% of total average loans held for investment.

Strong Balance Sheet

As of Mar 31, 2017, SunTrust had total assets of $205.6 billion while shareholders’ equity summed $23.5 billion, representing 11% of total assets.

As of Mar 31, 2017, loans were up marginally on a sequential basis to $143.5 billion. Total consumer and commercial deposits grew nearly 2% from the prior quarter to $161.5 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.54% as of Mar 31, 2017.

Share Repurchase

During the reported quarter, SunTrust bought back shares worth $414 million.

Our Viewpoint

SunTrust remains well positioned for growth given its favorable deposit mix, continued expense discipline and enhanced credit quality. Though efficient cost-containment efforts continue to ease pressure on the bottom line, exposure to risky assets and heightened regulatory pressure will likely continue weighing on the profitability in the near term.

SunTrust Banks, Inc. Price, Consensus and EPS Surprise


SunTrust Banks, Inc. Price, Consensus and EPS Surprise | SunTrust Banks, Inc. Quote

SunTrust currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Regional Banks

BB&T Corporation’s BBT first-quarter 2017 adjusted earnings of 74 cents per share surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results were primarily driven by an improvement in both net interest income and non-interest income. However, escalated expenses remained a major headwind.

Comerica Inc.’s CMA first-quarter 2017 adjusted earnings per share of $1.02 surpassed the Zacks Consensus Estimate by a penny. Better-than-expected results reflect higher revenues and lower expenses. Moreover, lower provisions and better credit quality were the tailwinds.

KeyCorp’s KEY first-quarter 2017 adjusted earnings of 32 cents per share handily surpassed the Zacks Consensus Estimate of 28 cents. Better-than-expected results were attributable to revenue synergies from the First Niagara Financial Group acquisition deal (completed in Aug 2016) and lower provision for credit losses. However, higher operating expenses were the downside.

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