SunTrust's (STI) Q2 Earnings Beat Estimates, Costs Increase
Zacks Investment Research | Jul 20, 2017 09:55PM ET
SunTrust Banks, Inc.'s (NYSE:STI) second-quarter 2017 earnings of $1.03 per share outpaced the Zacks Consensus Estimate of 98 cents. Also, the figure was up 10% year over year.
Better-than-expected results were primarily driven by an increase in net interest income, partially offset by higher expenses. Also, modest loan growth acted as a tailwind. A decline in provision for credit losses was another positive for the company.
Net income available to common shareholders was $505 million, up 6% year over year.
Net Interest Income Growth Offsets Higher Costs
Total revenue (FTE basis) for the quarter grew 2% from the prior-year quarter to $2.27 billion.
Net interest income (FTE basis) increased 9% year over year to $1.44 billion. The rise was attributable to growth in average earning assets and higher net interest margin (NIM).
On a year-over-year basis, NIM was up 15 basis points (bps) to 3.14%, reflecting higher earning asset yields, favorable impact of continued positive mix shift in the loan portfolio and lower premium amortization in the securities portfolio.
Non-interest income was $827 million, down 8% from the prior-year quarter. The fall was largely due to lower net securities gains, mortgage production related income and other non-interest income.
Non-interest expenses were up 3% from the year-ago quarter to $1.39 billion. The rise was mainly due to an increase in most expense categories, other than operating losses and other non-interest expense.
Credit Quality Improved
Total non-performing assets were $821 million as of Jun 30, 2017, down 18% from prior-year quarter. Non-performing loans fell 15 bps year over year to 0.52% of total loans held for investment.
Further, provision for credit losses declined 38% from the year-ago quarter to $90 million. Also, the rate of net charge-offs decreased 19 bps year over year to 0.20% of total average loans held for investment.
Strong Balance Sheet
As of Jun 30, 2017, SunTrust had total assets of $207.2 billion while shareholders’ equity was $24.5 billion, representing nearly 12% of total assets.
As of Jun 30, 2017, loans were marginally up on a sequential basis to $144.3 billion. However, total consumer and commercial deposits declined nearly 2% from the prior quarter to $158.3 billion.
SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.52% as of Jun 30, 2017.
Share Repurchase
During the reported quarter, SunTrust bought back shares worth $240 million.
Our Viewpoint
SunTrust remains well positioned for growth given its favorable deposit mix and enhanced credit quality. Easing margin pressure (given the improvement in interest rates) and initiatives to enhance efficiency should support the company’s revenues.
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However, the company’s significant exposure to commercial and residential loan portfolios remains a major near-term concern. Any deterioration in the real estate prices will pose a problem.
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