SunTrust (STI) Beats On Q1 Earnings, Provisions & Costs Rise
Zacks Investment Research | Apr 20, 2017 09:42PM ET
SunTrust Banks, Inc.'s (NYSE: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.
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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.
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