SunTrust (STI) Beats On Q4 Earnings As Revenues Improve
Zacks Investment Research | Jan 18, 2018 09:19PM ET
SunTrust Banks' (NYSE:STI) fourth-quarter 2017 adjusted earnings of $1.09 per share outpaced the Zacks Consensus Estimate of $1.05. Also, the figure was up 21% year over year.
Results were primarily driven by a rise in revenues (supported by higher interest rates), stable adjusted expenses and lower provision for credit losses. Also, improving asset quality was a tailwind. However, a decline in loan and deposit balances was the undermining factor.
After considering one-time discrete gains including tax reform related benefit, net income available to common shareholders was $710 million, up 58% from the prior-year quarter.
For 2017, adjusted earnings of $4.09 per share beat the Zacks Consensus Estimate of $4.06. Also, the figure was up 14% year over year. After considering non-recurring items, net income available to common shareholders was $2.2 billion, up 20% from the prior year.
Rise in Revenues Supports Results
Total revenues (taxable equivalent basis) for the quarter grew 5% from the prior-year period to $2.31 billion. The figure was in line with the Zacks Consensus Estimate.
For 2017, total revenues (FTE basis) were up 4% from the prior year to $9.13 billion. The figure lagged the Zacks Consensus Estimate of $9.40 billion.
Net interest income (FTE basis) increased 7% year over year to $1.47 billion. The rise was attributable to higher earning asset yields.
On a year-over-year basis, net interest income was up 17 basis points (bps) to 3.17%, mainly reflecting higher earning asset yields and lower premium amortization in the securities portfolio. This was partly offset by higher rates paid on interest-bearing liabilities.
Non-interest income was $833 million, up 2% from the prior-year quarter. The modest rise was largely driven by an increase in commercial real estate related income and wealth management-related income.
Non-interest expenses rose 9% from the year-ago quarter to $1.52 billion. The increase was mainly due to several non-recurring items. After excluding those, operating expenses were relatively stable.
Credit Quality Improved
Total non-performing assets were $741 million as of Dec 31, 2017, down 19% from prior-year quarter. Non-performing loans fell 12 bps year over year to 0.47% of total loans held for investment.
Further, the rate of net charge-offs decreased 9 bps year over year to 0.29% of total average loans held for investment. Also, provision for credit losses decreased 22% from the year-ago quarter to $79 million.
Strong Balance Sheet
As of Dec 31, 2017, SunTrust had total assets of $206 billion while shareholders’ equity was $25.2 billion, representing nearly 12% of total assets.
As of Dec 31, 2017, loans held for investments declined 1% on a sequential basis to $143.2 billion. Total consumer and commercial deposits fell 1% from the prior quarter to $159.8 billion.
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SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.75% as of Dec 31, 2017.
Share Repurchase
During the reported quarter, the company bought back shares worth $330 million.
Our Viewpoint
SunTrust remains well positioned for growth given its favorable deposit mix and enhanced credit quality. Easing margin pressure and initiatives to enhance efficiency are likely to support the company’s revenues. While slowdown in mortgage business makes us apprehensive, benefits from lower tax rates will support profitability.
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