SunTrust Banks, Inc.
) first-quarter 2014 earnings per share of 73 cents outpaced the
Zacks Consensus Estimate of 67 cents on the back of lower
provisions and prudent expense management. Moreover, the reported
figure compared favorably with 63 cents earned in the year-ago
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Better-than-expected results were driven by fall in both
provision for credit losses and operating expenses, partially
offset by a decline in the top line. Further, improvement in
credit quality and rise in average loan and deposit balances were
the other tailwinds. However, capital ratios were a mixed bag.
Net income available to common shareholders was $393 million,
increasing 15.6% year over year.
Total revenue (excluding net securities gains) came in at $2.03
billion, declining 3.8% from the prior-year quarter. The fall was
due to decrease in mortgage production income and net interest
income, partially offset by rise in investment banking, mortgage
servicing and wealth management related income. However, the
reported figure beat the Zacks Consensus Estimate of $2.01
Net interest income declined 1.4% from the prior-year quarter to
$1.20 billion. Net interest margin (NIM) fell 14 basis points
(bps) from the year-ago quarter to 3.19%. The decline in NIM was
mainly due to lower earning asset yields, partially offset by a
decline in interest-bearing liabilities rates.
Non-interest income (excluding securities gains) was $792
million, down 8.0% year over year. The decline was mainly due to
a drop in mortgage production income, which was partially offset
by increase in investment banking, mortgage servicing and wealth
management related income.
Non-interest expense was $1.4 billion, in line with the
prior-year quarter level. Seasonally higher employee compensation
and benefits expense was largely offset by decline in almost all
SunTrust's efficiency ratio increased to 66.83% from 63.97% in
the prior-year quarter. An increase in efficiency ratio indicates
decline in profitability.
As of Mar 31, 2014, SunTrust had total assets of $179.5 billion
while shareholders' equity was $21.8 billion, which represented
12% of the total assets.
Average loans totaled $128.5 billion, up 6.3% year over year.
Average consumer and commercial deposits were $128.4 billion, up
0.6% from the year-ago quarter figure.
Credit quality continued to improve during the quarter.
Nonperforming loans fell 49 bps year over year to 0.72% of total
loans. Similarly, net charge-offs rate decreased 41 bps from the
year-ago quarter to 0.35% of annualized average loans.
Moreover, provision for credit losses declined 51.9% from the
year-ago quarter to $102 million.
As of Mar 31, 2014, SunTrust's capital ratios were a mixed bag.
Tangible equity to tangible asset ratio improved 1 basis point
year over year to 9.01%. However, Tier 1 common equity ratio
decreased 23 bps to 9.90% and Tier 1 capital ratio was down 35
bps to 10.85%.
As of Mar 31, 2014, book value per share and tangible book value
per share improved from the prior-year quarter and were $39.44
and $27.82, respectively.
During the quarter, SunTrust bought back 1.35 million shares for
$50 million. This was part of the company's 2013 capital plan.
Additionally, in Mar 2014, SunTrust received approval from the
Federal Reserve for its 2014 capital plan that included
repurchase up to $450 million of its common stock between the
second quarter of 2014 and the first quarter of 2015.
We believe that disciplined expense management, strong credit
quality and a favorable deposit mix will continue to support
SunTrust's financials. Moreover, the company's enhanced capital
deployment activities reflect its strong balance sheet position.
However, we remain concerned about the company's exposure to
risky assets and its limited margin improvement. Further, a
persistent low interest rate environment and the present industry
challenges might affect its top-line growth in the near term.
At present, SunTrust carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
M&T Bank Corporation
) surpassed the Zacks Consensus Estimate. While M&T Bank's
results benefited from lower provisions, KeyCorp's results were
driven by lower expenses, a decline in provision for loan and
lease losses and higher fee income.
However, a decline in the top line led
) first-quarter earnings to fall short of the Zacks Consensus
Estimate. This was partially offset by prudent expense