SunTrust Banks Inc.
) fourth-quarter 2012 earnings came in at 65 cents per share,
marginally beating the Zacks Consensus Estimate of 61 cents. This
is significantly ahead of the prior-year quarter earnings of 13
For the full year 2012, SunTrust recorded earnings of $3.59 per
share. This is slightly ahead of the Zacks Consensus Estimate of
$3.56 and significantly above the last year's earnings of 94
Better-than-expected quarterly results benefited from augmented
revenue and lower operating expenses. Further, stable asset
quality, capital ratios as well as improvement in loan and
deposit balances were the tailwinds.
Net income available to common shareholders in the fourth quarter
was $350 million, substantially ahead of $71 million in the
prior-year quarter. In 2012, it stood at $1.93 billion versus
$495 million in 2011.
Performance in Detail
In the fourth quarter, total revenue jumped 12% year over year to
$2.30 billion. The increase was primarily driven by higher
mortgage-related revenue and investment banking income. Total
revenue was almost in line with the Zacks Consensus Estimate.
In 2012, total revenue surged 23% year over year to $10.60
billion. The rise was largely due to increases in net interest
income, mortgage-related revenue and investment banking income.
These positives were partially offset by a decline in card fees.
Moreover, total revenue significantly surpassed the Zacks
Consensus Estimate of $8.61 billion.
Net interest income declined 3.6% from the prior-year quarter to
$1.28 billion. The fall was due to lower yields on earning
assets, a dip in commercial loan-related swap income and the
foregone dividend income as a result of the accelerated
termination of the agreements related to
The Coca-Cola Company
) shares. These were partly offset by lower rates paid on
deposits and a reduction in wholesale funding.
Likewise, net interest margin came down 10 basis points (bps)
from the year-ago quarter to 3.36%. The decrease was attributable
to reduced loan yields, which were partially offset by a decline
in rates paid on interest-bearing liabilities.
Non-interest income was $1.02 billion, surging 40.4% from $723
million in the prior-year quarter. The drastic improvement was
mainly driven by higher mortgage-related and investment banking.
Non-interest expense plunged 9.4% to $1.51 billion on a
year-over-year basis. The fall was attributable to lower
operating losses and dip in credit-related expenses. These were
partially offset by higher personnel expenses.
SunTrust's efficiency ratio improved to 65.93% from 81.45% in the
prior-year quarter. The decline in efficiency ratio indicates an
increase in profitability
As of Dec 31, 2012, SunTrust had total assets of $173.4 billion,
while shareholders' equity stood at $21.0 billion, representing
12% of total assets.
Average loans in the fourth quarter totaled $121.6 billion, up 2%
year over year. Growth was primarily driven by commercial and
industrial loans as well as high credit-quality non-guaranteed
residential loans and indirect loans. These were partly mitigated
by decreases in commercial real estate, home equity loans,
government-guaranteed residential and student loans as well as
Average consumer and commercial deposits inched up 2% from the
year-ago quarter to $127.9 billion. Increases in average demand
deposits, interest bearing transaction accounts and savings
accounts were partially offset by a decline in time deposits and
money market accounts.
Overall credit quality showed improvement during the quarter.
Nonperforming loans dropped 110 bps year over year to 1.27% of
total loans. Similarly, net charge-offs fell 27 bps from the
year-ago quarter to 1.30% of annualized average loans.
Yet, provision for credit losses increased marginally from $327
million in the year-ago quarter to $328 million. The rise was
largely driven by incremental charge-offs related to the sales of
nonperforming loans and the junior lien credit policy change.
As of Dec 31, 2012, SunTrust's capital ratios remained strong.
Tangible equity to tangible asset ratio improved 72 bps year over
year to 8.82%, tier 1 common ratio increased 78 bps to 10.00% and
Tier 1 capital ratio was up 20 bps to 11.10%.
Moreover, as of Dec 31, 2012, book value per share and tangible
book value per share improved compared with the prior-year
quarter and were $37.59 and $25.98, respectively.
) fourth-quarter 2012 earnings were a penny ahead of the Zacks
Consensus Estimate and outpaced the prior-year quarter's earnings
by 29%. Growth in revenue and a fall in operating expenses,
partially offset by slightly higher provision for credit losses,
were mainly responsible for the improvement in the quarterly
results. Further, overall credit quality showed improvement,
while capital as well as profitability ratios were stable.
Moreover, accelerating growth in loans and low-cost deposits were
Better average client deposits, robust credit quality and
favorable deposit mix are amongst SunTrust's key strengths.
Moreover, its recent acquisitions, restructuring initiatives and
cost-cutting programs are quite encouraging despite the
persistent low interest rate environment and industry challenges.
However, we remain concerned about the company's exposure to
risky assets, limited margin improvement and continued regulatory
SunTrust currently retains a Zacks Rank #3 (Hold). Also,
considering the fundamentals, we maintain a long-term Neutral
recommendation on the shares.
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