SunTrust Banks, Inc.
) third-quarter 2013 adjusted earnings per share came in at 66
cents, missing the Zacks Consensus Estimate of 68 cents. However
this compares favorably with 58 cents earned in the year-ago
Results were adversely impacted by a fall in net interest income,
partially offset by higher non-interest income. However,
disciplined expense management and improvement in both credit
quality and capital ratios were the positives for the quarter.
Considering the negative impact of the charges which SunTrust had
to bear as part of its settlement with
), net income available to common shareholders was $179.0
million. This lagged the prior-year quarter figure of $1.1
billion, which included certain non-recurring gains.
Performance in Detail
Total revenue (excluding net securities gains) of $1.9 billion
was almost in line with the comparable quarter in 2012. However,
it lagged the Zacks Consensus Estimate of $2.0 billion by 5.0%.
Net interest income declined 4.7% from the prior-year quarter to
$1.2 billion. The fall was due to lower yields on earning assets
and a dip in commercial loan-related swap income.
Net interest margin fell 19 basis points (bps) from the year-ago
quarter to 3.19%. The decline was mainly due to reduced earning
asset yields, a still low interest rate environment, partially
offset by a decline in interest-bearing liabilities rates.
Non-interest income (excluding securities gains) was $680.0
million, rising 13.1% from $601 million in the prior-year
quarter. The rise was mainly driven by increase in mortgage
repurchase provision, fee income, lower valuation losses on held
for sale student and mortgage loans and the company's fair value
debt. These factors were partially offset by decline in both core
mortgage production income and mortgage servicing income.
Non-interest expense was stable at $1.74 billion on a
SunTrust's efficiency ratio increased to 90.77% from 44.90% in
the prior-year quarter. Increase in efficiency ratio indicates
deterioration in profitability.
As of Sep 30, 2013, SunTrust had total assets of $172 billion,
while shareholders' equity was $21 billion, representing 12% of
the total assets.
Average loans totaled $122.7 billion, down 1.1% year over year.
Average consumer and commercial deposits rose 1.0% from the
year-ago quarter to $126.6 billion.
Overall credit quality showed improvement during the quarter.
Nonperforming loans fell 59 bps year over year to 0.83% of total
loans. Similarly, net charge-offs fell 117 bps from the year-ago
quarter to 0.47% of annualized average loans.
Moreover, provision for credit losses declined 78.9% from the
year-ago quarter to $95 million.
As of Sep 30, 2013, SunTrust's capital ratios remained strong.
Tangible equity to tangible asset ratio improved 50 bps year over
year to 8.98%, Tier 1 common equity ratio increased 10 bps to
9.92% and Tier 1 capital ratio was up 38 bps to 10.95%.
Moreover, as of Sep 30, 2013, book value per share and tangible
book value per share improved compared with the prior-year
quarter and were at $37.85 and $26.27, respectively.
Performance of Other Regional Banks
Among other regional banks,
) earnings missed the Zacks Consensus Estimate by a penny.
Lower-than-expected results were mainly due to decline in the top
line, partly offset by lower operating expenses.
The Bank of New York Mellon Corporation
) adjusted earnings surpassed the Zacks Consensus Estimate.
Better-than-expected results were mainly driven by top-line
growth, partially offset by higher operating expenses.
SunTrust's key strengths include better average client deposits,
solid credit quality and favorable deposit mix. Moreover,
SunTrust's recent acquisitions, restructuring initiatives and
cost-cutting programs are encouraging.
However, we remain concerned about the company's exposure to
risky assets and limited margin improvement. Further, a
persistent low interest-rate environment and industry challenges
might affect its top-line growth in the near term.
SunTrust currently carries a Zacks Rank #3 (Hold).
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