SunTrust Banks, Inc.
) second-quarter 2014 earnings of 81 cents per share surpassed the
Zacks Consensus Estimate by 11.0%, backed by revenue growth.
Moreover, the reported figure compared favorably with 68 cents
earned in the year-ago quarter.
Shares of SunTrust gained more than 1% in the pre-trading session,
indicating positive investors' response following the earnings
release. The movement of the stock price when the trading session
opens will give a better idea about whether SunTrust has been able
to meet expectations.
Suntrust Banks, Inc - Quarterly EPS (BNRI) |
Better-than-expected results were driven by growth in top line and
fall in provision for credit losses, partially offset by higher
operating expenses. Moreover, improvement in credit quality, and
rise in loan and deposit balances were the tailwinds, while capital
ratios were a mixed bag.
After considering certain non-recurring items, net income available
to common shareholders was $387 million, increasing 6.0% year over
Total revenue came in at $2.20 billion, up 4.8% from the prior-year
quarter. Also, the reported figure beat the Zacks Consensus
Estimate of $2.07 billion.
Net interest income of $1.24 billion was almost at par with the
year-ago level. However, net interest margin fell 14 basis points
(bps) from the year-ago quarter to 3.11% due to lower earning asset
yields, partially offset by a decline in interest-bearing
Non-interest income (excluding securities gains) was $957 million,
up 11.5% year over year. The rise was largely driven by higher
investment banking and mortgage servicing income, partly offset by
lower mortgage production income.
Non-interest expense was $1.51 billion, increasing 9.4% year over
year. Higher employee compensation and benefits expense were
partially offset by decline in almost all expense categories.
Further, operating expenses included charges related to legal
SunTrust's efficiency ratio increased to 68.93% from 66.07% in the
prior-year quarter. An increase in efficiency ratio indicates
decline in profitability.
As of Jun 30, 2014, SunTrust had total assets of $182.6 billion
while shareholders' equity was $22.1 billion, representing 12% of
the total assets.
As of Jun 30, 2014, loans totaled $129.7 billion, up 6.3% year over
year. Total consumer and commercial deposits were $131.8 billion,
up 4.9% from the year-ago quarter figure.
Credit quality continued to improve during the quarter.
Nonperforming loans fell 25 bps year over year to 0.69% of total
loans. Similarly, net charge-offs rate decreased 24 bps from the
year-ago quarter to 0.35% of annualized average loans.
Moreover, provision for credit losses declined 50.0% from the
year-ago quarter to $73 million.
As of Jun 30, 2014, SunTrust's capital ratios were a mixed bag.
Tangible equity to tangible asset ratio improved 12 basis point
year over year to 9.07%. However, Tier 1 common equity ratio
declined 49 bps to 9.70% and Tier 1 capital ratio was down 59 bps
As of Jun 30, 2014, book value per share and tangible book value
per share improved from the prior-year quarter to $40.18 and
During the quarter, SunTrust bought back shares worth $83 million.
This was part of the company's 2014 capital plan under which it is
authorized to repurchase up to $450 million of its common stock
between the second quarter of 2014 and the first quarter of 2015.
Notably, this repurchase authorization has been curtailed due to
the reduction in the company's forecast of share-based issuances.
Presently, SunTrust expects to repurchase shares worth $300-$350
million over the next three quarters.
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. At the same time, a
persistent low interest rate environment and 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
) surpassed the Zacks Consensus Estimate. Both Comerica and KeyCorp
benefited primarily from lower expenses and a decline in provision
for loan and lease losses.
Another major regional bank,
) is scheduled to report on Jul 24.
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