SunTrust Banks Inc
) second-quarter 2012 earnings came in at 50 cents per share,
surpassing the Zacks Consensus Estimate of 44 cents. This compares
favorably with the earnings of 33 cents in the year-ago quarter.
Better-than-expected earnings were primarily driven by improved top
line, partially offset by escalating operating expenses. Enhanced
credit quality and strong capital ratios were also quite
SunTrust's net income came in at $270 million compared with $174
million in the prior-year quarter.
Quarter in Detail
SunTrust's total revenue was recorded at $2.25 billion, up 2.2%
year over year. Total revenue also exceeded the Zacks Consensus
Estimate of $2.17 billion by 3.7%.
Net interest income (NII) inched up 1.6% from the prior-year
quarter to $1.31 billion. The increase was driven by higher loan
balances, positive changes in deposit mix and reduced rates on
long-term debt as well as interest bearing deposits, partly
mitigated by declining yields on average earning assets.
Net interest margin came down 14 basis points (bps) from the
year-ago quarter to 3.39%. The fall was attributable to reduced
loan yields, which were partially offset by a decline in interest
bearing liabilities and lower rates on long-term debts.
Non-interest income was $940 million, up 3.1% from the prior-year
quarter. The year-over-year improvement was primarily attributable
to increased mortgage-related revenue and trading income, which
were partially mitigated by lower securities gains along with
reduced investment banking income and card fees.
Non-interest expense grew 0.3% to $1.55 billion on a year-over-year
basis. The marginal increase was led by higher personnel costs as
well as expenses pertaining to redemption of trust preferred
securities, partly offset by lower Federal Deposit Insurance
Corporation (FDIC) premiums, credit costs and marketing
SunTrust's efficiency ratio improved to 68.83% from 70.17% in the
prior-year quarter. The decline in efficiency ratio indicates an
increase in profitability
Credit quality continued to improve during the quarter. Provision
for credit losses declined 23.5% year over year to $300 million.
Nonperforming loans dropped 117 bps year over year to 1.97% of
total loans. Likewise, net charge-offs fell 62 bps from the
year-ago quarter to 1.14% of annualized average loans.
SunTrust's capital ratios witnessed mixed movement during the
quarter. While tangible equity to tangible asset ratio improved 24
bps year over year to 8.31% and tier 1 common ratio increased 18
bps to 9.40%, Tier 1 capital ratio was down 96 bps from the
prior-year quarter to 10.15%.
The decline was attributable to redemption of trust preferred
securities worth $38 million. However, the capital ratios remained
well above the current regulatory requirements as well as the
proposed Basel III level.
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Performance of Peers
State Street Corporation
) second-quarter 2012 operating earnings marginally surpassed the
Zacks Consensus Estimate. The sequential improvement came on the
back of enhanced net interest revenue and reduced operating
expenses. The capital ratios of the company also remained strong in
the quarter. However, lower fee revenue was the headwind.
Moreover, another peer
) second-quarter 2012 net income from continuing operations beat
the Zacks Consensus Estimate. Stable non-interest income, continued
improvement in credit quality and robust capital ratios were the
primary highlights for the quarter. However, dwindling net interest
income and escalating operating expenses slightly subdued the
Better average client deposits, robust credit quality and favorable
deposit mix are amongst SunTrust's key strengths. Moreover, its
recent acquisitions and cost-cutting programs are quite encouraging
despite the persistent low interest rate environment and industry
However, in spite of SunTrust's stable capital position, it failed
the stress test and missed the opportunity to deploy additional
capital to its shareholders. The company decided not to indulge in
any further capital deployment activities, as per its resubmission
plan to the Comprehensive Capital Assessment Review (CCAR) process.
It aims to build a stronger capital base to withstand any economic
SunTrust currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the shares.