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SunTrust (STI) Beats on Q2 Earnings; Provision Increases
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A rise in revenues drove SunTrust Banks, Inc.'s (STI - Free Report) second-quarter 2016 adjusted earnings of 89 cents per share, which outpaced the Zacks Consensus Estimate of 87 cents. Also, the figure was in line with the prior-year tally. The reported quarter result excluded 5 cents of benefit from discrete items.
Results reflected an improvement in net interest income benefiting from the Dec 2015 rate hike and a rise in non-interest income. Further, growth in loans and deposits acted as a tailwind. However, a jump in provision for credit losses and marginal rise in operating expenses were the downsides.
Net income available to common shareholders was $475 million, up 2% year over year.
Total revenue (fully tax equivalent basis) grew 7% from the prior-year quarter to $2.22 billion. Further, the reported figure was above the Zacks Consensus Estimate of $2.14 billion.
Net interest income (FTE basis) surged 10% year over year to $1.32 billion. The rise was attributable to loan growth and a higher net interest margin (NIM).
Further, NIM was up 13 basis points (bps) year over year to 2.99%, reflecting higher benchmark interest rates and lower premium amortization in the securities portfolio.
Non-interest income was $898 million, up 3% from the prior-year quarter. The rise was largely driven by higher mortgage-related revenues and $44 million net asset-related gains, partially offset by decline in capital markets and wealth management-related income.
Non-interest expenses inched up 1% from the year-ago quarter to $1.35 billion. The increase was due to a rise in all expense components except outside processing and software costs, net occupancy expenses and other non-interest expenses.
Deteriorating Credit Quality
Total non-performing assets were $1 billion as of Jun 30, 2016, up 52% from the prior-year quarter. The increase was mainly due to downgrades in certain energy-related loans. Non-performing loans increased 31 bps year over year to 0.67% of total loans held for investment.
Also, provision for credit losses surged drastically to $146 million from $26 million in the year-ago quarter. The significant rise was due to higher energy-related charge-offs, moderating asset quality improvements and loan growth. Further, rate of net charge-offs increased 13 bps year over year to 0.39% of total average loans held for investment.
Strong Balance Sheet
As of Jun 30, 2016, SunTrust had total assets of $199.1 billion, while shareholders’ equity summed $24.5 billion, representing 12% of total assets. As of Jun 30, 2016, loans grew 7% year over year to $141.7 billion. Total consumer and commercial deposits rose 5% year over year to $151.8 billion.
SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.84% as of Jun 30, 2016.
Share Repurchase
During the quarter, SunTrust bought back shares worth $175 million.
Our Viewpoint
We believe that SunTrust remains well positioned for future growth given its favorable deposit mix, continued expense discipline and enhanced credit quality. Also, the company’s steady capital deployment activities look impressive.
Though efficient cost-containment efforts continue to ease pressure on the bottom line, exposure to risky assets and heightened regulatory pressure will likely continue weighing on the profitability in the near term.
SunTrust currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Regional Banks
A notable rise in top line drove BB&T Corporation’s second-quarter 2016 adjusted earnings of 71 cents per share. This comfortably beat the Zacks Consensus Estimate of 65 cents.
U.S. Bancorp (USB - Free Report) reported second-quarter 2016 earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Organic growth was driven by higher revenues along with elevated average loans and deposits. However, increase in expenses and provisions were a major drag.
KeyCorp. (KEY - Free Report) is scheduled to announce results on Jul 26.
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SunTrust (STI) Beats on Q2 Earnings; Provision Increases
A rise in revenues drove SunTrust Banks, Inc.'s (STI - Free Report) second-quarter 2016 adjusted earnings of 89 cents per share, which outpaced the Zacks Consensus Estimate of 87 cents. Also, the figure was in line with the prior-year tally. The reported quarter result excluded 5 cents of benefit from discrete items.
Results reflected an improvement in net interest income benefiting from the Dec 2015 rate hike and a rise in non-interest income. Further, growth in loans and deposits acted as a tailwind. However, a jump in provision for credit losses and marginal rise in operating expenses were the downsides.
Net income available to common shareholders was $475 million, up 2% year over year.
Improving Net Interest Income Drove Results
Total revenue (fully tax equivalent basis) grew 7% from the prior-year quarter to $2.22 billion. Further, the reported figure was above the Zacks Consensus Estimate of $2.14 billion.
Net interest income (FTE basis) surged 10% year over year to $1.32 billion. The rise was attributable to loan growth and a higher net interest margin (NIM).
Further, NIM was up 13 basis points (bps) year over year to 2.99%, reflecting higher benchmark interest rates and lower premium amortization in the securities portfolio.
Non-interest income was $898 million, up 3% from the prior-year quarter. The rise was largely driven by higher mortgage-related revenues and $44 million net asset-related gains, partially offset by decline in capital markets and wealth management-related income.
Non-interest expenses inched up 1% from the year-ago quarter to $1.35 billion. The increase was due to a rise in all expense components except outside processing and software costs, net occupancy expenses and other non-interest expenses.
Deteriorating Credit Quality
Total non-performing assets were $1 billion as of Jun 30, 2016, up 52% from the prior-year quarter. The increase was mainly due to downgrades in certain energy-related loans. Non-performing loans increased 31 bps year over year to 0.67% of total loans held for investment.
Also, provision for credit losses surged drastically to $146 million from $26 million in the year-ago quarter. The significant rise was due to higher energy-related charge-offs, moderating asset quality improvements and loan growth. Further, rate of net charge-offs increased 13 bps year over year to 0.39% of total average loans held for investment.
Strong Balance Sheet
As of Jun 30, 2016, SunTrust had total assets of $199.1 billion, while shareholders’ equity summed $24.5 billion, representing 12% of total assets. As of Jun 30, 2016, loans grew 7% year over year to $141.7 billion. Total consumer and commercial deposits rose 5% year over year to $151.8 billion.
SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.84% as of Jun 30, 2016.
Share Repurchase
During the quarter, SunTrust bought back shares worth $175 million.
Our Viewpoint
We believe that SunTrust remains well positioned for future growth given its favorable deposit mix, continued expense discipline and enhanced credit quality. Also, the company’s steady capital deployment activities look impressive.
Though efficient cost-containment efforts continue to ease pressure on the bottom line, exposure to risky assets and heightened regulatory pressure will likely continue weighing on the profitability in the near term.
SUNTRUST BKS Price, Consensus and EPS Surprise
SUNTRUST BKS Price, Consensus and EPS Surprise | SUNTRUST BKS Quote
SunTrust currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Regional Banks
A notable rise in top line drove BB&T Corporation’s second-quarter 2016 adjusted earnings of 71 cents per share. This comfortably beat the Zacks Consensus Estimate of 65 cents.
U.S. Bancorp (USB - Free Report) reported second-quarter 2016 earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Organic growth was driven by higher revenues along with elevated average loans and deposits. However, increase in expenses and provisions were a major drag.
KeyCorp. (KEY - Free Report) is scheduled to announce results on Jul 26.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>