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SunTrust (STI) Beats on Q3 Earnings; Provision Increases

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A rise in revenues drove SunTrust Banks, Inc.'s (STI - Free Report) third-quarter 2016 earnings of 91 cents per share, which outpaced the Zacks Consensus Estimate of 89 cents. Also, the figure was up 2% year over year. The prior-year quarter result excluded 11 cents of benefit from discrete items.

Results reflected an improvement in net interest income and a rise in non-interest income. Further, growth in loans and deposits acted as a tailwind. Also, the quarter reflected strong balance-sheet position. However, a jump in provision for credit losses and an increase in operating expenses were the downsides.

Net income available to common shareholders was $457 million, down 12% year over year.


Revenue Growth Supported Results; Costs Rise

Total revenue (fully tax equivalent basis) grew 8.4% from the prior-year quarter to $2.23 billion. Further, the reported figure was above the Zacks Consensus Estimate of $2.15 billion.

Net interest income (FTE basis) surged 7.6% year over year to $1.34 billion. The rise was attributable to growth in average earning assets and higher earning asset yields, partly offset by higher funding costs.

Further, net interest margin was up 2 basis points (bps) year over year to 2.96%, reflecting higher benchmark interest rates and continued positive mix shift within the portfolio. Higher funding costs partially offset the rise.

Non-interest income was $889 million, up 9.6% from the prior-year quarter. The rise was largely driven by higher mortgage and capital markets-related income, partly offset by lower other non-interest income.

Non-interest expenses were up 11.5% from the year-ago quarter to $1.41 billion. The increase was mainly due to higher regulatory and compliance costs, a rise in costs associated with improved business performance, and higher net occupancy costs.

Deteriorating Credit Quality

Total non-performing assets were $1 billion as of Jun 30, 2016, up 95% from prior-year quarter. The increase was mainly due to higher energy-related nonperforming C&I loans and non-performing residential home equity products. Non-performing loans increased 32 bps year over year to 0.67% of total loans held for investment.

Also, provision for credit losses surged drastically to $97 million from $32 million in the year-ago quarter. The significant rise was due to higher net charge-offs. Further, rate of net charge-offs increased 14 bps year over year to 0.35% of total average loans held for investment.

Strong Balance Sheet

As of Sep 30, 2016, SunTrust had total assets of $205.1 billion, while shareholders’ equity summed $24.4 billion, representing 12% of total assets.

As of Sep 30, 2016, loans were relatively stable at $141.5 billion, on a sequential basis. Total consumer and commercial deposits rose 3.8% sequentially to $157.6 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.77% as of Sep 30, 2016.

Share Repurchase

During the quarter, SunTrust bought back shares worth $240 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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Regional Banks

A notable rise in top line drove BB&T Corporation’s third-quarter 2016 adjusted earnings of 76 cents per share. This comfortably beat the Zacks Consensus Estimate of 70 cents.

Significantly lower provisions and higher fee revenues drove Regions Financial Corporation's (RF - Free Report) third-quarter 2016 earnings from continuing operations of 24 cents per share, which surpassed the Zacks Consensus Estimate of 21 cents.

KeyCorp. (KEY - Free Report) is scheduled to announce results on Oct 25.

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