SunTrust (STI) Q1 Earnings Top on Higher Revenues, Costs Up

SunTrust Banks' STI first-quarter 2019 adjusted earnings of $1.33 per share outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line came in 3% above the prior-year quarter figure.

Results were driven by rise in net interest income and decent loan growth. However, a decline in non-interest income, higher operating expenses and a rise in credit costs were the undermining factors.

After considering merger-related costs associated with previously announced proposed merger with BB&T Corp. BBT, net income available to common shareholders was $554 million or $1.24 per share, down from $612 million or $1.29 per share in the prior-year quarter.

Revenues & Expenses Rise

Total revenues were $2.33 billion, up 4% year over year. Also, the figure beat the Zacks Consensus Estimate of $2.30 billion.

Net interest income increased 7% year over year to $1.54 billion. Net interest margin (FTE basis) was up 3 basis points (bps) to 3.27%.

Non-interest income was $784 million, down 2% from the prior-year quarter. The fall was mainly due to lower investment banking income, service charges on deposit accounts and other non-interest income.

Non-interest expenses increased 5% from the year-ago quarter to $1.49 billion. This included merger-related charges of $45 million. Excluding this charge, expenses rose 2% mainly due to higher outside processing and software costs.

Credit Quality: A Mixed Bag

Total non-performing assets were $648 million as of Mar 31, 2019, down 17% from the prior-year-quarter end. Non-performing loans to total loans held for investment decreased 16 bps year over year to 0.34%.

However, the rate of net charge-offs to total average loans held for investment increased 4 bps to 0.26%. Also, provision for credit losses increased substantially from the year-ago quarter to $153 million, driven by strong loan growth.

Strong Balance Sheet

As of Mar 31, 2019, SunTrust had total assets of $220.4 billion while shareholders’ equity was $24.8 billion, representing 11% of total assets.

As of Mar 31, 2019, loans held for investments were $155.23 billion, up 2% from the prior-quarter end. However, total consumer and commercial deposits declined marginally from the previous quarter to $161.09 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III was 9.11% as of Mar 31, 2019.

Share Repurchase

During the reported quarter, the company bought back shares worth $250 million.

Notably, it does not expect to utilize the remaining $500 million buyback authorization available under its 2018 capital plan in view of the proposed merger.

Our Viewpoint

SunTrust remains well positioned for growth, given its favorable deposit mix and enhanced credit quality. Higher interest rates and initiatives to enhance efficiency are likely to support the company’s revenues.

However, a slowdown in the mortgage business is expected to hurt near-term top-line growth.

SunTrust Banks, Inc. Price, Consensus and EPS Surprise

SunTrust Banks, Inc. Price, Consensus and EPS Surprise | SunTrust Banks, Inc. 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 Banks

Comerica CMA has delivered positive earnings surprise of 7.2% in first-quarter 2019 on high interest income. Adjusted earnings per share of $2.08 surpassed the Zacks Consensus Estimate of $1.94. Further, earnings were up from the prior-year quarter adjusted figure of $1.54.  

PNC Financial PNC pulled off positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflects a 7.4% jump from the prior-year quarter.

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