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SunTrust (STI) Q2 Earnings Decline Y/Y Despite Revenue Growth

Zacks Equity Research

SunTrust Banks' STI second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for earnings for the quarter under review was pegged at $1.46.

Results were hurt by an increase in expenses and higher provisions. However, rise in net interest income (NII) and non-interest income supported results to some extent. The company’s balance sheet position remained strong in the quarter.

In the reported quarter, the company recorded costs associated with the proposed merger with BB&T Corp. BBT and discrete tax benefits. After considering these, net income available to common shareholders was $663 million, down from $697 million in the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues in the reported quarter were $2.56 billion, up 10.5% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $2.39 billion.

NII increased 3.2% year over year to $1.54 billion. Net interest margin (FTE basis) was down 12 basis points (bps) to 3.16%.

Non-interest income was $1.03 billion, up 23.6% from the prior-year quarter. This rise was primarily driven by an increase in mortgage-related income and commercial real estate-related income. In the quarter, the company recorded insurance settlement income of $205 million.

Non-interest expenses increased 17.8% from the year-ago quarter to $1.64 billion. The reported figure included merger-related charges and costs related to the charitable contribution to SunTrust Foundation.

Credit Quality: A Mixed Bag

Total non-performing assets were $598 million as of Jun 30, 2019, down 26.5% from the prior-year quarter end. Non-performing loans to total loans held for investment decreased 18 bps year over year to 0.34%.

However, the rate of net charge-offs to total average loans held for investment increased 2 bps to 0.22%. Moreover, provision for credit losses increased substantially from the year-ago quarter to $127 million.

Strong Balance Sheet

As of Jun 30, 2019, SunTrust had total assets of $222.29 billion while shareholders’ equity was $25.86 billion, representing 11.6% of total assets.

As of Jun 30, 2019, total loans held for investments were $156.59 billion, up nearly 1% from the prior quarter end. However, total consumer and commercial deposits declined nearly 1% from the previous quarter to $159.72 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III was 9.19% as of Jun 30, 2019.

Our Viewpoint

The company remains well positioned for growth, given its favorable deposit mix and enhanced credit quality. Moreover, its initiatives to enhance efficiency are likely to further support revenue growth. However, the company’s significant exposure to risky loan portfolios remains a near-term concern. Moreover, increasing expenses, as witnessed in the reported quarter, will likely hurt profitability in the near term.

SunTrust Banks, Inc. Price, Consensus and EPS Surprise

SunTrust Banks, Inc. Price, Consensus and EPS Surprise

SunTrust Banks, Inc. price-consensus-eps-surprise-chart | 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 reported second-quarter 2019 earnings per share of $1.94 that lagged the Zacks Consensus Estimate of $2.01. However, the bottom line was up from the prior-year quarter’s adjusted figure of $1.87.

Modest loan growth and higher mortgage banking fees drove JPMorgan’s JPM second-quarter 2019 adjusted earnings of $2.59 per share, which outpaced the Zacks Consensus Estimate of $2.50. Results excluded income tax benefits of $768 million or 23 cents per share. Including this, earnings were $2.82 per share.

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