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SunTrust (STI) Q4 Earnings Beat on Loan & Deposits Growth - Analyst Blog

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SunTrust Banks, Inc.’s (STI) fourth-quarter 2014 adjusted earnings of 88 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Moreover, the reported figure came in 14.3% higher than the prior-year quarter number.

For the full year 2014, adjusted earnings per share came in at $3.24, up 18% year over year. This also outpaced the Zacks Consensus Estimate of $3.15.

Better-than-expected results were supported by lower provisions as well as growth in loans and deposits. However, improvement in revenue generation remained muted. Also, elevated expenses acted as a dampener.

After considering the impact of a legal provision for legacy mortgage matters, net income available to common shareholders amounted to $378 million or 72 cents per share, down from $413 million or 77 cents per share in the year-ago quarter.

Suntrust Banks Inc. - Earnings Surprise | FindTheBest


Quarterly Performance

Total revenue declined 1% year over year to $2.04 billion. However, the reported figure was slightly higher than the Zacks Consensus Estimate of $2.03 billion.

For 2014, total revenue rose 1% year over year to $8.3 billion. Excluding the pre-tax gain on the RidgeWorth sale, total revenue was relatively stable. Further, it outpaced the Zacks Consensus Estimate of $8.2 billion.
 
Net interest income rose marginally year over year to $1.25 billion. However, net interest margin fell 24 basis points (bps) year over year to 2.96%, mainly driven by lower loan and investment securities yields.

Non-interest income summed to $795 million, down 2.3% year over year. The fall was owing to a reduction in trading income as well as the foregone RidgeWorth wealth management revenue, partly mitigated by a rise in mortgage-related and investment banking income.

Non-interest expense totaled $1.41 billion, up 3.6% year over year. Notably, expenses during the quarter increased due to the above mentioned legal provision. Excluding this, non-interest expenses declined 7% year over year.

SunTrust’s efficiency ratio stood at 69.00% compared with 66.05% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

As of Dec 31, 2014, SunTrust had total assets of $190.3 billion while shareholders’ equity summed $23.0 billion, representing 12.10% of the total assets.

As of Dec 31, 2014, loans grew 4% year over year to $133.1 billion. Total consumer and commercial deposits rose 9% year over year to $139.2 billion.

Credit Quality

Credit quality exhibited improvement during the quarter. Nonperforming loans fell 28 bps year over year to 0.48% of total loans. Similarly, rate of net charge-offs decreased 12 bps year over year to 0.28% of annualized average loans.

Moreover, provision for credit losses declined 26.7% year over year to $74 million.

Capital & Profitability Ratios

SunTrust’s capital ratios reflected mixed results, while profitability ratios strengthened. Tangible equity to tangible asset ratio rose 17 bps year over year to 9.17%. However, Tier 1 common ratio declined 27 bps to 9.55% and Tier 1 capital ratio was down 6 bps to 10.75%.

As of Dec 31, 2014, book value per share and tangible book value per share improved 8% and 10% year over year to $41.52 and $29.82, respectively.

Share Repurchase

During the quarter, SunTrust bought back shares worth $110 million. In addition to this, the company expects to buy back around $110 million–$120 million of additional common shares in the first quarter of 2015.

Our Viewpoint

Robust credit quality along with remarkable growth in loans and deposits continue to be SunTrust’s strengths. Further, the company’s enhanced capital deployment activities reflect its strong balance sheet position, enhancing investors’ confidence in the stock.

Nevertheless, we remain concerned about the company’s exposure to risky assets and its limited margin improvement. Simultaneously, a persistent low interest rate environment and prevalent industry challenges are expected to weigh on the financials in the near term.

SunTrust currently carries a Zacks Rank #3 (Hold).

Performance of Other Major Banks

Among other major regional banks, Wells Fargo & Company (WFC) reported fourth-quarter 2014 earnings of $1.02 per share, which was in line with the Zacks Consensus Estimate.

Bank of America Corp. (BAC) posted fourth-quarter adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate by a penny.

Further, Citigroup Inc. (C) reported fourth-quarter adjusted earnings per share of 6 cents, missing the Zacks Consensus Estimate of 9 cents.


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