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SunTrust Beats, But Mortgage Origination Revenue Declines (Update 1)

SunTrust said that its Tier 1 common equity ratio increased to 10.0% as of Dec. 31, from 9.82% the previous quarter.

The company's total loans held for investment declined to $121.470 billion as of Dec. 31, from $121.817 billion the previous quarter, and $122.495 billion the previous year, as the company continued to wind-down its commercial real estate and construction loans, with the sequential decline also reflecting "sales of government guaranteed mortgage and student loans." However, coveted commercial and industrial balances grew 3% sequentially and 9% year-over-year, to $54.048 billion, as of Dec. 31.

SunTrust's shares closed at $29.57 Thursday, trading for 1.1 times their reported Dec. 31 tangible book value of $25.98, and for 11 times the consensus 2013 EPS estimate of $2.69. The consensus 2014 EPS estimate is $2.97.

Jefferies analyst Ken Usdin said in a note that SunTrust's fourth-quarter "expenses looked particularly good as the ramp to '13 estimates now looks less steep," leading him to stick with his 2013 EPS estimate of $2.70 and his 2014 EPS estimate of $2.85.

Usdin continues to rate SunTrust a "Hold," with a $32 price target, but said that "At 10x '14 earnings, we believe STI offers investors good relative value and one of the few stories where mid-single digit EPS growth is possible in '14."

Stifel Nicolaus analyst Christopher Mutascio also rates SunTrust a "Hold," and said the company's "mortgage origination income came in at $241 million during the quarter, versus our $292 million estimate, and was down from core mortgage origination income of $307 million in 3Q12 (which excludes the company's large repurchase reserve build last quarter)." "The miss on mortgage banking origination income comes despite the fact the company's provision for loan repurchases was just $12 million in the quarter," Mutascio said, adding that the putback provision "seems low given what other banks have been recording this quarter."

Interested in more on SunTrust? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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