SunTrust: Financial Winner

NEW YORK ( TheStreet) -- SunTrust ( STI) was the winner among the largest U.S. financial names on Monsay, with shares rising 3% to close at $23.23.

The broad indexes saw 1% declines as investors apparently fretted over events in Europe, after Markit's preliminary composite purchasing managers index fell for the third month in a row to 47.4, down from 49.1 in March. This was the index's seventh decline over the past eight months.

The KBW Bank Index ( I:BKX) pulled back 1% to close at 47.28, with 17 out of 24 index components showing declines.

SunTrust on Monday reported first-quarter net income available to common shareholders of $245 million, or 46 cents a share, soundly beating the consensus EPS estimate of 33 cents, among analysts polled by Thomson Reuters.

The Atlanta lender's earnings to common shareholders increased from $71 million, or 13 cents a share in the fourth quarter ,and $38 million, or eight cents a share, during the first quarter of 2011.

SunTrust's mortgage production related income during the first quarter totaled $63 million, compared to a $62 million loss during the fourth quarter, when the company increased its mortgage putback provision and also wrote down mortgage servicing rights, in anticipation of increased refinance activity, from President Obama's expanded Home Affordable Refinance Program, or HARP 2, which allows borrowers with mortgage loans held by Fannie Mae ( FNMA) or Freddie Mac ( FMCC) to refinance their entire loan balances at today's low rates, no matter how much the value of the underlying home has dropped.

In the first quarter of 2011, SunTrust's mortgage production related income was a negative $1 million.

During the first quarter, SunTrust set aside $317 million for loan loss reserves, compared to $327 million the previous quarter, and $447 million a year earlier. A $109 million decline in loan loss reserves during the first quarter directly boosted operating earnings.

SunTrust's first-quarter results also reflected a decline in total noninterest expenses to $1.55 billion from $1.67 billion in the fourth quarter -- which included $120 million in potential mortgage settlement and repurchase expenses -- although expenses increased from $1.47 billion a year earlier.

Jefferies analyst Ken Usdin rates SunTrust a "Buy," with a $27 price target, and said on Monday that the earnings results looked "pretty clean, as the one-times net out," unlike so many other banks reporting so far this quarter, and said that among the positives was a rise in the company's net interest margin, which is the difference between a bank's average yield on loans and deposits, and its average cost for deposits and wholesale borrowings.

SunTrust's first-quarter net interest margin increased to 3.53%, from 3.46% the previous quarter, and 3.49% a year earlier, bucking the trend for many of the largest banks in the prolonged low-rate environment.

SunTrust's shares have now returned 32% year-to-date, following a 40% drop during 2011.

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The shares trade for 0.9 times their reported March 31 tangible book value of $25.49, and for nine times the consensus 2013 earnings estimate of $2.65 a share. The consensus 2012 EPS estimate is $1.77.

Interested in more on New York Community Bancorp? See TheStreet Ratings' report card for this stock.


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

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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.