SunTrust Reports Solid Beat as Expenses Decline

NEW YORK (TheStreet) -- SunTrust (STI) shares were climbing in early trading Friday after the Atlanta lender reported an 18% increase in fourth-quarter earnings-per-share, as declining credit costs and overheard expenses outweighed a continued decline in mortgage revenue.

SunTrust reported fourth-quarter earnings available to common shareholders of $413 million, or 77 cents a share, increasing from $179 million, or 33 cents a share, in the third quarter, and $350 million, or 65 cents a share, during the fourth quarter of 2012.  The third-quarter results were lowered by 33 cents a share from several one-time mortgage- and tax-related items.

The fourth-quarter earnings came in well ahead of the consensus EPS estimate of 69 cents among analysts polled by Thomson Reuters.

SunTrust's fourth-quarter net interest income was $1.247 million, rising slightly from $1.240 million the previous quarter, but declining from $1.276 billion a year earlier.  The fourth-quarter net  interest margin was 3.20%, slightly above the third-quarter margin of 3.19%, but narrowing from 3.36% in the fourth quarter of 2012.  Despite a significant rise in long-term interest rates last year, many banks are still seeing pressure on their margins, because certain asset classes, including home equity loans and equipment leases, reprice at lower rates, while most newly originated first-lien mortgage loans indexed to long-term rates are quickly sold to Fannie Mae (FNMA) or Freddie Mac (FNMA).

The company's noninterest income during the fourth quarter totaled $814 million, increasing from $680 million during the third quarter (which reflected several one-time items), but declining from $1.015 billion in the fourth quarter of 2014.  Mortgage production income sank to $31 million during the fourth quarter from $241 million a year earlier, as the rise in long-term interest rates curtailed the wave of mortgage refinancing applications.

With credit quality continuing to improve, SunTrust's quarterly provision for credit losses -- the amount added to loan loss reserves each quarter in anticipation of loan charge-offs -- declined to $101 million during the fourth quarter from $328 million a year earlier.

Noninterest expenses declined to $1.377 billion in the fourth quarter from $1.510 billion a year earlier, which the company attributed to "improved expense management and declines in cyclical costs."

SunTrust's average loans were down slightly year-over-year to $121.372 billion in the fourth quarter, but average commercial and industrial loans were up 1% sequentially and 4% year-over-year.

Jefferies analyst Ken Usdin rates SunTrust a "hold," and in a note to clients following the earnings release called the bank's core earnings results "soft."

SunTrust's shares were up nearly 3% in the first 10 minutes of trading, climbing as high as 5% to $39.86 minutes after the open.

This chart shows the performance of SunTrust's stock against the KBW Bank Index (I:BKX) and the S&P 500 since the end of 2011:

STI Chart data by YCharts


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

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 TheStreet.com 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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