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SunTrust (STI) Beats on Q3 Earnings, Costs & Provisions Down

SunTrust Banks' STI third-quarter 2018 adjusted earnings of $1.42 per share outpaced the Zacks Consensus Estimate of $1.38. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $1.06.

Results were driven by rise in net interest income, lower provisions as well as lower expenses. Moreover, improvement in overall asset quality was a tailwind. The balance sheet position also remained strong during the quarter. However, a decline in non-interest income was a negative for the company.

Results for the reported quarter excluded tax benefits from finalization of the impact of tax reform and the consolidation of SunTrust Mortgage into SunTrust Bank. Including this, net income available to common shareholders for the quarter was $726 million, up 42% from the prior-year quarter.

Revenues Improve Marginally, Costs Decline

Total revenues for the reported quarter were $2.29 billion, up marginally year over year. However, the figure lagged the Zacks Consensus Estimate of $2.34 billion.

Net interest income (FTE basis) increased 5% year over year to $1.53 billion.

On a year-over-year basis, net interest margin (FTE basis) was up 12 basis points (bps) to 3.27%.

Non-interest income was $782 million, down 8% from the prior-year quarter. The fall was due to lower capital markets-related income, mortgage-related income and client transaction-related fees.

Non-interest expenses decreased marginally from the year-ago quarter to $1.38 billion. The fall was due to a decline in almost all cost components except for outside processing and software expenses.

Credit Quality Improves

Total non-performing assets were $754 million as of Sep 30, 2018, down 5% from the prior-year-quarter end. Further, provision for credit losses plunged 49% from the year-ago quarter to $61 million. Non-performing loans to total loans held for investment decreased 1 bps year over year to 0.47%.

However, the rate of net charge-offs to total average loans held for investment increased 3 bps year over year to 0.24%.

Strong Balance Sheet

As of Sep 30, 2018, SunTrust had total assets of $211.28 billion while shareholders’ equity was $24.14 billion, representing 11.4% of total assets.

As of Sep 30, 2018, loans held for investments were $147.22 billion, up 2% from the prior-quarter end. Total consumer and commercial deposits decreased marginally from the prior quarter to $159.33 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III was 9.60% as of Sep 30, 2018.

Share Repurchase

During the reported quarter, the company bought back shares worth $500 million.

Our Viewpoint

SunTrust remains well positioned for growth, given its favorable deposit mix and enhanced credit quality. Easing margin pressure and initiatives to enhance efficiency are likely to support the company’s revenues. However, a slowdown in the mortgage business is expected to hurt top-line growth. This makes us apprehensive for the near-term.

SunTrust Banks, Inc. Price, Consensus and EPS Surprise
 

SunTrust Banks, Inc. Price, Consensus and EPS Surprise | SunTrust Banks, Inc. Quote

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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 Regional Banks

Comerica’s CMA third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Higher revenues and improved credit metrics were recorded. However, lower deposits and loans remained an undermining factor. Also, higher expenses were a headwind.

The PNC Financial Services Group PNC delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth.

Driven by expense management, Citigroup C delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

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