SunTrust (STI) Q4 Earnings Top As Revenues Rise, Costs Fall

SunTrust Banks' (NYSE:STI) fourth-quarter 2018 adjusted earnings of $1.50 per share outpaced the Zacks Consensus Estimate of $1.40. However, the figure compared favorably with the prior-year quarter’s adjusted earnings of $1.09.

Shares of SunTrust rose nearly 1.7% in the pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Results were driven by rise in net interest income and lower expenses. The balance sheet position also remained strong during the quarter with improvement in loans and deposits. However, a decline in non-interest income and higher credit costs were the undermining factors.

After certain non-recurring items, net income available to common shareholders for the quarter was $632 million or $1.40 per share, down from $710 million or $1.48 per share in the prior-year quarter.

In 2018, earnings of $5.74 per share increased 40% relative to 2017 adjusted earnings. Net income available to common shareholders (GAAP basis) was $2.67 billion, up 22% from the prior year.

Revenues Improve, Costs Decline

Total revenues for the reported quarter were $2.37 billion, up 4% year over year. Also, the figure beat the Zacks Consensus Estimate of $2.35 billion.

In 2018, total revenues of $9.21 billion grew 3%. Further, the figure surpassed the Zacks Consensus Estimate of $9.19 billion.

Net interest income increased 8% year over year to $1.55 billion. Net interest margin (FTE basis) was up 10 basis points (bps) to 3.27%.

Non-interest income was $818 million, down 2% from the prior-year quarter. The fall was mainly due to lower trading income, mortgage-production related income and other non-interest income.

Non-interest expenses decreased 3% from the year-ago quarter to $1.48 billion. The fall was primarily due to a lower marketing and customer development costs, and regulatory assessments expenses.

Credit Quality: Mixed Bag

Total non-performing assets were $589 million as of Dec 31, 2018, down 21% from the prior-year-quarter end. Non-performing loans to total loans held for investment decreased 26 bps year over year to 0.26%. Further, the rate of net charge-offs to total average loans held for investment decreased 3 bps to 0.26%.

However, provision for credit losses rose 20% from the year-ago quarter to $89 million.

Strong Balance Sheet

As of Dec 31, 2018, SunTrust had total assets of $215.5 billion while shareholders’ equity was $24.2 billion, representing 11% of total assets.

As of Dec 31, 2018, loans held for investments were $151.84 billion, up 3% from the prior-quarter end. Total consumer and commercial deposits grew 1% from the prior quarter to $161.54 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III was 9.21% as of Dec 31, 2018.

Share Repurchase

During the reported quarter, the company bought back shares worth $750 million.

Our Viewpoint

SunTrust remains well positioned for growth, given its favorable deposit mix and enhanced credit quality. Higher interest rates 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 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

BB&T Corporation’s (NYSE:BBT) fourth-quarter 2018 adjusted earnings of $1.05 per share surpassed the Zacks Consensus Estimate of $1.04. The figure also represents 25% growth from the year-ago tally.

KeyCorp’s (NYSE:KEY) fourth-quarter 2018 adjusted earnings of 48 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, the figure compared favorably with earnings of 36 cents recorded in the prior-year quarter.

Riding on higher revenues, U.S. Bancorp’s (NYSE:USB) fourth-quarter 2018 adjusted earnings per share of $1.07 outpaced the Zacks Consensus Estimate by a penny. Results were also up 10.3% from the prior-year quarter.

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