It has been about a month since the last earnings report for SunTrust (STI). Shares have added about 1.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SunTrust due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
SunTrust Beats on Q3 Earnings, Costs & Provisions Down
SunTrust’s 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.
Outlook
The company expects NIM in fourth-quarter 2018 to either remain unchanged or increase 2 bps, sequentially, driven by the September rate hike.
Management expects to record a one-time pre-tax charge related to unrealized losses of nearly $60-$65 million in the fourth quarter. This is a result of the termination of a pension plan that the company acquired as a part of the National Commerce Financial acquisition in 2004.
Despite the fact that the tax reform might create some headwinds to efficiency, management remains on track to improve efficiency ratio in 2018 and targets tangible efficiency ratio of nearly 60%.
Management expects NCO ratio to be 25-30 bps in fourth-quarter 2018. Going forward, provisions are expected to modestly exceed NCOs, with quarterly variability.
In 2018, the company expects effective tax rate on a reported basis to be 19%, and between 20% and 21% on a FTE basis.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, SunTrust has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SunTrust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
SunTrust Banks, Inc. (NYSE:STI
Original post