SunTrust Banks, Inc.’s (STI - Analyst Report) first-quarter 2015 earnings of 78 cents per share outpaced the Zacks Consensus Estimate of 72 cents. Moreover, the reported figure came in 6.8% higher than the prior-year quarter number.

Results benefited from a decrease in expenses and provisions as well as higher non-interest income, partly offset by lower net interest income. Growth in loans and deposits as well as asset quality displayed improvement during the quarter.

Net income available to common shareholders amounted to $411 million, up 4.6% year over year.

Suntrust Banks Inc. - Earnings Surprise | FindTheCompany

Quarterly Performance

Net revenue declined 1.9% year over year to $1.96 billion. The fall was driven by lower net interest income and foregone RidgeWorth revenue, partially offset by higher mortgage production-related and capital markets-related income. Moreover, the reported figure was slightly lower than the Zacks Consensus Estimate of $1.98 billion.

Net interest income fell 5.3% year over year to $1.14 billion. Further, net interest margin inched down 36 basis points (bps) year over year to 2.83%, mainly due to a reduction in lower commercial loan swap income and lower loan yields. These were, however, partly mitigated by growth in average earning assets.

Non-interest income summed to $817 million, up 3.3% year over year. The increase was owing to a rise in mortgage-related and capital markets-related income as well as gain on the sale of legacy affordable housing investments. However, these were slightly offset by foregone RidgeWorth revenues.

Non-interest expense totaled $1.28 billion, down 5.7% year over year. The reduction was attributable to lower employee compensation and benefits costs as well as other expenses along with a fall in expenses related to the RidgeWorth sale and impairment of certain legacy affordable housing investments in the prior-year quarter.

SunTrust’s efficiency ratio stood at 64.23% compared with 66.83% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

As of Mar 31, 2015, SunTrust had total assets of $189.9 billion while shareholders’ equity summed $23.3 billion, representing 12.2% of the total assets.

As of Mar 31, 2015, loans grew 2.5% year over year to $132.4 billion. Total consumer and commercial deposits rose 9.4% year over year to $143.2 billion.

Credit Quality

Credit quality exhibited improvement during the quarter. Nonperforming loans fell 26 bps year over year to 0.46% of total loans. Similarly, rate of net charge-offs decreased 5 bps year over year to 0.30% of annualized average loans.

Moreover, provision for credit losses declined 46.1% year over year to $55 million.

Capital & Profitability Ratios

As of Mar 31, 2015, tangible equity to tangible asset ratio rose 33 bps year over year to 9.34%. Tier 1 capital ratio stood at 10.75% as of Mar 31, 2015, while total capital ratio came in at 12.70% (under the Basel III rules applicable for SunTrust effective Jan 1, 2015).

As of Mar 31, 2015, book value per share and tangible book value per share improved 7% and 10% year over year to $42.21 and $30.49, respectively.

Share Repurchase

During the quarter, SunTrust bought back shares worth $115 million. In addition to this, the company announced its capital plan, which included purchase of $875 million worth of shares in the period between the second quarter of 2015 and the second quarter of 2016.

Also, the company announced a 20% hike in its quarterly dividend to 24 cents. The new dividend will commence in the second quarter of 2015, subject to approval by the board of directors.

Our Viewpoint

Robust credit quality along with remarkable growth in loans and deposits continue to be SunTrust’s strengths. Further, the company’s enhanced capital deployment activities reflect its strong balance sheet position, enhancing investors’ confidence in the stock.

Nevertheless, we remain concerned about the company’s exposure to risky assets and its limited margin improvement. Simultaneously, a persistent low interest rate environment and prevalent industry challenges are expected to weigh on the financials in the near term.

SunTrust currently carries a Zacks Rank #3 (Hold).

Other Major Regional Banks

Among other major regional banks, KeyCorp. (KEY - Analyst Report) posted first-quarter 2015 earnings from continuing operations of 26 cents per share, which came in line with the Zacks Consensus Estimate.

Further, Citigroup Inc. (C - Analyst Report) reported first-quarter adjusted earnings per share of $1.52, surpassing the Zacks Consensus Estimate of $1.39 on the back of lower expenses.

The Bank of New York Mellon Corporation (BK - Analyst Report) is scheduled to report first-quarter earnings results on Apr 22, before the market opens.

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