SunTrust 3Q earnings up sharply, but shares fall
ATLANTA (AP) — SunTrust Banks Inc. on Monday posted sharply higher third-quarter earnings, largely due to the regional bank's sale of shares it owns in The Coca-Cola Co. But SunTrust reported higher expenses amid persistently low interest rates, and its shares slipped in morning trading.
SunTrust reported net income available to common shareholders of nearly $1.07 billion, or $1.98 per share, for the July- to-September period. That was up from $211 million, or 39 cents per share, in the same quarter a year ago.
That result beat analyst expectations for profit of $1.86 per share, on average, according to FactSet.
Shares of SunTrust fell $1.34, or about 4.7 percent, to $27.29 in morning trading. The stock is down from its 52-week high of $30.79 reached Sept. 14. Shares traded as low as $15.79 in December.
Citi analyst Josh Levin said in a note to clients that there are "many moving parts" to the company's third-quarter results, and his assessment is that the results "may fall somewhat short of investor expectations."
Levin also said it was unclear how analysts factored SunTrust's one-time items into their financial forecasts, so it was unclear whether the company earnings of $1.98 per-share exceeded expectations. Levin had expected $2.05 per share.
The latest quarter's earnings were boosted $753 million, or $1.40 per share, by the positive net impact of several one-time items resulting from SunTrust's Sept. 6 announcement of moves to strengthen its financial position and reduce risks.
The Atlanta-based bank accelerated its plans to sell Coca-Cola shares, resulting in a pre-tax gain $1.9 billion. In addition to selling shares of the beverage maker, SunTrust also donated shares of Coca-Cola valued at $38 million to the SunTrust Foundation. That donation was among the factors that increased the company's non-interest expenses.
Others steps during the quarter to strengthen SunTrust's balance sheet included increasing mortgage repurchase provisions to $371 million. The bank says that amount should be enough to cover estimated losses on loans sold to government-sponsored Fannie Mae and Freddie Mac before 2009.
SunTrust also took other steps during the quarter to deal with problem loans, as well as absorbing losses from about $200 million in affordable housing investments.
It set aside $450 million to cover unpaid loans, up 30 percent from $347 million in the year-ago quarter. It said non-performing loans, those considered past due and in danger of default, fell 47 percent during the quarter to $1.7 billion, primarily because it sold certain mortgage and commercial real estate loans. The bank wrote off $511 million in loans classified as uncollectable, up from $492 million last year.
Noninterest income, which includes fees for services and other sources of revenue, jumped to $2.54 billion from $903 million in the year-ago quarter, largely due to the securities gain from the sale of Coca-Cola shares.
Net interest income, or earnings from deposits and loans, increased 1 percent from the year-ago quarter to $1.3 billion.
But non-interest expenses rose nearly 11 percent to about $1.73 billion from $1.56 billion, due largely to the loss from the expected sale of affordable housing investments, the charitable contribution of Coca-Cola shares, and higher personnel expenses.
SunTrust also reported a decline in net interest margin, the difference between interest a bank collects on loans and interest it must pay to depositors and other lenders. That margin fell to 3.38 percent from 3.49 percent in the year-ago quarter. SunTrust and other banks have been pressured by persistently low interest rates in recent years.