SunTrust Banks, Inc. : SunTrust Banks 2nd Quarter Net Up 54%, But Won't Raise Dividend
07/20/2012| 02:36pm US/Eastern
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--SunTrust's quarterly revenue up 2%, commercial loans grew 13%
--Second-quarter earnings beat analysts' estimate
--CEO: Decision not to raise dividend or buy back stock this year "not indicative of our long-term plans"
(Adds detail about dividend and stock buybacks starting in the first paragraph, comments from CEO William Rogers Jr. in the second paragraph, analyst comment and earnings details.)
By Matthias Rieker
SunTrust Banks Inc.'s (STI) second-quarter profit rose 54% as loans and revenue grew, but the bank disappointed investors by announcing it wouldn't increase its dividend or buy back stock until next year.
"We think this is the best course of action for the short term," Chief Executive William Rogers Jr., told investors during a conference call following the earnings announcement Friday. "But it's not indicative of our long-term plans to return capital prudently to shareholders."
The revelation is a setback for the Atlanta bank, which has long been considered among the most attractive regional banks in the U.S. because of its strong position in the South.
SunTrust's shares fell 3.26%, to $23.45 Friday, although the stock is up by about one-third in 2012.
After the Federal Reserve's most recent stress tests of big banks, SunTrust was allowed to redeem Trust Preferred Securities, but the Fed "objected to other proposed capital actions," SunTrust said Friday in a press release.
"Overall the quarter looked solid," Jefferies analyst Ken Usdin wrote in a research note. "But the good news may be tempered by the company's decision not to ask [the Fed] for a higher return of capital until 2013."
Christopher Marinac, the managing partner at brokerage firm FIG Partners LLC, said, "The best thing at SunTrust is that relative to other large regionals, the stock still trades at a discount to tangible book value."
SunTrust had pulled through the financial crisis with less damage than many of its big bank competitors. But in the eyes of investors, it failed to gain momentum after the crisis, and its mortgage business is still hurt by demands to buy back faulty mortgages the bank previously sold to investors.
However, in the second quarter, SunTrust was among the few banks that were able to offset low interest rates--which hurt bank revenues as they earn less on loans--with strong loan growth. Total loans rose 8% in the second quarter from a year earlier to $124.5 billion, driven mainly by commercial and industrial loans, which rose 13% to $52 billion.
Fees from mortgage originations jumped more than 60% from the first quarter to $103 million; the figure was $4 million a year earlier.
Overall, SunTrust reported a $275 million profit as revenue rose 2% to $2.2 billion. Per-share earnings were 50 cents. Analysts expected earnings of 44 cents a share on $2.17 billion in revenue.
SunTrust's reserve for mortgages sold to investors but was forced to buy back because the mortgages defaulted rose $51 million from the first quarter, less than some analysts had expected, to $434 million. The bank said it increased partly "due to the continued relatively high level of repurchase demands received during the quarter."
Jefferies's Mr. Usdin wrote: "Forward-looking metrics suggest repurchase expense should continue to weigh on results in the near term."
--Saabira Chaudhuri contributed to this article.
Write to Matthias Rieker at matthias.rieker@dowjones.com
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