SunTrust's 1Q Results Rely Heavily on Cost-Cutting

SunTrust Banks (STI) in Atlanta relied heavily on expense cuts to generate higher earnings compared with a year earlier.

Its first-quarter net income rose 39% year over year, but fell 3% from the fourth quarter, to $340 million, or 63 cents a share. Noninterest income fell 12% from a year earlier and 10% from the fourth quarter, to $1.36 billion.

 "Our expenses declined meaningfully, not only related to the continued abatement of cyclically high costs, but also as a direct result of our concerted efforts to improve our efficiency," William Rogers Jr., the $172 billion-asset company's chairman and chief executive, said in a press release Friday.

Expenses at SunTrust reached their lowest level in three years, as SunTrust made cuts in employee compensation, legal and consulting costs and credit-related areas such as collections.

The cuts offset lower revenue. Net interest income fell 7% from a year earlier and 2% from the fourth quarter, to $1.25 billion.

The balance sheet shrank, with the loan portfolio decreasing by 0.5% from the fourth quarter, to $120.8 billion. Deposits fell 2% from Dec. 31, to $130 billion. The net interest margin shrank 16 points from a year earlier and 3 basis points from the fourth quarter, to 3.33%.

Credit quality improved. The loan-loss provision fell 33% from a year earlier and 35% from the fourth quarter, to $212 million. Net chargeoffs fell 46% from a year earlier to $226 million. Nonperforming loans fell 44% from the first quarter of 2012, to $1.5 billion.

Noninterest income fell 2% from a year earlier and 15% from the fourth quarter, to $863 million. SunTrust had declines in service charges on deposits, trust and investment management income and revenue from mortgage servicing. Income related to mortgage production increased compared with a year earlier.