Propelled by a surprisingly strong net interest margin and good loan growth, SunTrust Banks Inc. earned $131.4 million in the second quarter, up 11% from a year earlier.
Atlanta-based SunTrust earned $1.09 a share - 4 cents above Wall Street consensus estimates as recorded by First Call.
"It was significantly better than anyone had expected, particularly in light of the fact that they added another $22 million to the loan-loss reserve," said Nancy Bush of Brown Brothers Harriman & Co.
Other southeastern banks reporting strong earnings Tuesday included Hibernia Corp., New Orleans, up 60% from the yearago quarter to $18.4 million, and Birmingham, Ala.-based South-Trust Corp., whose net rose 14% to $42.4 million.
Mortgage Gains Cited
Synovus Financial Corp., Columbus, Ga., clocked in with a 16% gain, to $20.7 million.
SunTrust reported an 11.5% annualized growth in loans from the first quarter. Investor relations spokesman Jim Armstrong cited residential mortgages, particularly a recent variable-rate promotion; commercial loans; and installment credit as major contributors. He said SunTrust's Florida and Georgia banks did the best, although loan growth picked up in Tennessee toward quarter's end.
Mr. Armstrong estimated that a buyback of about 1.5 million shares added 1 cent to SunTrust's earnings per share. SunTrust has repurchased nearly half of the 12 million shares it said it would buy back last fall. The program helps earnings per share by spreading net income over a smaller base.
SunTrust's margin reached 4.68%, fully eight basis points above the first quarter. The company tends to benefit from an environment of slightly rising interest rates because of its large base of demand deposits, shortterm securities and variable rate loans.
SUNTRUST BANKS INC. Atlanta
- Dollar amounts in millions (except per share) -SECOND QUARTER 2Q94 2Q93Net income $131.4 $118.7Per share 1.09 0.94ROA 1.34% 1.28%ROE 17.84% 16.74%Net interest margin 4.68% 4.87%Net interest income 635.2 604.5Noninterest income 177.2 181.9Noninterest expense 351.4 353.9Loss provision 33.9 46.3Net chargeoffs 11.8 27.6YEAR TO DATE 1994 1993Net income $258.5 $234.2Per share 2.13 1.84ROA 1.33% 1.28%ROE 17.72% 16.63%Net interest margin 4.64% 4.93%Net interest income 1,235.9 1,213.9Noninterest income 357.8 362.6Noninterest expense 697.4 707.6Loss provision 67.8 92.5Net chargeoffs 27.1 55.0BALANCE SHEET 6/30/94 6/30/93Assets $40,341 $37,098Deposits 30,755 29,732Loans 25,992 24,094Reserve/nonp. loans 277% 163%Nonperf. loans/loans 0.82% 1.31%Nonperf. asset/asset 0.83% 1.35%Leverage cap. ratio NA 7.02%Tier 1 cap. ratio NA 9.19%Tier 1+2 cap. ratio NA 10.97%
But rising interest rates, conversely, exerted a negative influence on SunTrust's noninterest income, which was down 3% from the year-ago quarter, to $177.2 million. "As interest rates go up, service charges on deposit accounts come under pressure," Mr. Armstrong said.
Trust Growth Stymied
Mortgage origination fees, mutual fund sales fees, and trading account commissions also came under pressure during the quarter, Mr. Armstrong said.
Finally, growth in trust income, which produced 10% of the company's total revenue last year, has virtually ground to a halt due to the stock market decline. The main culprit: SunTrust has been losing some institutional clients disappointed by poor performance in the bank's individually managed trust accounts, which are supervised by well-known money manager Tony Gray, the chief executive of SunTrust's investment subsidiary in Orlando.
"It's a reflection of institutional money's unwillingness to see a good manager through a tough time," said Ms. Bush, the analyst.
Healthy Loan-Loss Reserve
Mr. Armstrong said trust income increased to $63.4 million from $63 million in the year-ago quarter. Two years ago, SunTrust was experiencing double digit growth in trust revenues.
Nonperforming assets fell to $340.2 million, representing a mere 0.83% of total assets, continuing an uninterrupted decline that began in the fourth quarter of 1991. Ultraconservative SunTrust's loan-loss reserve reached $610 million and now provides 277% coverage of nonperforming loans.
Improved credit quality was also a factor at Hibernia, where the nonperforming-asset ratio dropped below 2%, to 1.89%, for the first time since the end of 1989. As a result, Hibernia, which has $4.9 billion of assets, was able to forgo taking a loan-loss provision for the third quarter in a row.
Hibernia also reported strong loan growth. Led by indirect auto and residential mortgage loans, its lending was up 26% on an annualized basis over the first quarter.
Synovus, which has $5.8 billion of assets, grew its loans at an annualized rate of 10.4% during the second quarter.
South Trust, with $15.9 billion of assets, reported annualized second-quarter loan growth of 25%.