Trust services, mortgage origination fees, and the purchase of a small securities firm helped boost first-quarter profits 12% at SunTrust Banks Inc., to $181 million.
Earnings per share climbed 15%, to 85 cents, beating consensus estimates by 2 cents and surprising analysts, who said the conservative Atlanta banking company rarely strays from expectations.
"SunTrust reporting even a penny above consensus is in itself remarkable," said R. Harold Schroeder, an analyst at Keefe, Bruyette & Woods Inc. in New York. "We were looking for a good quarter from the bank, and we got that plus a little bit."
Driving the numbers was noninterest income growth of nearly 27%, to $286 million. As usual, income from trust services was a cornerstone of the $59.9 billion-asset bank's performance. This figure climbed about 19%, to $93 million.
Mortgage origination fees nearly doubled, to $18 million. SunTrust originated roughly $1.7 billion of mortgages during the first quarter, $500 million more than in the previous quarter, said James C. Armstrong, the company's director of investor relations.
The acquisition of Equitable Securities Corp., a Nashville brokerage and investment banking firm, played a significant role in SunTrust's first- quarter numbers. The $150 million deal, announced in September and completed in January, helped push noninterest expense up 14%, to $471 million.
However, Equitable Securities also contributed about one-third, or $95 million, of SunTrust's noninterest income, Mr. Armstrong said. "It's a great marriage that has added to our ability to provide services to our customers," he added.
Net interest income climbed a slight 5%, to $498 million, while the net interest margin was down 22 basis points, to 4.03%, a decline driven by the cost of funding rapid loan growth, the bank said. Loans grew 13%, to $41.3 billion.
SunTrust's Georgia and Florida operations contributed the biggest chunk of the company's first-quarter earnings. SunTrust Banks of Florida earned just over $99 million, an increase of 14%; SunTrust Banks of Georgia's income grew 10%, to $72 million.
Loan quality was strong at the bank, which has a reputation for fostering a conservative credit culture. Compared with the year-earlier quarter, SunTrust's level of nonperforming assets declined 31%, to $162 million. A mere 0.32% of all SunTrust's loans were nonperforming.
"Typically when a bank generates consistently increasing revenues, the first question you have to ask is whether they are sacrificing credit pricing or quality," said Sean J. Ryan, an analyst with Bear, Stearns & Co. "But at SunTrust, they have some of the best revenue growth in the industry and have historically had credit costs that are almost too low."
