Continued improvement in its overall credit portfolio has helped Atlanta-based SunTrust Banks
The quarter in detail
The bank saw a huge jump in its net income as compared to the second quarter of 2010. SunTrust's second-quarter net income of $174 million was almost fifteen times the (very low) profit it reported last year. But, compared to the preceding quarter's profit of $180 million, the bank failed to see any improvement. Growth in profits has been primarily driven by higher net interest income and a considerable improvement in credit quality.
Higher investment banking income also helped increase revenue before provisions marginally to $2.17 billion from $2.31 billion. Lower rates paid on deposits, continued shift toward lower-cost deposits, and a cut in higher-cost funding enabled the trust bank to record a 7% increase in net interest income, as compared to the same quarter a year ago.
Competitors such as BNY Mellon
Credit quality is the key
Declines in net charge-offs and allowances for loan losses resulted in a noticeable decline in provisions for credit losses. Net charge-offs reduced to $505 million, down 30% from $722 million in the prior-year quarter. Nonperforming loans were down 23%, making it the eighth consecutive quarterly decline. Similar improvements in credit quality helped KeyCorp
The negatives
While non-interest income declined 4%, non-interest expenses went up by 3% from a year ago. The decrease in income was due to lower net gains on the sale of investment securities and lower service charges on deposit accounts. SunTrust's Tier 1 capital ratio weakened to 11.1% from 13.5% a year ago, reflecting a weaker capital position. However, it is still well above Basel's recommended level of 8%.
The Foolish bottom line
With strong improvements in most of its key metrics, things seem to be moving in the right direction for SunTrust. Agree? Disagree? Leave your comments below.
