SunTrust profit rises in fourth quarter
Despite flat revenue, SunTrust Banks said its fourth-quarter profit increased 23 percent compared to a year ago, thanks to continued cost-cutting and some favorable state tax settlements.
But the Atlanta bank also saw some cracks developing in some areas, especially in its lending to oil producers and so-called fracking service firms now struggling under a glut of petroleum and low crude prices.
SunTrust said it earned $484 million in the fourth quarter, well above the previous year’s $394 million profit. For all of 2015, SunTrust’s profit was $1.9 billion vs. almost $1.8 billion in 2014.
Fourth-quarter revenue was flat, at $2 billion. Revenue for the year was $8.2 billion, down 2 percent from 2014.
The results beat analysts’ forecasts, but SunTrust’s shares fell almost 2 percent in morning trading, to $35.39.
In an interview Friday, SunTrust Chief Financial Officer Aleem Gillani said oil businesses are currently keeping up on payments on $3.3 billion of loans from the bank, but that will likely change if crude oil prices remain at depressed levels for some time.
The price of benchmark U.S. crude oil has risen about $5 a barrel since hitting a low of $26.55 Wednesday, but remains about 70 percent below its $107-per-barrel peak in mid-2014.
“We’re just trying to get ahead of this,” said Gillani. “If oil stays in the mid-$20s for a year or two, these are the companies that can get in trouble.”
SunTrust bumped up its non-performing loan total by $209 million in the fourth quarter, largely due to downgrades of loans to oil exploration firms and the firms that provide drilling and other oil field services. Those firms account for about 40 percent, or roughly $1.3 billion, of SunTrust’s $3.3 billion energy business loan portfolio.
A bigger chunk of those loans could become vulnerable in the future, but amount to only about 1 percent of SunTrust’s $135 billion total loan portfolio, said Gillani.
Overall, SunTrust reported strong financial results because “we continue to get better at managing expenses,” said Gillani.
He said the bank’s bottom line also got a boost from resolving income tax issues with “three or four states,” but didn’t elaborate.
Over the past year, SunTrust has shed 44 bank branches and more than 500 employees.
Last year, SunTrust outsourced much of its information technology work to outside firms, Computerworld magazine reported in October, and SunTrust laid off about 100 workers.
