Rising interest rates gave a boost to SunTrust Banks as its first-quarter profits rose to $430 million, nearly five percent higher than a year ago.
The results, which beat analysts’ estimates, also benefited from growth of loans ranging from mortgages to online consumer lending, the Atlanta bank said.
‘This revenue performance, combined with continued expense discipline, resulted in a good start to the year,” said SunTrust CEO William H. Rogers Jr. in a statement.
Banks generally do better when interest rates are rising, as they are able to increase rates they earn on loans faster than what they pay out on deposits.
The combined increase in SunTrust’s outstanding loans as well as the higher interest margins it earned gave the bank $1.3 billion in interest income in the first quarter, 12 percent higher than its year-earlier total.
Overall, SunTrust’s revenue rose to $2.1 billion, more than 5 percent over the year-earlier results.
Suntrust’s improved fortunes follow the Federal Reserve’s decision to raise short-term interest rates in December by a quarter of a percentage point.
But after the stock market dropped sharply in January and February amid worries about the strength of the economy, the Fed retreated from early plans to boost those rates as many as four times this year.
The stock market has since recovered that lost ground, but there are still signs of economic weakness — especially among oil, coal and other commodities industries — that also impacted SunTrust’s bottom line.
The bank said its total non-performing loans — basically loans where businesses and people aren’t keeping up on the payments — rose by $300 million from the previous quarter, mostly for loans to oil-related companies.
SunTrust had warned in January that it might have to move some of its $3.3 billion of oil industry loans to the troubled box.
But in a conference call with investors, SunTrust Chief Financial Officer Aleem Gillani said he expect issues with problem loans to ease up “assuming there is no oil shock.”
In that case, he added, reserves for energy-related problem loans could stabilize or go down. “I can foresee either of those scenarios from here,” he said.
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the year-ear profit by nearly 5 percnet said its first quarter income rose almost 5 percent
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