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SunTrust Banks, Inc. (STI), State Street Corporation (STT): Two Banks To Buy, One To Hold

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Will SunTrust (STI)'s Earnings Impress or Depress?SunTrust Banks, Inc. (NYSE:STI)State Street Corporation (NYSE:STT), and KeyCorp (NYSE:KEY) are among regional banks that have reported their first-quarter performances. This article will compare and review those performances.

SunTrust

SunTrust Banks, Inc. (NYSE:STI) reported a modest 1.6% EPS beat when it disclosed its first-quarter results. The reported EPS came in at $0.63, compared to the consensus mean expectation of $0.62 per share. The reported revenue remained 8% below the linked quarter’s figure.

The decline in revenue was attributed to the three basis points (bps) of sequential compression in the bank’s net interest margin. The margin compressed a significant 16 bps over the previous year. Similarly, the bank’s fee-based income was also hit by a decline in mortgage production activity. Mortgage production declined 33% over the linked quarter. The decline in revenue was partially offset by a decline in non-interest expenses, which fell 10% over the prior quarter. The bank also experienced improvement in its credit quality, as its non-performing-loans-to-total-loans ratio fell from 2.16% to 1.21%.

State Street

State Street Corporation (NYSE:STT) experienced a strong first quarter, thanks to better expense control and improved fee revenue. The bank reported earnings per share of $0.96, $0.02 ahead of the consensus mean expectation, while the reported revenue of $2.44 billion remained $0.04 billion behind.

During the quarter, the bank experienced weakness in its net interest income, which came in at $577 million, 4% below the prior quarter. The shortfall in net interest income was a result of a five bps contraction in net interest margin and the prevailing lower reinvestment rates. Operating expenses for the quarter came in at $1.81 billion, up 7% from the linked quarter. The surge in expenses was only seasonal. During the rest of 2013, you should expect the bank to save around $220 million in expenses related to the long-term program and the announced headcount reductions.

Further, the bank continues to show improvement in its capital base as its Basel I Tier 1 common ratio stood at 16.1%, while its Basel III Tier 1 common ratio improved 20 bps to 10.6%.

KeyCorp

KeyCorp (NYSE:KEY) reported its first quarter EPS of $0.21, in line with the consensus mean expectation. However, due to the prevailing revenue-challenged environment, its revenue of $1.01 billion remained $0.02 billion behind what analysts were expecting KeyCorp to report.

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