Southeast regional bank SunTrust (NYSE:STI) reported an impressive rise in its first quarter earnings on April 23, 2012. There is likely further room for profit improvements, but the firm is not a very appealing operator in the industry.

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First Quarter Recap
Total revenue improved nearly 3% to $2.2 billion. This consisted of a 5% increase in net interest income to $1.3 billion, or just under 60% of the total top line. Net interest income consists primarily of the spread a bank makes from paying interest on its deposits and making loans to businesses and individuals. SunTrust ended the quarter with an average loan size of $122.5 billion, though its net interest margin decreased slightly to 3.49%. Provisions for credit losses on these loans fell almost 30% from last year's first quarter to $317 million. Noninterest income made up the remaining roughly 40% and fell nearly 1% to $883 million.

The lower loss provisions and cost controls helped push net income up almost 40% to $245 million. This worked out to 46 cents per common share. Return on average equity came in at 4.94% and book value ended the quarter at $37.11 per share. Backing out goodwill and other intangible assets, tangible book value was $25.49 per share.

SEE: Can You Count On Goodwill?

Outlook and Valuation
Analysts expect minimal revenue growth of 1.3% and a total top line of $8.6 billion for all of 2012. The consensus earnings projection currently stands at $1.80 per share. This would represent a return on equity of 3.06%. Based on the current stock price of $23.59 per share, the forward P/E is 8.9.

The Bottom Line
SunTrust boasted that its strong first quarter represented a continuation of the improving trends it experienced during 2011. Loss rates continue to decline and profitability is indeed improving, but the bank is still lagging some key rivals in terms of fully recovering from the depths of the credit crisis. U.S. Bancorp (NYSE:USB) is again reporting an ROE in the mid-teens while PNC Financial (NYSE:PNC), BB&T Corp (NYSE:BBT) and Fifth Third (Nasdaq:FITB) are consistently reporting in the high single digits at this point.

This isn't overly surprising, because SunTrust was not the best performer prior to the crisis. Back in 2006, ROE was only 11.5%, which is decent, but not overly impressive. U.S. Bancorp logged an ROE above 20% back then. Based on these metrics, SunTrust may not be the best operator in the industry, but it does have more room to run, as profits continue to rise. There is also the potential for dividend increases.

SEE: 5 Must-Have Metrics For Value Investors

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: STI, BBT, FITB, PNC, USB

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