SunTrust Banks Inc.'s 2018 fourth-quarter results beat consensus estimates, aided by an improvement to the bank's efficiency ratio. But analysts on the bank's earnings call pressed for more gains, suggesting the bank's guidance is not as aggressive as it could be.
On Jan. 18, the bank reported net income applicable to common shares of $1.40 per share, above the consensus GAAP estimate. Investors appeared enthused, as the stock opened roughly 4% higher. While analysts applauded the bank's performance, several analysts asked pointed questions about the bank's guidance on its efficiency ratio.
The company reported an efficiency ratio of 62.1% in the quarter, but management focused on an adjusted tangible measure that excluded a legacy pension plan settlement charge. That adjusted tangible efficiency ratio was 58.6% in the quarter, down 30 basis points from the previous quarter and 130 basis points below the year-ago period. Chairman and CEO William Rogers Jr. said the performance on the efficiency ratio represented the achievement of a goal a year ahead of schedule. Rogers said the bank has an efficiency ratio target of 56% to 58% for the medium term, defined as the next three to four years.
That appeared to strike some analysts as inadequately slow. Mike Mayo with Wells Fargo Securities said it "feels far off," and John Pancari at Evercore ISI noted the guidance suggests a higher efficiency ratio than "a good number of your larger super-regional peers." Rogers said in response that the bank is emphasizing organic growth and improvement. He said management is looking at every business line in terms of growth, return and efficiency with the aim to be in the top quartile among its peers.
"I think the 56[%] to 58[%] as we sit here structurally is an appropriately ambitious goal that allows us to continue to invest and continue to grow," Rogers said.