SunTrust Banks falls as 3Q expenses climb

NEW YORK -- Shares of SunTrust Banks continued to fall on Tuesday, after the regional bank posted higher third-quarter expenses amid low interest rates.

THE SPARK: SunTrust Banks Inc. reported Monday that its third-quarter earnings climbed sharply, but the gain was mainly because it sold shares it owned in The Coca-Cola Co. Its performance beat the expectations of analysts polled by FactSet.

However, non-interest expenses rose almost 11 percent to about $1.73 billion from $1.56 billion. This was due mostly to the loss from the expected sale of affordable housing investments, a charitable contribution of some of its Coca-Cola shares and higher personnel expenses.

SunTrust also reported a decline in net interest margin, the difference between interest a bank collects on loans and interest it must pay to depositors and other lenders. That margin fell to 3.38 percent from 3.49 percent a year ago. SunTrust and other banks have been pressured by persistently low interest rates in recent years.

THE ANALYSIS: Jack Micenko of Susquehanna Financial Group lowered SunTrust's rating to "Neutral" from "Positive" and reduced his price target on the stock to $30 from $31. In a client note, the analyst said that SunTrust's shares have gained about 25 percent since reporting its second-quarter results in July and announcing plans in September to strengthen its financial position.

But Micenko said once he accounts for the impact of low interest rates and weak loan growth, along with higher expenses to cover uncollectible loans and more cost cutting, his new $30 price target doesn't provide enough potential gain for an investor to keep a "Positive" rating on the company.

SHARE ACTION: SunTrust's stock fell 73 cents, or 2.6 percent, to $26.95 in morning trading. That follows a 3.4 percent decline in Monday's session.

The shares have traded in a range of $15.79 to $30.79 over the last year. The stock is still up more than 50 percent since the start of the year.