SunTrust Banks, Inc. (STI) Needs to Turn Over More Rocks

Second, it’s true that not everyone is in a position to do a mortgage or home equity. However, there are still millions of homeowners that can borrow, and SunTrust needs to find them. In addition, the bank needs to focus on higher margin lending. A home equity portfolio yield of 3.64%, tells me that SunTrust is doing a lot of home equity lines of credit and not fixed-rate loans. A typical second mortgage (aka. home equity loan) rate according to Bankrate Inc (NYSE:RATE) is about 6%.

Since home equity lines of credit are based on the Prime Rate (currently 3.25%) plus a certain amount, usually between 0% and 2%, lines of credit can be found for as low as 3.25% to the 5% or 6% range. Since SunTrust’s home equity portfolio has such a low yield, we can assume their borrowers have good credit, but are taking advantage of the historically low interest rates. SunTrust needs to look for more borrowers who want a fixed rate, and make more calls to get these deals.

What Should Investors Do?

I know there are some SunTrust fans out there, but to be blunt, I don’t see a great reason to choose this stock over any one of its peers. The company’s lackluster deposit and loan growth isn’t inspiring. Its net interest margin of 3.33% is worse than its peers’ margins of between 3.48% and 3.81%. The stock’s yield of about 1.3% is lower than its peers’ as well, with BB&T at 3%, PNC at 2.5%, and U.S. Bank at 2.3%. Until SunTrust learns to turn over more rocks, and find more deals, I’m afraid this stock could sink like a stone.

The article This Bank Needs to Turn Over More Rocks originally appeared on Fool.com and is written by Chad Henage.

Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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