SunTrust Banks, Inc. reported net income available to common shareholders of $519 million, or $1.00 per average common diluted share.  This compares to $0.89 per share in the prior quarter and $1.06 and $0.81 per share in the third quarter of 2014, on a reported and adjusted basis, respectively.  The current quarter was favorably impacted by $0.07 per share in discrete tax benefits and $0.04 per share in recoveries related to the resolution of previous mortgage matters.  Earnings per share, when excluding the net $0.11 per share benefit of these items, grew 10% compared to the adjusted level a year ago. 

For the first nine months of 2015, earnings per share were $2.67 compared to $2.51 per share for the same period last year.  Prior year earnings included a $0.16 per share net benefit related to a tax item and the gain on sale of RidgeWorth, partially offset by the resolution of specific legacy mortgage-related matters.

"SunTrust delivered solid earnings performance in the third quarter, driven by continued loan and deposit growth, improved efficiency, and strong asset quality trends," said William H. Rogers, Jr., chairman and chief executive officer of SunTrust Banks, Inc.  "Our fundamentals are strong and, despite the challenging operating environment, I am confident in our ability to deliver further value to our clients and shareholders as we continue to execute against our key strategies."

Third Quarter 2015 Financial Highlights

Income Statement

• Net income available to common shareholders was $519 million, or $1.00 per average common diluted share.
  • Third quarter 2015 earnings included $0.07 per share in discrete tax benefits and $0.04 per share in benefits related to the resolution of certain legacy mortgage matters. 
  • Excluding the total $0.11 per share benefit from these items, earnings per share grew 10% compared to adjusted earnings per share of $0.81 in the third quarter of 2014. This growth was driven by higher capital markets and mortgage-related income and a decline in the provision for loan losses, as a result of continued improvements in asset quality.
• Total revenues declined slightly compared to the prior quarter, as higher net interest income was offset by lower noninterest income.
  • Net interest income grew 4% sequentially due to an 8 basis point increase in the net interest margin and one additional day in the quarter. 
  • Noninterest income declined sequentially, primarily driven by lower capital markets-related income given the record performance in the prior quarter.
• Noninterest expense declined 5% sequentially, primarily driven by lower employee compensation and benefits costs, as well as the recognition of discrete recoveries related to previous mortgage matters in the third quarter of 2015. 
• The efficiency and tangible efficiency ratios in the current quarter were 61.4% and 61.0%, respectively, and were 63.2% and 62.8%, respectively, on a year-to-date basis.

Balance Sheet

• Average loan balances were relatively stable as growth in mortgage and consumer direct loans was offset by continued paydowns in commercial loans and lower consumer indirect loans, as a result of the $1.0 billion indirect auto securitization completed in the latter part of the second quarter.
  • Total loans as of September 30, 2015, grew $1.0 billion, or 1%, compared to June 30, 2015 with growth occurring across most portfolios. 
• Average client deposits increased 2% sequentially and 10% compared to the third quarter of 2014. The continued growth in deposits was used to further pay down higher-cost wholesale borrowings.

Capital

• Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ratio and Tier 1 capital ratios were estimated to be 9.9% and 10.6%, respectively, as of September 30, 2015, on a fully phased-in basis. 
• During the quarter, the Company repurchased $175 million of common stock per its 2015 capital plan. 
• Book value per share was $43.65, and tangible book value per share was $31.75, up 3% and 4%, respectively, compared to June 30, 2015.

Asset Quality

• Asset quality continued to improve, as nonperforming loans declined 4% from the prior quarter and represented 0.35% of total loans at September 30, 2015. 
• Net charge-offs for the current quarter were $71 million, representing 0.21% of average loans on an annualized basis, declining from $87 million in the prior quarter and $128 million in the third quarter of 2014. 
• The provision for credit losses increased $6 million compared to the prior quarter, but decreased $61 million compared to the third quarter of 2014, driven by the continued improvement in overall asset quality. 
• At September 30, 2015, the allowance for loan and lease losses to period-end loans ratio was 1.34%, 5 basis points lower than the prior quarter, as a result of the continued improvement in overall asset quality.

Consolidated Financial Performance Details
(Presented on a fully taxable-equivalent basis unless otherwise noted)

Revenue

Total revenue was $2.1 billion for the current quarter, a decrease of $19 million compared to the prior quarter.  The decrease was primarily driven by a decline in capital markets-related income, compared to record performance in the prior quarter, partially offset by higher net interest income.  Compared to the third quarter of 2014, total revenue increased $27 million, driven primarily by higher capital markets-related income, mortgage-related income, and gains on the sale of investment securities, partially offset by lower service charges.

For the nine months ended September 30, 2015, total revenue was $6.1 billion, a decline of $134 million compared to the first nine months of 2014.  The decline was driven by the $105 million gain on sale of RidgeWorth during 2014 (and associated foregone revenue) and a decline in net interest income.  This was partially offset by growth in capital markets and mortgage-related income, in addition to higher securities gains.

Net Interest Income

Net interest income was $1.2 billion for the current quarter, an increase of $44 million compared to the prior quarter.  The increase was primarily due to lower premium amortization expense in the securities portfolio, a decline in long-term debt, and higher commercial loan-related swap income, each a result of continued balance sheet management efforts.  Compared to the third quarter of 2014, the $4 million decline in net interest income was driven by lower earning asset yields, almost entirely offset by growth in average earning assets and lower wholesale funding.

Net interest margin for the current quarter was 2.94%, compared to 2.86% in the prior quarter and 3.03% in the third quarter of 2014.  The 8 basis point increase compared to the prior quarter was largely driven by the same factors impacting the sequential quarter increase in net interest income discussed above.  The 9 basis point decline in net interest margin compared to the third quarter of 2014 was due primarily to 9 and 23 basis point declines in loan and investment securities yields, respectively, driven largely by the persistent low interest rate environment.  The declines in earning asset yields were partially offset by a 6 basis point decline in rates paid on interest-bearing liabilities, as a result of the decline in long-term debt.

For the nine months ended September 30, 2015, net interest income was $3.6 billion, a $109 million decrease compared to the first nine months of 2014.  The net interest margin was 2.88% for the first nine months of 2015, a 23 basis point decline compared to the same period in 2014.  The declines in both net interest income and net interest margin were driven by the same factors that impacted the year-over-year comparisons discussed above.

Noninterest Income

Noninterest income was $811 million for the current quarter, compared to $874 million for the prior quarter and $780 million for the third quarter of 2014.  The $63 million decrease from the prior quarter was primarily related to lower capital markets-related income given the record performance in the second quarter of 2015.  Compared to the third quarter of 2014, noninterest income increased $31 million, driven primarily by higher investment banking and mortgage-related income, along with higher gains on the sale of investment securities.

Investment banking income was $115 million for the current quarter, compared to $145 million in the prior quarter and $88 million in the third quarter of 2014.  Despite the challenging market conditions during the quarter, investment banking income remained strong across most product categories, with the only notable declines occurring in high yield and equity origination.  Compared to the third quarter of 2014, the 31% growth was driven by increases across most product areas.

Trading income was $31 million for the current quarter, compared to $54 million in the prior quarter and $46 million in the third quarter of 2014.  Both the sequential quarter and prior year declines were driven by market conditions in the third quarter of 2015, which was marked by wider credit spreads and increased volatility, resulting in pricing pressure and lower client activity.  

Mortgage production-related income for the current quarter was $58 million, compared to $76 million for the prior quarter and $45 million for the third quarter of 2014.  The sequential quarter decrease was primarily due to a decline in closed loan production volume and lower gain-on-sale margins.  The increase compared to the third quarter of 2014 was driven by higher mortgage production volume and higher gain-on-sale margins.  Mortgage production volume declined 5% compared to the prior quarter and increased 36% compared to the third quarter of 2014.

Mortgage servicing income was $40 million for the current quarter, compared to $30 million in the prior quarter and $44 millionin the third quarter of 2014.  The sequential increase was driven by higher servicing fees, as a result of a larger servicing portfolio, and a decline in servicing asset decay expense.  Compared to the third quarter of 2014, the decline was due to higher decay and lower net hedge performance in the current quarter, partially offset by higher servicing fees as a result of a larger servicing portfolio.  The servicing portfolio was $149 billion at September 30, 2015, compared to $136 billion at September 30, 2014, driven by portfolio acquisitions.

Trust and investment management income was $86 million for the current quarter, compared to $84 million in the prior quarter and $93 million in the third quarter of 2014.  The $7 million decline compared to the prior year was largely due to a decline in assets under management.

Other noninterest income was $58 million for the current quarter, compared to $52 million for both the prior quarter and the third quarter of 2014.  The increase compared to both periods was primarily due to higher leasing-related income.  Securities gains of $7 million and $14 million were recognized in the current and prior quarter, respectively, as a result of a slight repositioning of the securities portfolio, compared to a $9 million loss in the prior year.

For the nine months ended September 30, 2015, noninterest income was $2.5 billion, a decrease of $25 million compared to the first nine months of 2014.  The decline was due to the gain on the sale of RidgeWorth and associated foregone revenue, partially offset by higher investment banking and mortgage-related income, as well as growth in other noninterest income categories and higher gains from the sale of securities.

Noninterest Expense

Noninterest expense was $1.3 billion in the current quarter, a decline of $64 million compared to the prior quarter and stable compared to the prior year.  The sequential decline was primarily due to lower employee compensation and benefits costs, as well as the recognition of discrete recoveries as a result of the resolution of previous mortgage matters.

Employee compensation and benefits expense was $725 million in the current quarter, compared to $756 million in the prior quarter and $730 million in the third quarter of 2014.  The sequential decrease of $31 million was due to lower incentive compensation (given higher expense in the prior quarter due to business performance), lower employee medical benefit costs, and a seasonal decline in FICA and 401(k) costs.

Operating losses were $3 million in the current quarter, compared to $16 million in the prior quarter and $29 million in the third quarter of 2014.  The declines were primarily due to the aforementioned recoveries.

Outside processing and software expense was $200 million in the current quarter, compared to $204 million in the prior quarter and $184 million in the third quarter of 2014.  The $16 million increase compared to third quarter of 2014 was due to the higher utilization of third party services as well as increased investments in technology.

Marketing and customer development expense was $42 million in the current quarter, compared to $34 million in the prior quarter and $35 million in the third quarter of 2014.  The increase over both the prior quarter and prior year was due to higher advertising costs.

Other noninterest expense was $126 million in the current quarter, compared to $149 million in the prior quarter and $120 millionin the third quarter of 2014.  The $23 million sequential decline was driven primarily by the aforementioned recoveries and a lease impairment charge recognized in the prior quarter.  In addition, debt extinguishment costs (net of related hedges) of $11 millionand $14 million were recognized in the current and prior quarter, respectively.

For the nine months ended September 30, 2015, noninterest expense was $3.9 billion compared to $4.1 billion for the first nine months of 2014.  The $262 million decrease was driven by a decline in mortgage-related operating losses and affordable housing impairment charges recognized in 2014, the decline in RidgeWorth-related expenses, and the continued focus on expense management. These declines were partially offset by $24 million of debt extinguishment charges (net of related hedges) during 2015.

Income Taxes

For the current quarter, the Company recorded an income tax provision of $187 million, compared to $202 million for the prior quarter and $67 million for the third quarter of 2014.  The effective tax rate for the current quarter was approximately 26%, compared to approximately 29% in the prior quarter, and approximately 10% in the third quarter of 2014.  The effective tax rates in the current and prior quarters were favorably impacted by $35 million and $15 million in discrete income tax items, respectively, while the third quarter of 2014 included a $130 million tax benefit as a result of the completion of a tax authority examination.

Balance Sheet

At September 30, 2015, the Company had total assets of $187.0 billion and total shareholders' equity of $23.7 billion, representing 13% of total assets.  Book value per share was $43.65 and tangible book value per share was $31.75, up 3% and 4%, respectively, compared to June 30, 2015, due to growth in retained earnings and an increase in accumulated other comprehensive income (AOCI).

Loans

Average performing loans were $132.4 billion for the current quarter, a slight increase from the prior quarter.  Sequential quarter growth in nonguaranteed residential mortgages and consumer direct loans of $630 million and $410 million, respectively, was offset by declines in C&I loans, consumer indirect loans, and home equity products of $474 million, $316 million, and $276 million, respectively.  

Compared to the third quarter of 2014, average performing loans increased $2.5 billion, or 2%, with growth concentrated in C&I and consumer direct loans.  This growth was partially offset by declines in home equity products, consumer indirect, and guaranteed student loans.  

The sequential and prior year decline in average consumer indirect loans was primarily due to the securitization of approximately $1 billion of indirect auto loans in the latter part of the second quarter of 2015.

Total loans at September 30, 2015, were $133.6 billion, up $1 billion compared to June 30, 2015, driven largely by growth in consumer and mortgage loans.

Deposits

Average client deposits for the current quarter were $145.2 billion, compared to $142.9 billion in the prior quarter and $132.2 billion in the third quarter of 2014.  Sequentially, average client deposits increased 2% due to a $1.4 billion, or 4%, increase in NOW account balances and a $1.5 billion, or 3%, increase in money market account balances.  Partially offsetting this growth in lower-cost deposits was a $0.4 billion, or 3%, decline in time deposits.  Compared to the third quarter of 2014, average client deposits increased 10%, driven by increases in lower-cost deposits, partially offset by a $1.3 billion, or 12%, decrease in time deposits.

Capital and Liquidity

The Company's estimated capital ratios were well above current regulatory requirements with Common Equity Tier 1 and Tier 1 capital ratios at an estimated 9.9% and 10.6%, respectively, at September 30, 2015, on a fully phased-in basis.  The ratios of average total equity to average total assets and tangible equity to tangible assets were 12.42% and 9.71%, respectively, at September 30, 2015.  The Company continues to have substantial available liquidity in the form of cash, high-quality government-backed or government-sponsored securities, and other available contingency funding sources.

During the third quarter, the Company declared a common stock dividend of $0.24 per common share and repurchased $175 million of its outstanding common stock.  Per its 2015 capital plan, the Company currently expects to repurchase approximately $525 million of additional common stock over the next three quarters.

Asset Quality

Total nonperforming assets were $532 million at September 30, 2015, down 19% compared to the prior quarter and down 43% compared to the third quarter of 2014.  During the third quarter, the Company sold $92 million of nonperforming mortgage loans from held for sale and recognized a gain in other noninterest income of $10 million.  At September 30, 2015, the percentage of nonperforming loans to total loans was 0.35%, compared to 0.36% at June 30, 2015, and 0.58% at September 30, 2014.  Other real estate owned totaled $62 million, a 14% decrease from the prior quarter and a 45% decrease from the third quarter of 2014.

The provision for credit losses in the third quarter was $32 million, an increase of $6 million from the prior quarter due to loan growth and a decrease of $61 million from the third quarter of 2014 driven by the continued improvement in asset quality and lower net charge-offs.  Net charge-offs were $71 million during the current quarter, a decrease of $16 million and $57 millioncompared to the prior quarter and the third quarter of 2014, respectively.  The ratio of annualized net charge-offs to total average loans was 0.21% during the current quarter, compared to 0.26% during the prior quarter and 0.39% during the third quarter of 2014.

At September 30, 2015, the allowance for loan and lease losses was $1.8 billion, which represented 1.34% of total loans, a decline of $48 million, or 5 basis points, from June 30, 2015.  The allowance for credit losses declined $39 million, as the $48 million decline in the allowance for loan and lease losses was partially offset by a $9 million increase in the reserve for unfunded commitments.  The decline in the allowance was due to the continued improvement in overall asset quality during the quarter.

Early stage delinquencies increased 11 basis points from the prior quarter to 0.61% at September 30, 2015.  Excluding government-guaranteed loans, early stage delinquencies were 0.31%, up 6 basis points from the prior quarter.

Accruing restructured loans totaled $2.6 billion and nonaccruing restructured loans totaled $182 million at September 30, 2015, of which $2.5 billion were residential loans, $130 million were consumer loans and $86 million were commercial loans.