SunTrust Banks, Inc. today reported net income available to common shareholders of $411 million, or $0.78 per average common diluted share, representing a 7% per share increase compared to  the first quarter of 2014. 

Earnings in the prior quarter were $378 million, or $0.72 per average common diluted share, and included a $145 million legal provision expense related to legacy mortgage matters.  Excluding the impact of this expense, adjusted earnings per share for the prior quarter were $0.88.

"Continued expense discipline and strong asset quality performance, coupled with growth in noninterest income, contributed to solid performance in the first quarter and helped to mitigate the impact of the persistent low rate environment," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc. "As we look forward, we remain focused on deepening client relationships and executing our strategic priorities, particularly improving returns and efficiency, to further enhance shareholder value."

First quarter 2015 Financial Highlights

Income Statement

• Net income available to common shareholders was $411 million, or $0.78 per average common diluted share, a 7% increase, per share, over the first quarter of 2014. 
• Total revenues declined 2% compared to the prior quarter and the first quarter of 2014 due to a decline in net interest income. 
• Noninterest income increased 3%, both sequentially and compared to the first quarter of 2014, based largely on higher mortgage production-related income, as well as a gain realized upon the sale of legacy affordable housing properties during the current quarter. 
• Noninterest expense decreased $130 million compared to the prior quarter, primarily driven by the impact of the $145 million legal provision expense related to legacy mortgage matters in the prior quarter.  Excluding this impact, noninterest expense increased $15 million, as seasonally higher compensation and benefits expenses were partially offset by declines in other expense categories.
  • Noninterest expense declined 6% compared to the first quarter of 2014 due to declines in most expense categories and the sale of RidgeWorth Capital Management in the second quarter of 2014.
• The efficiency and tangible efficiency ratios in the current quarter were 64.2% and 63.9%, respectively.

Balance Sheet

• Average total loans for the current quarter increased 4% compared to the first quarter of 2014, while loan sales and transfers of loans to held-for-sale during the latter part of the prior quarter resulted in stable average loans on a sequential quarter basis. 
• Average client deposits increased 3% sequentially and 9% compared to the first quarter of 2014.

Capital

• Estimated capital ratios continued to be well above regulatory requirements. The Basel III Common Equity Tier 1 ratio and Tier 1 Capital ratios were estimated to be 9.8% and 10.8%, respectively, as of March 31, 2015, on a fully phased-in basis. 
• During the quarter, the Company:
  • Repurchased $115 million of common shares. 
  • Announced its capital plan, which includes:
    • The purchase of up to $875 million of its common shares between the second quarter of 2015 and the second quarter of 2016. 
    • A 20% increase in the quarterly common stock dividend from $0.20 per share to $0.24 per share, beginning in the second quarter of 2015, subject to approval by the Company's Board of Directors.
• Book value per share was $42.21, and tangible book value per share was $30.49, both up 2% sequentially. The increase was primarily due to growth in retained earnings.

Asset Quality

• Asset quality continued to improve, as nonperforming loans declined 3% from the prior quarter and totaled 0.46% of total loans at March 31, 2015. 
• Net charge-offs for the current quarter were $99 million, representing 0.30% of average loans on an annualized basis, relatively stable to the prior quarter and the first quarter of 2014. 
• The provision for credit losses decreased $19 million and $47 million compared to the prior quarter and the first quarter of 2014, respectively, driven by the continued improvement in asset quality, combined with lower loan growth in the current quarter. 
• At March 31, 2015, the allowance for loan losses to period-end loans ratio was 1.43%.

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

Revenue

Total revenue was $2.0 billion for the current quarter, a decrease of $51 million compared to the prior quarter.  The decline was primarily driven by lower net interest income, partially offset by an increase in noninterest income, which benefited from higher mortgage production-related income.  Compared to the first quarter of 2014, total revenue declined $38 million, driven largely by a decrease in net interest income and foregone RidgeWorth revenue, partially offset by higher mortgage production-related and capital markets-related income.  

Net Interest Income

Net interest income was $1.2 billion for the current quarter, a decline of $73 million compared to the prior quarter.  The decrease was primarily due to the expected decline in commercial loan swap income, higher mortgage-backed securities (MBS) premium amortization, and two fewer days in the current quarter.  Compared to the first quarter of 2014, the $64 million decline in net interest income was driven by lower commercial loan swap income, higher MBS premium amortization expense, and lower loan yields, partially offset by growth in average earning assets.

Net interest margin for the current quarter was 2.83% compared to 2.96% in the prior quarter and 3.19% in the first quarter of 2014. The 13 basis point decline compared to the prior quarter was driven primarily by lower commercial loan swap income and higher MBS premium amortization expense.  The 36 basis point decline in net interest margin compared to the first quarter of 2014 was due primarily to 32 and 53 basis point declines in loan and investment securities yields, respectively, due to the aforementioned factors, combined with the impact of the prolonged low interest rate environment on asset yields.

Noninterest Income

Noninterest income was $817 million for the current quarter, compared to $795 million for the prior quarter and $791 million for the first quarter of 2014.  The $22 million increase from the prior quarter was due largely to increased mortgage-related and trading revenue, as well an $18 million gain on the sale of legacy affordable housing investments, partially offset by declines in other fee income categories. Compared to the first quarter of 2014, noninterest income increased $26 million, driven primarily by higher mortgage-related and capital markets-related income, as well as the gain on the sale of legacy affordable housing investments, partially offset by foregone RidgeWorth revenue.  

Mortgage production-related income for the current quarter was $83 million compared to $61 million for the prior quarter and $43 million for the first quarter of 2014.  The increase compared to both prior periods was due to higher mortgage production volume and improved gain-on-sale margins.  Mortgage production volume increased 8% sequentially and 64% compared to the first quarter of 2014.

Mortgage servicing-related income was $43 million in the current quarter, compared to $53 million in the prior quarter and $54 million in the first quarter of 2014.  The decline compared to the prior quarter was driven in large part by higher servicing asset decay expense arising from increased prepayment volume, combined with elevated servicing fees in the prior quarter that reflected seasonal activity.  Compared to the first quarter of 2014, the $11 million decline was due to higher decay, partially offset by higher servicing fees from a larger servicing portfolio.  The servicing portfolio was $142 billion at March 31, 2015, compared to $142 billion at December 31, 2014 and $135 billion at March 31, 2014.

Investment banking income was $97 million for the current quarter, compared to $109 million in the prior quarter and $88 million in the first quarter of 2014.  The sequential quarter decline was due primarily to a decline in syndicated finance activity, partially offset by higher equity origination and debt capital markets fees.  Compared to the first quarter of 2014, the increase was due to higher equity origination fees.  Trading income was $55 million for the current quarter, compared to $40 million for the prior quarter and $49 million in the first quarter of 2014.  The sequential quarter increase was driven by an increase in fixed income-related trading revenue.  Compared to the first quarter of 2014, the increase was driven largely by a decline in mark-to-market valuation losses on the Company's debt carried at fair value.

Trust and investment management income was $84 million in both the current and prior quarter and $130 million in the first quarter of 2014.  The $46 million decline compared to the first quarter of 2014 was due entirely to foregone revenue resulting from the sale of RidgeWorth in the second quarter of 2014.

Other noninterest income was $63 million for the current quarter, compared to $42 million for the prior quarter and $38 million for the first quarter of 2014.  The increase compared to both periods was primarily due to the aforementioned $18 million gain from the sale of legacy affordable housing investments in the current quarter.

Noninterest Expense

Noninterest expense for the current quarter was $1.3 billion, compared to $1.4 billion in both the prior quarter and the first quarter of 2014.  The prior quarter included a $145 million legal provision for legacy mortgage matters.  Excluding this expense, noninterest expense was increased slightly sequentially and declined $77 million, or 6%, compared to the first quarter of 2014.  Compared to prior quarter, seasonally higher employee compensation was partially offset by declines in most expense categories.  Compared to the first quarter of 2014, the decline was due to lower employee compensation and benefits expense in the current quarter, primarily driven by a reduction in expenses related to the RidgeWorth sale, as well as reductions in other expense categories resulting from the Company's efficiency efforts, together with the recognition of a $36 million impairment of certain legacy affordable housing investments during the first quarter of 2014. 

Employee compensation and benefits expense was $771 million in the current quarter, compared to $670 million in the prior quarter and $800 million in the first quarter of 2014.  The sequential increase of $101 million was due to the seasonal increase in employee benefits and FICA taxes, as well as normalized levels of incentive compensation and medical expenses.  The $29 million decrease from the first quarter of 2014 was largely a result of the sale of RidgeWorth.

Operating losses were $14 million in the current quarter, compared to $174 million in the prior quarter, which included the $145 million legal provision related to legacy mortgage matters, and $21 million in the first quarter of 2014.  Compared to both prior periods, excluding the $145 million legal provision in the prior quarter, the declines were primarily due to recoveries of previously recorded mortgage-related losses.

Outside processing and software expense was $189 million in the current quarter, compared to $206 million in the prior quarter and $170 million in the first quarter of 2014.  The $17 million sequential decline was primarily due to elevated costs in the prior quarter, as a result of timing of rendering certain services in addition to the replacement cost of specific software. The $19 million increase compared to first quarter of 2014 was due to higher utilization of certain third-party services, higher mortgage production volume, and higher software-related expenses tied to technology investments.

Marketing and customer development expense was $27 million in the current quarter, compared to $43 million in the prior quarter and $25 million in the first quarter of 2014.  Compared to the prior quarter, the $16 million decrease was driven largely by a seasonal decline in advertising expenses.

FDIC premium and regulatory costs were $37 million in the current quarter, compared to $32 million in the prior quarter, and $40 million in the first quarter of 2014.  The sequential increase reflected growth in average deposits during 2014, resulting in higher FDIC insurance premiums.  Compared to the first quarter of 2014, the decline was driven by lower FDIC insurance premiums arising from improvements in the Company's risk profile.

Other noninterest expense was $111 million in the current quarter, compared to $146 million in the prior quarter and $168 million in the first quarter of 2014.  The $35 million sequential decrease was primarily driven by a decline in legal and consulting fees alongside $17 million in recoveries of previously recognized losses related to the financial crisis.  The $57 million decrease compared to the first quarter of 2014 was driven primarily by the recognition of a $36 millionimpairment of legacy affordable housing assets during the first quarter of 2014 and the current quarter recoveries of previously recognized losses related to the financial crisis.

Income Taxes

For the current quarter, the Company recorded an income tax provision of $191 million, compared to $128 million for the prior quarter and $125 million for the first quarter of 2014.  The effective tax rate for the current quarter was approximately 31%, compared to approximately 28% in the prior quarter, which excludes the tax impact ($57 million) of the $145 million legal provision expense, and 23% in the first quarter of 2014.  The effective tax rate in the first quarter of 2014 was favorably impacted by certain discrete items.

Balance Sheet

At March 31, 2015, the Company had total assets of $189.9 billion and shareholders' equity of $23.3 billion, representing 12% of total assets.  Book value per share was $42.21, and tangible book value per share was $30.49, both up 2% compared to December 31, 2014, driven by growth in retained earnings.

Loans

Average performing loans were $132.7 billion for the current quarter, unchanged compared to the prior quarter, and up 4% over the first quarter of 2014.  Sequentially, average C&I loans and average consumer direct loans increased $1.2 billion and $402 million, respectively. Average consumer indirect loans and average guaranteed student loans declined $880 million and $403 million, respectively, reflecting the impact of loan sales and transfers to held for sale during the latter part of the prior quarter.  Compared to the first quarter of 2014, average performing loans increased $5.1 billion, or 4%, with growth across most portfolios other than residential, guaranteed student, and consumer indirect loans.

Deposits

Average client deposits for the current quarter were $140.5 billion, compared to $136.9 billion in the prior quarter and $128.4 billion in the first quarter of 2014.  Sequentially, average client deposits increased 3% due to a $2.8 billion, or 9%, increase in NOW account balances and a $1.3 billion, or 3%, increase in money market account balances. Partially offsetting this growth in lower-cost deposits was a $0.3 billion, or 3%, decline in time deposits.  Compared to the first quarter of 2014, average client deposits increased 9%, driven by increases in lower-cost deposits, partially offset by a $2.1 billion, or 16%, decrease in time deposits.

Capital and Liquidity

The Company's estimated capital ratios are well above current regulatory requirements with Basel III Common Equity Tier 1 and Basel III Tier 1 capital ratios at an estimated 9.8% and 10.8%, respectively, at March 31, 2015, on a fully phased-in basis.  The ratios of total average equity to total average assets and tangible equity to tangible assets were 12.24% and 9.34%, respectively, at March 31, 2015.  The Company continues to have substantial available liquidity in the form of its client deposit base, cash, high-quality government-backed securities, and other available funding sources.

During the first quarter, the Company declared a common stock dividend of $0.20 per common share, consistent with the prior quarter and up $0.10 per share from the first quarter of 2014.  Additionally, during the current quarter, the Company repurchased $115 million of its outstanding common stock, which completed the authorized share repurchases in conjunction with the 2014 capital plan.

In March, the Company announced that the Federal Reserve had no objections to the repurchase of up to $875 million of the Company's outstanding common stock to be completed between the second quarter of 2015 and the second quarter of 2016, as part of the Company's capital plan submitted in connection with the 2015 CCAR.  Additionally, subject to Board approval, the Company intends to increase its quarterly common stock dividend 20% to $0.24 per common share beginning in the second quarter of 2015 and maintain the current level of dividend payments on its preferred stock.

Asset Quality

Total nonperforming assets were $696 million at March 31, 2015, down 11% compared to the prior quarter and 36% compared to the first quarter of 2014.  At March 31, 2015, the percentage of nonperforming loans to total loans was 0.46% compared to 0.48% at December 31, 2014.  Other real estate owned totaled $79 million, a 20% decrease from the prior quarter and a 48% decrease from the first quarter of 2014.

The provision for credit losses was $55 million, a decline of $19 million from the prior quarter and $47 million from the first quarter of 2014, driven by the continued improvement in asset quality and lower loan growth in the current quarter.  Net charge-offs were $99 million during the current quarter, relatively stable to the prior quarter and the prior year.  The ratio of annualized net charge-offs to total average loans was 0.30% during the current quarter, compared to 0.28% during the prior quarter and 0.35% during the first quarter of 2014.  

At March 31, 2015, the allowance for loan and lease losses was $1.9 billion, which represented 1.43% of total loans, a $44 million and 3 basis point decline from December 31, 2014.  The decline was primarily due to the continued improvement in asset quality during the quarter.

Early stage delinquencies declined 8 basis points from the prior quarter to 0.56% at March 31, 2015.  Excluding government-guaranteed loans, early stage delinquencies were 0.26%, down 4 basis points from the prior quarter.

Accruing restructured loans totaled $2.6 billion and nonaccruing restructured loans totaled $255 million at March 31, 2015, of which $2.6 billion were residential loans, $126 million were consumer loans, and $109 million were commercial loans.