ATLANTA, July 21, 2017 /PRNewswire/ -- SunTrust Banks, Inc. (NYSE: STI) reported net income available to common shareholders of $505 million, or $1.03 per average common diluted share.

Earnings per average common diluted share increased 13% compared to the first quarter and 10% compared to the second quarter of 2016.  For the first half of 2017, earnings per share grew 9% compared to the same period a year ago.

"Our strong performance this quarter reflects our commitment to deliver against our strategy.  We continued to realize benefits from our consistent focus on optimizing our business mix and investing in growth, made further progress in improving our efficiency, and significantly increased our capital returns to shareholders," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc.  "Overall, I am pleased with the momentum we have created; our fundamentals are strong, our execution continues to improve, and I am confident in our ability to deliver further growth for our clients, communities, teammates, and shareholders."

Second Quarter 2017 Financial Highlights
(Commentary is on a fully taxable-equivalent basis unless otherwise noted. Consistent with SEC guidance in Industry Guide 3 that contemplates the calculation of tax-exempt income on a tax equivalent basis, net interest income, net interest margin, total revenue, and efficiency ratios are provided on a fully taxable-equivalent basis, which generally assumes a 35% marginal federal tax rate and state income taxes, where applicable.  We provide unadjusted amounts in the table on page 3 of this news release and detailed reconciliations and additional information in Appendix A on pages 12 and 13.)

Income Statement

• Net income available to common shareholders was $505 million, or $1.03 per average common diluted share, compared to $0.91 for the prior quarter and $0.94 for the second quarter of 2016.
• Total revenue increased 1% compared to the prior quarter and 2% compared to the second quarter of 2016.
  • These increases were driven largely by higher net interest income as a result of net interest margin expansion and growth in earning assets.
• Net interest margin was 3.14% in the current quarter, up 5 basis points sequentially and up 15 basis points compared to the prior year, driven by higher earning asset yields arising from higher benchmark interest rates, continued positive mix shift in the loan portfolio, and lower premium amortization in the securities portfolio.
• Provision for credit losses decreased $29 million sequentially and $56 million year-over-year primarily as a result of lower net charge-offs.
• Noninterest expense declined 5% sequentially and increased 3% compared to the prior year.
  • The sequential decrease was driven primarily by a seasonal decline in personnel costs, higher branch closure and severance costs recognized in the prior quarter, and lower operating losses.
  • The increase relative to the prior year was driven primarily by the recent acquisition of Pillar & Cohen Financial ("Pillar/Cohen"), higher compensation (as a result of improved business performance), higher net occupancy expense, and higher FDIC premiums, partially offset by lower other noninterest expense.
• The efficiency and tangible efficiency ratios in the current quarter were 61.2% and 60.6%, respectively, which represent significant improvements compared to the prior quarter, driven primarily by seasonal declines in employee benefits costs, ongoing expense management initiatives, and solid revenue growth.

Balance Sheet

• Average loan balances increased 1% sequentially and 2% year-over-year, driven primarily by growth in consumer lending.
• Average consumer and commercial deposits increased slightly sequentially and increased 3% compared to the second quarter of 2016, driven by growth in demand and time deposits.

Capital

• Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ("CET1") ratio was estimated to be 9.7% as of June 30, 2017, and 9.5% on a fully phased-in basis.
• During the quarter, the Company:
  • Issued $750 million of 5.05% preferred stock (Series G) and repurchased $240 million of its outstanding common stock, which completed its share repurchases under its 2016 Capital Plan.
  • Announced its 2017 Capital Plan, which includes:
    • The purchase of up to $1.32 billion of its outstanding common stock between the third quarter of 2017 and the second quarter of 2018 (representing a 38% increase).
    • A 54% increase in the quarterly common stock dividend from $0.26 per share to $0.40 per share, beginning in the third quarter of 2017, subject to approval by the Company's Board of Directors.
• Book value per common share was $46.51 and tangible book value per common share was $33.83, both up 2% from March 31, 2017, driven primarily by growth in retained earnings.

Asset Quality

• Nonperforming loans decreased $35 million from the prior quarter and represented 0.52% of total loans at June 30, 2017. The sequential decrease was driven by the return to accrual status of certain nonperforming energy-related loans during the current quarter.
• Net charge-offs for the current quarter were $70 million, or 0.20% of average loans on an annualized basis, down $42 million sequentially and $67 million year-over-year driven by overall asset quality improvements for both periods as well as lower energy-related net charge-offs year-over-year.
• The provision for credit losses decreased $29 million sequentially as a result of lower net charge-offs.
• At June 30, 2017, the allowance for loan and lease losses ("ALLL") to period-end loans held for investment ("LHFI") ratio was 1.20%, stable compared to the prior quarter.

 

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

Revenue

Total revenue was $2.3 billion for the current quarter, an increase of $19 million compared to the prior quarter.  Net interest income increased $39 million sequentially due to a higher net interest margin and growth in average earning assets.  Noninterest income decreased $20 million sequentially driven primarily by lower capital markets and mortgage-related income.  Compared to the second quarter of 2016, total revenue increased $45 million, driven by a $116 million increase in net interest income, which was partially offset by a $63 million decrease in mortgage-related income.

Net Interest Income

Net interest income was $1.4 billion for the current quarter, an increase of $39 million and $116 million compared to the prior quarter and prior year, respectively.  Both increases were driven primarily by net interest margin expansion and growth in earning assets.

Net interest margin for the current quarter was 3.14%, compared to 3.09% in the prior quarter and 2.99% in the second quarter of 2016.  The 5 and 15 basis point increases relative to the prior quarter and prior year were driven primarily by higher earning asset yields arising from higher benchmark interest rates, continued positive mix shift in the loan portfolio, and lower premium amortization in the securities portfolio, partially offset by higher deposit costs.

For the six months ended June 30, 2017, net interest income was $2.8 billion, a $199 million increase compared to the first six months of 2016.  The net interest margin was 3.11% for the first half of 2017, a 10 basis point increase compared to the same period in 2016.  The increases in both net interest income and net interest margin were driven by the same factors that impacted the prior year comparison discussed above.

Noninterest Income

Noninterest income was $827 million for the current quarter, compared to $847 million for the prior quarter and $898 million for the second quarter of 2016. The $20 million sequential decrease was due primarily to lower capital markets and mortgage-related income.  Compared to the second quarter of 2016, noninterest income decreased $71 million, driven largely by lower mortgage-related income and reduced service charges on deposit accounts, as well as the $44 million of net asset-related gains recognized during the second quarter of 2016.  These year-over-year decreases were partially offset by higher capital markets and commercial real estate related income (which is favorably impacted by the acquisition of Pillar/Cohen in December 2016).

Investment banking income was $147 million for the current quarter, compared to $167 million in the prior quarter and $126 million in the second quarter of 2016.  The $20 million decrease compared to the prior quarter is due to lower capital market originations (specifically in syndicated finance) in the current quarter following record performance in the prior quarter.  The $21 million increase compared to the second quarter of 2016 was due to strong deal flow activity, particularly in syndicated finance and M&A advisory.

Trading income was $46 million for the current quarter, compared to $51 million in the prior quarter and $34 million in the second quarter of 2016.  The sequential decrease was due to lower client-related interest rate hedging activity during the current quarter.  The increase compared to the second quarter of 2016 was driven largely by the recognition of higher counterparty credit valuation reserves (as a result of an adjustment to the internal reserve methodology) in the second quarter of 2016.

Mortgage production income for the current quarter was $56 million, compared to $53 million for the prior quarter and $111 million for the second quarter of 2016.  The $55 million decrease from the second quarter of 2016 was due to lower production volume and lower gain-on-sale margins.  Mortgage application volume increased 7% sequentially and decreased 26% compared to the second quarter of 2016.  Closed loan volume increased 17% sequentially, but decreased 12% compared to the second quarter of 2016.

Mortgage servicing income was $44 million for the current quarter, compared to $58 million in the prior quarter and $52 million in the second quarter of 2016.  The $14 million sequential decrease was due to higher servicing asset decay and lower net hedge performance.  The $8 million decrease compared to the second quarter of 2016 was due largely to lower net hedge performance and higher servicing asset decay, partially offset by higher servicing fees.  At June 30, 2017 and 2016, the servicing portfolio totaled $165.6 billion and $154.5 billion, respectively, and was $164.5 billion at March 31, 2017.

Retail investment income was $70 million for the current quarter, compared to $68 million in the prior quarter and $72 million in the second quarter of 2016.  The $2 million increase compared to the prior quarter is due to growth in retail brokerage managed assets.  The $2 million decrease compared to the prior year was a result of reduced client transactional activity.

Client transaction-related fees (namely service charges on deposits, other charges and fees, and card fees) increased $16 million compared to the prior quarter due largely to higher client spend activity, increased incidence rates on deposit accounts and higher commitment fees.  Compared to second quarter of 2016, client transaction-related fees decreased $8 million due to the impact of the enhanced posting order process instituted during the fourth quarter of 2016.

Commercial real estate related income was $24 million for the current quarter, compared to $20 million for the prior quarter and $10 million for the second quarter of 2016.  The $4 million sequential increase was due primarily to higher structured real estate-related gains.  The $14 million increase compared to the second quarter of 2016 was attributable to revenue from Pillar/Cohen, which the Company acquired in December 2016.

Other noninterest income was $22 million for the current quarter, compared to $30 million in the prior quarter and $65 million in the second quarter of 2016.  The $8 million decrease compared to the sequential quarter was due primarily to gains on the sale of affordable housing investments recognized during the prior quarter.  The $43 million decrease compared to the prior year was due primarily to the $44 million of net asset-related gains recognized during the second quarter of 2016.

For the six months ended June 30, 2017, noninterest income was $1.7 billion, a decrease of $6 million compared to the first six months of 2016 as higher capital markets and commercial real estate related income were offset by lower mortgage-related and other noninterest income as well as reduced service charges on deposit accounts.

Noninterest Expense

Noninterest expense was $1.4 billion in the current quarter, representing a sequential decline of $77 million and an increase of $43 million compared to the second quarter of 2016.  The sequential decrease was driven primarily by the seasonal decline in personnel costs, higher branch closure and severance costs recognized in the prior quarter (recorded in other noninterest expense), and lower operating losses.  The increase relative to the prior year was driven primarily by the recent acquisition of Pillar/Cohen, higher compensation (as a result of improved business performance), higher net occupancy expense, and higher FDIC premiums, partially offset by lower other noninterest expense.

Employee compensation and benefits expense was $796 million in the current quarter, compared to $852 million in the prior quarter and $763 million in the second quarter of 2016.  The sequential decrease of $56 million was due to the seasonal decrease in employee benefits costs.  The $33 million increase compared to the second quarter of 2016 was due primarily to incremental compensation costs associated with the acquisition of Pillar/Cohen and higher compensation costs associated with revenue growth.

Operating losses were $19 million in the current quarter, compared to $32 million in the prior quarter and $25 million in the second quarter of 2016.  The decrease relative to the first quarter was largely due to higher legal accruals recognized during the prior quarter.  The year-over-year decrease was due to higher regulatory, compliance and legal-related charges recognized in the prior year.

Outside processing and software expense was $204 million in the current quarter, stable compared to $205 million in the prior quarter and $202 million in the second quarter of 2016.

FDIC premium and regulatory expense was $49 million in the current quarter, compared to $48 million in the prior quarter and $44 million in the second quarter of 2016.  The $5 million increase compared to the prior year was driven by the FDIC surcharge on large banks, which became effective during the third quarter of 2016, and a larger assessment base attributable to balance sheet growth.

Marketing and customer development expense was $42 million in the current quarter, compared to $42 million in the prior quarter and $38 million in the second quarter of 2016.  The increase relative to the prior year was driven by normal variability in advertising and client development costs.

Net occupancy expense was $94 million in the current quarter, compared to $92 million in the prior quarter and $78 million in the second quarter of 2016.  The year-over-year increase was due primarily to a reduction in amortized gains from prior sale leaseback transactions.

Other noninterest expense was $126 million in the current quarter, compared to $142 million in both the prior quarter and second quarter of 2016.  The sequential decrease was primarily due to higher branch closure and severance costs incurred in the prior quarter.  The year-over-year decrease was driven primarily by lower severance and credit collection-related expenses.

For the six months ended June 30, 2017, noninterest expense was $2.9 billion compared to $2.7 billion for the first six months of 2016.  The $190 million increase was driven largely by higher employee compensation expense (primarily related to higher revenue and the acquisition of Pillar/Cohen), net occupancy costs, FDIC premium and regulatory expense, and other noninterest expense (related primarily to branch closure costs and legal and consulting fees).

Income Taxes

For the current quarter, the Company recorded an income tax provision of $222 million, compared to $159 million for the prior quarter and $201 million for the second quarter of 2016.  The prior quarter was favorably impacted by $23 million in discrete tax benefits.  The effective tax rate for the current quarter was 30%, compared to 25% in the prior quarter and 29% in the second quarter of 2016.

Balance Sheet

At June 30, 2017, the Company had total assets of $207.2 billion and total shareholders' equity of $24.5 billion, representing 12% of total assets.  Book value per common share was $46.51 and tangible book value per common share was $33.83, both up 2% compared to March 31, 2017 driven primarily by growth in retained earnings and a lower accumulated other comprehensive loss.

Loans

Average performing loans were $143.7 billion for the current quarter, a 1% increase over the prior quarter and a 2% increase over the second quarter of 2016.  The sequential and year-over-year growth was driven largely by increases in consumer lending, offset partially by declines in home equity products.

Deposits

Average consumer and commercial deposits for the current quarter were $159.1 billion, a slight increase over the prior quarter and a 3% increase over the second quarter of 2016.  The sequential growth was due largely to a 5% increase in time deposits and a 1% increase in demand deposits, offset partially by declines in both NOW and money market account balances.  Compared to the second quarter of 2016, growth was driven primarily by increases in NOW and money market account balances.

Capital and Liquidity

The Company's estimated capital ratios were well above current regulatory requirements with the Common Equity Tier 1 ratio estimated to be 9.7% at June 30, 2017, and 9.5% on a fully phased-in basis.  The ratios of average total equity to average total assets and tangible common equity to tangible assets were 11.8% and 8.1%, respectively, at June 30, 2017.  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.

The Company declared a common stock dividend of $0.26 per common share and repurchased $240 million of its outstanding common stock in the second quarter of 2017, which completed its authorized common equity repurchases as approved by the Board in conjunction with the 2016 Capital Plan.  Additionally, the Company issued $750 million of 5.05% noncumulative perpetual preferred stock, Series G, in May 2017.

In June 2017, the Company announced that the Federal Reserve had no objections to its 2017 Capital Plan. This plan includes the repurchase of up to $1.32 billion of the Company's outstanding common stock between the third quarter of 2017 and the second quarter of 2018 (representing a 38% increase in the average quarterly repurchase amount compared to the previous authorization).  Additionally, subject to Board approval, the Company intends to increase its quarterly common stock dividend 54% to $0.40 per common share beginning in the third quarter of 2017 and to maintain the current level of dividend payments on its preferred stock.

Asset Quality

Total nonperforming assets were $821 million at June 30, 2017, down $37 million compared to the prior quarter and $180 million compared to the second quarter of 2016.  The decrease in nonperforming assets compared to both the prior quarter and the prior year was due primarily to the continued resolution of problem energy credits.  The ratio of nonperforming loans to total loans held for investment was 0.52%, 0.55%, and 0.67% at June 30, 2017, March 31, 2017, and June 30, 2016, respectively.

Net charge-offs were $70 million during the current quarter, a decrease of $42 million compared to the prior quarter and $67 million compared to the second quarter of 2016.  The decrease was primarily driven by overall asset quality improvements for both periods as well as lower energy-related net charge-offs year-over-year.  The ratio of annualized net charge-offs to total average loans held for investment was 0.20% during the current quarter, compared to 0.32% during the prior quarter and 0.39% during the second quarter of 2016.  The provision for credit losses was $90 million in the current quarter, a decrease of $29 million compared to the prior quarter and $56 million compared to the second quarter of 2016.

At June 30, 2017, the ALLL was $1.7 billion, which represented 1.20% of total loans, stable relative to March 31, 2017.

Early stage delinquencies decreased 6 basis points from the prior quarter to 0.66% at June 30, 2017.  Excluding government-guaranteed loans which account for 0.44%, early stage delinquencies were 0.22%, unchanged compared to the prior quarter and down 1 basis point from a year ago.

Accruing restructured loans totaled $2.5 billion and nonaccruing restructured loans totaled $321 million at June 30, 2017, of which $2.5 billion were residential loans, $177 million were consumer loans, and $128 million were commercial loans.

OTHER INFORMATION

About SunTrust Banks, Inc.
SunTrust Banks, Inc. is a purpose-driven company dedicated to Lighting the Way to Financial Well-Being for the people, businesses, and communities it serves. Headquartered in Atlanta, the Company has two business segments: Consumer and Wholesale. Its flagship subsidiary, SunTrust Bank, operates an extensive branch and ATM network throughout the high-growth Southeast and Mid-Atlantic states, along with 24-hour digital access. Certain business lines serve consumer, commercial, corporate, and institutional clients nationally. As of June 30, 2017, SunTrust had total assets of $207 billion and total deposits of $160 billion. The Company provides deposit, credit, trust, investment, mortgage, asset management, securities brokerage, and capital market services. SunTrust leads onUp, a national movement inspiring Americans to build financial confidence. Join the movement at onUp.com.

Business Segment Results
The Company has included its business segment financial tables as part of this release. Revenue and income amounts labeled "FTE" in the business segment tables are reported on a fully taxable-equivalent basis. In the second quarter of 2017, the Company realigned its business segment structure from three segments to two segments based on, among other things, the manner in which financial information is evaluated by management and in conjunction with Company-wide organizational changes that were announced during the first quarter of 2017. Specifically, the Company retained the previous composition of the Wholesale Banking segment and changed the basis of presentation of the Consumer Banking and Private Wealth Management segment and Mortgage Banking segment such that those segments were combined into a single Consumer segment. In conjunction with this business segment structure realignment, the Company made certain adjustments to its internal funds transfer pricing methodology. Prior period information was revised to conform to the new business segment structure and the updated internal funds transfer pricing methodology.

For the business segments, net interest income is computed using matched-maturity funds transfer pricing and noninterest income includes federal and state tax credits that are grossed-up on a pre-tax equivalent basis. Further, provision/(benefit) for credit losses represents net charge-offs by segment combined with an allocation to the segments of the provision/(benefit) attributable to each segment's quarterly change in the allowance for loan and lease losses and unfunded commitments reserve balances. SunTrust also reports results for Corporate Other, which includes the Treasury department as well as the residual expense associated with operational and support expense allocations. The Corporate Other segment also includes differences created between internal management accounting practices and U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and certain matched-maturity funds transfer pricing credits and charges. A detailed discussion of the business segment results will be included in the Company's forthcoming Form 10-Q.

Corresponding Financial Tables and Information
Investors are encouraged to review the foregoing summary and discussion of SunTrust's earnings and financial condition in conjunction with the detailed financial tables and information which SunTrust has also published today and SunTrust's forthcoming Form 10-Q. Detailed financial tables and other information are also available at investors.suntrust.com.  This information is also included in a current report on Form 8-K furnished with the SEC today.

Conference Call
SunTrust management will host a conference call on July 21, 2017, at 8:00 a.m. (Eastern Time) to discuss the earnings results and business trends. Individuals may call in beginning at 7:45 a.m. (Eastern Time) by dialing 1-877-209-9920 (Passcode: SunTrust). Individuals calling from outside the United States should dial 1-612-332-1210 (Passcode: SunTrust).  A replay of the call will be available approximately one hour after the call ends on July 21, 2017, and will remain available until August 21, 2017, by dialing 1-800-475-6701 (domestic) or 1-320-365-3844 (international) (Passcode: 425463).  Alternatively, individuals may listen to the live webcast of the presentation by visiting the SunTrust investor relations website at investors.suntrust.com.  Beginning the afternoon of July 21, 2017, listeners may access an archived version of the webcast in the "Events & Presentations" section of the investor relations website. This webcast will be archived and available for one year.

Non-GAAP Financial Measures
This news release includes non-GAAP financial measures to describe SunTrust's performance. The reconciliations of those measures to GAAP measures are provided within or in the appendix to this news release beginning at page 12.

In this news release, consistent with Securities and Exchange Commission Industry Guide 3, the Company presents total revenue, net interest income, net interest margin, and efficiency ratios on a fully taxable equivalent ("FTE") basis, and ratios on an annualized basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments using a federal tax rate of 35% and state income taxes where applicable to increase tax-exempt interest income to a taxable-equivalent basis. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. Total revenue-FTE equals net interest income-FTE plus noninterest income.

The Company presents the following additional non-GAAP measures because many investors find them useful.  Specifically:

• The Company presents certain capital information on a tangible basis, including tangible equity, tangible common equity, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, tangible book value per share, and the return on tangible common shareholders' equity, which removes the after-tax impact of purchase accounting intangible assets from shareholders' equity and removes related intangible asset amortization from net income available to common shareholders. The Company believes these measures are useful to investors because, by removing the amount of intangible assets that result from merger and acquisition activity and amortization expense (the level of which may vary from company to company), it allows investors to more easily compare the Company's capital position and return on average tangible common shareholders' equity to other companies in the industry who present similar measures. The Company also believes that removing these items provides a more relevant measure of the return on the Company's common shareholders' equity. These measures are utilized by management to assess the capital adequacy and profitability of the Company.
• Similarly, the Company presents an efficiency ratio-FTE and a tangible efficiency ratio-FTE. The efficiency ratio is computed by dividing noninterest expense by total revenue. Efficiency ratio-FTE is computed by dividing noninterest expense by total revenue-FTE. The tangible efficiency ratio-FTE excludes the amortization related to intangible assets and certain tax credits. The Company believes this measure is useful to investors because, by removing the impact of amortization (the level of which may vary from company to company), it allows investors to more easily compare the Company's efficiency to other companies in the industry. This measure is utilized by management to assess the efficiency of the Company and its lines of business.
• The Company presents the Basel III Common Equity Tier 1 (CET1) ratio, on a fully phased-in basis. Fully phased-in ratios consider a 250% risk-weighting for MSRs and deduction from capital of certain carryforward DTAs, the overfunded pension asset, and other intangible assets. The Company believes this measure is useful to investors who wish to understand the Company's current compliance with future regulatory requirements.

Important Cautionary Statement About Forward-Looking Statements
This news release contains forward-looking statements. Statements regarding potential future share repurchases and future expected dividends are forward-looking statements. Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," "forecast," "goals," "targets," "initiatives," "opportunity," "focus," "potentially," "probably," "projects," "outlook," or similar expressions or future conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Future dividends, and the amount of any such dividend, must be declared by our board of directors in the future in their discretion. Also, future share repurchases and the timing of any such repurchase are subject to market conditions and management's discretion. Additional factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016 and in other periodic reports that we file with the SEC.

 

 

 

 

 

 

 

 

 

SOURCE SunTrust Banks, Inc.