SunTrust Reports Fourth Quarter and Fiscal Year 2014 Results

ATLANTA, Jan. 16, 2015 /PRNewswire/ -- SunTrust Banks, Inc. STI today reported net income available to common shareholders of $378 million, or $0.72 per average common diluted share.  The current quarter's results include a $145 million legal provision, or $0.17 per share, related to legacy mortgage matters, to increase legal reserves and complete the resolution of a specific matter.  Excluding the impact of this expense, adjusted earnings per share for the current quarter were $0.88 compared to $0.81, on an adjusted basis, in the prior quarter and $0.77 in the fourth quarter of 2013.

For 2014, SunTrust earned $3.23 per share compared to $2.41 per share for 2013.  Adjusted earnings per share were $3.24 for 2014, representing an 18% improvement compared to 2013 adjusted earnings per share of $2.74.  Please see Appendix A for reconcilement of non-U.S. GAAP measures.

"Core earnings growth of 18 percent over the past year reflects our focus on expanding client relationships and executing our core strategies.  Our strong performance in the fourth quarter and 2014 was driven by good loan and deposit growth, continued expense discipline, and improved credit quality," said William H. Rogers, Jr. chairman and chief executive officer of SunTrust Banks, Inc. "Looking into 2015, we will build on the momentum generated in 2014 to meet more client needs and expand key businesses, creating a more valuable company for all of our stakeholders."

Fourth Quarter 2014 Financial Highlights

Income Statement

• Net income available to common shareholders was $378 million, or $0.72 per average common diluted share.  Excluding the aforementioned legacy mortgage-related expense, net income available to common shareholders was $466 million, or $0.88 per share.
  • On an adjusted basis, earnings per share increased $0.07, or 9%, compared to the prior quarter and increased $0.11, or 14%, compared to the fourth quarter of 2013.
• Total revenues were essentially stable compared to the prior quarter and the fourth quarter of 2013.
• Reported noninterest expense increased $151 million compared to the prior quarter.  Excluding the $145 million legal provision for legacy mortgage matters, noninterest expense was relatively stable compared to the prior quarter and declined $96 million, or 7%, compared to the fourth quarter of 2013.
• The efficiency and tangible efficiency ratios in the current quarter were 69.0% and 68.4%, respectively, and for 2014 were 66.7% and 66.4%, respectively.

Balance Sheet

• Average total loans for the current quarter increased 2% and 6% compared to the prior quarter and the fourth quarter of 2013, respectively, driven by growth in the C&I, commercial real estate, and consumer loan portfolios.
• Average client deposits increased 4% sequentially and 7% compared to the fourth quarter of 2013, with the favorable mix shift toward lower-cost deposits continuing.

Capital

• Estimated capital ratios continued to be well above regulatory requirements. The Basel I Tier 1 common and Basel III Common Equity Tier 1 ratios were estimated to be 9.6% and 9.7%, respectively, as of December 31, 2014.
• During the quarter, the Company repurchased $110 million of common shares and issued $500 million of preferred stock.
• Book value per share was $41.52, and tangible book value per share was $29.82, 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 17% from the prior quarter and totaled 0.48% of total loans at December 31, 2014. 
• Net charge-offs for the current quarter were $94 million, representing 0.28% of average loans on an annualized basis, down 11 basis points sequentially.
• The provision for credit losses decreased $19 million compared to the prior quarter due to lower net charge-offs, partially offset by a smaller reduction in the allowance for credit losses.
• At December 31, 2014, the allowance for loan losses to period-end loans ratio was 1.46%.

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, an increase of $12 million compared to the prior quarter.  The increase was driven by higher mortgage-related and investment banking income, partially offset by declines in other revenue categories.  Compared to the fourth quarter of 2013, total revenue declined $18 million, largely driven by foregone RidgeWorth revenue and lower trading income, partially offset by higher mortgage-related and investment banking income. 

For 2014, total revenue was $8.3 billion, an increase of $111 million compared to 2013.  Excluding the $105 million pre-tax gain-on-sale of RidgeWorth, total revenue was relatively stable, as higher mortgage servicing, investment banking, and retail investment income was offset by lower mortgage production income and lower trust and investment management income due to the sale of RidgeWorth.

Net Interest Income

Net interest income was $1.2 billion for the current quarter, a decline of $3 million compared to the prior quarter.  The decrease was primarily due to a 7 basis point decline in net interest margin, substantially offset by higher average earning assets.  Similarly, compared to the fourth quarter of 2013, a 24 basis point decline in net interest margin was offset by solid growth in average earning assets.

Net interest margin for the current quarter was 2.96%. The 7 basis point decline compared to the prior quarter was primarily driven by lower commercial loan swap income and an 8 basis point decline in investment securities yields.  The 24 basis point decline compared to the fourth quarter of 2013 was largely due to a 23 and 26 basis point reduction in loan and investment securities yields, respectively.

For both 2014 and 2013, net interest income was $5.0 billion. The net interest margin for 2014 was 3.07%, a decrease of 17 basis points compared to 2013.  The decline in net interest margin was primarily driven by a 25 basis point reduction in loan yields during 2014.

Noninterest Income

Noninterest income was $795 million for the current quarter, compared to $780 million for the prior quarter and $814 million for the fourth quarter of 2013.  The $15 million sequential increase was primarily due to increased mortgage-related and investment banking revenue, partially offset by reductions in other revenue categories.  Compared to the fourth quarter of 2013, noninterest income declined $19 million, largely driven by foregone RidgeWorth revenue and lower trading income, partially offset by higher mortgage-related and investment banking income.

Mortgage production income for the current quarter was $61 million compared to $45 million for the prior quarter and $31 million for the fourth quarter of 2013.  The increase compared to both prior periods was due to higher mortgage production volume, improved gain-on-sale margins, and a lower mortgage repurchase provision.  Mortgage production volume increased 4% sequentially and 20% compared to the fourth quarter of 2013.

Mortgage servicing income was $53 million in the current quarter, compared to $44 million in the prior quarter and $38 million in the fourth quarter of 2013.  The sequential increase was primarily driven by higher servicing fees, due to recent servicing portfolio acquisitions and typical fourth quarter seasonal activity.  Compared to the fourth quarter of 2013, the $15 million increase was due to improved net hedge performance and higher servicing fees.  The servicing portfolio was $142 billion at December 31, 2014, compared to $136 billion at September 30, 2014 and $137 billion at December 31, 2013.

Investment banking income was $109 million for the current quarter, compared to $88 million in the prior quarter and $96 million in the fourth quarter of 2013.  The increase compared to both prior periods was primarily driven by higher syndicated finance and M&A advisory revenues, partially offset by a decline in equity and fixed income origination fees.  Trading income was $40 million for the current quarter, compared to $46 million for the prior quarter and $57 million in the fourth quarter of 2013.  The decline compared to both prior periods was primarily driven by lower fixed income-related trading revenue. 

Trust and investment management income was $84 million in the current quarter, compared to $93 million in the prior quarter and $131 million in the fourth quarter of 2013.  The $9 million decline compared to the prior quarter was primarily driven by seasonal fees earned in the third quarter.  The $47 million decline compared to the fourth quarter of 2013 was entirely due to foregone revenue resulting from the sale of RidgeWorth.

Other noninterest income was $42 million for the current quarter, compared to $52 million for the prior quarter and $55 million for the fourth quarter of 2013.  The $10 million decline compared to the prior quarter was due to lower gains on the sale of loans, partially offset by lower impairment of lease financing assets in the current quarter.  The $13 million decline compared to the fourth quarter of 2013 was primarily driven by lower gains on the sale of lease financing and other assets, partially offset by lower asset impairment charges.

For 2014, noninterest income was $3.3 billion, an increase of $109 million compared to 2013.  Excluding the $105 million gain-on-sale of RidgeWorth during the second quarter of 2014, noninterest income was relatively stable as higher mortgage servicing, investment banking, and retail investment income, combined with gains related to the sale of mortgage loans, were mostly offset by declines in mortgage production income and foregone revenue related to the sale of RidgeWorth.

Noninterest Expense

Noninterest expense for the current quarter was $1.4 billion, compared to $1.3 billion in the prior quarter and $1.4 billion in the fourth quarter of 2013.  The current quarter included a $145 million legal provision for legacy mortgage matters.  Excluding this expense, noninterest expense was relatively stable sequentially and declined $96 million, or 7%, compared to the fourth quarter of 2013.  This decline was driven by lower employee compensation and benefits expense in the current quarter and, more broadly, the Company's overall efficiency and expense management focus.

Employee compensation and benefits expense was $670 million in the current quarter, compared to $730 million in the prior quarter and $723 million in the fourth quarter of 2013.  The sequential decline of $60 million was due to lower incentive compensation costs, as well as a decline in salaries and medical costs.  Full-year incentive compensation costs increased due to improved business performance.  The $53 million decrease from the fourth quarter of 2013 was primarily due to a decline in salaries, 401(k) costs, medical costs, and incentive compensation costs, in part due to a decline in full-time equivalent employees.

Operating losses were $174 million in the current quarter, which included the $145 million legal provision related to legacy mortgage matters, compared to $29 million in the prior quarter and $42 million in the fourth quarter of 2013.

Outside processing and software expense was $206 million in the current quarter, compared to $184 million in the prior quarter and $191 million in the fourth quarter of 2013.  The $22 million sequential increase was primarily due to higher utilization of certain third-party services.

Marketing and customer development expense was $43 million in the current quarter, compared to $35 million in the prior quarter and $40 million in the fourth quarter of 2013.  Compared to the prior quarter, the $8 million increase was primarily driven by the typical seasonal increase in advertising expenses.

FDIC premium and regulatory costs were $32 million in the current quarter, compared to $29 million in the prior quarter, which included an $8 million refund from the FDIC, and $41 million in the fourth quarter of 2013.  Excluding the prior-quarter refund, the decline related to both prior periods was driven by lower FDIC insurance premiums, reflecting improvements in the Company's risk profile.

Other noninterest expense was $146 million in the current quarter, compared to $120 million in the prior quarter and $187 million in the fourth quarter of 2013.  The $26 million sequential increase was driven by higher consulting fees and an increase in severance costs in the current quarter.  The $41 million decrease compared to the fourth quarter of 2013 was primarily driven by lower credit and collections services expenses in the current quarter and higher costs related to the resolution of certain legacy mortgage matters recognized in the fourth quarter of 2013.

For 2014, noninterest expense was $5.5 billion compared to $5.8 billion in 2013.  The $288 million decrease was due to a decline in cyclical costs and the continued focus on expense management.  These declines were partially offset by higher employee compensation costs, partially as a result of improved business performance in 2014.

Income Taxes

For the current quarter, the Company recorded an income tax provision of $128 million, compared to $67 million for the prior quarter and $138 million for the fourth quarter of 2013.  Excluding the tax impact ($57 million) of the $145 million legal provision expense, the fourth quarter effective tax rate was approximately 28%.  The prior quarter included a $130 million tax benefit as a result of the completion of a tax authority examination.  Excluding this benefit, the effective tax rate in the prior quarter was 31%.

Balance Sheet

At December 31, 2014, the Company had total assets of $190.3 billion and shareholders' equity of $23.0 billion, representing 12% of total assets.  Book value per share was $41.52, and tangible book value per share was $29.82, both up 2% compared to September 30, 2014, driven by growth in retained earnings.

Loans

Average performing loans were $132.7 billion for the current quarter, up 2% and 6% over the prior quarter and the fourth quarter of 2013, respectively.  Sequentially, loan growth was driven by a $2.8 billion increase in C&I loans and a $470 million increase in consumer loans, while average mortgage loans declined $456 million.  Additionally, as part of its balance sheet optimization strategy, during the fourth quarter, the Company sold approximately $475 million of indirect auto loans and $335 million of guaranteed student loans and transferred approximately $600 million of indirect auto loans and $470 million of C&I loans to held-for-sale status.  The net gain/(loss) on the sales and transfers was immaterial.  Compared to the fourth quarter of 2013, average performing loans increased $8.0 billion, with growth across most portfolios other than residential and student loans. 

Deposits

Average client deposits for the current quarter were $136.9 billion, compared to $132.2 billion in the prior quarter and $127.5 billion in the fourth quarter of 2013.  Sequentially, average client deposits increased 4% due to a $2.3 billion, or 5%, increase in money market account balances, a $2.1 billion, or 8%, increase in NOW account balances, and a $0.6 billion, or 2%, increase in demand deposits.  The strong deposit growth in the quarter was due to both client-focused relationship deepening strategies and seasonality.  Partially offsetting this growth in lower-cost deposits was a $0.3 billion, or 3%, decline in time deposits.  Compared to the fourth quarter of 2013, average client deposits increased 7%, driven by increases in lower-cost deposits, partially offset by a $2.2 billion, or 17%, decrease in time deposits.          

Capital and Liquidity

The Company's estimated capital ratios are well above current regulatory requirements with Basel I Tier 1 capital, Basel I Tier 1 common, and Basel III Common Equity Tier 1 ratios at an estimated 10.75%, 9.55%, and 9.70%, respectively, at December 31, 2014.  The ratios of total average equity to total average assets and tangible equity to tangible assets were 12.08% and 9.17%, respectively, at December 31, 2014.  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 fourth 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 fourth quarter of 2013.  Additionally, during the current quarter, the Company repurchased $110 million of its outstanding common stock, bringing the total repurchased in 2014 to $458 million with plans to repurchase between $110 million and $120 million of common stock during the first quarter of 2015.  Lastly, the Company issued $500 million of non-cumulative perpetual preferred stock during the fourth quarter.

Asset Quality

Total nonperforming assets were $780 million at December 31, 2014, down 16% compared to the prior quarter and 33% compared to the fourth quarter of 2013.  The sequential reduction benefited from a transfer of $38 million of nonperforming loans to held-for-sale status. At December 31, 2014, the percentage of nonperforming loans to total loans was 0.48% compared to 0.58% at September 30, 2014.  Other real estate owned totaled $99 million, a 12% decrease from the prior quarter and a 42% decrease from the fourth quarter of 2013.

The provision for credit losses was $74 million, a decline of $19 million from the prior quarter and $27 million from the fourth quarter of 2013, as asset quality continued to improve.  Net charge-offs were $94 million during the current quarter, a $34 million decrease compared to the prior quarter, as the prior quarter included charge-offs related to targeted de-risking in the residential loan portfolio.  Compared to the fourth quarter of 2013, net charge-offs also declined $34 million, primarily driven by the home equity, nonguaranteed mortgage, and C&I loan portfolios.  The ratio of annualized net charge-offs to total average loans was 0.28% during the current quarter, compared to 0.39% during the prior quarter and 0.40% during the fourth quarter of 2013. 

At December 31, 2014, the allowance for loan and lease losses was $1.9 billion, which represented 1.46% of total loans, a $31 million and 3 basis point decrease from September 30, 2014.  The decline was due to continued asset quality improvements during the quarter.

Early stage delinquencies increased 5 basis points from the prior quarter to 0.64% at December 31, 2014.  Excluding government-guaranteed loans, early stage delinquencies were 0.30%, unchanged from the prior quarter.

Accruing restructured loans totaled $2.6 billion and nonaccruing restructured loans totaled $273 million at December 31, 2014, of which $2.6 billion were residential loans, $129 million were commercial loans, and $126 million were consumer loans.

OTHER INFORMATION

Business Segment Results

The Company has included business segment financial tables as part of this release. The Company's business segments include: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking. All revenue in the business segment tables is reported on a fully taxable-equivalent basis. For the business segments, results include net interest income, which is computed using matched-maturity funds transfer pricing. Further, provision for credit losses represents net charge-offs by segment combined with an allocation to the segments of the provision attributable to quarterly changes in the allowance for loan and lease losses and unfunded commitment 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 generally accepted accounting principles ("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-K.

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-K. 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 January 16, 2015, 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 1-888-972-7805 4Q. Individuals calling from outside the United States should dial 1-517-308-9091 4Q.  A replay of the call will be available approximately one hour after the call ends on January 16, 2015, and will remain available until February 16, 2015, by dialing 1-888-566-0462 (domestic) or 1-203-369-3609 (international). 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 January 16, 2015, 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.

SunTrust Banks, Inc., headquartered in Atlanta, is one of the nation's largest banking organizations, serving a broad range of consumer, commercial, corporate and institutional clients. The Company operates an extensive branch and ATM network throughout the Southeast and Mid-Atlantic States and a full array of technology-based, 24-hour delivery channels. The Company also serves clients in selected markets nationally. Its primary businesses include deposit, credit, and trust and investment management services. Through various subsidiaries, the Company provides mortgage banking, insurance, brokerage, equipment leasing, and capital markets services. SunTrust's Internet address is www.suntrust.com.

Important Cautionary Statement About Forward-Looking Statements

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. In this news release, the Company presents net interest income and net interest margin on a fully taxable-equivalent ("FTE") basis, and ratios on an annualized basis. The FTE basis adjusts for the tax-favored status of income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

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," "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, 2013 and in other periodic reports that we file with the SEC.

 

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/suntrust-reports-fourth-quarter-and-fiscal-year-2014-results-300021660.html

SOURCE SunTrust Banks, Inc.