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SunTrust Reports First Quarter 2018 Results

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SunTrust Reports First Quarter 2018 Results

Continued Efficiency Improvements, Strong Asset Quality, and Benefits from Tax Reform Drive 42% Year-over-Year EPS Growth

PR Newswire

ATLANTA, April 20, 2018 /PRNewswire/ -- SunTrust Banks, Inc. (NYSE:STI) reported net income available to common shareholders of $612 million, or $1.29 per average common diluted share. This compares to $1.48 for the prior quarter, which included $0.39 per share of net discrete benefits from Form 8-K items announced on December 4, 2017 and the impacts of tax reform-related items, and $0.91 for the first quarter of 2017.

When excluding the impact of the aforementioned net discrete benefits in the fourth quarter of 2017, earnings per diluted share increased 18% sequentially, driven largely by a lower effective tax rate.  When compared to the first quarter of 2017, earnings per share increased 42% due to continued efficiency improvements, improved asset quality, reduced share count, and a lower effective tax rate.

"This year is off to a good start, with earnings per share increasing 42% year-over-year," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc. "While a favorable operating environment has benefited our bottom-line results, our consistent strategy and improved execution are also contributing to our improved profitability.  We remain optimistic about our performance trajectory and ability to deliver long-term value to our shareholders."

First Quarter 2018 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 21% marginal federal tax rate for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as 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 $612 million, or $1.29 per average common diluted share, compared to $1.48 for the prior quarter and $0.91 for the first quarter of 2017.
    • The prior quarter was favorably impacted by $0.39 per share of net discrete benefits associated with the items announced in the December 4, 2017 Form 8-K and tax reform-related items.
  • Total revenue decreased 2% sequentially and was stable year-over-year.
    • The sequential decrease was driven by lower net interest income resulting from fully taxable-equivalent ("FTE") basis adjustments and lower noninterest income.
  • Net interest margin was 3.24% in the current quarter, up 7 basis points sequentially and up 15 basis points compared to the prior year. The sequential and year-over-year increases were driven primarily by higher earning asset yields arising from higher benchmark interest rates, higher securities AFS yields given lower premium amortization expense, and positive mix shift in the LHFI portfolio. The sequential increase was also driven by fewer days in the quarter.
  • Provision for credit losses decreased $51 million sequentially and $91 million year-over-year due to lower net charge-offs and a lower allowance for loan and lease losses ("ALLL"), given continued strong credit quality results.
  • Noninterest expense decreased 7% sequentially and 3% year-over-year.
    • The sequential decrease was driven primarily by charitable contributions and net charges related to efficiency actions recognized in the prior quarter, both of which were associated with the December 4, 2017 Form 8-K and tax reform-related items. When adjusting for discrete items in the prior quarter, expenses were up 1% sequentially due to a seasonal increase in employee compensation and benefits costs.
    • Compared to the first quarter of 2017, the decrease was driven largely by lower operating losses as well as lower branch closure and severance costs.
  • The efficiency and tangible efficiency ratios for the current quarter were 62.8% and 62.1%, respectively, which represent strong improvements compared to the prior year, driven by ongoing expense management initiatives.

Balance Sheet

  • Average performing LHFI were down 1% compared to the prior quarter and relatively stable year-over-year, driven by the prior quarter sale of Premium Assignment Corporation ("PAC") and declines in C&I loans, home equity products, and commercial construction, offset partially by growth in consumer lending.
  • Average consumer and commercial deposits decreased modestly compared to the prior quarter due, in part, to seasonality, and increased slightly compared to the first quarter of 2017, as declines in money market accounts and noninterest-bearing deposit account balances were offset by growth in NOW, time deposit, and savings account balances.

Capital

  • Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ("CET1") ratio was estimated to be 9.8% as of March 31, 2018, slightly higher than the prior quarter.
  • During the quarter, the Company repurchased $330 million of its outstanding common stock in accordance with its 2017 Capital Plan and redeemed all $450 million of its outstanding 5.875% noncumulative perpetual preferred stock, Series E.
  • Book value per common share was $47.14 and tangible book value per common share was $33.97, both down 2% from December 31, 2017, driven primarily by a higher accumulated other comprehensive loss, offset partially by growth in retained earnings.

Asset Quality

  • Nonperforming loans ("NPLs") increased $38 million from the prior quarter and represented 0.50% of period-end LHFI at March 31, 2018. The sequential increase was driven primarily by an increase in residential mortgage NPLs due to hurricane-related forbearance.
  • Net charge-offs for the current quarter were $79 million, or 0.22% of total average LHFI on an annualized basis, down $28 million sequentially and $33 million year-over-year. The sequential decrease was driven primarily by lower net charge-offs associated with C&I loans, while the year-over-year reduction was driven by overall asset quality improvements and lower commercial net charge-offs.
  • At March 31, 2018, the ALLL to period-end LHFI ratio was 1.19%, a 2 basis point decline compared to the prior quarter, driven by lower reserves for anticipated hurricane-related losses and continued improvements in asset quality.
  • The provision for credit losses decreased $51 million sequentially and $91 million year-over-year due to lower net charge-offs and a lower ALLL.










Income Statement (Dollars in millions, except per share data)

1Q 2018


4Q 2017


3Q 2017


2Q 2017


1Q 2017

Net interest income

$1,441



$1,434



$1,430



$1,403



$1,366


Net interest income-FTE 2

1,461



1,472



1,467



1,439



1,400


Net interest margin

3.20

%


3.09

%


3.07

%


3.06

%


3.02

%

Net interest margin-FTE 2

3.24



3.17



3.15



3.14



3.09


Noninterest income

$796



$833



$846



$827



$847


Total revenue

2,237



2,267



2,276



2,230



2,213


Total revenue-FTE 2

2,257



2,305



2,313



2,266


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