SunTrust Reports Second Quarter 2015 Results

ATLANTA, July 17, 2015 /PRNewswire/ -- SunTrust Banks, Inc. (NYSE: STI) today reported net income available to common shareholders of $467 million, or $0.89 per average common diluted share compared to $0.78 per share earned in the prior quarter.  The current quarter was favorably impacted by a $0.03 per share discrete income tax benefit. 

Earnings per share increased $0.17 over the second quarter of 2014, which was negatively impacted by $0.09 per share, related to the resolution of specific legacy mortgage-related matters, partially offset by the gain on sale of RidgeWorth.  Excluding the prior-year matters, earnings per share grew 10% year over year. 

For the first half of 2015, earnings per share were $1.67.  Excluding the aforementioned matters which negatively impacted the prior year, earnings per share grew 8% over the same period in 2014.

"Our performance this quarter demonstrates solid execution of our key strategies - deepening client relationships, optimizing the balance sheet, and improving efficiency.  This was evidenced by higher revenue, continued deposit growth, and improved returns.  In addition, our asset quality performance continues to be strong," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc.  "As we look forward, we are confident in our strategies and remain intensely focused on delivering further value to our clients and shareholders."

Second Quarter 2015 Financial Highlights

Income Statement

• Net income available to common shareholders was $467 million, or $0.89 per average common diluted share.
  • Represents a 14% sequential quarter increase and includes a $0.03 per share favorable impact from a discrete income tax item in the current quarter.
• Total revenues increased 4% compared to the prior quarter due to higher net interest income and broad-based growth in fee income.
  • Net interest income grew 2% sequentially due to a 3 basis point increase in the net interest margin and one additional day.
  • Noninterest income increased 7% sequentially driven by increases in most fee income categories, most notably investment banking income.
• Noninterest expense increased 4% compared to the prior quarter, primarily driven by $14 million of debt extinguishment costs in the current quarter, as well as discrete recoveries recognized in the prior quarter.  Certain incentive costs also increased sequentially due to improved business performance.
• The efficiency and tangible efficiency ratios in the current quarter were 63.9% and 63.6%, respectively.

Balance Sheet

• Average loan balances declined slightly compared to the prior quarter primarily due to loan sale activity, offset by growth in higher yielding loan products, improving the overall loan mix.
• Average client deposits increased 2% sequentially and 9% compared to the second quarter of 2014, with all of the growth coming from low-cost deposits, resulting in continued favorable mix shift.  The deposit growth also drove a reduction in higher-cost wholesale funding.

Capital

• Estimated capital ratios continued to be well above regulatory requirements. The Common Equity Tier 1 ratio and Tier 1 capital ratios were estimated to be 9.8% and 10.5%, respectively, as of June 30, 2015, on a fully phased-in basis.
• During the quarter, the Company increased its quarterly common stock dividend from $0.20 per share to $0.24 per share and repurchased $175 million of its common stock.  The Company repurchased $115 million of common stock in the prior quarter.
• Book value per share was $42.46, and tangible book value per share was $30.65, both up sequentially.

Asset Quality

• Asset quality continued to improve, as nonperforming loans declined 21% from the prior quarter and totaled 0.36% of total loans at June 30, 2015.  The decline was primarily driven by a $110 million transfer of nonperforming mortgage loans to loans held-for-sale.
• Net charge-offs for the current quarter were $87 million, representing 0.26% of average loans on an annualized basis, declining from $99 million in the prior quarter and $113 million in the second quarter of 2014.
• The provision for credit losses decreased $29 million and $47 million compared to the prior quarter and the second quarter of 2014, respectively, driven by the continued improvement in asset quality, combined with slower loan growth.
• At June 30, 2015, the allowance for loan and lease losses to period-end loans ratio was 1.39%, 4 basis points lower than the prior quarter given further improvements in 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, an increase of $85 million compared to the prior quarter.  The increase was driven by higher net interest income and broad-based growth in noninterest income, with particularly strong growth in investment banking income.  Compared to the second quarter of 2014, total revenue declined $124 million; however, excluding the gain on sale of RidgeWorth in the second quarter of 2014, revenue declined $19 million, driven largely by a decrease in net interest income and foregone RidgeWorth revenue, partially offset by higher investment banking income. 

For the six months ended June 30, 2015, total revenue was $4.1 billion, a decline of $161 million compared to the first six months of 2014.  The decline was driven by the gain on sale of RidgeWorth and associated foregone revenue and a decline in net interest income, partially offset by increases in most noninterest income categories.

Net Interest Income

Net interest income was $1.2 billion for the current quarter, an increase of $28 million compared to the prior quarter.  The increase was primarily due to an additional day in the second quarter, an improvement in core loan yields, and higher commercial loan-related swap income.  Compared to the second quarter of 2014, the $41 million decline in net interest income was driven by lower commercial loan-related swap income and lower earning asset yields, partially offset by growth in average earning assets.

Net interest margin for the current quarter was 2.86% compared to 2.83% in the prior quarter and 3.11% in the second quarter of 2014. The 3 basis point increase compared to the prior quarter was largely driven by higher commercial loan-related swap income and higher consumer and mortgage loan yields.  The 25 basis point decline in net interest margin compared to the second quarter of 2014 was due primarily to 20 and 52 basis point declines in loan and investment securities yields, respectively. The decline in loan yields was due to a reduction in commercial loan-related swap income, as well as the prolonged low interest rate environment, which impacted both loan and investment security yields.

For the six months ended June 30, 2015, net interest income was $2.4 billion, a $105 million decrease compared to the first six months of 2014. The net interest margin was 2.85% for the first half of 2015, a 30 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 $874 million for the current quarter, compared to $817 million for the prior quarter and $957 million for the second quarter of 2014.  The $57 million increase from the prior quarter was due to increased investment banking revenue, increases in other fee income categories, and higher gains on the sale of securities, partially offset by a decline in mortgage-related income. Compared to the second quarter of 2014, noninterest income decreased $83 million, driven primarily by the gain on sale of RidgeWorth in the second quarter of 2014 and the associated foregone revenue, partially offset by higher mortgage-related and investment banking revenue, along with higher gains on the sale of investment securities.

Investment banking income was $145 million for the current quarter, compared to $97 million in the prior quarter and $119 million in the second quarter of 2014.  The sequential quarter increase was due to strong client-driven performance across most product areas, particularly in syndicated finance, debt capital markets, equity origination, and M&A advisory. Compared to the second quarter of 2014, the increase was due to higher equity origination fees and debt capital markets activity. 

Trading income was $54 million for the current quarter, compared to $55 million for the prior quarter and $47 million in the second quarter of 2014.  The sequential quarter decrease was driven by lower core trading revenue, mostly offset by an increase in mark-to-market valuation gains on the Company's debt carried at fair value. Compared to the second quarter of 2014, the increase was driven largely by an increase in mark-to-market valuation gains on the Company's debt carried at fair value, partially offset by lower core trading income.

Mortgage production-related income for the current quarter was $76 million compared to $83 million for the prior quarter and $52 million for the second quarter of 2014.  The sequential quarter decrease was due to a decline in interest rate lock volume and gain-on-sale margins.  The increase compared to the second quarter of 2014 was driven by higher mortgage production volume and a decline in the provision for repurchases, partially offset by a decline in gain-on-sale margins.  Gain-on-sale margins in the current quarter were adversely impacted by higher mortgage interest rates and an increase in loan production from the correspondent channel.  Mortgage production volume increased 27% compared to the prior quarter and 59% compared to the second quarter of 2014.   Applications declined 10% sequentially, entirely driven by lower refinance activity given the increase in interest rates in the second quarter, partially offset by strong growth in purchase applications.

Mortgage servicing income was $30 million for the current quarter, compared to $43 million in the prior quarter and $45 million in the second quarter of 2014.  The decline compared to the prior quarter was driven by higher servicing asset decay, resulting from increased prepayments, and lower net hedge gains.  Compared to the second quarter of 2014, the decline was due to higher decay in the current quarter, partially offset by higher servicing fees as a result of a larger servicing portfolio.  The servicing portfolio was $145 billion at June 30, 2015, compared to $134 billion at June 30, 2014.

Trust and investment management income was $84 million in both the current and prior quarter and $116 million in the second quarter of 2014.  The $32 million decline compared to the prior year was due entirely to foregone revenue resulting from the sale of RidgeWorth in the second quarter of 2014.

Other noninterest income was $52 million for the current quarter, compared to $63 million in the prior quarter and $170 million in the second quarter of 2014.  The sequential quarter decrease was primarily due to an $18 million gain from the sale of legacy affordable housing investments in the prior quarter, partially offset by higher leasing-related income in the current quarter.  Compared to the prior year, the decline was driven by the $105 million pre-tax gain on the sale of RidgeWorth and gains on the sale of government-guaranteed mortgage loans in the second quarter of 2014.

For the six months ended June 30, 2015, noninterest income was $1.7 billion, a decrease of $56 million compared to the first six 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 production income, as well as growth in other fee categories.

Noninterest Expense

Noninterest expense for the current quarter was $1.3 billion, compared to $1.3 billion in the prior quarter and $1.5 billion in the second quarter of 2014.  The $48 million increase relative to the prior quarter was primarily due to $14 million of debt extinguishment costs incurred in the current quarter and discrete recoveries recognized in the prior quarter.  Additionally, a decline in seasonally higher employee compensation in the prior quarter was partially offset by higher incentive compensation in the current quarter related to improved business performance.  Compared to the prior year, the decline in noninterest expense was due to $179 million of specific legacy mortgage-related operating losses recognized in the second quarter of 2014.

Employee compensation and benefits expense was $756 million in the current quarter, compared to $771 million in the prior quarter and $763 million in the second quarter of 2014.  The sequential decrease of $15 million was due to the seasonal decline in employee benefits and FICA taxes, partially offset by higher salaries and incentive compensation driven by improved business performance.  The $7 million decrease from the second quarter of 2014 was largely a result of the sale of RidgeWorth, partially offset by higher incentive compensation.

Operating losses were $16 million in the current quarter, compared to $14 million in the prior quarter, and $218 million in the second quarter of 2014, which included $179 million of net charges related to specific legacy mortgage-related matters.

Outside processing and software expense was $204 million in the current quarter, compared to $189 million in the prior quarter and $181 million in the second quarter of 2014.  The $15 million sequential increase was primarily due to higher business activity levels, as well as timing associated with rendering certain services.  The $23 million increase compared to second quarter of 2014 was due to similar factors that drove the sequential increase, in addition to higher technology and regulatory costs.

Marketing and customer development expense was $34 million in the current quarter, compared to $27 million in the prior quarter and $30 million in the second quarter of 2014.  Compared to the prior quarter, the $7 million increase was driven largely by an increase in advertising expenses as a result of seasonally lower activity in the prior quarter.

FDIC premium and regulatory expense was $35 million in the current quarter, compared to $37 million in the prior quarter, and $40 million in the second quarter of 2014.  The decline in the current quarter compared to both periods was driven by lower FDIC insurance premiums arising from improvements in the Company's risk profile.

Other noninterest expense was $149 million in the current quarter, compared to $111 million in the prior quarter and $156 million in the second quarter of 2014.  The $38 million sequential increase was driven primarily by the recognition of $14 million of debt extinguishment costs related to wholesale funding repositioning activity in the current quarter and $17 million in discrete recoveries recognized in the prior quarter.  The $7 million decrease compared to the second quarter of 2014 was driven primarily by broad-based declines in other expense categories, partially offset by the debt extinguishment costs recognized in the current quarter.

For the six months ended June 30, 2015, noninterest expense was $2.6 billion compared to $2.9 billion for the first six months of 2014.  The $266 million decrease was driven by the aforementioned decline in operating losses related to legacy mortgage-related matters and affordable housing impairment charges recognized in 2014, the decline in RidgeWorth-related expenses, and the continued focus on expense management.

Income Taxes

For the current quarter, the Company recorded an income tax provision of $202 million, compared to $191 million for the prior quarter and $173 million for the second quarter of 2014.  The effective tax rate for the current quarter was approximately 29%, compared to approximately 31% in the prior quarter, and approximately 30% in the second quarter of 2014.  The effective tax rate in the current quarter was favorably impacted by $15 million in net discrete income tax items.

Balance Sheet

At June 30, 2015, the Company had total assets of $188.9 billion and shareholders' equity of $23.2 billion, representing 12% of total assets.  Book value per share was $42.46, and tangible book value per share was $30.65, both up compared to December 31, 2014, driven by growth in retained earnings.

Loans

Average performing loans were $132.2 billion for the current quarter, a slight decrease from the prior quarter, and up 2% over the second quarter of 2014.  In May, the Company transferred approximately $1.0 billion of indirect automobile loans to held for sale that were ultimately sold to third parties through a loan securitization in June. The securitization transaction had an immaterial upfront financial impact and was also the primary driver of a $424 million decline in average consumer indirect loans compared to the prior quarter. Additionally, sequential quarter declines in average guaranteed student loans and average CRE loans of $410 million and $329 million, respectively, reflected the impact of loan sales and continued pay down activity during the quarter.  Average consumer direct loans and average nonguaranteed residential mortgages increased $393 million and $375 million, respectively.  Compared to the second quarter of 2014, average performing loans increased $2.4 billion, or 2%, with growth concentrated in C&I and consumer direct loans. This loan growth was partially offset by declines in guaranteed residential mortgage, guaranteed student, and consumer indirect loans driven by the Company's balance sheet management activities over the previous several quarters.

Deposits

Average client deposits for the current quarter were $142.9 billion, compared to $140.5 billion in the prior quarter and $130.5 billion in the second quarter of 2014.  Sequentially, average client deposits increased 2% due to a $1.2 billion, or 4%, increase in NOW account balances, a $1.0 billion, or 2%, increase in demand deposits, and a $0.3 billion, or 1%, 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 second quarter of 2014, average client deposits increased 9%, driven by increases in lower-cost deposits, partially offset by a $1.7 billion, or 14%, 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 9.8% and 10.5%, respectively, at June 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 12.34% and 9.37%, respectively, at June 30, 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 second quarter, the Company declared a common stock dividend of $0.24 per common share, an increase of $0.04 per share from the prior quarter and the second quarter of 2014.  Additionally, during the current quarter, the Company repurchased $175 million of its outstanding common stock.  Per its 2015 capital plan, the Company currently expects to repurchase approximately $700 million of additional common stock over the next four quarters.

Asset Quality

Total nonperforming assets were $657 million at June 30, 2015, down 6% compared to the prior quarter and 37% compared to the second quarter of 2014.  During the second quarter, the Company transferred $110 million of nonperforming mortgage loans to held for sale.  At June 30, 2015, the percentage of nonperforming loans to total loans was 0.36% compared to 0.46% at March 31, 2015.  Other real estate owned totaled $72 million, a 9% decrease from the prior quarter and a 47% decrease from the second quarter of 2014.

The provision for credit losses was $26 million, a decline of $29 million from the prior quarter and $47 million from the second quarter of 2014, driven by the continued improvement in asset quality, slower loan growth, and lower net charge-offs.  Net charge-offs were $87 million during the current quarter, a decrease of $12 million and $26 million compared to the prior quarter and the second quarter of 2014, respectively.  The ratio of annualized net charge-offs to total average loans was 0.26% during the current quarter, compared to 0.30% during the prior quarter and 0.35% during the second quarter of 2014. 

At June 30, 2015, the allowance for loan and lease losses was $1.8 billion, which represented 1.39% of total loans, a decline of $59 million, or 4 basis points, from March 31, 2015.  The decline was due to the continued improvement in asset quality during the quarter.

Early stage delinquencies declined 6 basis points from the prior quarter to 0.50% at June 30, 2015.  Excluding government-guaranteed loans, early stage delinquencies were 0.25%, down 1 basis point from the prior quarter.

Accruing restructured loans totaled $2.6 billion and nonaccruing restructured loans totaled $185 million at June 30, 2015, of which $2.5 billion were residential loans, $128 million were consumer loans, and $89 million were commercial 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 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 17, 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 (Passcode: 2Q15). Individuals calling from outside the United States should dial 1-517-308-9091 (Passcode: 2Q15).  A replay of the call will be available approximately one hour after the call ends on July 17, 2015, and will remain available until August 17, 2015, by dialing 1-866-513-4385 (domestic) or 1-203-369-1984 (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 July 17, 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, 2014 and in other periodic reports that we file with the SEC.

SOURCE SunTrust Banks, Inc.

Related Links

http://www.suntrust.com