SunTrust Banks, Inc. today reported net income available to common shareholders of $413 million, or $0.77 per average common diluted share, for the fourth quarter of 2013.  This compares to reported earnings per average common diluted share of$0.33 in the prior quarter, which was negatively impacted by $0.33 per share due to the impact of certain legacy mortgage matters.  Earnings per share increased 18% from $0.65 for the fourth quarter of last year. 

For 2013, SunTrust earned $2.41 per common diluted share, compared to $3.59 per common diluted share in 2012.  However, 2012 earnings were positively impacted by $1.40 per share related to actions undertaken by the Company to improve its risk profile and further strengthen its balance sheet. Excluding the $1.40 per share in 2012 and the aforementioned $0.33 per share in 2013, earnings per average common diluted share increased from $2.19 in 2012 to $2.74 in 2013, or 25%.

"Broad-based loan growth, increased revenue, and further credit quality improvement led to core earnings expansion over the prior quarter," said William H. Rogers, Jr., chairman and chief executive officer of SunTrust Banks, Inc. "We closed the year with 25% core annual earnings growth and substantial efficiency ratio improvement.  Our focus in 2014 will remain on meeting more of our clients' needs, driving profitable growth, and further improving the efficiency of the Company."

Fourth Quarter 2013 Financial Highlights

Income Statement

• Net income available to common shareholders was $413 million, or $0.77 per average common diluted share compared to $0.66 in the prior quarter, excluding the aforementioned$0.33 per share impact.  Current quarter earnings benefited from a 22% effective tax rate. 
  
  
• Total revenue increased $141 million, or 7%, compared to the prior quarter.
  • Net interest income increased 1% relative to the previous quarter as average performing loans grew 3% and net interest margin increased one basis point to 3.20%.
    
    
  • Noninterest income increased compared to the prior quarter driven, in part, by higher mortgage servicing and trading income.   
    
    
• Noninterest expense decreased $366 million sequentially due to the expenses associated with certain legacy mortgage matters in the prior quarter.  Excluding the impact of the $323 millionin operating losses related to the legacy mortgage and other legal related matters and the $96 million increase in the mortgage servicing advance reserve incurred in the third quarter, noninterest expense increased $53 million sequentially, primarily due to higher employee compensation and benefits expense as a result of reduced incentive compensation in the third quarter, and increased operating losses.  

Balance Sheet

• Average performing loans increased $3.1 billion sequentially with growth across nearly all loan portfolios. Average performing loans increased $4.7 billion compared to the fourth quarter of 2012 due to growth in C&I and commercial real estate loans. 
  
  
• Average client deposits increased $0.8 billion sequentially and decreased $0.4 billion from the fourth quarter of 2012, with the favorable mix shift toward lower-cost deposits continuing.

Capital

• Estimated capital ratios continued to be well above regulatory requirements.  The Tier 1 common equity ratio was an estimated 9.80%.
  
  
• In conjunction with its capital plans announced in the first quarter of 2013, the Company repurchased an additional $50 million of its common shares during the fourth quarter and paid a quarterly common stock dividend of $0.10 per share.

Asset Quality

• The risk profile of the balance sheet continued to improve.  Nonperforming loans decreased 6% during the quarter and were 0.76% of total loans at December 31, 2013, compared to 0.83% at September 30, 2013 and 1.27% at December 31, 2012. 
  
  
• Annualized net charge-offs decreased to 0.40% of average loans compared to 0.47% and 1.30% in the prior quarter and the fourth quarter of 2012, respectively.
• Current quarter nonperforming loans and net charge-offs were at their lowest levels in more than six years. 
  
  
• Due to loan growth in the current quarter, the provision for credit losses increased 6% compared to the prior quarter, but declined 69% compared to the fourth quarter of 2012 due in part to overall improvement 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 $141 million, or 7%, compared to the prior quarter.  The increase was primarily driven by higher mortgage servicing and trading income, a decline in the impairment of certain lease financing assets, and a decline in the mortgage repurchase provision given the third quarter agency mortgage repurchase settlements.  The increases in revenue were partially offset by lower core mortgage production income.  Excluding the third quarter impact of the $63 million of incremental mortgage repurchase provision related to the agency mortgage repurchase settlements, total revenue increased sequentially by $78 million, or 4%.  Compared to the fourth quarter of 2012, total revenue declined $230 million, or 10%, primarily driven by lower net interest income and mortgage production income. 

Total revenue was $8.2 billion for 2013 and $10.6 billion for 2012. Revenue in 2012 included $2.0 billion of net securities gains primarily related to the Company's disposition of its remaining shares in The Coca-Cola Company.  Excluding net securities gains, total revenue decreased $432 million driven by lower net interest income and core mortgage-related revenues, partially offset by a significantly lower mortgage repurchase provision and an increase in investment banking and wealth management revenues.

Net Interest Income

Net interest income was $1.2 billion for the current quarter, an increase of $7 million from the prior quarter due to loan growth that was partially offset by a decline in loan yields.  Net interest income decreased $29 million compared to the fourth quarter of 2012 primarily due to lower earning asset yields.  The decline in earning asset yields was partially offset by higher average earning assets and lower interest expense driven by a favorable shift in deposit mix and an overall decline in deposit rates paid.

The net interest margin for the fourth quarter was 3.20%, an increase of one basis point from the prior quarter.  The yield on earning assets was stable on a sequential quarter basis, as a four basis point decline in loan yields was offset by an 18 basis point increase in the yield on the securities available for sale portfolio. The yield on the securities portfolio increased primarily due to the rise in market interest rates impacting MBS prepayment speeds, resulting in slower premium amortization.  Interest-bearing liability rates declined one basis point as a result of a modest decrease in deposit rates.  The net interest margin in the fourth quarter of 2012 was 3.36%.  The 16 basis point decrease in the net interest margin was primarily due to a 22 basis point decrease in earning asset yields, partially offset by a seven basis point reduction in interest-bearing liability rates, primarily related to a favorable shift in deposit mix.

For 2013, net interest income was $5.0 billion, a decrease of $245 million, or 5%, compared to 2012, and the net interest margin was 3.24% in 2013 compared to 3.40% in 2012.  The primary drivers of the decrease in net interest income and net interest margin were the continued low interest rate environment, the foregone dividend income related to the third quarter of 2012 sale of the Company's remaining shares in The Coca-Cola Company, and a decline in commercial loan-related swap income, partially offset by earning asset growth and a favorable shift in the mix of funding sources.

Noninterest Income

Total noninterest income was $814 million for the current quarter compared to $680 million for the prior quarter and $1.0 billion for the fourth quarter of 2012.  Compared to the prior quarter, the $134 millionincrease was primarily due to an increase in trading and mortgage servicing income, the $63 millionprovision associated with the third quarter agency mortgage repurchase settlements, and a reduction in lease financing asset impairments, partially offset by a decline in core mortgage production income.  Compared to the fourth quarter of 2012, the $201 million decrease was primarily due to reductions in mortgage production income, partially offset by lower valuation losses on the Company's fair value debt and losses on the sale of Ginnie Mae loans in the fourth quarter of 2012.

Mortgage production income for the current quarter was $31 million compared to a loss of $10 millionfor the prior quarter and income of $241 million for the fourth quarter of 2012.  The $41 millionsequential quarter increase was driven by the $63 million provision associated with the third quarter agency mortgage repurchase settlements, partially offset by declines in applications and closed loan production volume.  Compared to the fourth quarter of 2012, mortgage production income decreased$210 million due to both a decline in production volume and gain on sale margins.  Closed loan production volume declined 51% compared to both the prior quarter and fourth quarter of 2012.  The mortgage repurchase provision was $12 million for the fourth quarter and the mortgage repurchase reserve was $78 million as of December 31, 2013. 

Mortgage servicing income was $38 million in the current quarter compared to $11 million in the prior quarter and $45 million in the fourth quarter of 2012.  The $27 million sequential quarter increase was largely due to a slower pace of loan prepayments.  The $7 million decrease compared to the fourth quarter of 2012 was primarily due to lower net hedge performance partially offset by the slower pace of loan prepayments.  At December 31, 2013, the servicing portfolio was $137 billion compared to$145 billion at December 31, 2012.

 Investment banking income was $96 million for the current quarter compared to $99 million in the prior quarter and $112 million in the fourth quarter of 2012.  The decrease compared to both periods was driven by a decline in fixed income origination revenue, partially offset by growth in M&A advisory and equity offering fees. 

Trading income was $57 million for the current quarter compared to $33 million for the prior quarter and$65 million for the fourth quarter of 2012.  The $24 million sequential quarter increase was due to a $14 million mark-to-market improvement and an increase in client-related trading revenues.  The $8 milliondecrease in trading income compared to the fourth quarter of 2012 was driven by a $25 million trading-related litigation reserve release that was recognized in the fourth quarter of 2012, partially offset by a$28 million mark-to-market improvement.  Client-related trading revenues were generally stable compared to the fourth quarter of 2012.

Other noninterest income was $55 million for the current quarter compared to $10 million for the prior quarter and $18 million for the fourth quarter of 2012.  The $45 million sequential quarter increase was primarily driven by the $37 million impairment of lease financing assets in the prior quarter.  The $37 million increase from the fourth quarter of 2012 was primarily due to $25 million of net losses related to the sale of Ginnie Mae loans in the fourth quarter of 2012.

For 2013, noninterest income was $3.2 billion compared to $5.4 billion in 2012, which included $2.0 billion of net securities gains.  Excluding the $2 million and $2.0 billion of net securities gains in 2013 and 2012, respectively, noninterest income decreased $187 million compared to 2012. The decline was primarily due to lower core mortgage-related revenues, resulting from declines in production volume, gain on sale margins, and mortgage servicing income.  The declines in core mortgage-related revenues were offset by a lower mortgage repurchase provision, higher investment banking and wealth management revenue, as well as a reduction in mark-to-market valuation losses on the Company's fair value debt and losses from the sale of government guaranteed loans in 2012.

Noninterest Expense

Noninterest expense was $1.4 billion for the current quarter compared to $1.7 billion for the prior quarter and $1.5 billion for the fourth quarter of 2012.  The sequential quarter decrease of $366 millionwas due to the recognition of specific legacy mortgage and other legal related matters in the prior quarter, and was partially offset by higher employee compensation and benefits expenses and operating losses.  The $133 million, or 9%, decrease compared to the fourth quarter of 2012 was a result of declines in almost all noninterest expense categories due to improved expense management and declines in cyclical costs.   

Employee compensation and benefits expense was $723 million in the current quarter compared to$682 million in the prior quarter and $738 million in the fourth quarter of 2012.  The sequential quarter increase of $41 million was primarily the result of the $37 million incentive compensation reduction that occurred in the third quarter.  The $15 million decrease from the fourth quarter of 2012 was primarily due to lower incentive compensation and employee benefit costs.

Operating losses were $42 million in the current quarter compared to $350 million in the prior quarter and $77 million in the fourth quarter of 2012.  The decrease compared to the prior quarter was due to$323 million in legacy mortgage and other legal related matters that were recognized in the prior quarter.  Excluding these specific matters, operating losses increased $15 million as a result of certain regulatory and legal expenses incurred during the current quarter.  The decrease from the fourth quarter of 2012 was primarily due to the Company's recognition of its portion of the Consent Order related to the Independent Foreclosure Review, which was entered into in the fourth quarter of 2012.

Marketing and customer development expense was $40 million in the current quarter, $34 million in the prior quarter, and $50 million in the fourth quarter of 2012. The $6 million increase compared to the prior quarter was due to seasonally higher expenses during the current quarter, and the $10 milliondecrease compared to the fourth quarter of 2012 was due to reduced advertising in the current quarter. Compared to the prior quarter, FDIC insurance and regulatory expense was relatively flat, and compared to the fourth quarter of 2012, it decreased $13 million due to a decrease in the Company's FDIC insurance assessment rate, reflecting the Company's reduced risk profile.

Other noninterest expense was $203 million in the current quarter compared to $305 million in the prior quarter and $261 million in the fourth quarter of 2012.  The $102 million sequential decrease was primarily driven by higher collections expenses in the prior quarter related to the increase in the mortgage servicing advance reserve. The $58 million decrease from the fourth quarter of 2012 was primarily driven by declines in other real estate, consulting, and collections expenses due to declines in cyclical costs and the resolution of certain legacy mortgage items.

For 2013, noninterest expense was $5.9 billion compared to $6.3 billion in 2012.  The $443 million, or 7%, decrease was driven by declines across most expense categories due to improved expense management, lower personnel expenses given the decline in full-time equivalent employees and reductions in certain cyclical costs and legal and consulting expenses. The decrease was partially offset by the $323 million in operating losses recognized in the third quarter of 2013 in connection with certain legacy mortgage and other legal related matters; operating losses increased compared to 2012 by $226 million, but excluding the $323 million, operating losses would have declined $97 millioncompared to 2012.  Excluding the $323 million and $96 million related to the increase in the mortgage servicing advance reserve in 2013 and the $38 million related to the charitable contribution of The Coca-Cola Company shares and $96 million related to the impairment of Affordable Housing investments in 2012, noninterest expense declined 12% year-over-year. 

Income Taxes

For the current quarter, the Company recorded an income tax provision of $122 million compared to an income tax benefit of $146 million for the prior quarter and an income tax provision of $62 million in the fourth quarter of 2012. The tax benefit in the prior quarter was due to the impacts of the October 10, 2013 8-K items.  The effective tax rate was 22% in the fourth quarter of 2013 compared to 15% in the fourth quarter of 2012.   The fourth quarter 2012 and 2013 effective tax rates were favorably impacted by audit settlements, statute expirations and/or changes in tax rates. The increase in the effective tax rate from the fourth quarter of 2012 was primarily due to higher pre-tax earnings.

Balance Sheet

At December 31, 2013, the Company had total assets of $175 billion and shareholders' equity of $21 billion, representing 12% of total assets. Book value and tangible book value per common share increased compared to September 30, 2013, and were $38.61 and $27.01, respectively.  The increase was due to the decline in common shares as a result of the common share repurchases during the quarter and an increase in equity primarily due to net income.

Loans

Average performing loans were $124.7 billion for the current quarter, an increase of $3.1 billion, or 3%, from the prior quarter driven by growth in almost all loan categories, most notably a $1.5 billion, or 3%, increase in C&I loans, a $634 million, or 3%, increase in nonguaranteed residential mortgage loans, and a $456 million, or 10%, increase in commercial real estate loans. Average performing loans increased $4.7 billion, or 4%, compared to the fourth quarter of 2012.  The increase was due to C&I, nonguaranteed residential mortgage, and commercial real estate loans, which increased 7%, 4%, and 20%, respectively.  Partially offsetting the year-over-year increase was a decrease in guaranteed residential mortgage loans of $1.1 billion, or 25%, and guaranteed student loans of $261 million, or 5%, both primarily due to targeted loan sales in the fourth quarter of 2012 and the first quarter of 2013. 

Deposits

Average client deposits for the current quarter were $127.5 billion compared to $126.6 billion in the prior quarter and $127.9 billion in the fourth quarter of 2012.  Average deposits increased $842 millionduring the current quarter due to a $1.1 billion, or 4%, increase in NOW balances and a $497 million, or 1%, increase in noninterest bearing deposits, which was partially offset by declines in time deposits.  The $447 million decrease compared to the fourth quarter of 2012 was driven by a decrease of $2.0 billion, or 13%, in time deposits, partially offset by $1.5 billion, or 1%, of growth in lower-cost deposits.          

Capital and Liquidity

The Company's estimated capital ratios are well above current regulatory requirements with Tier 1 capital and Tier 1 common ratios at an estimated 10.80% and 9.80%, respectively, at December 31, 2013.  The capital ratios decreased slightly from the fourth quarter of 2012 and the prior quarter due to loan growth offsetting an increase in retained earnings. Changes in the capital ratios from the prior year were also impacted by the Company's refinement to the risk weighting of certain unused lending commitments in the third quarter of 2013.  The ratios of total average equity to total average assets and tangible equity to tangible assets were 12.23% and 9.00%, respectively, at December 31, 2013, both stable to the prior quarter and higher than the fourth quarter of 2012.  The Company continues to have substantial available liquidity provided in the form of its client deposit base, cash, its portfolio of high-quality government-backed securities, and other available funding sources. 

During the current quarter, the Company declared a common stock dividend of $0.10 per common share, consistent with the prior quarter and up $0.05 per share from the fourth quarter of 2012.  Additionally, during the current quarter, the Company repurchased $50 million of common stock, bringing the total repurchased in 2013 to $150 million with plans to repurchase up to an additional $50 million of common stock during the first quarter of 2014, pursuant to the Company's 2013 capital plan. 

Asset Quality

Asset quality continued to improve, including further decreases in nonperforming loans and nonperforming assets, both of which reached their lowest levels since the second quarter of 2007.  Nonperforming loans totaled $971 million at December 31, 2013, a decrease of $66 million, or 6%, relative to the prior quarter, led by declines in C&I, residential mortgage, and construction loans.  Compared to a year ago, nonperforming loans decreased $576 million, or 37%, with reductions across all loan categories, most significantly in residential mortgage and home equity loans.  At December 31, 2013, the percentage of nonperforming loans to total loans was 0.76%, a decrease from 0.83% and 1.27% at the end of the prior quarter and fourth quarter of 2012, respectively.  Other real estate owned totaled $170 million at the end of the current quarter, a decrease of 13% from the prior quarter and a decrease of 36% from a year ago.   

Net charge-offs were $128 million during the current quarter compared to $146 million for the prior quarter and $398 million for the fourth quarter of 2012.  The decrease in net charge-offs from the prior quarter and fourth quarter of 2012 was primarily driven by lower commercial and residential loan charge-offs.  The decline from the prior year was further driven by $118 million in charge-offs recognized in the fourth quarter of 2012 related to sales of nonperforming residential mortgage and commercial real estate loans, as well as the reclassification of certain loans that were discharged in Chapter 7 bankruptcy to nonperforming status.

The ratio of annualized net charge-offs to total average loans was 0.40% for the current quarter, 0.47% for the prior quarter, and 1.30% for the fourth quarter of 2012.  The prior year ratio was affected by the aforementioned nonperforming loan sales and Chapter 7 bankruptcy loan reclassification.  The net charge-off ratio in the current quarter was at the lowest level since the third quarter of 2007.  The provision for credit losses was $101 million, which increased $6 million from the prior quarter and decreased $227 million from the fourth quarter of 2012.  The current quarter increase was driven by growth in the loan portfolio partially offset by improvements in asset quality, while the decrease from the prior year period was due to continued improvement in asset quality.  For 2013, the provision for credit losses was $553 million, a decline of $842 million compared to 2012.

At December 31, 2013, the allowance for loan losses was $2.0 billion and represented 1.60% of total loans, a seven basis point decrease from September 30, 2013.  The $27 million decrease in the allowance for loan losses during the current quarter was reflective of the continued improvement in asset quality, partially offset by loan growth.

Early stage delinquencies increased nine basis points from the prior quarter to 0.74% at December 31, 2013.  The increase was primarily due to government-guaranteed student and mortgage loans.  Excluding government-guaranteed loans, early stage delinquencies were 0.36%, essentially stable to the prior quarter.

Accruing restructured loans totaled $2.7 billion, and nonaccruing restructured loans totaled $0.4 billionat December 31, 2013.  $2.9 billion of restructured loans related to residential loans, $0.1 billion were commercial loans, and $0.1 billion related to consumer loans.