SunTrust Banks, Inc. today reported net income available to common shareholders of $340 million, or $0.63 per average common diluted share, for the first quarter of 2013.  This compares to earnings per share of $0.46 in the first quarter of last year and$0.65 per share in the fourth quarter of 2012. 

"First quarter 2013 earnings were notably higher than last year," said William H. Rogers, Jr., chairman and chief executive officer of SunTrust Banks, Inc.  "Our expenses declined meaningfully, not only related to the continued abatement of cyclically high costs, but also as a direct result of our concerted efforts to improve our efficiency."  Mr. Rogers noted that the efficiency ratio declined over five percentage points from last year and was also down from last quarter, despite lower revenue associated with mortgage production income and the effects of seasonality in other categories. 

First Quarter 2013 Financial Highlights

Income Statement

• Continued expense reductions and improvement in credit quality drove net income available to common shareholders of $340 million, or $0.63 per average common diluted share. 
• Revenue, excluding securities gains, decreased 8% and 4% compared to the prior quarter and the first quarter of last year, respectively, due to declines in both net interest and noninterest income. 
• Net interest income declined due to net interest margin compression of 3 and 16 basis points compared to the prior quarter and the first quarter of last year, respectively, as the decline in earning asset yields outpaced the decline in interest-bearing liability costs.
• Noninterest income decreased from the prior quarter due to lower mortgage production income.  Investment banking income also declined, as the seasonally lower first quarter followed a record fourth quarter.
• Noninterest expense decreased 10% and 12% compared to the prior quarter and the first quarter of last year, respectively, on broad based reductions across most categories.  Expenses were at their lowest level in three years.

Balance Sheet

• Average loans decreased 1% compared to both the prior quarter and the first quarter of last year.  The decreases were predominantly related to declines in residential real estate and government guaranteed student loans, which were substantially offset by targeted growth in commercial and industrial loans.   
• Average client deposits were essentially flat on a sequential quarter basis and increased 1% compared to the first quarter of last year.  In both periods, we experienced a shift out of higher cost time deposits into lower cost deposit products.

Capital

• Estimated capital ratios continued to be well above current regulatory requirements.  The Tier 1 common equity ratio increased to an estimated 10.10%, up from 10.04% at year end.  
• During the quarter, the Company announced capital plans that included up to $200 million of common share repurchases by the end of the first quarter of 2014.  Additionally, the Company's Board of Directors will consider in its upcoming meeting a $0.05 per share increase in the quarterly common stock dividend. 

Asset Quality

• The overall risk profile of the balance sheet continued to improve.  Nonperforming loans decreased 5% during the quarter and were 1.21% of total loans at March 31, 2013, compared to 1.27% at year end and 2.16% a year ago. 
• Annualized net charge-offs decreased to 0.76% of average loans compared to 1.30% and 1.38% in the prior quarter and the first quarter of last year, respectively.  Current quarter net charge-offs were at their lowest level in five years.
• The provision for credit losses declined approximately 35% compared to both the prior quarter and the first quarter of last year.

Revenue 

Total revenue was $2.1 billion for the first quarter, a decrease of $177 million compared to the prior quarter.  The decline was driven by lower mortgage-related income, record fourth quarter investment banking revenue, and lower net interest income.  Total revenue compared to the first quarter of last year decreased $104 million due primarily to lower net interest income.

Net Interest Income 

Net interest income was $1.3 billion for the current quarter, a decrease of $25 million from the prior quarter, primarily driven by two fewer days in the current quarter.  Net interest income decreased $91 million compared to the first quarter of last year due to lower earning asset yields, which were impacted by a decrease in commercial loan-related swap income and the foregone dividend income related to the third quarter 2012 accelerated termination of the agreements regarding the shares formerly owned in The Coca-Cola Company.  These decreases were partially offset by lower deposit rates and a reduction in long-term debt.

Net interest margin for the first quarter was 3.33%, a decrease of 3 basis points from the prior quarter and 16 basis points from the first quarter of last year.  On a sequential quarter basis, earning asset yields declined 6 basis points as a result of the continued low interest rate environment.  Partially offsetting this decrease was a 2 basis point reduction on interest-bearing liabilities due to modestly lower rates paid on deposits.  Compared to the first quarter of last year, the decrease in net interest margin was primarily due to a 34 basis point decrease in loan yields, driven by the continued low interest rate environment and a decrease in commercial loan-related swap income, as well as a 60 basis point decrease in the yield on the investment securities portfolio, approximately 26 basis points of which was due to the forgone dividend income associated with The Coca-Cola Company stock.  These decreases were partially offset by a 25 basis point decline in rates paid on interest-bearing liabilities, primarily related to time deposits and long-term debt.

Noninterest Income 

Total noninterest income was $863 million for the current quarter compared to $1,015 million for the  prior quarter and $876 million for the first quarter of last year.  The $152 million sequential quarter decrease was largely driven by lower mortgage and capital markets-related revenue, as well as a reduction in certain other categories due to fewer business days in the current quarter.  Compared to the first quarter of last year, the $13 million decrease was primarily driven by reductions in mortgage servicing related income, securities gains, and trading income and was largely offset by a lower mortgage repurchase provision. 

Mortgage production income for the current quarter was $159 million compared to $241 million for the prior quarter and $63 million for the first quarter of last year.  The $82 million sequential quarter decrease was primarily driven by declines in margins.  Partially offsetting the decline was higher origination fees due to the 11% increase in loan production volume as compared to prior quarter.  Relative to the first quarter of last year, mortgage production income increased $96 million due to the$161 million decline in the mortgage repurchase provision, partially offset by reduced margins.  At March 31, 2013, the reserve for mortgage repurchases totaled $513 million, a decrease of $119 millionfrom the prior quarter as resolution activity on outstanding repurchase requests increased during the current quarter.  Consistent with prior expectations, repurchase demands increased in the current quarter compared to recent quarters, while full file requests - a leading indicator of future demands - decreased.

Mortgage servicing income was $38 million for the current quarter compared to $45 million for the prior quarter and $81 million for the first quarter of last year.  The $7 million sequential quarter decrease was due to lower servicing fees resulting from a decline in the mortgage servicing portfolio.  The $43 million decrease compared to the first quarter of last year was due to lower servicing fees and less favorable net hedge performance.  At March 31, 2013, the servicing portfolio was $142 billioncompared to $155 billion at March 31, 2012, with the decline driven by the elevated level of refinance volume and the sales of certain loans in the portfolio.

Investment banking income was $68 million for the current quarter compared to $112 million in the prior quarter and $71 million in the first quarter of last year.  The sequential quarter decrease was due to the record fourth quarter, which included an accelerated level of deal activity at year end, whereas the current quarter experienced seasonally lower levels of activity, most notably in loan syndications and high yield bond originations.

Trading income was $42 million for the current quarter compared to $65 million for the prior quarter and$57 million for the first quarter of last year.  The $23 million sequential quarter decrease was largely attributable to reduced trading-related litigation reserves recognized in the previous quarter.  The $15 million decline in trading income compared to the first quarter of last year was largely driven by an addition to our counterparty valuation reserve in the current quarter.   Mark-to-market valuation losses on the Company's fair value debt and index-linked CDs were $24 million in the current quarter, which was approximately equal to the losses experienced during the first and fourth quarters of last year.

Other noninterest income for the current quarter was $44 million compared to $18 million for the prior quarter and $57 million for the first quarter of last year.  The $26 million sequential quarter increase was primarily due to $25 million of net losses recognized from the sales of loans in the prior quarter.  The $13 million decrease from the first quarter of last year was primarily due to lower gains from the sales of leases.

Noninterest Expense 

Noninterest expense was $1.4 billion for the current quarter, a sequential quarter decrease of $147 million, or 10%, and a decline from the prior year of $178 million, or 12%.  The declines from both periods were broad-based, reflecting the Company's continued expense reduction initiatives and the abatement of cyclically high costs.   

Employee compensation and benefits expense was $759 million in the current quarter, up $21 millionon a sequential quarter basis, primarily due to an approximate $35 million seasonal increase in employee benefits.   The higher benefits expense was partially offset by a decrease in salaries, attributable to a reduction in full-time equivalent employees during the quarter, and lower incentive compensation.  Compared to the first quarter of last year, employee compensation and benefits expense decreased $38 million, largely attributable to the reduction in full-time equivalent employees, as well as lower incentive compensation.

Operating losses were $39 million in the current quarter, a decrease of $38 million compared to the prior quarter and $21 million compared to the first quarter of last year.  On a sequential quarter basis, the decline was primarily due to the $32 million fourth quarter expense related to the Acceleration and Remediation Agreement with the Federal Reserve Board and the Office of the Comptroller of the Currency regarding the Independent Foreclosure Review.  The decrease compared to the first quarter of last year was driven by declines in litigation-related expenses and mortgage servicing-related compensatory fees.

Marketing and customer development expense was $30 million in the current quarter.  This was a $20 million decline on a sequential basis due to seasonality and a modest increase compared to the first quarter of last year. 

Other noninterest expense was $163 million, a decrease of $98 million from the prior quarter and $122 million from the first quarter of last year.  The sequential quarter decline was largely driven by reductions in legal and consulting expenses, credit-related expenses (which are comprised of other real estate expenses and credit and collection costs), and franchise taxes.  The decrease compared to the first quarter of last year was primarily due to reductions in credit-related, severance, and legal and consulting expenses.

Income Taxes  

For the current quarter,  the Company recorded an income tax provision of $151 million compared to$62 million for the prior quarter and $69 million for the first quarter of last year.  The effective tax rate was 30% for the current quarter compared to 15% for the prior quarter and 22% for the first quarter of last year.  The increase in the effective tax rate from the prior quarter was primarily due to the favorable impact of certain discrete tax items during the fourth quarter. The effective tax rate increase compared to the first quarter of last year was due to higher pre-tax earnings in the current quarter.

Balance Sheet 

At March 31, 2013, the Company had total assets of $172 billion and shareholders' equity of $21 billion, representing 12% of total assets.  Book value and tangible book value per common share increased compared to December 31, 2012, and were $37.89 and $26.33, respectively.

Loans

For the current quarter, average performing loans were $119.4 billion, a decrease of $0.6 billion, or 1%, from the prior quarter driven by declines in government guaranteed student and residential real estate loans, partially offset by increases in C&I and indirect auto loans. Average loans decreased $1.7 billion, or 1%, compared to the first quarter of last year.  The decline was due to government guaranteed student and mortgage loans, which decreased $1.9 billion and $2.4 billion, respectively, due to sales during 2012.  Home equity loans also decreased $0.9 billion due to continued loan payoffs.  Partially offsetting these decreases was an increase in C&I loans, which increased $4.2 billion, or 9%. 

Securities Available for Sale 

For the current quarter, the securities available for sale portfolio averaged $23.3 billion, an increase of$1.7 billion from the prior quarter and a decrease of $4.3 billion from the first quarter of last year.  The increase compared to the prior quarter was primarily the result of increased holdings of U.S. Treasury and government agency securities, as we opportunistically reinvested the proceeds from fourth quarter loan sales.  The investment portfolio declined from the first quarter of last year due to the aforementioned transaction regarding The Coca-Cola Company stock, as well as reduced holdings of government agency mortgage-backed securities.

Deposits 

Average consumer and commercial deposits for the current quarter were $127.7 billion compared to$127.9 billion for the prior quarter and $125.8 billion for the first quarter of last year.  The slight decrease during the current quarter was driven by a seasonal decline of $1.3 billion, or 3%, in demand deposits and a decrease of $0.6 billion, or 4%, in time deposits. These decreases were predominantly offset by increases of $0.8 billion, or 3%, in interest bearing transaction accounts, $0.5 billion, or 1%, in money market accounts, and $0.3 billion, or 6%, in savings accounts.  The $1.8 billion, or 1%, increase compared to the first quarter of last year was driven by the favorable shift during 2012 toward lower-cost accounts as average demand deposits increased $2.7 billion, or 8%, interest bearing transaction accounts increased $1.1 billion, or 4%, money market accounts increased $0.5 billion, or 1%, and savings accounts increased $0.7 billion, or 14%.  The growth in these categories was partially offset by a decrease of $3.2 billion, or 18%, in higher-cost time 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 increasing to an estimated 11.20% and 10.10%, respectively, at March 31, 2013.  The ratios of total average equity to total average assets and tangible equity to tangible assets were 12.29% and 9.00%, respectively, at March 31, 2013, each increasing from the prior quarter and first quarter of last year.  The Company continues to have substantial available liquidity provided in the form of its client deposit base and other available funding resources, as well as its portfolio of high-quality government-backed securities and cash. 

During the first quarter, the Company announced capital plans in conjunction with the 2013 CCAR process and the completion of the Federal Reserve's review of the Company's capital plan.  The Company plans to repurchase up to $200 million of its common stock between the second quarter of 2013 and the first quarter of 2014.  Additionally, it plans to increase its quarterly common stock dividend to $0.10 per common share from the current $0.05 per common share, and maintain dividend payments on the Company's preferred stock.  The Company's Board of Directors is expected to consider the common stock dividend increase and preferred stock dividend payments at its upcoming Board meeting.  The Board of Directors had previously authorized the share repurchase, subject to the non-objection of the Company's capital plan by the Federal Reserve.

Asset Quality 

Asset quality continued to improve during the quarter, including further decreases in nonperforming loans and nonperforming assets.  Nonperforming loans totaled $1.5 billion at March 31, 2013, down$80 million, or 5%, relative to year end, led by decreases in residential loans.  Compared to a year ago, nonperforming loans decreased $1.2 billion, or 45%, with reductions across all loan categories, most significantly nonguaranteed residential mortgages, commercial real estate, and commercial construction.  At March 31, 2013, the percentage of nonperforming loans to total loans was 1.21%, down from 1.27% and 2.16% at the end of the fourth and first quarters of last year, respectively.  Other real estate owned totaled $223 million at the end of the current quarter, down 16% since year end and down 46% since a year ago.         

Net charge-offs were $226 million during the current quarter compared to $398 million for the prior quarter and $422 million for the first quarter of last year.  The prior quarter net charge-offs included $79 million related to discharged Chapter 7 bankruptcy loans and $39 million associated with nonperforming loan sales.  The decrease in net charge-offs from the prior year was driven primarily by residential and commercial loans.

The ratio of annualized net charge-offs to total average loans was 0.76% for the current quarter, 1.30% for the prior quarter, and 1.38% for the first quarter of last year.  Net charge-offs resulting from the sale of nonperforming loans and Chapter 7 bankruptcy loans added 38 basis points to the prior quarter ratio.  The ratio of annualized net charge-offs to total loans ended the current quarter at its lowest level since the first quarter of 2008.  The provision for credit losses was $212 million, which decreased $116 million and $105 million from the prior quarter and the first quarter of last year, respectively. 

At March 31, 2013, the allowance for loan losses was $2.2 billion and represented 1.79% of total loans, down one basis point from December 31, 2012.  Excluding government guaranteed loans, the allowance for loan losses was 1.93% of total loans. The $22 million decrease in the allowance for loan losses during the current quarter was primarily the result of the decrease in total loans and is also reflective of continued improvement in asset quality.

Early stage delinquencies decreased 15 basis points from the end of the prior year to 0.78% at March 31, 2013.  The decrease was primarily due to residential and consumer loans.  Excluding government-guaranteed loans, early stage delinquencies were 0.41%, a decrease of seven basis points fromDecember 31, 2012.

Accruing restructured loans totaled $2.5 billion, and nonaccruing restructured loans totaled $0.7 billionat March 31, 2013.  $2.9 billion of restructured loans related to residential loans, $0.2 billion were commercial loans, and $0.1 billion related to consumer loans.

BUSINESS SEGMENT FINANCIAL PERFORMANCE

Business Segment Results

The Company has included business segment financial tables as part of this release on the Investor Relations portion of its website at www.suntrust.com/investorrelations. 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 loan losses is represented by net charge-offs. 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"), certain matched-maturity funds transfer pricing credits and charges, differences in provision for loan losses compared to net charge-offs, as well as equity and its related impact. A detailed discussion of the business segment results will be included in the Company's forthcoming Form 10-Q.