SunTrust Banks, Inc. reported net income available to common shareholders of $451 million, or $0.91 per average common diluted share, which includes $0.04 of tax benefits.  When adjusting for these benefits, earnings were $0.87, down 3% sequentially, given typical seasonality, and up 4% compared to the prior year as a result of strong 7% revenue growth and reduced shares outstanding.

"Our performance this quarter is the direct result of the investments we have been making in strengthening our franchise and diversifying our business mix," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc.  "2017 is off to a good start and we remain committed to investing in client growth, improving efficiency, and increasing capital returns."

First Quarter 2017 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 35% marginal federal tax rate and 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 $451 million, or $0.91 per average common diluted share, compared to $0.90 for the prior quarter and $0.84 for the first quarter of 2016.

• This quarter was favorably impacted by $0.04 per share of discrete tax benefits.

• Total revenue increased 3% compared to the prior quarter and 7% compared to the first quarter of 2016.

• These increases were driven largely by higher net interest income and record investment banking performance in the first quarter of 2017.

• Net interest margin was 3.09% in the current quarter, up 9 basis points sequentially and up 5 basis points compared to the prior year, driven by higher earning asset yields as a result of the steeper yield curve and the increase in benchmark interest rates. Compared to the prior year, the net interest margin was also favorably impacted by continued positive mix shift in the loan portfolio.

• Provision for credit losses increased $18 million sequentially as a result of a reserve release in the prior quarter.

• Noninterest expense increased 5% sequentially and 11% compared to the prior year.

• The sequential increase was driven primarily by the seasonal increase in employee benefit costs in addition to incremental costs associated with the Pillar acquisition.

• Compared to the prior year, the increase was driven largely by higher compensation associated with improved business and stock price performance, ongoing investments in talent, higher FDIC premiums, and costs associated with efficiency initiatives including branch closures.

• The efficiency and tangible efficiency ratios in the current quarter were 65.2% and 64.6%, respectively, both higher than the prior quarter as strong revenue growth was offset by seasonally higher noninterest expense (as outlined above).

Balance Sheet

• Average loan balances increased 1% sequentially and 4% year-over-year, driven primarily by growth in consumer and C&I, partially offset by declines in residential home equity products.

• Average consumer and commercial deposits increased 1% sequentially and 6% compared to the first quarter of 2016, driven by growth in NOW and money market account balances for both periods, as well as an increase in demand deposits year-over-year.

Capital

• Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ratio was estimated to be 9.7% as of March 31, 2017, and 9.5% on a fully phased-in basis.

• During the quarter, the Company repurchased $414 million of its outstanding common stock, which included $240 million under its 2016 capital plan and an incremental $174 million under the 1% of Tier 1 Capital de-minimis exception permitted under the applicable 2016 Capital Plan Rule.

• Book value per common share was $45.62 and tangible book value per common share was $33.06, both up slightly from December 31, 2016, driven by growth in retained earnings.

Asset Quality

• Nonperforming loans decreased $56 million from the prior quarter and represented 0.55% of total loans at March 31, 2017.

• Net charge-offs for the current quarter were $112 million, or 0.32% of average loans on an annualized basis, down $24 million sequentially.

• The provision for credit losses increased $18 million sequentially as a result of a reserve release in the prior quarter.

• At March 31, 2017, the ALLL to period-end loans ratio increased 1 basis point from the prior quarter.

Consolidated Financial Performance Details

(Commentary is on a fully taxable-equivalent basis unless otherwise noted)

Revenue

Total revenue was $2.2 billion for the current quarter, an increase of $55 million compared to the prior quarter.  Net interest income increased $23 million sequentially due to a higher net interest margin and growth in average earning assets.  Noninterest income increased $32 million sequentially driven by higher investment banking and mortgage-related income.  Compared to the first quarter of 2016, total revenue increased $148 million, driven by an $82 million increase in net interest income (due to the same reasons noted above) and a $69 million increase in investment banking income.

Net Interest Income

Net interest income was $1.4 billion for the current quarter, an increase of $23 million and $82 million compared to the prior quarter and prior year, respectively.  Both increases were driven primarily by an increase in the net interest margin and growth in earning assets.

Net interest margin for the current quarter was 3.09%, compared to 3.00% in the prior quarter and 3.04% in the first quarter of 2016.  The 9 and 5 basis point increases relative to the prior quarter and prior year were driven primarily by higher earning asset yields as a result of the steeper yield curve and the increase in benchmark interest rates.  Compared to the prior year, the net interest margin was also favorably impacted by continued positive mix shift in the loan portfolio.

Noninterest Income

Noninterest income was $847 million for the current quarter, compared to $815 million for the prior quarter and $781 million for the first quarter of 2016.  The $32 million sequential increase was due primarily to higher investment banking and mortgage-related income, partially offset by a decrease in commercial real estate related income due to typical seasonality.  Compared to the first quarter of 2016, noninterest income increased $66 million, driven largely by record investment banking income, partially offset by lower mortgage-related income.

Investment banking income was $167 million for the current quarter, compared to $122 million in the prior quarter and $98 million in the first quarter of 2016.  The $45 million increase compared to the prior quarter and $69 million increase compared to the first quarter of 2016 were due to broad-based growth across most products, particularly syndicated finance and M&A advisory, which both had record quarters.

Trading income was $51 million for the current quarter, compared to $58 million in the prior quarter and $55 million in the first quarter of 2016.  The sequential decrease was due primarily to lower counterparty credit valuation reserves recognized in the prior quarter, which offset the increase in core trading revenue in the current quarter.  The decrease compared to the first quarter of 2016 was driven largely by lower client-related interest rate hedging activity.

Mortgage production income for the current quarter was $53 million, compared to $78 million for the prior quarter and $60 million for the first quarter of 2016.  The $25 million sequential decrease was due primarily to lower refinancing activity in addition to a mortgage repurchase reserve release in the prior quarter.  Mortgage application volume decreased 6% sequentially and 16% compared to the first quarter of 2016, and closed loan volume decreased 37% sequentially, but increased 11% compared to the first quarter of 2016.

Mortgage servicing income was $58 million for the current quarter, compared to $25 million in the prior quarter and $62 million in the first quarter of 2016.  The $33 million sequential increase was due to higher servicing fees (driven by acquisitions which closed in the first quarter of 2017) and lower servicing asset decay.  At March 31, 2017 and 2016, the servicing portfolio totaled $164.5 billion and $148.9 billion, respectively.

Trust and investment management income was $75 million for the current quarter, compared to $73 million for the prior quarter and $75 million for the first quarter of 2016.  The $2 million increase from the prior quarter was primarily due to an increase in trust and institutional assets under management.

Client transaction-related fees (namely service charges on deposits, other charges and fees, and card fees) decreased $3 million compared to the prior quarter due largely to the residual impact of the enhanced posting order process instituted during the fourth quarter of 2016.  Compared to first quarter of 2016, client transaction-related fees were stable.

Commercial real estate related income was $20 million for the current quarter, compared to $33 million for the prior quarter and $17 million for the first quarter of 2016.  This new income statement line item includes noninterest income from Pillar & Cohen Financial ("Pillar"), which the Company acquired in December 2016, as well as noninterest income from other commercial real estate-related businesses (specifically Structured Real Estate and SunTrust Community Capital), which were previously recorded in 'other noninterest income'.  The $13 million sequential decrease was due largely to a decline in revenue from SunTrust Community Capital, which is typically higher in the fourth quarter.  The $3 million increase compared to the first quarter of 2016 was attributable to income from Pillar, partially muted by higher structured real estate-related revenue in the first quarter of 2016.

Other noninterest income was $30 million for the current quarter, compared to $29 million in the prior quarter and $21 million in the first quarter of 2016.  The $9 million increase compared to the prior year was due primarily to gains on the sale of affordable housing investments recognized in the current quarter as well as certain asset impairment charges recognized during the first quarter of 2016.

Noninterest Expense

Noninterest expense was $1.5 billion in the current quarter, representing a sequential increase of $68 million and an increase of $147 million compared to the first quarter of 2016.  The sequential increase was driven by the seasonal increase in employee benefit costs in addition to incremental costs associated with the Pillar acquisition.  The increase relative to the prior year was driven by higher costs associated with improved business and stock price performance, ongoing investments in talent, higher FDIC premiums, and costs associated with ongoing efficiency initiatives including branch closures and severance costs.

Employee compensation and benefits expense was $852 million in the current quarter, compared to $762 million in the prior quarter and $774 million in the first quarter of 2016.  The sequential increase of $90 million was due to the seasonal increase in employee benefit costs and incremental compensation costs associated with the Pillar acquisition.  The $78 million increase compared to the first quarter of 2016 was due primarily to higher compensation costs associated with improved business performance and stock price performance, continued investments in talent and technology, and the incremental compensation costs associated with the Pillar acquisition.

Operating losses were $32 million in the current quarter, compared to $23 million in the prior quarter and $24 million in the first quarter of 2016.  The increase relative to both quarters was due primarily to higher legal accruals recognized during the current quarter.

Outside processing and software expense was $205 million in the current quarter, compared to $209 million in the prior quarter and $198 million in the first quarter of 2016.  The $4 million sequential decrease was due to normal quarterly variability.  The $7 million year-over-year increase was driven primarily by higher utilization of third-party services as a result of increased business activity.

FDIC premium and regulatory expense was $48 million in the current quarter, compared to $46 million in the prior quarter and $36 million in the first quarter of 2016.  The increase compared to the prior year was driven by the FDIC surcharge on large banks, which became effective during the third quarter of 2016, and a larger assessment base attributable to balance sheet growth.

Marketing and customer development expense was $42 million in the current quarter, compared to $52 million in the prior quarter and $44 million in the first quarter of 2016.  The decrease relative to both quarters was driven by normal quarterly variability in advertising and client development costs.

Net occupancy expense was $92 million in the current quarter, compared to $94 million in the prior quarter and $85 million in the first quarter of 2016.  The increase relative to the prior year was due primarily to a reduction in amortized gains from prior sale leaseback transactions.

Other noninterest expense was $142 million in the current quarter, compared to $154 million in the prior quarter and $107 million in the first quarter of 2016.  The $12 million sequential decrease was due largely to higher legal and consulting costs incurred in the prior quarter.  The $35 million year-over-year increase was driven primarily by higher legal and consulting fees and higher branch closure and severance costs incurred in the current quarter.

Income Taxes

For the current quarter, the Company recorded an income tax provision of $159 million, compared to $193 million for the prior quarter and $195 million for the first quarter of 2016.  The decrease relative to both quarters was attributable in large part to a $22 million discrete tax benefit related to share-based compensation recognized during the current quarter (in accordance with ASU 2016-09, which the Company adopted in the second quarter of 2016).  The effective tax rate for the current quarter was 25%, compared to 29% in the prior quarter and 30% in the first quarter of 2016.

Balance Sheet

At March 31, 2017, the Company had total assets of $205.6 billion and total shareholders' equity of $23.5 billion, representing 11% of total assets.  Book value per common share was $45.62 and tangible book value per common share was $33.06, both up slightly compared to December 31, 2016 and March 31, 2016, driven primarily by growth in retained earnings.

Loans

Average performing loans were $142.8 billion for the current quarter, a 1% increase over the prior quarter and a 4% increase over the first quarter of 2016.  The sequential and year-over-year growth was driven largely by increases in consumer and C&I, offset partially by declines in home equity products.

Deposits

Average consumer and commercial deposits for the current quarter were $158.9 billion, a 1% increase over the prior quarter and a 6% increase over the first quarter of 2016.  The sequential growth was due largely to a 4% increase in NOW account balances and a 1% increase in money market account balances, offset largely by a 4% decrease in demand deposits.  Compared to the first quarter of 2016, growth was driven primarily by increases in NOW, money market, and demand deposit accounts.

Capital and Liquidity

The Company's estimated capital ratios were well above current regulatory requirements with the Common Equity Tier 1 ratio estimated to be 9.7% at March 31, 2017, and 9.5% on a fully phased-in basis.  The ratios of average total equity to average total assets and tangible common equity to tangible assets were 11.6% and 8.1%, respectively, at March 31, 2017.  The Company continues to have substantial available liquidity in the form of cash, high-quality government-backed or government-sponsored securities, and other available contingency funding sources.

The Company declared a common stock dividend of $0.26 per common share and repurchased $414 million of its outstanding common stock in the first quarter of 2017, which included $240 million as originally contemplated under its 2016 capital plan and an incremental $174 million of common stock under the 1% of Tier 1 Capital de-minimis exception permitted under the applicable 2016 Capital Plan Rule.  The Company currently expects to repurchase approximately $240 million of additional common stock during the second quarter of 2017 to complete its 2016 capital plan.

Asset Quality

Total nonperforming assets were $858 million at March 31, 2017, down $61 million compared to the prior quarter and $177 million compared to the first quarter of 2016.  The decrease in nonperforming assets compared to both the prior quarter and the prior year was due primarily to the continued resolution of problem energy credits.  The ratio of nonperforming loans to total loans was 0.55%, 0.59%, and 0.70% at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.

Net charge-offs were $112 million during the current quarter, a decrease of $24 million compared to the prior quarter and an increase of $27 million compared to the first quarter of 2016.  The decrease compared to the prior quarter was driven by lower net charge-offs associated with energy, commercial construction, and residential mortgages.  The increase compared to the prior year was driven primarily by higher commercial charge-offs.  The ratio of annualized net charge-offs to total average loans was 0.32% during the current quarter, compared to 0.38% during the prior quarter and 0.25% during the first quarter of 2016.  The provision for credit losses was $119 million in the current quarter, an increase of $18 million compared to both the prior quarter and the first quarter of 2016.

At March 31, 2017, the allowance for loan and lease losses was $1.7 billion, which represented 1.20% of total loans, an increase of $5 million, or 1 basis point, relative to December 31, 2016.

Early stage delinquencies were 0.72% at March 31, 2017, unchanged compared to the prior quarter.  Excluding government-guaranteed loans which accounts for 0.50%, early stage delinquencies were 0.22%, down 5 basis points from the prior quarter and down 7 basis points compared to a year ago.

Accruing restructured loans totaled $2.5 billion and nonaccruing restructured loans totaled $329 million at March 31, 2017, of which $2.6 billion were residential loans, $170 million were consumer loans, and $150 million were commercial loans.