SunTrust Banks, Inc. reported net income available to common shareholders of $726 million, or $1.56 per average common diluted share.  These results include $0.14 per share of discrete tax benefits driven by the finalization of the impact of tax reform on the Company and the consolidation of SunTrust Mortgage into SunTrust Bank, which was completed in the third quarter.

Diluted earnings per share increased 5% sequentially and 47% year-over-year.  For the nine months ended September 30, 2018, earnings per share was $4.34, up 45% year-over-year.

"Our performance this quarter provides further validation of our successful execution against the Company's key strategies.  Our focus on efficiency continues to drive good results, with the year-to-date tangible efficiency ratio improving by 150 basis points.  Additionally, our commitment to investing in growth to meet more client needs is driving good loan growth which helped offset lower noninterest income," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc.  "We have revenue momentum going into the fourth quarter of the year, and 2018 is on track to be the seventh consecutive year of growth in earnings per share, improved efficiency, and higher capital returns."

Third Quarter 2018 Financial Highlights

Income Statement

• Net income available to common shareholders was $726 million, or $1.56 per average common diluted share, compared to $1.49 for the prior quarter and $1.06 for the third quarter of 2017.

• The current quarter included $0.14 per average common share of discrete tax benefits.

• Total revenue was down 1% sequentially and stable year-over-year. The sequential decrease was driven by lower noninterest income, which was partially offset by higher net interest income as a result of growth in earning assets.

• Net interest margin was 3.27% in the current quarter, down 1 basis point sequentially and up 12 basis points compared to the prior year. The sequential decline was driven by higher funding costs (largely driven by increased wholesale funding), which offset the benefits of higher benchmark interest rates. The year-over-year increase was driven primarily by higher benchmark interest rates in addition to positive mix shift in the loans held for investment ("LHFI") portfolio, offset partially by higher funding costs.

• Provision for credit losses increased $29 million sequentially and decreased $59 million year-over-year. The sequential increase was driven primarily by a lesser decline in the allowance for loan and lease losses ("ALLL") and higher net charge-offs on commercial loans, while the year-over-year decrease was driven by elevated hurricane-related reserves in the third quarter of 2017.

• Noninterest expense decreased slightly both sequentially and year-over-year. The decreases were driven primarily by lower employee compensation and benefits and other noninterest expense, partially offset by higher outside processing and software costs.

• The efficiency and tangible efficiency ratios for the current quarter were 59.8% and 58.9%, respectively, which is relatively stable compared to the prior quarter and prior year.

Balance Sheet

• Average performing LHFI was up 1% compared to the prior quarter, driven by growth in C&I, CRE, residential mortgages, and consumer direct loans.

• Average consumer and commercial deposits remained relatively stable compared to both the prior quarter and prior year.

Capital

• Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ("CET1") ratio was estimated to be 9.6% as of September 30, 2018, slightly lower than the prior quarter due to loan growth and increased share repurchases.

• During the quarter, the Company repurchased $500 million of its outstanding common stock which is 25% of the $2.0 billion authorization it received per its 2018 Capital Plan. The Company also increased its quarterly common stock dividend by 25%, from $0.40 per common share in the prior quarter to $0.50 per share.

• Book value per common share was $48.00 and tangible book value per common share was $34.51, both up slightly from June 30, 2018, driven primarily by growth in retained earnings, offset in part by an increase in accumulated other comprehensive loss.

Asset Quality

• Nonperforming loans ("NPLs") decreased $60 million from the prior quarter and represented 0.47% of period-end LHFI at September 30, 2018. The decrease was driven primarily by the return to accrual status of certain commercial credits as well as charge-offs of certain commercial loans.

• Net charge-offs for the current quarter were $88 million, or 0.24% of total average LHFI on an annualized basis, compared to 0.20% during the prior quarter and 0.21% during the third quarter of 2017.

• At September 30, 2018, the ALLL to period-end LHFI ratio was 1.10%, a 4 basis point decline compared to the prior quarter, driven by continued improvements in asset quality.

• Provision for credit losses increased $29 million sequentially and decreased $59 million year-over-year. The sequential increase was driven primarily by a lesser decline in the ALLL and higher net charge-offs on commercial loans, while the year-over-year decrease was driven by elevated hurricane-related reserves in the third quarter of 2017 and continued asset quality improvements resulting in a lower ALLL ratio.

Consolidated Financial Performance Details
(Commentary is on a fully taxable-equivalent basis unless otherwise noted)

Revenue

Total revenue was $2.3 billion for the current quarter, a decrease of $23 million compared to the prior quarter, driven by lower noninterest income. Noninterest income decreased $47 million sequentially due largely to lower capital markets-related income, other noninterest income, and client transaction-related fees, offset partially by higher commercial real estate related income and wealth management-related income. The decrease in noninterest income was offset partially by a $24 million increase in net interest income during the current quarter. Compared to the third quarter of 2017, total revenue was stable.

Net Interest Income

Net interest income was $1.5 billion for the current quarter, an increase of $24 million compared to the prior quarter due primarily to a $1.8 billion increase in average earning assets and one more day in the current quarter, offset partially by a 1 basis point decline in the net interest margin. The $67 million increase relative to the prior year was driven largely by a 12 basis point expansion in the net interest margin and a $1.5 billion increase in average earning assets.

Net interest margin for the current quarter was 3.27%, compared to 3.28% in the prior quarter and 3.15% in the third quarter of 2017. The sequential decline was driven by higher funding costs (driven primarily by increased wholesale funding), which offset the benefits of higher benchmark interest rates. The 12 basis point increase relative to the prior year was driven primarily by higher benchmark interest rates in addition to positive mix shift in the loan portfolio, offset partially by higher funding costs.

For the nine months ended September 30, 2018, net interest income was $4.5 billion, a $199 million increase compared to the nine months ended September 30, 2017. The net interest margin was 3.26% for the first nine months of 2018, a 13 basis point increase compared to the same period in 2017.

Noninterest Income

Noninterest income was $782 million for the current quarter, compared to $829 million for the prior quarter and $846 million for the third quarter of 2017. The $47 million sequential decrease was due primarily to lower capital markets-related income, other noninterest income, and client transaction-related fees, which was partially offset by higher commercial real estate related income and wealth management-related income. Compared to the third quarter of 2017, noninterest income decreased $64 million driven primarily by lower capital markets-related income, mortgage-related income, and client transaction-related fees.

Client transaction-related fees (namely service charges on deposits, other charges and fees, and card fees) decreased $12 million sequentially due primarily to a change in our process for recognizing card rewards expenses, which resulted in four months of rewards expenses being recognized in the third quarter of 2018 (recorded as a contra-revenue). The $21 million year-over-year decrease was due primarily to the same factors that impacted the sequential quarter as well as the impact of adopting the revenue recognition accounting standard during the first quarter of 2018, which resulted in the netting of certain expense items against card fees, other charges and fees, and service charges on deposit accounts.

Investment banking income was $150 million for the current quarter, compared to $169 million in the prior quarter and prior year. The $19 million sequential and year-over-year decreases were due primarily to lower loan syndication and investment grade bond origination activity, offset partially by strong deal flow activity in equity offerings during the third quarter of 2018. Beginning in the third quarter of 2018, the Company began presenting bridge commitment fee income related to capital market transactions in 'investment banking income'. For periods prior to July 1, 2018, this income was presented in 'other charges and fees' and has been reclassified to 'investment banking income' for comparability. Capital markets bridge commitment fee income was $12 million and $21 million for the nine months ended September 30, 2018 and 2017, respectively.

Trading income was $42 million for the current quarter, compared to $53 million in the prior quarter and $51 million in the third quarter of 2017. The $11 million sequential decrease was due primarily to lower transaction activity with respect to client-related interest rate hedging activity. The $9 million year-over-year decrease was due primarily to lower trading revenues within fixed income sales and trading.

Mortgage servicing income was $43 million for the current quarter, relatively stable compared to $40 million in the prior quarter and $46 million in the third quarter of 2017. At September 30, 2018, the servicing portfolio totaled $170.5 billion, relatively stable compared to the prior quarter and a 3% increase compared to the prior year due to MSRs purchased in the first quarter of 2018 which transferred in the second quarter of 2018.

Mortgage production income for the current quarter was $40 million, compared to $43 million for the prior quarter and $61 million for the third quarter of 2017. The $21 million year-over-year decrease was due largely to lower gain on sale margins. Mortgage application volume decreased 9% sequentially and 1% compared to the third quarter of 2017. Closed loan volume decreased 2% sequentially and remained stable year-over-year.

Trust and investment management income was $80 million for the current quarter, compared to $75 million in the prior quarter and $79 million for the third quarter of 2017. The $5 million sequential increase was due primarily to seasonally higher trust fees in the current quarter.

Retail investment services income was $74 million for the current quarter, compared to $73 million in the prior quarter and $69 million in the third quarter of 2017. The $5 million year-over-year increase was due primarily to higher assets under management.

Commercial real estate related income was $24 million for the current quarter, compared to $18 million for the prior quarter and $17 million for the third quarter of 2017. The increase compared to the prior quarter and prior year was driven primarily by higher transaction volume with the Company's agency lending business and higher tax-credit-related income within the Company's affordable housing business.

Other noninterest income was $21 million for the current quarter, compared to $38 million in the prior quarter and $25 million in the third quarter of 2017. The sequential decrease was driven primarily by a $12 million remeasurement gain on a fintech equity investment recognized in the second quarter of 2018.

For the nine months ended September 30, 2018, noninterest income was $2.4 billion, compared to $2.5 billion for the nine months ended September 30, 2017. The $112 million decrease was driven by lower mortgage-related income, capital markets-related income, and client transaction-related fees.

Noninterest Expense

Noninterest expense was $1.4 billion in the current quarter, down $6 million sequentially and $7 million compared to the third quarter of 2017. The sequential decrease was driven largely by lower employee compensation and benefits, other noninterest expense, net occupancy expense, and equipment expense, offset partially by higher outside processing and software costs and marketing and customer development costs. The year-over-year decrease was due to declines across most expense categories, offset partially by higher outside processing and software costs.

Employee compensation and benefits expense was $795 million in the current quarter, compared to $802 million in the prior quarter and $806 million in the third quarter of 2017. The $7 million sequential and $11 million year-over-year decreases were primarily due to lower benefit-related costs (medical and FICA) in addition to lower compensation costs in the current quarter, offset partially by higher contract programming costs.

Outside processing and software expense was $234 million in the current quarter, compared to $227 million in the prior quarter and $203 million in the third quarter of 2017. The $7 million sequential and $31 million year-over-year increases were driven primarily by higher software-related costs related to the amortization of new and upgraded technology assets.

Net occupancy expense was $86 million in the current quarter, compared to $90 million in the prior quarter and $94 million in the prior year quarter. The $8 million year-over-year decrease was driven by lease termination gains which favorably impacted the second and third quarter of 2018 (with the majority of the benefit occurring in the third quarter of 2018).

Marketing and customer development expense was $45 million in the current quarter, compared to $40 million in the prior quarter and $45 million in the third quarter of 2017. The $5 million sequential increase was driven by normal seasonality in advertising and client development costs.

Regulatory assessments expense was $39 million in the current quarter, stable relative to the prior quarter and down $8 million compared to the third quarter of 2017. The year-over-year decrease was driven by a reduced FDIC assessment rate resulting primarily from our improved earnings profile and higher levels of unsecured debt.

Operating losses/(gains) were $18 million in the current quarter, compared to $17 million in the prior quarter and ($34) million in the third quarter of 2017. The $52 million year-over-year increase was due primarily to the favorable resolution of several legal matters during the third quarter of 2017 which resulted in $58 million of net discrete benefits.

Other noninterest expense was $108 million in the current quarter, compared to $114 million in the prior quarter and $168 million in the third quarter of 2017. The $6 million sequential decrease was driven primarily by lower severance and communications costs, offset partially by higher legal and consulting expenses. The $60 million year-over-year decrease was driven primarily by $44 million of discrete charges associated with efficiency initiatives (severance and software writedowns) recognized in the third quarter of 2017.

Noninterest expense for the nine months ended September 30, 2018 was down 1% compared to the nine months ended September 30, 2017. The $52 million decrease was driven largely by ongoing efficiency initiatives, offset partially by higher outside processing and software expense.

Income Taxes

For the current quarter, the Company recorded a provision for income taxes of $95 million compared to $171 million for the prior quarter and $225 million for the third quarter of 2017. The effective tax rate for the current quarter was 11%, compared to 19% in the prior quarter and 29% in the third quarter of 2017. The sequential decrease in the effective tax rate was due primarily to $67 million of discrete tax benefits recognized in the current quarter related to the finalization of the impact of tax reform on the Company and the completion of the merger of SunTrust Mortgage into SunTrust Bank. The year-over-year decrease in the effective tax rate was driven by the reduction in the U.S. federal corporate income tax rate from 35% to 21% in addition to the aforementioned tax benefits recognized in the current quarter.

Balance Sheet

At September 30, 2018, the Company had total assets of $211.3 billion and total shareholders' equity of $24.1 billion, representing 11% of total assets. Book value per common share was $48.00 and tangible book value per common share was $34.51, both up slightly compared to June 30, 2018, driven primarily by growth in retained earnings, offset partially by an increase in accumulated other comprehensive loss.

Loans

Average performing LHFI totaled $145.2 billion for the current quarter, up 1% compared to the prior quarter and prior year driven primarily by increases in CRE, residential mortgages, and consumer direct loans. The sequential increase was also driven by growth in the C&I portfolio. Compared to the prior year, average C&I balances declined by $645 million, driven by the sale of Premium Assignment Corporation on December 1, 2017, which included $1.3 billion of C&I loan balances.

Deposits

Average consumer and commercial deposits for the current quarter were $159.3 billion, relatively stable compared to the prior quarter and the third quarter of 2017. Sequentially, growth in time deposits was offset by declines in demand deposits and savings accounts. Year-over-year, increases in time deposits, NOW, and savings account balances were offset by declines in money market accounts and demand deposits.

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 9.6% at September 30, 2018. The ratios of average total equity to average total assets and tangible common equity to tangible assets were 11.7% and 7.7%, respectively, at September 30, 2018. 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 $0.50 per common share and repurchased $500 million of its outstanding common stock in the third quarter of 2018 which is 25% of the $2.0 billion authorization it received per its 2018 Capital Plan. Additionally, the Bank issued $500 million of 4-year and $500 million of 6-year fixed-to-floating rate senior notes as well as $300 million of 4-year floating rate senior notes in the third quarter of 2018.

Asset Quality

Overall asset quality performance continues to be strong. Nonperforming assets ("NPAs") totaled $754 million at September 30, 2018, down $60 million from the prior quarter and $38 million year-over-year. The ratio of NPLs to period-end LHFI was 0.47%, 0.52%, and 0.48% at September 30, 2018, June 30, 2018, and September 30, 2017, respectively. The decrease was driven primarily by the return to accrual status of certain commercial credits as well as charge-offs of certain commercial loans. In addition, residential mortgage nonperforming loans declined due to loans transitioning from non-accruing (as a result of forbearance relief received after hurricanes) back to accruing status.

Net charge-offs totaled $88 million during the current quarter, an increase of $15 million compared to the prior quarter and $10 million compared to the third quarter of 2017, driven by increased charge-offs on commercial loans. The ratio of annualized net charge-offs to total average LHFI was 0.24% during the current quarter, compared to 0.20% during the prior quarter and 0.21% during the third quarter of 2017.

The provision for credit losses was $61 million in the current quarter, a sequential increase of $29 million and a year-over-year decrease of $59 million. The sequential increase was driven primarily by a lesser decline in the ALLL and higher net charge-offs on commercial loans, while the year-over-year decrease was driven by elevated hurricane-related reserves in the third quarter of 2017 and continued asset quality improvements resulting in a lower ALLL ratio.

At September 30, 2018, the ALLL was $1.6 billion, which represented 1.10% of period-end loans, a 4 basis point decline relative to June 30, 2018, driven by continued improvements in asset quality.

Early stage delinquencies increased 2 basis points from the prior quarter and 3 basis points from September 30, 2017 to 0.74% at September 30, 2018. Excluding government-guaranteed loans which accounted for 0.50% at September 30, 2018, early stage delinquencies were 0.24%, up 2 basis points compared to the prior quarter and down 5 basis points compared to the third quarter of 2017.