For the fourth quarter of 2018, SunTrust Banks, Inc. reported net income available to common shareholders of $632 million, or $1.40 per average common diluted share, which includes a $(0.10) per share discrete charge associated with the settlement of a legacy pension plan.

For the full year, diluted earnings per share was $5.74, up 28% relative to 2017 diluted earnings per share and up 40% relative to 2017 adjusted earnings per share. 2017 diluted earnings per share was $4.47 and included $0.39 net discrete benefits from Form 8-K items announced on December 4, 2017 and other items related to tax reform.

"Our performance this quarter provided a good conclusion to a strong year for SunTrust. In 2018, we continued to deliver on the commitments we have made to our owners: we achieved our sub-60% adjusted tangible efficiency ratio target one year ahead of schedule, and we delivered our seventh consecutive year of improved earnings per share, efficiency, and capital returns," said William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc. "Going into 2019, our diverse business mix, ongoing investments in growth and technology, and consistent underwriting discipline, give me confidence in our ability to continue to deliver long-term value for our owners."

Fourth Quarter 2018 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 21% marginal federal tax rate for all periods beginning on or after January 1, 2018 and 35% for all periods prior to January 1, 2018, as well as 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 $632 million, or $1.40 per average common diluted share, compared to $1.56 for the prior quarter and $1.48 for the fourth quarter of 2017.

The fourth quarter of 2018 included $(0.10) per average common share related to a discrete charge associated with the settlement of a legacy pension plan.

The prior quarter and prior year quarter included $0.14 per share and $0.39 per share of discrete benefits, respectively.

Total revenue was up 3% sequentially and 4% year-over-year. The sequential increase was driven by both higher net interest income and noninterest income, while the year-over-year increase was driven by higher net interest income.

Net interest margin was 3.27% in the current quarter, stable sequentially and up 10 basis points compared to the prior year. Compared to the prior quarter, the benefit of higher benchmark interest rates was generally offset by increased wholesale funding, given strong loan growth. 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 $26 million sequentially and $8 million year-over-year, driven by loan growth, partially offset by a lower allowance for loan and lease losses ("ALLL") to period-end LHFI ratio.

Noninterest expense increased $98 million sequentially and decreased $38 million year-over-year. The sequential increase was driven primarily by a $60 million pre-tax pension plan settlement charge recognized in the fourth quarter of 2018. The year-over-year decrease includes the impacts of the December 4, 2017 Form 8-K and tax reform-related items recognized during the fourth quarter of 2017. Excluding these discrete items, noninterest expense increased $38 million sequentially and $13 million year-over-year.

The efficiency and tangible efficiency ratios for the current quarter were 62.1% and 61.1%, respectively, which were unfavorably impacted by the legacy pension plan settlement charge. Excluding this item, the adjusted tangible efficiency ratio was 58.6% for the current quarter, compared to 58.9% for the prior quarter and 59.9% for the prior year quarter.

Balance Sheet

Average performing LHFI was up 3% compared to the prior quarter and up 4% year-over-year, driven by growth across most loan categories.

Average consumer and commercial deposits increased 1% compared to both the prior quarter and the prior year, driven primarily by growth in NOW accounts and time deposits, offset partially by declines in money market accounts and demand deposits.

Capital

Estimated capital ratios continue to be well above regulatory requirements. The Common Equity Tier 1 ("CET1") ratio was estimated to be 9.2% as of December 31, 2018, lower than the prior quarter due to loan growth and increased share repurchases.

During the quarter, the Company repurchased $750 million of its outstanding common stock. The Company has $750 million remaining authorization per its 2018 Capital Plan. The Company also issued $1.4 billion of long-term debt in the fourth quarter of 2018.

Book value per common share was $49.57 and tangible book value per common share was $35.73, both up from September 30, 2018, driven primarily by growth in retained earnings and a decrease in accumulated other comprehensive loss.

Asset Quality

Nonperforming loans ("NPLs") decreased $169 million from the prior quarter and represented 0.35% of period-end LHFI at December 31, 2018. The decrease was driven primarily by payoffs and the resolution of certain commercial loans.

Net charge-offs for the current quarter were $97 million, or 0.26% of total average LHFI on an annualized basis, compared to 0.24% during the prior quarter and 0.29% during the fourth quarter of 2017.

At December 31, 2018, ALLL to period-end LHFI ratio was 1.06%, down 4 basis points compared to the prior quarter, driven by continued improvements in asset quality.

Provision for credit losses increased $26 million sequentially and $8 million year-over-year, driven primarily by loan growth, partially offset by a lower ALLL to period-end LHFI ratio.

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

Revenue

Total revenue was $2.4 billion for the current quarter, an increase of $72 million, or 3%, compared to the prior quarter, driven by higher net interest income and noninterest income. The sequential increase in net interest income was driven by growth in average earning assets. Noninterest income increased $36 million sequentially due largely to higher commercial real estate-related income, offset partially by lower capital markets-related income. Compared to the fourth quarter of 2017, total revenue increased $83 million, or 4%, driven by a $98 million increase in net interest income as a result of net interest margin expansion and growth in average earning assets, partially offset by lower mortgage-related income.

Net Interest Income

Net interest income was $1.6 billion for the fourth quarter of 2018, an increase of $36 million compared to the prior quarter due primarily to $4.4 billion growth in average earning assets. The $98 million increase relative to the prior year was driven by a 10 basis point expansion in the net interest margin and a $6.4 billion increase in average earning assets.

Net interest margin for the current quarter was 3.27%, stable compared to the prior quarter and 10 basis points higher than the prior year. The year-over-year increase was driven primarily by higher earning asset yields, offset partially by higher funding costs.

For the year ended December 31, 2018, net interest income was $6.1 billion, a $297 million, or 5%, increase compared to the year ended December 31, 2017. The net interest margin for the full year of 2018 was 3.26%, a 12 basis point increase compared to the same period in 2017. The increases in both net interest income and net interest margin were driven by the same factors that impacted the prior year comparison above.

Noninterest Income

Noninterest income was $818 million for the current quarter, compared to $782 million for the prior quarter and $833 million for the fourth quarter of 2017. The $36 million sequential increase was due largely to higher commercial real estate-related income, offset partially by lower capital markets-related income. Compared to the prior year, noninterest income decreased $15 million driven primarily by lower mortgage production-related income.

Client transaction-related fees (namely service charges on deposits, other charges and fees, and card fees) increased $13 million sequentially due primarily to a $7 million one-time charge related to changes in our process for recognizing card rewards expenses in the third quarter of 2018 (recorded as contra-revenue). The $8 million year-over-year decrease was due primarily to 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 $146 million for the current quarter, compared to $150 million in the prior quarter and $122 million for the fourth quarter of 2017. The $4 million sequential decrease was due to lower transaction activity as a result of adverse market conditions during the fourth quarter of 2018. The year-over-year increase was due primarily to higher transaction activity in M&A and loan syndications, offset partially by lower transaction activity in high yield bond originations and equity offerings.

Trading income was $24 million for the current quarter, compared to $42 million in the prior quarter and $41 million in the prior year. The $18 million sequential and $17 million year-over-year decreases were due primarily to mark-to-market valuation losses resulting from adverse market conditions and higher counterparty credit valuation reserves in the fourth quarter of 2018.

Mortgage servicing-related income was $49 million for the current quarter compared to $43 million in both the prior quarter and fourth quarter of 2017. The sequential and year-over-year increases were due primarily to higher servicing fees, offset partially by lower net hedge performance. At December 31, 2018, the servicing portfolio totaled $171.4 billion, relatively stable compared to the prior quarter and a 4% increase compared to the prior year due to MSRs purchased in the first and third quarters of 2018.

Mortgage production-related income for the current quarter was $36 million, compared to $40 million for the prior quarter and $61 million for the fourth quarter of 2017. The $4 million sequential and $25 million year-over-year decreases were due to lower production volume, offset partially by a repurchase reserve release during the fourth quarter of 2018. The year-over-year decline was also impacted by lower gain-on-sale margins. Mortgage application volume decreased 28% sequentially and 23% compared to the fourth quarter of 2017. Closed loan volume decreased 20% sequentially and 22% year-over-year.

Trust and investment management income was $74 million for the current quarter, compared to $80 million for both the prior quarter and prior year. The $6 million sequential decrease was due primarily to seasonally higher trust fees recognized during the prior quarter. The $6 million year-over-year decrease was due to trust termination fees received during the fourth quarter of 2017.

Retail investment services income was $74 million for the current quarter, stable relative to the prior quarter and $4 million higher than the fourth quarter of 2017. The $4 million year-over-year increase was due primarily to higher assets under management.

Commercial real estate-related income was $68 million for the current quarter, compared to $24 million for the prior quarter and $62 million for the prior year. The increase compared to the prior quarter and prior year was driven primarily by increased client-driven structured real estate transactions. The sequential increase is also impacted by seasonality in SunTrust Community Capital (tax credit-related income) and the Company's agency lending business.

Net securities gains/(losses) totaled $0 for both the current quarter and prior quarter. In the fourth quarter of 2017, the Company recognized ($109) million of securities losses as a result of a securities AFS portfolio restructuring in response to tax reform.

Other noninterest income was $26 million for the current quarter, compared to $21 million in the prior quarter and $134 million in the fourth quarter of 2017. The $5 million sequential increase was due primarily to mark-to-market gains from credit default swap hedges, offset partially by mark-to-market losses on certain FinTech investments. The $108 million year-over-year decrease was due primarily to the $107 million pre-tax gain from the sale of Premium Assignment Corporation ("PAC") during the fourth quarter of 2017.

For the year ended December 31, 2018, noninterest income was $3.2 billion, compared to $3.4 billion for the year ended December 31, 2017. The $128 million decrease was driven by declines across most categories as a result of market conditions (which negatively impacted capital markets and mortgage-related income) as well as the impact of the adoption of revenue recognition accounting standards during the first quarter of 2018, offset partially by higher commercial real estate and wealth management-related income. For the year ended December 31, 2018, the adoption of the revenue recognition accounting standards resulted in a net reduction of $26 million to noninterest income and noninterest expense (prior periods were not restated).

Noninterest Expense

Noninterest expense was $1.5 billion in the current quarter, up $98 million sequentially and down $38 million compared to the fourth quarter of 2017. The sequential increase was driven by the $60 million pre-tax legacy pension plan settlement charge recognized in the fourth quarter of 2018 as well as higher operating losses, net occupancy expense, and other noninterest expense, offset partially by lower regulatory assessment costs. The year-over-year decrease was due primarily to the $111 million of net expenses recognized in the fourth quarter of 2017 related to the December 4, 2017 Form 8-K and tax reform-related items. Excluding these discrete items, noninterest expense increased $38 million sequentially and $13 million year-over-year.

Employee compensation and benefits expense was $857 million in the current quarter, compared to $795 million in the prior quarter and $803 million in the fourth quarter of 2017. The $62 million sequential and $54 million year-over-year increases were due primarily to the $60 million of legacy pension plan settlement charge recognized during the fourth quarter of 2018.

Outside processing and software expense was $242 million in the current quarter, compared to $234 million in the prior quarter and $214 million in the fourth quarter of 2017. The $8 million sequential and $28 million year-over-year increases were driven primarily by higher software-related costs resulting from the amortization of new and upgraded technology assets.

Net occupancy expense was $102 million in the current quarter, compared to $86 million in the prior quarter and $97 million in the prior year. The $16 million sequential increase was driven primarily by lease termination gains recognized during the prior quarter.

Marketing and customer development expense was $49 million in the current quarter, compared to $45 million in the prior quarter and $104 million in the fourth quarter of 2017. The $4 million sequential increase was driven by normal seasonal trends. The $55 million year-over-year decrease was driven primarily by the $50 million tax reform-related charitable contribution to support financial well-being initiatives during the fourth quarter of 2017.

Regulatory assessments expense was $7 million in the current quarter, compared to $39 million in the prior quarter and $43 million in the prior year. The sequential and year-over-year decrease was driven by the cessation of the FDIC Deposit Insurance Fund surcharge in the fourth quarter of 2018, in addition to a separate $9 million regulatory assessment credit in the fourth quarter of 2018.

Operating losses were $39 million in the current quarter, compared to $18 million in the prior quarter and $23 million in the fourth quarter of 2017. The sequential and year-over-year increases were due primarily to higher legal and fraud-related costs.

Other noninterest expense was $122 million in the current quarter, compared to $108 million in the prior quarter and $170 million in the fourth quarter of 2017. The $14 million sequential increase was driven primarily by costs associated with a vendor contract termination as well as higher consulting costs. The $48 million year-over-year decrease was driven primarily by certain efficiency actions taken during the fourth quarter of 2017, including severance costs in conjunction with the voluntary early retirement program, branch and corporate real estate closure costs, and software write-downs.

Noninterest expense for the year ended December 31, 2018 decreased $91 million compared to the year ended December 31, 2017. The 2% decrease was driven primarily by the $111 million of discrete charges in the fourth quarter of 2017, in addition to ongoing efficiency initiatives, offset partially by higher outside processing and software costs and the $60 million pre-tax legacy pension plan settlement charge recognized in the fourth quarter of 2018.

Income Taxes

For the fourth quarter of 2018, the Company recorded a provision for income taxes of $136 million compared to $95 million for the prior quarter and a benefit of $74 million for the fourth quarter of 2017. The effective tax rate for the current quarter was 17%, compared to 11% in the prior quarter and (11)% in the fourth quarter of 2017. The fourth quarter of 2018 included $10 million of discrete tax benefits. The prior quarter included $67 million of discrete tax benefits related to the finalization of the impact of tax reform and the completion of the merger of SunTrust Mortgage into SunTrust Bank. The prior year included a net $264 million tax benefit for the estimated impact of the re-measurement of the Company's estimated net deferred tax liabilities at December 31, 2017, due to tax reform, partially offset by certain discrete tax charges. The year-over-year change in the effective tax rate was also impacted by the reduction in the U.S. federal corporate income tax rate from 35% to 21%.

Balance Sheet

At December 31, 2018, the Company had total assets of $215.5 billion and total shareholders' equity of $24.3 billion, representing 11% of total assets. Book value per common share was $49.57 and tangible book value per common share was $35.73, up 3% and 4%, respectively, compared to September 30, 2018, driven primarily by growth in retained earnings and a decrease in accumulated other comprehensive loss.

Loans and Deposits

Average performing LHFI totaled $149.1 billion for the current quarter, up 3% compared to the prior quarter and up 4% compared to the prior year driven by broad-based growth across most loan categories.

Average consumer and commercial deposits totaled $161.6 billion for the current quarter, up 1% compared to both the prior quarter and fourth quarter of 2017. The sequential and year-over-year increase was driven by growth in NOW accounts and time deposits, offset partially 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 9.2% at December 31, 2018. The ratios of average total equity to average total assets and tangible common equity to tangible assets were 11.2% and 7.6%, respectively, at December 31, 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 $750 million of its outstanding common stock in the fourth quarter of 2018. The Company has $750 million remaining authorization per its 2018 Capital Plan. Additionally, SunTrust Bank issued $600 million of 3-year fixed-to-floating rate senior notes, $500 million of 7-year fixed rate senior notes, and $300 million of 3-year floating rate senior notes in the fourth quarter of 2018.

Asset Quality

Overall asset quality performance continues to be strong. Nonperforming assets ("NPAs") totaled $589 million at December 31, 2018, down $165 million from the prior quarter and $152 million year-over-year. The ratio of NPLs to period-end LHFI was 0.35%, 0.47%, and 0.47% at December 31, 2018, September 30, 2018, and December 31, 2017, respectively. The decrease was driven primarily by payoffs and the resolution of certain nonaccruing commercial loans. In addition, residential mortgage nonperforming loans declined due to loans transitioning from non-accruing (as a result of forbearance relief provided after hurricanes) back to accruing status.

Net charge-offs totaled $97 million during the current quarter, an increase of $9 million compared to the prior quarter and a decrease of $10 million compared to the fourth quarter of 2017. The ratio of annualized net charge-offs to total average LHFI was 0.26% during the current quarter, compared to 0.24% during the prior quarter and 0.29% during the prior year.

The provision for credit losses was $87 million in the current quarter, a sequential increase of $26 million and a year-over-year increase of $8 million. These increases were driven primarily by loan growth, partially offset by a lower ALLL to period-end LHFI ratio. At December 31, 2018, the ALLL was $1.6 billion, which represented 1.06% of period-end loans, a 4 basis point decline relative to September 30, 2018, driven by continued improvements in asset quality.

Early stage delinquencies decreased 1 basis point from the prior quarter and 7 basis points from December 31, 2017 to 0.73% at December 31, 2018. Excluding government-guaranteed loans, early stage delinquencies were 0.27%, up 3 basis points compared to the prior quarter, given typical seasonal trends, and down 5 basis points compared to the fourth quarter of 2017.