SunTrust Reports First Quarter Results

ATLANTA, April 21 /PRNewswire-FirstCall/ -- SunTrust Banks, Inc. (NYSE: STI) today reported a net loss available to common shareholders for the first quarter of 2010 of $229 million, or $0.46 per average common share, as the lingering effects of the recession impacted results.  This compares to a net loss available to common shareholders of $875 million, or $2.49 per average common share in the first quarter of 2009, and a net loss per average common share of $0.64 for the fourth quarter of 2009.

The first quarter of 2009 net loss included a non-cash charge of $715 million, or $2.03 per average common share, related to the impairment of goodwill. Excluding the goodwill charge, the net loss per average common share in the first quarter of 2009 was $0.46, equal to the first quarter of 2010.  

"We are increasingly encouraged by current operating trends and our outlook for the future," said James M. Wells III, Chairman and Chief Executive Officer of SunTrust Banks, Inc. While the outlook for economic recovery remains uncertain, Mr. Wells noted that the quarter's results were most positively affected by improved asset quality which resulted in a significant decrease in credit-related costs, including provision for credit losses.

"Our client-focused strategies, expense management discipline and lower cost deposit mix are yielding results," he added.  "We believe that as the economy continues to gain traction, our strong capital position will enable SunTrust to operate from a position of strength, capitalize on opportunities in the markets and businesses in which we compete, and drive improved shareholder value."

First Quarter 2010 Consolidated Highlights

• The net loss of $0.46 per share improved as compared to earnings per share losses recorded in the first quarter of 2009 and the fourth quarter of 2009.

• Results continue to reflect challenging economic conditions and elevated, but abating, credit costs.

• Total revenues remained soft due primarily to lower mortgage production volume and income and mark-to-market losses on the Company's fair value public debt versus gains in the first quarter of 2009.

• Net interest income increased 10% as a 45 basis point increase in the net interest margin more than offset a decline in earning assets.

• Provision for credit losses declined compared to the prior year and sequential quarter as credit quality has improved and additions to the allowance for loan losses have declined.

• Expenses remained well controlled, declining compared to last year and last quarter.

• Average loans declined due to lower client demand and runoff in higher risk construction and residential mortgage portfolios.

• Deposits increased as significant growth in lower cost deposits was partially offset by a decline in higher cost time deposits, which lowered our overall funding cost and contributed to expanded net interest margin.

• Capital levels remained strong with estimated Tier 1 common equity at 7.65% and estimated Tier 1 capital at 13.05%, compared to 7.67% and 12.96%, respectively, as of year end.

• Overall, asset quality has improved notably.  Provision expense has declined, and early stage delinquencies have declined from 1.76% in the first quarter of 2009 to 1.19% in the first quarter of 2010.  The net charge-off and non-performing loan ratios remain elevated as we continue to resolve residential real estate-related risk.

CONSOLIDATED FINANCIAL PERFORMANCE

Revenue

Fully taxable-equivalent revenue, excluding securities gains and losses, declined 14.2% compared to the first quarter of 2009; however, on a sequential quarter basis it increased slightly due to higher noninterest income.  The year-over-year decrease was due to a 37.7% decrease in noninterest income, partially offset by a 10.0% increase in net interest income.  Noninterest income in the current quarter was adversely impacted by lower mortgage production and higher mortgage repurchase charges compared to the first quarter of 2009.  The current quarter also included $20 million of mark-to-market losses on the Company's debt and related hedges carried at fair value, while the first quarter of 2009 reflected $113 million in mark-to-market gains.

Net Interest Income

Fully taxable-equivalent net interest income was $1,202 million in the first quarter of 2010, an increase of 10.0% over the first quarter of 2009 and essentially flat compared to the sequential quarter despite two fewer days in the current quarter.  Average earning assets were relatively flat compared to the sequential quarter partially as a result of the addition of approximately $1.6 billion of average assets from previously unconsolidated entities in connection with our adoption of recently issued accounting standards.  Average earning assets declined $7.5 billion, or 4.9%, compared to the first quarter of 2009 due to a decline in average loans (including loans held for sale) and trading assets, partially offset by an increase in average securities available for sale.

Net interest margin for the first quarter of 2010 was 3.32%, a 45 basis point increase from the first quarter of 2009 and a 5 basis point increase from the fourth quarter of 2009.  The increase in net interest margin was primarily driven by the decline in our funding costs.  Significantly higher low cost deposits and lower wholesale funding contributed to the 75 basis point year-over-year decline in the cost of average interest-bearing liabilities.  Loan yields have remained relatively stable over the past five quarters benefiting from receive fixed/pay floating interest swaps on commercial loans.

Noninterest Income

Total noninterest income was $698 million for the first quarter of 2010, down $423 million, or 37.7%, from the first quarter of 2009 and down $44 million, or 5.9%, on a sequential quarter basis.  The decline in year-over-year noninterest income was driven primarily by mortgage production income and trading account profits and commissions.  The fourth quarter of 2009 also included $73 million in net gains realized from the sale of securities related to the repositioning of the investment portfolio.

Mortgage production income declined $281 million in the first quarter of 2010 compared to the first quarter of 2009.  Current quarter results included $128 million of estimated mortgage repurchase losses compared to $26 million in the first quarter of 2009.  Mortgage repurchase reserves remained relatively stable at $210 million as of March 31, 2010, up $10 million from year end, due to a leveling off of investor repurchase demands.  Estimated repurchase losses during the fourth quarter of 2009 were $220 million.  Mortgage production income was also affected by lower loan applications and originations, which declined approximately 60% compared to the first quarter of 2009.

Mortgage servicing income declined $13 million from the first quarter of 2009, as $17 million in higher servicing fees in the current quarter were offset by $31 million of impairment recovery recognized in the first quarter of 2009.  Mortgage servicing income increased $24 million, or 51.0%, compared to the fourth quarter of 2009 due primarily to improved performance of the hedge on mortgage servicing rights.  As of March 31, 2010, SunTrust serviced $178.0 billion in mortgage loans, up 7.0%, from the first quarter of 2009.

Trading account profits and commissions declined $115 million compared to the first quarter of 2009.  However, during the current quarter, the Company recorded $20 million of mark-to-market valuation losses on its public debt and related hedges carried at fair value compared to $113 million of valuation gains in the first quarter of 2009 and $38 million of valuation losses in the fourth quarter of 2009.  This quarter's trading income also included $16 million in valuation losses related to the deterioration of collateral on previously securitized loans, net of valuation gains on illiquid securities, and certain trading assets, compared to a net mark-to-market loss of $34 million in the first quarter of 2009.  Capital markets-related trading income and investment banking fees declined slightly compared to the first quarter of 2009 due to lower equity and fixed income derivatives revenue and reduced deal flow, while the sequential quarter improved modestly primarily due to improved fixed income sales and derivatives revenue.

Other fee based revenue from both consumer and commercial clients was mixed across the various income categories but generally flat in total relative to the first quarter of 2009.  Fee based income declined on a sequential basis due to lower NSF and client analysis fees and seasonal declines in other revenue categories.

Noninterest Expense

Total noninterest expense in the first quarter of 2010 was $1,361 million, down $791 million, or 36.8%, from the first quarter of 2009.  Excluding the $751 million goodwill impairment charge recorded in the first quarter of 2009, noninterest expense declined $40 million, or 2.7%, driven by lower credit-related and personnel expenses, partially offset by lower gains on the extinguishment of debt.  Credit-related costs, including other real estate owned, credit and collections, operating losses, and mortgage reinsurance, declined $45 million, or 23.8%.  The decline in mortgage reinsurance expense was partially offset by increased credit and collections expense due to losses from advances on delinquent loans serviced for others.  Personnel expenses declined $44 million, or 6.0%, compared to the first quarter of 2009 due to lower pension expense from higher discount rates and improved performance in the underlying retirement plan assets.  Incentive compensation declined in conjunction with the soft revenue generation.  FDIC insurance and regulatory expense increased $17 million, or 35.5%, over the first quarter of 2009 in conjunction with higher average deposits and increased premiums associated with the replenishment of the FDIC deposit insurance fund.

On a sequential quarter basis, noninterest expense was down $93 million, or 6.4%.  The decline was driven by a $31 million decline in credit-related expenses, specifically operating losses and other real estate owned losses, a $14 million decline in marketing expenses due to the timing of various marketing campaigns, and a $9 million gain from the extinguishment of debt during the current quarter compared to a $24 million net loss in the fourth quarter of 2009.  

Income Taxes

For the first quarter of 2010, the Company recognized a benefit for income taxes of $194 million, which compares to a $151 million benefit recorded in the first quarter of 2009.  The tax benefit was due to the recognition of a pre-tax loss, as well as other permanent tax items such as tax exempt interest and federal tax credits.  The first quarter of 2009 effective tax rate was significantly impacted by the $677 million non-deductible portion of the goodwill impairment.  The impact of the recently enacted Patient Protection and Affordable Care Act did not have a significant impact on the Company's provision for income taxes.

U.S. Treasury Preferred Dividends

The Company recorded $66 million in preferred dividends in each of the current and prior year quarters related to the $4.85 billion in preferred securities issued to the U.S. Treasury under the Capital Purchase Program.  The 5.5% effective yield reflects the 5.0% dividend rate and the amortization of the discount recorded on the preferred stock at issuance.

Balance Sheet

As of March 31, 2010, total assets were $171.8 billion, which included $1.5 billion of loans related to the consolidation of our asset-backed commercial paper conduit and $323 million of loans held for sale related to the consolidation of a collateralized loan obligation vehicle as a result of recently issued accounting standards.  Shareholders' equity of $22.6 billion as of March 31, 2010 represented 13.2% of total assets.  Book value and tangible book value per common share were $35.40 and $22.76, respectively, as of March 31, 2010.

Loans

Average loans for the first quarter of 2010 totaled $114.4 billion, down $10.9 billion, or 8.7%, from the first quarter of 2009.  Average real estate construction and residential mortgage loans declined $6.3 billion, or 16.8%, as the Company continued its efforts to reduce its exposure to residential real estate.  Commercial loans declined $6.1 billion, or 15.6%, due to weak client demand resulting in lower utilization of lines of credit.  Average loans were essentially flat compared to the sequential quarter; however, the first quarter average includes approximately $1.4 billion of loans as a result of the consolidation of previously off-balance sheet loans.  As of March 31, 2010, total loans were $114.0 billion, up $305 million from year end.

Deposits

Average consumer and commercial deposits for the first quarter of 2010 were $115.1 billion, up $7.6 billion, or 7.0%, from the first quarter of 2009.  Deposit growth was concentrated in lower cost deposits, including NOW accounts, money market accounts, and demand deposits, which increased on average $13.0 billion, or 17.7%, while higher cost time deposits declined $5.8 billion, or 19.0%.  Growth in consumer and commercial deposits has enabled a further decline in average brokered and foreign deposits, which declined by $4.0 billion year-over-year, or 53.7%, as well as non-deposit interest-bearing funding, which declined $10.3 billion, or 29.5%.  As anticipated, average consumer and commercial deposits declined slightly on a sequential quarter basis due largely to a decline in higher cost time deposits and, in part, due to seasonal declines in certain commercial client accounts.  As of March 31, 2010, total consumer and commercial deposits were $116.1 billion, down $160 million from year end.

Capital and Liquidity

The estimated Tier 1 common equity, Tier 1 capital, and tangible equity to tangible asset ratios at March 31, 2010, were 7.65%, 13.05%, and 9.86%, down two basis points, up nine basis points, and up twenty basis points, respectively, compared to December 31, 2009.  Despite the challenging economic environment, the Company's capital position remains strong.  The Company also has substantial available liquidity as the inflows of high quality deposits have largely been retained in cash and invested in high quality government-backed securities.

Asset Quality

During the current quarter, overall asset quality improved notably.  Early stage delinquencies, nonperforming loans, and net charge-offs remain elevated but improved sequentially, and in some cases, significantly.  Nonetheless, the economic outlook remains uncertain, resulting in the allowance for credit losses remaining relatively stable for the time being.  As of March 31, 2010, the allowance for loan losses was $3,176 million, an increase of $56 million from year end, and it represented 2.80% of total loans compared to 2.76% and 2.21% of total loans as December 31, 2009 and March 31, 2009, respectively.  The unfunded commitment reserve ended the current quarter at $100 million, down $15 million from year end due to a reduction in exposure related to certain commercial and large corporate clients.

For the first quarter of 2010, the provision for credit losses was $862 million.  The provision for credit losses in the current quarter was $132 million lower than the first quarter of 2009 and $112 million lower than the fourth quarter of 2009, continuing the trend of declining provision over the last year.

Net charge-offs in the first quarter of 2010 were $821 million, approximately equal to the amount in the fourth quarter of 2009 and $211 million higher than the first quarter of 2009.  Charge-offs in the current quarter include $51 million of incremental charge-offs associated with the transfer of $211 million of nonperforming residential mortgage loans to loans held for sale.  The Company is in the process of actively marketing these loans and intends to sell the loans during the second quarter.  Also, during the current quarter, incremental charge-offs of $131 million were recorded on severely delinquent residential mortgage loans with collateral located in jurisdictions in which we are experiencing extended foreclosure periods, primarily Florida.  The losses on these severely delinquent loans arose from declines in collateral value while the loans were in foreclosure.  These estimated declines in value are captured in our estimated allowance for loan losses.  Historically, our process was to record the additional charge-off when the foreclosure process was completed; however, due to the protracted amount of time loans are remaining in the foreclosure process, we concluded that it was appropriate to record an additional charge-off after twelve months had lapsed from the initial charge-off, generally at 180 days past due.  These combined actions increased charge-offs $182 million and reduced nonperforming loans by $341 million.  Annualized net charge-offs to average loans for the current quarter was 2.91% (including 0.65% related to the $182 million of charge-offs discussed above) compared to 2.83% in the sequential quarter and 1.97% in the first quarter of 2009.  The sequential quarter increase in residential mortgage net charge-offs of $84 million was due to the items discussed above.  The $88 million decrease in construction net charge-offs was due to the extended foreclosure process in Florida and the uneven nature over which construction net charge-offs generally occur.

Nonaccrual loans were $5,185 million, or 4.55% of total loans, as of March 31, 2010, compared to $5,402 million, or 4.75% of total loans, as of December 31, 2009, and $4,641 million, or 3.75% of total loans, as of March 31, 2009.  In the current quarter, higher nonaccrual construction loans were offset by reductions in nonaccrual commercial loans and residential mortgage loans, including the $341 million reduction discussed above.  As of March 31, 2010, the allowance to nonperforming loans was 61.7%, up 2.9% from year end and 1.4% from a year ago.  Early stage delinquencies as of the end of the first quarter were 1.19% of total loans, a decline of 18 basis points compared to year end driven primarily by declines in consumer loans.  Late stage delinquencies were relatively flat compared to year end.

The Company continues to proactively modify loans to borrowers experiencing financial difficulties in an effort to mitigate losses.  Accordingly, accruing restructured loans increased 16.2% during the current quarter to $1.9 billion.

Line of Business Results

The Company has provided line of business financial tables on its website at www.suntrust.com in the Investor Relations section located under "About SunTrust."  The Company has four lines of business used to measure business activities: Retail and Commercial, Corporate and Investment Banking, Household Lending, and Wealth and Investment Management with the remainder in Corporate Other and Treasury.  The Company has announced certain organizational changes effective in the second quarter of 2010 that will result in changes to its reported lines of business.  All revenue in the line of business tables is reported on a fully taxable-equivalent basis.  For the lines of business, results include net interest income, which is computed using matched-maturity funds transfer pricing.  Further, provision for credit losses is represented by net charge-offs.  SunTrust also reports results for Corporate Other and Treasury, which includes the Treasury department as well as the residual expenses associated with operational and support expense allocations.  This segment also includes differences created between internal management accounting practices and generally accepted accounting principles, certain matched-maturity funds transfer pricing credits and charges, differences in provision for credit losses compared to net charge-offs, as well as equity and its related impact.  A detailed discussion of the line of business results will be included in the Company's forthcoming report on Form 10-Q.

Corresponding Financial Tables and Information

Investors are encouraged to review the foregoing summary and discussion of SunTrust's earnings and financial condition in conjunction with the detailed financial tables and information which SunTrust has also published today and SunTrust's forthcoming report on Form 10-Q. Detailed financial tables and other information are also available on the Company's Web site at www.suntrust.com in the Investor Relations section located under "About SunTrust." This information is also included in a current report on Form 8-K furnished with the Securities and Exchange Commission today.

This news release contains certain non-U.S. GAAP financial measures to describe the Company's performance. The reconciliation of those measures to the most directly comparable U.S. GAAP financial measures and the reasons why SunTrust believes such financial measures may be useful to investors, can be found in the financial information contained in the appendices of this news release.  

Conference Call

SunTrust management will host a conference call on April 21, 2010, at 8:00 a.m. (Eastern Time) to discuss the earnings results and business trends. Individuals may call in beginning at 7:45 a.m. (Eastern Time) by dialing 1-888-972-7805 (Passcode: 1Q10). Individuals calling from outside the United States should dial 1-517-308-9091 (Passcode: 1Q10). A replay of the call will be available approximately one hour after the call ends on April 21, 2010, and will remain available until May 5, 2010, by dialing 1-800-308-7853 (domestic) or 1-402-220-3838 (international).

Alternatively, individuals may listen to the live webcast of the presentation by visiting the SunTrust Web site at www.suntrust.com. The webcast will be hosted under "Investor Relations," located under "About SunTrust," or may be accessed directly from the SunTrust home page by clicking on the earnings-related link, "1st Quarter Earnings Release." Beginning the afternoon of April 21, 2010, listeners may access an archived version of the webcast in the "Webcasts and Presentations" subsection found under "Investor Relations." This webcast will be archived and available for one year. A link to the Investor Relations page is also found in the footer of the SunTrust home page.

SunTrust Banks, Inc., headquartered in Atlanta, is one of the nation's largest banking organizations, serving a broad range of consumer, commercial, corporate and institutional clients. The Company operates an extensive branch and ATM network throughout the high-growth Southeast and Mid-Atlantic states and a full array of technology-based, 24-hour delivery channels. The Company also serves clients in selected markets nationally. Its primary businesses include deposit, credit, and trust and investment management services. Through various subsidiaries, the Company provides mortgage banking, insurance, brokerage, equipment leasing, and capital markets services. SunTrust's Internet address is www.suntrust.com.

Important Cautionary Statement About Forward-Looking Statements

This news release includes non-GAAP financial measures to describe SunTrust's performance. The reconciliations of those measures to GAAP measures are provided within or in the appendix to this news release. In this news release, the Company presents net interest income and net interest margin on a fully taxable-equivalent ("FTE") basis, and ratios on an annualized basis. The FTE basis adjusts for the tax-favored status of income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

This news release may contain forward-looking statements. Statements regarding future levels of net interest margin, future levels of charge-offs generally and in the construction, residential mortgage, and residential builder portfolios, future income from service charges, and future performance of the commercial real estate portfolio are forward-looking statements. Also, any statement that does not describe historical or current facts, is a forward-looking statement. These statements often include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "initiatives," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Such statements speak as of the date hereof, and we do not assume any obligation to update the statements made herein or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in Item 1A of Part I of our 10-K and in other periodic reports that we file with the SEC. Those factors include: difficult market conditions have adversely affected our industry; recent levels of market volatility are unprecedented; we are subject to capital adequacy guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected; recently enacted legislation, or legislation enacted in the future, or any proposed federal programs subject us to increased regulation and may adversely affect us; we have not yet received permission to repay TARP funds; emergency measures designed to stabilize the U.S. banking system are beginning to wind down; we are subject to credit risk; weakness in the economy and in the real estate market, including specific weakness within our geographic footprint, has adversely affected us and may continue to adversely affect us; weakness in the real estate market, including the secondary residential mortgage loan markets, has adversely affected us and may continue to adversely affect us; as a financial services company, adverse changes in general business or economic conditions could have a material adverse effect on our financial condition and results of operations; changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital or liquidity; the fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings; we may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations, and financial condition; we may continue to suffer increased losses in our loan portfolio despite enhancement of our underwriting policies; depressed market values for our stock may require us to write down goodwill; clients could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; consumers may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking which subject us to a variety of risks; hurricanes and other natural disasters may adversely affect loan portfolios and operations and increase the cost of doing business; negative public opinion could damage our reputation and adversely impact business and revenues; we rely on other companies to provide key components of our business infrastructure; the soundness of other financial institutions could adversely affect us; we rely on our systems, employees, and certain counterparties, and certain failures could materially adversely affect our operations; we depend on the accuracy and completeness of information about clients and counterparties; we are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; regulation by federal and state agencies could adversely affect the business, revenue, and profit margins; competition in the financial services industry is intense and could result in losing business or reducing margins; future legislation could harm our competitive position; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; we may not pay dividends on your common stock; our ability to receive dividends from our subsidiaries accounts for most of our revenue and could affect our liquidity and ability to pay dividends; significant legal actions could subject us to substantial uninsured liabilities; recently declining values of real estate, increases in unemployment, and the related effects on local economies may increase our credit losses, which would negatively affect our financial results; deteriorating credit quality, particularly in real estate loans, has adversely impacted us and may continue to adversely impact us; our allowance for loan losses may not be adequate to cover our eventual losses; we will realize future losses if the proceeds we receive upon liquidation of nonperforming assets are less than the carrying value of such assets; disruptions in our ability to access global capital markets may negatively affect our capital resources and liquidity; in 2009 and 2010, credit rating agencies downgraded the credit ratings of SunTrust Bank and SunTrust Banks, Inc., and these downgrades and any subsequent downgrades could adversely impact the price and liquidity of our securities and could have an impact on our businesses and results of operations; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we depend on the expertise of key personnel, and if these individuals leave or change their roles without effective replacements, operations may suffer; we may not be able to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategy; our accounting policies and processes are critical to how we report our financial condition and results of operations, and require management to make estimates about matters that are uncertain; changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition; our stock price can be volatile; our disclosure controls and procedures may not prevent or detect all errors or acts of fraud; our financial instruments carried at fair value expose us to certain market risks; our revenues derived from our investment securities may be volatile and subject to a variety of risks; and we may enter into transactions with off-balance sheet affiliates or our subsidiaries.

SOURCE SunTrust Banks, Inc.