SunTrust CEO Discusses Q3 2010 Results - Earnings Call Transcript

SunTrust CEO Discusses Q3 2010 Results - Earnings Call Transcript
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SunTrust Banks, Inc. (

STI

)

Q3 2010 Earnings Call

October 21, 2010 8:00 AM ET

Executives

Steve Shriner – Director, Investor Relations

Jim Wells – Chief Executive Officer

Mark Chancy – Chief Financial Officer]

Tom Freeman – Chief Risk Officer

Analysts

Matthew O’Connor – Deutsche Bank

Nancy Bush – NAB Research

Tom Sherlock – CLSA

David Hilder – Susquehanna

Bob Patten – Morgan Keegan

Presentation

Operator

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Welcome to the SunTrust Third Quarter Earnings Conference Call. Parties will be on a listen-only mode until the question-and-answer session of today’s conference. (Operator Instructions)

This call is being recorded. If you have any objections you may disconnect. I’d like to introduce your speaker, Mr. Steve Shriner and he is the Director of Investor Relations.

Steve Shriner

Good morning. Welcome to SunTrust’s third quarter earnings conference call. Thanks for joining us. In addition to the press release, we’ve also provided a presentation that covers the topics we plan to address during our call today. Slide two outlines the content, which includes an overview of the quarter, financial results and a review of credit quality. The press release presentation and detailed financial schedules are available on our website, www.suntrust.com. This information can be accessed by going to the Investor Relations section of the website.

With me today are members of our management team Jim Wells, Chief Executive Officer; Mark Chancy, our Chief Financial Officer; and Tom Freeman, our Chief Risk Officer. Jim will start the call with an overview of the quarter. Mark will then discuss financial performance and Tom will conclude with review of asset quality. At the conclusion of the formal remarks, we’ll open the session for questions.

Before we get started, I need to remind you our comments today may include forward-looking statements. These statements are subject to risks and uncertainty and actual results could differ materially. We list the factors that might cause actual results to differ materially in our press release and SEC filings which are available on the website. Further, we do not intend to update any further forward-looking statements to reflect circumstances or events that occur after the date the statements are made and we disclaim any responsibility to do so.

During the call we’ll discuss non-GAAP financial measures in talking about the company’s performance. You can find the reconciliation of these measures to GAAP financial measures in our press release on our website.

Finally, SunTrust is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized live and -- websites are located on our website.

With that, I’ll turn the call over to Jim.

Jim Wells

Thank you, Steve. Good morning, everybody. Glad you’re with us this morning. Financial results improved significantly this quarter as we earned $84 million or $0.17 per share. Strong revenue coupled with lower credit costs grew significantly increased profitability.

As you’re all aware throughout this economic cycle we have been positioning our businesses for growth. Those efforts are gaining traction and resulting in improved performance. Until macroeconomic indicators are mixed and there remains uncertainty in regard to regulation we are increasingly encouraged by the improvement in our operating results.

Revenue growth in the quarter was particularly strong in mortgage related revenues as we benefited from the lower interest rate. SunTrust Robinson Humphrey also had a terrific quarter posting report investment banking revenues. Partially offsetting the performance of these core businesses, excuse me, was a decrease in service charges, largely related to Reg E and $81 million of mark-to-market losses on debt and indexed linked CDs.

Net interest income and net interest margin increased compared to last quarter, up 5% and 8 basis points, respectively. Net interest margin increased largely due to the improved funding mix and lower rate paid on deposits.

Additionally, the securities and loan portfolios increased, while earning asset yields remained stable. Total expenses were flat compared to last quarter while core expenses increased mostly driven by revenue related compensation and legal related expenses. Mark will provide more detail on this momentarily, however, I will reiterate that we continue to manage expenses tightly across the organization while making what we believe are appropriate investments in our business to facilitate growth.

Asset quality trends continue to improve with non-performing asset, non-accrual loans, net charge-offs and provision for loan losses all declining this quarter. As anticipated, early stage delinquencies were stable overall.

We made a significant stride toward our goal to improve the client experience and thereby increase client satisfaction and loyalty. These efforts are beginning to manifest themselves in revenue growth. There’s still a challenging operating environment, we are moving the needle in several key areas of the business.

At the same time, we’re aware of lingering operating environmental uncertainties such as regulatory and legislative matters. We’ll move to slide four where we’ve provided some information to add some clarity on that topic.

It is clear that the financial regulation will impact our financial results, but we believe that for us it will be manageable. The information on slide four highlights selected items of interest though it is not intended to be all inclusive. Certain changes are expected to have little impact on SunTrust such as the Card Act while others such as the impact of the Consumer Financial Protection Bureau are simply not predictable at this time.

First, I’ll focus on deposit service charges. Last quarter we indicated that the impact of Reg E on service charges was expected to be at the low end of the previously provided 10% to 20% range. That expectation remains. However, additional clarity is probably necessary.

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