SunTrust Banks (STI)

Q2 2010 Earnings Call

July 22, 2010 8:00 am ET


Thomas Freeman - Chief Risk Officer and Corporate Executive Vice President

Steven Shriner - Director of Investor Relations

William Rogers - President

Mark Chancy - Chief Financial Officer and Corporate Executive Vice President

James Wells - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee


Brian Foran - Goldman Sachs Group Inc.

Nancy Bush - NAB Research

Gregory Ketron - Citigroup Inc



Welcome to the SunTrust Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the meeting over to Mr. Steve Shriner, Director of Investor Relations. Sir, you may begin.

Steven Shriner

Good morning, everyone. Welcome to SunTrust Second 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 today. Slide 2 outlines the content, which includes an overview of the quarter, and then we'll have a financial results discussion and a credit review. The press release, presentation and detailed schedules are available on our website, This information can be accessed by going to the Investor Relations section of the website.

With me today, among other members of our executive team, are Jim Wells, our 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 discuss financial performance, and Tom will conclude with a review of asset quality. At the conclusion of our formal remarks today, we'll open the session for questions.

Before we get started, I need to remind you that 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 also available on our website.

Further, we do not intend to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, and we disclaim any responsibility to do so. During the call, we may discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation of these measures to GAAP financial measures in our press release and 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 archived webcasts are located on our website.

With that out of the way, I'll turn it over to Jim.

James Wells

Good morning again, everyone. I'm glad you're with us this morning. Our loss significantly narrowed to $0.11 this quarter versus a $0.46 per share loss last quarter, as our operating trends gained momentum. Specifically, asset quality continued to improve. We had substantial revenue growth over last quarter, and we maintained favorable deposit volumes and mix. Furthermore, the pace of the loan balance decline has clearly slowed.

As we've been articulating for some time, we've been focused on positioning our businesses for growth as we come out of this cycle, and we're starting to see the benefits of those efforts. And though macro economic indicators are mixed, and there are uncertainty in our operating environment as it relates to financial regulation and the potential impact from the Gulf oil spill, we are increasingly encouraged by the operating trends that we're seeing.

Revenue grew compared to last quarter with growth across our core fee income category. We find this broad-based growth positive and believe that while the operating environment remains challenging, some economic traction coupled with our client-focused strategies generated these favorable results. We also had some non-core gains related to the sale of securities and fair value adjustments that Mark will detail shortly.

Net interest income and net interest margin were stable compared to last quarter but grew significantly compared to the prior year, up 8% and 39 basis points, respectively. The net interest margin increased due largely to the continued shifts in our funding mix to lower-cost deposits. Client deposit growth and improved mix enabled the reduction in higher-cost sources of funding and that, along with the lower rates pace, has had a significant impact on margin over the last year. Overall, we continue to make progress in our efforts to improve client satisfaction and our focus on the drivers that build loyalty. We're confident that this approach is having an impact.

Our core expenses remain tightly managed as we continue to capitalize upon the strength that we've built. This will remain focused on recovering efficiency improvement opportunities. This was evident in our personnel-related expenses, which were down compared to last year. Cyclical costs do remain high, and we also incurred debt extinguishment costs during the quarter, and Mark will provide more detail around those items, which drove the overall expense number higher this quarter.

Asset quality trends continue to improve. Non-performing assets, non-accrual loans, net charge-offs and provision for loan losses all declined this quarter. Though early-stage delinquencies were up slightly, more than all of that increase was due to government guaranteed loan delinquencies. Excluding such loans, early-stage delinquencies were down six basis points. While Construction charge-offs increased as we expected, there was broad-based improvement in the remainder of the portfolio.

Consistent with our efforts to align our businesses and services for the long-term satisfaction of our targeted clients, last week, we announced the completion of our strategic review of RidgeWorth, we reached definitive agreement for Federated to acquire approximately $17 billion of managed liquidity assets. We expect to record a relatively small gain in the fourth quarter that includes an upfront payment plus the estimated present value of a five-year earn-out. We believe RidgeWorth's core fixed income and equity asset management businesses offer future attractive growth opportunities for SunTrust.

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