SunTrust Banks' CEO Discusses Q3 2011 Results - Earnings Call Transcript

SunTrust Banks (STI)

Q3 2011 Earnings Call

October 21, 2011 8:00 am ET

Executives

Kristopher Dickson -

Aleem Gillani - Chief Financial Officer

William Henry Rogers - Chief Executive Officer, President and Director

Thomas E. Freeman - Chief Risk Officer and Corporate Executive Vice President

Analysts

Craig Siegenthaler - Crédit Suisse AG, Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Matthew O'Connor - Deutsche Bank AG, Research Division

Ian Foley - Jefferies & Company, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Marty Mosby - Guggenheim Securities, LLC, Research Division

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Welcome to the SunTrust Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the conference over to Mr. Kris Dickson, Director of Investor Relations. You may begin.

Kristopher Dickson

Thanks, Wendy, and good morning, everyone. Welcome to SunTrust 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. 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.

Discussing our earnings presentation today will be Bill Rogers, our President and Chief Executive Officer; and Aleem Gillani, our Chief Financial Officer. Also joining us today, among other members of our executive management team, are Tom Freeman, our Chief Risk Officer; C. T. Hill, our Head of Consumer Banking, and Mark Chancy, our Head of Wholesale Banking.

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 our website.

During the call, we will 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 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.

And with that, I'll turn the call over to Bill.

William Henry Rogers

Thanks, Kris. I'll keep my introductory comments brief this morning and then let Aleem get right into the review of the quarter so we can get grounded in the numbers. I'll come back on afterwards and share my perspective before the Q&A.

If you turn to Slide 3, I think that's a good summary of the quarter, and I'm pleased to report we have momentum in several key areas, fueled in part by our intense client-centric focus. Loans were up again this quarter with targeted portfolio growth exceeding planned declines in higher-risk categories. We continued to grow deposits with a favorable mix shift, and key credit quality metrics improved across-the-board. We are pursuing initiatives to help drive better performance over time, including, but not limited to, our expense reduction program. I'll revisit that topic later in the call.

But first, let me turn it over to Aleem to provide some color on this quarter's financial results.

Aleem Gillani

Thanks, Bill, and good morning, everybody. I'll begin my comments today with the summary income statement on Slide 4. I'll provide you greater detail into the primary performance drivers on subsequent slides. So for now, I'll just hit the highlights.

Earnings per share this quarter were $0.39. That's a $0.06 per share increase from the second quarter, primarily due to a lower provision resulting from improved credit trends. Compared to the third quarter of last year, earnings per share increased $0.22. The largest drivers were higher net interest income, a lower provision and the elimination of the TARP drag. The improving profitability trends that we've reported over the past couple of years are evident in the year-to-date figures. 2011 earnings per share were $0.81, which obviously compares favorably to the net loss that we reported during the first 9 months of last year.

If you'll turn to Slide 5, we'll drill down further into our performance beginning with net interest income and net interest margin trends. Third quarter net interest income increased sequentially by $7 million or 1%. This was due to an additional day during the third quarter and a decline in interest expense, which was primarily attributable to lower deposit rates and the continuation of the favorable deposit mix shift. The net interest margin decline of 4 basis points was consistent with our guidance and primarily driven by lower earning asset yields. Relative to the third quarter of last year, net interest income increased $27 million or 2%, and the margin increased 8 basis points. This was the result of a 29 basis point decline in interest-bearing liability costs due to favorable deposit trends and a reduction in longer-term debt. This benefit more than offset the 17 basis point decline in earning asset -- in interest-earning asset yields due to lower rates.

On a year-to-date basis, net interest income increased 5%, again due primarily to lower liability costs. As we look to the fourth quarter, particularly in light of the low rate environment, we expect a similar decline in the net interest margin to that experienced in the third quarter.

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