SunTrust Reports First Quarter 2012 Results
Earns $0.46 Per Share on Improved Core Performance
ATLANTA, April 23, 2012 /PRNewswire/ -- SunTrust Banks, Inc. (NYSE: STI) today reported net income available to common shareholders of $245 million, or $0.46 per average common share, for the first quarter of 2012. Earnings per average common share increased by $0.33 from the fourth quarter of 2011 and by $0.38 from the first quarter of 2011.
"Our core performance this quarter drove a solid start to 2012 and marked a continuation of the improved momentum we built during 2011," said William H. Rogers, Jr. chairman and chief executive officer of SunTrust Banks, Inc. "Improved revenue, as well as continued favorable trends in loans, deposits, and credit metrics were hallmarks for the quarter." Mr. Rogers also noted that the Company's expense savings program continues to progress.
First Quarter 2012 Financial Highlights
Income Statement
- Continued improvement in core business fundamentals helped drive net income available to common shareholders of $245 million.
- Revenue grew 8% and 3% compared to the prior quarter and the first quarter of 2011, respectively.
- Net interest income grew 1% and 5% compared to the fourth and first quarters of 2011, respectively. Higher loan balances and favorable trends in the deposit mix and pricing were the primary drivers.
- Lower rates on liabilities, partially offset by a decline in loan yields, resulted in a three basis point increase in the net interest margin over the prior quarter to 3.49%.
- Strong mortgage refinancing activity drove a 21% increase in noninterest income from the prior quarter; noninterest income was relatively stable compared to the first quarter of 2011.
- Noninterest expense declined 8% from the prior quarter, largely due to the $120 million fourth quarter 2011 accrual for the potential mortgage servicing settlement. Compared to the first quarter of 2011, expenses increased 5%, driven by higher employee compensation and benefits expenses and higher operating losses.
Balance Sheet
- Average loans increased 3% compared to the prior quarter. Commercial & industrial, guaranteed student and guaranteed mortgage loans were the primary drivers of the growth, while certain real estate-related loan portfolios continued to decline.
- Average client deposits grew to another record level, increasing 1% compared to the prior quarter, while the favorable trend in the deposit mix toward lower-cost accounts continued.
Capital
- Estimated capital ratios continue to be well above current regulatory requirements, as well as the Basel III proposed guidance. The Tier 1 common ratio increased to 9.30%.
Asset Quality
- Credit quality continued to improve with net charge-offs, nonperforming loans and assets, and early stage delinquencies all declining.
- Net charge-offs declined 11% compared with the prior quarter; the annualized net charge-off ratio was 1.38%, lower by 19 basis points compared to the prior quarter.
- Nonperforming loans declined 9%, the eleventh consecutive quarterly decline.
- Early stage delinquencies declined 13 basis points sequentially as a result of improvements in the home equity, non-guaranteed mortgage, and consumer indirect portfolios.
- Provision for credit losses declined modestly. The allowance for loan losses was $2.3 billion, or 1.92% of total loans.
Income Statement (presented on a fully taxable-equivalent basis) |
1Q 2011 |
4Q 2011 |
1Q 2012 |
||||||||
(Dollars in millions, except per share data) |
|||||||||||
Net income |
$ |
180 |
$ |
74 |
$ |
250 |
|||||
Net income available to common shareholders |
38 |
71 |
245 |
||||||||
Earnings per average common diluted share |
0.08 |
0.13 |
0.46 |
||||||||
Total revenue |
2,160 |
2,047 |
2,218 |
||||||||
Total revenue, excluding net securities gains/losses |
2,096 |
2,028 |
2,200 |
||||||||
Net interest income |
1,277 |
1,324 |
1,342 |
||||||||
Provision for credit losses |
447 |
327 |
317 |
||||||||
Noninterest income |
883 |
723 |
876 |
||||||||
Noninterest expense |
1,465 |
1,667 |
1,541 |
||||||||
Net interest margin |
3.53 |
% |
3.46 |
% |
3.49 |
% |
|||||
Balance Sheet |
|||||||||||
(Dollars in billions) |
|||||||||||
Average loans |
$ |
115.2 |
$ |
119.5 |
$ |
122.5 |
|||||
Average consumer and commercial deposits |
120.7 |
125.1 |
125.8 |
||||||||
Capital |
|||||||||||
Tier 1 capital ratio(1) |
11.00 |
% |
10.90 |
% |
10.95 |
% |
|||||
Tier 1 common equity ratio(1) |
9.05 |
% |
9.22 |
% |
9.30 |
% |
|||||
Total average shareholders' equity to total average assets |
13.35 |
% |
11.61 |
% |
11.45 |
% |
|||||
Asset Quality |
|||||||||||
Net charge-offs to average loans (annualized) |
2.01 |
% |
1.57 |
% |
1.38 |
% |
|||||
Allowance for loan losses to period end loans |
2.49 |
% |
2.01 |
% |
1.92 |
% |
|||||
Nonperforming loans to total loans |
3.46 |
% |
2.37 |
% |
2.16 |
% |
(1) Current period Tier 1 capital and Tier 1 common equity ratios are estimated as of the date of this news release.
Consolidated Financial Performance Details
(Presented on a fully taxable-equivalent basis unless otherwise noted)
Revenue
Total revenue was $2.2 billion for the first quarter of 2012, an increase of $171 million from the prior quarter and $58 million higher than the first quarter of 2011. Net gains from the sales of securities were $18 million for the first quarter of 2012 compared to $19 million for the fourth quarter of 2011 and $64 million for the first quarter of 2011. Excluding net securities gains, total revenue increased 8% and 5%, respectively, compared to the fourth and first quarters of 2011. The increase in revenue was predominantly due to higher mortgage-related revenue and higher net interest income.
Net Interest Income
For the first quarter of 2012, net interest income was $1,342 million compared to $1,324 million for the prior quarter and $1,277 million for the first quarter of 2011. The 1% and 5% increases over the fourth and first quarters of 2011, respectively, were driven by higher loan balances and lower interest expense, the latter of which was a result of the continued favorable shift in the deposit mix toward lower-cost accounts and lower wholesale funding costs.
Net interest margin for the first quarter of 2012 was 3.49%, an increase of three basis points from the fourth quarter of 2011 and a decline of four basis points from the first quarter of 2011. On a sequential quarter basis, the increase was driven by a nine basis point decline in interest-bearing liability costs due to lower rates paid on deposits and other funding sources. This was partially offset by a five basis point decline in earning asset yields, due to lower loan yields. Compared to the first quarter of 2011, the decline in the net interest margin was primarily due to 5% growth in earning assets, as the 30 basis point decline in earning asset yields due to lower loan yields was offset by a 30 basis point decline in interest-bearing liabilities driven by lower rates paid on deposits and other funding sources.
Noninterest Income
Total noninterest income was $876 million for the first quarter of 2012 compared to $723 million for the fourth quarter of 2011 and $883 million for the first quarter of 2011. The $153 million sequential quarter increase was driven by higher mortgage-related revenue, partially offset by lower revenue from investment banking, trading income, and service charges on deposits accounts. The decline of $7 million from the first quarter of 2011 was attributable to lower securities gains and card fees, largely offset by higher mortgage-related income.
Mortgage production income was $63 million for the first quarter of 2012, compared to losses of $62 million for the fourth quarter of 2011 and $1 million for the first quarter of 2011. The $125 million sequential quarter increase was predominantly driven by increased mortgage loan production volume, higher gain on sale margins, and a $40 million decrease in the mortgage repurchase provision. As of March 31, 2012, reserves for mortgage repurchases totaled $383 million, an increase of $63 million from the prior quarter. The reserve was increased due to the continued high level of repurchase demands received during the quarter and because the decline in mortgage repurchase losses could be largely related to timing. Compared to the first quarter of 2011, mortgage production income increased $64 million, primarily due to higher loan production and increased gain on sale margins, partially offset by an increase in the mortgage repurchase provision. Mortgage loan production increased 12% over the sequential quarter and 33% over the first quarter of 2011 as refinancing activity increased due to the HARP 2.0 program and the low mortgage interest rate environment.
Mortgage servicing income was $81 million for the first quarter of 2012 compared to $22 million for the prior quarter and $72 million for the first quarter of 2011. The $59 million sequential quarter increase was due to improved net hedge performance in the current quarter, as well as a $38 million reduction in the fair value of the MSR asset that was recognized during the fourth quarter of 2011 in anticipation of increased refinancing activity arising from the HARP 2.0 program. Improved net hedge performance was the primary driver of the current quarter increase over the first quarter of 2011. The mortgage servicing portfolio was $155 billion at the end of the first quarter of 2012.
Card fees were $61 million for the first quarter of 2012, essentially equal to the prior quarter and down $39 million from the first quarter of 2011. The decline from the prior year was the result of regulations on debit card interchange fees that became effective at the beginning of the fourth quarter of 2011.
Investment banking income was $71 million for the first quarter of 2012 compared to $87 million for the prior quarter and $67 million for the first quarter of 2011. The sequential quarter decline was due to seasonally lower loan syndication fee income, partially offset by higher bond origination fees. The increase relative to the first quarter of 2011 was attributable to higher bond origination fees.
Trading income was $57 million for the first quarter of 2012 compared to $77 million for the prior quarter and $52 million for the first quarter of 2011. The $20 million sequential quarter decline was attributable to the improvement in the Company's credit spreads during the current quarter, which resulted in a $22 million market valuation loss on the Company's fair value debt and index-linked CDs, net of hedges, compared to market valuation gains of $17 million in the prior quarter. Partially offsetting the impact from market valuation losses was an increase in core trading activity and a decrease in valuation losses on illiquid securities in the current quarter. The $5 million increase in trading income compared to the first quarter of 2011 was primarily driven by higher core trading activity, which was partially offset by lower valuation gains on illiquid securities.
Other noninterest income was $57 million for the first quarter of 2012 compared to $39 million for the prior quarter and $47 million for the first quarter of 2011. The $18 million sequential quarter increase was largely driven by higher leasing gains in the current quarter and certain asset write-downs recorded in the fourth quarter of 2011. The $10 million increase compared to the first quarter of 2011 was also largely due to higher leasing gains.
Noninterest Expense
Noninterest expense was $1,541 million for the first quarter of 2012 compared to $1,667 million for the fourth quarter of 2011 and $1,465 million for the first quarter of 2011. The decrease of $126 million, or 8%, compared to the prior quarter was largely driven by the $120 million accrual for the potential mortgage servicing settlement recorded in the fourth quarter of 2011. Declines in most other expense categories were predominantly offset by increased employee compensation and benefits expense. Compared to the first quarter of 2011, expenses increased $76 million, or 5%, driven by higher employee compensation and benefits expenses and operating losses.
Employee compensation and benefits expense increased $173 million from the prior quarter. The fourth quarter of 2011 included a $60 million gain in connection with the Company's decision to curtail its defined benefit pension plans, net of a discretionary 401(k) contribution. Additionally, employee compensation and benefits expense was reduced in the fourth quarter of 2011 due to a year-end reduction in incentive compensation related to the Company's full year 2011 financial performance. The balance of the sequential quarter increase was primarily attributable to seasonally higher 401(k) and payroll taxes in the current quarter. The $43 million, or 6%, increase in employee compensation and benefits expense from the first quarter of 2011 was due to higher incentive compensation associated with improved business performance and annual salary increases, partially offset by a 437 person reduction in full-time equivalent employees.
Operating losses declined by $36 million from the prior quarter and increased by $33 million from the first quarter of 2011. The changes in both periods were driven by litigation-related expenses, which tend to fluctuate based on specific legal matters, as well as operating losses associated with mortgage servicing, which decreased in the current period compared to the prior quarter but increased relative to the first quarter of 2011.
Other noninterest expense decreased $103 million from the prior quarter. Credit-related expenses, which is comprised of other real estate-related expenses and credit and collection costs, decreased $55 million due to seasonally higher tax and insurance payments on delinquent loans occurring in the fourth quarter of 2011, as well as lower losses recognized on OREO during the current quarter. Severance expense related to the Playbook for Profitable Growth (PPG) initiative was $10 million during the first quarter of 2012, a decline of $17 million compared to the prior quarter. As of the end of the current quarter, $190 million in annualized expenses had been eliminated from the Company's expense base through PPG, compared to the $300 million goal expected to be achieved by year end 2013. Compared to the first quarter of 2011, other expenses increased $12 million driven by higher consulting expense associated with complying with the mortgage servicing Consent Order, partially offset by a decline in other real estate expense.
Other drivers of the sequential quarter decline in noninterest expense included a $32 million reduction in marketing and customer development, due to seasonally lower advertising spending, and a $16 million decrease in FDIC premiums and regulatory assessments.
Income Taxes
For the first quarter of 2012, the Company recorded an income tax provision of $69 million compared to an income tax benefit of $57 million for the fourth quarter of 2011 and a provision of $33 million for the first quarter of 2011. The effective tax rate was 22% for the first quarter of 2012 compared to 16% for the first quarter of 2011. The effective tax rate for each quarterly period was primarily the result of positive pre-tax earnings adjusted for net favorable permanent tax items, such as interest income from lending to tax-exempt entities and federal tax credits from community reinvestment activities. Such items, together with the relatively lower pre-tax earnings in the fourth quarter of 2011, resulted in the net tax benefit for that quarter.
U.S. Treasury Preferred Dividends
The Company formerly paid dividends to the U.S. Treasury on its $4.85 billion of TARP preferred securities through the first quarter of 2011. The Company redeemed these shares at the end of the first quarter of 2011 and, therefore, did not pay such dividends during 2012 or the last three quarters of 2011. The first quarter of 2011 included $66 million of preferred dividends paid to the U.S. Treasury and a $74 million, or $0.14 per common share, non-cash charge related to the unamortized discount that was recognized upon the redemption of the TARP preferred shares.
Balance Sheet
As of March 31, 2012, the Company had total assets of $178.2 billion and shareholders' equity of $20.2 billion, representing 11.4% of total assets. Book value and tangible book value per common share increased to $37.11 and $25.49, respectively, as of March 31, 2012.
Loans
Average loans for the first quarter of 2012 were $122.5 billion, compared to average loans of $119.5 billion and $115.2 billion during the fourth and first quarters of 2011, respectively. On a sequential quarter basis, the $3.1 billion, or 3%, growth was concentrated in commercial & industrial loans, which increased $1.1 billion, government-guaranteed mortgage loans, which increased $1.2 billion, and government-guaranteed student loans, which grew by $1.3 billion primarily as a result of portfolio acquisitions in the fourth quarter of 2011. Average loans increased $7.4 billion, or 6%, over the first quarter of 2011. Growth was driven by targeted loan categories, including commercial & industrial and government-guaranteed student and residential mortgage loans, which increased by over $10 billion combined, while certain real estate-related loan categories were managed down. The reduction in real estate-related loans, together with an increase in government-guaranteed loans, resulted in continued improvement in the risk profile of the loan portfolio. As of March 31, 2012, 11% of the Company's loan portfolio was comprised of government-guaranteed loans, up from 8% at the end of the first quarter of 2011.
Deposits
Average consumer and commercial deposits for the first quarter of 2012 were $125.8 billion, compared to $125.1 billion and $120.7 billion for the fourth and first quarters of 2011, respectively. The favorable shift in the deposit mix toward lower cost accounts continued during the quarter, with the $0.8 billion sequential quarter growth in average deposits being driven by a $1.3 billion, or 4%, increase in demand deposits, partially offset by a $0.7 billion, or 4% decline in time deposits.
Compared to the first quarter of 2011, average consumer and commercial deposits increased $5.1 billion, or 4%. Average demand deposits increased $7.1 billion, or 25%, while time deposits declined $2.4 billion, or 12%.
Capital and Liquidity
The Company's estimated capital ratios are well above regulatory requirements, as well as the proposed guidelines recently published by the Basel Committee and endorsed by U.S. regulatory agencies. The Tier 1 capital and Tier 1 common ratios were estimated at 10.95% and 9.30%, respectively. The ratios of total average equity to total average assets and tangible equity to tangible assets were 11.45% and 8.14%, respectively, as of March 31, 2012. The Company continues to have substantial available liquidity provided in the form of its client deposit base, other available funding resources, and the retention of cash and high-quality government-backed securities.
Asset Quality
Asset quality continued to improve during the quarter, with declines in early-stage delinquencies, net charge-offs, nonperforming loans, and nonperforming assets.
Nonperforming loans declined for the eleventh consecutive quarter and totaled $2.6 billion as of March 31, 2012. Relative to the fourth quarter of 2011, the $254 million, or 9%, decline occurred across virtually all loan categories, most prominently in commercial construction and residential mortgages. A portion of the decline was attributable to the transfer of $86 million of nonperforming residential mortgage loans to held for sale, as the Company elected to actively market these loans and intends to sell them during the second quarter of 2012. As a result of transferring the loans to held for sale, the Company recognized a $26 million charge-off to reflect the loans' estimated market value. Compared to March 31, 2011, nonperforming loans declined $1.3 billion, or 33%, with declines across all categories, most significantly in commercial construction. At the end of the first quarter of 2012, the percentage of nonperforming loans to total loans was 2.16%, down by 21 and 130 basis points from the fourth and first quarters of 2011, respectively. Other real estate owned totaled $411 million at the end of the current quarter, down 14% on a sequential quarter basis and down 23% since March 31, 2011.
Net charge-offs were $422 million in the current quarter compared to $472 million for the prior quarter and $571 million for the first quarter of 2011. The $50 million sequential quarter decline was spread across almost all categories except for residential mortgages, which was impacted by incremental charge-offs related to the transfer of nonperforming loans to held for sale. Compared to the first quarter of 2011, net charge-offs decreased $149 million, or 26%, with declines widespread across loan categories, most notably residential loans. The ratio of annualized net charge-offs to total average loans was 1.38%, a reduction of 19 basis points and 63 basis points from the fourth and first quarters of 2011, respectively. The provision for credit losses was $317 million, down by $10 million and $130 million from the prior quarter and the first quarter of 2011, respectively.
As of March 31, 2012, the allowance for loan losses was $2.3 billion and represented 1.92% of total loans, down nine basis points from December 31, 2011. The $109 million decline in the allowance for loan losses during the first quarter of 2012 was reflective of the continued improvement in asset quality, partially offset by growth in the loan portfolio.
Early stage delinquencies decreased 13 basis points to 1.04% from the end of the fourth quarter of 2011. This quarterly decrease was primarily due to improvement in the home equity, non-guaranteed mortgage, and consumer indirect portfolios. Excluding government-guaranteed loans, early stage delinquencies were 0.59%, a decline of nine basis points from December 31, 2011.
Accruing restructured loans totaled $2.8 billion, and nonaccruing restructured loans totaled $0.7 billion as of March 31, 2012. Accruing restructured loans declined moderately, while nonaccruing restructured loans declined $88 million compared to the prior quarter. $3.1 billion of restructured loans related to residential loans, while $0.4 billion were commercial loans.
LINE OF BUSINESS FINANCIAL PERFORMANCE
Line of Business Results
The Company has included line of business financial tables as part of this release on the Investor Relations portion of its website at www.suntrust.com/investorrelations. In response to recent organizational changes the Company's has realigned its business segments which now include: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking. 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 loan losses is represented by net charge-offs. SunTrust also reports results for Corporate Other, which includes the Treasury department as well as the residual expense associated with operational and support expense allocations. The Corporate Other 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 loan 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 quarterly 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 quarterly report on Form 10-Q. Detailed financial tables and other information are also available on the Investor Relations portion of the Company's website at www.suntrust.com/investorrelations. This information is also included in a current report on Form 8-K furnished with the Securities and Exchange Commission today.
Conference Call
SunTrust management will host a conference call on April 23, 2012, 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: 1Q12). Individuals calling from outside the United States should dial 1-517-308-9091 (Passcode: 1Q12). A replay of the call will be available approximately one hour after the call ends on April 23, 2012, and will remain available until May 4, 2012, by dialing 1-800-879-6754 (domestic) or 1-402-220-5334 (international). Alternatively, individuals may listen to the live webcast of the presentation by visiting the SunTrust investor relations website at www.suntrust.com/investorrelations. Beginning the afternoon of April 23, 2012, listeners may access an archived version of the webcast in the "Recent Earnings and Conference Presentations" subsection found on the investor relations webpage. 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 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. 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," "goals," "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. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements 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 Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011 and in other periodic reports that we file with the SEC. Those factors include: as one of the largest lenders in the Southeast and Mid-Atlantic U.S. and a provider of financial products and services to consumers and businesses across the U.S., our financial results have been, and may continue to be, materially affected by general economic conditions, particularly unemployment levels and home prices in the U.S., and a deterioration of economic conditions or of the financial markets may materially adversely affect our lending and other businesses and our financial results and condition; legislation and regulation, including the Dodd-Frank Act, as well as future legislation and/or regulation, could require us to change certain of our business practices, reduce our revenue, impose additional costs on us or otherwise adversely affect our business operations and/or competitive position; we are subject to capital adequacy and liquidity guidelines and, if we fail to meet these guidelines, our financial condition would be adversely affected; loss of customer deposits and market illiquidity could increase our funding costs; we rely on the mortgage secondary market and GSEs for some of our liquidity; we are subject to credit risk; our ALLL may not be adequate to cover our eventual losses; we may have more credit risk and higher credit losses to the extent our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; we will realize future losses if the proceeds we receive upon liquidation of nonperforming assets are less than the carrying value of such assets; a downgrade in the U.S. government's sovereign credit rating, or in the credit ratings of instruments issued, insured or guaranteed by related institutions, agencies or instrumentalities, could result in risks to us and general economic conditions that we are not able to predict; the failure of the European Union to stabilize the fiscal condition and creditworthiness of its weaker member economies, such as Greece, Portugal, Spain, Hungary, Ireland, and Italy, could have international implications potentially impacting global financial institutions, the financial markets, and the economic recovery underway in the U.S.; weakness in the real estate market, including the secondary residential mortgage loan markets, has adversely affected us and may continue to adversely affect us; we are subject to certain risks related to originating and selling mortgages, and may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or as a result of certain breaches of our servicing agreements, and this could harm our liquidity, results of operations, and financial condition; financial difficulties or credit downgrades of mortgage and bond insurers may adversely affect our servicing and investment portfolios; we may be terminated as a servicer or master servicer, be required to repurchase a mortgage loan or reimburse investors for credit losses on a mortgage loan, or incur costs, liabilities, fines and other sanctions if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions; we are subject to risks related to delays in the foreclosure process; we may continue to suffer increased losses in our loan portfolio despite enhancement of our underwriting policies and practices; our mortgage production and servicing revenue can be volatile; 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 and liquidity; changes in interest rates could also reduce the value of our MSRs and mortgages held for sale, reducing our earnings; the fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings; 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 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; a failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses; we rely on other companies to provide key components of our business infrastructure; the soundness of other financial institutions could adversely affect us; we depend on the accuracy and completeness of information about clients and counterparties; 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 margin declines; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; we might not pay dividends on your common stock; our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends; disruptions in our ability to access global capital markets may adversely affect our capital resources and liquidity; any reduction in our credit rating could increase the cost of our funding from the capital markets; 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 are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; we may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations; 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 strategies; our accounting policies and processes are critical to how we report our financial condition and results of operations, and they 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 framework for managing risks may not be effective in mitigating risk and loss to us; 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.
SunTrust Banks, Inc. and Subsidiaries |
||||||||
FINANCIAL HIGHLIGHTS |
||||||||
(Dollars in millions, except per share data) (Unaudited) |
||||||||
Three Months Ended |
||||||||
March 31 |
% |
|||||||
2012 |
2011 |
Change (4) |
||||||
EARNINGS & DIVIDENDS |
||||||||
Net income |
$250 |
$180 |
39% |
|||||
Net income available to common shareholders |
245 |
38 |
NM |
|||||
Total revenue - FTE (1, 2) |
2,218 |
2,160 |
3% |
|||||
Total revenue - FTE excluding securities gains, net (1, 2) |
2,200 |
2,096 |
5% |
|||||
Net income per average common share |
||||||||
Diluted |
0.46 |
0.08 |
NM |
|||||
Diluted excluding effect of accelerated accretion associated with repurchase of preferred stock issued to the U.S. Treasury (1) |
0.46 |
0.22 |
NM |
|||||
Basic |
0.46 |
0.08 |
NM |
|||||
Dividends paid per common share |
0.05 |
0.01 |
NM |
|||||
CONDENSED BALANCE SHEETS |
||||||||
Selected Average Balances |
||||||||
Total assets |
$176,855 |
$173,066 |
2% |
|||||
Earning assets |
154,623 |
146,786 |
5% |
|||||
Loans |
122,542 |
115,162 |
6% |
|||||
Consumer and commercial deposits |
125,843 |
120,710 |
4% |
|||||
Brokered and foreign deposits |
2,274 |
2,606 |
-13% |
|||||
Total shareholders' equity |
20,256 |
23,107 |
-12% |
|||||
As of |
||||||||
Total assets |
178,226 |
170,794 |
4% |
|||||
Earning assets |
154,950 |
145,895 |
6% |
|||||
Loans |
122,691 |
114,932 |
7% |
|||||
Allowance for loan and lease losses |
2,348 |
2,854 |
-18% |
|||||
Consumer and commercial deposits |
127,718 |
121,559 |
5% |
|||||
Brokered and foreign deposits |
2,314 |
2,426 |
-5% |
|||||
Total shareholders' equity |
20,241 |
19,223 |
5% |
|||||
FINANCIAL RATIOS & OTHER DATA |
||||||||
Return on average total assets |
0.57% |
0.42% |
36% |
|||||
Return on average common shareholders' equity |
4.94 |
0.84 |
NM |
|||||
Net interest margin (2) |
3.49 |
3.53 |
-1% |
|||||
Efficiency ratio (2) |
69.50 |
67.83 |
2% |
|||||
Tangible efficiency ratio (1, 2) |
69.02 |
67.32 |
3% |
|||||
Effective tax rate |
21.55 |
15.54 |
39% |
|||||
Tier 1 common equity (3) |
9.30 |
9.05 |
3% |
|||||
Tier 1 capital (3) |
10.95 |
11.00 |
0% |
|||||
Total capital (3) |
13.70 |
13.92 |
-2% |
|||||
Tier 1 leverage (3) |
8.75 |
8.72 |
0% |
|||||
Total average shareholders' equity to total average assets |
11.45 |
13.35 |
-14% |
|||||
Tangible equity to tangible assets (1) |
8.14 |
7.87 |
3% |
|||||
Book value per common share |
$37.11 |
$35.49 |
5% |
|||||
Tangible book value per common share (1) |
25.49 |
23.79 |
7% |
|||||
Market price: |
||||||||
High |
24.93 |
33.14 |
-25% |
|||||
Low |
18.07 |
27.38 |
-34% |
|||||
Close |
24.17 |
28.84 |
-16% |
|||||
Market capitalization |
13,005 |
15,482 |
-16% |
|||||
Average common shares outstanding (000s) |
||||||||
Diluted |
536,407 |
503,503 |
7% |
|||||
Basic |
533,100 |
499,669 |
7% |
|||||
Full-time equivalent employees |
28,615 |
29,052 |
-2% |
|||||
Number of ATMs |
2,914 |
2,924 |
0% |
|||||
Full service banking offices |
1,651 |
1,665 |
-1% |
|||||
(1) See Appendix A for reconcilements of non-GAAP performance measures. |
||||||||
(2) Total revenue, net interest margin, and efficiency ratios are presented on a fully taxable-equivalent ("FTE") basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. Total revenue - FTE equals net interest income on a FTE basis plus noninterest income. |
||||||||
(3) Current period tier 1 common equity, tier 1 capital, total capital and tier 1 leverage ratios are estimated as of the earnings release date. |
||||||||
(4) "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful. |
||||||||
SunTrust Banks, Inc. and Subsidiaries |
|||||||||
FIVE QUARTER FINANCIAL HIGHLIGHTS |
|||||||||
(Dollars in millions, except per share data) (Unaudited) |
|||||||||
Three Months Ended |
|||||||||
March 31 |
December 31 |
September 30 |
June 30 |
March 31 |
|||||
2012 |
2011 |
2011 |
2011 |
2011 |
|||||
EARNINGS & DIVIDENDS |
|||||||||
Net income |
$250 |
$74 |
$215 |
$178 |
$180 |
||||
Net income available to common shareholders |
245 |
71 |
211 |
174 |
38 |
||||
Total revenue - FTE (1, 2) |
2,218 |
2,047 |
2,196 |
2,198 |
2,160 |
||||
Total revenue - FTE excluding securities gains, net (1, 2) |
2,200 |
2,028 |
2,194 |
2,166 |
2,096 |
||||
Net income per average common share |
|||||||||
Diluted |
0.46 |
0.13 |
0.39 |
0.33 |
0.08 |
||||
Diluted excluding effect of accelerated accretion associated with repurchase of preferred stock issued to the U.S. Treasury (1) |
0.46 |
0.39 |
0.39 |
0.33 |
0.22 |
||||
Basic |
0.46 |
0.13 |
0.40 |
0.33 |
0.08 |
||||
Dividends paid per common share |
0.05 |
0.05 |
0.05 |
0.01 |
0.01 |
||||
CONDENSED BALANCE SHEETS |
|||||||||
Selected Average Balances |
|||||||||
Total assets |
$176,855 |
$174,085 |
$172,076 |
$170,527 |
$173,066 |
||||
Earning assets |
154,623 |
151,561 |
146,836 |
145,985 |
146,786 |
||||
Loans |
122,542 |
119,474 |
115,638 |
114,920 |
115,162 |
||||
Consumer and commercial deposits |
125,843 |
125,072 |
122,974 |
121,879 |
120,710 |
||||
Brokered and foreign deposits |
2,274 |
2,293 |
2,312 |
2,340 |
2,606 |
||||
Total shareholders' equity |
20,256 |
20,208 |
20,000 |
19,509 |
23,107 |
||||
As of |
|||||||||
Total assets |
178,226 |
176,859 |
172,553 |
172,173 |
170,794 |
||||
Earning assets |
154,950 |
154,696 |
148,991 |
146,367 |
145,895 |
||||
Loans |
122,691 |
122,495 |
117,475 |
114,913 |
114,932 |
||||
Allowance for loan and lease losses |
2,348 |
2,457 |
2,600 |
2,744 |
2,854 |
||||
Consumer and commercial deposits |
127,718 |
125,611 |
123,933 |
121,671 |
121,559 |
||||
Brokered and foreign deposits |
2,314 |
2,311 |
2,318 |
3,250 |
2,426 |
||||
Total shareholders' equity |
20,241 |
20,066 |
20,200 |
19,660 |
19,223 |
||||
FINANCIAL RATIOS & OTHER DATA |
|||||||||
Return on average total assets |
0.57% |
0.17% |
0.50% |
0.42% |
0.42% |
||||
Return on average common shareholders' equity |
4.94 |
1.41 |
4.23 |
3.61 |
0.84 |
||||
Net interest margin (2) |
3.49 |
3.46 |
3.49 |
3.53 |
3.53 |
||||
Efficiency ratio (2) |
69.50 |
81.45 |
71.05 |
70.17 |
67.83 |
||||
Tangible efficiency ratio (1, 2) |
69.02 |
80.99 |
70.55 |
69.64 |
67.32 |
||||
Effective tax rate (4) |
21.55 |
NM |
17.33 |
24.45 |
15.54 |
||||
Tier 1 common equity (3) |
9.30 |
9.22 |
9.31 |
9.22 |
9.05 |
||||
Tier 1 capital (3) |
10.95 |
10.90 |
11.10 |
11.11 |
11.00 |
||||
Total capital (3) |
13.70 |
13.67 |
13.91 |
14.01 |
13.92 |
||||
Tier 1 leverage (3) |
8.75 |
8.75 |
8.90 |
8.92 |
8.72 |
||||
Total average shareholders' equity to total average assets |
11.45 |
11.61 |
11.62 |
11.44 |
13.35 |
||||
Tangible equity to tangible assets (1) |
8.14 |
8.10 |
8.38 |
8.07 |
7.87 |
||||
Book value per common share |
$37.11 |
$36.86 |
$37.29 |
$36.30 |
$35.49 |
||||
Tangible book value per common share (1) |
25.49 |
25.18 |
25.60 |
24.57 |
23.79 |
||||
Market price: |
|||||||||
High |
24.93 |
21.31 |
26.52 |
30.13 |
33.14 |
||||
Low |
18.07 |
15.79 |
16.51 |
24.63 |
27.38 |
||||
Close |
24.17 |
17.70 |
17.95 |
25.80 |
28.84 |
||||
Market capitalization |
13,005 |
9,504 |
9,639 |
13,852 |
15,482 |
||||
Average common shares outstanding (000s) |
|||||||||
Diluted |
536,407 |
535,717 |
535,395 |
535,416 |
503,503 |
||||
Basic |
533,100 |
532,146 |
531,928 |
531,792 |
499,669 |
||||
Full-time equivalent employees |
28,615 |
29,182 |
29,483 |
29,235 |
29,052 |
||||
Number of ATMs |
2,914 |
2,899 |
2,889 |
2,919 |
2,924 |
||||
Full service banking offices |
1,651 |
1,659 |
1,658 |
1,661 |
1,665 |
||||
(1) See Appendix A for reconcilements of non-GAAP performance measures. |
|||||||||
(2) Total revenue, net interest margin, and efficiency ratios are presented on a fully taxable-equivalent ("FTE") basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. Total revenue - FTE equals net interest income on a FTE basis plus noninterest income. |
|||||||||
(3) Current period tier 1 common equity, tier 1 capital, total capital and tier 1 leverage ratios are estimated as of the earnings release date. |
|||||||||
(4) "NM" - Not meaningful. Those changes over 100 percent were not considered to be meaningful. |
|||||||||
SunTrust Banks, Inc. and Subsidiaries |
|||||||||
RECONCILEMENT OF NON-GAAP MEASURES |
|||||||||
APPENDIX A TO THE EARNINGS RELEASE |
|||||||||
(Dollars in millions, except per share data) (Unaudited) |
|||||||||
Three Months Ended |
|||||||||
March 31 |
December 31 |
September 30 |
June 30 |
March 31 |
|||||
2012 |
2011 |
2011 |
2011 |
2011 |
|||||
NON-GAAP MEASURES PRESENTED IN THE EARNINGS RELEASE(1) |
|||||||||
Efficiency ratio(2) |
69.50% |
81.45% |
71.05% |
70.17% |
67.83% |
||||
Impact of excluding amortization of intangible assets |
-0.48% |
-0.46% |
-0.50% |
-0.53% |
-0.50% |
||||
Tangible efficiency ratio(3) |
69.02% |
80.99% |
70.55% |
69.64% |
67.32% |
||||
Total shareholders' equity |
$20,241 |
$20,066 |
$20,200 |
$19,660 |
$19,223 |
||||
Goodwill, net of deferred taxes of $164 million, $154 million, $149 million, $144 million, and $139 million, respectively |
(6,180) |
(6,190) |
(6,195) |
(6,199) |
(6,185) |
||||
Other intangible assets, net of deferred taxes of $14 million, $16 million, $18 million, $21 million, and $24 million, respectively, and MSRs |
(1,142) |
(1,001) |
(1,120) |
(1,518) |
(1,635) |
||||
MSRs |
1,070 |
921 |
1,033 |
1,423 |
1,538 |
||||
Tangible equity |
13,989 |
13,796 |
13,918 |
13,366 |
12,941 |
||||
Preferred stock |
(275) |
(275) |
(172) |
(172) |
(172) |
||||
Tangible common equity |
$13,714 |
$13,521 |
$13,746 |
$13,194 |
$12,769 |
||||
Total assets |
$178,226 |
$176,859 |
$172,553 |
$172,173 |
$170,794 |
||||
Goodwill |
(6,344) |
(6,344) |
(6,344) |
(6,343) |
(6,324) |
||||
Other intangible assets including MSRs |
(1,155) |
(1,017) |
(1,138) |
(1,539) |
(1,659) |
||||
MSRs |
1,070 |
921 |
1,033 |
1,423 |
1,538 |
||||
Tangible assets |
$171,797 |
$170,419 |
$166,104 |
$165,714 |
$164,349 |
||||
Tangible equity to tangible assets(4) |
8.14% |
8.10% |
8.38% |
8.07% |
7.87% |
||||
Tangible book value per common share(5) |
$25.49 |
$25.18 |
$25.60 |
$24.57 |
$23.79 |
||||
Net interest income |
$1,311 |
$1,294 |
$1,263 |
$1,259 |
$1,249 |
||||
Taxable-equivalent adjustment |
31 |
30 |
30 |
27 |
28 |
||||
Net interest income - FTE |
1,342 |
1,324 |
1,293 |
1,286 |
1,277 |
||||
Noninterest income |
876 |
723 |
903 |
912 |
883 |
||||
Total revenue - FTE |
2,218 |
2,047 |
2,196 |
2,198 |
2,160 |
||||
Securities gains, net |
(18) |
(19) |
(2) |
(32) |
(64) |
||||
Total revenue - FTE excluding net securities gains(6) |
$2,200 |
$2,028 |
$2,194 |
$2,166 |
$2,096 |
||||
Total loans |
$122,691 |
$122,495 |
$117,475 |
$114,913 |
$114,932 |
||||
Government guaranteed loans |
(13,633) |
(13,871) |
(9,782) |
(9,133) |
(8,993) |
||||
Loans held at fair value |
(413) |
(433) |
(452) |
(449) |
(457) |
||||
Total loans, excluding government guaranteed and fair value loans |
$108,645 |
$108,191 |
$107,241 |
$105,331 |
$105,482 |
||||
Allowance to total loans, excluding government guaranteed and fair value loans(7) |
2.16% |
2.27% |
2.42% |
2.61% |
2.71% |
||||
(1) Certain amounts in this schedule are presented net of applicable income taxes, which are calculated based on each subsidiary's federal and state tax rates and laws. In general, the federal marginal tax rate is 35%, but the state marginal tax rates range from 1% to 8% in accordance with the subsidiary's income tax filing requirements with various tax authorities. In addition, the effective tax rate may differ from the federal and state marginal tax rates in certain cases where a permanent difference exists. |
|||||||||
(2) Computed by dividing noninterest expense by total revenue - FTE. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. |
|||||||||
(3) SunTrust presents a tangible efficiency ratio which excludes the amortization of intangible assets other than MSRs. The Company believes this measure is useful to investors because, by removing the effect of these intangible asset costs (the level of which may vary from company to company), it allows investors to more easily compare the Company's efficiency to other companies in the industry. This measure is utilized by management to assess the efficiency of the Company and its lines of business. |
|||||||||
(4) SunTrust presents a tangible equity to tangible assets ratio that excludes the after-tax impact of purchase accounting intangible assets. The Company believes this measure is useful to investors because, by removing the effect of intangible assets that result from merger and acquisition activity (the level of which may vary from company to company), it allows investors to more easily compare the Company's capital adequacy to other companies in the industry. This measure is used by management to analyze capital adequacy. |
|||||||||
(5) SunTrust presents a tangible book value per common share that excludes the after-tax impact of purchase accounting intangible assets and also excludes preferred stock from tangible equity. The Company believes this measure is useful to investors because, by removing the effect of intangible assets that result from merger and acquisition activity as well as preferred stock (the level of which may vary from company to company), it allows investors to more easily compare the Company's book value on common stock to other companies in the industry. |
|||||||||
(6) SunTrust presents total revenue - FTE excluding net securities gains. The Company believes noninterest income without net securities gains is more indicative of the Company's performance because it isolates income that is primarily client relationship and client transaction driven and is more indicative of normalized operations. |
|||||||||
(7) SunTrust presents a ratio of allowance to total loans, excluding government guaranteed and fair value loans, to exclude loans from the calculation that are held at fair value with no related allowance and loans guaranteed by a government agency that do not have an associated allowance recorded due to nominal risk of principal loss. |
|||||||||
SunTrust Banks, Inc. and Subsidiaries |
||||||||||||||
RECONCILEMENT OF NON-GAAP MEASURES |
||||||||||||||
APPENDIX A TO THE EARNINGS RELEASE, continued |
||||||||||||||
(Dollars in millions, except per share data) (Unaudited) |
||||||||||||||
Three Months Ended |
||||||||||||||
March 31 |
December 31 |
September 30 |
June 30 |
March 31 |
||||||||||
2012 |
2011 |
2011 |
2011 |
2011 |
||||||||||
NON-GAAP MEASURES PRESENTED IN THE EARNINGS RELEASE (1) |
||||||||||||||
Net income |
$250 |
$74 |
$215 |
$178 |
$180 |
|||||||||
Preferred dividends |
(3) |
(2) |
(2) |
(2) |
(2) |
|||||||||
U.S. Treasury preferred dividends and accretion of discount |
- |
- |
- |
- |
(66) |
|||||||||
Accelerated accretion associated with repurchase of preferred stock |
- |
- |
- |
- |
(74) |
|||||||||
Dividends and undistributed earnings allocated to unvested shares |
(2) |
(1) |
(2) |
(2) |
- |
|||||||||
Net income available to common shareholders |
245 |
71 |
211 |
174 |
38 |
|||||||||
Net income available to common shareholders |
$245 |
$71 |
$211 |
$174 |
$38 |
|||||||||
Accelerated accretion associated with repurchase of preferred stock |
- |
- |
- |
- |
74 |
|||||||||
Net income available to common shareholders excluding |
$245 |
$71 |
$211 |
$174 |
$112 |
|||||||||
Net income per average common share - diluted |
$0.46 |
$0.13 |
$0.39 |
$0.33 |
$0.08 |
|||||||||
Effect of accelerated accretion associated with repurchase of preferred |
- |
- |
- |
- |
0 |
|||||||||
Net income per average common share - diluted, excluding effect |
$0.46 |
$0.13 |
$0.39 |
$0.33 |
$0.22 |
|||||||||
(1) Certain amounts in this schedule are presented net of applicable income taxes, which are calculated based on each subsidiary's federal and state tax rates and laws. In general, the federal marginal tax rate is 35%, but the state marginal tax rates range from 1% to 8% in accordance with the subsidiary's income tax filing requirements with various tax authorities. In addition, the effective tax rate may differ from the federal and state marginal tax rates in certain cases where a permanent difference exists. |
||||||||||||||
SOURCE SunTrust Banks, Inc.
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