This summary is based on the first quarter fiscal 2008 earnings call conducted by SunTrust Banks, Inc. (STI) on April 22, 2008.
Management:
Director, Investor Relations: Steve Shriner
Chief Executive Officer: Jim Wells
Chief Financial Officer: Mark Chancy
Chief Risk and Credit Officer: Tom Freeman
Key Investors Issues
- EPS were 81 cents a share compared to $1.44 a share last year.
- Net profit fell 44.8% to $283.6 million from $513.9 million a year earlier.
- Net interest income dropped to $1.14 billion from $1.16 billion a year ago.
First Quarter Highlights
Fully taxable-equivalent revenue was $2,225.3 million, an increase of 7.6% compared to the first quarter of 2007, driven by gains from the company''s interest in Visa, gains on the sale of certain non-strategic assets, and double digit growth in many of the fee- related core business products.
These gains more than offset a slight decline in net interest income and net mark-to-market valuation losses.
- Fully taxable-equivalent net interest income was $1,167.8 million, a decrease of 1.7% from the first quarter of 2007, despite a five basis point improvement in margin, as earning assets declined 4.1% due to a reduction in interest earning trading assets. Both the increase in margin and the decrease in interest earning trading assets were a result of balance sheet management strategies. On a sequential quarter basis, net interest margin was down six basis points. The decline was driven by the impact of benchmark interest rate reductions on earning asset yields that exceeded reductions in rates paid on interest-bearing deposits.
Total noninterest income was $1,057.5 million, up $178.6 million, or 20.3%, from the first quarter of 2007.
Included in the first quarter of 2008 were the following transaction-related gains:
- $89.4 million from the gain on sale of Lighthouse Investment Partners,
- $86.3 million from the Visa initial public offering,
- $37 million from the sale/leaseback of corporate owned real estate.
The company recorded approximately $287 million in market valuation losses related primarily to investments in asset-backed securities that were acquired in late 2007 and other trading and securitization activities.
- These losses were recorded primarily in trading account profits and commissions, which declined $62 million, or 68.7%, from first quarter of 2007 and also included approximately $240 million of valuation gains recorded on the company''s publicly-traded debt net of associated hedges carried at fair value. In the first quarter of 2007, trading account profit and commissions income included $81 million in market valuation gains related to trading assets and liabilities and related hedges that the company elected to record at fair value.
- Underlying growth in trading account profit and commissions income as compared to the first quarter of 2007 was due to increased core client activity, primarily in derivative sales.
- Securities gains/losses included $64.1 million in market value impairment related primarily to certain asset-backed securities that were classified as available for sale and estimated to be other-than-temporarily impaired at quarter end, triggering accounting recognition of the unrealized loss in current period earnings.
Mortgage production income was $85.5 million compared to a loss of $8.7 million in the first quarter of 2007.
The increase was due to higher margins on current mortgage production, as well as certain changes in accounting methodologies. Specifically, application of Staff Accounting Bulletin 109 (SAB 109) accelerated the recognition of servicing value to the date of the interest rate lock commitment in 2008, and in connection with the company''s second quarter of 2007 election to record at fair value certain newly-originated mortgage loans held for sale, the recognition of loan fees were accelerated in 2008 to the date of closing. The first quarter of 2008 included $52.6 million in market value declines in mortgages held for sale, while the first quarter of 2007 included $42.2 million of income reductions related to the company''s adoption of the fair value accounting standards and $26.6 million of losses related to Alt-A loan valuations.
The company experienced strong growth in the following noninterest income categories:
- Service charges on deposit accounts increased 12.1%, retail investment services increased 13.8%, card fees increased 14.9%, and investment banking income increased 10.5%.
- Trust and investment management income decreased 7.6% compared to the first quarter of 2007, which reflects the sale of Lighthouse Investment Partners on January 2, 2008. The first quarter of 2007 results included a $32.3 million gain on sale upon merger of Lighthouse Partners.
Total noninterest expense was $1,255.1 million, up $19.1 million, or 1.5%, from the first quarter of 2007 and down $200.2 million, or 13.8%, on a sequential quarter basis as the company recognized the benefits of its cost savings from the E2 Efficiency and Productivity program.
- Personnel expenses increased $16.1 million, or 2.3%, from the same period in 2007. However, personnel expenses would have declined if not for a $34.5 million impact related to loan origination costs that were deferred prior to the company''s election to record at fair value certain newly-originated mortgage loans held for sale. Total personnel declined from 33,397 as of March 31, 2007 to 31,745 as of March 31, 2008. Compared to the fourth quarter of 2007, personnel expense increased $32.3 million, or 4.7%, primarily due to the seasonal increase in company paid payroll taxes and matching contributions.
