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As of March 31, 2011, SunTrust had total assets of $170.8 billion and shareholders’ equity of $19.2 billion, representing 11.3% of total assets.
During the first quarter, common shareholders’ equity increased as a result of the issuance of $1.0 billion in common equity, while total shareholders’ equity declined $3.9 billion as a result of the redemption of $4.9 billion in the TARP preferred shares. Book value per common share and tangible book value per share were $35.49 and $23.79, respectively, as of March 31, 2011.
Loans
During the reported quarter, average loans were $115.2 billion compared with average balances of $114.9 billion and $114.4 billion during 4Q10 and 1Q10, respectively. The relatively flat sequential quarter balance was the net effect of growth in targeted portfolios being offset by declines in higher-risk categories. Consumer loans grew due to the acquisition of high-quality auto loans in 4Q10, while commercial & industrial loans also increased. Sequential declines occurred in higher-risk segments of the portfolio including commercial construction and certain other real estate-related categories.
Compared with 1Q10, average loans increased $0.7 billion or less than 1%. Growth was driven by the acquisition of auto and student loans, as well as by organic growth in commercial & industrial (C&I) and government-guaranteed residential loans. The growth was offset by reductions in commercial construction, non-guaranteed residential mortgages, and home equity products. The net effect of the growth and declines within these particular loan categories resulted in a continued improvement in the risk profile of the portfolio. As of March 31, 2011, approximately 8% of the company’s loan portfolio comprised government-guaranteed loans.
Despite continued soft loan demand, the company remained focused on extending credit to qualified borrowers during this uncertain economic landscape. To that end, during the first quarter, the company extended approximately $16.5 billion in new loan originations, commitments, and renewals of commercial, residential, and consumer loans to its clients.
Deposits
Average consumer and commercial deposits in 1Q11 totaled $120.7 billion compared with $119.7 billion in 4Q10 and $115.1 billion in 1Q11. The sequential increase of $1.0 billion, or 0.9%, was concentrated in all low-cost deposit categories, while time deposits continued to decline, resulting in continued improvement in the deposit mix. The $5.6 billion or 5% y/y increase was driven by low-cost deposits, primarily demand and money market accounts, which grew a combined $10.1 billion or 17%, while time deposits declined $4.6 billion or 19%.
While changing client preferences and the economic environment have contributed to this favorable shift in deposit mix, SunTrust also attributes the low-cost deposit growth to its investments in enhancing the client experience, its marketing initiatives and its growth in core households.
Asset Quality
Asset quality continued to improve during the quarter, with nonperforming loans, nonperforming assets, early stage delinquencies, and net charge-offs all declining.
As of March 31, 2011, the allowance for loan losses was $2.9 billion, representing 2.49% of total loans, down 9 bps from year end. The allowance for loan losses declined $120 million during the reported quarter as a result of the improvement in asset quality.
Net charge-offs (NCOs) were $571 million in 1Q11 compared with $621 million in 4Q10 and $821 million in 1Q10. The $50 million sequential decline was concentrated in commercial loans, while other loan categories were relatively flat. NCOs declined $250 million or 30% y/y, with declines in all loan segments.
In 1Q11, net charge-offs to total average loans ratio was 2.01%, an improvement of 13 bps q/q and 90 bps y/y.
Nonperforming loans (NPLs) declined for the seventh consecutive quarter and as of March 31, 2011, they were $4.0 billion versus $4.1 billion in 4Q10 and $5.2 billion in 1Q10. The $139 million or 3% sequential decline was attributable to reductions in commercial construction and residential mortgage loans, partially offset by an increase in commercial real estate loans. A portion of the decline was also attributable to the transfer of $57 million of nonperforming residential mortgage loans to loans held for sale, as the company elected to actively market these loans for sale during the reported quarter and intends to sell them during 2Q11. The $1,214 million or 23% y/y decline was driven primarily by reductions in the commercial & industrial (C&I), commercial construction, residential mortgage, and residential construction loan classes.
At the end of 1Q11, NPLs represented 3.46% of total loans, down 8 bps from 4Q10 and down 109 bps from 1Q10.
As of March 31, 2011, other real estate owned totaled $534 million, down $62 million q/q.
Early stage delinquencies were 1.15% as of March 31, 2011, a modest improvement of 3 bps from year end. Excluding government-guaranteed student loans and Ginnie Mae insured repurchased mortgage loans, early stage delinquencies were 0.80%, a decline of 10 bps q/q and 24 bps y/y.
Accruing and non-accruing restructured loans totaled $3.6 billion as of March 31, 2011, which was relatively stable compared with year end. Restructured loans related to residential mortgages amounted to $3.1 billion, while loans to commercial clients were $0.5 billion.
Nonperforming assets (NPAs) were $4.6 billion in 1Q11, down 4% q/q and 24% y/y.
Capital Structure
The company enhanced the composition of its capital base in 1Q11 through the issuance of $1.0 billion in common equity and the redemption of $4.9 billion in the TARP preferred shares. As a result, the estimated Tier 1 common equity ratio is expected to increase 92 bps to 9.00%. As of March 31, 2011, the Tier 1 capital and total capital ratios are expected to decline 267 bps and 264 bps, respectively, due to the TARP preferred shares redemption compared with 11.00% and 13.90% in 4Q10, respectively.
The company’s capital position remains well above the current regulatory requirements, as well as the proposed guidelines recently published by the Basel Committee and endorsed by the U.S. regulatory agencies. The company also continues to have substantial liquidity as the inflows of deposits have largely been retained in cash or invested in high quality government-backed securities. In addition, the company continues to have significant available borrowing capacity from its contingent funding sources, and it completed a $1.0 billion issuance of senior debt during 1Q11.
Outlook: Some firms believe that the company would announce a capital management program soon, as it has a relatively strong capital position despite a weak organic growth.
TARP Repayment
On March 30, 2011, SunTrust announced that it had completed its previously announced repurchase of $3.50 billion of Fixed Rate Cumulative Preferred Stock, Series C and $1.35 billion of Fixed Rate Cumulative Preferred Stock, Series D held by the United States Treasury under the Troubled Asset Relief Program's Capital Purchase Program. The company conducted a successful $1.04 billion common stock offering followed by a $1 billion senior debt offering earlier this month as key steps in its plans to repurchase the preferred stock issued under the TARP.
U.S. Treasury Preferred Dividends
For 1Q11, the company recorded $66 million of preferred dividends related to $4.85 billion in the TARP preferred shares issued to the U.S. Treasury under the Capital Purchase Program. In addition, in conjunction with the reported quarter redemption of the TARP preferred shares, the company incurred a non-cash charge to net income available to common shareholders of $74 million, related to the unamortized discount on the TARP preferred shares.
Dividend
On June 15, 2011, SunTrust paid a regular quarterly cash dividend of $0.01 per share to shareholders of record as of June 1, 2011. The company also paid a quarterly cash dividend of $1,022.22 per share on SunTrust's Perpetual Preferred Stock, Series A to shareholders of record as of June 1, 2011.
On March 15, 2011, SunTrust paid a regular quarterly cash dividend of $0.01 per share to shareholders of record as of February 28, 2011. The company also paid a quarterly cash dividend of $1,000.00 per share on SunTrust's Perpetual Preferred Stock, Series A, to shareholders of record as of February 28, 2011.
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