SunTrust 2008 Annual Report Download - page 3

To Our Shareholders:
As we all know, the banking landscape has changed
significantly, and not for the better, since I wrote our
annual report shareholder letter a year ago. Indeed,
the operating environment in 2008 for our industry —
and for our institution — was the most difficult I have
experienced in my entire career. The largely unprecedented
combination of punishing economic and market forces
that battered our industry throughout 2008 has been
well reported and need not be recounted here. We are
acutely aware that, from an investor perspective, 2008
was not a good year.
At the end of the day, any bank’s financial performance
largely reflects the economy in the markets in which it
operates. There is no way to minimize the negative impact
a deteriorating economy and meltdown in the housing
and credit markets had on SunTrust’s 2008 financial
results: Net income available to common shareholders
was $746.9 million, or $2.13 per average common
diluted share, for 2008, compared to $1,603.7 million,
or $4.55 per average common diluted share, for the
previous year. A comprehensive discussion of our 2008
financial results can be found in the Form 10-K that
follows this letter.
The effects of increasingly dismal market conditions in
2008 were most visibly reflected in the credit arena, as
net charge-offs, nonperforming loans, and credit-related
expenses all climbed higher as the economy sank lower.
Annual net charge-offs in 2008 were $1,564.3 million,
compared to $422.8 million in 2007; the corresponding
net charge-off ratios were 1.25% in 2008 and 0.35% in
the prior year. Total nonperforming loans were $3.9 billion,
or 3.10% of total loans, as of December 31, 2008,
compared to $1.4 billion, or 1.17% of total loans, as
of December 31, 2007. The increase in nonperforming
loans was mainly due to an increase in nonperforming
residential mortgages and real estate construction
loans, as the overall weakening of the housing markets
and economy continued to increase delinquencies and
decrease the value of our collateral.
One of the most difficult decisions we had to make in
light of the bleak economic environment was to reduce
the quarterly dividend to $0.10 per common share
outstanding beginning in 2009. Although dividend
reductions essentially became common practice in our
industry, we took this decision very seriously, as we are
sensitive to the impact it has on our shareholders. We
know that many of you have come to rely on a certain
level of dividend income from your SunTrust investment.
However, given the pressures on the industry and on
SunTrust, we concluded that maintaining the dividend
at previous levels was neither realistic nor responsible,
and, regrettably, the reduced dividend was the appropriate
financial decision for the preservation of long-term
shareholder value. You should know that this situation
merits, and will receive, ongoing analysis.
Financial Strength & Fundamentals
Ultimately, responsible financial stewardship calls for us
to manage the institution in a prudent manner to maintain
fundamental financial strength, which is always important
but never more so than in times of severe economic stress.
In this context, and reflecting our specific priority of
managing capital resources to provide strength and
stability against uncertainty as well as to support growth
initiatives, we completed three separate transactions
to optimize our long-term holdings of The Coca-Cola
Company (“Coke”) common stock. These Coke-related
transactions increased SunTrust’s regulatory capital
by $1.1 billion at an important time. Further, to balance
our responsibilities to our clients and our shareholders
with our responsibilities to help support the financial
system, we participated in the U.S. Treasury’s Capital
Purchase Program of the Emergency Economic Stabilization
Act of 2008.
The additional $4.9 billion in capital resulting from our
sale of preferred securities under this program enhances
our capacity to continue to make good loans to qualied
borrowers and work with homeowners under pressure.
SunTrust believes foreclosure prevention is central to
helping stabilize the housing market and is an active
participant in a cross section of industrywide homeowner
relief programs. In addition, we work aggressively to
directly help SunTrust clients at risk of foreclosure stay
SunTrust 2008 Annual Report
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