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Suntrust Banks Inc. (NYSE:STI)

27th Annual Meeting of Shareholders

April 24, 2012 9:30 am ET

Executives

Raymond D. Fortin - Corporate Executive Vice President, General Counsel and Corporate Secretary

William Henry Rogers - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Aleem Gillani - Chief Financial Officer and Corporate Executive Vice President

Raymond D. Fortin

Good morning. We will start the meeting in a few moments. Any person who can demonstrate that they are record shareholder or the proxy of such person, who wishes to ask a question during the question-and-answer period at the end of the meeting must check in at the table located at the reception area just outside the door in order to verify that they are shareholder.

You'll be given a gold card, which you must present to ask your question. If you wish to ask a question, please check in now before the meeting commences. I would like to note that we have put on each chair a copy of the meeting agenda and the rules of order for the meeting. If you do not have a copy of these, additional copies are available at the table in the reception area.

William Henry Rogers

Okay. Well, good morning, everyone. We're very pleased to welcome you to the 27th Annual Meeting of the Shareholders of SunTrust Banks, Inc. Anyone who has not voted either in person or by proxy is invited to do so now. The inspector of the election for this meeting is at the table just outside the doors in the reception area.

As Ray mentioned, you'll find at your seat the rules of order for the meeting. The Governance Committee of the Board has approved these rules and as Chairman of the Meeting, I have the responsibility to apply them.

The rules are designed so as to help ensure a meeting that is orderly and fair to all attending. I will endeavor to conduct a balanced meeting within these rules and other regulations knowing that you're here to learn more about SunTrust.

I would like to recognize our proxy committee, 2 of our executives: Aleem Gillani, Corporate EVP and Chief Financial Officer; and Raymond Fortin, Corporate Secretary and General Council seated to my right.

Ray, will you give us our report, which will begin the formal part of our meeting.

Raymond D. Fortin

Thank you. I present an affidavit that notice of this meeting has been duly and properly given and that a proxy statement has been furnished to each record holder of common stock of the company as of the record date of February 15, 2012. This affidavit is available if any shareholder wishes to examine it.

I also report that the inspector of election for this meeting, Jeanine Simon, of our transfer agent Computershare, has filed with me her oath of office and a certificate stating that holders of more than 454 million shares of common stock of the company or approximately 84% of the outstanding shares are present in person or by proxy at this meeting.

We'll have time for questions at the end of the meeting. As I stated earlier, you must have a gold card in order to ask a question.

William Henry Rogers

Thank you, Ray. We have a quorum, and I declare this meeting officially open for the transaction of business. To begin, we need approval of the minutes of our last annual meeting and the shareholders held on April 26, 2011. Ray Fortin has those minutes and is prepared to read them, unless there should be a motion to dispense with the reading and approve those minutes as written. Is there a second? Okay.

The first item on the agenda is the election of 14 directors to serve until our next annual meeting. Before naming the nominees, I'd like to take a moment to recognize 2 of our incumbent directors, who will retire immediately following this meeting: J. Hicks Lanier, Chairman and Chief Executive Officer of Oxford Industries; and Frank S. Royal, M.D., President and a member of Frank S. Royal, M.D., P.C. Mr. Lanier and Dr. Royal have served our company and our shareholders with distinction. Their perspective, insights and judgment have always been appreciated, and we are grateful for their service and dedication to SunTrust. Mr. Lanier is here. Hicks, would you please stand, so we can recognize you and thank you.

Continuing with our current business, the nominees are as follows, and I would like for each director to stand and acknowledge those in attendance today as I call their name: Robert M. Beall II, Chairman of Bealls Inc.; Alston D. Correll, Chairman of Atlanta Equity Investors and retired Chairman of the Board and former CEO of Georgia-Pacific Corporation; Jeffrey C. Crowe, Chairman of the Board of -- former Chairman of the Board of Landstar Systems, Inc.; Blake P. Garrett, Jr., Partner in Garrett and Garrett Construction; David H. Hughes, retired Chairman of the Board of Hughes Supply; M. Douglas Ivester, President of Deer Run Investments and Retired Chairman and Former CEO of The Coca-Cola Company; Kyle Prechtl Legg, retired Chief Executive Officer of Legg Mason Capital Management; William A. Linnenbringer, retired partner in the accounting firm of PricewaterhouseCoopers; G. Gilmer Minor, III, Chairman of the Board of Owens & Minor. And our newest Director, Donna Morea, Retired President and Current Director of CGI Technologies and Solutions, welcome. David M. Ratcliffe, Retired Chairman and CEO of the Southern Company; Thomas R. Watjen, President and CEO of Unum; Phail Wynn, Jr., Vice President for Regional Affairs for Duke University and Former President of Durham Technical Community College; and myself, William H. Rogers, Jr., Chairman and CEO of SunTrust Banks.

Thank you, all, and the chair recognizes Mr. Fortin.

Raymond D. Fortin

I move that the following resolution be adopted. Resolve that: Robert M. Beall II, Alston D. Correll, Jeffrey C. Crowe, Blake P. Garrett, Jr., David H. Hughes, M. Douglas Ivester, Kyle Prechtl Legg, William A. Linnenbringer, G. Gilmer Minor, III, Donna Morea, David M. Ratcliffe, William H. Rogers, Jr., Thomas R. Watjen and Phail Wynn, Jr. be elected as directors for a 1-year term and until their successors are elected.

William Henry Rogers

Thank you, Ray. Is there a second? Because no other nominations were made in accordance with our bylaws, I declare the nominations for directors closed. Mr. Fortin, will you give us a report of the inspector?

Raymond D. Fortin

The inspector of election reports that each person nominated has received approximately 96% or more of the total number of votes cast. We will publish the exact vote totals promptly after the inspector of election finalizes its vote report and certifies the final results.

William Henry Rogers

I hereby declare that each of the nominees has been elected for the terms indicated. Our next item of business is a nonbinding advisory vote on executive compensation. Again, I recognize Mr. Fortin.

Raymond D. Fortin

I move that the following resolution be adopted. Resolve that the holders of common stock of SunTrust Banks, Inc. approve the compensation of the company's executives as described in the summary compensation table, as well as in the compensation discussion and analysis and the other executive compensation tables and related discussion in the company's proxy statement.

William Henry Rogers

Is there a second? Mr. Fortin, will you give us the report of the Inspector of Elections?

Raymond D. Fortin

The Inspector of Elections reports that this item was approved by approximately 91% of the votes cast. Again, we will publish the exact vote totals promptly after the Inspector of Election finalizes its vote report and certifies the final results.

William Henry Rogers

Okay. Our next item of business is to ratify the appointment of Ernst & Young LLP as independent auditors for the company for 2012. And I recognize Mr. Fortin.

Raymond D. Fortin

I move that the following resolution be adopted. Resolve that the appointment of Ernst & Young LLP as independent auditors for SunTrust Banks, Inc. for 2012 is hereby ratified.

William Henry Rogers

Okay. Is there a second? Mr. Fortin, will you give us the report?

Raymond D. Fortin

The Inspector of Election reports that this item was approved by approximately 98% of the votes cast. Again, we will publish the exact vote totals promptly after the Inspector of Election finalizes its vote report and certifies the final results.

William Henry Rogers

This concludes the business portion of today's meeting. And the meeting of the SunTrust shareholders is now adjourned.

Now in a moment, I'm going to ask our Chief Financial Officer, Aleem Gillani, to review the financial highlights. But before I introduce Aleem, however, I want to take a few minutes to add my own perspective on our company, our improving performance and the still-challenging economic and business environment in which we continue to operate.

I'm pleased to stand before you today and tell you that the status of your company is strong, and it's getting stronger. In fact, the early read on 2012 is that the recovering economy is sustaining its traction, and SunTrust is building on the momentum we generated in 2011.

Now some of you may recall that when we met at this time last year, we acknowledged that the prior year had been extraordinarily difficult for many people and institutions in the markets we serve. And today, while we've seen some improvement -- as I just noted, we also understand that there's still many who are struggling and continue to need our help.

At SunTrust, we're keenly aware of the importance of what we do, the role we play in the lives of individuals and companies, the strength of the business climate and the communities overall. We work hard every day to help our clients realize those first.

The first savings account, the first car, first child to attend college, first home, we know that our clients are counting on us. To help them make well-informed decisions and to help guide their journey to a better sense of financial well being. We take these responsibilities very seriously.

And today, we're working to further enhance our products, our services, our training and all our investments so more and more members of the communities we serve can experience the difference that we have to offer at SunTrust.

Strategically, our focus remains unchanged: grow market share by primarily expanding share of wallet, diversify the balance sheet, optimize our business mix and improve our efficiency ratio.

First, we're talking openly and with specificity around growing both market share and share of wallet. That's more needs met, providing our teammates with the tools and the resources they need to deepen client relationships and capitalize our market disruption to acquire new ones. Put another way, we've clearly made the strong connection between outstanding service quality and the client loyalty that it creates, and we're asking our highly engaged workforce to leverage this to meet more client needs.

Second, the significant and sustained improvement we've achieved in our credit quality and its impact on our balance sheet has been foundational to our ability to deliver better results. We've targeted loan growth and commercial and industrial loans, consumer and government guaranteed loans, while significantly reducing and better diversifying our exposure to certain higher risk residential real estate-related loans.

Third, we've made significant progress in realigning our business mix, returning to a more normal business environment in commercial real estate as part of a broader emphasis on growing commercial loans. We're expanding client relationships with the growth of our strong diversified commercial business banking model. And we're investing in the capabilities and talent development and corporate investment banking, just as examples.

And fourth, we're driving significant process and operational change to improve our efficiency ratio. The efficiency ratio has both an expense and a revenue component. On the expense side, we're well underway in our program focused on reducing cost and strategic supply management, driving consumer bank efficiencies and improving our operating and support systems and staffing.

From a revenue point of view, as you know, we've spent a significant amount of time talking with our clients, gleaning their insights and learning firsthand about their needs. The information we capture from those conversations help us be more proactive and responsive and enable us to better match what we have to offer with what our clients are seeking. Those insights also help us prioritize and lead to decisions to invest in new technology, recognizing that more and more of our clients are looking for online, mobile and ATM channels for their banking needs and responding then to businesses in need of more sophisticated solutions to help manage their banking and their treasury management for treasury and payment challenges.

While we've been very successful in our efforts to create industry-leading loyalty, our focus now is to convert that loyalty into the same relative amount of associated revenue. These combined efforts will help deliver stronger performance.

While I'm on the topic of stronger performance, I want to reiterate our previously stated commitment to maintain our strong capital position. And our long-term goal to increase a return of capital of our shareholders. We greatly appreciate your confidence and investment in us, and we do not take it for granted.

As a result, we remain steadfast in our plan to increase the dividend over time and to institute share buybacks as appropriate and as discussions with our regulators and our performance makes possible.

In that vein, I'd like to take a few moments to comment on the recent reviews of our capital plans by the Federal Reserve and what some have referred to as the stress tests. It's actually part of something called, the Comprehensive Capital Analysis and Review or CCAR. SunTrust, along with 18 other financial institutions, submitted its capital plan to the Federal Reserve as required under the CCAR this past January, a plan we consider to be extremely conservative.

As you know, we learned in mid-March that our planned additional capital actions did not meet the Fed's guidelines. Under what was described by the Federal Reserve as a hypothetical and severely adverse scenario that employed conservative and simplified assumptions. That scenario and those assumptions included a 50% decline in the stock market, dramatically worsened unemployment, dramatically worsened GDP rates, another 20% decline in home prices below current levels.

To be clear, we were both surprised and disappointed in the outcome of the Fed's review, but we're looking forward. And as part of the process, we'll be resubmitting our capital plan. We've only just received guidance from the Fed regarding our resubmission, so I can't comment on our plans at this particular time.

I will say, however, that we were heartened by the market's response, reaction to our stock in the days following the announcement of the results. And even more by the subsequent statements from the Fed that they were revisiting their process, their interaction with the institutions being evaluated and the economic models that would be employed for future evaluations. We welcome the opportunity for greater transparency in this process and further dialogue with our regulators. And rest assured, we'll work very hard to get a very balanced outcome.

Let me make one additional comment regarding the regulatory environment. Regulatory changes continue to emerge, and we expect that will continue for some time to come as regulators work through 400 or so rule-making requirements under Dodd-Frank. We began to see the tangible financial impacts of new regulations specifically the debit interchange rule on the company last year.

You can be confident that we're committed to ensuring that our businesses remain competitive in this new environment. We'll manage through these changes, continue to take actions as we did last year with the unveiling of a new array of checking products that will help mitigate the financial impacts of new regulations on our business, but most importantly, while also serving our clients and building loyalty.

What's also in our corner is that our market's potential continues to be among the best in the country, with very attractive long-term demographic and economic growth characteristics, a factor clearly being recognized as new competitors enter our market. Now note that our markets have been attractive and highly competitive for quite some time. So while some of the names in our footprints may have changed, we're experienced bankers and competitors and remain confident at our ability to take on new challengers. Of course, none of this would be possible without the hard work and dedication of our teammates, who put the client first each and every day.

Some of you are in this room, some of you are listening on the webcast, so I'd like to take a moment to acknowledge and to thank you for the outstanding job that you're doing serving our clients.

Additionally, I'd like to recognize the management team in the room today. Will you please stand? From my directs. Now, we've added a few new faces to this team since last year, which I believe has added strength and key expertise to what's already a deep bench of talent. Thank you.

Now what I want everyone here to understand today is that this group, and in fact, all of our teammates are acutely focused on improving our performance. And I can assure you this group right here is a very focused group.

So thank you for joining us today. And with that, Aleem, let me turn it over to you.

Aleem Gillani

Thank you, Bill. Good morning, everybody. Thank you for joining us here today in person or on the webcast. I'll -- throughout my presentation, I'll refer to slide numbers from time to time, so that those of you on the webcast can follow along.

I'll start with a little brief recap of our 2011 results and then look a little more closely at our recent performance for the first quarter of this year. While 2011 was a challenging year overall, we ended it with a significantly better momentum than when it began. Many of our businesses demonstrated improved trends throughout the year, helping to offset some of the regulatory and economic headwinds we faced.

Balance sheet trends closed favorably, low-cost deposits continue their strong growth, demand deposits were up 22% over the prior year and loan growth exhibited a notable pickup during the third and fourth quarters. We also generated solid net interest income growth, which was up 4% over the prior year. We commenced an expense savings program with the goal of removing $300 million in operating cost from our run rate by the end of next year, and we made significant progress toward that goal.

Though still elevated relative to historical norms, credit metrics were markedly improved with nonperforming loans and net charge-offs both down almost 30%. And our capital ratios remain strong and well in excess of current and proposed regulatory requirements. The momentum we generated, particularly during the second half of the year, as well as the impact of some of the challenges we faced, can readily be seen on Slide 4's summary income statement.

I'll point your attention to the bottom line net result, which was up significantly from 2010. The primary drivers of the growth were higher net interest income due to the favorable loan and deposit trends I mentioned, a lower provision for loan losses due to improved credit trends and the elimination of the TARP preferred dividends, following our first quarter redemption of those shares.

The next section of the presentation, I hope, will clearly demonstrate to you the improved momentum that I've referenced. You'll see favorable trends in our core banking fundamentals that built throughout the year and continued into the solid first quarter results we reported yesterday.

Net interest income steadily increased throughout 2011, and that trend continued into the first quarter of the year. This was attributable to actions within both our loan and deposit businesses.

On the asset side, we had higher loan balances, so we generated more interest income. And on the liability side, interest expenses were lower due to the favorable shift in our deposit mix, specifically growth in lower cost deposit accounts, which more than outpaced the decline in higher cost deposit balances.

We also benefited from lower long-term debt balances as we utilized excess liquidity to reduce indebtedness. You also see that our net interest margin has been relatively stable over the last several quarters, despite what has been a difficult interest rate environment for the banking industry.

The other component of revenue, fee income, faced some regulatory headwinds, but did see pockets of growth in areas such as investment banking and wealth management. The decline you see in the fourth quarter was due to new industry regulations that reduced debit interchange income, as well as the negative impact on revenue from mortgage repurchases.

But first quarter 2012 performance bounced back nicely, driven by higher mortgage-related revenue as refinance-related production was up given the low interest rate environment and the commencement of the HARP 2.0 program.

HARP 2.0 helps underwater borrowers refinance their loans to take advantage of currently low interest rates and reduce their payments. We're being proactive about helping borrowers utilize this program as we think it's beneficial for our clients and our country.

Expenses have been elevated over the last several years due to credit-related costs and legacy mortgage issues that have persisted. While we fully expect those costs to normalize over time, we're also focused on improving our core expense level. As I mentioned earlier, we've committed to eliminating $300 million annually from our expense base through a number of initiatives.

As of the first quarter, we had achieved annual run rate savings of $190 million. This is good progress, but we still have work to do. We're acutely focused on efficiency at SunTrust. We're inculcating it into our culture, and teammates across the organization are engaged and committed to improving efficiency.

Moving to the balance sheet. You see that momentum and loans has been very positive. Average performing loans have steadily increased, and that trend continued in the first quarter with a $3.3 billion sequential quarter increase. We have seen good growth across our consumer, residential and commercial portfolios.

I'll also point out that we're growing in the areas that we've targeted for growth, including C&I, guaranteed mortgage and consumer loans. We've been able to post these solid total loan growth numbers despite actively managing down certain loan categories, which you see on Slide 10.

The portfolios that we've categorized as higher risk declined by $2.4 billion from a year ago and $13.6 billion or 58% since 2008. The overall decline in the higher-risk balances has essentially been offset by increases in government-guaranteed loans. Taken together, this decline in higher-risk balances and increase in government-guaranteed loans, a double derisking, if you will, has helped to significantly alter the risk profile of the company in a relatively short period of time. This improved risk profile is evident when you take a look at our credit metrics on Slide 11.

Credit quality improved steadily throughout 2011 and that trend continued in the first quarter. We've seen significant improvement in all of our credit metrics, and this slide shows the marked decline in nonperforming assets and net charge-offs. We're obviously pleased with these improvements.

Let's take a look at our deposits. Our clients' decisions to grow their deposit balances with SunTrust have benefited us over many quarters. And that continued into the first quarter of 2012.

During the past year, we grew low-cost deposit accounts by $7.5 billion, while reducing our higher cost CDs by $2.5 billion. The favorable deposit trends have aided our already strong liquidity position and have been a major driver of our net interest income growth. These trends also evidenced the success of our relationship-based, client loyalty-driven approach to banking. This is further substantiated by our growth in market share. We were up in 8 of our 10 largest markets last year.

I'll spend a moment on our capital position before I turn it back over to Bill. Slide 13 shows our Tier 1 common ratio trend, which is the metric most closely watched in relation to capital adequacy.

As of the end of the first quarter, our ratio is estimated to be 9.3%, which is well in excess of both current and proposed regulatory standards.

To wrap up my comments, throughout 2011, we built improved momentum in areas that are the key drivers to our financial performance. And that momentum continued into the first quarter of 2012. We're keenly focused on driving higher levels of return for our shareholders. And I hope you'll observe this over the course of this coming year.

With that, I'll turn it over to Bill to close our formal remarks.

William Henry Rogers

Thank you, Aleem. The final slide of our presentation summarizes what you've heard from Aleem and me today. The bottom line is we're very well positioned. We're building momentum, and I believe we've prioritized appropriately in our focused scenarios that can best impact our future performance. We're ready to capitalize upon opportunities that emerge as the economy continues to improve. We have the foundation to give us that confidence, a strong footprint and a diversified franchise, a successful service value proposition, a solid base of loyal clients and a core business momentum to build upon.

So thank you for joining us today, and thank you for your investment in SunTrust.

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