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SunTrust Banks, Inc. (STI)

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Q3 2017 Antithesis Appointment Call

October 20, 2017 08:00 AM ET

Executives

Ankur Vyas - Director of IR

Bill Rogers - Chairman and CEO

Aleem Gillani - CFO

Analysts

Matt O'Connor - Deutsche Bank

John McDonald - Bernstein

Ken Usdin - Jefferies

Betsy Graseck - Morgan Stanley

Marty Mosby - Vining Sparks

John Pancari - Evercore ISI

Geoffrey Elliott - Autonomous Research

Erika Najarian - Bank of America

Mike Mayo - Wells Fargo

Presentation

Operator

Ladies and gentlemen, acknowledge you for continuing by, and acceptable to the SunTrust Added Division Antithesis call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's appointment is actuality recorded.

I would now band to about-face the appointment over to our host, Ankur Vyas. Amuse go ahead, sir.

Ankur Vyas

Thanks Julia. Acceptable morning anybody and acceptable to our added division 2017 antithesis appointment call. Acknowledge you for abutting us. In accession to today's columnist release, we accept additionally provided a presentation that covers the accommodation we plan to abode during our call. The columnist release, presentation and abundant cyberbanking schedules can be accessed at investors.suntrust.com.

With me today, amid added associates of our controlling administration aggregation are Bill Rogers, our Chairman and Chief Controlling Officer and Aleem Gillani, our Chief Cyberbanking Officer.

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Before we get started, I allegation to admonish you that our comments today may board advanced statements. These statements are accountable to risks and ambiguity and absolute after-effects could alter materially. We account the factors that adeptness account absolute after-effects to alter materially in our SEC filings which are accessible on our website.

During the call, we will altercate non-GAAP cyberbanking measures aback talking about the company's performance. You can accretion the adaptation of these measures to GAAP cyberbanking measures in our columnist absolution and on our website, investors.suntrust.com. Finally, SunTrust is not amenable for and does not edit, nor agreement the accurateness of our antithesis teleconference transcripts provided by third-parties. The alone accustomed alive and archived webcasts are amid on our website.

With that, I’ll now about-face the alarm over to Bill.

Bill Rogers

Thanks, Ankur and acceptable morning everyone. I will activate with a abrupt overview of the division and again I am action to about-face it over to Aleem for added details. I will accomplish with some perspectives on how our achievement aligns able-bodied with our beforehand thesis.

So, afore I get into the accommodation of the cyberbanking achievement of the company, I appetite to accord acknowledgment to our teammates, for the amazing accomplishment they put alternating to advice clients, communities and adolescent teammates who were impacted by the hurricanes.

For those of you that apperceive us well, you apperceive we’re a purpose apprenticed organization, and the way our teammates responded in the deathwatch of these adverse storms absolutely approved our purpose and action. Teammates above the aggregation went aloft and above the alarm of assignment alive overtime, arrange adaptable ATMs, commitment bare food and donations, and alike abounding accomplishment boats to ensure that we helped our audience beforehand cyberbanking aplomb during these arduous times. So, admitting the accent circumstances, it was a appreciative moment for me as the baton of this abundant team.

Now, let me get into some specifics of the quarter. This division antithesis per allotment were $1.06, up 16% year-over-year, this achievement is apprenticed by constant beheading adjoin our action and beforehand thesis. We delivered solid acquirement growth, decidedly in areas area we accept a approved aggressive advantage, we bigger our adeptness and afterwards our able basic position is acceptance us to abate our allotment count.

We delivered this all-embracing performance, alike afterwards accounting for blow accompanying assets bills. Above all fronts, whether its acquirement growth, advantage or credit, we had a able quarter.

While on the surface, accommodation beforehand is lower there was a lot of absolute movement that’s accident underneath. With C&I abundant of the animated paydowns are from audience we acquainted to admission to basic markets, area allotment absolutely bluntly don’t accommodated our hurdles. Therefore, we accept bigger the ROE contour of the aggregation and freed up basic for added applicant business, or to acknowledgment to our shareholders and that’s a tradeoff we’re able making.

And customer we are still seeing acceptable beforehand above all fronts, in actuality this division was a almanac for action beck originations. This is furthering the absolute mix about-face aural the accommodation portfolio, accidental to our NIM amplification and allowance us abound net absorption assets which was up $28 actor sequentially.

Within non-interest income, basic bazaar continues to accomplish at absolute aerial levels. Beforehand cyberbanking assets is up a allusive 29% year-to-date and it's bright that the amount hypothesis we board to our ample audience charcoal awful differentiated in the marketplace.

Net net revenues are up 2% sequentially and 4% year-over-year, the closing of which was accomplished admitting a about 50% abatement in mortgage assembly income, which is a absolute attestation to the bigger assortment of the franchise.

I am additionally admiring with the adeptness beforehand we abide to make. As you’ll bethink I adumbrated beforehand this year that our adeptness achievement bare to improve. We accept fabricated acceptable beforehand aback again and we are creating alike added drive above the aggregation to accomplish added efficiencies. This includes the accomplishments we took this division to beforehand our progress, both to ensure that we are able to bear on our commitments to our owners and actualize accommodation for approaching beforehand and growth.

Asset affection and constant underwriting and acknowledgment conduct abide to be key areas of backbone for the company. This angle is additionally aggregate by S&P who upgraded our acclaim ratings angle to absolute in September. We did accept an animated accouterment amount this division to board for advancing losses from the hurricanes. But these losses are absolute acquiescent in the ambience of the all-embracing aggregation decidedly accustomed the backbone and assortment of the accommodation portfolio.

And finally, we commenced our 2017 basic plan this division which agency anniversary adjustment not alone assets incremental buying from the aggregation as a aftereffect of our 38% admission in allotment repurchases, but they additionally account from a 54% admission in banknote dividends.

So big picture, I’m admiring with how the year is progressing. Our constant cardinal focus keeps us on clue to bear our sixth afterwards year of EPS growth, adeptness improvements and college basic allotment to shareholders. Our ROE contour additionally continues to beforehand a absorption of bigger efficiency, acclimatized antithesis area administration and able acclaim quality.

So, with that as a abbreviate overview, I’ll about-face it over to Aleem to board some added specifics on the quarter.

Aleem Gillani

Hi, acknowledge you Bill. Acceptable morning everybody, acknowledge you for abutting us this morning. I’ll activate on beforehand 4. Our net absorption allowance bigger one abject point this division which helped to drive the $28 actor admission in net absorption income. As anticipated, deposits betas did admission but abundant of the consecutive change was due to a one time reprising of assertive apartment deposits and allowance accounts in backward June. Therefore, while betas will acceptable abide to nudge advancement overtime, the abruptness of admission will not bout this quarter’s level.

Looking to the fourth quarter, we apprehend the net absorption allowance to abatement by one to three abject points. This is constant with our appearance that NIM bullwork bottomward in abode afterwards a amount backpack accustomed backward drop costs and dart compression in the C&I book, which is partially account by connected absolute mix about-face in the all-embracing portfolio. Above that, NIM trends will depend on the amount ambiance and we apprehend some NIM amplification as the short-end of the ambit continues to rise.

Moving to beforehand 5, you will see that non-interest assets added by $19 actor sequentially primarily apprenticed by our connected success in affair the basic markets needs of added audience above the absolute ample platform. This division specifically, basic markets accompanying assets added to $24 actor sequentially abundantly due to M&A and disinterestedness which both had almanac quarters, a abundant assurance of SunTrust’s accretion cardinal appliance with our clients.

Across the basic markets platform, we’re encouraged not alone by our accepted success, but additionally by the cogent beforehand opportunities that abide as we advantage our aggressive advantage to aggrandize and deepen relationships with our beforehand banking, bartering banking, bartering absolute acreage and clandestine abundance clients.

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Mortgage accompanying assets was additionally up by $7 actor sequentially as a aftereffect of bigger accretion on auction margins. These assets were partially account by lower bartering absolute acreage accompanying assets accustomed slower levels of activity. But we do apprehend that to backlash in the fourth quarter. Let’s move on to costs on beforehand 6.

Expenses were abiding about to the above-mentioned division and as Bill mentioned, we did accept some detached items. First, several bequest acknowledged affairs were bound in the third quarter, which totaled up to $58 actor of acknowledged accretion reversals. These allowances were abundantly captivated by several detached charges, including an animated severance accrual.

In addition, we additionally wrote bottomward assertive software accompanying assets, as we beforehand technology enabled adeptness initiatives, decidedly our alteration to the cloud. Our able all-embracing business achievement additionally resulted in added allurement advantage amount this quarter.

Compared to the above-mentioned year, costs beneath by $18 million, due to bigger amount conduct and advancing adeptness initiatives. In accurate alfresco processing and software beneath by $22 million, partially as a aftereffect of added focus on third-party costs.

As you will see on beforehand 7, the absolute adeptness arrangement for the division was 59.2%. This includes the net aftereffect of detached allowances and accuse accustomed in the division and I am admiring to agenda that our amount adeptness as a aggregation continues to improve. Clearly the adeptness initiatives we accept been active adjoin for abounding years, are active absolute operating advantage and there is still added beforehand to be made.

Across the aggregation we are demonstrating acute focused and adeptness about abbreviation beneath advantageous costs to board allotment for investments in talent, technology and bigger artefact offerings, while additionally accomplishing our ambition of a sub 60% absolute adeptness arrangement by 2019.

Moving to beforehand eight. Our asset affection metrics abide strong, apparent by alone 21 abject credibility of net charge-offs and 48 abject credibility of non-performing loans. These low levels reflect the about backbone we are seeing above our absolute portfolio.

The ALLL arrangement added by 3 abject credibility this quarter, as a aftereffect of advancing losses from the contempo hurricanes. As it relates to blow impacts, there will be a bashful uptick in NPLs and charge-offs over the abutting several quarters, primarily apprenticed by customer and residential loans. In beforehand of that, this apprehension is congenital into this quarter's allowance bill.

Overall, we still apprehend to accomplish aural a 25 abject credibility to 35 abject credibility net allegation off arrangement over the abreast term, and additionally abide to anticipation the accouterment akin that should almost almost net charge-offs.

Let’s booty a attending at the antithesis area on beforehand nine. Boilerplate loans were abiding sequentially, as beforehand in customer lending account declines in C&I. On a year-over-year basis, boilerplate assuming loans grew 2%, with ample based beforehand above best customer lending products.

As Bill mentioned earlier, C&I accommodation balances accept been declining, as solid amount assembly is actuality masked by lower blaster appliance and animated paydowns. Conversely, we are benefiting from this to some extent, aural the basic bazaar business, a acceptable representation of our ample and assorted capabilities. That actuality said, we are accepting acceptable chat with our clients, as accuracy on assorted action advanced develops, we accept our audience will be accessible to advance and we are able-bodied positioned to accommodated their needs, whether buy a lending, basic markets or added solutions.

Turning to deposits, boilerplate applicant deposits were abiding sequentially, and up 3% year-over-year, with beforehand above best articles and both segments. Period imbalances were up 2%, abundantly due to acting accumulated deposits. Constant with our annotation in July, the able drop beforehand we've produced over the accomplished several years, in accession to our admission to low amount funding, enables us to carefully administer our allotment base, and accordingly added finer managed our all-embracing drop beta. Our ambition continues to be to aerate our amount hypothesis alfresco of [repeat], by affair added of our clients' needs, via cardinal investments in aptitude and technology.

Slide 11 provides an amend to our basic position. Our estimated Basel III Accepted Disinterestedness Tier 1 arrangement on a absolutely phase-in abject was 9.5%, abiding with the above-mentioned quarter, alike afterwards we commenced our 2017 basic plan, which provided for 54% admission in the allotment and a 38% admission in allotment repurchases.

As a reminder, we issued $750 actor of adopted banal in May, and we may attending to booty advantage of able bazaar altitude to added optimize our basic assemblage over the advancing quarters. Also, backward in the third quarter, the Federal Assets appear the apprehension of proposed rulemaking, tailored appear simplifying basic rules for bounded banks like SunTrust. While we do not currently apprehend the changes to materially appulse our absolutely phased-in basic ratios, the rules accumulated with contempo aldermanic proposals in the abode incentive, are admirable accomplish appear dressmaking adjustment to the absolute accident contour and complication of adapted banks. Efforts we acerb encourage, accustomed our simple and calm business model.

Let’s booty a attending at the articulation reviews, alpha with Customer on beforehand 12, area we connected to bear advantageous all-embracing business and acquirement momentum. Our 2% consecutive acquirement beforehand was abundantly apprenticed by net absorption income, which was up 3% and 8% year-over-year as a aftereffect of able accommodation and drop growth, in accession to connected improvements in accommodation mix.

Our targeted beforehand in customer lending are consistently acquiescent acceptable results, and offsetting the declines in home disinterestedness balances, apparent by the 2% consecutive and 4% year-over-year admission in boilerplate loans.

Non-interest assets was bottomward 15% year-over-year, abundantly due to the lower mortgage accompanying income, accustomed the animated refinancing action we saw aftermost year. But added afresh mortgage accompanying assets has amorphous to stabilized, which collection the 2% consecutive admission in non-interest income. Aural [indiscernible] particularly, we’re admiring with the bigger drive we accept developed as able-bodied as administration accompanying revenues alpha to counterbalanced and to abound slightly. This is a absorption of our applicant aboriginal focus and connected advance in capabilities, constant in our adeptness to allure and application top aptitude and abound AUM. Added accurately in the accomplished few months, we've assassin teams in New York and Texas, which contributes added to our adeptness to abound AUM and expands our geographic reach.

Provision amount did admission on a consecutive and year-over-year abject abundantly due to the assets body associated with hurricanes in accession to able accommodation growth. The hurricanes will additionally abundantly burden acquirement in the advancing abode accustomed abatement we’re accouterment for assertive audience by waiving fees and accouterment acquittal abstinence constant with our purpose aggressive culture.

This admission in accouterment was abundantly account by the acknowledged accretion reversals which was the primary disciplinarian of the abatement in expenses. Overall, we’re authoritative beforehand in convalescent the adeptness and capability of the customer articulation affirmation in allotment by connected beforehand in adaptable assurance and acceptance and the 7% year-over-year abridgement in annex cut.

Our advancing action of amalgam mortgage into customer will additionally crop added results. By bringing all customer articles and casework beneath one segment, we will be able to actualize an added applicant axial access constant in a added efficient, able and bigger applicant experience.

Moving on to wholesale, we delivered almanac annual acquirement and net assets in allotment due to able markets altitude and a amiable acclaim ambiance but additionally cogitating of the connected cardinal drive we’re accepting with our clients. Annual acquirement surpassed $1 billion for the aboriginal time and was up 4% sequentially and 13% year-over-year, primarily due to the accumulated backbone of beforehand cyberbanking and trading.

Growth in beforehand cyberbanking was ample based above best articles and applicant segments. Added specifically, M&A and disinterestedness two businesses which accept been key areas of beforehand for us anniversary accept a almanac quarter. As we abide to become a added accordant cardinal adviser to our clients, we’re not alone growing these two advising businesses at a faster clip than the acceptable debt businesses, we’re additionally accretion our boilerplate fee per transaction and abbreviation our assurance on accouterment antithesis sheet, thereby convalescent our acknowledgment on equity. In fact, CIB’s ROE in the third division was 13.5%.

Net absorption assets was additionally a key contributor to the able acquirement growth, up 3% sequentially and 13% year-over-year, as a aftereffect of bigger accommodation yields and connected conduct on all-embracing returns. Admitting almanac revenue, non-interest amount was abiding sequentially and up 8% compared to the above-mentioned year as a aftereffect of college advantage angry to able acquirement growth, the accretion of Pillar and advancing investments in technology.

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Specifically, our new accommodation alpha belvedere is now absolutely deployed to bartering banking, bartering absolute acreage and clandestine abundance administration with deployments to CIB appointed in aboriginal 2018. We additionally abide to cycle out our new treasury and payments belvedere [indiscernible] to added clients. As a reminder, we appear the auction of our allowance exceptional accounts business aback in September and the transaction is appointed to abutting in the fourth quarter.

This is a solid assuming business but does not fit with our broader ample cyberbanking action and capabilities. And we'll board accommodation on the cyberbanking appulse afterwards the transaction closes. But we do not apprehend it to be actual to SunTrust’s all-embracing cyberbanking achievement and trajectory.

In conclusion, while bazaar altitude can drive annual variability, our differentiated business archetypal and ample cyberbanking continues to bear able after-effects and we apprehend to see added beforehand in 2018, decidedly if bread-and-butter beforehand accelerates and we accretion greater accuracy about tax refund.

Additionally, as you may accept seen, we accept afresh appear an amplification of the bartering cyberbanking business in to new markets in Ohio and Texas. Accustomed the success that we accept had in wholesale, our bartering cyberbanking business is afterward our beforehand cyberbanking and accumulated cyberbanking businesses into new and aerial beforehand markets.

Now let me about-face the alarm aback over to Bill.

Bill Rogers

Thanks, Aleem. So, to conclude, I’ll advanced to beforehand 14, which highlights how this quarter's achievement aligns with our all-embracing beforehand thesis, but added conspicuously additionally highlights the added befalling we accept above anniversary of these fronts. So first, while the hurricanes did aftereffect in an incremental accouterment appulse this quarter, the assignment that we accept done over the accomplished several years to alter our accommodation portfolio both by cartography and accommodation type, decidedly mitigated the abeyant accident from Harvey and Irma.

Not alone do we account from a assorted accommodation portfolio, but we additionally accept a assorted business mix, which has accustomed us to abound revenues admitting the cogent declines in mortgage assembly volumes thereby abbreviation all-embracing antithesis volatility.

Second, I abide assured in our beforehand angle and opportunities set. We abide to focus on growing and acknowledging our key areas of adverse and this has accurate to be awful effective. A little added specifically, beforehand cyberbanking has delivered about as abundant acquirement in the aboriginal nine months of this year as we did in all of 2016, and added as Aleem mentioned, M&A and disinterestedness are assuming absolute well, which I anticipate is a absolute attestation to our accretion cardinal appliance with our clients.

The investments we accept fabricated in LightStream, acclaim agenda and added customer lending initiatives are accouterment accomplished acquaintance for our audience in accession to constant and assisting growth.

Furthermore, we accept fabricated and abide to make, allusive investments in technology to advance our basement and bear differentiated adventures which actualize our purpose, accommodated evolving applicant needs and position us for growth. In the third division specifically, we added new capabilities for our adaptable and online platforms which bargain chiral abstracts access for our audience and improves their all-embracing experience.

Mobile deposits and sign-ons are up 20% year-over-year and in the third division added than a division of our customer sales occurred via agenda channel. Additionally, we are testing and highlight automatic action automation in assertive genitalia of the aggregation and we are accretion our billow capabilities. Anniversary of these investments will beforehand the applicant experience, advice us become added able and admission our adaptability and dispatch to market.

Third, in adjustment to ensure we accept able accommodation to accomplish approaching investments and beforehand in technology, we aloof abide awful focused on convalescent the adeptness of the company. As Aleem mentioned, we accept a cardinal of initiatives in abode to advice us become alike added efficient, some of these are assiduity of abiding strategies, while others are an dispatch which crave acute focus in adjustment to accomplish our sub-60% ambition in 2019.

In accession to convalescent our efficiency, we additionally abide to authenticate a focus on returns, we’re authoritative acceptable beforehand actuality as apparent by 12.5% ROTCE over the aftermost two quarters.

And afterwards our basic position charcoal able with accepted disinterestedness Tier 1 arrangement estimated to be 9.5%. This is alike added notable aback abutting adjoin our accident profile, area SunTrust consistently demonstrates amid the everyman levels of basic abrasion in accent analysis about to associate banks. The able accident adapted basic position afforded us the befalling to acquirement $330 actor of accepted shares in the third division and added our annual allotment by 54%.

While I'm appreciative of the able cyberbanking achievement that we've delivered, I'm appropriately admiring with the beforehand in how we delivered adjoin our purpose of lighting the way to cyberbanking well-being, and allowance added Americans accomplish cyberbanking confidence. At SunTrust, teammates apperceive purpose and achievement are accordingly linked, accurately aftermost division we appear the barrage of Drive onUp, which is not-for-profit affairs that aims to advice our accumulated and bartering audience accouter their advisers with the accoutrement they allegation for cyberbanking success. Today we accept added than 50 companies enrolled in Drive onUp and a cogent activity as our audience apprehend the articulation amid cyberbanking abundance and achievement of their employees.

This division we additionally alternate in the admirable aperture of the new Crosstown Concourse in Memphis, a above Seers architecture angry into a new alloyed acclimated development that includes an avant-garde cyberbanking aplomb center, area we accept agents professionals who board cyberbanking articulacy and advice in classes to the community. Crosstown is aloof a abundant archetype of how our capabilities and our purpose aggressive ability can accompany new action and bread-and-butter beforehand to the communities we serve.

Overall 2017 is advanced absolute able-bodied and my aplomb in all of our teammates to accomplish our purpose and bear able cyberbanking achievement continues to be absolute high.

Now with that Ankur, I’ll about-face it aback over to you for the Q&A.

Ankur Vyas

Great. Thanks, Bill. Cinthia, we’re now accessible to activate the Q&A allocation of the call. As we do that I’d like to ask the participants, amuse absolute yourself to one primary question, and one follow-up. So that we can board as abounding as accessible today.

Click actuality to apprehend catechism and acknowledgment session

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