Solidion Technology Inc. (STI) Q1 2015 Earnings Report, Transcript and Summary

Welcome to the SunTrust First Quarter 2015 Earnings Conference Call. All participants are in a listen-only mode for the duration of today's conference, which is being recorded. If you have any objections, you may disconnect at this time. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Now, I'll turn the call over to Mr. Ankur Vyas, Director of Investor Relations. Thank you, you may begin.

Good morning, and welcome to our SunTrust first quarter 2015 earnings conference call. Thank you for joining us. In addition to today's press release, we've also provided a presentation that covers the topics we plan to address during our call. The press release, presentation, and detailed financial schedules can be accessed at investors.suntrust.com. With me today, among other members of our executive management team, are Bill Rogers, our Chairman and Chief Executive Officer; and Aleem Gillani, our Chief Financial Officer. Before we get started, I need to remind you that our comments today may include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our Web site. During the call, we will discuss non-GAAP financial measures when talking about the company's performance. You can find the reconciliation of these measures to GAAP financial measures in our press release and on our Web site, investors.suntrust.com. Finally, SunTrust is not responsible for, and does not edit, nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized live and archived webcasts are located on our Web site. With that, I'll now turn the call over to Bill.

Thanks, Ankur, and good morning everyone. I'll begin with a brief overview of the quarter, and then turn it over to Aleem for some additional details. Following Aleem's comments, I'll wrap up our prepared remarks by reviewing our performance at the business segment level, and then of course we will take some Q&A. Earnings per share for the quarter were $0.78 on net income to common of $411 million. That was up 7% per share relative to a year ago. Overall this quarter results were solid with good performance in certain areas including continued expense discipline, higher mortgage and capital markets related income, strong credit quality, and further deposit growth momentum. These favorable trends helped to counter act the decline in a net interest margin over the past year. Total revenue declined compared to both prior quarter and prior year entirely due to the lower net interest income, much of which was anticipated, as the prolonged low interest rate environment continues to pressure asset yields. Partially offsetting this was an improvement in non-interest income driven by an increase in mortgage and capital markets related revenue. Current quarter expenses were relatively stable to the adjusted level in the fourth quarter as seasonally higher personnel costs were offset by reductions in most other operating expense categories, though portion of these declines were seasonal or non-recurring in nature. More importantly, expenses were down 3% from the prior year adjusted level as a result of continued expense management efforts, lower operating costs -- lower operating losses, and the sale of RidgeWorth. The combination of these revenue and expense trends resulted in an adjustable tangible efficiency ratio of 64.4% for the current quarter slightly below the first quarter of last year. As we noted in January, year-over-year improvements in 2015 will be less than last year as we continue to work towards our goal of being sub-63 for the full year. Average performing loans were stable sequentially due in part to loan sale activity in the prior quarter and elevated pay down activity in the current quarter, but also due to our strategic focus on overall returns. While we remain confident in our loan production capacity and improving the economic conditions in our markets and businesses, our focus on returns will remain high, and may impact ultimate on balance sheet loan growth. Average client deposits were up 3% compared to the prior quarter with broad-based growth across consumer, private wealth, and wholesale businesses. Our core growth initiatives are gaining momentum, driven by improved focus, better execution, and enhanced capabilities. Asset quality continues to be an area of strength. Non-performing loans were down 3% from prior quarter, and 34% from prior year. The net charge-off ratio was 30 basis points, relatively stable to the prior quarter and year. Our capital position improved with our common equity Tier 1 ratio estimated to be 9.8% on a Basel III fully phased-in basis. Also tangible book value per share continues to steadily increase up 2% sequentially and 10% compared to the prior year. Lastly, our capital plan that we submitted as part of this year's CCAR process, received no objection by the Federal Reserve. Our common stock dividend will increase 20% subject to Board approval, and we will repurchase $875 million worth of common stock over the coming five quarters, which is 55% higher than our previous share buyback authorization. We're pleased that our strong capital position, improved earnings power, and reduced risk profile enabled this positive outcome for our shareholders. So to recap year-over-year trends; net interest income declined, most of which was related to the anticipated step-down in the commercial loan swap income, non-interest income trends are solid, and it more than offset the loss of RidgeWorth revenues. And lastly, expenses continued to be well-managed, and asset quality is strong, both of which played an important role in mitigating the pressure on the margin, and thus keeping us on an overall positive trajectory. So with that as overview, let me turn it over to Aleem to provide some more details.

Thank you, Bill. Good morning everybody, and thank you for joining us this morning. I'll begin my comments on Slide 4. Earnings per share in the first quarter were $0.78, which was $0.10 lower than the fourth quarter on an adjusted basis, and $0.05 or 7% higher than the first quarter of last year. The sequential decline was driven by lower net interest income and seasonally higher compensation expenses, and was partially offset by higher mortgage-related income and lower provision expense. Compared to the first quarter of last year, EPS growth was driven by the continued expense discipline, a lower provision expense, and higher mortgage and capital markets related revenue, which together more than offset the decline in net interest income, and the return to a more normal tax rate. In addition, certain discrete recoveries, which I will discuss later also contributed to the solid year-over-year EPS growth. We'll now review the underlying trends in more detail, starting on Slide 5. Net interest income declined $73 million relative to the prior quarter, primarily driven by the anticipated decline in commercial loan swap income and two fewer days, but also impacted by higher premium amortization expense in the securities portfolio. Net interest margin declined 13 basis points, primarily due to lower swap income, and the higher premium amortization expense, but also due to continued core margin pressure as a result of the low interest rate and competitive environment. Relative to the guidance we provided in January, the higher premium amortization expense negatively impacted NIM more than we had anticipated, as ten-year rates declined another 30 basis points sequentially. Conversely, mortgage-related revenues benefited from the decline in rates, which I will discuss later. Core C&I loan yields, excluding swap income declined seven basis points as new production yields continued to be lower than portfolio yields. We remain focused on ensuring that we both meet the full suite of our wholesale clients' needs, and also our own internal requirements. When we cannot achieve this we will look to either exit the lending relationship via targeted loan sales as we've done in the past couple of quarters, or simply not participate during future renewal opportunities. On a year-over-year basis, net interest income declined $64 million, primarily driven by the same factors as the sequential drivers, but partially mitigated by 7% average earning asset growth. Looking forward, and all else equal, we expect second quarter net interest margin to decline approximately two to four basis points from the first quarter level, driven primarily by lower C&I loan yields. We have been and will continue to carefully manage the usage and duration of our overall balance sheet in light of the continued low interest rate environment, while also being cognizant of controlling interest rate risk in advance of what we expect will eventually be higher interest rates. Moving on to Slide 6, adjusted non-interest income increased $9 million from the prior quarter, primarily driven by higher mortgage production and trading income, which offset seasonal declines in other non-interest income categories. Mortgage production income increased $22 million, due to higher production volume as a result of elevated refinance activity and improved gain on sale margins. On the other hand, mortgage servicing income declined to $10 million as the K expense increased, given the first quarter decline in market rates. Investment banking income declined $12 million sequentially largely due to typical patterns of client activity between the fourth and first quarter. However, the $97 million in investment banking income this quarter is a record for a first quarter, with particular strength in investment grade debt and equity capital markets businesses. Trading income increased $15 million as a result of both higher client activity levels and the negative valuation adjustments in the prior quarter. Service charges for the deposits and card fees were collectively down $13 million, due both to fewer days in the quarter and reduced incidence rates. Other non-interest income was higher, almost entirely due to an $18 million pre-tax gain recognized upon the sale of legacy affordable housing properties. As you'll recall, we recognized an impairment last year when we made the decision to exit these properties. Market values are now higher and those sales are now largely complete. Compared to the first quarter of last year, adjusted non-interest income increased $12 million, as higher production income and capital markets related revenue more than offset the loss of RidgeWorth income. Moving on to expenses, adjusted non-interest expense increased $16 million relative to prior quarter. Personnel expense increased a $100 million sequentially, as a result of typical first quarter FICO and 401k costs, as well as the return to more normal levels, and incentives, and benefit accruals. Outside processing and software costs declined $17 million as the fourth quarter had elevated expenses mostly due to normal timing patterns of rendering service, and costs associated with replacing specific software. Marketing and customer development expense also declined $16 million due to typical seasonality. Other non-interest expense declined $35 million, due to higher legal and consulting costs in the fourth quarter; alongside, $17 million of discreet recoveries realized in the first quarter. Operating losses declined $15 million on an adjusted basis in part due to recoveries of previously recorded mortgage-related losses. Compared to the first quarter of last year, adjusted non-interest expense was down 3%, driven by a combination of the sale of RidgeWorth, discreet recoveries in the current quarter, and our continued overall discipline around expense management. As you can see on Slide 8, our adjusted tangible efficiency ratio was 64.4% in the first quarter, 50 basis points better than last year. We delivered this improvement despite the expected $50 million step-down in commercial loan swap income, as adjusted expenses were lower by 3%. As we have noted before, improvement in 2015 will be more challenging, given our significant progress last year, in addition to lower commercial loan swap income this year. However, our performance this quarter demonstrates solid progress towards our goal. We continue to remain focused on the efficiency ratio and our goal of being below 63% for the full year, and as such, we will continue to exhibit strong expense discipline in light of the current revenue environment. Turning to Slide 9; our asset quality performance continues to be strong, non-performing loans declined 3% sequentially, and are down 34% compared to the prior year. The net charge-off ratio was 30 basis points in the first quarter, stable with previous quarterly levels as charge-offs continue to stay low. However, recoveries were lower than the run rate experienced in 2014. With respect to our energy portfolio, we have not seen any meaningful delinquencies or defaults. During the quarter, we updated credit ratings, resulting in some migration, and we expect that to be ongoing, which is why we have proactively built reserves for this portfolio. Our allowance for loan and lease losses and provision expense declined $44 million and $19 million respectively, compared to the previous quarter. These reductions were driven by the continued improvement in asset quality combined with the lower loan growth during the quarter. Over the near term, we expect further though moderating declines in non-performing loans, primarily driven by the residential portfolio. Net charge-off ratios are likely to remain within the 30 to 40 basis point range in the near term, though any given quarter may be impacted by discreet items particularly driven to those low overall net charge-off rates. We now expect full year 2015 provision expense to be below full year 2014 expense, as asset quality continues to improve, which s modestly better than our previous guidance. As you know, the ultimate level of reserves and provision expense will be determined by our rigorous quarterly review process, which is informed by trends in our loan portfolio combined with a view on future economic conditions. Let's turn to the balance sheet. Average performing loans were stable relative to last quarter, as a result of loan sale activity in the prior quarter and elevated pay downs in the first quarter, in addition to lower production as a result of our continued focus on returns. C&I loan growth, while somewhat slower, was positive and broad based, driven by our corporate, commercial and small business clients. Consumer direct loans were also nicely higher, given continued growth in our LightStream business and GreenSky partnership. As you'll recall, we sold $2 billion of loans in the prior quarter, which impacted sequential average growth rates. In addition, we moved approximately $400 million of loans to held-for-sale in the current quarter, which modestly impacted end of period growth. On a year-over-year basis, average performing loans increased $5.1 billion or 4%, driven by broad-based growth across most portfolios outside of the residential, guaranteed student, and indirect auto portfolios where the declines are consistent with our balance sheet optimization goals of better diversification and higher returns. Going forward, we continue to seek opportunities to help finance our clients' growth plans, particularly given the solid economic conditions in our markets. We will also continue to keep the high focus on improving returns, and ensuring new business exceeds our cost of capital. Turning to deposit performance; average client deposits were up $3.6 billion or 3%, compared to the prior quarter, and 9% compared to the prior year, driven by broad-based growth across all of our lines of business. We're pleased with the momentum on the deposit front. Our success here reflects our overall focus on meeting our clients' deposits and payment needs, supplemented by investment in client-facing platforms and people across both our consumer and private wealth, and wholesale segments. Rates paid on deposits were stable sequentially and declined by three basis points compared to the prior year. Slide 12 provides an update on our capital position. Common equity Tier 1 expanded by approximately $200 million during the quarter as a result of growth in retained earnings, while the Basel III common equity tier 1 ratio estimated on a fully phased-in basis, increased to 9.8%. Tangible book value per share increased 2% from the prior quarter, and a full 10% compared to the prior year, due primarily to growth in retained earnings. As Bill noted, the Federal Reserve did not object to the capital plan we submitted in conjunction with the 2015 CCAR process. The capital plan includes the share buyback program of up to $875 million over the coming five quarters, which will be conducted relatively evenly on a quarterly basis, in addition to a 20% increase in our quarterly common stock dividend, from $0.20 to $0.24, subject to Board approval. Lastly, our liquidity coverage ratio continued to exceed the January 1, 2016 requirement of 90%. With that, I'll now turn things back over to Bill to cover our business segment performance.

Okay. Thanks, Aleem. And I'll start on our Slide 13. In our consumer and private wealth management segment, revenues were up 2% compared to the prior year, due predominantly the higher net interest income. Average loans have been relatively flat, however, we've had solid growth in our higher return portfolios such as consumer direct and credit cards, which has offset the intentional reductions we've made in the indirect auto and guaranteed student portfolios. This shift in portfolio mix is consistent with our overall strategy to improve returns across the company. Also contributing to the increase in net interest income was 7% year-over-year deposit growth. Our improvements in deposit growth can be attributed to a more relentless focus supplemented by additional teammate investment, particularly in our mass affluent high net worth segment, and better technology with our SummitView platform, being one of the notable examples. Non-interest income declined 6% compared to the prior quarter, largely due to seasonal declines in service charges and card fees. Compared to the prior year, non-interest income was essentially flat. While retail investment income growth diminished a bit, the quality of this income line is improving as a higher percentage is related to client assets under management versus more transaction-based revenue. Growing wealth management related income overall continues to be a strategic priority. Expenses were up 2%, compared to the prior year, largely due to increased outside processing costs and certain discrete non-recurring charges. Staff expenses remained relatively flat, as ongoing efficiency savings offset continued investments associated with the revenue growth initiatives. Lastly, despite solid 4% year-over-year growth and pre-provision net revenue, net income was down 3% as provision expense increased due to moderating asset quality improvements. However, overall asset quality continues to be very strong in this segment. So to recap, this is a difficult operating environment for this business as you know, but we're generating good core momentum for the long-term. In the near term, continued expense discipline will be important to help combat the revenue pressures associated with low interest rates and consumer service charges. Turning to whole sale, whole sale banking continues to be a key growth engine for the company. Looking at the numbers on an adjusted basis, net income was up 18% year-over-year, driven by solid revenue growth and further asset quality improvement. Adjusted revenue grew 8% relative to the prior year. Net interest income was up 9%, driven by broad-based loan and deposit growth, though this was partially offset by a decline in loan spreads. Loan growth was 2% sequentially and 15% year-over-year, driven by growth across most of our client segments. However, given the competitive environments and continued low rate environment, C&I production yields continued to be pressured, and as such, we reduced growth or sold loans in the areas that are not meeting our long-term return hurdles. Deposits were up 4% sequentially and 12% year-over-year, and the success here can be attributed to enhancements and our treasury and payment product offerings, along with the success of our liquidity specialist hires, both allowing us to uncover and meet more of our wholesale clients deposit meets. Adjusted non-interest income was up 6% over the prior year, driven by higher investment banking and trading revenue reflecting the investments that we've made in talent and capabilities to increase our market share. Authentications and leverage finance volumes were down year-over-year, investment grade debt and equity capital markets at record quarters, and overall, as Aleem mentioned, this was our best first quarter for investment banking income. This overall performance is a testament to the enhanced diversity of our platform both by product and industry, and as a result of the continuous investments we've made in the business. Going forward, we're focused on leveraging investments in SunTrust Robinson Humphrey to better meet the capital markets and advisory needs of our commercial banking CRE and private wealth clients. Adjusted non-interest expense was higher year-over-year largely due to the investments in CIB; however, this business continues to have an efficiency ratio which is very accretive to the overall company. Overall, we continue to believe that our wholesale banking business is highly differentiated, and our value proposition continues to be very well received by clients. Lower loan yields will continue to be a challenge, and we're working hard to mitigate that impact by being more selective about utilization of the balance sheet in addition to continue to expand our fee income and deposit opportunities. Looking forward, our clients remain confident, our investment banking backlog and loan and deposit pipelines are healthy, and we remain bullish on the overall growth and profitability outlook for the segment. Now moving to the mortgage segment, where we had another good quarter. Adjusted net income was stable to the prior quarter, but up 42 million over the prior year. Our expense base continues to decline while our risk profile is improving, both of which are key components of our strategy in this business. In addition, a strong refinance environment boosted production income in the first quarter. Getting into the details, revenues were up 8% year-over-year, driven primarily by higher mortgage production income as a result of a 64% increase in production volume and higher gain on sale margins. Compared to the prior quarter, revenues were basically flat. The higher production income was offset by higher decay in the servicing portfolio, and lower spreads on the loan portfolio, a reflection of natural hedge within the business. While mortgage production volume was up 8% sequentially, application volume was up 48%, which should support elevated levels of production income into the near term. The current refinance environment will abate when rates begin to rise, however, we expect purchase volume and our operating market will continue to strength, given overall economic conditions. Our expectation is supported by purchase volume and applications being up 16% and 30% respectively year-over-year. Adjusted expenses were down 5% sequentially and year-over-year despite higher revenue, primarily due to declines in operating losses and another cyclical cause. Additionally, asset quality continues to improve with delinquencies, non-performers, and net charge-offs continuing on a declining trend. So to summarize the quarter for the overall company, we had a solid momentum across each of our businesses, which help mitigate the impact of the persistently low interest rate environment on our net interest margin. Our focus on returns will remain a priority, and the capacity we build throughout the company should help us to continue and deliver profitable growth. In addition, we're mindful of the intense expense discipline required to operate in this environment and improve our efficiency ratio. This expense discipline will also be important to help fund continued growth investments, many of which are already yielding positive results, so that we can continue to deliver long-term value for our clients and our shareholders. Now with that, let me turn it back over to you, Ankur.

Thank you, Bill. Arlene, we are now ready to begin the Q&A portion of the call. As we do so, I'd like to ask the participants to please limit yourself to one primary question and one follow-up, so that we can accommodate as many of you as possible today.

Thank you. [Operator Instructions] Our first question comes from Ken Usdin from Jefferies. Sir, your line is open.

Hi, good morning, guys.

Good morning, Ken.

You've now had the third solid quarter of expense control under $1.3 billion, and clearly there was that $17 million recovery, and you also mentioned the operating losses were much lower. I was wondering as you look out now, have you gotten us down to a sub 1.3 quarterly expense run rate, and if not, what are the upward pressures that we would see from here?

Yes, Ken, this is Bill. As you pointed out, we've been operating clearly at the low end of a range we established, which was sort of a $1.3 billion to $1.5 billion. And I think we will continue in that lower end of our range, and I think a $1.3 billion subject to some variation is honing in on more of the right number, given where we are in this environment. Ken, you know how focused we are on the efficiency ratio, and if you do the math when you look at the decline in revenues and so what the revenue environment looks like for us to hit our efficiency ratio targets, we'll have to keep a tight lid on expenses, and therefore the bottom end of that range looks more likely relative to the size of the full range we had previously given.

Okay. And Aleem my follow-up just on a comment you’d made last quarter, you had been talking previously about running also in the 1.2 billion-ish on NII. This quarter it looks like you started a little bit below that, maybe partly because of day count, but kind of a same follow-up just where we kind of also stuck at this sub 1.2 level, just given where we are in the rate environment for now?

Well, I think yes, the day count was an issue this quarter, Ken, and also the premium amortization this quarter on the securities portfolio was an issue just given the big lurch down in rates that we got this quarter, 30 basis points on the ten-year. So I think if you take those two things out, and I think about what NII looks like over the course of the remainder of the year, you know what we've been actually very successful in holding NII stable despite declining margins for many quarters until we got to this quarter, we got to step-down this quarter because of the decline in swap income, but from here I would think that we are -- if this isn't the trough in NII, then this is very close to the trough.

Okay, got it. Thanks, guys.

Our next question comes from John McDonald from Bernstein. Sir, your line is open.

Yes, hi, good morning. I was wondering on the mortgage side, the production revenues as you noted were quite strong on both volume and margins. I was wondering if you could offer any color on the timing of the volume pick-up, was that steady throughout the quarter, was it sporadic based on where rates were? And then on the gain on sale margins, any numerical context you could offer for how strong your gain on sale margins have been, and what's been driving that? And do think you can hold these gain on sale margins here?

Hi, John. Yes, I think that we saw that decline in rates early in the quarter, and that helped us on mortgage revenue overall, and production volumes were generally steady throughout the quarter. Margins picked up a little bit early in the quarter and sort of, I think, held relatively steady also fairly throughout the quarter. So if rates are where they are, then I would expect this to continue for a while, but also the refi benefit I think continues to decline a little, just given how many of our clients have already refied. And over time, the benefit we expect to see from an improving economy is actually our clients moving more and more toward a purchase market, and we are looking forward to seeing that happen.

Okay.

Yes, I'm more excited about the purchase opportunity going forward. I mean the refi thing, with service in [decay] [ph] it sort of tends to even itself out a little bit. So I mean the real long-term sustainable growth comes from purchase. And what we're seeing maybe it’s unique to our markets, but we're seeing really good activity on the purchase side.

Okay, thanks. And a follow-up just to Ken's question, Aleem, in terms of the premium amortization, do you get that all back one-for-one if the ten-year climbs back and your outlook for the second quarter, the two to four basis points of margin, does that assume any recapture of the premium amortization you lost this quarter?

If rates climb, we'll get some of it back. We probably won't get it all back on a one-for-one basis, John, but we're not anticipating a major rate hike in the next quarter or two.

Okay, thank you.

Our next question comes from Matt O'Connor from Deutsche Bank. Sir, your line is open.

Hi, good morning. This is Rob Placet from Matt's team. First question just on investment banking, revenues continued to be strong there. I was just curios if you could provide an outlook on a full year basis, what we should expect there?

Well, we don't tend to provide a full year outlook as it relates to that particular line, but that being said, given what we see right now in pipelines, given what we see in activity, what we’re feeling from our clients, we continue to feel really good about that business. It's got quarter-to-quarter type fluctuations. But if you do sort of a straight line for us over multi-quarter, you're seeing a continued improvement, and given the investments we've made there, the receptivity from our clients I don't see a reason that wouldn't continue.

Okay, great. And then just similar question on deposit service charges; they were a bit weaker than I think we were expecting, so I was just curious if you can provide an outlook on that line time?

Yes. They were a little bit lower, primarily again, we had two fewer days this quarter, as well as we're seeing changes in client behavior. Our clients are consolidating accounts and they're looking to try to find ways of avoiding fees. And we're working with them to do that. We're educating our clients on what they can do. And we think that over the long run that's going to help our overall client relationships and help build the franchise. So if I look at deposit service charges over the remaining part of the year, they will be driven a little by client behavior, but I think we're looking for ways to try and work with our clients. And this is not going to be an overall growth area for the company, but we are looking to try and find ways to work with our clients and help them manage their exposure, and we think that will help our relationships in the long-term.

They're obviously inversely related to deposit growth. We've seen really good deposit growth in not only new account acquisition, but just increase in balances and individual accounts.

Okay, thanks very much.

Our next question comes from Mr. Ryan Nash from Goldman Sachs. Sir, your line is open.

Hey, good morning guys.

Good morning.

All right. Can you tell me little bit about the loan growth you saw this quarter, where the slowdown came from, particularly on the commercial side which is where I think you have one of your slowest quarters in a while, just how big were the elevated pay downs in the quarter?

Yes, I'll take that Ryan. C&I was up about 2% this quarter overall. In most of our core verticals, we continue to see some pretty good growth. Some exceptions to that, particularly in areas where we've been focused on returns, equipment leasing would be one of those. Some of that's involved with the loan sale of some muni assets that we just didn't see being as strategic long-term as we wanted. CRE was flat this quarter. That was mainly from pay downs, and that sort of is a two-edge sword. I mean the one edge is it reduces the growth a little bit, but the other edge is it's a nice confirmation of our business. So we got pay downs from construction activity, and investor demand being very good. So the things that we're financing are very financeable in the secondary market. So that's positive. I think going forward on the C&I side, I mean we continue to be positive. I think the pay downs were probably a little higher this quarter than certainly than we've seen in the past. Production engines will continue to be positive, might not be at the same level as last year, but it continues to grow.

Got it. Aleem, you noted two to four basis points of NIM pressure in the second quarter; just given the focus on relationship pricing, clearly seen, are you still under pressure? Do you think that two to four is going to be a good run rate option, any changes to the swap portfolio to the remainder of the year? Or could we actually see the pressure start to ease, like I said just given the focus on getting better pricing across your customer base?

Well, I think that's a question about sort of economy and markets. And if the economic growth picks up, and I think that amount of decline will decline. But if we stay as we are, all else equal, I would think that kind of a margin decline two or three basis points a quarter is about sort of a kind of grind down that we would continue to see, given run-offs and new production over the remainder of the year.

Got it. Thanks for taking my question.

Our next question comes from Erika Najarian from Bank of America. Your line is open.

Yes. Hi, good morning.

Good morning.

Hi, Erica.

My first question is actually a follow-up to Ryan's question, so throughout your prepared remarks you mentioned several times that you continue to want to keep your return hurdle tied, you think about balance sheet growth, and you also noted that C&I loan growth may not be as strong as last year, at the same time wholesale banking continues to be strong and your particular market are also quite strong. As we think about loan growth for the balance of the year, compared to last year, and we mix all of those together, could you still have accelerating loan growth despite some of what you've pointed out?

Well, Erica, yes, I think we can have good loan growth in our markets. You know the markets we are in, where we've got great opportunity. We've certainly put a lot of investment in great talent that we've been fortunate enough to bring in over the last couple of years. I think that's going to help us on the loan growth side. But to your question about returns, I think along with loan growth and net interest income of course is fee income. And I think our strategy around being able to grow non-interest income from bad client base to whom we provide a value proposition that they like, I think we've been able to demonstrate that we've been able to deliver that, and it gives a testament to the talent we brought in. And our investment banking results this quarter I think demonstrate that strategy is working well for us.

And I think there is no putting breaks on the production engines. We'll continue to fire on all cylinders in making sure that we are seeing the kind of opportunities we want to see. One of the big trade-offs in the overall balances are in the consumer private loan side, and I really like the trade. Our consumer direct business was up about 9% and our indirect was down about 8%, and I like that trade. It's more client-related business, it's higher margin business and continued sort of equal credit quality. So I think that kind of trade on the balance sheet particularly as it relates to consumer side is something that we'll continue to be focused on.

Understood. And just for my second question, taking a step back; M&A is a bigger topic with bank investors today than even a quarter ago, given your level of excess capital and the environment being challenging for all banks, do you see yourself as a potential acquirer over the next 12 to 18 months? And how has that mindset perhaps changed versus, let's say, a year ago?

Well, I think the continued investment right now is in our business. The bank that we like the most is SunTrust. We've got third biggest retail operation in our markets, the fourth largest mortgage company. We've got great momentum in our investment banking operations. So we are going to continue to invest in those things, funded by some of the expense savings and opportunities that we are creating. I presume without the green light if we wanted to do something on the M&A side, where we think about things that are potentially accretive to a really strong franchise, yes, but those are not a lot of them. So, 12 and 18 months is a long time. Our focus right now continues to be highly and mostly focused on SunTrust.

Got it. Thank you so much.

Our next question comes from Betsy Graseck from Morgan Stanley. Your line is open.

Hi, good morning.

Good morning.

Hi, Betsy.

Just couple of quick follow-ups; one was on the loan sales this that you did this quarter, did you slice them [ph]?

I'm sorry, Betsy. I didn't hear the…

Did you slice how much the loan sales were? I'm just wondering what the growth was ex the loan sales.

All right. We sold $2 billion towards the end of Q4. And in Q1, we moved another $400 million into held-for-sale.

And then, I'm just also wondering is, are you through that process? Is there more to come? How you're making decision which ones to sell, relative value on the risk adjusted margins, just to bring [ph], but how far along in the process you're?

You're exactly right. We're looking for relative value. We're looking for lower ROA or ROE loans. We're also looking for loans that as Bill said earlier are more in the indirect space, loans where we don't have a client relationship with that client. We refined loans that fit those categories. We'd rather put our capital to work for clients where we do have a relationship, and where we get returns to hit our hurdle rates.

And so just that basic question is that are you pretty much donor, or this is ongoing which you expect a type of level of loan sales that happen on a quarterly basis?

We're doing an ongoing research, Betsy. And if we find portfolios of loans that fit our sale category, then we'll be continuing to look for exit on those loans and put our money to work where we think it actually makes more sense. If you go back over the last couple of years, I think you'll see sort of us on a pretty steady basis, moving lower ROA assets out of our balance sheet, not to somebody else's.

Okay, and the follow-up is just on the impact of some of the regulatory rules around; leverage lending, and I know you have a very strong business there. Maybe you could speak to how you see that shaking out, especially as energy has pulled back a bit in terms of need for funding?

Yes, I think you're certainly seeing some shake out of the market. That's not the biggest driver of our income going forward. It has been a driver. I think we've participated in a very thoughtful way that's very consistent with our strategy of being highly diversified, and both inter and intra parts of our portfolio. I think overall it's positive. Overall I think we're seeing a little bit of a pull back to what we've seen a couple of quarters ago, and I think overall for business in general, that's a positive, and it will be a positive for us.

Okay, thanks.

Our next question comes from John Pancari from Evercore ISI. Sir, your line is open.

Good morning.

Good morning, John.

I just wanted to get a little more color on what all the detail that you gave around loan growth and the pay down etcetera, and what that means for overall growth in coming quarters? I know there's been some questions about it on the call already, but is it fair to assume that you're going to be in a growth rate in the mid single-digit as you have been in prior quarters, or are the pay downs and some of your selectivity and what you're putting on the balance sheet, could that weigh on it near term or we could be looking at low single-digits?

Yes, I think, John, the important part is we're going to grow in the areas that we want to continue to grow at. And they have been growing. If we look at areas like core commercial and our corporate banking business, and as I said virtually all of our verticals, we were seeing real growth. We would expect that to continue. That's been offset a little bit this quarter, maybe uniquely by higher pay downs in the CRE sides, which we discussed, which again sort of on balance I view as positive in terms of the confirmation of our business model, and then also with the decision that we made in the fourth quarter relative to particular loan sales. So trust me, as I said earlier, we're not putting brakes on loan growth. I mean we'll continue to be very positive about the businesses we're in. We're very positive about the markets we're in, and continue to see opportunities in that area. And much of what we're doing is meeting our hurdle requirements, and a lot of it's meeting our hurdle requirements because of the investments we've made on the fee-based side. The fact that we have come a long way from a spread-only business, we're able to generate a lot more income of the commitments that we make on the asset side. So we continue to feel good about the capacity to generate loan growth in this company, and I think the first quarter is just a little bit above an aberration in the sense of pay downs and then fourth quarter loan sales that are all culminating in one particular quarter.

John, if you go back last year, you'd see that we were putting on about $2.5 billion of organic loan growth every quarter. And if you wanted to continue to generate that, given the strength of our production engines, I'm sure we could easily do that. The issue is at what returns. And given our focus on overall returns, I don't think that we will choose to grow loans at the same rate that we were last quarter; certainly not the rate of Q1 '15, but probably somewhere in the middle between where we were this quarter and where we were last year.

I'm sorry, Aleem, you just said, versus fourth quarter last year?

Well, all of last year, we were putting on an average of about $2.5 billion of loan growth per quarter.

Yes, okay. All right. And then my follow-ups in the expense side; thanks for the detail around the overall $1.3 billion level. In getting there, I just wanted to get a little bit more color on the different components, specifically operating losses, obviously came in lower than expected. The outside processing and software costs also lower, and then I know credit and collection was lower and that was part of your other classification. So for those types of items, all fair to assume they stay low and they're the main drivers of your confidence around this $1.3 billion?

Yes, there was a little benefit in operating losses this quarter. That was sort of little bit of a one-off, but overall we're focused on every one of those lines, we continue to work with our teammates across the company around improving overall efficiency ratio, finding dollars of expenses that we can cut in those contexts. We've talked in the past about all of our various strategies, all of the things that we're focused on to continue to manage expenses and grow efficiency. And we talk less about those now, but that doesn't mean that had gone away. We continue to focus on that, and I expect that we'll continue to do that over the remainder of the year, John.

Yes, John you mentioned a few line items which are somewhat cyclical by nature. And I think continuing the trends that we're on, we should overall, maybe not quarter-to-quarter, but overall see those continue to go down as the quality of our portfolio improves. But then as Aleem pointed out, there is everything else. This is the core way we run our business. I mean lots of focus on operations costs, looking at lending centers, call centers, technology infrastructure, end-to-end focus, and virtually all of our businesses, corporate real estate consolidation, use the third-party, the vendor management, the list goes on. We're highly focused on more than two or three lines that relates improving that expense line. But we also noted, the focus is on the efficiency ratio because we're all fantastic, so we're sort of in the "Save a dollar, invest a dollar," kind of mood right now, because we see lots of opportunities to continue to invest in our company for long-terms growth. And we're going to be careful about hitting that right balance of not cutting in to the sort of the core revenue capacity opportunity in our company; again, which I think are significant long-term.

Yes, got it. Thank you.

Okay.

Our next question comes from Matt Burnell from Wells Fargo. Sir, your line is open.

Hi, good morning. Actually it's Jason Harbes from Matt's team.

Good morning.

Good morning.

Good morning guys. So yes, first question is just on the swaps. Looks like you upgraded the guidance by about 10% for the full year. Just curious what's driving that and what your appetite would be to purchase additional swaps within the context of rates potentially rising later this year.

Well, I'm not sure rates will rise later this year. But yes, as you noted we did add a little bit more into that portfolio. But remember how many we had rolled off in the first quarter, and given the way that our portfolio looks structurally, and if we did nothing at all, 60% of our overall loans would be floating rates. We continue to want to add swaps to move some of that portfolio to what looks like fixed rates. And as a result of the swaps that we have on the book now, we're more like 50-50. We've got what I think today is a nice balanced that prepares us to be asset sensitive for some point in the future. I'm not so sure that point in the future is going to be soon, i.e., in the next few months, but I think is you look at 2016 and '17, our investors are going to want us to be asset sensitive, and I think swap structure and overall structural rate book allows us to be nicely asset sensitive at that point.

And I think Aleem mentioned that we mentioned in January, coming into this year, we geared our planning process. I'm not thinking about a rate increase. So when we talk about efficiency ratio, we talk about the things that we have control of, we're assuming we're going to be in a low rate environment. Now, if that changes, we obviously get the benefit of that, and we're obviously positioned for that long-term, but I would not dependant on a rate increase, for example, to hit our sub–63 efficiency ratio.

Okay, that's very helpful. And then to switch over for my follow-up on the credit card business, looks like you're making nice progress there. Can you comment specifically on what you're seeing there and maybe share any insights into the appetite of your customers to revolve balances?

Yes. It is part of that; a direct portfolio that were seeing grow on our consumer side, and we're actually very pleased with what we seeing on the credit card side. Not only way we're putting more cards, and everybody's wallet was actually being on that track now pretty consistently for about 12 to 18 months. But as you point out, we're actually now starting to see utilization. So some of the things that we're doing to activate that with different campaigns and process that we're running to making sure that we've got reward programs and et cetera that are highly competitive, and we're just seeing clients starting to shift that is their overall usage to a more fulsome relationship that they have with SunTrust versus maybe a single relationship they have with somebody else with the cards in their wallets. So I'm hopeful that trend will continue, and I like the momentum we've established.

Thanks guys.

Our next question comes from Mr. Gerard Cassidy from RBC. Sir, your line is open.

Thank you. Good morning.

Good morning.

Good morning.

Can you share with us on your ability to purchase up to $875 million, now, of your common shares between the second quarter 2015 and 2016? Is that going to be a straight line even amount per quarter, or will it be variable? And plus, if some opportunity came up to buy stock more aggressively, if it's not in your CCAR plan, can you still do it, or do you have to apply to the regulators to say that you want to do it?

, : And coming to your first question, I expect that to be relatively even over the five-quarter period, and the first quarter of this year, we repurchased a $115 million of stock. And I'm pleased with the increase over the next few quarters that was not objected too, and I'm glad that we'll be able to bring that stock in. ,: And coming to your first question, I expect that to be relatively even over the five-quarter period, and the first quarter of this year, we repurchased a $115 million of stock. And I'm pleased with the increase over the next few quarters that was not objected too, and I'm glad that we'll be able to bring that stock in.

Coming back to your Tier 1 common ratio, which is very strong at 9.8%, first, what are you comfortable at running at? And second, I know this is putting the cart before the horse, but for next year's CCAR program, if you feel you have excess capital, what is the possibility or probability that you'd ask for -- to buy back more than your current earnings, which American Express, for example, did this year?

Well, I like what we were able to do this year, Gerard; we took our overall payout ratio from the 50% range up to the 70% range. So that was nice to be able to do. And given the context of continued loan growth, we would need to retain some level of capital in order to be able to support the loan growth that we are going to get this year. As I look forward to where we think we can be at some point in the future, I do think like you, that 9.8% overall, and remember this is on a fully phased-in basis. That's probably more than we'll need, and I would hope that over the course of the medium term, that the regulators would allow the industry to be able to shrink capital level overall. If I think about where we could end up in that type of environment, I think that we would likely end up as some kind of ratio below nine; something that starts with an eight probably seems like it would be certainly adequate for the need that we have as a company to support our client needs, and be able to withstand the rigorous CCAR stress test.

Thank you. I appreciate the answers, Aleem. Thank you.

Aleem, we have time for one more question.

Our last question comes from Geoffrey Elliott from Autonomous Research. Sir, your line is open.

Good morning. A couple of questions on fee income; firstly on mortgage, I'm getting a sense that you're gaining share there, and if so, how are you doing it?

Yes, I think maybe the -- if we sort of think about it on a global basis or national basis, I think our marks up is just better. We are seeing, we are covering our markets, particularly on the purchase side. So on a national type basis, I would presume that we'd be gaining share because I think our economy is gaining share in our markets relative to the total economy. So I think the answer to that is probably yes. And we continue to add LOMs [ph] to our platform. I mean we like what we're doing, we're optimistic about the future. We like the way our business is operating. So we will continue to make those types of investments, but just overall I think our markets are just better. And we will continue to invest in technology in the platform. And as we continue to do that, we make it easier and easier for our clients to do business with us, and for our teammates to support those clients. So that past investments I think is paying off in terms of client delight with our products.

And then in the release, you touched on a slowdown in syndicated finance activity, and you mentioned leverage lending being a little bit lighter. What do you think is behind that? Is it demand? Is it regulators getting tougher, is it something else?

I think a little bit of that is just seasonality, Q1 versus Q4. It's a little bit of a standard thing that clients move ahead in Q4, perhaps late in the year to close our transactions. So I think a little bit of that is seasonality, but I think we were able to more than offset that decline in that space with growth in other aspects of our investment banking business that allowed us to generate the results that we got this quarter.

Great. Thank you very much.

Okay, thanks everyone. This concludes our call. Thank you for joining us today. If you have any further questions, please feel free to contact the Investor Relations department. Thank you.

Thank you. This concludes today's conference. Participants may disconnect at this time. Thank you for joining.