Solidion Technology Inc. (STI) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the SunTrust Second Quarter Earnings call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's conference is being recorded. I would now line to turn the conference over to our host, Ankur Vyas. Please go ahead, sir.

Thanks Julia. Good morning everyone and welcome to our second quarter 2017 earnings conference call. Thank you for joining us. In addition to today's press release, we have 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 website. 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 website, 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 website. With that, I’ll now turn the call over to Bill.

Thanks, Ankur and good morning everyone. I will begin with a brief overview of the quarter and then I am going to turn it over to Aleem for additional details. I will conclude with some perspectives on how our performance aligns well with our investment thesis. So, before I get into the details of the financial performance of the company, I want to give thanks to our teammates, for the tremendous effort they put forth to help clients, communities and fellow teammates who were impacted by the hurricanes. For those of you that know us well, you know we’re a purpose driven organization, and the way our teammates responded in the wake of these catastrophic storms truly demonstrated our purpose and action. Teammates across the company went above and beyond the call of duty working overtime, deploy mobile ATMs, delivery needed supplies and donations, and even many rescue boats to ensure that we helped our clients maintain financial confidence during these challenging times. So, despite the stress circumstances, it was a proud moment for me as the leader of this great team. Now, let me get into some specifics of the quarter. This quarter earnings per share were $1.06, up 16% year-over-year, this performance is driven by consistent execution against our strategy and investment thesis. We delivered solid revenue growth, particularly in areas where we have a demonstrated competitive advantage, we improved our efficiency and lastly our strong capital position is allowing us to reduce our share count. We delivered this overall performance, even after accounting for hurricane related reserve bills. Across all fronts, whether its revenue growth, profitability or credit, we had a strong quarter. While on the surface, loan growth is lower there was a lot of positive movement that’s happening underneath. With C&I much of the elevated paydowns are from clients we felt to access to capital markets, where returns quite frankly don’t meet our hurdles. Therefore, we have improved the ROE profile of the company and freed up capital for other client business, or to return to our shareholders and that’s a tradeoff we’re comfortable making. And consumer we are still seeing good growth across all fronts, in fact this quarter was a record for life stream originations. This is furthering the positive mix shift within the loan portfolio, contributing to our NIM expansion and helping us grow net interest income which was up $28 million sequentially. Within non-interest income, capital market continues to perform at very high levels. Investment banking income is up a meaningful 29% year-to-date and it's clear that the value proposition we provide to our wholesale clients remains highly differentiated in the marketplace. Net net revenues are up 2% sequentially and 4% year-over-year, the latter of which was achieved despite a nearly 50% decline in mortgage production income, which is a real testament to the improved diversity of the franchise. I am also pleased with the efficiency progress we continue to make. As you’ll remember I indicated earlier this year that our efficiency performance needed to improve. We have made good progress since then and we are creating even more momentum across the company to achieve further efficiencies. This includes the actions we took this quarter to accelerate our progress, both to ensure that we are able to deliver on our commitments to our owners and create capacity for future investment and growth. Asset quality and consistent underwriting and return discipline continue to be key areas of strength for the company. This perspective is also shared by S&P who upgraded our credit ratings outlook to positive in September. We did have an elevated provision expense this quarter to provide for anticipated losses from the hurricanes. But these losses are very manageable in the context of the overall company particularly given the strength and diversity of the loan portfolio. And finally, we commenced our 2017 capital plan this quarter which means each order not only gains incremental ownership from the company as a result of our 38% increase in share repurchases, but they also benefit from a 54% increase in cash dividends. So big picture, I’m pleased with how the year is progressing. Our consistent strategic focus keeps us on track to deliver our sixth consecutive year of EPS growth, efficiency improvements and higher capital returns to shareholders. Our ROE profile also continues to improve a reflection of improved efficiency, disciplined balance sheet management and strong credit quality. So, with that as a short overview, I’ll turn it over to Aleem to provide some more specifics on the quarter.

Hi, thank you Bill. Good morning everybody, thank you for joining us this morning. I’ll begin on slide 4. Our net interest margin improved one basis point this quarter which helped to drive the $28 million increase in net interest income. As anticipated, deposits betas did increase but much of the sequential change was due to a one time reprising of certain suite deposits and brokerage accounts in late June. Therefore, while betas will likely continue to nudge upward overtime, the slope of increase will not match this quarter’s level. Looking to the fourth quarter, we expect the net interest margin to decline by one to three basis points. This is consistent with our view that NIM grind down in quarters without a rate hike given lagging deposit costs and sprint compression in the C&I book, which is partially offset by continued positive mix shift in the overall portfolio. Beyond that, NIM trends will depend on the rate environment and we expect some NIM expansion as the short-end of the curve continues to rise. Moving to slide 5, you will see that non-interest income increased by $19 million sequentially primarily driven by our continued success in meeting the capital markets needs of more clients across the entire wholesale platform. This quarter specifically, capital markets related income increased to $24 million sequentially largely due to M&A and equity which both had record quarters, a great sign of SunTrust’s increasing strategic relevance with our clients. Across the capital markets platform, we’re encouraged not only by our current success, but also by the significant growth opportunities that remain as we leverage our competitive advantage to expand and deepen relationships with our investment banking, commercial banking, commercial real estate and private wealth clients. Mortgage related income was also up by $7 million sequentially as a result of improved gain on sale margins. These gains were partially offset by lower commercial real estate related income given slower levels of activity. But we do expect that to rebound in the fourth quarter. Let’s move on to expenses on slide 6. Expenses were stable relative to the prior quarter and as Bill mentioned, we did have some discrete items. First, several legacy legal matters were resolved in the third quarter, which totaled up to $58 million of legal accrual reversals. These benefits were largely absorbed by several discrete charges, including an elevated severance accrual. In addition, we also wrote down certain software related assets, as we accelerate technology enabled efficiency initiatives, particularly our transition to the cloud. Our strong overall business performance also resulted in increased incentive compensation expense this quarter. Compared to the prior year, expenses declined by $18 million, due to improved expense discipline and ongoing efficiency initiatives. In particular outside processing and software declined by $22 million, partially as a result of increased focus on third-party costs. As you will see on slide 7, the tangible efficiency ratio for the quarter was 59.2%. This includes the net result of discrete benefits and charges recognized in the quarter and I am pleased to note that our core efficiency as a company continues to improve. Clearly the efficiency initiatives we have been executing against for many years, are driving positive operating leverage and there is still more progress to be made. Across the company we are demonstrating heightened focused and vigor around reducing less productive expenses to provide funding for investments in talent, technology and improved product offerings, while also achieving our goal of a sub 60% tangible efficiency ratio by 2019. Moving to slide eight. Our asset quality metrics remain strong, evidenced by only 21 basis points of net charge-offs and 48 basis points of non-performing loans. These low levels reflect the relative strength we are seeing across our entire portfolio. The ALLL ratio increased by 3 basis points this quarter, as a result of anticipated losses from the recent hurricanes. As it relates to hurricane impacts, there will be a modest uptick in NPLs and charge-offs over the next several quarters, primarily driven by consumer and residential loans. In advance of that, this expectation is incorporated into this quarter's allowance bill. Overall, we still expect to operate within a 25 basis points to 35 basis points net charge off ratio over the near term, and also continue to forecast the provision level that should roughly approximate net charge-offs. Let’s take a look at the balance sheet on slide nine. Average loans were stable sequentially, as growth in consumer lending offset declines in C&I. On a year-over-year basis, average performing loans grew 2%, with broad based growth across most consumer lending products. As Bill mentioned earlier, C&I loan balances have been declining, as solid core production is being masked by lower revolver utilization and elevated paydowns. Conversely, we are benefiting from this to some extent, within the capital market business, a good representation of our broad and diverse capabilities. That being said, we are having good dialogue with our clients, as clarity on various policy front develops, we believe our clients will be ready to invest and we are well positioned to meet their needs, whether buy a lending, capital markets or other solutions. Turning to deposits, average client deposits were stable sequentially, and up 3% year-over-year, with growth across most products and both segments. Period imbalances were up 2%, largely due to temporary corporate deposits. Consistent with our commentary in July, the strong deposit growth we've produced over the past several years, in addition to our access to low cost funding, enables us to prudently manage our funding base, and therefore more effectively managed our overall deposit beta. Our goal continues to be to maximize our value proposition outside of [repeat], by meeting more of our clients' needs, via strategic investments in talent and technology. Slide 11 provides an update to our capital position. Our estimated Basel III Common Equity Tier 1 ratio on a fully phase-in basis was 9.5%, stable with the prior quarter, even after we commenced our 2017 capital plan, which provided for 54% increase in the dividend and a 38% increase in share repurchases. As a reminder, we issued $750 million of preferred stock in May, and we may look to take advantage of strong market conditions to further optimize our capital stack over the coming quarters. Also, late in the third quarter, the Federal Reserve released the notice of proposed rulemaking, tailored towards simplifying capital rules for regional banks like SunTrust. While we do not currently expect the changes to materially impact our fully phased-in capital ratios, the rules combined with recent legislative proposals in the house incentive, are commendable steps towards tailoring regulation to the actual risk profile and complexity of regulated banks. Efforts we strongly encourage, given our simple and domestic business model. Let’s take a look at the segment reviews, beginning with Consumer on slide 12, where we continued to deliver healthy overall business and revenue momentum. Our 2% sequential revenue growth was largely driven by net interest income, which was up 3% and 8% year-over-year as a result of strong loan and deposit growth, in addition to continued improvements in loan mix. Our targeted investment in consumer lending are consistently yielding good results, and offsetting the declines in home equity balances, evidenced by the 2% sequential and 4% year-over-year increase in average loans. Non-interest income was down 15% year-over-year, largely due to the lower mortgage related income, given the elevated refinancing activity we saw last year. But more recently mortgage related income has begun to stabilized, which drove the 2% sequential increase in non-interest income. Within [indiscernible] particularly, we’re pleased with the improved momentum we have developed as well as management related revenues beginning to stabilized and to grow slightly. This is a reflection of our client first focus and continued improvement in capabilities, resulting in our ability to attract and retaining top talent and grow AUM. More specifically in the past few months, we've hired teams in New York and Texas, which contributes further to our ability to grow AUM and expands our geographic reach. Provision expense did increase on a sequential and year-over-year basis largely due to the reserve build associated with hurricanes in addition to strong loan growth. The hurricanes will also modestly pressure revenue in the coming quarters given relief we’re providing for certain clients by waiving fees and providing payment forbearance consistent with our purpose oriented culture. This increase in provision was largely offset by the legal accrual reversals which was the primary driver of the decline in expenses. Overall, we’re making progress in improving the efficiency and effectiveness of the consumer segment evidence in part by continued growth in mobile engagement and usage and the 7% year-over-year reduction in branch cut. Our ongoing process of integrating mortgage into consumer will also yield further results. By bringing all consumer products and services under one segment, we will be able to create an enhanced client centric approach resulting in a more efficient, effective and improved client experience. Moving on to wholesale, we delivered record quarterly revenue and net income in part due to strong markets conditions and a benign credit environment but also reflective of the continued strategic momentum we’re having with our clients. Quarterly revenue surpassed $1 billion for the first time and was up 4% sequentially and 13% year-over-year, primarily due to the combined strength of investment banking and trading. Growth in investment banking was broad based across most products and client segments. More specifically, M&A and equity two businesses which have been key areas of investment for us each have a record quarter. As we continue to become a more relevant strategic advisor to our clients, we’re not only growing these two advisory businesses at a faster pace than the traditional debt businesses, we’re also increasing our average fee per transaction and reducing our reliance on providing balance sheet, thereby improving our return on equity. In fact, CIB’s ROE in the third quarter was 13.5%. Net interest income was also a key contributor to the strong revenue growth, up 3% sequentially and 13% year-over-year, as a result of improved loan yields and continued discipline on overall returns. Despite record revenue, non-interest expense was stable sequentially and up 8% compared to the prior year as a result of higher compensation tied to strong revenue growth, the acquisition of Pillar and ongoing investments in technology. Specifically, our new loan origination platform is now fully deployed to commercial banking, commercial real estate and private wealth management with deployments to CIB scheduled in early 2018. We also continue to roll out our new treasury and payments platform [indiscernible] to more clients. As a reminder, we announced the sale of our insurance premium finance business back in September and the transaction is scheduled to close in the fourth quarter. This is a solid performing business but does not fit with our broader wholesale banking strategy and capabilities. And we'll provide details on the financial impact after the transaction closes. But we do not expect it to be material to SunTrust’s overall financial performance and trajectory. In conclusion, while market conditions can drive quarterly variability, our differentiated business model and wholesale banking continues to deliver strong results and we expect to see further growth in 2018, particularly if economic growth accelerates and we gain greater clarity around tax refund. Additionally, as you may have seen, we have recently announced an expansion of the commercial banking business in to new markets in Ohio and Texas. Given the success that we have had in wholesale, our commercial banking business is following our investment banking and corporate banking businesses into new and high growth markets. Now let me turn the call back over to Bill.

Thanks, Aleem. So, to conclude, I’ll forward to slide 14, which highlights how this quarter's performance aligns with our overall investment thesis, but more notably also highlights the further opportunity we have across each of these fronts. So first, while the hurricanes did result in an incremental provision impact this quarter, the work that we have done over the past several years to diversify our loan portfolio both by geography and loan type, significantly mitigated the potential risk from Harvey and Irma. Not only do we benefit from a diverse loan portfolio, but we also have a diverse business mix, which has allowed us to grow revenues despite the significant declines in mortgage production volumes thereby reducing overall earnings volatility. Second, I remain confident in our growth outlook and opportunities set. We continue to focus on growing and supporting our key areas of differentiation and this has proven to be highly effective. A little more specifically, investment banking has delivered nearly as much revenue in the first nine months of this year as we did in all of 2016, and further as Aleem mentioned, M&A and equity are performing very well, which I think is a real testament to our increasing strategic relevance with our clients. The investments we have made in LightStream, credit card and other consumer lending initiatives are providing excellent experience for our clients in addition to consistent and profitable growth. Furthermore, we have made and continue to make, meaningful investments in technology to modernize our infrastructure and deliver differentiated experiences which embody our purpose, meet evolving client needs and position us for growth. In the third quarter specifically, we added new capabilities for our mobile and online platforms which reduced manual data entry for our clients and improves their overall experience. Mobile deposits and sign-ons are up 20% year-over-year and in the third quarter more than a quarter of our consumer sales occurred via digital channel. Additionally, we are testing and highlight robotic process automation in certain parts of the company and we are expanding our cloud capabilities. Each of these investments will improve the client experience, help us become more efficient and increase our flexibility and speed to market. Third, in order to ensure we have adequate capacity to make future investments and growth in technology, we just remain highly focused on improving the efficiency of the company. As Aleem mentioned, we have a number of initiatives in place to help us become even more efficient, some of these are continuation of long-term strategies, while others are an acceleration which require heightened focus in order to achieve our sub-60% target in 2019. In addition to improving our efficiency, we also continue to demonstrate a focus on returns, we’re making good progress here as evidenced by 12.5% ROTCE over the last two quarters. And lastly our capital position remains strong with common equity Tier 1 ratio estimated to be 9.5%. This is even more notable when juxtaposed against our risk profile, where SunTrust consistently demonstrates among the lowest levels of capital erosion in stress test relative to peer banks. The strong risk adjusted capital position afforded us the opportunity to purchase $330 million of common shares in the third quarter and increased our quarterly dividend by 54%. While I'm proud of the strong financial performance that we've delivered, I'm equally pleased with the progress in how we delivered against our purpose of lighting the way to financial well-being, and helping more Americans achieve financial confidence. At SunTrust, teammates know purpose and performance are inextricably linked, specifically last quarter we announced the launch of Momentum onUp, which is not-for-profit program that aims to help our corporate and commercial clients equip their employees with the tools they need for financial success. Today we have more than 50 companies enrolled in Momentum onUp and a significant pipeline as our clients realize the link between financial well-being and satisfaction of their employees. This quarter we also participated in the grand opening of the new Crosstown Concourse in Memphis, a former Seers building turned into a new mixed used development that includes an innovative financial confidence center, where we have staff professionals who provide financial literacy and information in classes to the community. Crosstown is just a great example of how our capabilities and our purpose oriented culture can bring new life and economic growth to the communities we serve. Overall 2017 is progressing very well and my confidence in all of our teammates to fulfill our purpose and deliver strong financial performance continues to be very high. Now with that Ankur, I’ll turn it back over to you for the Q&A.

Great. Thanks, Bill. Cinthia, we’re now ready to begin the Q&A portion of the call. As we do that I’d like to ask the participants, please limit yourself to one primary question, and one follow-up. So that we can accommodate as many as possible today.

Thank you. [Operator Instructions] And our first question will come from the line of Matt O'Connor with Deutsche Bank. Your line is open.

I was hoping, you could elaborate a bit on the NIM trending down during quarters where rates aren’t going up, just little bit more in terms of what’s driving that on the funding side? And then kind of tying it together with the balance sheet growth, are you still hopeful that you can grow net interest income dollars, I just [indiscernible] but then just conceptually during quarters where there aren’t rate increases. are you hoping that you can still grow the revenue dollars?

Yeah. Thanks, Matt. So normally what happens in terms of NIM and in quarters without a rate hike. Partially, this is the roll on roll off effect for C&I. In C&I production yields are still a little bit lower than portfolio yields. So as all loans are often new loans come on, there is a little bit of downward pressure on them. And then secondly, remember that deposit rates will continue to creep up a little bit in quarters without a rate hike. So just by the beta -- by the mass effect on beta that’s going to be a little bit of downward pressure on NIM in quarters without a rate hike. But relative to your point about NII, is in general yes. You know overtime, take a look at our last several quarters and you see NII climbing and I think if I look out at the longer term absolutely, I think NII is going to climb both a combination of balance sheet growth and NIM expansion. In any one quarter, maybe yes maybe no. If I look at Q4, you know a little bit of balance sheet growth with a little bit of NIM pressure, that could go either way. I am thinking the NII might be generally flattish in Q4 but if I look out into ’18 NIM expansion plus loan growth absolutely NII is going to go up I think next year.

Thank you. Our next question will come from the line of John McDonald with Bernstein. Your line is open.

Okay, good morning. I wanted to just follow up on the two questions Matt just ask Aleem just on next quarter’s NIM guidance, what’s the deposit beta assumption you’re kind of incorporating into that?

We’re thinking something in the mid-20s John. If I look at our cumulative beta over the last couple of years just on interest bearing deposits, its 17% and we think it is going to continue to nudge up a little bit over time. So not sure exactly where it's going to be but we’re modeling something into the 20s now.

Okay, and then on the balance sheet growth Bill maybe just kind of get your broader thoughts of how you’re sizing up the opportunities and headwinds on loan growth, both on the commercial and the consumer side?

Yeah, sure. Let me sort of break that out as you’ve suggested and maybe extrapolate a little bit. You know on the consumer side, we’re pleased with the investments we’ve made and the results we’re seeing and it is up 4% sequentially, 4% year-over-year. We see things like a LightStream where as we noted had a really good production quarter and continues to be a on a good track and obviously up year-over-year in terms of production. Credit card balance’s growth is really positive and we’re seeing that. Home equity is still good from a production standpoint but I would say we’re several quarters away from an inflection point there from a growth standpoint. So, on the consumer side, we’re really growing where we want to and the areas that we are growing are accretive to return. And the wholesale is a little bit different story and you’ve got to break it down. I think we’ve talked about it before, I look at sort of four variables, I look at production, paydown, utilization and pipelines. And all four of those to think about the wholesale balance sheet portfolio. On the production side, we did actually have an increase in the third quarter in production but it's still a little bit off the seven-quarter average. Payoffs are still elevated so we continue to see that and they’re 14% to 15% ahead of the seven-quarter average. But on the payout side, sort of two things related to that, one is as Aleem mentioned, we’ve never been better positioned to take advantage of that in terms of capital markets access, some of the M&A activity that we’re involved in is causing the paydowns, the advent of our syndication capabilities, so we're benefiting on the advice side of the paydowns. And then as you know we are also selective, we have got an intense focus on returns and as I mentioned when we are not involved in something, we get a chance to redeploy those assets under something the either has a higher return or return it. And then utilization, and utilization did drop-off and particularly in CIB, dropped off about 9 basis points that for us equates to about $0.5 billion in outstanding. So, interesting enough, this quarter's production outpaced payoffs, so that was a little bit of a change and virtually all that decline was in utilization. And then the final component is pipelines, so how do we feel about the future, CRE is a little bit down, that wouldn’t be a surprise that sort of market conditions, as well as maybe some selectivity on our part, but CIB in the last 90 days is up and commercial had some of its highest levels of pipelines in the last year. So that sort of put that all in a big mix and served around, I’d say we’re growing where we want to, we’re benefiting from the things that we can’t control, like capital markets access. We have maintained our return discipline which is important, and sort of our overall health metrics if you include those things like pipelines are pretty solid.

Thank you. Our next question comes from the line of Ken Usdin with Jefferies. Your line is open.

Thanks, good morning guys. On the other side of the corporate side, you obviously had a really strong investment banking result and I just wanted to ask, how much of the kind of the hurt on the commercial loan side, are you seeing show up in the investment banking business, and if you could also just give us your general thoughts on how the pipelines look in that business going forward? Thanks.

It's hard to calculate an exact sort of [our score] to that, but I would say overall its benefited, I mean we can look at the [advice] business that we have been in and the components and the things that drives that income. The momentum in that business is very good, if I look at -- you look over the last since 2010, we have had sort of 10% CAGR most recently, 2014 forward, closer to 16% CAGR. The metrics that we look at, average fee size up significantly, the number of left leads up significantly, really good fundamentals, deep expertise, really good consistency and quality of our talent there, diverse platform more than 40% of the revenue was from M&A equity offerings and equity sales and trading, we’re penetrating the commercial market, that’s up, so we have more runway there, so I am feeling good about the momentum in the business quarter-to-quarter. As you know they can have lot of variabilities, I think we have got good momentum headed into the fourth quarter, but maybe more importantly really good momentum headed into the next several years.

Appreciate that. And one quick follow up on the CRE business. We see in the press release that Pillar was lower but also looks like the other sides were lower, can you just help us understand that commercial real estate business and kind of the moving parts of what your confidence is, that’s going to get after a couple tougher quarters?

Yeah, there are number of things in their Pillar included SunTrust Community Capital and number of things in there. I would say, in the third quarter, we were not as excited as we want to be, but the fourth quarter is going to be better in that business. It tends to have a fourth quarter seasonality to it. So, we can already sort of see that manifesting itself. What I would say is it relates to pillar is, what I’m really excited about is just the whole -- once we go to market with our commercial real estate, I mean the kind of add backs we’re getting with clients where we are having sort of that mutual introduction where, we’re bringing essentially bridge financing to Pillar, and Pillar is bringing essentially distribution to the commercial real estate side. There might be a little bit of an overhang and fairness on affordable housing as it relates to tax reform and some uncertainty about the tax element of that. But on the other side, we’re just got approved to do some senior housing loans in Pillar. So that really helps our ageing services. So, I still feel really good about it. Again, third quarter is probably a little disappointing in one sense, but in terms of the potential and the opportunity and long-term perspective I'll probably feel better about it now than when we got started.

Ken, as you know, there is a little bit of seasonality in that business and Q4 is normally a little bit better. So, we are optimistic that Q4 will be better than Q3.

Thank you. Our next question will come from the line of Betsy Graseck with Morgan Stanley. Your line is open.

Could we talk a little bit about the efficiency side? You dropped the efficiency ratio quite nicely this quarter, and I just wanted to understand the past, both in the commercial part of the business as well as consumer given some of the investments you’ve been making to drive down the expenses?

Well for efficiency, overall you know where we are headed. The targets that we’ve set for ourselves and we’re working towards those and we’re working towards those and making investments in both areas, as you said consumer and commercial. I guess first of all, in technology, we’re making investments in consumer technology and you’re going to see some of those actually show up this quarter in the payment space in consumer with the introduction of a new consumer payment product, and in commercial, some of the investments we’ve made have actually just shown up in treasury and payment solutions with the introduction of SunView which we’re rolling out across our commercial client base in several ways, some of which have already been implemented and some of which go into Q4 and Q1. So those are a couple of examples of investments that we’ve made in technology in each one of those spaces in which we’ll continue to improve efficiency. I think in other areas Betsy you know that the severance chart that we took in the third quarter, we continue to take a look at it as you would expect, add our total amount of overall business, how our clients are reacting, what it is that they expect from us, and how we respond to that across all kinds of distribution channels, including the human one, and as we think about sort of overall skillsets needed and total amount of team in responding to clients in each of those spaces, we continue to make improvements in structuring the efficiency of each of our businesses from both a front and back office perspective. So, all of that is underway now.

And the guidance of below 60 in 2019 I mean it seems like you might be on path to hitting them a little bit sooner on an annual basis from what you delivered this quarter or is there something unique in this quarter in the form of maybe high investment banking fees that would keep us going out maybe a slower run rate than you got this quarter.

The part that we want to calibrate related to the efficiency ratio and Aleem pointed out you know things on both sides. I mean we have a lot of things to become more efficient but we also want to make sure that we create capacity to continue invest in growth. So similarly, we see just a lot of opportunities also on things that you can see them all across the performance here of things that we think are doing well. I mean we don’t want to not make sure that we’re investing in those businesses and those opportunities. So, this as we said earlier in the year that the latter two quarters would be lower efficiency ratio of quarters because the first two were higher efficiency ratio of quarters and we’re careful about this is not a quarter-over-quarter sort of process. We look at this on an annual basis and we’ll continue to do that, I think next year we’ll say that [indiscernible] ratio will be lower than it was this year and will be on path to being sub-60 with balancing all those things related to achieving the maximum amount of efficiency we can and making sure that we’re investing on our businesses for growth.

Thank you. Our next question comes from the line of Marty Mosby with Vining Sparks. Your line is open.

Thanks. Aleem I wanted to drill down into your discussion about the grind down of the margin given some repricing in the more longer-term portfolios. If I looked across the yields, in CRE and mortgage and the securities portfolio, there each of those kind of fixed rate portfolios are rounding up from second to third quarter. So, I mean you're still continuing to see some positive in those. So where is the actual pressure point in a sense of what you’re talking about for the pressure on the margin going into the fourth quarter?

Great, thanks Marty. Absolutely between the second and the third quarter you did see a move up in all of those spaces which we expected coming into this quarter given that we’ve got a rate hike in June. So as a result of that rate hike, we were expecting our overall NIM to climb just a little bit this quarter as it did. But in quarters without a rate hike, those are the quarters where we’re looking for NIM to probably grind down a little bit and again not substantially, we’re thinking one to three basis points but we’re grinding down primarily on the asset side is the lone turnover in C&I and where cost is a little bit on the liability side is a little bit of that normal delay you get in deposit repricing in quarters without a rate hike and that’s just from a maths perspective results in a little bit of beta and a little bit of downward pressure on that.

The other piece I was looking at was if you looked at the provisioning, even taking out the 30 million from hurricane, consumer has been moving higher and your wholesale has been offsetting that, so it's kind of kept your provisioning in total relatively flat but we’re seeing more you know I don’t see much more improvement in the wholesale that’s available and you are really been growing the consumer portfolio pretty strongly. So, didn’t also was losses already related or are you providing for expected losses in the future for consumer, but how should we expect those two things to kind of keep balancing out going forward?

There is a little bit of a mix effect there, you are right. But in general, here is the way I would think about it, in general provision will approximate charge-offs, so not to lock in on one quarter here, because I don’t intend us to be a one quarter point, but this quarter we had $78 million in charge-offs, 21 basis points and so in general the provision is going to approximate that, that would have been about our provision this quarter, ex the effect of the hurricane. That going forward, there is a little bit of a mix effect, as we grow consumer banking, as we grow our consumer lending business and there may be slightly higher charge-offs coming out of that business overtime, but we are paying -- we are getting paid for that in terms of higher yields. So, the bottom line effective this is good, even though when you look at that one line, you might see slightly higher charge-offs overtime.

Thank you. Our next question will come from the line of John Pancari with Evercore ISI. Your line is open.

On the loan growth topic, I appreciate the color you gave us in terms of the pipeline and utilization all that, what does that interpret into loan growth expectation for the quarter, next quarter is it likely to be at this low single digit level again and how does that play into your expectation for 2018, just given the macro backdrop? Thanks.

I don’t think loan growth is going to break out in any one quarter, I mean where the momentum is, so the fourth quarter could be a little bit better than the third quarter, we sort of have to see where things go from that standpoint and as it relates to the long-term, as I said I mean the health metrics that I look at in terms of the pipelines and the performance and the discipline that we have in the system, I think we’ll have to see for 2018. I do fundamentally believe that there are commerce on the sidelines, our clients are healthy, they have got opportunity, I think we have to put variables in their light tax reform and others issues that could be propel us for loan growth in 2018. So, we don’t, as you know I mean John, we never guide the loan growth, we look at the health metrics and we look at are we doing the right things for clients and are we achieving the right kind of returns and loan growth is really an outcome of those things and output of those things rather than supplement that we start with as a metric and work backwards from.

Okay, alright, appreciate that. Back to the credit side, on slide 18, just looking at that delinquencies were up, the 39-day delinquencies were up notably in auto and card on a linked quarter basis. Is that primarily hurricane related, and if not is there any other driver there that you are starting to see? Thanks.

Yes, some of that is hurricane related, right, towards the end of the quarter, but these are early delinquencies and so I wouldn’t necessarily expect that all of these are going to turn into non-performing loans.

Okay. All right. Lastly, just wondering if I could on the expense side, I know you’re talking about the franchise and you're still looking at the overall system. What is your expectation again for branch consolidation for the coming quarters? Thanks.

Yeah. We’ve done about 7% this year and we will do a little more, we'll start close to sort of the 7.5 kind of range, but remember that sort of net in terms of branch production. So, we’re also opening branches and we’re also renovating and refurbishing branches. And as you know, I think we were an early mover in terms of branch consolidation, which had to do with a lot of factors, not the least of which is the construct of our branch network, which is then faster growing urban market. So that afforded us an opportunity to consolidate faster. And also, the fact that we have in-store and traditional locations. So, we have a lot of different, different, different variables. And we also had a number of branches on the leases. So, we had some advantages I think which allowed us to sort of get started early on this process, and we're now down well north of 20% in terms of branch reductions. Now going forward a lot of that will be predicated as it was before on client behavior, I would see certainly -- I don't think we'll be at the same pace in 2018 and 2019 that we were in 2017. We probably be more of a steady state somewhere in the 3% kind of range, but in fairness, we'll look at our -- we’re going to follow clients and the investments that we've made in digital, their adoption, particularly our clients, their adoption of those investments, we’ll predicate to where we go, and the same opportunities that we had in the past, we have in the future, I mean we've got a branch network that really lends itself to optimization.

Thank you. Our next question comes from the line of Geoffrey Elliott with Autonomous Research. Your line is open.

Hello. Good morning. Thank you, sir for taking the question, staying with expenses, on the charges you took this quarter, what sort of earn back do you expect on those, how long is it going to take you to earn back the charges that you took?

Thanks, Geoffrey. That’s a good question. Two types of charges there. If you think about the severance component of that charge, the earn back on that typically is four to six quarters. So, it’s relatively quick. And on the technology related charge, so little bit longer, think about that one in terms of kind of six to eight quarters.

Okay. Thanks. And then on the 60% target, the tangible efficiency, you said that at a long-time ago when I guess 60% was a long way below the efficiency ratio, you’re running out modestly stretched to some people back then. How do you think about whether it makes sense to come out with a lower number, now that you are kind of closing on the 60%, there’s going to be some courses where you are below, and some courses where you’re above? Does it make sense to give us a lower number and kind of communicate the longer-term aspiration?

Yeah. Thanks, Geoffrey. You’re right. We did communicate that a number below 60%. Actually, back in 2011, when our efficiency ratio at the time was 72%. So, when it was 72% we said we needed to get to below 60% and that's where we thought we could run the company. Over the course of the last several years, as we become more efficient I think we’re learning more about what the potential is, what the opportunity is and to your point I think it is going to continue to get better. So, the first thing we’re going to do is we’re going to achieve that below 60. We’re going to get those companies to an efficiency ratio that starts with a five, for a full year and when we achieve that target we’re not going to stop. We have a culture now of continuous improvement. Our team may think about efficiency, they think about return every day and everything that they do and we will be looking at what is our opportunity, where should we be running this company and let’s achieve that target and then you can expect we will be setting a new challenge for ourselves.

Thank you. Our next question comes from the line of Erika Najarian with Bank of America. Your line is open.

I just had one follow-up question and thank you so much for all the responses on the efficiency front. Aleem, as we think about future rate hikes in 2018, balancing your commentary on future betas, how should we think about the value to the NIM of every 25 basis points of rate hike from here?

Yeah, typically I would think about that as generally on the order of three basis points in that first quarter after a rate hike depending of course on when the rate hike is in the quarter and what we are thinking of Erica in terms of a number of rate hikes for 2018 or let’s say between now and the end of ’18 as we’re thinking there is probably going to be two. So, over the course of the next 15 months, as we put together our plan right now for 2018 we’re going to be incorporating two rate hikes in that plan. I think the other point to think about also is remember Q1 is also is kind of always a weird quarter in terms of day count and is a little bit beneficial in terms of NIM because of Q1 day count every year.

Got it. And that three basis points, how much greater beta does that contemplate relative to the 20ish percent that you indicated you’re assuming for fourth quarter ’17? We’re going to continue to nudge that up, so we are modeling in slightly higher betas with every rate hike. But always slightly higher. Looking at what client behavior is, how the market is operating and how deliberate and careful the FRB is in terms of rate hikes. I’m not expecting a big spike up in overall betas.

And that would come from the line of Mike Mayo with Wells Fargo. Your line is open.

So, the consumer banking efficiency ratio in the second quarter was 67%. In the third quarter it was 62% and that just is like did you find a magic bullet; did you sprinkle fairly dust and what’s going on there and is that sustainable? So, one question is should we expect that to bounce back or was that abnormally high in the second quarter? Second part of that is what was the retention rate in the branches that you closed in terms of deposits in customers. And then lastly as far as LightStream is that playing a role and how much?

So, let me start-off with the efficiency ratio point. Yes, there was a big improvement in efficiency ratio quarter-on-quarter, but that’s really caused by or really benefited by the reversal of those legal accruals, several of the items that we settled during the quarter were legacy items that dated back several years, relating to mortgage and one of those benefited the efficiency ratio for consumer for the quarter. So, I wouldn’t think about a core efficiency ratio for consumer as 62 immediately, we’re working obviously to get there and better overtime, but I wouldn’t think of that as a Q4 automatic number.

Yes, and then Mike I’ll try to hit with the second part and maybe add-on what Aleem said is, while that was a one-time don’t lose sight of the fact that we have had steady improvement there that we’re going to continue to have steady improvement there. So that matched a little bit of the improvement that you see overall. As it relates to the brand side and retention, our retention side has been really, really good, so, it's been well north of 90% and that has to do with all of the things that I talked about earlier, it has to do with the density of our branch network and being larger higher growing urban market, so generally we are closing branches that are in close proximity to other branches. But it also has to do with not necessarily LightStream, but it does have a lot to do with the investments that we have made in digital and the adoption that we have had from our clients. So, used to be that branch proximity was sort of the highest correlation, but now it's just one of the variables, the other variables are the tenure of the relationship, which as you know we have long tangent relationships and they are not only mobile adoption but there is utilization of the digital platforms, which for us are pretty high. So, you put all those in the variables and the retention rates have been strong. That will get harder as it goes along, right, so as we continue to look at the platform and some of those things change, but so far, our experience has been very good.

And then just one follow up, at the start of the call, I thought you said record LightStream origination, if that’s the case what’s the potential to use LightStream to eliminate more branch expenses?

It's not really a correlation necessarily with branch expenses, but today something like 25% or so of the originations of LightStream come through the SunTrust platform, so I wouldn’t say there is much of eliminate expenses as it is create additional and incremental opportunity with our clients. So, it's more of the top side of the efficiency ratio, than the bottom side of the efficiency ratio.

Yeah Mike, think of LightStream as a whole new distribution channel, a digital channel for connecting with clients and potential clients all over the country, rather than a replacement for the brand channel.

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