SunTrust Q1 Earnings Conference Call: Full Transcript

Operator:

Welcome to the SunTrust's First Quarter 2016 Earnings Conference Call. At this time all participants are in listen-only mode. After the presentation you may press star followed by the number one if you would like to ask a question. This call is being recorded. If you have any objection please disconnect at this time.

Now, I will turn the call over to Ankur Vyas, Director of Investor Relations. Thank you. You may now begin.

Ankur Vyas: Director of Investor Relations:

Thank Jack. Good morning and welcome to SunTrust first quarter 2016 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 planned to addressed 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 full 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 will now turn the call over to Bill.

William H. Rogers: Chairman and Chief Executive Office:

Thanks, Ankur and good morning everyone. I will begin with a brief overview of the quarter and then turn over to Aleem for additional details, including our results at the business segment level. I will conclude with some perspectives on how this quarter's performance fixed into our long-term strategy and investment basis.

This quarter we saw the benefits of our consistent strategic focus and improving execution, the combination of which resulted in revenue growth that exceeded expense growth.

As we communicated during the earnings call delivering positive operating leverage in 2016 was going to be necessary to overcome of expectation of higher credit costs and to achieve our financial objectives. Our performance in the first quarter was a good start towards meeting those objectives for the year. Specifically we've reported $0.84 per share slightly lower than the fourth quarter given typical season small patterns in our business and more importantly, up a solid 8% compared to year-ago. Total revenue was up 3% sequentially and 5% year-over-year.

The sequential improvement was driven by an increase in net interest income and non-interest income where we benefited from good performance across both mortgage and capital markets a lot of which was notable given market conditions in January and February.

Our net interest margin improved 6 basis points sequentially and is up 21 basis points over the past year, reflecting our continued efforts to optimize the balance sheet including improving our loan mix, growing deposits, and reducing long-term debt all were carefully managing duration. Despite of modest increase in our expense base the tangible efficiency ratio for the quarter improved to 62.3% a full 220 basis points better than last year and represents the focus we have maintained on disciplined expense management which is also created additional capacity to invest in our franchise. Average loans were up 2% sequentially driven by broad-based growth across most portfolios. While ALLL growth were not likely sustain at this rate I would characterize the overall economy and client activity levels was healthy and we will remained focused on generating growth where returns are appropriate and we can create deeper client relationships.

Average deposits were up 1% sequentially and 6% year-over-year with broad-based growth across our consumer private wealth and wholesale businesses. Growing deposits remains an important part of our strategic efforts to strengthen client relationships and improved profitability. Asset quality excluding energy remains strong as evidenced by 25 basis points net charge-off ratio. However the low oil price environment continues to pressure our energy clients which contributed to the increase in non-performing loans are reserves and provision expense.

We remain focused on being proactive around energy and therefore have increase the resources and intensity around medicating our risk and helping our clients navigate to this downturn. However, we continued to view this risk as very manageable in the context of the overall company.

Our capital position was stable with our Common Equity Tier 1 ratio estimated to be 9.8% on a Basal III fully phased-in basis.
Tangible book value per share increased 5% sequentially and 9% from the prior year. Our strong capital position combined with the cumulative actions we've taken to improve our risk and earnings profile should help us further increase capital returns to shareholders. Our 2016 capital plan is now under review and we'll have more report on that outcome in late June.

So, with that as a quick overview, let me turn it over to Aleem to provide some more details on this quarter's performance.

Aleem Gillani: Chief Financial Officer:

Thanks, Bill. Good morning everybody. Thank you for joining us this morning. Moving to Slide 4, you can see that a net interest margin improved 6 basis points.

Primarily driven by higher loan yields as the result of the recent increase in short terms rates and partially offset by slightly higher funding costs. Net interest income increased 3% sequentially, driven by the 6 basis point improvement in NIM and solid 2% loan growth.

On the year-over-year basis, net interest margin increased 21 basis points due to the same factors as the sequential drivers. But also due to our continuous balance sheet management and optimization efforts. These efforts have resulted in the favorable shift in our loan portfolio mix a significant reduction in higher cost long term debt driven by low cost deposit growth and lower premium amortization expense in our securities portfolio.

Looking ahead to the remainder of 2016, and assuming there are no additional increases in the Fed funds rise.

We expect net interest margin to decline by an average of a couple of basis points per quarter. If there are increases in the Fed funds rates, we would expect our net interest margin to benefit given our modestly asset sensitive positions with the amount of benefit depended on the shape of the yield curve in addition to the broader competitive environment. We have been and we'll continue to carefully manage the duration of our overall balance sheet in light of the current low interest rate environment. While also ensuring our balance sheet is structured to benefit from potential increases in short term rates.

Moving to slide 5, non-interest income increased $16 million from the prior quarter. Primarily driven by higher mortgage related income resulting from a recent increase in refinancing activity. Capital markets related income was up modestly, our performance that was better than anticipated due to a strong March. But also was the result of our continued long term investments and market share gains in CIB.

Wealth management related revenue declined $6 million sequentially due to challenging market conditions which reduced assets under management and client activity. Service charges on deposits were relatively flat from both the prior quarter and prior year.

As a reminder those will declined, when we enhanced our posting order process which will reduce service charges by approximately $10 million per quarter beginning in Q4 and as Bill referenced earlier, the combination of the trends you saw on Slide 4 and Slide 5 resulted in total revenue that was up 3% sequentially and 5% year-over-year.

Let's move on the expenses. Non-interest expense increased $30 million relative to the prior quarter, driven entirely by an $84 million increased in personnel expense as a result of the typical seasonal increases in -- incentives and 401(k) costs.

Partially offsetting this increase where lower outside processing in software costs and legal and consulting expenses, partially due to the normal quarterly variability.

In comparison to the first quarter of the last year, non-interest expense was up 3% largely due to the higher marketing expenses in addition to continued and targeted investments in our businesses.
Separately, while our FDIC premium expense has been declining modestly over the past two years as our risk profile has improved beginning in the third quarter, this expense category will increase by approximately $10 million per quarter given the FDIC's recently announced surcharge on large depository institutions. This incremental surcharge is anticipated to be effective for approximately 10 quarters.

As you can see on Slide 7, the adjusted tangible efficiency ratio was 62.3% in the first quarter. An improvement of 220 basis points year-over-year, as revenue growth exceeded expense growth which was are goal coming into the year. Our first quarter progress while early puts us on test to meet our objective of improving our efficiency ratio for the fifth consecutive year and more importantly, demonstrates our intense focus on strong expense discipline and our long-term goal of sub-60% efficiency ratio.

Turning to Slide 8, overall asset quality remains strong during the quarter. As evidenced by net charge-offs and non-performing loans excluding the impact of energy that are down 28% and 9% respectively year-over-year. However, as anticipated the NPL ratio increased due to deterioration in the energy portfolio which when combined with loan growth resulted in an $18 million increased in the total allowances for loans and lease losses.

With respect to the energy portfolio we've provided some additional detail on this slide and more information on Slide 18 in the appendix.

The energy portfolio remains stable at 2% of loans, but the composition also very similar to the prior quarter. Of note E&P and oil field services the two sectors most impacted by low oil prices represent only 38% of total energy loss. A mix we believe is favorable relative to the industry. In addition, we migrated an additional $250 million of energy loans to non-performing status and also increased our criticized accruing balances by $150 million, the net of which brings our criticized ratio to 29% up from 19% in the prior quarter.

Approximately 90% of this quarters migration was concentrated in the E&P sector were collateral coverage remains healthy despite reserve based evaluations and importantly the vast majority of these loans were still current as of March 31. This migration and our allowance include the effect of our internal risk view in addition to the results of the recent shared national credit exam.

Our energy related provision expense in the quarter was approximately $30 million, half of which covered charge-offs and half of which was the reserve build. Resulting in a 4.6% reserve ratio for total energy loans outstanding.

Our total energy reserves as a percentage of E&P and oil field services are roughly 12%, which we believe is the more relevant measure that is responsive to portfolio mix.

As a reminder, our total reserves of $1.8 billion, which have been designated to cover inherent losses in our loan portfolio represent approximately 2 times our non-performers and 3.5 times the midpoint of our 30 to 40 basis points net charge-off range for 2016. Big picture while we have increased the resources and intensity around managing our exposure we continue to view energy related risk as very manageable and the context of the overall company. I am here assuming oil prices do not decline significantly, we would expect energy related NPL formation to moderate as we have already taken significant action over the past few quarters.

We continue to expect the company's overall net charge-off ratio to be between 30 and 40 basis points for the full year 2016. We also expect our ALLL to loans ratio to be a relatively stable, which when combined with our expectation for long grow should result in the total provision expense in 2016 that exceeds net charge-offs. With regard to both charge-offs and provision expanse, these are full year expectations and there may be some quarterly variability given the uncertainty of uncertain credits will be resolved and the results of our rigorous allowance process.

Let's turn to balance sheet trends, average performing loans increased 2% from the prior quarter with broad-based growth across most portfolios.

Commercial loan growth was driven by C&I and commercial real-estate clients. While consumer loan growth was generally broad-based. Our consumer direct strategy continues to produce profitable growth through each of our major channels. On a year-over-year basis, average performing loans grew $4.9 billion or 4%, driven by 5% growth in C&I and 20% growth in consumer direct and was partially offset by declines in home equity, payoffs in commercial real-estate, and a smaller indirect portfolio following our $1 billion indirect auto securitization last June.

Turning to deposits, average client deposits increased 1% compared to the prior quarter and 6% year-over-year with growth across most products and businesses. Our successful deposit growth strategy is the result of our commitment to meeting more of our clients deposit and payment needs, our investments in technology platforms, and ultimately our teammates across all three business segments. Rates paid on deposits increased 2 basis points sequentially, given the increase in short term rates. If interest rates rise further, this trend will continue, however, we will maintained a disciplined approach to pricing with a focus on maximizing the value proposition outside the rate pay for our clients.

Slide 11, provides an update on our capital position which continues to be strong. We have added approximately $700 million of common equity Tier 1 over the past year, and held our estimated Basel III CET1 ratio on a fully phased-in basis at 9.8%. Tangible book value per share was up 5% sequentially and up 9% compared to the prior year, driven by growth retained earnings and higher AOCI as a result of lower long-term interest rates. In addition, our liquidity coverage ratio exceeds regulatory requirements.

This quarter we repurchased $175 million of common stock and common stock warrants and paid a $0.24 dividend. We will repurchase an additional $175 million of common stock during the second quarter to complete our 2015 capital plan.

As Bill referenced, we submitted our 2016 capital plan just a couple of weeks ago and we will disclose more on this matter ones we are advised of the results. As a result of our capital return program, we are driving down share counts. Average fully diluted shares outstanding were down 1% sequentially and 3% year-over-year. A positive impact of our capital return program can be seen in year-over-year results were 5% net income growth translated into 8% earnings per share growth, as our long-term shareholders received the slightly larger ownership stake every quarter.

Over several years the compounding effect of the lower share count combined with our steadily increasing dividend is an important component of our owners' long-term returns.

Moving to the segment overviews, let's begin with consumer banking and private wealth management on Slide 12. Net income decreased $15 million sequentially as continued market volatility resulted in lower wealth management related income that was $30 million higher compared to the prior year, as a result of higher net interest income and improved asset quality. Net interest income was stable sequentially and up 5% versus the prior year as the result of strong loan and deposit growth coupled with our continued focus on balance sheet optimization.

More specifically, our direct consumer lending businesses is continue to exhibit strong momentum with average balances up $2 billion or 20% year-over-year as the result of the investments we've made and enhancing both our product offerings and client experience. In addition, our emphasis on deepening client relationships has driven strong deposit growth up 2% sequentially and 3% versus the prior year. Non-interest income was down 5% sequentially and 2% year-over-year as our wealth management related revenue streams have been pressured by market volatility and lower assets under management. Growing our wealth management business continues to be a key strategic priority for SunTrust, and we remain focused on retaining and recruiting top talent and efforts to both grow AUM and expand our client base.

Asset quality remains strong with delinquencies and net charge-offs remaining near historically low levels.

Going forward we expect the improvements in the home equity portfolio to await that's resulting an increased provision expense associated with loan growth. Non-interest expense increased 2% year-over-year due to continued investments in technology, higher marketing expenditures and growth in revenue generating positions. The efficiency ratio was stable as revenue growth and cost saving initiatives funded these investments. Overtime we continue to see opportunities to improve efficiency and effectiveness within this business as we realized the benefits of our technology investments and worked to deepen client relationships and increased teammate productivity.

Moving on the wholesale banking, we had another solid quarter, revenues were up 4% sequentially and year-over-year as a result of higher net interest income, driven by strong balance sheet growth and higher non-interest income. Capital markets related income was up $7 million sequentially and up modestly versus the prior year despite the decline in the industry transaction volume. Our strong performance relative to the market is the direct result of our successful execution of two multi-year strategies, deepening client relationships and meeting the capital markets needs of all SunTrust plans.

Across both these trends we saw evidence of success in the first quarter. First, our average fee per transaction in the first quarter was up 16% compared to 2015 reflective of our increasing prominent role on client transactions. Second, capital markets related income generated by commercial, CRE and PWM clients was up $10 million compared to the first quarter of 2015. We expect these trends to continue as we bring our full capabilities and one team approach to all SunTrust clients.

Net interest income continues its positive to trajectory, up 2% sequentially and 6% year-over-year. This is primarily due to strong loan and deposit growth a later of which is driven by the increase the increased value that our liquidity specialists are providing our clients and the investments we've made to enhance our treasury and payment product offerings.

Overall, revenue growth continues to outpace expense growth resulting in a 100 basis point improvement in the efficiency ratio versus the prior year. This positive operating leverage has funded strategic investments in revenue growth initiatives including to build up of our industry and corporate finance expertise within commercial banking, enhancements to our treasury platform, upgrades to our client-facing infrastructure and further channel acquisitions. Despite the strong revenue growth, net income declined both sequentially and year-over-year as a result of increased provision expense driven by loan growth, increased energy related reserves, and moderating asset quality improvements.

Looking ahead, while market conditions can be choppy and credit costs will mobilized our wholesale banking business is highly differentiated. Our broad product capabilities and the industry expertise combined with our one team approach will continue to bring increasing value to our clients and shareholders.

Moving to the mortgage segments, which has become a more steady contributor to the company's bottom-line. Non-interest income increased 9% sequentially, driven by both production and servicing. A $7 million increase in production income is largely due to higher refinancing activity in reaction to the decline in rates we saw this quarter which also enabled higher gained on sale margins. Servicing income increased by $6 million due to improved net hedge performance and a lower decay expense, with relatively we purchased $8 million of MSRs in the first quarter, $2 billion of which was on our system as of March 31st and $6 billion of which will transferred during the second quarter.

This is consistent with our strategy, to grow our servicing portfolio as we view performing servicing as a core competency and a solid ROE business.

Application activity was up 37% sequentially, and was strong across both refinanced and purchased clients. Given this combined with the onset of the spring selling season, we would expect second quarter mortgage production income to increase from first quarter level. Some of this will be partially offset by a decline in serving income as decay expense which is recorded at loan closing will increase as the refinance application activity in the first quarter is closed in the second quarter.

Net interest income declined both sequentially and versus the prior year driven by the decline in mortgage loan spreads given the low interest rate environments. Expenses remained well controlled as continued focus on expense discipline and reduced credit related expenses have funded investments to further improve efficiency and the client experience. Net income declined $23 million sequentially entirely due to a lower reserve release as the improvement in mortgage credit quality while still ongoing moderates.

Big picture was a benefit from reserve releases within this business was declined. Our continued focus on originating high quality mortgages, maintaining executional excellence, delivering an improved client experience and gaining smart market shares will continue to contribute to the earnings growth of the company.

And with that I will turn it back to Bill to provide some concluding perspectives.

William H. Rogers:

Great, thanks, Aleem and to conclude I am going to point to Slide 15, which highlights how this quarter's performance aligns with our overall investment pieces and the strategies we have had in place for several years now. First the diversity of our business model help us to deliver 5% revenue growth despite challenging market conditions. Second, our profitability continues to improve as a result of our strategic focus on an improving efficiency and optimizing the balance sheet to enhance returns.

These two strategies which we have been working on since 2011 are key contributors to the 220 basis point reduction and the adjusted tangible efficiencies ratio and the 21 basis point improvement annul.

This focus on expense management has also provided us the capacity to make consistent investments in the company. As an example, we continue to see the benefits from the investments we have been making and CIB over last 10 years and are also encouraged by the result we are seeing from our commercial and CRE businesses. They -- consumer landing has been another key area of investment over the last few years and is demonstrating good momentum. Also our digital investments continue to payoff and consumer banking was steady increases in mobile usage and self-service deposits.

And in mortgage we continue to make targeted investments for growth across both origination and services.

Lastly, our strong capital position has afforded us the opportunity to grow capital returns and reduce share count. Our goal is to continue this trend. So big picture, our revenue trajectory is improving, expenses remained well controlled, credit quality outside of energy remains favorable, and our capital position is strong. So I am pleased with the continued progress and I'll remain highly optimistic about our company's future.

And with that let turn it back over to Ankur to begin the Q&A portion.

Ankur Vyas:

Great, Jake, we are now ready to begin the Q&A portion of the call. As we do so, I would like to ask 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.

Question & Answer

Operator:

Thank you. We will now begin the question-and-answer session. To ask the question you may press star followed the number one. Please unmute your phone and record your name clearly after the call.

Your name is required so I can introduce you for your question. To cancel your request you may star followed by the number two. One moment please as we wait for the first question. Our first question comes from Ken Udsin of Jefferies.

Your line is open.

Ken Usdin: Jefferies & Co.:

Aleem if I could just a question on the net interest margin and the NII performance which is really good. You mentioned in the comments you had some help from premium amortization you had a little help from swaps and we know you've taken out the that swap slide. But can you just talk to us about if you can help us understand there was helpers and then buyers for the down NIM with that just be some normalization of those factors or is that the roll over rates that you are seeing underneath?

Aleem Gillani:

Good morning, Ken. Thanks for the question. Well first of all on swaps and amortization I characterize those as small helpers. If I think about 2016 relative to 2015 we are expecting because we were able to restructure part of our portfolio in 2015.

We are expecting slightly lower levels of premium amortization in '16 relative '15. But we are talking about sort of single-digit millions per quarter these are big numbers. Likewise if I think about the swap book '16 relative to '15 most of the changes in our swap book have actually already taken place. So, one of the reasons we took that slide out from here Ken is we don't expect to see much change in swaps year-over-year from here, most of the changes have already occurred, and so we're really out to be thinking about NIM and NII in total rather than sort of assuming in on one part of our interest rate risk management.

That's the reason we took it out and I don't think that those are sort of large numbers in the context of our overall rate risk and rate management perspective.

To your point on NIM from here, the main we've got sort of several drivers via we're expecting a small going down in NIM from here. New production yields still probably slightly lower than current portfolio yields. So, as the portfolio turns over that will be a slight negative. Remember that the LCR requirement for banks our size goes up at the end of this year and so as we build that our securities portfolio to meet the higher requirement at the end of this year, that will be a slight drag of NIM although it will be actually a little bit of a help to NII and so those are the couple of reasons why we'll see probably slightly lower NIM and NIM will grinding down a little bit over the course of the year.

But in context if you think about the last several years, NIM was coming down at a pretty rapid pace, and we've got good loan growth, we've got good deposit growth, we're able to hold NII about flat over the last several years, even in the phase of all of that declining NIM. So, now that the pace of NIM declined is moderating as a result of that first Fed hike. I am expecting that we will see some NII improvements over the course of the year.

Ken Usdin:

Great got it great color and one question for Bill on the loan side you mentioned the we see the big improvement in C&I a just some over the last two quarters now can you just elaborate on your points about the underlying customer and you're seeing this and underlying strengthening and just C&I demand specifically.

William H. Rogers:

Yes. I think actually it's been pretty consistent. If you so look at loans overall and my comment was probably more general.

Our production over the last 8 quarters has been pretty consistent and our production was a little higher this quarter and the -- and flows of that relate to pay-downs, payoffs, loans sales utilization and this quarter we those were reduced. We have a little higher production, we had fewer pay-downs we obviously didn't have any loan sales and utilization was a little bit up. So don't think it's a specific trend I think it's sort of a continuation of consistent trend over the last few quarters.

Ken Usdin:

Okay. Thanks you.

Operator:

Thanks you. Our next question comes from Gerard Cassidy of RBC. Your line is open.

Gerard Cassidy: RB

Thank you. I am -- guys. Bill following up on your comment on the commercial business

William H. Rogers:

Hey, Gerard can you speak up a little having trouble here again.

Gerard Cassidy:

Okay thanks you. You switch to landline Bill speaking on the commercial lending area what are you guys seeing in underwriting standards both in commercial real-estate and commercial loans and are you seeing any stabilization in the spreads through either of those products

William H. Rogers:

Yes, I'd say if I sort of go down the spectrum if you start with the higher end of the broadly syndicated market, yes we are absolutely seen stabilization there and that's obviously more market impacted and liquidity impacted. If you go down smaller in to the commercial markets, I think first it's still pretty competitive and we are seeing that not seeing the same level of stabilization. Then if you go to CRE, I think that's probably that most impacted by reduction in liquidity.

So we are seeing from a pricing standpoint some return on CRE I think we are also seeing some revert to the mean on structure in terms of CRE. So I think, the answer is yes, all of, everything I have said is on the margin now.

Gerard Cassidy:

Very good and then coming back to you Aleem really appreciated your view on the return of capital and the compounding effect that has had for shareholder returns. In that vein, return on equity for the industry and for yourself obviously has been impacted by the high capital levels everyone has to carry now as well as the lower interest rate environment and suggesting that some people return on the equity is below cost of capital. Well how you guys see getting your ROE over 10% into the next 12 to 24 months is it truly to just rates going higher or there is other thinks that you are looking at. Thank you.

Aleem Gillani:

I think that's the first component of getting our ROE up as an industry overall as getting our ROA up and there are several levels you've seen the industry pull to do that right. Net interest income as I said earlier to Ken, I expect we're actually going to see a growth in that net interest income irrespective of rates and to the extent that we do get some rates hikes that growth will accelerate. Their industry are built to the grow non-interest income I think has been pressured in the past, but I think you're seeing us and other players also look for other businesses and other ways to meet more client needs to grow that and of course efficiency. Just improving productivity, improving our overall efficiency, that's all of those things are helping grow ROA to the extent that we then able to take that growth in ROA and translate that to accelerating growth in ROE managing capital as best as we can.

Obviously that is not all in our hands, but you've seen payout ratios grow pretty substantially over the last several years. In our case, last year we were in the sort of mid 60% payout ratio, still lower than we would like. But our ability to grow payout ratio when returned capital will be one of those levels of many that I think were we will be able to grow ROE overtime.

Gerard Cassidy:

Great. Thank you for the answer.

Operator:

Thank you. Our next question comes from Matt O'Connor of Deutsche Bank. Your line is open.

Matt O'Connor: Deutsche Bank Securities:

Can you talk about the approach to management expenses for the rest of the year. Obviously you gave us the deterioration of hoping to improve the efficiency ratio versus last year, but --correctly and you had a one target of expenses for your base case revenue and then you had another kind of ball back option if revenue was track to below expectation. So how are you thinking about managing the company on this expense side give me your revenue outlook today?

William H. Rogers:

Yes. Matt we are talked about this a lot I mean we stay focused on managing to an efficiency ratio versus an expense level as a dollar level. So, I think we're ahead of the game where we normally are in the first quarter relative to the efficiency ratio.

We had a little higher revenue that you saw the expense rate goes along with that. And the goal right now will be not to give that away. Is not to give the games that we've made in the efficiency ratio away. We've made a commitment to continue to improve we've been doing that now for say four years plus.

So, the focus is going to be on not giving away the improvement that we've made in the efficiency ratio and improved relative to '15.

Now, all that been set, we've lots and lots of expense initiatives that we are constantly putting forth as a strategy in the different levels and intensity of how we pulled those very relative to what we see in terms of expectations and there also allowing us to continue to make investments in our company. So, as we continue on our expense mission we also have an investment opportunity in terms of total revenue and future of the company.

Matt O’Connor:

Okay, its helpful, and separately Aleem, any color on how many securities or how much liquidity after Bill to meet the next round of LCR requirements?

Aleem Gillani:

It's not all that substantial amount the increase in requirements goes from 90% to 100% where obviously in access of the 90% as it is. So, the amount of the increase to get from where we are to a little over 100% grew it's not all that large.

Matt O’Connor:

Okay, alright. Thank you.

Operator:

Next we have Michael Rose of Raymond James. Your line is open.

Michael Rose: Raymond James:

Hey just want to touch on longer little bit you guys have grown at high single-digit rate annualized past tough quarters. Obviously really good momentum. How should we think about the pipelines from here and obviously your growth is lot stronger than GP. How should we think about loan growth for the rest of the year and kind of were the offsets set from the energy run off.

Thanks.

William H. Rogers:

Yes. As I said earlier we don't really manage to our long growth number I mean to me loan growth is an outcome. What I look at is what you have asked about as I look at pipelines and production and pipelines and productions have been very consistent over the last several quarters.

But as I said earlier production was little higher this quarter and we didn't have some of the offsets and pay downs. So I think you are going to have some give and takes. So if we sort go down the portfolio for to your point I think CRE will be lower production, but that's won't necessarily reflect itself an outstanding because we've had good production in the past a lot of that's construction related people are completing their projects, there is less liquidity in the system.

So that's liable to stay outstanding for a little bit longer than it had in the past. So there will be some interesting offsets to CREs specifically. As we go to C&I pipeline is continue to be good, our strategies are effective we will be very focused on return. So we will be aggressive where we think we can get a lot of return and we won't be as aggressive where we don't think we can get the appropriate return.

Consumer I think that will continue to grow as you've seen the initiatives that we've had in place and the investments that we've made in consumers. So as a production basis that will continue to grow sort of in the double-digit side. But again a little bit offset by run-off in home equity. So they are give and takes of all this which is again well I am sort of careful not to say long growth as a number as the is the thing we want to get guidance around.

But pipelines are healthy and the strategies that we haven't place of working.

Michael Rose:

That's very helpful and maybe it's my follow ups looking at the Slide 18 on the energy portfolio and thanks for providing at this point. Just if you guys just how me reconcile that criticized the E&P broad versus the oil field services because I think meeting most investors see kind of oil field services to bigger risk category. I mean is there tail risk there and maybe how would you kind of quantify that or classify over the next few quarters. Thanks.

William H. Rogers:

I think that's were investors have seen a little bit more of the risks and in our case if I think about our oilfield services the E&P and oilfield services combined as you know that's only 38% of a large total books so that's not significant. And within oilfield services the majority of our oilfield services exposure is either investment grade or what we would characterize as investment grade from our internal rating systems or is supported by assets that's it asset by --. So the majority of our book actually in oilfield services on a risks basis and maybe a little bit lower risk than you used to seeing.

Michael Rose:

Okay. Thanks for taking my question.

Operator:

Next question is from John McDonald of Bernstein. Your line is open.

John McDonald: Bernstein:

Hi good morning. The capital market fees as you mentioned outperformed the big investment banks this quarter. You've touched a little bit on the business model being a differentiators. Aleem just kind of wondering did you feel the cyclical headwinds have reduced this capital markets activity on deal and issuance and just little more color on how you powered through that.

Aleem Gillani:

John, thank you. We absolutely did as you know the market in January and February was decidedly weak and decidedly volatile and we certainly felt that in the first two months of the quarter. But as the market stabilized in March, our teammates absolutely came through and this is been a ten years strategy for us. Investment into our CIB business and bringing our one team approach across all aspects of commercial, GRE and corporate banking has really helped.

I think we've grown market share over the last ten years, certainly over the last year also and that growth in share really showed up this quarter.

William H. Rogers:

I'd add to what Aleem said is through a sort of a continuation of the strategy we have had record quarter we are seen the last two quarters relative to CRE and commercial banking and activity with they're doing to contribute to that investment banking line and also the continuation of strategy year-over-year our average fee meaning we are sort of improving in relative importance. So even if the units aren't the same, the value of those units are a lot higher so it's up almost 35% year-over-year. So the strategy are also is manifesting itself and moving down that left side relative to importance to our clients.

John McDonald:

Okay. So is there any these are hard to predict line items, but is there any reason this wouldn't be a good jumping off point for the rest of the year in term of the performance you did this quarter on the fees and should things get cyclically a little bit better given that March kind of improved?

William H. Rogers:

Yes I mean relative to this quarter, or to this line item investment banking specifically, I would expect this is a good jumping off point, I would expect a second quarter to be better than the first quarter. All that being said these are choppy markets. I mean we this was the tail of the last part of the quarter was really good and the first two, two-third of the quarter were not.

So we're heading in the quarter with some momentum I would expected to be a little bit better, but I guess the second quarter of last year which was a record. So I am not sure we will be at that level, but I think we can improve relative to this quarter of how that be a good as you said launching path for the year.

John McDonald:

Understand. Thank you.

Operator:

Next question is from Kevin Barker of Piper Jaffray. Your line is open.

Kevin Barker: Piper Jaffray:

Good morning.

William H. Rogers:

Good morning.

Kevin Barker:

In your energy portfolio the oilfield services has been performing better than those periods of only 32% criticized. How much of that lower criticized is primarily due to hedges that are still on the oilfield and do you see a much rolling off through 2016.

William H. Rogers:

I am not sure how much of that relates to hedges. I tell you one of the reasons why oilfield services for us may or may not be performing as badly as you would expect relative to others. Part of our oilfield services business includes clients who don't cover solely the energy industry.

They have got other businesses as part of their overall business and so even though we categories that for us as relative services. Its perhaps a lower risk based and the broader client based and you might see it other firms.

Kevin Barker:

All right. And then the follow up on the loan growth the comments that you made earlier you've always you have obviously putted a lot more emphasis on LightStream in that platform over the past year. Could you detail, how much of your incremental loan growth that we have seen last couple of quarters, was due to LightStream and what average yield you are getting from the products that are sold through that platform.

William H. Rogers:

Yes. Overall loan growth in, we think about this segment as our consumer direct LightStream, GreenSky, Credit card and other products that fit into our overall consumer direct strategy and loan growth there in and that business has been very substantial to 20% year-over-year loan growth and we are very happy with that business. We are very happy also by the way with the credit quality that we are seeing in that business and we are continue to expect to be able to meet more clients' needs and broaden out that business overtime.

John McDonald:

What average yield are you seeing in that consumer direct channel?

William H. Rogers:

I don't have that number right off the top of my head Kevin, will ask our credit to get back to you on the yields and the components of that business.

John McDonald:

Thank you for taking my question.

Operator:

Next question is from Matt Burnell from Wells Fargo Securities. Your line is open.

Matthew Burnell: Wells Fargo Securities, LL

Good morning, thanks for taking my question gentlemen. Just a follow up, I guess a little bit on the capital returns story. I realize there is not a lot you can say about your CCAR submission. But I am curious is that about how you conceptually how are you thinking about the potential for energy related credit cards to effect to the overall payout ratio relative to the upcoming capital planning cycle versus 2015.

You mentioned 2015 you are sort of mid-60% ratio. Does any concern about oil related credit affect your thinking about the capital return story going forward?

William H. Rogers:

The way that submission is structured as you know there is an extremely adverse case, but a hypothetical case that the FRB and a regulators create that require to submit against that assumes basically not just a recession but a depression and assumes therefore very high levels of provisioning and charge-offs. Incorporated within that case, we incorporated a sensitivity on our energy portfolio and so submit of that our, whatever our result is and our ability to grow our payout ratio overtime already incorporates that number within that map so if we receive a positive result in June, it will already have included that number with...

Matthew Burnell:

Okay. That's helpful and then just secondly, you mentioned some of the challenges affecting the private wealth management business at least in the relatively near term. I guess I am curios how you think about the department of labor rule and does that have a meaningful impact on your private wealth management business?

William H. Rogers:

Yes. Matt, I don't we've sort of start as a framework. We have been fiduciaries for over a 100 years.

So our private wealth business has sort of been dominated by our fiduciary component of our business. So it's a concept that we're certainly comfortable with, we're obviously diving through the order and spending some time our teams has been paying about this for a long time in terms of structural changes and being ready. So, I think this is in the highly manageable category. We'll have a marginal impact maybe, we'd also have some opportunity relative to others maybe.

So, I don't think this is going to be a big story in terms of change in direction of our private wealth business.

Matthew Burnell:

Thanks for taking my questions.

Operator:

Thank you. The next question is from Vivek Juneja of JP Morgan. Your line is open.

Vivek Juneja: JP Morgan:

Hi, couple of questions, Bill, Aleem. First, in terms of the increased capital return you talked about. How are you thinking about dividends versus buybacks?

William H. Rogers:

All Vivek we've talked with the several of our owners and the kind of feedback that we've received overtime is that they've liked our balanced approach. They've liked the way that we've been able to grow dividends and buyback over the course of several years and we would anticipate so it's that type of a balanced approach is going to continue to be what our owners would like to see from us in the future.

Vivek Juneja:

Okay. There the officially Aleem your kind to target on the dividend side.

Aleem Gillani:

Well, not on that is specific ones if I can to a couple of points and when you think about total payout ratio in the past SunTrust has been running sort of between 60% and 80%. We're glad that we moved up within that band last year and we hope to continue progress this year and specifically to dividends you are aware of the regulatory guidance that anything over 30% required or we'll received increased scrutiny. I'll tell you that I don't exactly what that means but I know that I don't want. So we will probably you can probably anticipate that we'll keep that in mind.

Vivek Juneja:

Okay and different question sticking here. On the consumer direct can you talk a little bit about the credit metrics of what you are underwriting?

Aleem Gillani:

Metrics over the lot the probably the biggest point to make there is when you think about charge-offs. Charge-offs for our LightStream and GreenSky businesses combined in the first quarter of this year we're less than $2 million. So if you think about $3.5 billion in portfolio and less than $2 million in actual charge-offs that's a pretty terrific set of credit metrics.

William H. Rogers:

And as result so you know this is prime super prime portfolio focus. So the average FICO scores and LightStream and GreenSky are 760, 750 plus. So this is sort of a different strategy related to this portfolio for us.

Vivek Juneja:

Okay, great. Thank you.

Ankur Vyas:

Jake, we have time for one more question.

Operator:

Alright. Our last question comes from Marty Mosby of Vining Sparks. Your line is open.

Marty Mosby: Vining Sparks:

Thanks. I wanted to ask about as you look at expenses on one quarter to the next. So you just kind of rolled into next you have the seasonal expenses on employee benefits are goes down. I guess some seasonal expenses and other that goes up and then how is your investment kind of trajectory.

So I just kind of think of those three things and were they set out to stable expenses or somewhat of our maybe I give back or down expense which was show what we saw last year which is a big improvement in efficiencies going from first to second quarter.

William H. Rogers:

Well Marty as we think about expenses, what we do is we focused on the efficiency ratio rather than sort of individual expense line-items and our philosophy is to continue to try that improved operating leverage and improved the efficiency ratio overall. Having said that, if I think about the expense line for this year one of the things have we said early this year as we expect our quarterly expenses to average between $1.3 billion or $1.35 billion with that number being contingent on revenue obviously as we focused on the efficiency ratio. I don't think that there is much of a change to that with stable revenues I would be thinking about, I will continue to think about expenses averaging and I say that carefully averaging between $1.3 billion and $1.35 billion for might at quarters higher or quarters lower.

But that kind of expense based for us I think is fair number for you to anticipated and model.

Marty Mosby:

And you talked about the improvement in the sense of some stabilization in the energy related non-performers and criticized that, you likely kind of gotten ahead of that issue given the metrics that we are saying in the portfolio that look favorable. You didn't really breakout the provision in the sense of how much of the, $100 million is related to energy this particular quarter and the buildup for some of those non-performers and is there kind of a pass that you can see we're actually provisioning begins the actually your leg down a bit just because of the rest of the portfolio is performing so well.

William H. Rogers:

Well if you look at this quarter Marty, our provisioning for energy was about $30 million and about half of that was a charge-off and about half of that was a reserved build. So to give you a sense of size that's how to look at Q1. If I think about going forward from here though the rest of the year, our overall energy reserves I think can play out couple of different ways assuming there is no oil price shock right, assuming the energy prices are relatively stable to where they are now.

I think couple of things can happened one, our energy reserves can be relatively stable as we have charge-offs we continue to provide for those and maintain our reserve coverage about where it is or two energy reserves could decline as work through certain credits and as the formation of problem credits from here flows. I think excluding a big decline in energy prices I can see either of those scenarios from here.

Marty Mosby:

Perfect. Thank you.

Ankur Vyas:

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

Operator:

Thank you and that concludes today's conference. Thank you all for joining. You may all now disconnect.