Q2 2019 Earnings Call

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That's very helpful. I'll place your line on music until they get underway.

Thank you.

Ladies and gentlemen, thank you for standing by and welcome to the Suntrust second quarter 2019 earnings call.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given at that time should you require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded and actually turn the conference over to Encore vs. Please go ahead.

Thank you David.

Good morning, everyone and welcome to Sun Trust second quarter 2019 earnings Conference call. Thank you for joining us.

In addition to today's press release, we've also provided a presentation that covers the topics we plan to address during our call. The press release presentation and detailed financial schedules can be accessed at investors Dod Suntrust Dot com.

With me today among other members of our executive management team are Bill Rogers, our chairman and Chief Executive Officer.

And Alison Dukes, 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.

In addition in connection with the proposed merger with BBSI BBSI as filed with the SEC a registration statement on form S. Four to register the shares of BB Aunties capital stock to be issued in connection with the merger.

Which contains a joint proxy statement and prospectus for shareholder approval of the proposed transaction.

The registration statement was declared effective by the SEC on June 19th 2019, BB NTN Suntrust commands commenced mailing the definitive joint proxy statement and prospectus to shareholders on or about June 27 2019.

Please refer to the cautionary statements on page two of our presentation regarding forward looking information, including some of the factors that might cause actual results to differ materially.

Also referred to legend on page three of the presentation that relate to additional information about the merger and participants in the solicitation.

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 or in our presentation and on our web site investors Dod Suntrust Dotcom.

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 let me now turn the call over to Bill.

Thanks, Good morning, everyone.

I'll begin with an overview of the second quarter, which we highlight on slide four I will then turn it over to Allison for some additional details I'll conclude with some updates on the merger with media opportunity on how our integration planning efforts continue to progress.

Earnings per share this quarter, excluding the three cents on merger related impacts was $1.51 subs contributed to this result was seven cents and discrete tax benefits part of which however was offset by reserve build in the quarter. Overall I would characterize this was a solid quarter, which where you had continued good loan growth and improvement in fee income trends, good expense management and strong credit quality.

However, much of this was offset by higher funding cost on a challenging interest rate environment, both which drove the 11 basis point decline in net interest margin.

With that as an overview, let me highlight some of the specifics for Suntrust earnings on the second quarter, while growth remains healthy as evidenced by the 1% sequential growth, we delivered which was generally broad based across most businesses. The investments we've made in our advice driven model for corporate commercial and CRM clients. In addition to our ongoing investments in digital consumer lending continue to drive good loan growth.

We also saw healthy growth in indirect auto, reflecting the pullback from certain competitors and strong consumer confidence.

Bigger picture, it's clear that our clients remain optimistic about the economy and are committed to making ongoing investments both personally and in their businesses.

Offsetting the strong loan growth, we delivered was pressure on the net interest margin given increased funding cost and rate dynamics, which also is going to discuss in more detail.

Excluding certain discrete items noninterest income increased by 5% sequentially, reflecting increased client activity levels and structured real estate agency lending and investment banking all of which highlights the success of our advice driven model.

Overall, we delivered 1% sequential core revenue growth. This progress in spite of a NIM pressure, we experience highlights the diversity of our business model and the returns on our consistent investments in growth.

Importantly, our progress in delivering top line growth is mirrored by improvements in overall profitability.

Year to date, we've delivered 50 basis points of improvement in our adjusted tangible efficiency ratio, providing us good momentum headed into the merger and realizing our long term potential would be read into it.

And finally on credit quality remains a strength for charge offs declining by four basis points relative to the first quarter and Npls remain stable.

Importantly, our consistently low credit losses are a reflection of our underwriting discipline. In addition to an economy, which I believe is on solid footing.

While it does appear that the rate environment may become a headwind to our earnings growth going forward. This is partially mitigated by a diversified business model. The onward. The investments we've made and continue to make in growth in technology, and our commitment to continuous improvement and efficiency.

Each of these factors give me confidence that we will continue to make good core business progress over the next one to two quarters on a standalone basis.

And we will then propel us into the next great chapter in our company's history.

Before I turn it over to Allison I'd like to take a minute to discuss the $205 million insurance settlement and offsetting contribution to the Suntrust Foundation.

This insurance settlement is from financial crisis area related claims.

As you know, where our purpose driven company and we decided to contribute the benefit to the Suntrust Foundation. So they may be invested in financial wellness efforts and other activities that will benefit our communities for decades to come.

This contribution combined with the community benefits plan, we announced two days ago are perfect. Examples of our strong commitment and dedication to investing in our communities. This has been a core tenet of our respective companies and will only strengthen our trust so with that let me turn it over to Allison.

Thanks, Bill lets start with net interest income as you can see on slide five our net interest margin is down 11 basis points sequentially and 12 basis points year over year.

There are a few factors driving that.

First funding costs continue to increase driven by both.

Increase in the rate paid on deposit.

In addition to increased levels of wholesale funding to support the $1.5 billion of loan growth, we delivered in the second quarter.

Second one month LIBOR declined by five basis points on average in the quarter and approximately 25% of our earning asset net of debt and commercial loan swaps are tied to the sendak.

And lastly, the roughly 30 basis point average decline in longer term rates and the roughly 60 basis point point to point decline and longer term rate negatively impacted yields and prepayments and our fixed rate assets.

Largely mortgage backed securities and mortgage loan.

Looking to the third quarter, we expect net interest margin to decline by seven to nine basis points relative to the second quarter.

This is primarily driven by our assumption that there will be a July rate cut and our view that deposit betas and the early rate cuts will be low similar to how they were low during the first few rate hike.

In addition day count higher premium amortization in the MBS portfolio and funding mix shift are also competiveness, albeit smaller that are embedded in our third quarter guidance.

From an Eni perspective, we would expect third quarter Eni to decline zero to 1% relative to second quarter.

As loan growth and day count will partially offset the decline in NIM.

Moving to slide deck.

When excluding the $205 million insurance settlement noninterest income increased by $36 million sequentially.

Driven primarily by commercial real estate related income, which benefited from higher client activity and structured real estate and agency lending.

In addition to a 12 million dollar increase and investment banking income.

Mortgage production income was up by $22 million and reflects strength in both refinance and purchase.

With sequential closed loan volumes up 57%, an 81% respectively.

Gain on sale margins are also firming given increased industry volumes against reduced capacity.

The strength in mortgage production, however were more than offset by $36 million decline in servicing income, where the more volatile lower and flatter rate environment negatively impacted hedge performance on our MSR portfolio.

And drove an increase in the K expense.

Also as I discussed on the previous slide the lower rate environment negatively impacted reinvestment yields and prepayments on the mortgage loan portfolio in the second quarter.

Looking to the third quarter, we would expect total mortgage related fee income to decline from the second quarter level as refinance activity may abate and purchase seasonally decline while servicing income will continue to have elevated decay as you'll recall that the K expense on the sub servicing portfolio is recorded at close well gain on sale within production income is recorded at the time of Great luck.

Separately as we indicated in our first quarter earnings call. We sold an accruing residential TDR portfolio in the middle of April which resulted in a $44 million today.

This was largely offset by a $42 million loss related to the repositioning of approximately $3 billion of our securities portfolio.

As I said in April the net PML impact will be relatively immaterial to our earnings profile going forward.

Moving to expenses on slide seven.

We recognized $14 million of merger related impacts in the second quarter.

8 million, primarily related to legal fees, which show up as merger related costs.

And $6 million, primarily related to consulting expenses, which show up in other noninterest expense.

We would expect total merger related expenses to be in the $10 million to $15 million range in the third quarter.

We also had a $205 million contribution to the Suntrust Foundation offsetting the insurance settlement, which bill mentioned earlier.

Excluding the contribution and merger related impact expenses decreased by $25 million sequentially. As a result of lower operating losses in the second quarter and elevated branch closure costs in the first quarter.

Compared to the prior year adjusted expenses increased by $29 million or 2% driven by higher compensation expense. In addition to ongoing investments in technology.

Importantly, these investments in talent and technology were largely funded by ongoing efficiency initiatives.

We also recorded $32 million of discrete tax benefits this quarter related to the resolution of certain tax matters.

Excluding these benefits our effective tax rate would have been approximately 17%.

Looking to the third quarter, we would expect our effective tax rate, excluding any discrete items to be between 17 and 18% in between 19 and 20% if you model us on an FTC basis.

As you can see on slide eight the adjustable tangible efficiency ratio was 59% for the quarter.

Year to date, we delivered 50 basis points of improvement in the adjusted tangible efficiency ratio, which is good progress.

Especially when considering the four basis point decline in our net interest margin for the first half of 2019 compared to the first half of 2018.

More importantly, given the synergies we will achieve by merging with medium duty, we will have significantly greater capacity to invest in innovation.

Technology and talent. This is one of the key benefits of this transaction.

Not just that we have the opportunity to achieve best in class efficiency, which is of course, a great outcome for our shareholders, but more so to have incremental capacity for investment.

Now moving to slide nine.

Our net charge off ratio was 22 basis points in the second quarter down four basis points relative to the first quarter.

The low level of net charge offs reflects the relative strength, we are seeing across all of our portfolios performance. We are extremely pleased with that we remain cognizant that there could be some variability in normalization going forward.

Our nonperforming loan ratio of 34 basis points.

Which is stable relative to the prior quarter also remained well below historical averages.

Provision expense declined by $26 million sequentially.

As a result of slower loan growth relative to the first quarter and lower net charge offs.

Looking into the third quarter of 2019, we would expect our net charge off ratio to be on the low end of our 25 to 30 basis point guidance.

We do expect the a triple ratio to remain relatively stable, which would result in a provision expense that exceeds net charge off given loan growth.

Moving to the balance sheet on slide 10.

We continue to deliver good loan growth evidenced by the 1% sequential growth in average balances.

Importantly that growth was diversified across most portfolios, including Cnine, sorry, because your direct and indirect auto.

Wholesale growth was diversified across each of our lines of business.

Within CRD loan growth was broad based across many of our industry vertical in addition to growth in our asset finance business.

Commercial banking growth was also broad based with strength across most client segments, including auto dealer aging services, our expansion markets and core commercial client.

CRT growth continued as a result of investments, we have made and permanent lending and bridge lending capabilities, which is being partially offset by runoff and the construction portfolio.

Within consumer the ongoing investments we have made in our digital and point of sale lending capabilities, which provide for superior client experience.

Are also driving good growth and enhancing our returns.

Our auto portfolio continued to demonstrate healthy growth and solid risk adjusted returns.

Across both wholesale and consumer our underwriting discipline has not changed and we remain highly focused on ensuring that the quality of our new production is consistent with the quality of our existing portfolio.

On the deposit side average balances were stable sequentially consistent with prior quarters, we continue to see a migration from lower cost deposits to CD.

Largely due to higher rates and our targeted strategy, which allows us to retain our existing depositors, while also acquiring new households.

Interest bearing deposit costs increased by six basis points sequentially lower than the prior to quarter increases of nine and 10 basis points respectively.

This quarters increase in deposit cost reflects to some extent lagged impact from prior rate hikes.

Now moving to slide 11 to provide an update on our capital position.

Our estimated Basel III common equity tier one ratio was 9.2% and the tier one ratio was 10.2% slightly higher than the prior quarter given the suspension of share repurchases.

Book value and tangible book value per share increased by five and 6% sequentially given growth in retained earnings and the impact that lower rates had on improving the unrealized loss position in our securities portfolio.

Going forward, we expect capital ratios to trend upward given the suspension of share repurchases in anticipation of our merger with BBSI.

Separately subject to board approval, we plan to increase our quarterly dividend from 50 cents per common share to 56% 56 cents per common share beginning in the third quarter, which represents a 12% increase provides for an attractive pro forma dividend yield of 3.5% and reflects our confidence in our standalone earnings capacity.

Moving to the segment overviews will begin with the consumer segment on slide 12.

The positive lending momentum we've had in consumer continued in the second quarter with consumer lending production, excluding mortgage achieving a record level and up 16% year over year.

The investments, we've made and Lightstream and our point of sale lending partnerships continue to be consistent contributors to our loan growth.

Over the past year, we have focused on enhancing our analytics, improving automation, adding product offerings and growing our partnership and referral.

All of which are key contributors to the 40% year over year growth, we delivered in life story.

Consistent with prior quarters.

Some of this collective growth has been offset by the continued decline in home equity.

We are encouraged by the growth, we we have with our direct consumer lending businesses, which provides us with great momentum headed into our proposed merger, where we where we will have the opportunity to meet the digital lending needs of a broader set of clients.

Overall, the 6% loan growth and 1% deposit growth.

Drove a 4% increase in net interest income relative to the prior quarter I'm, sorry relative to the prior year.

Consumer fee income benefited from the 44 million dollar gain related to the sale of an accruing residential TDR portfolio.

Excluding this fee income was relatively stable sequentially and year over year.

As mentioned earlier mortgage related income declined by $14 million sequentially as the increase in production was more than offset by lower servicing income given the impact the rate environment had on decay expense and hedge performance for our MSR portfolio.

Wealth management related noninterest income increased 4% sequentially as market conditions improved.

Assets under management are up a solid 4% year over year.

Excluding the TDR sale, our efficiency ratio and consumer improved by 170 basis points year over year.

Related layer branch count is down by 6% in the past year.

These efficiencies have been used to make ongoing improvements in technology.

Smart guide our digital mortgage application has achieved and almost 90% adoption.

We are now working to streamline aspects of the back end origination process as well.

The early results are very encouraging.

We received another online banking award from javelin in the second quarter, continuing our positive results with regards to third party digital record recognition.

Big picture, our consumer business continued to make very good progress.

Excluding the TDR game revenues are up 3% year over year expenses are stable and pre provision net revenue was up 8% year over year.

These businesses continue to benefit from a strong presence across high growth markets in the southeast and mid Atlantic. In addition to our continued progress in enhancing digital and technology capabilities.

Each of these strengths will be amplified when we merged with BBT, creating retail and private wealth businesses that will be leaders in the industry across many key dimensions dimensions growth efficiency talent and technology.

Now moving to wholesale on slide 13, where our consistent strategy continues to drive good results.

On the lending side, we saw solid growth across the IB commercial and theory.

More broadly the growth in our wholesale lending portfolio as a reflection of our clients continued optimism in the economy.

Which has resulted in higher utilization rates and strong production levels.

Pay down activity did increase as anticipated, which drove slower loan growth relative to the first quarter.

Importantly, the loan growth did not come at the expense of risk or return discipline.

Our model is focused on leading with advice not structure or price.

This is also reflected in our low net charge off rate ratio, which was five basis points in the second quarter and has remained below 20 basis points for each of the last 10 quarters.

As mentioned previously commercial real estate related income was a key driver of the 11% sequentially and 4% year over year growth in fee income.

In particular this was driven by increased transaction activity and see Ivy structured real estate business and theories agency lending business.

We continue to benefit from strong client relationships and deep structuring expertise and the structured real estate business.

And we're now seeing improved momentum from our agency lending business given increased partnership between our coverage bankers and our product specialists.

We also saw an improvement invest and investment banking income relative to the first quarter driven by a pickup in equity offering a good sign of investor confidence and more importantly, a good reflection of our increasing strategic relevance with our clients.

Trading income had a strong quarter and was broad based across most product categories.

While provision expense did present, a headwind to net income and strong revenue growth. We have delivered in the first half the year combined with ongoing expense discipline drove a 4% increase in pre provision net revenue year to date.

Bigger picture, we've made consistent strategic investments and building out our product and industry expertise expanding our product offering.

And expanding into new markets the success of which is demonstrated in our results.

First in theory, the strong loan growth, we are seeing as a result of our recently introduced permanent financing and bridge lending capability.

Combined with the aforementioned growth in fee is making this business a more meaningful and diversified contributor to wholesales earnings.

In commercial banking, we continue to have success with the national expansion of our aging services vertical in addition to the expansion of our core commercial business into new markets in Texas and Ohio.

Combined these two areas of index of investment contributed to contributed to approximately 40% of our year over year loan growth and commercial banking.

And finally in capital markets, our revenues from non CD clients are up 8% year to date.

Importantly, this increased level of connectivity, we have across wholesale and the success of our one team approach are creating a more sustainable and granular source of capital markets revenue.

Each of these strategies continues to drive solid sustainable results and has created a strong foundation, which we can build upon as we merge and have the opportunity to bring our capabilities and differentiated model to a broader set of corporate and commercial clients.

And with that I'll turn the call back over to Bill credits. Thanks Allison.

Overall, we had a good quarter and it was further validation of the success. We continue to have an investing in growth opportunities.

Diversified our business mix, a loan portfolio and improving our efficiency.

While the rate environment across much of our core business progress we feel good about the underlying momentum across the company.

The overall momentum we have continued to validate my view that's on growth on a standalone basis is approaching the proposed merger with BB into from a position of strength.

Individually were two strong companies and together, we're creating the premier financial institution.

With that let me provide a bit of progress.

Update on the merger and most of that's on slide 14.

Overall, we're very pleased with how well the progressives person and more importantly, how well our teams are working together weve developed strong levels of partnership and alignment and there's just a really strong sense of excitement for the future opportunities, we're going to have to gather as cruised executive management team continues to meet weekly to plan for the merger and those conversations are going extremely well together, we are making good progress on key decisions about important issues like organization will do arm system selections.

Desired future state and decisions that really helped define our new culture.

Related we had two cafes of organizational announcements, which named approximately 1000 leaders.

These leaders report top talent from both companies, a really really great balance between BBCN Suntrust.

Good levels of diversity from every perspective, including background experience.

From an integration standpoint, we have approximately 50 work streams underway. We've identified several thousand applications between the two companies we group them under 100, or so ecosystems. We're now projecting the system selection process. This requires a greater model thoughtfulness and were focus on selecting the best of the best while also mitigating integration risk.

On the regulatory front, we continue to work closely with the federal reserve the FDIC and the D.R.J., we submitted our joint capital plan at the beginning of May. In addition, our teams have really been working well together to provide timely responses to the to the request for information.

We made several key announcements regarding our community investment levels first we announced that we would double our community investment and for everybody levels in our respective headquarter city for Atlanta, and the Piedmont Triad area.

Second on Tuesday, we announced our community benefits plan, which calls for a $60 billion of investment across multiple dimensions over the next three years and today, we announced an incremental $205 million contribution to the Suntrust Foundation combined these announcements should reinforce our commitment to supporting and investing in the communities of which were really fortunate to be a part killing I've thought about this merger not just in the context of the next three to five years, but really the next generation and these investments are going to strike from all of those communities for decades to come.

We're working very hard to lay the groundwork for the new company culture.

This is a significant amount of work underway, which was formally launched with our culture survey between both companies back in May.

The results of this survey on additional work are really encouraging it only reinforces our belief that these two companies are far more like them. They are different artists going to dive deeper into the results and discuss more about what we walk through is to represent this is really rewarding work that we're doing together.

And finally, perhaps the most important accomplishment in the first quarter was the announcement of our new name Truett Hurst.

That was a culmination of an extensive offended thoughtful and rigorous process.

Right now troops to courses just to name a book from here.

No. It's what we're going to make Oh, we're really excited about the opportunity come together and make true as one of the strongest brands in financial services.

So you can see we've been quite busy with oil from the mall and I can say personally that its some of the most fall rewarding and fulfilling worked in my career. There are a number of important activities and gating items that must be achieved in the next few months and at this point, we're targeting to close late maybe in the third quarter early fourth quarter.

Overall, I'm, just really incredibly pleased with the progress we've made in such a short period of time.

More importantly, the more time, we spend together as a new management team.

The more that our team to work together, we're just becoming more optimistic about the opportunity that we have in front of US we know that through US we'll do so much more for our clients our teammates our associates communities and shareholders and we could have ever done on our own and we look forward to executing on this incredible potential.

Lastly, I'd be remiss of of impact our teams I know how hard everyone is working to serve our clients every day to deliver results for our shareholders and invest in our communities all while planning for this important merger everyone. We have a lot on their plate.

But our team also know that you're part of making history.

So with that let me turn it back over to you on her.

All right. Thank you Bill David we're now ready to begin the Q and a portion of the call as we do that I'd like to ask the participants to please limit yourselves to one primary question and one follow up so that we can accommodate as many of you as possible today.

Ladies and gentlemen, if youd like to ask a question. Please press star one at this time.

You'll hear a tone indicated in place in Q.

Thank you remove yourself from the queue addressing the pound key once again to ask a question. Please press star one at this time.

And our first question will be from line of John Mcdonald with Autonomous Research. Please go ahead.

Hi, Good morning, I wanted to ask just near term question for Allison.

Could you give us a little more color Allison on the drivers.

Of the NIM pressure near term.

Between short and long rates when you think about next quarter and maybe in the fourth one pressures coming from the short and then when she coming from you know longer out on the curve.

Sure. Thanks, John why don't I, Let me answer that would just what's kind of behind the guidance of the seven to nine basis point decline in them for the third quarter.

The majority of that is our assumption that we would get a 25 basis point decline in rates in July the two months of that and combined with that we actually expect deposit cost to be pretty stable in the third quarter relative to the second quarter. So our expectation is that deposit betas will initially lag for the first rate cut or to add just as they did on the way up and so that in and of itself is about five basis points of the decline and that's really obviously the impact of the shortened there. There are a few other components and our guidance Sad day count as I mentioned is a headwind of a basis point or we would expect premium am to continue increasing and the MBS portfolio and that's about a basis point as well.

And then finally, if loan growth continues to outpace deposit growth and we would fund that with wholesale funding, which is a positive for eni that is a negative for net interest margins. So our expectation is really more around the impact to the short end of the curve and it's less focused on the long end with it with an assumption that a lot of that has been priced into the long end of the curve at this point.

Next question comes line of can use in with Jefferies. Please go ahead.

Hi, Bill and Allison.

Just a question on the fee side.

Good to see in the investment banking balance after that slower first quarter an hour I think you mentioned about the cat activity continuing to increase can you talk about just how the pipelines look I think in your prepared comments in the release you mentioned that syndicated financings were down year over year, what's just the status of the financing market and the businesses that are most important to you guys as far as the pipeline. Thanks.

Yes.

The good news as you as you highlighted is our model now it's very diversified so we don't want to have one dependency of of one segment of our business.

10 years ago that would have been much more highly weighted towards the financing market now with equity in this quarter being strong M&A, having a really good pipeline for the for the latter half of a year.

We feel good about where we are in the business pipelines are generally a solid.

They're solid across the areas like M&A, there is solid across areas like.

Equity and the places that really are driven by the advice. So the places where we're in with clients and driving.

You know really strong discussions with Ceos and boards and being advice driven as part part of what's what's motivating that.

We had good.

No increase in left lead deal Count was up best <unk> investment grade bond market was good. So I think I think the good news is as I feel I feel positive about the next half of the year, it's hard to sort of do this by quarter, but I feel really good about the next half of the year and I feel good because we've got we've got more than one cylinder we got several cylinders that are firing.

Next question will be from the line of Betsy Graseck with Morgan Stanley . Please go ahead.

Hi, good morning, good morning.

A couple of questions one.

Wanted to just touch base on the commercial loan growth you had nice solid growth this quarter and.

I wanted to understand if you felt like there was an opportunity for that to ramp we've seen some.

Other folks with even faster levels have seen I longer than you've typically been a stand out in this space. So wanted to get a sense as to what's going on there.

No you know we recently.

I don't I don't.

Oh, the loan growth, we sort of plan to business activity and you know, it's going to start with looking at what's happening with production.

Production on both first quarter and second quarter were strong might affect production in the second quarter was a ahead of the first quarter. So if I look at sort of core business and where we are from a growth standpoint, I feel I feel really good about that paydowns were a little higher in the second quarter. So that's sort of got the.

You know the.

The balance a little bit differently and it was really broad based you know really good growth and see I'd be good growth from the asset finance a good growth back to the last question on you know advice based businesses. So capex M&A revolver utilization was just like the second quarter and at a little higher than it's been in the past several quarters. A commercial was also really solid and a lot of the places where we targeted investments like agent services and new markets.

CRM was up as Alan noted on on new capabilities, and then of course, the consumer side really benefiting from the investments, we've made and Lightstream and partnerships and some of the changes that we've seen in the a and the auto side, which on a current good reflection on consumer health. So I don't think about loan growth quarter to quarter. It really I think about it sort of you know.

Production and pipelines, a you know and and those all feel still feel really good you know if we just said gosh you know the first quarter was exceptional we would assume that was really really high growth. He would have said gosh, what does that mean relative.

If anything we'd like to look at it over a over a period of time and I feel like the fundamentals are really solid for us.

Got it Okay, and then follow up on.

Credit in the consumer portfolio, you've got a lot of different types of lending relationships. You've got a you know direct via the branch you've got the you know the call center, you've got via the mobile web.

You've got the you know partners retail partners could you give us a sense as to how you are seeing differences between those different channels or customer types or.

How credit is a differentiated if at all.

Either on delinquencies or charge offs is there any sense of differentiation based on channel an engagement with a client on the consumer side.

Thanks.

Listen at no <unk> I'd say the short answer is no we don't see it differently and.

And credit quality as it relates to the sourcing of loan growth across different channels and certainly there's yeah.

Different risk adjusted return profiles across some of our different asset classes I'd say, just even in light stream last year as we started to shift our strategy to increase production two different purpose loans inside of Lightstream, specifically home improvement in debt consolidation you do start to see a slight differences in terms of the charge off profile, but with that you get much stronger Rick risk adjusted return. So we really look at our asset quality across different products and we don't see a difference in the actual credit quality itself across different channels. We use the exact same risk appetite profile and credit approval process.

Regardless of channel.

Got it thanks for that.

And once again to ask a question. Please press star one.

Next we'll line of Matt O'connor with Deutsche Bank. Please go ahead.

Hey, guys.

Hi, It seems like the outlook on the tax rate is a little bit lower than what you thought before I'm just wondering what drives that and then more importantly, do those factors carry forward to the combined company.

Yes sure. Thanks, Matt It you know that the outlook has been evolving I would say in the 18 months or so since tax reform with past just as we continue to refine our planning in a different environment relative to our expectation <unk> first half of 18, I think we started to really hone in on what our tax profile would look somewhere around the end of 18 beginning of 19, obviously, we had some discrete tax benefits this quarter, but the guidance that I gave 17% to 19% as our standalone tax expectation in terms of what that will look like for true. It. It's it's too early to say, there's going to be a significant amount of planning and tax strategy. Obviously once we bring the two profiles together.

Oh Im sorry, just to clarify on the tax rate for the third quarter was 17% to 18% or 17 to 19.

It was 17% to 18% and then if you model us on an empty basis, its 19% to 20% and just in terms of third quarter expectations and pretty consistently from there.

Got it and then 17 to 18 I think is down from the 18 to 20 on the same basis right. It is I mean, its modestly down if you go back a few quarters, but it really is as we've just continued to refine our planning.

Got it okay. Thank you.

Next question from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi, Bill you mentioned closing late third quarter early fourth quarter, whereas I thought the closing before it was going to be late third quarter until the end of the year. So am I interpreting that correctly why the increased confidence on the time of closing.

Yes, I don't Overinterpret products. So you know, we're obviously not in control of of.

Of that final date.

I'm, just making the comment based on the work that we've done in the back and forth that we're having and.

But but we don't have any indication that it's going to be at any particular time.

Okay.

Then I have a personal question for better you Bill and Alison.

Hi, Allison.

Just just between us.

Hi, Allison.

You are not making the trip to the new firm and so from the time. The merger was announced so now you decided not to do so and.

If you could just share what what differently. What's your thought process because that's a question. Some people ask and then bill you're going to have to take a back seat for a while you've been CEO all decade, and now you're going to be the number two person and that can't be very easy. So how are you going to manage that whatever you know Kelly says hey, invest here are you, saying don't invest in year over rule, that's not an easy situation to be it. Thank you.

Okay, how about I think that's one first thing I'd say extremely consistent with exactly what we conveyed in our call back in April I made the decision in that time frame assets at four very personal reasons from a geographic standpoint, and that we wanted to remain in Atlanta, and so that was a difficult decision and one that I, obviously didn't take lightly and I I'm incredibly excited about the opportunity Suntrust NBV and see how they come together, but for me. It was the right thing for me to do to remain in Atlanta, and there was nothing more or less behind that decision.

So I'll just say as regards to house index shows and I've been a fan that bill Rogers and whatever she does.

I hope I get a chance to invest in it sort of just sort of say that.

Exactly as she described you know in terms of me personally I mean, obviously I entered into this with the full knowledge you know what if it's taken a small step backwards. It took a great leap forward I feel I feel great about it and you know in fairness I feel better about it everyday I mean, I I might not have done those with everybody, but I was willing to do it with Kelly King because he is a great partner I have a lot of respect for him we.

You know share a lot of the same hopes and dreams for the future and operate in a lot of similar matters he'll be the C. O not confused about that we have a transition plan, which will be great Kelly and I will walk all of that to be seamless. So nobody is even going to you know Miss a beat as part of that but in fairness. It was you know it was my choice ER and I did it with a great partner and every day, we're working on those together I feel better about my choice.

And then last follow up.

If I could sure.

When you disagree.

Which if you're not disagreeing, maybe you're not expressing a view if you you're going to disagree at times, how do you handle those disagreements what's the process between you and Kelly maybe other senior managers.

Well first of all I mean, the we both have a collaborative approach so what I what I like is we both we both have the same approach we.

We like to take a lot of opinions, we like to reach consensus as best we can but look when the Buck stops the Buck stops and you know Theres, one CEO and that's that's clear and.

I'll be a great partner and that process I Havent, we literally you haven't had a situation.

Yes, not that we didn't disagree or that we didnt have different views, but that we didnt have a great resolution.

So I I think the best evidence is look at the amount of decisions, we're making today already I mean. These are these are the hardest decisions you are making their career you know.

Talent and resources and capital investment in systems, and we're and we're doing all that in a condensed timeframe or and I think doing it really extremely well and I feel I feel like I just couldn't I couldn't feel better about my decision.

Alright, thank you.

Next we'll line of John Mcdonald with the time and this research. Please go ahead.

Hey, guys wanted to ask in terms of the current environment. When we think about deposit growth are you feeling a tangible impact from other banks and non banks that are using national digital strategies and offering competitive rates is that impacting your deposit growth and pricing strategies.

Yes, I would just say John that is impacting growth it certainly impacts our strategy and the overall competitive pricing dynamics that are out there and so.

We pay attention to it we look at it as we look at all of our different competitors. Those that are more traditional competitors and these non traditional competitors I don't think its having a material impact though on it yet.

And I think it's going to be interesting to watch it on a down rate environment.

This is why a lot of folks are doing it we're all learning from it and we're certainly learning.

Watching from a competitive standpoint as well.

Mhm.

Okay, and if I can ask bill in terms of technology and when you think about true as one of the drivers of the deal was to have more.

Money to invest in technology, whatever Suntrust historical strength in the area of technology, and and may be gaps and what our BB and tease on the other hand.

Yes, I mean, the the really great part of this process.

Is that we just have a lot of complimentary.

Strengths that we can.

We're doing these best of breed type tight selections, if you sort of put them in some big categories.

BP and cheese really invested significantly in the last several years and the core infrastructure. Thank data center, and I would say sort of world class capabilities and.

That's more of like an opportunity.

Thing that you don't have to invest in the future because now we have something that we can come to that has lots of lots lots of capacity.

Things like GE, all they've invested in significantly so we migrate to a new.

A new GL, that's another opportunity that Suntrust wouldn't have to invest and you know over the next decade.

I think we come to it with some.

Strikes in areas like Lightstream as an example sort of on the digital side, we come to us from strikes with usage of a T.I.s and things like Smart guide.

You know some cloud based technologies, so we sort of get the best of both worlds, we get a really really strong infrastructure and then does this.

How do you create agility and speed.

Relative to that infrastructure I think we both bring really really good strength and.

Everyday we are at this you can just see more opportunities in that regard.

Got it if I can just sneak in one more if we think about Suntrust Robinson Humphrey Bill I guess near term, what's your outlook for the second half of the year on the capital markets environment, and then looking out to truest is that an opportunity to cross sell into deviancy, where those folks might not have seen that kind of exposure before.

Yes, as I think the second half the year will be better than the first half of the year you know based on everything I see right now and momentum and pipelines and general business.

Focus and places where we've invested.

Absolutely it will be one of the really tremendous opportunities with trust.

And those plans are underway those discussions are going on we're creating infrastructure and planning then.

On how will how we'll make that happen. The BMT associates are really excited about expanding their capacity and capabilities on the Suntrust teammates are really excited about working together and creating an incredible momentum an incredible opportunity for clients of both company. So I think it's actually one of the top things that will be that will be focused on.

Okay. Thanks.

And we have a question from the line of can use Didnt with Jefferies. Please go ahead.

Hey, Thanks, guys just I had one follow up on the commercial real estate business. Some BB in Ti has been kind of calling their business down it's been one of your best growth areas in the last year, so, albeit from a very low base and then also this quarter. We saw what was I think maybe a record or one of the best theory income.

Fee line, how do you guys just thinking about continuing to push on that growth and what it might look like on this year re side when you get inside the combined company.

Yes, actually there is lot of alignment if you sort of look at the places so.

Were it is down to the same areas that were down construction would be an example, so thats sort of front end part we don't view the world sort of any differently about about where things are going.

We strategically build capacity for.

Bridge lending were related to agency product permanent loans for stabilized properties credit secured by.

Multi diversified pool. So we have a we have a a strategy thats.

That's related to that.

I don't think Thats any indication that we have a different view on real estate and CRT I actually just view it as an opportunity to.

Come together and.

Create create more capacity in that area and then on the fee side Thats just for like.

Just strategies that Weve had.

Structured real estate.

And I would think those are be strategies that would continue and truest impact I think we'll have more opportunity in that side on the on the fee side. So I don't view it as a as a difference is just another example of the complimentary businesses that we're bringing together with Suntrust and began to.

Okay understood. Thank you yeah. Thanks.

David It looks like there are no more questions in the queue. So this concludes our call. Thank you to everyone for joining US today. If you have any further questions. Please feel free to contact the IR Department.

Ladies and gentlemen that does conclude our conference for today you may now disconnect.

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