DBRS: SunTrust Delivers Solid 2Q Results; Continued Momentum

Summary:
• SunTrust reported 2Q net income available to common shareholders of $467 million, up from $411 million in 1Q.
• Generated positive operating leverage sequentially primarily reflecting strong investment banking results.
• DBRS rates SunTrust Banks, Inc. Issuer & Senior Debt at A (low) with a Stable trend.

DBRS, Inc. (DBRS) views SunTrust Banks, Inc.’s (SunTrust or the Company) 2Q15 results as solid reflecting positive operating leverage, still improving asset quality, and continued low cost, core deposit growth. While average loans declined modestly, the decline was driven by loan sales to better optimize the balance sheet. Investment banking results were very strong with broad-based revenue growth across multiple product categories.

Importantly, net interest income increased sequentially despite the loan sales with modest net interest margin expansion to 2.86% reflecting higher commercial swap income and improved core loan yields. Management indicated that SunTrust expects a relatively stable margin in 3Q, then modest pressure until interest rates rise. DBRS notes that securities gains were used to offset the repayment of more expensive funding during the quarter. Overall, solid loan growth prospects should allow further growth in net interest income going forward.

Investment banking revenues increased a very strong 49% sequentially to $145 million reflecting record performances in many products, including syndications, high yield, investment grade and equity capital markets.

Given positive operating leverage, the Company’s adjusted tangible efficiency ratio improved to 63.4% and management remains focused on achieving their full year target of a sub-63% ratio. SunTrust views this target as challenging, but achievable.

Asset quality is strong and still improving. Indeed, delinquencies, nonperforming loans and net charge-offs all declined sequentially resulting in a very low provision for credit losses. The Company expects provisioning levels to modestly increase in 2H15, but remain lower than similar periods in 2014.

Capital metrics remain sound with an estimated fully phased-in Basel III Common Equity Tier 1 ratio of 9.8%. Meanwhile, the Company noted that its Liquidity Coverage Ratio was above 90%, which is already above the January 1, 2016 requirement.

DBRS rates SunTrust Banks, Inc. Issuer & Senior Debt at A (low) with a Stable trend.

Note:
All figures are in U.S. dollars unless otherwise noted.