DBRS Confirms SunTrust Banks, Inc.’s Senior Debt at A (low), Trend Stable

DBRS, Inc. (DBRS) has today confirmed the ratings of SunTrust Banks, Inc. (SunTrust or the Company) and its related bank subsidiary, SunTrust Bank (the Bank), including the Company’s Issuer & Senior Debt rating of A (low). At the same time, DBRS maintained the Stable trend on all ratings. The ratings action follows a detailed review of SunTrust’s operating results, financial fundamentals, and future prospects.

SunTrust’s ratings and Stable trend reflect its strong, demographically attractive banking franchise, well-diversified revenue stream, and solid balance sheet fundamentals. The Company’s balance sheet continues to strengthen with sound and improving asset quality, a low-cost, deposit centric funding mix, and relatively stable capital levels despite balance sheet growth and capital actions.

SunTrust has made substantial progress over the past several years improving its core level of profitability and its efficiency ratio, while at the same time reducing its risk profile. Indeed, the Company’s focus on revenue growth in 2015 and maintenance of expense levels has led to improved profitability metrics, while asset quality is greatly improved and legacy legal issues have mostly been dealt with. Overall, DBRS considers SunTrust to be within the top quartile of its rating group. If the Company can improve the level of earnings, outperforming similarly rated peers, while growing its franchise and maintaining its sound balance sheet, the ratings could be upgraded. DBRS does not see any near-term negative ratings pressure at present, but a greater than peer weakening of credit metrics, failure to sustain improved profitability metrics or operational missteps or charges could result in a negative rating action.

Highlights for 2015 include solid deposit growth, lower expenses, a strong investment banking performance, and continued improvement in credit metrics. Overall, net income available to common shareholders increased 8% to $1.86 billion in 2015. Positively, the Company achieved its 2015 adjusted tangible efficiency ratio goal of below 63% (62.7%). DBRS notes that the Company’s target for 2016 is for further improvement with a long-term goal of below 60%, which will be challenging, especially if interest rates stay low.

Asset quality metrics continue to strengthen with lower nonperforming assets and net charge-offs. Specifically, nonperforming assets declined 6% during 2015 to $735 million, or just 0.54% of total loans plus OREO, other repossessed assets, and nonperforming loans held for sale. Meanwhile, net charge-offs declined 23% to $341 million, or 0.26% of average total loans. At year-end, the allowance for loan and lease losses totaled a sound 1.29% of period-end loans held for investment. Given the improvement in asset quality, the Company’s total provision for loan losses declined by $182 million to $156 million in 2015. DBRS expects relatively stable asset quality in 2016 and notes that the Company’s exposure to the depressed energy sector, as a relatively modest 2.2% of total loans.

Liquidity and funding improved during the year and SunTrust’s liquidity coverage ratio exceeds the current 90% requirement. Evidencing franchise strength, average client deposits increased a strong 9% in 2015. Overall, period-end core deposits totaled $148.9 billion, which easily funded total loans and leases.

Capital remains sound with a fully phased-in Basel III common equity tier 1 ratio of 9.96% at year-end, up from 9.60% at YE14 despite modest balance sheet growth and ongoing capital management activities.

Headquartered in Atlanta, SunTrust, a diversified financial services corporation, reported $190.8 billion in consolidated assets as of December 31, 2015.

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

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (December 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2016) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016). These can be found at: http://www.dbrs.com/about/methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: John Mackerey
Rating Committee Chair: William Schwartz
Initial Rating Date: 28 November 2005
Most Recent Rating Update: 26 March 2015

For additional information on this rating, please refer to the linking document under Related Research.