SunTrust 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Credit quality healthy

“Credit quality continues to improve; non-performing loans were down 5% from the prior quarter and 37% from last year; the net charge-off ratio declined five basis points from the prior quarter to 35 basis points.”

More asset sensitive like everyone else

“You will recall that as our commercial loan swaps mature, we become more asset sensitive, which is a conscious design of our balance sheet management strategy over the medium term.”

Consumer credit quality can improve a little but commercial already great

“Going forward, we would expect continued, but modest improvements in non-performing loans, primarily driven by the residential portfolio. We also would expect net charge-offs in the residential portfolio to drift modestly lower in the near-term. However, commercial and consumer net charge-offs are already at or below normal levels.”

Closing branches but still important for new account client acquisition

“Going forward, you can expect continued rationalization with additional net reductions in our branch network; however, at a slower rate than what we accomplished over the past couple of years, particularly given the importance of a branch and client acquisition and account opening.”

CRE recovering in all categories

“We’re starting to see some of that recovery in virtually all categories multifamily, industrial, little less office, retail, clearly, on the bottom of that food group in terms of recovery. So it’s pretty broad-based.”

Retail lagging more than other segments of CRE

“while we may be investing in multifamily in some of our markets, and other of our markets, we wouldn’t be. Office sort of very similar, industrial very similar, and as I mentioned earlier, probably the one that’s lagging probably more universally is retail and we’ll be cautious about that coming out of the cycle.”

ROA on lending is low because of all the liquidity

“when I think about our ROEs and — well, perhaps I should start with ROAs in that business. ROAs overall I think are a little bit lower than we would like them to be now. And that’s a function of all of the liquidity and all of the competition that exists for that business.”

Trying to supplement ROA by expanding relationships

“when I talk about ROAs, I’m talking about that in the context of just the loan — just on balance sheet business. What we’re trying to do is supplement ROEs overall by doing other business with those clients and trying to make those relationships not just lending relationships, but doing some of the other business that they need and having SunTrust become one of their financial services suppliers across a broad variety of products.”

Frustrated by CRE pricing, but structures have stayed ok

“on the commercial real estate side, Aleem’s comment was right, I mean we’re frustrated by some of the pricing that’s out there, but the structure stayed okay. And similarly, we haven’t seen sort of massive change in LTV in that portfolio.”

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