Ladies and gentlemen, thank you for standing by. Welcome to the SunTrust Fourth Quarter Earnings Call. [Operator Instructions]. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Ankur Vyas. Please go ahead.

Thanks, Leah. Good morning, everyone, and welcome to our fourth quarter 2017 earnings conference call. Thank you for joining us. In addition to today's press release [Technical Difficulty].

The press release, the 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 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'll turn the call over to Bill.

Thanks, Ankur, and good morning, everyone. I'll begin with an overview of the fourth quarter and full year, which we highlight on Slide 3 and 4, and then I'll turn it over to Aleem for some additional details. I'll conclude with some more strategic perspectives on our 2017 performance, our purpose and thoughts headed into 2018. We reported $1.48 of earnings per share for the quarter, which includes $0.39 per share in net benefits associated with the actions we announced on our December 4 8-K and the impact of tax reform, including actions we took as a result. The December 4 8-K primarily highlighted the sale of our PAC business and associated gain but also important initiatives around organizational efficiency, technology enhancements and real estate that will collectively better position the company for improved long-term success. In addition, given our purpose of Lighting the Way to Financial Well-Being, we thought it was important to invest a portion of the benefits of tax reform in our teammates and communities, each of which is foundational to our success. These contributions, which totaled $75 million in the fourth quarter, will support the financial confidence of our teammates and communities for years to come. Aleem will provide more details on these items but I'm going to focus on the adjusted earnings, which were $1.09 for the quarter and $4.09 for the full year. Overall, I'd characterize this quarter as a good conclusion to a very strong year for SunTrust. In 2017, we grew the core earnings of the company by 14%, improved our adjusted tangible efficiency ratio by 100 basis points, increased our dividend by 54% and our share repurchases by 38%. As owners, you certainly benefited from our strong performance. Our total shareholder return was 20%, which was more than 700 basis points…

Thanks, Bill. Good morning, everybody. Thank you for joining us this morning. As Bill mentioned, there are several discrete items in the quarter, which we list on Slide 5. The first set of items relates to the actions we took in our December 4 8-K, including the sale of our PAC business, which resulted in a $107 million pretax gain. PAC contributed approximately $55 million of revenue, $25 million of expense and $20 million of net income over the last 12 months. Much of the PAC gain was offset by several charges in the fourth quarter, which allow us to accelerate certain efficiency initiatives. Specifically, we offered a voluntary retirement option to eligible teammates, consolidated operation centers, terminated additional branch leases, wrote down certain software assets and prepared for the consolidation of our mortgage legal entity into the bank, the latter of which partially impacted the valuation allowance against DTAs within SunTrust Mortgage. The net impact of all these items was a $0.03 EPS benefit. Separately, in connection with tax reform, our net deferred tax liability position was reduced by approximately $300 million, which resulted in an income tax benefit this quarter. We also took certain actions to enhance the company's future earnings potential, including a repositioning of our securities portfolio. Finally, as Bill mentioned, we announced important investments in the long-term financial well-being of our teammates and communities. The net impact of these items was a $0.36 EPS benefit. In 2018, we expect our effective tax rate to be approximately 20% on a reported basis and 21% to 22% if you model us on a fully taxable equivalent basis. Moving to Slide 6. Our net interest margin improved 2 basis points this quarter, in part due to some discrete benefits in the current quarter, including loan fees and nonaccrual…

Thanks, Aleem. I'll forward to Slide 16, which highlights how our long-term financial performance trajectory, including 2017, aligns with our overall investment thesis. First, we have an attractive franchise with great diversity and growth opportunities. This diversity helped drive revenue growth and 14% core EPS growth compared to 2016 even after absorbing the 37% decline in mortgage production income. The growth we continue to see is largely the result of the consistent strategic investments we've made over the years. Specifically, within CIB, we've been particularly focused on investing in our M&A and equity platforms to allow us to become the strategic adviser of choice. Both M&A and equity had record performance in 2017, and they have great momentum going into 2018. Our competitive advantage continues to resonate with clients and is a key contributor to our continued market share gains. Within commercial banking, we're investing heavily in developing our industry and Corporate Finance expertise such that we can deliver increasingly sophisticated solutions to our clients. While we're in the early stages, our execution against this strategy was a contributor to wholesale's record performance this year and also a key part of our decision to expand our commercial banking presence outside of our Southeast and Mid-Atlantic footprint. Within consumer, the investments we've made in LightStream, credit card and other consumer lending initiatives are providing top-notch experiences for our clients, in addition to consistent and profitable growth. And finally, across our company, we've made and continue to make meaningful investments in technology to modernize our infrastructure and deliver differentiated experiences which embody our purpose, meet evolving client needs and position us for growth. Specifically, we continue to invest heavily in our mobile app. We made it easier for clients to manage their financial well-being by adding advanced peer-to-peer payment capabilities using Zelle…

Thanks, Bill. Leah, we are now ready to begin the Q&A portion of the call. [Operator Instructions].

[Operator Instructions]. And we will take a question from the line of Matt O'Connor with Deutsche Bank.

You guys bank a very wide spectrum of commercial and corporate clients, obviously, both on the lending side and helping to originate debt on the banking side. So it's like you might have a good perspective on the potential for commercial loan demand to pick up and how meaningful that could be, the timing of that. Or does it kind of still get psyched away into the capital markets, which, obviously, you benefit as well? But just trying to get a sense of -- could we see a little more balance between the loan demand and some of the banking demand with the tax reform and maybe the timing of that?

Yes, Matt. We spend a whole lot of time with our clients. And I clearly feel and I think tax reform was a further accelerant, growing and increasing confidence in their business prospects, and we see that in the surveys that we did. If you -- I would just sort of look at ours and break it down. I think maybe it will actually help answer the question a little bit. If I think about sort of health metrics that I look at, sort of core loan growth, as Aleem mentioned, our production has been really good. As a matter of fact, this quarter was sort of our second-best production quarter, and the last quarter was our second-best production quarter in the last 8 quarters. So production as a health metric continues to be strong. Then if you look at sort of our core companies, middle market kind of lending, I mean that's continued to grow sort of mid-single digits. So if that's a barometer of where the economy is, I think that's a pretty strong indication, and I think that, that should continue. So really, the hanging chat, as what you've talked about, is how much of this paydown part will continue. I think what we're seeing is an opportunity to increase investments. I think overall if I sort of look into '18 and beyond, I think, thinking about loan growth as a GDP plus kind of concept, I think, is realistic, but timing of that is a little hard to predict. I think that's probably a little more towards the latter part of this year and the first part of next year. But I just see that what I -- when I look at those health metrics, I see sort of like core commercial bases just continuing to grow.

Okay. And then just separately, you guys had a very early partnership with GreenSky on the consumer lending area. And I think you guys had a stake or have a stake in that, and I'm wondering if you can confirm that and if you'd sized it. It's been in the press recently in terms of raising some private equity and [indiscernible] valuation on that, so I want to see if you could confirm your stake in that.

Yes. Matt, it's Aleem. Yes, absolutely, we can confirm that we do have a stake in GreenSky and that we expect that the partnership that we have with them will continue to get better over time. We really like the partnership that we have with GreenSky. We think we were one of the early investors and have helped them grow. And so we think we have a special relationship with them, and we expect that to continue to do better over time.

And next, we have a question from the line of Ken Usdin.

Appreciate your opening comments about investing in the franchise with some of the benefits from tax and still committing to operating leverage. Just wondering if you could help us understand the phasing and even the magnitude of the incremental spend that you're thinking about and how you're balancing that against operating leverage. We obviously see it in the efficiency ratio guidance, but just wondering how you're balancing the 2.

Yes. Ken, it's Bill. I think let me sort of start with a punchline. I fundamentally believe that a large majority, and I don't want to put a percent on it, of the benefits of tax reform are going to fall to bottom line. So I mean, I think that's sort of where we start, and I think that's particularly over the short term. Beyond that, that becomes a little harder to predict and -- based on a lot of factors, including whatever the competitive environment may be. Now that being said, might there be some incremental investments that we make that make more sense now given tax reform? That might be the case, and we're going to look carefully at that. But that's going to go through our normal investment planning process, so I don't expect sort of a big step-up function. As you know, we've been investing in our company for years and continue to do that. And a lot of the efficiency gains that we get, we continue to make part of our investment strategy. So that's been part of the fuel that's been pumping our investment for a while and will continue to do so. And then I also don't see any sort of glaring gap that is going to require us to spend hundreds of millions of dollars that we didn't spend before to fix or put in place. And as you noted, we're also making the commitment to continue to improve our efficiency ratio. I mean, if you sort of do the math, I mean, what we're saying is we think we'll have another 100 basis point improvement in our core efficiency ratio for this year.

Understood. And as a follow-up on the lending side, you guys, in the past, have been relatively conservative and, I think, have talked about in the past that you'd like to stay on that side of things. But do you look at opportunity sets here, especially given the potential, as you mentioned, for loan growth to hopefully improve and think about either opening up the credit box a little bit or reevaluating some of the places where you'd like to see incremental business generation?

I think, as you know, I mean, we have been conservative. That's part of our strategy. We think we want a capital base that reflects that conservatism and see it in our CCAR results that are being at the lower decile or quartile of others in terms of capital degradation. That being said, at sort of post tax reform, are there new deals that might hurdle that didn't hurdle before? Yes, I mean, that might be the case. And we'll look at that on an individual basis. It will go through the same rigorous process that we have. But it's not a case of opening the floodgates. It's a case of sort of incrementally looking at opportunities, given some different dynamics from a return perspective.

And Ken, let me come back to your first question for a moment on operating leverage and efficiency ratio. In '17 over '16, we delivered a full point of efficiency ratio improvement from 62% to 61%, and in '18, we expect to do that again. We expect to get another full point of efficiency ratio improvement. But just remember that optically, because of that FTE impact, that full point will look like 0.5 point.

Right. 50 basis points, right?

Right. Thank you.

And next, we go to the line of Saul Martinez with UBS.

So I guess, just following up on reinvestment, positive operating leverage. Your tax guide, 20%, is about, I guess, a 10 percentage point reduction, more or less, to where you were. And you're generating about, I guess, $3 billion or so, more or less, in pretax profits, so it looks like the windfall is about $300 million or so. Have you put parameters or quantified how much of that you think is -- should be reinvested in various initiatives you talked about? How should we think about that in the context of your cost guidance -- or your cost expectations?

Yes. I think, I mean, back to the answer before, I think a large majority of that benefit is going to inure to the shareholders. I think the discipline that we've had in the system, the constant trade for efficiency and investment and that continued process that we've had in place, that's just not going to change. I mean, again, as I said before, there's not sort of a onetime thing that we're going to put in place. So I'm hesitant about putting percentages because I just don't think that's the way that we think about it. And I think just take solace in what we think, is the majority of that, again, in the short term is going to fall to the bottom line.

Okay, that's helpful. I guess just going back to the loan growth question then. You mentioned obviously utilization rates and paydowns being elevated. And I know you don't manage the loan growth, but is there any way to put some numbers or some parameters around how much fall in utilization rates and paydowns impacted your loan growth -- if we had a more normalized level of paydowns or utilization rates were constant, how much would that have impacted loan balances? And I just -- I guess I'm trying to get at, if those things do normalize, how much of a tailwind that could be going forward.

Yes. I mean, just not to put direct math to it because those are sort of constantly moving numbers, but if you just take C&I specifically, I mean, paydowns exceeded production. And we produced total loans somewhere in the $8 billion-plus kind of category so you can sort of do your own math on that in terms of what that might be if paydowns were to normalize. I struggle with it because I don't know what normalize means. I think we have to sort of think about environments change, things are in different mode. But my earlier comments around overall loan growth going forward, I think, take into account that things do return to levels that we've seen before, and I think that's where I get back to, sort of a GDP plus kind of mentality as we think about loan growth. So if we're looking at a 2.5% to 3% GDP, I think that's a reasonable expectation longer term, meaning sort of towards the end of this year and into next year as we think about loan growth.

And next, we have a question from the line of John Pancari from Evercore ISI.

On the commercial real estate-related income that you saw from Pillar and the other operations there, I think you alluded to some of that was impacted by tax-advantaged business. And would you say at all that a proportion of that is inflated this year because of the pending tax reform and accordingly, we can see a reversion next quarter? And if so, by how much is that delta so we can model it?

No. If the implication was that it was tax reform related, I don't think that's quite an accurate representation. It does have seasonality towards the fourth quarter. I mean that's just sort of the natural flow of that business. So all of that business is client-driven. It did have some seasonality, probably a little more beta on that seasonality than we normally have. So as it relates to next year, I mean, we expect that business to continue to be positive. The first quarter will be lower than the fourth quarter because that's just a seasonality impact rather than a fundamental change or onetime aspect of the business. So all client-driven, not onetime, not specific tax reform business, just sort of core good business in the fourth quarter.

Okay. All right. And then on the margin, wanted to get -- just to see if you could quantify the amount of the loan fees and -- or the benefits of the margin from the higher loan fees and interest recoveries in the quarter and then your thoughts on the trajectory of the margins through 2018 as deposit beta starts to build.

John, the fees, I think, that we picked up in the fourth quarter, I would think in the context of 1 to 2 basis points. And then as I look out into 2018, the first quarter, I'd say, is kind of 0 to 2 basis points positive. And then after that, it depends on the trajectory of rate hikes. Any quarter that we get a Fed hike or the quarter after it will typically pick up three-or-so basis points. And then when -- in a quarter where there isn't a Fed hike, we'll get a little bit of a grind downward.

Okay. And remind me what you're modeling in terms of the Fed actions for 2018.

Well, as you know, we're typically a little bit on the conservative side. So with the Fed suggesting that they'll hikes three times this year, we're modeling two hikes

And next, we go to the line of Mike Mayo with Wells Fargo Securities.

My basic question is, why can't get to your 60% efficiency target in 2018 instead of 2019? Now you have additional tailwinds from rates, revenues, regulation, and not to take anything away from you, Bill. Since you've been there as CEO, the efficiency ratio is down 10 percentage points. I heard what you said. Last year, that improved by another percentage point. This year, you're expect it to improve by another percentage point, so, certainly, all going in the right direction. It just seems like -- if you wanted to, it seems like you could be there. Maybe that's why you're getting so many questions on the reinvestment. I mean, the list of investments, kind of like 10 different areas you're investing in based on just what was said on this call. So I guess to ask an earlier question a little bit differently, how do you balance the trade-off between letting some of these benefits fall to the bottom line to shareholders today and reinvesting that for shareholders in the future? It seems like your investments -- your pace of investing might have gone up, but if you could clarify that.

Yes. I think, Mike, first of all, these FTE adjustments are sort of making this conversation a little more difficult. Let me make it really clear. We're going to get to 60% net of the equity adjustment. So before, we've said 60% was a longer-term trajectory. And net of FTE, actually, we would get to 60% in '18. That's exactly the place where we want to be. So challenge accepted and delivered. Of course, we've got to deliver it for the year, but challenge accepted. As it relates to the continued level of investment, that's all in light of that efficiency target. We clearly have outlined things that we're investing in. I mean, constantly, that's what we evaluate as a company, but that's in light of the efficiencies that we create. So we run this through a model that sort of says invest -- save $1, invest $1 kind of process for our business leaders, with the thought process that you also got to continue to drive down the efficiency ratio. So I think that intensity is in there. The reason we talk so much about investment is we want to make sure that everyone understands, from a shareholders' perspective, this is not a short-term gain for us. This is a long-term gain. So as soon as we're hitting the efficiency targets, we're also not forgetting the fact that we're investing for the long term in the company. So if we've over-calibrated maybe in terms of how we talk about that, I think, in fairness, we probably under-calibrated before. We didn't talk enough about investment and probably too much about expense saves. And really, the desire here is to calibrate and to balance that dialogue because they are both equally important and this is a long-term deal for us.

And then the follow-up relates to Slide 14. And compared to some peers, it's a disappointment compared to where you might want to go. Maybe it's an opportunity. But you closed 100 branches. That's 7% of the total. Yet, the efficiency ratio in the Consumer segment was flat '16 to '17. I think there must be some noise in that '17 number, but even after eliminating some of that noise, it seems like the consumer efficiency probably isn't where you need it to be. And you did highlight the investments in LightStream and digital banking and automation and cloud and the mortgage restructuring into consumer. What are your expectations for the Consumer segment efficiency? And did I characterize that correctly?

Well, also, I mean, you certainly characterized it correctly in terms of the opportunity. I mean, from a math perspective, just if you sort of -- so consumer and wholesale, just to make it easy, 50%, 50% of the business. Wholesale is pretty much at the efficiency ratio in terms of top quartile or top decile in terms of how we look at performance. Now that's not to take the bell off the hook by any means. I mean we want to continue to strive and do those kind of things. But the bulk of the efficiency savings going forward are in the Consumer segment, as you accurately pointed out. But things like the mortgage consolidation with consumer create savings. That's why that's highlighted. The branch closures start to create more opportunity on an ongoing basis. The other efficiencies that we've taken in terms of transactional efficiencies and process improvements really primarily rest in the consumer side.

And next, we have a question from the line of Marty Mosby with Vining Sparks.

Maybe we'd take a little different tilt on the investments and talk about the returns. You have restructuring the securities portfolio this quarter, which you say it could generate $20 million. That's about a 5-year payback. That's pretty conservative. I would think that could do a little bit better even than that. You've got the $80 million, which is going to turn into $40 million of annual benefit that you've talked about there. And then you've been investing in your capital markets business, which then you talked about the deal activity that was spiked, but, yet, you didn't really even reap all the benefits of that as it comes in the first part of next year. So it looks like there's some returns that actually give you some momentum as you go into next year that you've been able to take from the investments you've been putting out there so far.

Yes, Marty. I think you're completely right. We've got a number of initiatives that we put in place. We expect to be reaping the benefits of those initiatives over the course of the next several years. You're right about securities. You're right about the other things you've mentioned. There are a couple of efficiency ratio headwinds, as we've mentioned. But those are -- some of those are optical, and that's efficiency ratio as opposed to bottom line. If you focus on bottom line, we're pretty optimistic about what we can deliver over the next couple of years. And if you think about what our shareholders really care about, and it's the return on capital, we think that our ROTCE over the next couple of years is going to be considerably higher than it has been over the last couple of years. This year, as Bill mentioned earlier, we did grow our ROTCE to 12.2%. We've crossed that 12% barrier. And next couple of years, we're looking for floors to ROTCE that would be even higher than that.

And a follow-up, so one of the backdrops of all your adjustments this particular quarter were a few nuggets that kind of also were hidden. One is your tangible book value was about 2% higher because you had the net gain from DTO versus a lot of other banks that were actually writing down their DTAs. So you actually had a 2% increase in tangible book value, which is a nice base adjustment. And then your capital ratios went up because of that as well, which then gives you even more kind of ammunition going into next year's CCAR and thinking about the acceleration of deploying some of that excess capital. So just wanted to think about those two things as well.

No, I think that's exactly right, Marty. And that's part of the reason we have the confidence in saying, of the things that are continuing on the seventh year of improvement is continued increase in our return to shareholders. So as you duly noted, we got to get all the CCAR stuff and all those caveats, but we enter into this with a stronger capital base and more opportunity to return to shareholders.

Marty, I don't know if you've heard too many CFOs say this before, but I'm looking forward to seeing what the CCAR scenario is this year.

I can imagine. And if you'll humor me one more question on credit. You have been building your allowance throughout the year, and then this quarter, you actually went the reverse. And it looks like you were providing for the losses that you took this quarter through the first 3 quarters of the year. So this was just a natural offset of that as you kind of got your provision down but net charge-offs bounced up just because of the recognition losses you already provided for.

Yes. I'd say that our provision and allowance build was mostly in the third quarter, and that was for hurricanes. So we're expecting to see some of the hurricane charge-offs show up next year. And we provided for that early. Other than that, I'd say our allowance has been generally flat and maybe even slightly declining on a percentage basis.

That's the line of Gerard Cassidy with RBC.

A couple of questions. Can you guys tell us, when you're talking about the commercial loan growth earlier, what your utilization rates are in the C&I portfolio? And how do they compare in the past? And what do you think they could be over the next 12 to 18 months?

Yes. They've been -- sort of been in the high 20s to low 30s, and they've been pretty consistent. I mean, that's a barometer that we all look at, but it moves in tectonic ways. I mean, it just doesn't move a lot in any one particular quarter. It's sort of slightly down now, but that's reflecting sort of some of the comments we've made. But I think that's one of the levers. But I think that's the lever, quite frankly, that moves the slowest. I think the things that we talked about in terms of production and paydowns have a bigger R-square, so to speak, to loan growth in the short term.

Very good. And then second, obviously, you guys put up a good quarter, like many of your peers. 2017 has been a very good year for the banks and the bank stocks. '18 looks real good as well. So all of us know we have to look around corners for potential risks. What do you guys look at? Because, again, things are very good for you and for your peers, what do you kind of worry about? Or what are you looking on the horizon that you got to keep your eye on?

Yes. I think you clearly have to look around the corner and think about the things that are tail risk or that are pending risk. I think all the businesses that relate to leverage and higher rates, we have to factor in. And so whether that's things on the credit card side, whether that's leverage lending in any shape or form, that's simply something that we have to look at. I don't see that as a near-term issue, in fairness, but as rates increase and leverage stays high, that's something we have to look at. Anything related to cyber is something that we have to be concerned about and think about. So those risks are risks that keep going for us and the industry almost exponentially, so that's something that we have to be vigilant and concerned about.

Leah, 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.

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