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SunTrust Banks (STI) Q1 2019 Earnings Call Transcript

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SunTrust Banks (NYSE: STI)
Q1 2019 Earnings Call
April 18, 2019 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SunTrust first-quarter 2019 earnings results. As a reminder, today's conference is being recorded. I would now like to turn the call over to your host, Ankur Vyas.

Please go ahead.

Ankur Vyas -- Investor Relations

Thanks, Linda. Good morning and welcome to SunTrust first-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.suntrust.com. With me today, among other members of our executive management team are Bill Rogers, our chairman and chief executive officer; and Allison 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.

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In addition, in connection with the proposed merger with BB&T, BB&T has filed with the SEC a registration statement on Form S-4 to register the shares of BB&T's capital stock to be issued in connection with the merger, which contains a joint proxy statement and prospectus that will be sent to the shareholders of BB&T and SunTrust seeking their approval of the proposed transaction. Please refer to the cautionary statements on Page 2 of our presentation regarding forward-looking information, including some of the factors that might cause actual results to differ materially. Please also refer to the legends on Page 3 of the presentation that contain 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 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 webcast are located on our website. With that, let me turn the call over to Bill.

Bill Rogers -- Chairman and Chief Executive Officer

Thanks, Ankur, and good morning. I'm going to begin with an overview of the first quarter, which we highlight on Slide 4, and we'll then turn over to Allison for some additional details. I'll come back and conclude with some updates on the merger with BB&T and how our integration planning efforts are progressing. Core earnings per share were $1.33 this quarter, which excludes $0.09 per share in merger-related cost.

Overall, we had a good quarter and our 3% year-over-year growth in earnings excluding those costs highlights the growth potential we have on a stand-alone basis. In addition, our future earnings potential will be amplified when we merge with BB&T. With that said, let me highlight some of the specifics for SunTrust earnings in the first quarter. Loan growth remained strong, evidenced by a 3% sequential growth we delivered, which was generally broad-based across most businesses.

Investments we have made in our advice-driven model for corporate, commercial, and CRE clients in addition to our ongoing investments in digital consumer lending continue to drive good loan growth. Indirect auto also had one of its strongest quarters, reflecting the pullback from certain competitors and strong consumer confidence. It's clear that our clients remain optimistic about the economy and are committed to making ongoing investments both personally and in the businesses. While loan growth outpace deposit growth, our net interest margin remained stable this quarter as the benefit of the December rate hike helped to absorb some of the increased funding costs.

Noninterest income declined sequentially, driven primarily by seasonal trends in CRE fee income. Capital markets income did rebound somewhat this quarter, driven by trading, but we experienced some softness in equity and M&A consistent with industry trends. While the overall investment banking environment remained somewhat choppy and uneven, our advice-driven model, full set of product capabilities and industry expertise, and focus on the middle market positions us well for long-term success. Our adjusted tangible efficiency ratio improved by 130 basis points year over year, providing us good momentum heading into the merger and realizing our long-term potential with BB&T.

And finally, credit quality remains the strength with charge-offs and NPLs both stable relative to the fourth quarter. Importantly, our consistently low credit losses are a reflection of our underwriting discipline in addition to an economy that's on solid footing. All in all, this quarter was a good start to the year for SunTrust, and I remain optimistic about the investments we've made to drive a sustainable competitive advantage in our differentiated businesses and the strength of our balance sheet. While it does appear that the rate environment will be less of a contributor to our earnings growth going forward, this is largely mitigated by our diversified business model, the ongoing investments we've made and continue to make in growth and technology and our commitment to continuous improvement and efficiency.

Each of these factors give me confidence that 2019 will be a good year for SunTrust on a stand-alone basis and propel us into the next great chapter in our company's history. Before I turn it over to Allison, I do want to mention that last Friday, we filed an 8-K, outlining the commitment of our SunTrust team to the new company. Allison has made a very personal decision to pursue opportunities in Atlanta during the next phase of her career. We considered all the options together and I'm fully supportive of her decision.

Her leadership as CFO until closing will be critical and crucial to making this merger a great success. The time will come later to thank Allison and acknowledge the many extraordinary contributions she's made at SunTrust. Importantly, together as a new team, we ask Mike Maguire to serve on the executive management team as head of National Consumer Finance and Payments for the merged company. Mike is a top talent at SunTrust and has significant experience in the financial technology and payments space.

He is very well positioned to serve in this key role, leading the high-growth opportunity for the new company. So with that, let me turn it over to Allison.

Allison Dukes -- Chief Financial Officer

Thanks, Bill. I fully believe that this merger is the right transaction for our company. Given my broad family and personal commitments in Atlanta, I realize that the best decision for me is to remain in Atlanta. This is not an easy decision, and I want to thank Bill for his tremendous support, friendship and leadership.

In the meantime, we've got a lot of work to do together as we prepare the company for closing and integration. So with that, let's start with net interest income on Slide 5. Our net interest income was stable sequentially as the strong loan growth we delivered was offset by two fewer days in the quarter, all else equal this negatively impact net interest income by approximately $20 million. Our net interest margin was also stable sequentially as the benefit of the December rate hike was offset by higher wholesale funding to support the loan growth in the quarter.

Looking to the second quarter, we expect the net interest margin to decline by 2 to 3 basis points relative to the first quarter, given our expectation that funding cost will continue to increase despite the fact that we do not expect an increase in short-term rate. Moving to Slide 6, noninterest income decreased by $34 million sequentially, driven primarily by a seasonal decline in commercial real estate-related income. Investment banking income was down sequentially as a result of less M&A and syndicated finance activity in the quarter. The government shutdown also negatively impacted our equity capital markets business.

This is partially offset by $36 million increase in trading income. The negative valuation marks on the corporate bond inventory we experienced in the fourth quarter were generally reversed in the first quarter, and we also benefited from an increase in client activity levels. Some of the increase in trading income was offset by a loss in our credit default swap hedge portfolio, which is another income, given tightening credit spreads. Mortgage-related income also increased sequentially as the result of higher servicing income, primarily driven by better hedge performance and lower decay expense.

Moving to expenses on Slide 7, we recognized $45 million of merger-related costs in the first quarter, primarily related to third-party advisory and legal fees. Relatively, we created a new line item in the income statement for these costs. Going forward, we expect additional merger-related costs on a stand-alone basis of approximately $10 million each quarter. Excluding merger costs and the $60 million pension charge in the fourth quarter, adjusted expenses increased by $22 million as a result of the typical seasonal increase in personnel costs, partially offset by lower contract, labor and programming costs, which is generally a function of timing and is therefore somewhat temporary.

Other noninterest expense also increased sequentially, driven primarily by higher branch closure-related costs. These increases were partially offset by declines across most other expense categories, given seasonal trends and ongoing expense discipline. Our effective tax rate in the first quarter was 15%, which is slightly lower than our normal effective tax rate, given the typical first-quarter benefits related to stock-based compensation. For the remainder of the year, we would expect our effective tax rate to be approximately 18% and 20%, if you model us on an FTE basis.

As you can see on Slide 8, the adjusted tangible efficiency ratio was 60.8% for the quarter, which represents 130 basis points of year-over-year improvement. On a stand-alone basis, we remain on track to achieve our previously disclosed medium-term target of 56% to 58%. We're focused on rationalizing expenses via four primary areas: staffing, leveraging technology, third parties, and real estate. All while investing in revenue growth opportunities and client-friendly technology.

Our continued progress in each of these areas gives us good momentum, heading into our merger with BB&T. More importantly, given the synergies we will achieve by merging with BB&T, 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. Moving now to Slide 9.

Our net charge-off ratio was 26 basis points in the first quarter consistent with the prior quarter and with our guidance. The low-level of net charge-off reflects the relative strength we're seeing across all of our portfolios. Performance we are extremely pleased with though we remain cognizant that there could be some variability and normalization going forward. Our nonperforming loan ratio is 34 basis points, which is down slightly relative to the prior quarter, also remained well below historical averages.

The ALLL ratio was stable sequentially, which drove a $66 million increase in provision expense as prior quarters had declined in the ALLL ratio. Strong loan growth also contributed to our provision expense this quarter. Looking into the remainder of 2019, we would expect our net charge-off ratio to be between 25 and 30 basis points. We do expect the ALLL ratio to remain relatively stable from here, which will result in a provision expense that exceeds net charge-offs given loan growth.

Moving to the balance sheet on Slide 10. We continue to deliver good loan growth, evidenced by the 3% sequential growth and average balances. Importantly, the growth was diversified across most portfolios, including C&I, CRE, indirect auto, consumer direct, and mortgage. Wholesale growth was broad based across each of our lines of business.

Within CIB, loan growth was driven by higher revolver utilization, capex and M&A activity, and growth in our asset finance business. Commercial banking growth was broad-based with strength across most client segments, including auto dealer, aging services, our expansion markets and core commercial clients. CRE growth continued as a result of investments we have made in permanent lending and bridge lending capabilities, which is being partially offset by runoff in 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 and mortgage portfolios also demonstrated healthy growth in the quarter. 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. Separately, we sold a $465 million accruing residential TDR portfolio in the middle of April, which was reflected in loan held-for-sale on March 31st. This resulted in a transfer of $31 million of the associated allowance to a reduction of carrying value and loan held-for-sale.

This transaction had no impact on the provision for loan losses in the first quarter. The sale will result in a modest gain in the second quarter, which we plan to use to reposition a portion of the securities portfolio and net P&L impact will be relatively immaterial to our earnings going forward. On the deposit side, average balances decreased sequentially, driven by seasonal declines in public funds, which benefited fourth quarter balances. Consistent with prior quarters, we continue to see a migration from the lower cost deposits to CDs, largely due to higher rates, and our targeted strategy, which allows us to retain our existing depositors and capture new market share.

Interest-bearing deposit costs increased by 9 basis points sequentially, slightly lower than the prior two-quarter increases of 10 and 11 basis points, respectively. Given the expectation of fairly stable short-term rates, we expect deposit cost to continue to still trend upwards, but not as much as previous quarters. The trajectory will also be influenced by the competitive environment in addition to the levels of loan growth we're delivering. At the same time, we remain focused on investing in products and capabilities, which enhance the client experience outside of rate pays.

Moving to Slide 11, which provides an update on our capital position. Our estimated Basel III common equity Tier 1 ratio was 9.1% and the Tier 1 ratio was 10.2%, slightly lower relative to the previous quarter, given strong loan growth, partially offset by solid growth and retained earnings. Going forward, we would expect capital ratios to trend upwards, given the suspension of share repurchases in anticipation of our merger with BB&T. This will result in a share count that is relatively stable until the proposed merger with BB&T closes.

Relatedly, we will not be pursuing the preferred issuance, which was included in our original 2018 capital plan. Moving to the segment overviews, we'll begin with the consumer segment on Slide 12. The positive lending momentum we've had in consumer continued in the first quarter. The investments we made in LightStream and our point-of-sale lending partnerships continue to be consistent contributors to our loan growth.

Over the past year, we focused on enhancing our analytics, improving automation, adding product offerings, and growing our partnerships and referrals, all of which are key contributors to the 38% year-over-year growth we delivered in LightStream. Separately, we experienced good growth in indirect auto this quarter. where we were able to capture additional market share, given competitor exits with improving returns. Consistent with prior quarters, some of this collective growth has been offset by the continued declines in home equity.

On the deposit side, we continue to benefit from our targeted CD offers and have refined our product deposit product offerings to maximize the value proposition for our clients. We've had good success here, evidenced by the 3% year-over-year growth in deposit, which provides attractive funding for our loan growth. Our strong balance sheet growth combined with margin expansion drove an 8% increase in net interest income relative to the prior year. Consumer fee income was pressured in the first quarter as a result of seasonality and changing consumer behaviors, which continued to drive a decline in service charges.

Wealth management income was also negatively impacted by market conditions in the fourth quarter, which negatively impacted AUM. Compared to the prior year, noninterest income was relatively stable as mortgage-related income has begun to stabilize. In addition to the solid revenue growth in consumer, the actions we have taken to improve efficiency are driving improvements and overall profitability. Our efficiency ratio in consumer improved by 230 basis points year over year.

Relatively, our branch count is down by 7% in the past year, which is largely enabled by our increasing digital adoption rates and as part of our broader strategy to leverage technology to enhance our efficiency while also improving the client experience. In the first quarter, we improved client's ability to service their mortgage via our mobile app. We made it easier for clients to open new accounts and products digitally, and we continue to migrate components of our digital experience to the cloud, resulting in reduced operational costs and added reliability. Our success here is also reflected in the national recognition we are receiving for these digital capabilities.

LightStream recently received two recognitions for best personal loan for good credit and another for best personal loan for home improvement. Adoption rate for SmartGUIDE, our digital mortgage application is now at 82%, which exceeds expectations considering we launched this capability only a year ago. Broadly speaking, our consumer segment continued to improve its overall earnings power, evidenced by the 5% growth in revenues, which when combined with the moderate 2% growth in expenses drove strong 13% growth in pre-provision net revenue. Looking ahead, we expect further progress from consumer as we become more efficient, continue to invest in our digital offering, and provide for a more integrated experience for our clients across all consumer products and solutions.

We're also excited about the opportunities that we will have to make incremental investments in technology and innovations, given the strong synergies our consumer segment has with BB&T's retail community bank. Moving to wholesale on Slide 13, where our consistent strategy continues to drive good results. On the lending side, we saw solid loan growth across CIB, commercial and CRE. More broadly, the growth in our wholesale lending portfolio is a reflection of our clients' increased optimism on the economy, which has resulted in higher utilization rates and strong production levels.

This growth also reflects the investments we've made to meet a broader set of client needs, particularly within CRE and aging services in addition to our advice-driven model. Importantly, this 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. And this is also reflected in our low net charge-off ratio, which was 10 basis points in the first quarter.

As mentioned previously, CRE fee income was down sequentially due to seasonal trends. We also saw a decline in investment banking income consistent with industry trends. Market conditions can and do drive some quarterly variability in this business, which was certainly true this quarter in syndicated finance, M&A and equity. Some of this is offset by trading income, where negative marks on our corporate bond inventory in the fourth quarter, were generally reversed in the first quarter.

While sequential revenue trends in this specific quarter weren't favorable, we delivered strong 7% year-over-year revenue growth with broad-based growth across most products and client segments. More importantly, it's clear that we have a competitive advantage within this business. We win because of our focus on the middle market, the quality of our people, the advice they deliver and the way we work together. We feel very good about the consistent growth that our advice-driven model has delivered and our ability to deliver future growth as we continue to capture incremental market share.

Similar to consumer, across wholesale, we remain focused on investing in technology with a goal of equipping of our teammates with the tools they need to maximize their effectiveness and provide clients with an improved experience, especially within treasury and payments. We're now leveraging nCino our own origination platform for on-boarding treasury and payments products, making it easier for teammates to onboard new clients, whether for loan or deposit products. We've also moved our nCino platform on to MuleSoft platform, which will significantly improve our ability to add future capabilities via APIs. And finally, we are piloting SunView client portal, which will consolidate several separate treasury management platforms into one.

Bigger picture, our wholesale business delivered 7% growth in revenue, which when combined with 3% growth in expenses, drove strong 11% growth in pre-provision net revenue. Results we are very pleased with. Looking ahead, we remain optimistic about the growth opportunities we have in wholesale as we bring our advice-driven model to clients in new and existing markets. We continue to focus on meeting more client needs, providing superior execution for our clients in varying market conditions, elevating our relationship and making investments, which position us for future success as we work to anticipate and exceed client expectations.

We're also excited about the opportunity we will have to deliver our full suite of capital markets solutions to an expanded client base as we merge with BB&T. And with that, I'll turn the call back to Bill.

Bill Rogers -- Chairman and Chief Executive Officer

Great. Thanks, Allison. Now, overall, we had a good quarter, and it was further validation of the success we continue to have in investing and growth opportunities, diversifying our business mix in loan portfolio, and improving our efficiency. While overall fee income trends were mixed, we feel good about the underlying momentum all across the company.

Provision expense did serve a somewhat of a headwind to our bottom line results this quarter, but it's not a reflection of the overall asset quality trends. The increase is more a reflection of the reserve releases we benefited from in prior quarters in addition to the strong loan growth we delivered this quarter. The overall momentum we have continues to validate my view that SunTrust on a stand-alone basis is approaching the proposed merger with BB&T from a position of strength. Individually, we are two very strong companies.

Together, we're creating the premier financial institution. With that, let me provide a little bit of progress and update on the merger on Slide 14. The executive management team that we announced back in February has been meeting on a weekly basis, and we're really making good progress on key decisions about organizational design, about talent, our new culture, and overall integration planning among a variety of other topics. We formally kicked off our integration planning process a few weeks ago and have identified integration leads across the businesses and functions with support from some -- support from third-party consultants.

Our teams are really working well with together. They've identified key work streams with a defined set of milestones, all of which we must deliver by legal day 1. As you would anticipate, our risk oversight underpins the entire integration process and we have significant controls in place to ensure the process is appropriately governed. Our teams worked effectively and efficiently to file the merger application in the S-4 registration statement back at the beginning of March, which is on track with our targeted timing.

With regard to our new brand, we're using this as a culture building process for our teammates and associates. We just finished a brand attribute bracket-based process and both of our respective organizations identified the same four core and aspirational brand attributes we desire for our new company. In my mind, this reinforced our premise of this merger equals and it's one more example of how we're coming together as one company. We've also engaged Interbrand, which is a leading brand agency to help guide us.

We're targeting to have a new name and brand by the end of the second quarter. Key leaders from SunTrust and BB&T have held listening sessions with community groups across our markets, which was incredibly helpful and insightful. We're both firmly committed to responding to our community needs and continuing our strong locally focused investments. We're working very hard to lay the groundwork for our new company culture.

We both have strong cultures with high levels of teammate and associate engagement, and we're both purpose and mission-driven companies. Together, we're going to create a new culture that takes the best of both, and we'll do this together as a team with involvement from all of our teammates and our associates. We completed our first executive team-building exercise at the BB&T Leadership Institute last week and obviously plan to have more of those sessions over the next coming months. The CCAR teams across both companies are working very hard and very well together to conduct joint stress test and submit a joint capital plan to the Federal Reserve in May.

Lastly, we're working on determining the next level of leadership for the combined company with an objective of making those announcements in the second quarter. Our objective is to promote the best of both companies, ensure diversity, and equal representation from both sides. Overall, I think Kelly and I are 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 and the more our teams work together, we're increasingly confident in the opportunities we have ahead of us and our ability to achieve the targeted cost saves and realize our full potential.

The work we have ahead of us continues at a brisk, but controlled pace. And I'm highly confident that our teams will help us realize our vision of creating the premier financial institution. So with that, let me turn it back over to Ankur.

Ankur Vyas -- Investor Relations

Thanks, Bill. Linda, we're now ready to begin the Q&A portion of the call. [Operator instructions]

Questions and Answers:

Operator

Perfect. [Operator instructions] And we will begin with the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Good morning.

Bill Rogers -- Chairman and Chief Executive Officer

Good morning, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

I had a question on C&I loan growth and also on nCino, but just to kick off with the loan growth question. I noticed in the presentation, you mentioned it was broad-based. But maybe you can give us a sense of how much of the loan growth that you saw this quarter you think is sustainable? How much of it is due to not getting pay downs? We've heard from others that pay downs have slowed a bit. And so what I'm really trying to understand is do you feel this is a pickup in demand from your client or is it a reduction of competition and the legs on both those trends? Thanks.

Bill Rogers -- Chairman and Chief Executive Officer

Yes, sure. I think, first of all, it is very broad-based. And I think as you indicated in your question, it's across a variety of the specialties, it's across CRE, and it's across sort of core commercial. We've seen it in the areas we've invested like aging services and we've seen it on the incremental side and expansion markets, where we made investments.

So first of all, it's broad-based. The second piece is revolver utilization was up this quarter and if we really look over sort of multi-quarters, we've hit sort of a high inflection point on revolver's utilization. So this is also by clients, drawing onlines to make investments, whether its M&A, whether it's repayment or whether it's investment in capital or technology, but clear revolver utilization. As it relates to pay downs, pay downs were down this quarter, production was pretty stable to where it's been.

So I think is 8% year over year, which where we are right now. I mean, that's clearly high, but our core client base, the investments we've made, the places that we are, the advice-driven model, I think, will continue to be at a good pace. Although as you noted, I do think pay-downs will pick up over the year. That will be some combination of rate, refinance and market influences.

Betsy Graseck -- Morgan Stanley -- Analyst

[Inaudible]

Ankur Vyas -- Investor Relations

You cut out. Linda, I don't know if that is Betsy's line or --

Operator

Yes. Let's go to the next line. Betsy, you'll just need to queue back up for a question. Next we'll go to the line of John McDonald with Autonomous Research.

Please go ahead.

John McDonald -- Autonomous Research -- Analyst

OK. Thanks. Mine is cutting out a little bit here, but can you guys hear me?

Bill Rogers -- Chairman and Chief Executive Officer

Yes.

Allison Dukes -- Chief Financial Officer

We can.

John McDonald -- Autonomous Research -- Analyst

OK. Great. So maybe just a question for Allison. Could you give us some of the puts and takes to your estimate of the net interest margin to be down 2 to 3 basis points next quarter.

Is that a question of the loan growth outstripping deposit growth? What are the factors there?

Allison Dukes -- Chief Financial Officer

Sure. A couple of different factors. First, I do expect deposit costs will continue to creep up a little bit as I noted. I also believe, it will be at a slower pace than what we've already seen.

You've seen our deposit cost growth come down over the last three quarters from 11 to 10 to 9. So we expect it will continue to creep up, albeit a little more slowly. I also expect that loan growth is going to continue to modestly exceed deposit growth, and so that's obviously a positive for NII, but that does create some wholesale funding costs that factor into the NIM guidance. There is day count in there as well and then all of that can modestly offset by repricing of our security portfolio and fixed-rate loans.

Take all that together and we expect something around the range of 2 to 3 basis points for the clients.

John McDonald -- Autonomous Research -- Analyst

OK. Great. As a follow-up, I wanted to ask Bill about incremental earnings about the MOE. Bill, you've talked to a lot of people and gotten feedback since the announcement and you mentioned, you and Kelly feel very good overall.

But I was wondering maybe you could give us one positive and one challenge that you discovered, one aspect of the deal you feel better about since the announcement. And then one aspect that you learned might be more challenging or take longer than you initially thought? Thank you.

Bill Rogers -- Chairman and Chief Executive Officer

Sure. Good question, John. So if I sort of start at the, maybe the core of the positive, the integrity, transparency and teamwork that we've had as a team has been off the charts. I don't want to say, I'm surprised, but that has really been a great start to the conversations that we've had, the selections we've made, as I said, we've done that with a lot of teamwork and this is a group that didn't know each other.

While Kelly and I have known each other a long time, we're bringing together a bunch of people that, that didn't know each other and haven't worked together. And the way that they're doing that with speed and focus on the outcome has really been fun to be a part of. And I think that has mostly to do with how bought in they are and how cognizant they are of where they are in history and the opportunity that they have in front of them to create this incredible organization, incredible opportunity. So I would say that's probably the core top positive.

As we peel back the onion and look at both cost synergies, I think, as we continue to go through that, I think, our optimism improves, and our -- we start to look at where those are and how we'll achieve them. And so I think we continue to build confidence on that front. Similarly, the opportunity on the revenue side. As we look at our businesses and we've talked about them being highly complementary and that's really jumped out as they really are complementary, meaning their products and capabilities that BB&T has that we don't have and products capabilities that we have that they don't have and we continue to find most of those.

I know I went to more than one, but I'm excited on that front. If you say that what's on the challenge side, I think, just the enormity of the task. It's big. I mean, this is big.

This is big and while that I have every confidence that we got the right team in place, you do wake up and think, these are lots of actions and lots of activities that our teams have to accomplish.

John McDonald -- Autonomous Research -- Analyst

Great. Thank you.

Operator

All right. And next let's try Betsy's line again, Betsy?

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Can you hear me?

Bill Rogers -- Chairman and Chief Executive Officer

Yes. Sorry, Betsy.

Allison Dukes -- Chief Financial Officer

Yes.

Betsy Graseck -- Morgan Stanley -- Analyst

No problem. So my follow-up was on nCino, which I believe is a key tool for you on the commercial side and if I recall correctly, I don't think BB&T had yet put that in place, so there could be some interesting opportunities there as that goes into the combined organization. But I just wanted to understand from you the benefits that it brings to your commercial banking space? And was there more for you to do to benefit from nCino at this stage. I thought, it was fully integrated, but then in the prepared remarks, I thought I heard something around how there was more opportunity and benefit coming from the nCino.

Bill Rogers -- Chairman and Chief Executive Officer

Maybe I'll take a first crack at it and then Allison, you can add some of the specific benefits like that we've seen in the commercial side. Yes, I mean, I think nCino is part of -- if you think about as a platform is maybe sort of the easiest way to think about it. So getting the platform in place is stage 1, and we've made tremendous progress and acknowledge the implementation of the platform. Now it's the flexibility of that platform and adding different capabilities and different speeds and different ways that we can utilize, and we work really closely with nCino, I mean we've got a great partnership.

As you know, we were early in this process. So I think, we're building together and thinking about all the things that we can do from a client perspective. BB&T has also made a lot of progress in platforms as well. So these will be the kind of things that we'll look through and take the best-of-breed approach for different client segments and different flexibilities.

And back to the earlier comment and the question from John, that's just part of the exciting part of the process is actually getting best-of-breed kind of choices that we get to make along the way. And Allison, you might want to embellish on that.

Allison Dukes -- Chief Financial Officer

The only thing I'd add is that it is a cloud-based platform, and that's given us tremendous amount of flexibility. And one of the things I noted is, as we moved it to Mulesoft platform, it also gives us the capability to add future APIs and we are looking at. We have expanded, I should say, our usage of nCino to incorporate our treasury platform. So it's not just a loan origination platform for us any further.

So it's about flexibility really for our teammates and efficiency there and speed of responsiveness to clients.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. So your treasury platform is your cash management offering to your clients that's what you're talking about not your internal treasury?

Allison Dukes -- Chief Financial Officer

Yes, not our corporate treasury platform.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. OK. Very interesting. And then my other question is just on the brand change.

I realized that in later in 2Q, you will be coming to market with the new brand. I'm just wondering how are you thinking about rolling that out to the market? And I know that -- I'm not asking for a specific, I know it's early days on this, so I'm just trying to understand how you are thinking about informing the market of the new brand in a way that is the least disruptive and the most opportunity for you.

Bill Rogers -- Chairman and Chief Executive Officer

Yes, I mean you're -- this is one of those areas that we've had a lot of intensity and good dialogue around. As the brand specifically and rollout, we have shareholder approvals coming up, so they have to approve a new brand. So that's sort of the first stages of the naming of the entity. We'll also be operating sort of our core -- when you think about core retail business, for lack of better description, under the SunTrust and BB&T brand.

And so we'll be doing that for, let's call it 18 to 24 months as those roll out. Then you've asked really the right question is then how do you roll out the umbrella brand and who is first on the sequence in terms of how you roll out that brand and how do you make sure that you're promoting that at the right pace and with the right intensity? And that's the sleeves rolled up work we're doing right now. Actually back to the earlier matter, this is one of the exciting, really new opportunities for our company. As I highlighted before, we've asked our teammates and associates to be part of this and build this as a culture moment.

So this is a lot more than a name that we're going to put out somewhere in the building. This is really about being exemplified and what we're going to stand for as a company.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. OK. Thank you.

Bill Rogers -- Chairman and Chief Executive Officer

Yes.

Operator

Next, we'll go to the line of Erika Najarian with Bank of America. Please go ahead.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Just a two-part question on preparations for the MOE bill. One is what is the sentiment of the employees, like what are you and your team doing to minimize distraction going into the merger close? And the second part of that question is, as I think about some of the investment spend that you've completed like nCino and further projects that you may have. How are you determining what to continue to go through in terms of investment spend versus what you may suspend prior to the deal closing?

Bill Rogers -- Chairman and Chief Executive Officer

Yes. OK. Good questions. First of all, it relates to our teammates and associates and I can speak specifically on the SunTrust side, but obviously on the BB&T side of the associates as well.

The first thing is we're communicating a lot, and we're having townhalls, we have videos, we have teleconferences, we have things that we're sitting at post on their website. So we're communicating a lot about the status of where we are because the thing that makes people most uncomfortable is that when things are unsettled. And we want to make sure that they know where things are, they know the progress, they know when we're going to make announcements, and we can be on that front. The second is, I mean, I get up every day.

And I think Kelly does the same way. I mean, I get up every day to rerecruit everybody who works here. I mean, that's sort of my philosophy and how I think about the world. And the opportunity to recruit not just to SunTrust, but to recruit to NewCo is really exciting.

I mean, I think about the opportunity to talk to our teammates about joining this new company that shares their values, that cares about them, that they know the capacity to invest and things that are important to them, things that are important to their clients, the new capabilities, new training and even more so their career opportunities. So their own personal career opportunities are going to expand exponentially. I mean, the markets that we are in that we were never in before. There are things that we do that we didn't do before.

So we've taken the philosophy that we're recruiting to NewCo and I like the job. I mean, I think, I like doing that. I think that's an incredible opportunity. As to how to determine, as I said before, I mean, this is the best-of-breed optionality.

So we've got integration teams that represent both sides equally. I mean, we're -- so at every intersection point as it relates to whatever it may be platform, application, we have people sitting at the table and their mission is to not choose one or the other, it is to choose the best. And if that doesn't exist, we may choose something that's an alternative to what we each have. So this is a -- and I think our teammates recognize it.

This is once in a generational opportunity to really choose the best alternatives that are strong for clients and strong for communities and make our companies more efficient. So we -- I think Kelly and I have been very clear that it's the best-of-breed process and the winners are going to be the clients, the teammates, and the shareholder.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And just a follow-up question for Allison. I noticed that other short-term borrowings on an average basis were up almost $5 billion. And as I thought about your earlier comments on loan growth outstripping deposit growth, is it fair to assume that perhaps before the merger close, you'll just -- you're fill in the gap with short-term borrowings, rather than increase your deposit rates that significantly because this seems like something that when once the balance sheets are put together could be optimized?

Allison Dukes -- Chief Financial Officer

Well, I mean, as you think about deposit growth, that's really client relationships and we're not going to change our focus on building client relationships and augmenting our existing deposit base and growing relationships overall. So I would say, our focus on growing deposits and the momentum we have there, we will be sustaining that into closing. As we bring our balance sheets together, we actually have an outstanding funding base between SunTrust and BB&T in terms of both our deposit base, our client base and our access to wholesale funding. So I don't think -- I don't anticipate that we would have any shift in how we actually fund the balance sheet, we're really focused on growing client business.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

OK. And next, we'll go to the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Matt O'Connor -- Deutsche Bank -- Analyst

Deposit repricing question. Is the repricing still happening within the same product, so money market repricing up, checking repricing up as you look forward or is it more about continuous mix shift into higher rate products? And does it vary by market in terms of just for pricing overall?

Allison Dukes -- Chief Financial Officer

It really, I would say, from a product standpoint, our strategy is still consistent with where it has been for the last year or so. We're still going to really focus on using CDs as a targeted strategy that's continued to reprice, of course, over time as well. But we're not looking at a change in our product mix, even as we anticipate the Fed being on pause over the course of the year. From a geographic standpoint, we're always in any rate cycle evaluating the differences from a geographic standpoint.

The competition is different in every market, and we really think about pricing differently in every market and that sensitivity is there in any rate cycle.

Bill Rogers -- Chairman and Chief Executive Officer

I'd say, Matt, the other thing is we're -- it's not a pure defensive play either. So we're using CD pricing an offering, there's an offensive play and client acquisition vehicle as well.

Allison Dukes -- Chief Financial Officer

Yes. Our CD strategy has yielded, I think about 40% of our CD growth is new money. So it's a targeted acquisition strategy as well.

Matt O'Connor -- Deutsche Bank -- Analyst

And then, Bill, separate topic here, but just as you think about the combined capital or the capital of the combined company, Kelly said earlier today, the board has decided to hold 10% CET1 at least initially, you've obviously optimized capital at SunTrust down to 9.1%. And I know you've been asked before, but it would seem like over time, there will be opportunity to bring down that 10% and I don't know if you'd have more confidence as the integration was completed successfully, but just thoughts on -- there is a little bit bid ask in terms of where you want capital or they want capital and the combined company, you would think wouldn't need to have as much access maybe as BB&T stand-alone?

Bill Rogers -- Chairman and Chief Executive Officer

Yes, well, first and foremost, let me say, we're aligned. So we're aligned on 10% capital as a really good starting point for our company. I think, as you noted, I mean, that can change over time, but I think, as we particularly as we enter into this merger and we look at all the integration and the things that we got to do over the course of the next two years, the last thing we want to have as a discussion is about capital. We want to make sure that if it's conservative, fine, that's good label.

But we want to have a capital base that can withstand any changes anticipated or unanticipated and then it will be a factor of wherever the economic environment is when we get through that process. So we're aligned on this. I think this is a good strategy. I don't think it's contrary to optimizing capital.

I think it's consistent with optimizing capital against the situation that you're in right now, which is a big merger.

Matt O'Connor -- Deutsche Bank -- Analyst

OK. Thank you.

Operator

And our last question comes from the line of Christopher Marinac with FIG Partners. Please go ahead.

Chris Marinac -- FIG Partners -- Analyst

Bill, there are a lot of banks who talk about the opportunities that they feel from the combination of SunTrust and BB&T. And I'm curious to what extent you feel that you need to play defense as you integrate the merger or is it more of the opposite that you just continue to forge ahead on the offense as you've been?

Bill Rogers -- Chairman and Chief Executive Officer

Well, as I said before, I mean, we're on offense. We're recruiting to NewCo. I mean, we're recruiting to the premier financial institution in the country in terms of new capabilities and new geography and new markets and I mean I never had so many tools to recruit. So to us it's about not only recruiting our existing teammates and associates, but the calls are coming the other way, trust me.

People want to join our organization, and we're seeing that. So I think this is the merger in, but I love the tools that we have to recruit with.

Chris Marinac -- FIG Partners -- Analyst

That's great. Thanks very much, guys.

Ankur Vyas -- Investor Relations

Linda, I think it looks like we had one more join the queue.

Operator

We'll go to the line of Ken Usdin with Jefferies. Please go ahead.

Ken Usdin -- Jefferies -- Analyst

Just two quick things. First of all, connected to the pre-merger planning, you're having really good loan growth, and I'm just wondering that just does anything change with regards to the types of lending or the types of risks or the types of mix in over the next few quarters that you look at putting on in contemplation of the pro forma and the post-merger company?

Bill Rogers -- Chairman and Chief Executive Officer

No. I mean, in short answer that's no. We're building a business that's consistent with our risk profile and our risk profile is consistent with the combined risk profile. So I would fully expect us to be on the same pace, and it reflects the diversity of our business mix and the things that I think make us a great merger partner.

Ken Usdin -- Jefferies -- Analyst

OK. And second one, I was just wondering if you could flesh out even with the slowdown in the government, the IB still did pretty decent. I'm just wondering if you can flesh out a little bit more about the pipeline, did things get pushed and just your general thoughts as you look outward for the investment banking business?

Bill Rogers -- Chairman and Chief Executive Officer

Yes, the pipeline looks good and particularly in M&A it looks good, which I think, I sort of look for -- you have a lot of market fluctuations in investment banking based on bunch of conditions, but the core sort of advice business, which M&A is, I think, reflects is strong from a pipeline perspective. And I think, that's consistent with the investments we made of being in advice-driven forefront of our relationships all across the spectrum from our commercial business, our non-CIB business and investment banking has grown about 50% and that pipeline looks particularly strong. So I feel good about where we are in terms of pipelines. Left leads are growing.

They've been growing at 15% to 20%. So our relevance with clients not only we're having more add backs. The power of those add backs are increasing. But yet, they still only reflect a small part of our total portfolio.

So I don't have any reason to be -- continue to be very optimistic in our opportunities in investment banking.

Ken Usdin -- Jefferies -- Analyst

Thanks for the color, Bill.

Bill Rogers -- Chairman and Chief Executive Officer

Yes.

Operator

All right. And next we'll go to the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Bill Rogers -- Chairman and Chief Executive Officer

Hey, Mike.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hey, Bill. My short question is how do you deal with the differences and the cultures that's same question I asked to Kelly King and the longer version of that is, I mean, you know there's two out of three mergers don't pan out well, two out of three bank mergers don't pan out well, so we have to be convinced that this is one of the three that actually work well and one of the reasons seems to be related to cultural risk and the road is littered with examples whether it's Citigroup, Bank of America, the old Bank One for Chicago. So after several decades of seeing these mergers, you weren't as acquisitive of your peers and now you're doing one. So specifically, as it relates to cultural risks, three parts.

No. 1, SunTrust seems a little bit more large corporate capital markets oriented, you might say more urban than BB&T. No. 2, there's likely to be some inevitable employee concerns and the No.

3, there's likely to be some inevitable CEO disagreements. So have you discussed and how do you plan to deal with those likely disagree with? Like, in other words, what kind of premarriage counseling have you had, if you are getting married and if you wanted some advice? Thank you.

Bill Rogers -- Chairman and Chief Executive Officer

OK. You threw me off with the last part of your question, but I got it. And look, Kelly and I are both conscious that the culture is imperative to making this work and it's really been a strong part of our both of our companies. So I'm going to sort of put in some parts.

So if you look at soft of the core foundation, and you sort of look the things that are deeply in the ground, we have a lot of incredible similarities. I mean, we are purpose and mission companies. We get up thinking about the big why. Kelly and I both lead in that same fashion.

So I think our teams and our companies are sort of the strong foundation of the house. That's really, really solid, and I think it's very, very much aligned. As you sort of go up the chain on the cultural differences, I mean, sure, there'll be some differences, but we're going to celebrate those. I mean, I view those as opportunities.

I view those as opportunities to come together under a new culture, pick the best of both, do it together, do it as a team. As I mentioned earlier, all the teamwork stuff has been really, really working well and got started off to a great start. So we'll do that together. The final results will be more inclusive.

It will have great engagement at the outset and throughout, and I think, I personally, and I think, our teams are going to be really excited about that. I don't accept sort of the urban and rural definition. So if that's your implication, maybe I don't even accept that as a premise. I think, we're great bankers and BB&T are great bankers, and we're going to work together.

We're going to work together well. Our teammates and associates, I think, on balance are really excited about where this is going. I said before, we're doing a lot of communication. We're doing a lot of rerecruiting, spending a lot of time in front of teammates and I think they're excited about this venture and the opportunities that they have in it.

As it relates to CEO disagreements, I mean, Kelly and I kind of agree on everything. I think that's fine, that's good, that's what makes a vibrant outcome. But I'm 100% sure we're going to start everything from the right framework. We're going to start it from why, we're going to start from purpose, and we're going to start it from mission.

And as long as we start there, I'm confident that the outcomes will be really, really strong and great for shareholders and teammates and associates and communities and clients.

Mike Mayo -- Wells Fargo Securities -- Analyst

And just one quick follow-up, so when you define a new culture, what does that mean? When you take best of breed, could you be a little bit more specific, give a couple of examples like what are you going to take from SunTrust, what do you take from BB&T. Can you just put a little bit more meat on the bones on this idea of a new culture?

Bill Rogers -- Chairman and Chief Executive Officer

Yes, I think we're working on those things. If you define cultures, caring about people and putting clients first and being community-diverse business models, lower risks, less volatile profile, one-team focus. I mean, those are all things that we have in common. The choices are more around how you activate and how do you pick the best of what teams do.

We're electing to put a pension plan in SunTrust that BB&T has. That's a great cultural aspect that our teammates are going to benefit from. We're going to put our Momentum onUp teammates focus financial wellness program into the BB&T system. That's a great way for both of them to benefit and that's an example of you choose from both, but your foundation is we care, we care about you, we care about your wife's ambitions, and we want you to stay and be part of this company.

So those are just some examples, Mike, of how we're going to go back and choose positives. More in terms of how we activate against really strong cultures.

Mike Mayo -- Wells Fargo Securities -- Analyst

Thank you.

Bill Rogers -- Chairman and Chief Executive Officer

Thank you.

Ankur Vyas -- Investor Relations

OK. Thanks, everyone. Linda, this concludes our call. Thanks to everyone for joining us today.

If you have any further questions, please feel free to contact the IR department.

Operator

[Operator signoff]

Duration: 59 minutes

Call Participants:

Ankur Vyas -- Investor Relations

Bill Rogers -- Chairman and Chief Executive Officer

Allison Dukes -- Chief Financial Officer

Betsy Graseck -- Morgan Stanley -- Analyst

John McDonald -- Autonomous Research -- Analyst

Bill Rogers -- Chairman and Chief Executive Officer

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Chris Marinac -- FIG Partners -- Analyst

Ken Usdin -- Jefferies -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

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