SunTrust Banks (STI) Q2 2019 Earnings Call Transcript

SunTrust Banks (STI)
Q2 2019 Earnings Call
Jul 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, and welcome to the SunTrust second-quarter 2019 earnings call. [Operator instructions] As a reminder, this conference is being recorded. And I should turn the conference over to Ankur Vyas. Please go ahead.

Ankur Vyas -- Investor Relations

Thank you, David. Good morning, everyone, and welcome to SunTrust's second-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.

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 for shareholder approval of the proposed transaction. The registration statement was declared effective by the SEC on June 19, 2019. BB&T and SunTrust commenced mailing the definitive joint proxy statement and prospectus to shareholders on or about June 27, 2019. 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.

Also refer to legends on Page 3 of the presentation that relate to 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 webcasts are located on our website. With that, let me now turn the call over to Bill.

Bill Rogers -- Chairman and Chief Executive Officer

Thanks, Ankur, and good morning, everyone. I'll begin with an overview of the second quarter, which we highlight on Slide 4. I will then turn it over to Allison for some additional details. I'll conclude with some updates on the merger with BB&T and how our integration planning efforts continue to progress.

Earnings per share this quarter, excluding the $0.03 and merger-related impacts, was $1.51. Contributing to this result was $0.07 and discrete tax benefits, part of which, however, was offset by reserve build in the quarter. Overall, I would characterize this as a solid quarter, which we had contributed good loan growth and improvement in fee income trends, good expense management and strong credit quality. However, much of this was offset by higher funding costs and a challenging interest rate environment, both of which drove the 11-basis-point decline in net interest margin.

With that as an overview, let me highlight some of the specifics for SunTrust earnings in the second quarter. While growth remains healthy, evidenced by the 1% sequential growth we delivered, which was generally broad-based across most businesses, the investments we've 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. We also saw a healthy growth in indirect auto, reflecting the pullback from certain competitors and strong consumer confidence. Bigger picture.

It's clear that our clients remain optimistic about the economy and are committed to making ongoing investments, both personally and in their businesses. Offsetting the strong loan growth we delivered was pressure on the net interest margin, given increased funding costs and rate dynamics, which Allison is going to discuss in more detail. Excluding certain discrete items, noninterest income increased by 5% sequentially, reflecting increased client activity levels and structured real estate, agency lending and investment banking, all of which highlight the success of our advice-driven model. Overall, we delivered 1% sequential core revenue growth.

This progress, in spite of a NIM pressure we experienced, highlights the diversity of our business model and the returns on our consistent investments in growth. Importantly, our progress in delivering top-line growth is mirrored by improvements in overall profitability. Year to date, we've delivered 50 basis points of improvement in our adjusted tangible efficiency ratio, providing us good momentum headed into the merger and realizing a long-term potential with BB&T. And finally, credit quality remains a strength, with charge-offs declining by 4 basis points relative to the first quarter and NPLs remained stable.

Importantly, our consistently low credit losses are a reflection of our underwriting discipline in addition to an economy which I believe is on solid footing. While it does appear that the rate environment may become a headwind to our earnings growth going forward, this is partially mitigated by 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 we'll continue to make good core business progress over the next one to two quarters on a stand-alone basis, and we'll then propel us into the next great chapter in our company's history. Before I turn over to Allison, I'd like to take a minute to discuss the $205 million insurance settlement and offsetting contribution to the SunTrust Foundation.

This insurance settlement is from financial crisis area-related clients. As you know, we're a purpose-driven company, and we decided to contribute the benefit to the SunTrust Foundation, so they may be invested in financial wellness efforts and other activities that will benefit our communities for decades to come. This contribution, combined with the Community Benefits Plan we announced two days ago, are perfect examples of our strong commitment and dedication to invest into our communities. This has been a core tenet of our respective companies and will only strengthen under Truist.

So with that, let me turn it over to Allison.

Allison Dukes -- Chief Financial Officer

Thanks, Bill. Let's start with net interest income. As you can see on Slide 5, our net interest margin is down 11 basis points sequentially and 12 basis points year over year. There are a few factors driving this.

First, funding costs continue to increase, driven by both an increase in the rate paid on deposits, in addition to increased level of the wholesale funding to support the $1.5 billion of loan growth we delivered in the second quarter. Second, one-month LIBOR declined by 5 basis points on average in the quarter, and approximately 25% of our earning assets net of debt and commercial loan swaps are tied to this index. And lastly, the roughly 30-basis-point average decline in longer-term rates and the roughly 60 basis points point-to-point decline in longer-term rates negatively impacted yields and prepayments in our fixed rate assets, largely mortgage-backed securities and mortgage loans. Looking to the third quarter, we expect net interest margin to decline by 7 to 9 basis points relative to the second quarter.

This is primarily driven by our assumption that there will be a July rate cut and our view that deposit betas and the early rate cut would be low, similar to how they were low during the first few rate hikes. In addition, day count, higher premium amortization in the MBS portfolio and funding mix shift are also components, albeit smaller, that are embedded in our third-quarter guidance. From an NII perspective, we would expect third-quarter NII to decline 0% to 1% relative to the second quarter, as loan growth and day count will partially offset a decline in NIM. Moving to Slide 6.

When excluding the $205 million insurance settlement, noninterest income increased by $36 million sequentially, driven primarily by commercial real estate-related income, which benefited from higher client activity and structured real estate and agency lending, in addition to a $12 million increase in investment banking income. Mortgage production income was up by $22 million and reflects strength in both refinance and purchase, with sequential closed loan volumes up 57% and 81%, respectively. Gain-on-sale margins are also affirming given increased industry volumes against reduced capacity. The strengths in mortgage production, however, were more than offset by a $36 million decline in servicing income, with a more volatile, lower and flatter rate environment negatively impacted hedge performance on our MSR portfolio and drove an increase in decay expense.

Also, as I discussed on the previous slide, the lower rate environment negatively impacted reinvestment yields and prepayments on the mortgage loan portfolio in the second quarter. Looking to the third quarter, we would expect total mortgage-related fee income to decline from the second-quarter levels as refinanced activity may abate and purchase seasonally declines while servicing income will continue to have elevated decays. As you'll recall, decay expense on the servicing portfolio is recorded at close while gain on sale within production income is reported at the time of rate loss. Separately, as we'd indicated in our first-quarter earnings call, we sold an accruing residential TDR portfolio in the middle of April, which resulted in a $44 million gain.

This was largely offset by a $42 million loss related to the repositioning of approximately $3 billion of our securities portfolio. As I said in April, the net P&L impact will be relatively immaterial to our earnings profile going forward. Moving to expenses on Slide 7. We recognize $14 million of merger-related impacts in the second quarter, $8 million primarily related to legal fees, which show up as merger-related costs; and $6 million primarily related to consulting expenses, which show up in other noninterest expense.

We would expect total merger-related expenses to be in the $10 million to $15 million range in the third quarter. We also had a $205 million contribution to the SunTrust Foundation offsetting the insurance settlement, which Bill mentioned earlier. Excluding the contribution and merger-related impacts, expenses decreased by $25 million sequentially as a result of lower operating losses in the second quarter and elevated branch closure costs in the first quarter. Compared to the prior year, adjusted expenses increased by $29 million or 2%, driven by higher compensation expense in addition to ongoing investments in technology.

Importantly, these investments and talent and technology were largely funded by ongoing efficiency initiatives. We also recorded $32 million of discrete tax benefits this quarter related to the resolution of certain tax matters. Excluding these benefits, our effective tax rate would have been approximately 17%. Looking to the third quarter, we would expect our effective tax rate, excluding any discrete items, to be between 17% and 18% and between 19% and 20% if you model us on an FTE basis.

As you can see on Slide 8, the adjustable tangible efficiency ratio was 59% for the quarter. Year to date, we've delivered 50 basis points of improvement in the adjusted tangible efficiency ratio, which is good progress, especially when considering the 4-basis-point decline in our net interest margin for the first half of 2019 compared to the first half of 2018. 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 investments.

Now moving to Slide 9. Our net charge-off ratio was 22 basis points in the second quarter, down 4 basis points relative to the first quarter. The low level of net charge-offs reflects the relative strength we are seeing across all of our portfolios. Performance we are extremely pleased with, that we remain cognizant that there could be some variability and normalization going forward.

Our nonperforming loan ratio of 34 basis points, which is stable relative to the prior quarter, also remains well below historical averages. Provision expense declined by $26 million sequentially as a result of slower loan growth relative to the first quarter and lower net charge-offs. Looking into the third quarter of 2019, we would expect our net charge-off ratio to be on the low end of our 25- to 30-basis-point guidance. We do expect the ALLL ratio to remain relatively stable, which would 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 1% sequential growth in average balances. Importantly, that growth was diversified across most portfolios, including C&I, CRE, consumer direct and indirect auto. Wholesale growth was diversified across each of our lines of business.

Within CIB, loan growth was broad-based across many of our industry verticals in addition to growth in our asset finance business. Commercial banking growth was also 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 run-off in the construction portfolio. Within consumer, the ongoing investments we have made in our digital and point-of-sale lending capabilities, which provide for a superior client experience, are also driving good growth and enhancing our returns.

Our auto portfolio continues to demonstrate healthy growth and solid risk-adjusted returns. 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. On the deposit side, average balances were stable sequentially. Consistent with prior quarters, we continue to see a migration from lower-cost deposits to CDs, largely due to higher rates and our targeted strategy, which allows us to retain our existing depositors while also acquiring new households.

Interest-bearing deposit costs increased by 6 basis points sequentially, lower than the prior two-quarter increases of 9 and 10 basis points, respectively. This quarter's increase in deposit costs reflects, to some extent, the lagged impact from prior rate hikes. Now moving to Slide 11 to provide an update on our capital position. Our estimated Basel III Common Equity Tier 1 ratio was 9.2%, and the Tier 1 ratio was 10.2%, slightly higher than the prior quarter, given the suspension of share repurchases.

Book value and tangible book value per share increased by 5% and 6% sequentially, given growth in retained earnings and the impact that lower rates had on improving the unrealized loss position in our securities portfolio. Going forward, we expect capital ratios to trend upwards, given the suspension of share repurchases in anticipation of our merger with BB&T. Separately, subject to board approval, we plan to increase our quarterly dividend from $0.50 per common share to $0.56 per common share beginning in the third quarter, which represents a 12% increase, provides for an attractive pro forma dividend yield of 3.5% and reflects our confidence in our stand-alone earnings capacity. 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 second quarter, with consumer lending production, excluding mortgage, achieving a record level and up 16% year over year. The investments we've made in LightStream and our point-of-sale lending partnerships continue to be consistent contributors to our loan growth. Over the past year, we have focused on enhancing our analytics, improving automation, adding product offerings and growing our partnerships and referrals, all of which are key contributors to the 40% year-over-year growth we delivered in LightStream.

Consistent with prior quarters, some of this collective growth has been offset by the continued decline in home equity. We're encouraged by the growth we have with our direct consumer lending businesses, which provides us with great momentum headed into our proposed merger, where we will have the opportunity to meet the digital lending needs of a broader set of clients. Overall, the 6% loan growth and 1% deposit growth drove a 4% increase in net interest income relative to the prior quarter -- sorry, relative to the prior year. Consumer fee income benefited from the $44 million gain related to the sale of an accruing residential TDR portfolio.

Excluding this, fee income was relatively stable sequentially and year over year. As mentioned earlier, mortgage-related income declined by $14 million sequentially as the increase in production was more than offset by lower servicing income, given the impact the rate environment had on decay expense and hedge performance of our MSR portfolio. Wealth management-related noninterest income increased 4% sequentially as market conditions improved. Assets under management are up a solid 4% year over year.

Excluding the TDR sale, our efficiency ratio in consumer improved by 170 basis points year over year. Relatively, our branch count is down by 6% in the past year. These efficiencies have been used to make ongoing improvements in technology. SmartGUIDE, our digital mortgage application, has achieved an almost 90% adoption, and we're now working to streamline aspects of the back-end origination process as well.

The early results are very encouraging. We received another online banking award from Javelin in the second quarter, continuing our positive results with regards to third-party digital recognition. Big picture. Our consumer business continues to make very good progress.

Excluding the TDR gain, revenues are up 3% year over year, expenses are stable and pre-provision net revenue is up 8% year over year. These businesses continue to benefit from a strong presence across high-growth markets in the Southeast and Mid-Atlantic, in addition to our continued progress in enhancing digital and technology capabilities. Each of these strengths will be amplified when we merge with BB&T, creating retail and private wealth businesses that will be leaders in the industry across many key dimensions: growth, efficiency, talent and technology. Now moving to wholesale on Slide 13, where our consistent strategy continues to drive good results.

On the lending side, we saw solid growth across CIB, commercial and CRE. More broadly, the growth in our wholesale lending portfolio is a reflection of our clients' continued optimism in the economy, which has resulted in higher utilization rates and strong production levels. Pay-down activity did increase as anticipated, which drove slower loan growth relative to the first quarter. Importantly, the 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. This is also reflected in our low net charge-off ratio, which was 5 basis points in the second quarter and has remained below 20 basis points for each of the last 10 quarters. As mentioned previously, commercial real estate-related income was a key driver of the 11% sequential and 4% year-over-year growth in fee income. In particular, this was driven by increased transaction activity in CIB's structured real estate business and CRE's agency lending business.

We continue to benefit from strong client relationship and deep structuring expertise in a structured real estate business, and we're now seeing improved momentum from our agency lending business, given increased partnership between our coverage bankers and our product specialists. We also saw an improvement in investment banking income relative to the first quarter, driven by a pickup in equity offering, a good sign of investor confidence and, more importantly, a good reflection of our increasing strategic relevance with our clients. Trading income had a strong quarter and was broad-based across most product categories. While provision expense did present a headwind to net income, the strong revenue growth we have delivered in the first half of the year, combined with ongoing expense discipline, drove a 4% increase in pre-provision net revenue year to date.

Bigger picture. We've made consistent strategic investments in building out our products and industry expertise, expanding our product offerings and expanding into new markets, the success of which is demonstrated in our results. First, in CRE, the strong loan growth we are seeing as a result of our recently introduced permanent financing and bridge lending capabilities, combined with the aforementioned growth in fees, is making this business a more meaningful and diversified contributor to wholesale's earnings. In commercial banking, we continue to have success with the national expansion of our aging services vertical, in addition to the expansion of our core commercial business into new markets in Texas and Ohio.

Combined, these two areas of investment contributed to approximately 40% of our year-over-year loan growth in commercial banking. And finally, in capital markets, our revenues from non-CIB clients are up 8% year to date. Importantly, this increased level of connectivity we have across wholesale and the success of our One Team approach are creating a more sustainable and granular source of capital market's revenue. Each of these strategies continues to drive solid sustainable results and has created a strong foundation, which we can build upon as we merge, and have the opportunity to bring our capabilities and differentiated model to a broader set of corporate and commercial clients.

And with that, I'll turn the call back over to Bill.

Bill Rogers -- Chairman and Chief Executive Officer

Great. Thanks, Allison. Overall, we had a good quarter, and it was further validation of the success we continue to have in investing in growth opportunities, diversifying our business mix and loan portfolio and improving our efficiency. While the rate environment masks much of our core business progress, we feel good about the underlying momentum across the company.

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're two strong companies, and together, we're creating the premier financial institution. With that, let me provide a bit of progress and update on the merger, and most of that's on Slide 14. Overall, we're very pleased with how well the progress is proceeding and, more importantly, how well our teams are working together.

We've developed strong levels of partnership and alignment, and there is just a really strong sense of excitement for the future opportunities we're going to have together as Truist. The executive management team continues to meet weekly to plan for the merger, and those conversations are going extremely well. Together, we're making good progress on key decisions about important issues like organizational design, system selections, desired future state and decisions that really help define our new culture. Relatively, we have two cascades of organizational announcements, which named approximately 1,000 leaders.

These leaders reflect top talent from both companies, a really great balance between BB&T and SunTrust, good levels of diversity from every perspective, including background experience. From an integration standpoint, we have approximately 50 work streams under way. We've identified several thousand applications between the two companies. We've grouped them into 100-or-so ecosystems.

We're now beginning the system selection process. This requires a great amount of thoughtfulness, and we're focused on selecting the best of the best while also mitigating integration risk. On the regulatory front, we continue to work closely with the Federal Reserve, the FDIC and the DOJ. We submitted our joint capital plan at the beginning of May.

In addition, our teams have really been working well together to provide timely responses to the request for information. We've made several key announcements regarding our community investment levels. First, we announced that we would double our community investment and philanthropy levels in our respective headquarter cities of Atlanta and the Piedmont Triad area. Second, on Tuesday, we announced our Community Benefits Plan, which calls for $60 billion of investment across multiple dimensions over the next three years.

And today, we announced an incremental $205 million contribution to the SunTrust Foundation. Combined, these announcements should reinforce our commitment to supporting and investing in the communities, in which we're really fortunate to be a part. Kelly and I thought about this merger not just in the context over the next three to five years but, really, the next generation. And these investments are going to strengthen all of those communities for decades to come.

We're working very hard to lay the groundwork for the new company culture. This is a significant amount of work under way, which was formally launched with a culture survey between both companies back in May. The results of this survey and additional work are really encouraging. It only reinforces our belief that these two companies are far more alike than they are different.

Our team is going to dive deep into the results and discuss more about what we want Truist to represent. This is really rewarding work that we're doing together. And finally, perhaps the most important accomplishment in the first quarter was announcement of our new name, Truist. That was a culmination of an extensive and a thoughtful and rigorous process.

Right now, Truist, of course, is just a name, but from here, it's what we're going to make it. We're really excited about the opportunity to come together and make Truist one of the strongest brands in financial services. So you can see we've been quite busy in the last few months, and I can say personally that it's been some of the most fun, rewarding and fulfilling work in my career. There are a number of important activities and gating items that must be achieved in the next few months, and at this point, we're targeting a close late maybe in the third quarter or early fourth quarter.

Overall, I'm just really 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, the more that our teams work together. We're just becoming more optimistic about the opportunity that we have in front of us. We know that Truist will do so much more for our clients, our teammates, our associates, communities and shareholders than we could have ever done on our own, and we look forward to executing on this incredible potential.

Lastly, I'd be remiss if I didn't thank our teams. I know how hard everyone is working to serve our clients every day, deliver results for our shareholders, invest in our communities, all while planning for this important merger. Everyone has a lot on their plate, but our team, also know that you're part of making history. So with that, let me turn it back over to you, Ankur.

Ankur Vyas -- Investor Relations

All right. Thank you, Bill. David, we're now ready to begin the Q&A portion of the call. [Operator instructions]

Questions & Answers:

Operator

[Operator instructions] And our first question will be from the line of John McDonald with Autonomous Research. Please go ahead.

John McDonald -- Autonomous Research -- Analyst

Hi. Good morning. I wanted to ask just a near-term question for Allison. Could you give us a little more color, Allison, on the drivers of the NIM pressure near term between short and long range when you think about next quarter, maybe the fourth? What pressure is coming from the short end and which coming from longer out on the curve?

Allison Dukes -- Chief Financial Officer

Sure. Thanks, John. Why don't I -- let me answer that with just what's kind of behind the guidance of the 7- to 9-basis-point decline to NIM for the third quarter. The majority of that is our assumption that we would get a 25-basis-point decline in rates in July, the two months of that.

And combined with that, we actually expect deposit cost to be pretty stable in the third quarter relative to the second quarter. So our expectation is that deposit betas will initially lag for the first rate cut or two, just as they did on the way up. And so that in and of itself is about 5 basis points of the decline, and that's really obviously the impact of the short end there. There are a few other components in our guidance day count.

As I mentioned, there's a headwind of a basis point. We would expect premium am to continue increasing in the MBS portfolio, and that's about a basis point as well. And then finally, if loan growth continues to outpace deposit growth, then we would fund that with wholesale funding, which is a positive for NII, but it is a negative for net interest margin. So our expectation is really more around the impact to the short end of the curve.

It's less focused on the long end, with an assumption that a lot of that has been priced in to the end of the curve at this point.

Operator

Next question comes from the line of Ken Usdin with Jefferies. Please go ahead.

Ken Usdin -- Jefferies -- Analyst

Hi, Bill and Allison. Just a question on the fee side. Good to see the investment banking balance after that slowish first quarter, and I think you mentioned about the connectivity continuing to increase. Can you talk about just how the pipelines look? I think in your prepared comments in the release, you mentioned that syndicate and financings were down year over year.

What's just the status of the financing market in the businesses that are most important to you guys as far as the pipeline banks?

Bill Rogers -- Chairman and Chief Executive Officer

Yeah, Ken. Thanks. The good news, as you highlighted, is our model now is very diversified, so we don't sort of have one dependency of one segment of our business. 10 years ago, that would have been much more highly weighted toward the financing market.

Now with equity in this quarter being strong, M&A having a really good pipeline for the latter half of the year, we feel good about where we are in the business. Pipelines are generally solid. They're solid across the areas like M&A. They're solid across the areas like equity and the places that really are driven by the advice.

So the places where we're in with clients and driving really strong discussions with CEOs and boards and being advice-driven is part of what's motivating that. We had good increase in left lead, deal count was up, investment grade bond market was good. So I think the good news is, is I feel positive about the next half of the year. It's hard to sort of do this by quarter, but I feel really good about the next half of the year.

And I feel good because we've got more than one cylinder. We've got several cylinders that are firing.

Operator

Next question will be from 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 Graseck -- Morgan Stanley -- Analyst

A couple of questions. One, wanted to just touch base on the commercial loan growth. You had nice solid growth this quarter and wanted to understand if you feel like there was an opportunity for that to ramp. We've seen some other folks with even faster levels of C&I loan growth, and you've typically been a standout in this space.

So wanted to get a sense as to what's going on there.

Bill Rogers -- Chairman and Chief Executive Officer

Yes. We sort of -- I don't plan the loan growth. We sort of plan the business activity, and I sort of start with looking at what's happening with production. Production in both the first quarter and the second quarter were strong.

Matter of fact, production in the second quarter was ahead of the first quarter. So if I look at sort of core business and where we are from a growth standpoint, I feel really good about that. Pay-downs were a little higher in the second quarter, so that sort of got the balance up a little bit differently. And it was really broad-based.

Really good growth in CIB, good growth from the asset finance, good growth back to the last question on advice-based businesses. So CapEx, M&A, revolver utilization was just like the second quarter and a little higher than it's been in the past several quarters. Commercial is also really solid and a lot of the places where we targeted investments like aging services and new markets. CRE was up, as Allison noted, on new capabilities.

And then, of course, the consumer side really benefiting from the investments we've made in LightStream and partnerships and some of the changes that we've seen in the auto side, which is a good reflection of consumer health. So I don't think about loan growth quarter to quarter. Really, I think about it sort of production and pipelines, and those all feel really good. If we just said, gosh, the first quarter was exceptional, we would have said that was really, really high growth, and we would have said, gosh, what does that mean relative to anything.

And we'd like to look at it over a period of time, and I feel like the fundamentals are really solid for us.

Betsy Graseck -- Morgan Stanley -- Analyst

Got it. OK. And then follow-up on credit in the consumer portfolio. You've got a lot of different types of lending relationships.

You've got direct via the branch. You've got via the call center. You've got via the mobile web. You've got via partners, retail partners.

Could you give us a sense as to how you're seeing differences between those different channels or customer types or how credit is differentiated, if at all, on delinquencies or charge-offs? Is there any sense of differentiation based on channel and engagement with the client on the consumer side?

Allison Dukes -- Chief Financial Officer

Yes. Thanks, Betsy. This is Allison. No, I'd say the short answer is no.

We don't see a difference in credit quality as it relates to the sourcing of loan growth across different channels. Certainly, there's different risk-adjusted return profiles across some of our different asset classes. I'd say just even in LightStream last year, as we started to shift our strategy to increase production to different purpose loans inside of LightStream, specifically home improvement and debt consolidation, you did start to see slight differences in terms of the charge-off profile, but with that, you get much stronger risk-adjusted return. So we really look at our asset quality across different products, and we don't see a difference in the actual credit quality itself across different channels.

We use the exact same risk appetite profile and credit approval process regardless of channel.

Operator

[Operator instructions] Next, the line of Matt O'Connor with Deutsche Bank. Please go ahead.

Matt O'Connor -- Deutsche Bank -- Analyst

Hey, guys.

Bill Rogers -- Chairman and Chief Executive Officer

Hey, Matt.

Matt O'Connor -- Deutsche Bank -- Analyst

Hi. It seems like the outlook on the tax rate is a little bit lower than what you had thought before. I'm just wondering what drives that. And then more importantly, do those factors carry forward to the combined company?

Allison Dukes -- Chief Financial Officer

Yes. Sure. Thanks, Matt. The outlook has been evolving, I would say, in the 18 months or so since tax reform was passed just as we continue to refine our planning in a different environment relative to our expectations.

First half of '18, I think we started to really hone in on what our tax profile would look somewhere around the end of '18, beginning of '19. Obviously, we had some discrete tax benefits this quarter, but the guidance here, I gave 17% to 19% as our stand-alone tax expectation. In terms of what that will look like for Truist, it's too early to say. There is going to be a significant amount of planning and tax strategy, obviously, once we bring the two profiles together.

Matt O'Connor -- Deutsche Bank -- Analyst

And sorry, just to clarify, the tax rate for the third quarter, was it 17% to 18% or 17% to 19%?

Allison Dukes -- Chief Financial Officer

It was 17% to 18%, and then if you model up on an FTE basis, it's 19% to 20%, just in terms of third quarter expectations and pretty consistently from there.

Matt O'Connor -- Deutsche Bank -- Analyst

Got it. And the 17% to 18%, I think, is down from the 18% to 20% on the same basis, right?

Allison Dukes -- Chief Financial Officer

It is. I mean it's modestly down if you go back a few quarters, but it really is as we just continue to refine our planning.

Operator

Next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. Bill, you've mentioned closing late third quarter or early fourth quarter, whereas I thought the closing before was going to be late third quarter until the end of the year. So am I interpreting that correctly why the increased confidence on the time of closing?

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. Don't over-interpret what I said. We're obviously not in control of that final date. I'm just making the comment based on the work that we've done and the back and forth that we're having and -- but we don't have any indication that it's going to be at any particular time.

Mike Mayo -- Wells Fargo Securities -- Analyst

OK. Then I have a personal question for both, you Bill and Allison. So, Allison -- just between us. So, Allison, you're not making the trip to the new firm, and so for the time the merger was announced until now, you've decided not to do so.

And if you could just share what -- differently, with your thought process because that's a question some people ask. And then, Bill, you're going to have to take a back seat for a while. You've been CEO all decade, and now you're going to be the No. 2 person, and that can't be very easy.

So how are you going to manage that? What if Kelly says, hey, invest here and you say don't invest and you're overruled. That's not an easy situation to be in. Thank you.

Allison Dukes -- Chief Financial Officer

OK. How about I take this one first? I'd say extremely consistent with exactly what we conveyed in our call back in April. I made the decision in that time frame that for very personal reasons, from a geographic standpoint, that we wanted to remain in Atlanta. And so that was a difficult decision and one that I obviously didn't take lightly.

And I'm incredibly excited about the opportunity SunTrust and BB&T have to come together. But for me, it was the right thing for me to do to remain in Atlanta, and there was nothing more or less behind that decision.

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. I would say with regards to Allison Dukes, she has no bigger fan than Bill Rogers in whatever she does. I hope I get a chance to invest in it, so let me just sort of say that and exactly as she described. In terms of me personally, I mean, obviously, I entered into this with that full knowledge.

And if it's taking a small step backward to take a great leap forward, I feel great about it. And in fairness, I feel better about it every day. I mean, I might not have done this with everybody, but I was willing to do with Kelly King because he's a great partner. I have a lot of respect for him.

We share a lot of the same hopes and dreams for the future and operate in a lot of similar matters. He'll be the CEO, not confused about that. We have a transition plan, which will be great. Kelly and I will walk all of that to be seamless.

So nobody is even going to miss a beat as part of that. But in fairness, it was my choice, and I did it with a great partner. And every day, we're working on this together. I feel better about my choice.

Mike Mayo -- Wells Fargo Securities -- Analyst

And then last follow-up, if I could.

Bill Rogers -- Chairman and Chief Executive Officer

Sure.

Mike Mayo -- Wells Fargo Securities -- Analyst

When you disagree, which if you're not disagreeing, maybe you're not expressing your view. You're going to disagree at times. How do you handle those disagreements? What's the process between you and Kelly and maybe other senior managers?

Bill Rogers -- Chairman and Chief Executive Officer

Well, first of all, I mean, we both have a collaborative approach. So what I like is we both have that same approach. We like to take a lot of opinions. We like to reach consensus as best we can.

But look, when the buck stops, the buck stops, and there is one CEO and that's clear. And I'll be a great partner in that process. I haven't -- we literally haven't had a situation yet, not that we didn't disagree or that we didn't have different views, but that we didn't have a great resolution. And I think the best evidence is look at the amount of decisions we're making today already.

I mean, these are the hardest decisions you make in a career, talent and resources and capital investment and systems, and we're doing all that in a condensed time frame and I think doing it really extremely well. And I feel I just couldn't -- I couldn't feel better about my decision.

Operator

Next, we go to the line of John McDonald with Autonomous Research. Please go ahead.

John McDonald -- Autonomous Research -- Analyst

Hey, guys. Wanted to ask, in terms of the current environment, when I think about deposit growth, are you feeling a tangible impact from other banks and non-banks that are using national digital strategies and offering competitive rates? Is that impacting your deposit growth and pricing strategies?

Allison Dukes -- Chief Financial Officer

I wouldn't say, John, that it's impacting growth. It certainly impacts our strategy and the overall competitive just pricing dynamics that are out there. And so we pay attention to it. We look at it as we look at all of our different competitors that are our more traditional competitors and these nontraditional competitors.

I don't think it's having a material impact though on it yet, and I think it's going to be interesting to watch it on a down rate environment. This is why a lot of folks are doing it. We're all learning from it, and we're certainly learning, watching from a competitive standpoint as well.

John McDonald -- Autonomous Research -- Analyst

OK. If I could ask, Bill, in terms of technology and when you think about Truist, one of the drivers of the deal was to have more money to invest in technology. What are SunTrust's historical strengths in the area of technology and maybe gaps and what are BB&T's on the other hand?

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. I mean, the really great part of this process is that we just have a lot of complementary strengths that we can -- we're doing these best-of-breed type selections. If you sort of put them in some big categories, BB&T has really invested significantly in the last several years in the core infrastructure, bank data center and I would say sort of world-class capabilities. And that's more of like an opportunity thing that you don't have to invest in the future because now we have something that we can come to that has lots and lots and lots of capacity.

Things like GL, they've invested in significantly. So we migrate to a new GL. That's another opportunity that SunTrust wouldn't have to invest in over the next decade. I think we come to it with some strengths and areas like LightStream as an example sort of on the digital side.

We come to some strengths with usage of APIs and things like SmartGUIDE, some cloud-based technologies. So we sort of get the best of both worlds. We get a really, really strong infrastructure, and then this is -- how do you create agility and speed relative to that infrastructure. I think we both bring really, really good strengths.

And every day we're at this, you can just see more opportunities in that regard.

John McDonald -- Autonomous Research -- Analyst

Got it. If I can just sneak in one more. If we think about SunTrust Robinson Humphrey, Bill, I guess, near term, what's your outlook for the second half of the year in the capital markets environment? And then looking out to Truist, is that an opportunity to cross-sell into BB&T where those folks might not have seen that kind of exposure before?

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. I think the second half of the year will be better than the first half of the year based on everything I see right now, momentum and pipelines and general business focus and places where we've invested. And absolutely, it will be one of the really tremendous opportunities with Truist. And those plans are under way.

Those discussions are going on. We're creating infrastructure and planning and on how we'll make that happen. The BB&T associates are really excited about expanding their capacity and capabilities, and the SunTrust teammates are really excited about working together and creating an incredible momentum and incredible opportunity for clients of both companies. So I think it's actually one of the top things that we'll be focused on.

John McDonald -- Autonomous Research -- Analyst

OK. Thanks.

Operator

And we have a question from the line of Ken Usdin with Jefferies. Please go ahead.

Ken Usdin -- Jefferies -- Analyst

Hey. Thanks, guys. Just I had one follow-up on the commercial real estate business. BB&T has been kind of calling their business down.

It's been one of your best growth areas in the last year, so -- albeit from a very low base. And then also, this quarter, we saw what was, I think, maybe a record or one of the best CRE income fee lines. How are you guys just thinking about continuing to push on that growth and what it might look like on the CRE side when you get inside the combined company?

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. I think, actually, there's a lot of alignment. The -- if you sort of look at the places, so -- where BB&T is down or the same areas that we're down, construction would be an example. So that sort of front-end part.

We don't view the world sort of any differently about where things are going. We strategically build capacity for bridge lending related to agency; products, permanent loans for stabilized properties, credit secured by multi-diversified pools. So we have a strategy that's related to that. I don't think that's any indication that we have a different view on real estate and CRE.

I should just view it as an opportunity to come together and create more capacity in that area. And then on the fee side, that's just strategies that we've had in structured real estate, and I would think those will be strategies that will continue in Truist. And matter of fact, I think we'll have more opportunity in that side, on the fee side. So I don't view it as a difference.

It's just another example of the complementary businesses that we're bringing together with SunTrust and BB&T.

Ken Usdin -- Jefferies -- Analyst

OK. Understood. Thank you.

Bill Rogers -- Chairman and Chief Executive Officer

Yeah. Thanks.

Ankur Vyas -- Investor Relations

David, it looks like there are no more questions in the queue. So this concludes our call. Thank you to everyone for joining us today. If you have any further questions, please feel free to contact the IR department.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Ankur Vyas -- Investor Relations

Bill Rogers -- Chairman and Chief Executive Officer

Allison Dukes -- Chief Financial Officer

John McDonald -- Autonomous Research -- Analyst

Ken Usdin -- Jefferies -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

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