SunTrust Banks Inc. will cut 99 branches by the end of June, executives said Jan. 20, as it continues to prioritize achieving a lower efficiency ratio.
The branch-cut initiative was first announced in December 2016, when the company said it planned to reduce the size of its branch network by approximately 10% over the next two years. During the company's fourth-quarter earnings call, management said it now plans to accelerate the process, and the first 7% will be reduced June 30. Eight new branches, however, will be opened. Gillani said the number is notable, given that over the past five years, the company has cut the size of its branch network by 17%.
"These savings will fund key investments in talent and technology for our clients," said Aleem Gillani, corporate executive vice president and CFO.
SunTrust Banks reported fourth-quarter 2016 net income available to common shareholders of $448 million, or 90 cents per share. In comparison, it was $467 million, or 91 cents per share, a year ago.
The company's tangible efficiency ratio for the quarter was 63.1%, a 65-basis-point improvement from 2015, which Gillani said was the best indicator of the company's success. By 2019, management said the number should drop below 60%. Gillani said cutting branches and improving technology will continue to drive improvement. He added that the branch system will "continue to play a very important role in our delivery model."
The company experienced improved net interest margin for during the fourth quarter of 2016, up 4 basis points from the third quarter to 3.00%. At the same time, expenses grew 8% year over year, which Gillani said could be attributed to "the investments we're making in driving growth, our improved business performance, investments we continue to make in technology, and lastly, increased regulatory and compliance costs."
"Big picture, our philosophy is not to avoid expense growth if those investments can generate positive returns, either from revenue growth or future expense reductions," he added. "For this reason, we believe the metric that is most representative of our discipline and focus on smart growth is not our absolute dollar expense level but rather our full year tangible efficiency ratio."
Non-interest income dipped 2% from the year-ago period, a result of lower mortgage-related income due to "seasonal declines and market conditions," management said. Capital market revenue also declined from the third quarter, though it was up 23% year over year. The company also had a higher provision for credit losses, up $50 million from a year ago, attributed to higher net charge-offs and increased loan growth.