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SunTrust expecting $10M to $15M of merger-related costs in Q3

SunTrust Banks Inc. is expecting its third-quarter noninterest expense to include total merger-related costs of approximately $10 million to $15 million, on a stand-alone basis.

For the second quarter, the company recorded $8 million of costs related to its proposed merger of equals with BB&T Corp. The transaction is anticipated to close late in the third quarter or in the fourth quarter.

SunTrust's net interest margin is expected to decline by 7 to 9 basis points in the third quarter compared to the second quarter, when the company recorded NIM of 3.16%. SunTrust projects a decline given its expectation that the federal funds rate reduction in July will disproportionately cut earning assets yields relative to rates paid on interest-bearing liabilities. The projected NIM compression is expected to result in a zero to 1% sequential decrease in net interest income for the third quarter, according to SunTrust's latest 10-Q filing.

Effective tax rate for the third quarter is expected to be between 17% and 18%, absent unusual items.

On its asset quality metrics, the company sees a ratio of net charge-offs to total average loans held for investment of between 25 and 30 basis points for the third quarter. Additionally, it expects the allowance for loan and lease losses to period-end loans held for investment ratio to remain relatively stable, which would result in a provision for loan losses that exceeds net charge-offs, given loan growth.

SunTrust expects to raise its quarterly common stock dividend by 12% to 56 cents per share in the third quarter. The dividend increase, which is subject to board approval, is included in its 2019 internal capital plan.

The company's board risk committee approved the capital plan in March. In April, SunTrust submitted certain required schedules to the Federal Reserve to support the capital plan.