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SunTrust sees NIM declining up to 5 basis points in Q4; Truist deal on track

SunTrust Banks Inc. executives said they expect the bank's net interest margin to remain under pressure in the fourth quarter.

During the bank's Oct. 17 third-quarter earnings call, management said they expect NIM to decline an additional 2 basis points to 5 basis points in the fourth quarter after falling 10 basis points in the third quarter. On the bank's pending merger with BB&T Corp., executives said the transaction was proceeding as planned and expressed confidence that it would close during the fourth quarter.

CFO Allison Dukes said the bank missed its NIM guidance for the third quarter due to greater-than-anticipated declines in short-term and long-term rates in July. She said the bank expects deposit costs to "turn the corner" and start declining in the fourth quarter but that margin would still remain under pressure despite lower funding costs. Dukes said a 2-basis-point decline in NIM would be the scenario for a 25% deposit beta on the Fed's rate cut while zero beta represents the high end of a 5-basis-point decline. The guidance assumes the Fed's rate cut in September would be the last one of the year.

"If we were to get another rate cut in October, then there is probably an additional 3 [basis points] to 4 basis points of pressure on our net interest margin," Dukes said.

Asked about the potential impact of a new accounting standard, the current expected credit loss model, Dukes said the bank would not disclose the current expected credit loss model impact on a stand-alone basis since the deal with BB&T should close before adoption on Jan. 1, 2020. She said the two banks have been conducting parallel runs for a couple of quarters now.

CEO William Rogers Jr. also said he was confident the BB&T merger would close in the fourth quarter. He said he expects the previously issued guidance of $1.6 billion in net merger-related costs to be accurate.

"We remain confident in the $1.6 billion. I think every time we peel back the onion, we remain more confident. But the elements of that are changing. It might be a certain more percent of something than we thought or certain lesser percent of something," Rogers said. "The positives are offsetting the negatives in terms of change, so that creates our confidence."