SunTrust Banks Earnings Call Insights: 2013 Outlook for Margins, Improving Efficiency
2013 Outlook for Margins
John Pancari – Evercore Partners: Wonder if you can give us more color on your – possibly your 2013 margin outlook given your securities yields and loan yields, you’re seeing some downside reinvestment risk there but relatively more resilient than we thought this quarter. So can you just give a little more color in terms of your outlook beyond the fourth quarter?
William H. Rogers, Jr. – President and CEO: Well, as you know, the big issue, obviously, is that the new loans coming on are coming on at lower going on yields as the roll-off and securities continue to pay down. We’re being very careful with the way in which we reinvest our securities book. Obviously, we’re not really getting paid given the flat yield curve that take a lot of duration risk. You saw that impact a little bit in the size of our securities book coming down a little bit this quarter. But I think what you’ll see for the whole industry as you look out if we stay in this lower for longer environment through next year, I think you’ll see the whole industry start to de-creep margins probably in the sort of a few basis points per quarter, every quarter just continuing to grind down.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.
John Pancari – Evercore Partners: So that guidance you have for the fourth quarter, is that fair to assume that that’s the pace of compression expect going through ’13? Or could that accelerate at all just as your funding costs leverage gradually abates?
William H. Rogers, Jr. – President and CEO: It may accelerate, it may decelerate too. I don’t know that it’s a consistent every quarter decline. There is some variability quarter-to-quarter. This quarter, we did receive the benefit of a number of our higher cost CDs rolling off and that’s why our margin declined only 1 basis point overall. So I think you look for some volatility with some quarters declining less and some quarters declining more. But if you look out at the trend overall, I’d look for it to be generally on the order of few basis points at quarter.
Ryan Nash – Goldman Sachs: So when you think about the expense base, now you have all of PPG in the run rate, I’m seeing a core efficiency ratio of somewhere in the mid-60s. So can you just talk a little more about how you plan on closing the gap to get below 60%? I know you highlighted that you’re just getting started and clearly it’s a big focus internally, but can you talk about some of the levers that you still have on the expense side, particularly if the revenue picture remains weak? From there, if you were to assess the driver of reaching the targeted levels, will we need to see more on the revenue side or the expense side from here to get their?
William H. Rogers, Jr. – President and CEO: So to start with, I think you’ve got it figured out. Obviously, this quarter’s efficiency ratio is a little lower. We were very clear internally that it wasn’t mission accomplished. If you think about our core expense base, say, over the last six quarters, it’s been fairly stable. So call it sort of $1.5 billion core expense base, but the revenue has gone from about $2.2 billion to about $2.4 billion. So you could say one side of the coin was we’d expect to see more expense savings at this particular juncture, but we have a couple of our businesses mortgages and mortgage in CIB has been sort of two of the examples. We’re going to invest in right now, because we see good revenue opportunities. So think about it sort of from that context, so what’s left, I mean what are the opportunities. I mean the list is pretty significant. We have a lot more to do in the consumer rationalization of our business spans and layers, incentive of efficiencies. You saw some of the charges we took for real estate, so we still have some other real estate opportunities, core process, consolidation, shared services, I mean the list is actually fairly extensive. While I said PPG was the start, I mean I meant that. I mean it really sort of got the ball rolling down the hill, I would call that maybe some of the more low-lying fruit. Now we’re going to get little higher on the tree, but there are significant opportunities. Is it more expense or is it more revenue? A lot of that will depend on where the market takes us. If refinance activity continues like we think it will in mortgage, it will be a little slower to get down about efficiency ratio. We continue to do what we’ve been able to do on the CIB side similarly it will take a little bit longer. So I think it’s – and we’ve been very clear about saying, it’s the efficiency ratio versus just expense or just revenue initiatives. I’m confident that we’re on the path. I can’t commit to the exact timeline, but I’m confident we’re on the path and if you look into our line of businesses, start looking at the efficiency improvements within those and I think they are pretty good leading indicators of where we’re going as a total company.
Ryan Nash – Goldman Sachs: Then if I can just one follow-up, as a follow-up to John’s question. When you think about – you obviously said, the NIM is coming down a couple of basis points a quarter, when you think about the trajectory for NII for 4Q and beyond. How should we think about just giving Aleem’s comments on asset yield spreads and reinvestment yields? Should we expect that NII is going to come down at a similar pace or do you think we can actually see enough growth to offset some of the compression?
Aleem Gillani – CFO: Well, I think for next I know we think about NII for the full year likely to be lower than the full year 2012. Basically, we’ve got the changes from the foregone dividend in Coca Cola and the loan sales. In Q2, recall we had a step down in loan swap income. So full year I would think of us being lower next year than this year. There are some positives and negatives there. On the positive side we are continuing to manage down our non-deposit maturity rates. Obviously in the compressed yield environment on liability, there is a decreasing opportunity there, but we do have more CDs maturing. We have about $7 billion of CDs maturing during the next five quarters, between now and the end of next year. And as those renew, they’ll renew at lower yields and against that, we’re fighting against the challenging asset yield compressed environment. As a reminder, we will have another step down as a result of swaps rolling up in Q2 next year. So year-over-year I would think of NII coming down overall, but we know we still have some levers to pull and we’re working on those.
A Closer Look: Sun Trust Earnings Cheat Sheet>>