Truist Financial Corp (TFC) 2014 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the BB&T Corporation fourth-quarter 2014 earnings conference.

(Operator Instructions)

As a reminder, this event is being recorded.

It is now my pleasure to introduce your host, Alan Greer of Investor Relations for BB&T Corporation.

Thank you, Kim, and good morning, everyone.

Thanks to all of our listeners for joining us today.

We have with us Kelly King, our Chairman and Chief Executive Officer; and Daryl Bible, our Chief Financial Officer, who will review the results for the fourth quarter of 2014.

We also have other members of our Executive Management Team who are with us to participate in the Q&A session.

Chris Henson, our Chief Operating Officer; Ricky Brown, the President of Community Banking; and Clarke Starnes, our Chief Risk Officer.

We will be referencing a slide presentation during our comments today.

A copy of the presentation, as well as our earnings release and supplemental financial information, are available on the BB&T website.

Before we begin, let me remind you that BB&T does not provide public earnings predictions or forecasts.

However, there may be statements made during the course of this call that express Management's intentions, beliefs, or expectations.

BB&T's actual results may differ materially from those contemplated by these forward-looking statements.

I refer you to the forward-looking statement warnings in our presentation and in our SEC filings.

In addition, please note that our presentation does include certain non-GAAP disclosures.

Please refer to page 2 and the appendix of our presentation for the appropriate reconciliations to GAAP.

Now, I'll turn it over to Kelly.

Thanks, Alan, and good morning, everybody.

Thanks for your interest in our Company.

We really appreciate you joining our call.

Overall, I'd say we had a very strong fourth quarter, frankly, with almost every area being positive.

Solid loan growth strong, noninterest -- deposit growth, really good fee income, very effective expense control, and frankly, our overall diversification strategy is really kicking in and really making a difference.

We had record earnings for the full year of 2014 and for the fourth quarter.

Net income for the year was $2 billion, up 28% over 2013.

Now remember, in 2013, we could have a significant tax adjustment.

Fourth-quarter earnings totaled $557 million, up 3.7% versus fourth quarter.

Our diluted EPS totaled $0.76 for the fourth quarter, up 1.3%.

Diluted EPS was $2.75 for the year versus $2.19, which was up 25.6%.

A very strong ROA at 1.3% for the quarter, so we felt really good about that.

Revenue, I was pleased with, was $2.4 billion, up 9.2% versus the third quarter.

The revenue increase was really due to higher mortgage banking income, seasonally strong insurance, a record quarter for investment banking and brokerage.

Very pleased that our fee income ratio was a record 45.8%.

In terms of lending, our average loans, excluding residential mortgage, grew 3.2% versus the third quarter.

That growth was led by C&I, CRE, direct retail, and other lending.

I'll have a few more comments about that in just a minute.

We did announce an agreement to acquire Susquehanna Bancshares, as you probably know.

We're very excited about this.

It's a significant merger, $18.6 billion in assets, $13.6 billion in deposits for 245 retail branches.

I've had the opportunity over the last several weeks to visit a lot of their branches, visit a lot of the clients, a lot of their community leaders.

I'll tell you, it's a really great company, strong culture, strong community focus.

Looks just like BB&T.

To be honest, I feel a lot better about the acquisition today than when we announced in November, and I felt really good then.

This is a really good company, and it's going to work out to be a really, really important part of our franchise.

Also, the Bank of Kentucky is proceeding very, very well.

We're going to really enjoy that opportunity in northern Kentucky and Cincinnati.

Great opportunity for us.

Also, the second group of Citi branches are moving right along in terms of the approval process.

I would point out that at this point, we anticipate no problems in terms of the approvals.

There are certainly no guarantees in this world, but everything is tracking along very normally, and we anticipate no difficulties in that area.

With regard to the expenses, just point out that our adjusted noninterest expenses $1.38 billion, down 12.8% versus the third quarter.

Our efficiency ratio was 56.7%.

I'll have to tell you, I was traveling, and then when the numbers were coming in, Daryl sent me an email and said we would have [56% handle] on our efficiency ratio, and I just wrote him back and said God is good.

As you all know, we were working really, really hard to get a 56% handle, and we did.

So ex the unusual items, we were below our $1.4 billion target, which we had indicated we thought we could do.

I'm really pleased about where we are with regard to expense focus.

We have a really healthy and intense focus on expenses.

Getting much better at distinguishing between what I call routine expenses, which in today's environment, you really have to manage very intensely, and expense investments, which support improved risk management and revenue growth.

So we can talk about more of that in the Q&A, but I just would say that we are really, really maturing into an excellent expense management Company.

That hadn't always been our strong suit, to be honest, but we are really, really getting to be very good about that today.

If you're following along on the slides, look at slide 4. I just wanted to emphasize a couple of special items for the quarter.

We did have a mortgage reserve adjustment which we had mentioned earlier in the quarter.

That settled down at $27 million pre-tax, so it was a $0.02 negative impact to EPS.

We did have a franchise tax benefit adjustment, which was a positive $15 million, which was up a $0.01.

We did have an allowance release related to a loan sale.

Recall, we sold about $140 million of mostly nonperforming loans, which generated a pre-tax $24 million increase or gain, which was a positive $0.02, and then we did have some regular merger-related and restructuring charges, which were $18 million pre-tax and a negative $0.02 with regard to operating type of EPS.

If you put all that together, it washes out with a net of $0.01 negative to GAAP.

In other words, GAAP would be $0.01 lower than what we would consider to be ongoing types of earnings.

If you look at page 5, I want to spend a minute or two with you with regard to a little color on loans.

In the loan growth area, we feel really good about our performance, particularly given the market conditions.

It's a relatively slow economy out there still.

It's growing 2.5% to 3%, which is okay, better than a few years ago.

They're not robust.

Competition still tough.

But we remain where we've been consistently through the whole cycle, focused on long-term profitable loan growth with good risk-adjusted returns.

We just not going to be changing quarter to quarter.

You can probably listen to these calls going back over several years, and you hear me and Clarke say the same thing.

That's what you're going to continue to hear.

And we're going to make our overall loan growth improvements through strategies and diversification, versus changes in terms of underwriting, which to some degree is going on in the marketplace.

So if you look in some of the components, very pleased.

Our C&I growth was 4.7%.

That's been largely in large corporate, mortgage warehouse.

Mostly larger participations, which, of course, are pretty competitive and pretty thinly priced but still improving their for us.

CRE income producing was 3.2%.

CRE construction, which we've been really forcing, pushing to try to improve, was up 15.2%, and I'm pleased.

That was very broad based.

Single-family vertical construction is beginning to move after being down, flat for a long time.

Industrial, hospitality, retail really good.

Multifamily was flat, which I think is probably an indication that the market is slowing a little bit in that area, which is good.

It was getting a bit too heated.

So if you look at our overall commercial, it's 5% for the quarter.

Direct Retail is strong at 8.7%, and frankly, our momentum there is really, really good, led by HELOC and all those.

We're adding some other product focus areas in there.

Rick and his Team have done a fantastic job in developing some real strategies.

We feel better about our retail execution in our branches than we've felt in 10 years.

So, that's going really, really well.

Sales Finance is down 2.5%, and that's just strictly seasonal.

You'll notice that Residential Mortgage is down 11.8% as we telegraphed before.

We made a decision early in 2014, second quarter, to start selling, basically, all of our conforming loan production, and we had the impact of two mortgage sales.

So basically, mortgage activity is down about $1 billion for the year.

So that's a pretty big change.

It strategically exactly where we want to be, and we feel good about that, but it does impact the total numbers, and you just need to take that into account.

So if you look at our total growth, ex the covered, of course, which we're running off, I try to look at how we ought to think about core run rate loan growth.

And so if you take ex mortgage, ex covered, and then if you simply take out the Sales Finance and AFCO, CAFO, which are most seasonally affected in the fourth quarter categories, we would be growing about 6.2%.

So feel really good about that level of core growth.

Obviously, the total growth matters in terms of the income statement, but the core growth is what matters in terms of going forward and how we think about future earnings opportunity.

So I just wanted to point out that in our portfolio, there's a lot of questions today about oil and gas.

We have a $1.4 billion oil and gas portfolio.

I would point out that 78% of that is upstream, 89% of it is reserve based, 17% is midstream, and only 5% oilfield services.

We view that the highest risk part of this businesses is in oilfield services, so we are in the least risky part of the business.

We're lending on proven reserves.

We've stress tested our portfolio all the way down to $40 and have little problems, even at $40.

So we just don't think oil and gas is an issue for us, frankly, relative to our total portfolio.

We do expect loan growth in the first quarter to be 5% to 7%, excluding Mortgage, and frankly, that's because all of our key strategies are working.

Corporate is up 23% this quarter, so that's really got legs and has a good bit more potential as we go forward over the next two or three years.

CRE is coming back, up 5.6%, and that has strong legs.

Retail, as I indicated, is 8% and gaining momentum.

Wealth is really, really strong, being driven by a lot of support out of the community bank.

Our Specializing businesses are going very, very well.

We do have seasonality there, but aside from seasonality, they are just doing really, really well across the board.

Plus add to that, in terms of our diversification strategies, our Insurance business is just doing fantastic, as Daryl will cover it here in just a little bit.

Overall, I feel really good about our loan execution, particularly given the market.

If the market gets better, then we'll get better.

If the rates go up, we'll get better spreads.

That will be good.

But for the time being, we are assuming that the year is going to be relatively challenging the first half.

Probably get a little better in the second half.

We think the Fed will raise rates about middle of the year, notwithstanding what's going on globally.

And we think there'll be some positive kick in oil prices pretty soon.

So we are thinking as we head into the second half of the year, that there'll be some upward pressure on interest rates, and that will serve us and the industry well.

Even if that does not happen, we're hunkered down and assuming that it will be a relatively tough year, and we are focusing on execution on our diversification strategies, and they are working.

If you look at page 6, just a brief comment.

The positive growth is continuing to work really, really well.

Noninterest bearing DDA is up 10.7%.

Some good category performance is personal, business, and public funds DDA growth was 11.8%, 12.3%, and 16%, respectively, versus the fourth quarter of 2013, so we feel good about that.

Would point out that are noninterest bearing deposit mix is up to 30% from 28.1%, and I think about five years ago it was about 15%.

So we've made dramatic improvement in that area over the last several years.

Again, I just point that out to illustrate that our diversification strategies are working on the asset side and on the liability side.

Importantly, our cost of total deposits was 0.25% in the fourth, versus 0.28% in the earlier period, and so we'll be continuing to bring our cost down, which we feel good about.

So that's a little color with regard to loans and deposits.

Let me turn it to Daryl now to give you some color on some other key areas.

Thank you, Kelly, and good morning everyone.

I'm going to talk about credit quality, net interest margin, fee income, noninterest expense, capital, and our segment results.

Continuing on slide 7. We are pleased to report a very strong fourth quarter.

This was partly driven by the improvement we saw in credit quality.

Net charge-offs were better than expected, coming in at 39 basis points, down 18%.

Excluding regional acceptance, charge-offs were 21 basis points.

Loans 30 to 89 and 90-plus days past due decreased, mostly due to loans acquired from the FDIC that were performing well.

By the way, the commercial loss share agreement expired last quarter, so we don't refer to them as covered loans anymore.

However, we continue to have $654 million of mortgages covered under a consumer loss share agreement for the next five years.

We expect net charge-offs to remain between 40 and 45 basis points next quarter, assuming no material decline in the economy.

NPAs declined 16.7% versus third quarter, primarily due to residential mortgage loan sale and a decrease in commercial NPLs of 10.1%.

NPAs as a percentage of total assets remain at the lowest levels since 2007, at 42 basis points.

We completed our second loan sale this quarter, selling $140 million of mostly nonperforming mortgage loans.

We received excellent pricing on the transaction.

This sale will also improve servicing efficiency going forward.

Turning to slide 8. Our allowance coverage remains very strong, increasing to 3.2 times, from 2.8 times last quarter.

Let me highlight our core provision since we had some noise this quarter.

We recorded provision of $84 million, excluding loans acquired from the FDIC, and the provision was reduced by a pre-tax $24 million from the loan sale.

Our core provision was $108 million, compared to charge-offs of $102 million, a modest build.

Going forward, we continue to anticipate no reserve releases.

Continuing on slide 9. Net interest margin was 3.36% this quarter, down 2 basis points, a bit better than our expectations.

Core margin was 3.2%, stable compared to last quarter.

The small decline in GAAP margin resulted from lower loan balances and lower yields on new loans, offset by stronger interest recoveries, lower funding costs, and a change in funding mix.

Looking at next quarter, we expect GAAP margin to decline in the mid single digits, given that rates have fallen, plus continued runoff of loans acquired from the FDIC.

Core margin should remained fairly stable in light of our ability to offset lower new loan yields with improved funding mix.

We expect net interest income to be down a bit due to margin decline and two fewer days.

We remain slightly asset sensitive and continue to be in a good position to benefit when interest rates start to rise.

Turning to slide 10.

We had a really strong quarter from our fee income producing businesses.

Our fee income ratio improved to a record 45.8% for the quarter.

Total fee income exceeded $1 billion, a 29% annualized increase compared with last quarter.

This performance was led by insurance, up $24 million, primarily due to seasonal strength and property and casualty commissions.

In addition, mortgage banking increased $21 million, driven by the revaluation of MSR, higher gain on sale spreads, and stronger commercial mortgage volume.

BB&T Capital Markets had a record quarter, led by both equity and fixed income businesses, resulting from a $17 million increase in investment banking and brokerage fees and commissions.

Turning to slide 11.

Our adjusted noninterest expense totaled $1.38 billion for the quarter, down 13% compared with adjusted expenses from last quarter.

This excludes relevant items that Kelly discussed on page 4 of our presentation.

Expenses benefited this quarter from lower insurance related costs, lower FTEs, and a decrease in IT expenses.

Combined with solid growth in revenues, we achieved our goal of efficiency ratio of 56.7% for the quarter.

Looking at taxes, our effective tax rate was 27.9%, and should increase to about 30% in the first quarter.

This increase will be driven by the adoption of new tax credit accounting in the first quarter, which will show higher noninterest income and income taxes.

Looking forward, the first quarter is seasonally challenging, driven by two fewer days, higher fringe costs, and higher pension costs due to lower interest rates.

Turning to slide 12.

Capital ratios remained very strong, with Tier 1 common at 10.6% and Tier 1 at 12.4%.

Our estimated Basel III common equity Tier 1 ratio was strong at 10.3%.

Capital ratios were affected by the expiration of the commercial loss share agreement, which increased the bank's risk-weighted assets.

Looking at liquidity, our LCR was very strong at 130%, substantially above the minimum requirement of 90% by 2016.

Our liquid asset buffer at the end of the quarter was very healthy at 13.6%.

Looking briefly at our segments, on slide 13, the Community Bank had a very good quarter, with segment net income up 10% compared with last quarter, largely due to lower credit and personnel costs.

On slide 14, the Mortgage segment performed better versus like and linked quarters, driven by improved gain on sale margins, better MSR performance, and lower provision due to loan sales.

On slide 15, Dealer Financial Services had a decline in segment income due to higher provision expenses, driven by seasonally higher net charge-offs and regional acceptance.

On slide 16, Specialized Lending was down versus linked quarter, driven by seasonality in Sheffield and premium finance.

On slide 17, Insurance had a strong quarter due to strong insurance commissions at Crump Life and McGriff, Seibels & Williams, plus improved operating margins.

On slide 18, Financial Services segment net income was up, driven by BB&T Capital Partners and investment banking.

In summary, we've had a really strong quarter, driven by credit quality, fee income, and lower expenses.

We continue to make investments in systems and processes, which will pay off in the long run.

Now, let me turn it back over to Kelly for closing remarks and Q&A.

Thanks, Daryl.

Excuse me.

As you heard, a really was an excellent quarter.

Solid loan growth, very strong fee income, very pleased about our expense control focus.

All of our key strategies are working.

We are very excited about our merger.

To be honest, relative to the market, I feel really good about our future performance and look forward to discussing that with you as we go forward.

I'll now turn it back to Alan for Q&A.

Thank you, Kelly.

At this time, we'll begin our Q&A session.

Kim, if you would come back on and explain how listeners may participate in the session.

(Operator Instructions)

John McDonald of Sanford Bernstein.

I was wondering about the efficiency ratio, Daryl and Kelly.

Do you have a target for this year?

And how we're thinking about the revenue-to-expense relationship for 2015?

I know you said the first quarter, Daryl, you've got some seasonal pressure on the efficiency ratio.

How are you thinking about it in terms of goals for the full year?

John, I want to give you -- I appreciate that as a first question because I want to address that philosophically.

To be honest, last year, we spent a lot of time and focus on the efficiency ratio because we had the unusual situation where our expenses had popped up at the end of 2013 and there was a lot of concern that our efficiency ratios were go on up, 59%, 60%, whatever.

We knew that was not going to happen.

So we set a target of in the 56% range for the year, and we ended up making it.

But as you know, it was a little up and down, and this is, as you just pointed out, it's a tricky ratio because you can manage expenses more carefully than you can add revenues, and revenues vary a lot.

That impact from a denominated point of view really makes a difference.

We are not going to set an efficiency ratio for this year because I just don't want to spend that much energy worrying about exactly whether it's 56% or 57% 58.1%.

There's just too much energy on that.

What I would say to you, having said that, is our intensity focus on expenses will remain.

To the extent that revenues grow more rapidly, and that upward-downward pressure on efficiency ratio to the extent that it does it, that puts upward pressure on it.

What we are going to be focused on his absolute level of expenses.

We think expenses this year could be roughly flat.

We've got a little challenge covering that $72 million in pension expense, but we're going to target shooting to try to cover that.

So that would argue that we would have a relatively attractive efficiency ratio.

Long term, we still have a target -- I will say that -- in the 55% range.

I don't think this year is going to be at that level, but certainly better than the 59%, 60% level.

Probably in the middle area, but I'm not going to give a particular number.

Okay.

And just a quick follow-up to that.

The other side of the relationship, just in terms -- on the revenue side, what are your expectations for the ability to grow net interest income this year?

And, Daryl, that was helpful on the first-quarter outlook for the margin.

How are you thinking about margin for the full year?

John, if you look at net interest income, rates have fallen in the last three to four weeks.

I would tell you that net interest income, we're planning for it to be up slightly on a year-over-year basis.

A lot of it is really determined by what happens by the Fed.

The Fed impact will impact us more than what we're seeing on the long end of the curve.

As Kelly said, we are still expecting the Fed to increase middle of the year, and if the Fed, with their announcement in March, takes the word patience out, you are going to see LIBOR rates start to increase in the second quarter, which are -- you're going to see that starting to flow into net interest income in the second quarter by LIBOR rates increasing.

As far as margin for the next quarter, we expect it to be down about 3 to 5 basis points, a couple of basis points on purchase accounting, maybe 1 or 2 basis points on core.

Thereafter, what we think are relatively stable margin, maybe margin actually going up a little bit for quarters two, three, and four.

Okay.

Great.

Thanks.

Betsy Graseck of Morgan Stanley.

Clarification question, just all the guidance is based on BB&T today, not including the acquisitions?

Correct.

Okay.

Can we talk a little bit about how you're thinking about how the acquisitions will impact big picture?

If you don't want to get too much more detailed on that, and how you're expecting it's likely to drive the overall Company as they get integrated?

The first acquisition will be Citi, and hopefully that will close at the end of this quarter.

That acquisition will basically increase our core deposits.

Really won't have an on the size of the Company, and we're just going to pay off national market purchases from that perspective.

But we'll add to the run rate because their the cost of funds is actually lower than our cost of funds.

That should start to help.

The Bank of Kentucky, we plan for to that close in the second quarter.

That will be a good transaction.

On a size basis, it's a couple of billion dollars, but you're start to see a little of bit of impact positive there just because our earning assets, balance sheet growth, a couple billion dollars.

They have a lot of good momentum going on there, good market in greater Cincinnati, so that should actually be a really strong transaction over time.

And then Susquehanna, we're expecting that to close sometime in the third quarter, and as that closes in the third quarter, you're going to see a nice lift in net interest income, fee income from that acquisition, and then expenses will start to fade away over the next year or so.

I don't want to get any more definitive than that, but that's kind of the timing that we're looking at.

And so then the improved funding mix, Daryl, that you talked about in the prepared remarks, is that in part a function of Citi closing?

Or what else is there that you're thinking about?

If you just look at what's happened, what Kelly talked about it early in our remarks, we are really growing our core deposits, both DDA and our non-maturity deposits, and it's just outpacing all of our other funding.

What Kelly said was exactly right.

We've doubled our percentage of DDA in the last five years funding our Company, and we still expect to have to (inaudible) momentum there.

All of the investments that we've made in wealth and corporate banking is really paying dividends.

Our Company is really becoming advantaged from a funding perspective.

And Betsy, I would add that depending on how it goes, my personal prediction is that, as I said earlier, I think rates will start rising as the Fed in June, and as Daryl alluded to, LIBOR going up in advance of that.

And then I think you're going to see institutions lagging in terms of deposit cost increase going up just because of the narrow spreads we're are already operating under.

If all that happens, then that will bode well for net interest margins as we head through the year.

Sure.

Got it.

Okay.

Thank you.

Gerard Cassidy of RBC.

Kelly, when we look at your ROA this quarter, it came in at a strong 130 basis points.

When you go back to the pre-recession periods, you guys regularly reported 140, 150.

I think one year, even 170-plus basis points return on assets.

I recognize the efficiency ratios are higher today than where you were back then.

But when you look out over the next couple of years, what do you think BB&T could get to on an ROA basis?

What's something that you think comfortably you guys can report in terms of profitability in a normal interest-rate environment?

We've spent a lot of time thinking about that, Gerard.

Obviously, as you well know, the ROA depends a lot on what your level of equity is.

We think, given the projected levels of equity that we've talked about, that ROAs will be in a range of 130 to 150.

That will probably kick out ROEs of 13 to 15.

I think that's the way it will go.

Depends a little bit how the mix works out in terms of equity levels in any given short-term period of time.

So I think you get back to where we were on ROAs, but that's because of relative stronger equity.

It's gong to be a little challenging to get back to the kind of ROEs we had because we've just got a lot more equity.

Now, that argues well for multiples in my view with regard to the stock because you've got a less risky and more conservative and more resilient type of forward-looking earnings stream.

But I think for us and for the industry, you think about good ROAs, more like the old days that we remember so fondly, and ROEs being somewhat less.

But still, 13 to 15 with a low-risk Company relative to the other alternative investments, I think is pretty attractive.

Great.

No thank you.

And Daryl, you mentioned your LCR ratio was about 130% in the quarter.

Obviously, well above where it needs to be.

What do you guys think you'll manage to on that ratio?

How much lower will it go, if it will go lower, and when do you think you'll get there?

We're still learning about the LCR ratio.

Our daily reporting starts to go live later this quarter, and we're just going to try to see how volatile it is.

Our best guess is right now that we want to manage about 20 point over what our threshold is.

So we have to be at 90 by the start of next year and then 100 following year after that.

So long term, will should be in the 120 range, give or take.

We actually are continuing to buy Tier 2 securities.

It's just our funding mix continues to improve, which is helping from a liquidity perspective.

That's offsetting that.

We've shifted away from our Tier 1 securities and are buying more of your Fannie and Freddie now, but it's just that our funding mix is also moving in a positive direction for us.

That's why you didn't see it really move a whole lot this quarter.

Thank you.

Ken Usdin of Jefferies.

Just one follow-up on the expense side, Kelly.

I heard your general context of trying to keep expenses flattish this year.

Can you just clarify, are you talking about trying to manage that on an operating basis, on the way you would ex those couple of items you had mid year, and does that also contemplate the pension up increase and also the runoff of the FDIC add back?

All of Kelly's comments really incorporated all the pension impact.

We were talking about a flattish noninterest expense number on a GAAP basis.

If you back out some of the two large items that we had in 2014, specifically the FHA charge and then the Federal Home Loan Bank unwind, we're probably up maybe 2% at most on a year-over-year basis.

Still able to be a little bit under with the revenue growth that were forecasting.

But that doesn't take away from that.

We're still talking about flattish this year.

They're just making their clarifying point that if you adjust to a more normalized level 2013, we would have (inaudible).

But what I am trying to focus on, Ken, is flattish expenses for this year.

In terms of the day-to-day expense management, all you can really do is focus on what's happening in terms of the absolute level of expenses.

If we can do that, even though it's an adjusted 2% increase over the adjusted lower level of 2013, I'll feel really, really good about that for 2014.

Understood.

And my follow-up is just can you talk about a couple of the bigger fee categories and what your outlook is, notably insurance and investment banking?

Let me let Chris give you some color and that because it's a very positive story.

I think insurance, we finished this year, year-over-year, up about 8% or so, and I think we do have, at the end of the year, pricing is beginning to -- it's really flattened out in the last quarter.

You'll see pricing down a little, but you should see, as the economy continues to improve, a bounce in exposures and just new business.

So we would expect to probably be up in the 6% or so range, I would say, for next year.

In terms of investment banking, I'd say in the 5% to 6% range as well.

We had really good equity activity at the end, and we see M&A pretty active right now.

So I think we have good continued opportunities as we look forward.

Okay.

Got it.

Thanks.

Erika Najarian of Bank of America.

Some of the investors which whom I've spoken recently have a less optimistic view on the trajectory of rates than you all do, and I do, quite frankly.

So I guess the question is, is that given how stable the core margin has been and is predicted to be, can you grow core NII in 2015 even if the Fed doesn't move this year?

When you look at interest rates, Erika, we're -- about half of our assets are floating rate and the other half is fixed rate.

The fixed-rate portion of our assets for the most part reprice off of the yield curve five years and in.

So I know a lot of people focus on the 10-year, but the 10-year really just impacts more of the mortgage market and a little bit of prepayments from that perspective.

When we ran our models, we basically used current rates and what was in the forward curve and all that.

I will say that net interest income will be challenging to grow.

But I still think, depending on how we grow our loans and our funding mix continues to improve, I think we still have a good chance of actually growing NII a little bit.

Got it.

The second follow-up question is, thank you for the comment on charge-offs for next quarter.

I was just wondering, as you think about an improving US economy, is 40 to 45 basis points a good bogey for the rest of the year for BB&T?

Erica, this is Clarke.

I think it is.

Keep in mind Daryl's comments.

We do have a relatively large contribution of losses from our non-prime auto business, which is very well run, but it's producing at core level losses.

So we're not going to go dramatically lower.

So I think in that 40, 45 basis points range is probably a good number as we look forward for the year.

Got it.

Thank you.

Mike Mayo of CLSA Investment Bank.

My question relates to efficiency.

Kelly, if I could get you to commit a little bit, your efficiency ratio in 2011, 2012, was around 55%, and for the last two years, 2013 and 2014, it was around 59%, including at 59% in 2014.

So you guys at least see the efficiency ratio below that 59% given that the ratio was 57%, 56.7% in the fourth quarter, so it doesn't seem to be too big of a bar.

And related to that, when is -- you've moved to SAP.

You started to move a little bit ago, and what is your schedule for the conversion of the general ledger?

I thought that was going to be sometime in the first half of this year?

Could that help control your expenses?

Mike, I think your logical deduction around the math is reasonable.

Oh, I'm trying to do math.

Mike, you know.

You've been around the business a long time, and I just don't like to have so much attention focused on one number because obviously, there are times when your efficiency ratio going up is improving EPS and return to your shareholders.

You just want to get the market too polarized and focused on that.

That having been said, I think your logical deduction between -- we were at 55%, we got up to 59%.

Somewhere in the middle is probably a reasonable place to be.

So I think in terms of -- and Daryl can comment, but I think with regard to Project One, we feel really good about where we are on that.

We are in parallel.

Everything is balancing to the penny every day.

So it's working really, really well.

We are on fine tuning the processing times to get efficiencies.

So we're trying to decide right now, to be honest, whether or not go live in mid February or maybe mid April.

But that's not about the quality of the system.

That's just, we want to get the efficiencies of the system running.

So that, to your second point, when this system gets running and gets to be efficient, then we will A, be ratcheting down the expenses of running the parallel older system, and then over the next 12 to 18 months, we'll get the efficiencies that this system is really designed for, which is to be able to go out and extract information from across the system on a much more efficient basis.

Now, there is a lot of work to make that happen, but we know that there are a lot of system improvements and design of how we extract information today that's going to make the system much more efficient as we go forward.

Okay.

And having asked the question about the core efficiency ratio, in the end, we on the outside won't really know because can we unscramble the egg?

You have an acquisition it seems like.

Have Citi in the first quarter and Bank of Kentucky in the second, and Susquehanna in the third.

So at the end of the year, we won't really be able to unscrambled that egg.

So how can we monitor your progress on a core basis this year?

Well, we'll unscramble it for you as we go along, Mike, as best we can.

As you know, it is a scrambled egg.

But the Citi and the Bank of Kentucky won't have material impacts.

The big change will be Susquehanna, which will be on the third quarter.

We'll be able to pretty clearly identify for you then what the run rate for BB&T will be for the rest of the year, and we'll be able to be pretty clear about what the Susquehanna numbers will be.

I don't think it will be as confusing as it may appear at this point.

All right.

Thank you.

Geoffrey Elliott of Autonomous Research.

The question on the LCR.

What would that 130% look like once you cross the $250-billion asset threshold and you move from being a modified LCR bank to a full-strength LCR bank?

We're running actually both numbers right now, Geoffrey.

For us, right now, it's about 40 points.

So a 130% LCR for us, under $250 billion, once we cross over $250 billion would be 90% from that perspective.

So we're managing, we're monitoring that in case we ever do get over $250 billion in the next couple of years so we won't be surprised or caught off guard if we're actually doing the calculations and monitoring it today.

What calculations you have done on the impact of crossing the $250 billion, the LCR dipping down to 90%?

You want to run with 120, so 30 percentage points of LCR build, what does that do to your profitability?

It really depends on how you get over the $250 billion, Geoffrey, and where you are in the environment.

The acquisitions that we have this year, both Citi, the Bank of Kentucky, and Susquehanna, all should improve our LCR because of the core funding that these institutions bring to our Company and how we plan to basically put the balance sheets together.

It's hard to say today what the financial impact is.

Obviously, it won't be a positive impact, but how negative it will be, it really depends on how you get there.

As we continue to grow and our core funding continues to strengthen and get stronger, we may not have much of an impact at all.

It really depends right now.

Great.

Thanks very much.

John Pancari of Evercore ISI.

I wanted to get a little more color on your loan growth expectation for the full year of 2015.

I know you gave us the linked quarter expectation, and it does imply a good amount of acceleration.

I want to get your thoughts on what that could mean for the full-year growth on an organic basis, excluding the impact of Susquehanna.

John, this is Clarke.

We think, roughly, a total 4.5% to 6%, in that range.

That's including mortgage.

So ex mortgage, maybe more than 6% to 7% range.

Okay.

Ant then just the drivers of that.

What would you say are going to be the strongest contributors?

Should it remain C&I and large corporate like we've seen, or do you expect a steady pickup in some of the other areas, including commercial real estate?

As we talked a little bit about earlier, it will be pretty broad based, which is why I feel very confident about growth for the year.

Our large corporate is growing at a 23% growth rate.

That will continue at a very nice double-digit type of growth rate, I think, certainly for this year.

Our retail is coming on really strong at 8.7%.

That momentum will continue and maybe even build as we go through the year.

Small business has been the challenge.

But to be honest, I think that's a bright spot for BB&T as we go forward because the gas effect across Main Street America is likely to be very positive, and that will cause more economic activity in the smaller credit area, which will really work to our advantage because we have a huge market share out in that space.

When you look at overall loan growth, it's pretty diversified.

Our Specialized Lending businesses, all of that will be very, very positive, so we feel very confident.

Okay.

On new production loan yields, just trying to give some color on where you're bringing on new money at this point, either overall book or if you have the detail by C&I versus anything real estate oriented?

John, this is Clarke, again.

As far as our C&I spreads, a little pressure this quarter but relatively flat, about 178 basis points on new production on C&I on the spread basis.

Our CRE income property, 258, and then our construction development, about 340.

A little bit of pressure, but I think given where we're holding on our risk tolerances, they held up relatively well for the quarter.

Okay.

My last thing is just around energy.

Did you allocate any additional reserves over to energy, and do you have what the reserve is for the energy book as of the end of the year?

Thanks.

We don't disclose that level of segmentation, but I can tell you we have a robust overall methodology for our allowance.

And certainly, the energy segment is included in that analysis, and we do believe at this point in time, for what we know, we've allocated appropriate reserves for that book.

I will tell you, just to expand on what Kelly said, we've done very thorough sensitivity analysis on our book, down as low as $40, looking at coverage on proven producing reserves only, realizing we have other collateral and liquidity sources other than that, and we are going on a name-by-name basis.

So I feel very good about where we are.

We don't anticipate, even as we look forward to next quarter or so, any material increases in our reserves related to the energy book beyond what we've already done.

Okay.

Thank you.

(Operator Instructions) Matt Burnell of Wells Fargo Securities.

Daryl, I wanted to ask you about the loss share amounts that are included in fee income with the exit of the commercial loss share agreement.

Should we expect that number to move lower over the course of 2015?

And is that potentially a help to your total noninterest income?

Yes, Matt.

I think that's accurate.

This past quarter, we had a negative $84 million in our loss share account and fee income line item.

I would expect that to trend down, probably in the $10-million to $15-million range every quarter over 2015, probably ending around $40 million to $50 million negative.

So that should be a lift.

And if you couple that with the change in the tax credit accounting, you're really going to see really strong fee income numbers for us next quarter.

Okay.

And then just on the loan sales, you've done a couple of those.

I'm presuming the environment for those sales is a little bit better than you saw maybe earlier in 2014.

Are you planning, at this point, further mortgage sales?

And Daryl, your comment about the servicing efficiency that might occur from the loan sales, is that something that might actually be visible in the operating expenses next year?

Or is it, at this point, too relatively small to matter?

Matt, on the first point, the market is still very liquid and the pricing is very attractive.

And so we were opportunistic, felt like it was a great risk trade-off given the pricing (technical difficulty)-- To Daryl's point about the efficiency, just to give you some context, I think between the two sales, there were over 2,000 loans or so.

Those would be TDRs and nonperforming, so these are very servicing intense.

I do think, over time, you will see that weed out into some improvement in the cost structure down in our servicing operation, and that's really why we're doing it.

Okay.

Thanks very much.

Eric Wasserstrom of Guggenheim Securities.

I just wanted to follow up without asking any specific points about your CCAR submission.

Can you help us think through your stance on capital return over this CCAR cycle, given, obviously, what's going on with your acquisition activity?

Yes.

Eric, we've said pretty consistently that when we think in terms of capital deployment, we're always focused on organic growth first because that's the most efficient utilization of capital.

Dividends are a clear number two for us.

And strategic opportunities are number three, and then buybacks our number four.

So as we think about 2015, we clearly are going to be asking for an increased total payout.

We expect to ask for a modest increase in our dividend.

So you would expect to see a request in the neighborhood of 60% range.

We'd still be low compared to a lot of folks, but we are still very conservative, and we just don't want get ourselves strained at all on capital because you never know when opportunities are going to come along.

So we'll be relatively conservative, but still, that'll be a nice increase relative to 2014.

The only thing I would add to that, Eric, is that we also incorporate the acquisitions into the ask, and the acquisitions do use up capital.

So it's really the acquisitions plus the 60% total range that Kelly talked about.

Great.

Thanks.

Just to follow up on a comment from earlier, Kelly, when you referred to the benefits of some of the technology implementation that you'd done in terms of extracting information more efficiently and that kind of thing, where do we see that evidenced in the income statement?

Is it in lower technology headcount?

Where do we actually see the benefits of that?

Where you will see it -- it will be hard for you to see it, to be honest, Eric, because it's enterprise wide.

So think about it this way.

Our current systems have to go out and extract information from like 83 different places to pull together information on a monthly and quarterly basis and doing our CCAR preparations.

Today, frankly, an awful lot of that is very manually extracted.

So this system eliminates a lot of the manual extraction.

It's automatic computer-to-computer extraction of information.

And so in every line of business, you'll see less staffing requirements because all of these data have to come out on these various lines of business, our loans and deposits and other areas across the bank.

So it will be very widespread, very hard for you to see, but it'd very easy for us to see in terms of the aggregate processing cost.

And it will be, as I've said, a downward indicator with regard to overall efficiency ratio.

Good.

Thanks very much.

Kevin Barker of Compass Point.

Could you talk about the adjustment you made on the MSR, given most of your peers have been marking down their MSR significantly this quarter?

You already have a relatively low discount rate and low CPR rate compared to most when thinking about your MSR valuation.

Kevin, this is Daryl.

Every quarter, we go through and we look at our MSR valuations.

We compare it against a couple of other services and peer information.

Our MSR valuation has been trending lower than the others for the last several quarters.

It's at a point now where it's so far under that we had to rebalance it up.

And when we did that, we adjusted our prepayment models, and the prepayment model changes, basically, was the positive to the valuation.

We are still well under our survey peers.

We use a PwC survey.

We use a FDIC survey and Mountainview are the services we use.

And we're still significantly under those from an MSR servicing perspective.

Are you assuming prepay speeds below 9% at this point?

The adjustment we made to get the $11-million increase was really in the prepayment models.

But there's a lot of assumptions that go in to how you come up with the total valuation.

It's hard to say exactly which assumptions make us lower than all these other surveys because they're an average of a lot of other servicers combined together.

I think we feel very comfortable about our valuations are adequate and on the conservative side.

Okay.

And then overall mortgage banking, are you seeing this as one of your bigger opportunities in 2015?

If you look at mortgage volume, since rates have come down, our application volume is up.

It's hard to know how far this is going to play out, but it's definitely a positive bent for income.

You're seeing refis now approaching two-thirds of our business right now, which is positive spreads widening out.

So that could continue into the year.

It really depends on what happens with the longer end in the curve.

But it's definitely a positive event from a mortgage perspective.

Thank you.

One final question, Paul Miller of FBR.

On the origination side, I think you made a comment in your commentary about you're seeing good loan growth out of HELOC portfolios.

We hear from a couple of other banks that they're getting some decent growth out of HELOC portfolios, especially in some of their hardest hit states, like a Florida and Georgia.

Are you seeing the same thing?

Is that were most of that HELOC growth is coming from?

This is Ricky Brown, Paul.

We're seeing HELOC growth broadly applied across our footprint.

We've done some programs, and it's enabled us to not only get notional increases, but we're actually getting some nice fundings in those lines, as well.

And we feel really good about where were getting the growth.

As I said, it's broadly across all of our markets.

In addition, Kelly mentioned earlier, we have developed a good auto program in our branches.

We're going to introduce a very good unsecured program that allow us to get some good yields.

We're working on a boat program.

We've got our [queue-in] lending in the branches redefined, and we think that a nice uptick for 2015.

And then of course, our partnership with wealth continues to be outstanding.

Last year, we made 25,000 referrals out of our community bank into the wealth area, which is very significant both from a deposit, fee income, and loan perspective.

So we see it pretty broad-branched right now, which is good.

Can you talk about, a little bit, what's your average balances?

Are they mostly line of credits, or are they somebody adding an additional bedroom to the house?

What we're seeing, is the HELOC is obviously lines of credit.

But people are using that money.

They're using it for a variety of reasons, from building onto their homes to paying educational expenses to refinancing credit card debt, whatever it might be.

So it's a wide variety.

But these aren't huge lines.

I don't know the exact average line size, but it would be probably less than $50,000.

Okay.

Thank you vary much.

That does conclude today's question-and-answer session.

At this time, I'd like to turn the conference back over to Mr. Alan Greer for any additional or closing remarks.

Okay, thank you, Kim.

We appreciate everyone joining us today.

If you have any other questions, please don't hesitate to call Investor Relations.

Thank you, and I hope you have a good day.

That does conclude today's conference.

Thank you for joining us.