Truist Financial Corp (TFC) 2016 Q3 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to the BB&T Corporation third-quarter 2016 earnings conference.

(Operator Instructions)

As a reminder this event is being recorded. It's now my pleasure to introduce your host, Alan Greer of Investor Relations for BB&T Corporation.

Thank you, Leann. Good morning, everyone. Thanks to all of our listeners for joining us today. With me are Kelly King, our Chairman and Chief Executive Officer, and Daryl Bible, our Chief Financial Officer, who will review the results for the third quarter and provide some thoughts for next quarter.

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; Clarke Starnes, our Chief Risk Officer; and Ricky Brown, our Community Banking President. We will be referencing a slide presentation during today's comments. A copy of the presentation, as well as our earnings release and supplemental financial information, are available on our website.

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 made differ materially from those contemplated by these forward-looking statements. Please refer to the cautionary statements regarding forward-looking information in our presentation and our SEC filings.

Please also note that our presentation includes certain non-GAAP disclosures. Please refer to page 2 and the appendix of our presentation for the appropriate reconciliations to GAAP. At this time I'll turn it over to Kelly.

Thanks, Alan. Good morning everybody, and thanks for joining our call. Overall I think we had a very strong performance quarter. We had record quarterly earnings and we did complete a few strategic agreements which were beneficial to future quarters, which I will describe. Our net income of $599 million, which is up 21.7% versus third of 2015 and 42.7% annualized versus second-quarter 2016. Our diluted EPS was $0.73, up 14% versus the third and up 42% annualized versus the second. If you adjust, which I will cover again, if you'd adjust EPS it totaled $0.76 excluding merger-related and restructuring charges on a few of the items on slide 4. Our GAAP ROA, ROE, and ROTCE were 1.15%, 8.87%, and 15.2%, which I think were very strong in this environment.

Taxable-equivalent revenues totaled $2.8 billion, up 13.1% versus third of 2015 and 3.9% versus second-quarter 2016 on an annualized basis. I'm very pleased that our net interest margin declined only 2 basis points to 3.39% and our core net interest margin increased to 3.17%. And [we still] will give you more color on that in just a little bit. Our GAAP efficiency ratio Improved to 61.7% versus 65.4% in the second-quarter 2016. Our adjusted efficiency ratio improved to 58.7% versus 59.6% in the second quarter. Importantly, noninterest expenses were $1.7 billion, a decrease of 19% versus the second quarter annualized.

Average loans and leases held for investment totaled $141.3 billion in the third quarter, which was up just slightly compared to the second quarter. We do continue to have significant runoff in our residential mortgage portfolio and prime auto, based on some very clear strategic decisions that we have made. Ex these, though, we had a respectable 2.2% annual growth, which I think is pretty good, consistent with the economic growth. And I will talk a bit more about that in a minute. NPA did continue a slight decrease to 4.9%.

We did settle a lawsuit share agreement with the FDIC. Recall that we had a loss-share agreement on that 2009 acquisition of Colonial. We incurred an $18 million charge this quarter, but it will result in future benefits with regard to earnings. We did settle a dated FHA insurance loan matter. And we made a $50 million charitable contribution, which will reduce expenses in future quarters. And as indicated, we did repurchase $160 million of outstanding shares.

Now slide 4, the selected items that are related to the merger-related restructuring charges was $43 million pretax, or $0.03 negative impact to diluted EPS. Charitable contributions was $50 million pretax, which was $0.04 dilution to EPS. On the other hand we had a settlement of the FHA insurance loan matters net of recoveries, which was a positive $73 million, or $0.05. And then the termination of the FDIC loss-share agreement, the $18 million I mentioned, was $0.01. If you net those out it was $0.03 net negative impact on EPS because of those selected items.

If you go to slide 5, a few comments with regard to loans. As I said, they were up slightly, 0.3%, but for several quarters now we have indicated to you that we have been allowing our residential mortgage portfolio to decline. That's a strategic decision because of the mix of our business, our expectations with regard to rising rates, and the spreads, frankly, in that business. So the risk-adjusted return is not at a level we would like for it to be on a marginal basis. So we're letting it run off.

And in the sales finance, in the prime portfolio, we did restructure some quarters ago to a flat program. That program transition's actually going very well. The old portfolio is running off today. But frankly the new portfolio is going off more profitable. So we feel good about that, but it does show a loan decline. So again, net adjusted 2.2%.

We did have some key very strong performances on a seasonal basis, which we'd expect from some of our specialized lending businesses. Premium finance was up 57.1% annualized, Sheffield up 21.3% annualized, Regional Acceptance up 15.5% annualized, and Revolving credit was up 9.6%. So you can see that while we are being very careful with regard to our basic gross portfolio, our specialized lending portfolios continue to do very, very well.

We, like all the others, did experience higher payoffs in our commercial area in the quarter. Frankly, a lot of good quality loans are just being refi'd out into the market because of, I think, participants' expectations that rates are going up so they're going on out and taking advantage of long-term low markets. That's not a long-term change in terms of commercial lending productivity, it is just a temporary increase in payoffs. Production and pipelines and all still looks solid.

I will remind you that we're very discipline lending. We're not doing cheap loans outside of our risk appetite because frankly when we can be growing faster, but the risk-adjusted return on equity is just unacceptable. We're getting all that the market will give us. And we're not going to try to beat the market. That's a new good debt from a long-term point of view.

On page 6 our DDA growth continues to be very strong at 14.3%. Feel really good about that. We are increasing market share in most of our markets. And we continue to hold our costs at a very low 0.3% (sic - see press release, "0.23%"). Our deposit business is doing extremely well and supporting the asset growth that we have. Let me turn it to Daryl now for some additional details and then we will have questions.

Thank you Kelly, and good morning everyone. Today I'm going to talk about credit quality, net interest margin, fee income, noninterest expense, capital, and our segment results.

Turning to slide 7. Overall we had a really good quarter with regard to credit quality. Net charge-offs totaled $130 million, up 9 basis points from last quarter. This was mostly driven by expected seasonality in our retail portfolios as well as returning to more normalized levels after a very low charge-off quarter. Loans 30 to 89 days past due increased $66 million, or 7.2%, again mostly due to seasonality in our consumer-related portfolios.

NPAs decreased 4.9% to 38 basis points. Excluding energy, NPAs have improved steadily in recent quarters. Looking ahead to the fourth quarter we expect NPAs to remain in a similar range. We also expect net charge-offs to be in a range of 35 to 45 basis points, assuming no unexpected deterioration in the economy.

Continuing on slide 8. Our energy portfolio totaled $1.3 billion, about 1% of total loans. Outstanding balances, total commitments, and non-accruals all decreased from last quarter. All nonperforming borrowers are paying as agreed. Allocated reserves increased to 11.5%. This was mostly due to the implementation of guidance from the recent shared national credit preview that was received in early October. We continue to have good quality mix with less than 10% in oil field services. Lastly, the reserve coverage for coal, a very modest portfolio, rose to 13.7%.

Turning to slide 9. Our allowance coverage ratios remain strong at 2.91 times for net charge-offs and 2 times for NPLs. The allowance-to-loan ratio was 1.06%, flat compared to last quarter. Excluding the acquired portfolio, the allowance-to-loan ratio was 1.15%. So our effective allowance coverage remains strong.

As a reminder, our acquired loans have a combined mark of about $670 million. We've recorded a provision of $148 million compared to net charge-offs of $130 million. Looking forward our provision is expected to match charge-offs plus loan growth.

Turning to slide 10. Compared to last quarter net interest margin was 3.39%, down 2 basis points. Core margin was 3.17%, up 1 basis point. The margin decrease mostly resulted from lower investment yields, which were down 15 basis points.

Looking to the fourth quarter we expected GAAP margin to decline 3 to 5 basis points driven by a reduction in benefits from purchase accounting. We expect core margin to remain essentially flat as lower rates will be offset by asset mix, funding cost and mix changes, and the possibility of a rate increase in December. Additionally we expect average earning assets to decline by approximately $1 billion next quarter due to lower security balances. Asset sensitivity increased, mostly due to growth in favorable funding sources and positive growth in shorter asset classes.

Continuing on slide 11. Noninterest income totaled $1.2 billion, up $34 million compared to last quarter. The fee-income ratio improved to 41.9%. Looking at a few of the changes in noninterest income. Insurance income decreased $55 million, mostly driven by a seasonal decline in property and casualty commissions. Mortgage banking income increased $43 million due to a net MSR valuation adjustment and higher production volumes.

Other income decreased $10 million due to a $14 million decrease in income related to assets for certain post-employment benefits. And finally we terminated our FDIC loss-share agreements associated with Colonial. As a result, $18 million of expense was recognized in the third quarter. Going forward no FDIC loss-share expense will be recognized. Looking ahead to the fourth quarter total fee income is expected to be relatively flat, as seasonally stronger insurance is expected to offset by a seasonal decline in mortgage banking income.

Turning to slide 12. We had a an excellent quarter in terms of expense management. Noninterest expenses totaled $1.7 billion, down $86 million, or 19% versus last quarter. Personnel expense decreased $33 million, driven by a $14 million decline in post-employment benefit expense and a $10 million decline in insurance incentive expense due to seasonality. Merger-related and restructuring charges decreased $49 million, largely due to lower acquisition-related charges and last quarter's restructuring charges related to real estate in the amount of $19 million.

In addition, other expense decreased $34 million, mostly due to the $73 million net benefit related to the settlement of certain FHA-insured mortgages. This was partially offset by a charitable contribution of $50 million. Going forward, excluding merger-related restructuring charges and unusual items, we expect expenses to decrease slightly in the fourth quarter.

Turning to slide 13. Capital ratios remain very healthy, with a fully phased-in common equity tier 1 of 9.9%. Our LCR was up 122%. And our liquid asset buffer was very strong at 13.6%. Finally, we will continue to with our share repurchase program in the fourth quarter, repurchasing up to $160 million in our shares.

Now let's look at our segments, beginning on slide 14. Community Bank net income totaled $338 million, an increase of $43 million from last quarter and up $78 million from third quarter of last year. Noninterest income increased $13 million, driven by higher service charges on deposits, letters of credit, and bank card fees. The majority of the growth experienced in the Community Bank was acquisition related. However, third quarter was our best commercial loan production for the year.

Turning to slide 15, Residential Mortgage Banking net income totaled $117 million, up $73 million from last quarter, driven by net MSR valuation adjustments and higher salable loan volume as well as a net recovery from the settlement at FHA-insured loan matters. Production mix was 57% purchase and 43% refi, similar to last quarter. Gain on sale margins were slightly down 3 basis points to [1.06%] versus last quarter.

Looking to slide 16. Dealer Financial Services income totaled $40 million, a decrease of $11 million compared to prior quarter. The provision for credit losses increased $18 million, mostly driven by loan growth as well as seasonally higher net charge-offs in the regional acceptance portfolio. Net charge-offs are still well within risk appetite of approximately 7%. Net charge-offs for the prime portfolio remain excellent at 19 basis points.

Turning to slide 17. Specialized Lending net income totaled $64 million, up $3 million from last quarter. This was driven mostly by loan and production growth in both Sheffield and equipment finance, as well as strong production in Grandbridge, our commercial mortgage business.

Looking at slide 18. Insurance Services net income totaled $23 million, down $21 million from last quarter. Noninterest income totaled $412 million, down $53 million, mostly driven by seasonality and commercial property and casualty insurance. Noninterest expense decreased $21 million, mostly due to lower personnel expense, operating charge-offs, and business referral expense.

Turning to slide 19. The Financial Services segment had $83 million in net income, down slightly mostly due to modest decline in corporate banking loan growth, while generating loan and deposit growth, 8.6% and 13.7% respectively compared to last quarter. Lastly the provision increase of $26 million was largely driven by risk-grade mix changes partially offset by lower loan balances.

In summary for the quarter, we achieved solid growth and revenues, continued strong credit quality, and a relatively stable net interest margin and excellent expense control. Looking forward we expect to improve outlook for loan growth, continued benign credit, and solid expense control. Now let me turn it back over to Kelly for closing remarks and Q&A.

Thanks, Daryl. So as you've heard, we believe the quarter was an overall strong performance quarter. I would point out that our mergers are working really well. Expenses are being rationalized, market acceptance in all of our new markets is very, very good. And our community bank teams are executing extremely well in expense reduction and revenue production.

Loan growth in today's market, to be honest, is just very, very challenging. Still, as Daryl indicated, we do expect our loan growth to be in the 1% to 3% range as we look forward to the fourth quarter. That's going to based on, we think, probably somewhat lower levels of pay-offs. And we keep looking at the possibilities of asset purchases from some other institutions that are rationalized in their balance sheets. But when you put it all together, we think that we will be in the 1% to 3% range.

Frankly, I expect not much of an impact on the fourth quarter, but as we head into next year I think the market is likely to get better once we get through post elections. Part of what is going on in the third quarter in terms of this kind of slowdown that everyone has talked about is there's a lot of anxiety. I saw a report a couple days ago that 60% or slightly less, but about 60% of the market is really, really anxious about the elections. I personally understand that.

So I think when all that subsides, however it goes, there will be less uncertainty and less anxiety. I think that will instill a bit more confidence. People will be a little bit more willing to invest and make acquisitions and borrow money. I think that's a bit on the positive side.

We did have several good strategic agreements that will help future earnings. We continue our systems investments. And I'll point out we did add three members to our Executive Management Team. We feel good about where we are and we at BB&T are building for the future. Now I will turning to Alan.

Thank you, Kelly. Leann, at this time if you would come back on the line and explain how our listeners may participate in the Q&A session.

Thank you.

(Operator Instructions)

Erika Najarian, Bank of America.

Morning. I just wanted to clarify the base for the expense run rate for next quarter. If I take out, of course, merger-related and restructuring charges, as well as the FHA benefit and the charitable contribution, I get to a base of $1.691 billion. Just wanted make sure that was the right base, Daryl? Also, Kelly, is it too early in the budgeting process to ask about progress from this level in 2017?

Erika, I think you're spot on, on the $1.691 billion.

It is early, as you point out, in the budgeting process. But we are being very, very intense about our expectations for next year. So I'm thinking, as we look forward for next year coming off this base for expenses to be kind of flattish. Certainly we will not see a material increase, and some opportunities for a slight decrease.

Thank you. My follow-up question, Daryl, you mentioned an LCR of 122%, and also that you are going to offset some natural margin pressure next quarter with asset remixing. Other than the $1 billion in securities roll-off for next quarter, could you give us a little bit better sense on what those remixing strategies are?

It's our normal strategies of growing our loan book in the specialized area faster than the total loan book, so you have higher growth and higher earning assets from that side. On the funding side, we continue to get really strong growth in DDA, which is a free funding source, which gives us positive. So I think we feel very confident that our core net interest margin will remain stable, even with these low rates. The GAAP margin just has pressure coming down as our purchase accounting runs off over the next couple of years.

Great. Thank you.

John McDonald, Bernstein.

Good morning. Daryl, just to follow up on that, what is your outlook in terms of NII dollars, your ability to grow all-in reported NII dollars in the fourth quarter when you think about what's happening to the balance sheet and NIM?

I would say you have the same number of days in the fourth quarter as you do in the third quarter. Net interest income dollars will be down from third quarter, mainly due to a little smaller balance sheet as we reduce our securities portfolio.

But we're really trying to optimize and get higher overall performance in the long run to set us up for 2017. We think where we want to position us, that will be more optimal in 2017. So I say dollars probably down in the $20 million to $30 million range on a linked-quarter basis.

Okay. Could you elaborate a little bit on the puts and takes for the outlook for core NIM to be flat? You mentioned a December hike. Do you assume that LIBOR will start to move up in anticipation, and you'll get some benefit in the fourth quarter from a December hike?

LIBOR, as you know, moved up with the money market change that happened this month. LIBOR will continue to probably stay at relatively high levels as we cross over year end. So that benefits us as we have a lot of loans still tied to the LIBOR rate, I think 3 times more assets than we do funding and liability sources tied to LIBOR. That should be a benefit for us.

I think we feel good. And in our forecast right now we do have an increase in December. We aren't really forecasting anything out to 2017 right now, but we do have the increase in our forecast in mid-December.

Got it. And the LIBOR sensitivity is on to one month, I assume, one-month LIBOR?

Majority of our assets are tied to one month. Our liabilities are tied more towards three months than one month, but there's a mix.

Okay. Thank you.

Matt O'Connor, Deutsche Bank.

Good morning.

Good morning.

Daryl, I was wondering if you could elaborate a bit on why you expect securities to go down in 4Q? I guess we have seen some tick up in long-term rates. So I would've thought that maybe reinvestment yields are a little more appealing now than, say, 3 to 6 months ago.

I would say if we were to buy securities now, they'd still probably -- we are very conservative in what we buy. We buy treasuries, agencies, MBS, so all high quality. The yields are still no more than 2%, probably in the high 1%s.

We just feel that from a liquidity perspective, our securities portfolio can shrink a little bit. We also feel very good that will set us up, I think, for a strong 2017. We will have an optimal opportunity to give higher performance numbers as things start to happen in 2017.

Okay. A question for Kelly: You mentioned there might be some opportunities for asset purchases from other banks. I was wondering if you could elaborate on that.

So, Matt, I think what you are seeing is that everybody in this low environment are taking a hard look at the structure of their balance sheets and their ability to accumulate capital. So, like us, I think everybody's looking at risk-adjusted return of asset structures.

If an institution has a relatively low capital base and not much growth opportunity, one of the best ways for them to improve their return on equity is to reduce certain assets. So if they have a particular asset that maybe they are high in their mix in terms of their appetite with regard to that, they may choose to exit. We've seen some of that. It's not a big deal out there, Matt, to be honest. But you are seeing some of it.

We are continuously looking into the market to take advantage of any of those that come about because, as I said, our strategy is to grow from the organic market what makes sense, and then to supplement that with other opportunities that allow us to get some additional growth. That's one that we've had some success with during this year. We think we will have some success going forward.

Then just on the whole bank deals, still out of the market there?

Yes, still out of the market.

Okay. Thank you very much.

Kevin Barker, Piper Jaffray.

Thank you for taking my questions. I want to follow up in regards to your comments regarding the forward expenses. Kelly, I believe you mentioned that you expect them to be flattish going into 2017. Is that on an operating number or is that on a total after taking into account the merger and restructuring charges starting in 2016?

Kevin, this is Daryl. I'll answer that. We really aren't giving a whole lot of guidance for 2017 right now. We'll give much more or better clarity as we get into January and finish our planning process.

With Erika's question, our base right now is $1.691 billion. We expect that to be down a little bit this next quarter, call it around 1%.

What Kelly said in 2017 is we're going to try to hold that expense rate flat to maybe down a little bit. We're going to do our best with all the competing priorities to keep our expenses relatively flat for 2017. But we will give you more color as things get finalized from our operating plan.

All right. And then a follow-up on your strong mortgage banking quarter: How much of that, of the markup in your MSR was hedged out? And what was the net result of your higher MSR fair value mark?

Good question, Kevin. We had $33 million in MSR valuation income. $18 million was that valuation adjustment to the MSR.

Every now and then you have to update and tune your prepayment models. Basically our asset valuation was lagging peers that we index and look against. So we had to adjust our prepayment models, which allowed us to take that $18 million in as a valuation adjustment.

If you take that out, we had good hedge performance of $15 million. And that was just good performance in the TBAs that we had that we're hedging.

Did that have to do with the fact that the 10-year moved slightly higher during the quarter, even though 30-year mortgage rates went down during the third quarter?

Well, we had benefit in the basis impact. Yes.

Okay. Thank you, Daryl.

John Pancari, Evercore ISI.

Morning. Wanted to see if you can give us a little bit more commentary around the loan growth expectation as you look into 2017? I know you're not giving a lot of guidance there. I know you indicated the guidance for fourth quarter.

And, Kelly, I know you've cautioned a little bit around some lax demand mid-market commercial borrowers, et cetera. How do you think that plays out for 2017? And what type of general level of growth could we expect?

Hey, John. This is Clarke Starnes. I'll take that. Basically, as Kelly mentioned, our production was actually pretty good for the third quarter, not substantially different than what we had seen year to date. The big challenge and headwinds were the payoff. So, assuming those pipelines continue to stay strong, and to Kelly's point, if we see some more clarity around the political side of things, we may see more activity as we go into next year.

Our view is, we believe we can produce reasonable growth within our risk appetite around GDP plus 1% or 2%. Given whatever you think the economy is going to grow, we think that we can grow a little bit faster than that. But we don't certainly believe we can -- it's prudent for us to go well beyond that.

Okay, thanks. That's helpful. My follow-up is around the efficiency ratio. Again, I know you're somewhat guarded on what type of expense guidance you give us. But how can we think about the efficiency ratio for 2017 barring any moves by the Fed?

I know you're around 60% currently. Is it fair to assume that we can get to the high 50%s without a move from the Fed? Thanks.

When we go through a planning process, we always have our business lines plan positive operating leverage. We want them to stay within the risk appetite of what they're trying to accomplish. So we're going to have a plan that puts together positive operating leverage. So, hopefully we will be able to generate and get improvement on efficiency, but we really aren't guiding to any specific number.

It's really going to depend on the execution and what the market will allow us and what we can grow from a revenue perspective. We can control expenses, as Kelly said. We will be very tough on expenses and do what we think is right for the long-term benefit of our Company and our shareholders.

Okay. Thanks, Daryl.

Ryan Nash, Goldman Sachs.

Good morning, Kelly. Good morning, Daryl. Maybe I can ask a question on a different topic. Kelly, maybe can you talk a little bit about the recent Tarullo speech? Does that at all change the way you think about excess capital?

I guess in addition, at this point you're under $250 billion and hence no longer subject to the qualitative component. However, over the next few years you would likely pass this. So does this at all change the way you have thought about surpassing $250 billion?

I know historically you talked about a large strategic action would probably be likely, but you've obviously made comments that's off the table for now. So just interested in what you thought of the speech and how you're thinking about excess -- how you're thinking about passing $250 billion?

Ryan, I think Tarullo's speech was very consistent with what he's been saying, really, for the last two or three years. He has been, I think, appropriately moving to adjust some of the initial Fed criteria around CCAR. He clearly, I think, believes that the CCAR process needs to be much tougher on the large [G50s] versus the large regionals like BB&T.

So I think his speech simply to some degree codified his movement in that direction. But from our point of view, frankly, it does not change a lot because we have a robust CCAR process. We're not going to dismantle it just because we're under $250 billion today. It wouldn't make any sense.

Number one, the way we are doing CCAR today, we actually benefit from it. We think it's a healthy process. So we would continue to base that as it is anyway, even if they had dropped the whole requirements. Certainly we would not drop it and then have to pick it back up if we did a strategic deal to put us over $250 billion.

It was encouraging in that I think it signals that the intensity of change with regard to, really, banks under I think $500 billion is just not going to increase. In fact, it's kind of stable. As he said, the intensity of additional or increased scrutiny is on the [G50]. That relatively is good news for us.

Got it. Maybe just quickly, sticking with the loan growth theme, can you just maybe give us some comments around what you're seeing in commercial real estate, particularly in multifamily and office where we've heard some cautious comments from some of your peers? And what are your expectations for growth there going forward? Thanks.

Hey, Ryan. This is Clarke again. Certainly we're being more cautious in the CRE sector.

The two areas that we're most cautious in right now is multifamily because we believe the market may have peaked or is peaking. There is a lot of projects in the pipeline. They're going to affect potentially absorption and vacancy and those sorts of things. So we're very careful to make sure we do not create an undue concentration there. We will see some issues market by market there. You see some of those symptoms.

The other area is hospitality. We think that has also had a peak and likely could potentially have some overcapacity as we move forward.

So what I'm seeing is others sensing the same thing. The underwriting has clearly tightened and pricing increase for those that are still active in that space. I think all the banks are being more cautious.

Ken Usdin, Jefferies.

Thanks a lot. Good morning. The question on your long-term debt and your FHLB book: You have $4 billion and change of pretty high-cost stuff underneath it. I'm wondering in terms of, as you're cleaning up some of the income statement and look-out, is there any opportunity to do some calls there? And what would that entail, if you were able to do that? Would it be just able to be retired or could you take a charge and move on, that type of thing?

Ken, we constantly look at our balance sheet and always try to optimize our balance sheet. We are aware of what we have on our balance sheet on the long-term debt side. Potentially it could be something that we would evaluate as we enter into 2017. No decision has been made; nothing is final. Obviously there is potential opportunity there to maybe improve run rate, and improve efficiency and returns.

Got it. Second, just want to -- in terms of now that the Swett is in the numbers, I saw in the business line that it said that there really wasn't much organic growth. Can you give us an update on the insurance business and help us understand the new run rate seasonality and what the organic growth outlook is for the insurance business? Thanks.

Sure, Ken. It's Chris. I think Swett, first off, is going very, very well. We're getting all of the expense synergies that we thought we would. We're probably halfway through that process, and the conversion will occur in February.

Your point is right on in that the organic growth, primarily due to pricing and excess capital in the market, is generally in the 1% range. In fact, if you look at us year to date, we would be growing right on 1%. There are several factors. Pricing is one.

And if you look at the mix of businesses that we are in, the pure property and casualty business is probably down in the 1% to 2%. But the cap property, which is through our [Hamriss] business, is probably down in the 15% to 20%. On balance we're probably down 4% to 5%.

Existing client growth, however, is up. We actually saw new business growth in the third quarter, which I would assume would be abnormal in the industry today. I think that speaks well to the revenue machine that we have built over the years.

Then you are likely to see our performance-based payments, which isn't really based on account of how you perform with your underwriters. The recent storm is really not large enough to create increases in pricing because there's so much excess capital. On the other hand, it does hurt us just a little bit; it won't be significant on our performance payment.

So, run rate going forward, I think as we really put the business together, we have a chance to continue to be positive and potentially accelerate if we get any kind of economic pick-up. But I'd say it's in that 1% to 2% kind of range looking forward.

Steve Moss, FBR.

Good morning. Most of my questions have been asked. But I did want to follow up on the investment securities balances. I was wondering if the 4Q 2016 level you expect will be a good run rate for 2017, or if we should expect further decline?

Yes, Steve. This is Daryl. I would say they'll continue to run down. We will probably average our securities down another $2 billion, give or take, from where they were. So they were down about $1 billion linked quarter second to third, and maybe down about $2 billion linked quarter from third to fourth.

Okay. With regard to investment banking and brokerage fees, it was pretty stable quarter over quarter despite the closure of capital markets business. Wondering if you could quantify that and the outlook for that business, for the investment banking business?

This is Chris. I can take that. You are right, we did shut that down, although we're actually continuing to move forward in the M&A. I would expect next quarter to be up slightly, maybe in a 1% to 2% range until we digest all of that, and then accelerate from there.

Thank you very much.

Matt Burnell, Wells Fargo Securities.

Good morning, guys. This is Jason Harbes on Matt's team.

I guess I just had a question on the expense guidance. The 1% decline, I think you quantified. It sounds like that will roughly offset the anticipated decline in the spread income this quarter. Then with fees relatively flat, it should be relatively flat EPS in Q4 is what the outlook is telling us.

But just had a question on the credit guidance. So with the relatively stable net charge-offs and the expectation that you will need to start provisioning for growth, is there just mechanically any kind of guidance you can give us in how to think about the rate of reserve build for the anticipated loan growth?

Hey, Jason. This is Clarke Starnes. I think we put in our deck we believe our reserve rates are pretty much more or less at the bottom, given where we are in this stage of the cycle as we come through the crisis of rebuilt portfolios. They're now seasoning. We've been in a benign economy.

We would not anticipate our reserve rate to go lower. So the way we think about it is the likely impact on provision is NCOs plus enough reserve build to maintain -- in dollars, to maintain that reserve rate that we have today. That is how we're thinking about it, at this point.

Okay. So keeping the reserve rate relatively stable over the next few quarters will be the expectation there? Okay.

A question on the core NIM expectation: I guess that should be relatively stable in Q4, assuming we get a rate hike in December. What will be the expectation if we did not get a rate hike?

The rate hike is so late in December, it's not going to have a big material impact. You're getting the LIBOR benefit just crossing over at year end. So I wouldn't view that as material. We might be off 1 basis point, but you could be up 1 basis point in core margin. So it's pretty much a non-issue for fourth quarter.

Okay. Thanks very much.

Terry McEvoy, Stephens.

Good morning. A question for Kelly: Could you just talk about the strategy and optimal size of BB&T in Texas? Your energy portfolio stabilized last quarter, as did many in the industry. We've seen a recovery in many of the Texas bank stocks.

Are you comfortable with the size today, and how are you looking to grow if M&A is off the table? Is it more of a de novo strategy?

So, the energy portfolio is really just a very small portion of our strategy in Texas. We view the energy portfolio as more of a national kind of a strategy. I would expect it to continue to grow modestly as the overall industry continues to recover from the lower rates.

With regard to Texas in general, our acquisitions on the city branches, our de novo branches are going extremely well. The Texas market overall is doing well. We're beginning to see a little bit of softness in Houston around some multifamily and others, which you might expect. Nothing dramatic, but you're beginning to see the effect of that a bit. Nowhere else, really, across Texas.

So we're gaining momentum substantially. We have about a $7 billion or $8 billion operation in Texas at this point, which is strong. We're 14th in market share, up from 53rd in market share when we started in 2009.

So Texas is still growing about 1,000 people a day. So we will continue to grow faster than market in Texas. And continue to build out our franchise with de novo types of branch expansions.

We will certainly in the long term be in some acquisition, but that's not a part of our strategy today. Our organic strategy is playing very well. We love Texas, and Texas loves us. So we're having a lot of fun in Texas.

Thank you. And then just a quick follow-up for Daryl: Will there be a merger and/or restructuring charges in the fourth quarter? And if so, do you know the estimated size?

Yes. I would say our merger-related costs will probably be in the $20 million to $30 million. It's pretty much phasing down. This might be the last quarter of any substance. You have some little dribbles and drabs in maybe the first part of 2017. But I would say $20 million to $30 million, fourth quarter.

Perfect. Thank you.

Christopher Marinac, FIG Partners.

Thanks, good morning. I just want to circle back, and I'm sorry if you mentioned this earlier. With the other lending subsidiaries that had some growth this quarter, will that continue to grow? And I was just curious if the losses there are temporary or just a sign of a changing trend?

Chris, fourth quarter has -- it's always had defined seasonality in those particular platforms. And so the retail-oriented platforms tend to have higher loss rates in the second half of the year. That defined seasonality goes the other way in the first half of the year.

You also get the same impact on the growth rate. I think, all in all, fourth quarter represents more of a seasonal peak than it does a run rate.

Clarke, will the growth of that line mirror what you mentioned earlier for the overall portfolio relative to GDP plus a few percentage points?

No. I think it will be higher. Again, they're relatively small to the total of the Bank, and there are some specialized initiatives where there's still more penetration opportunity to expand market share. So I think we would expect those to grow higher than the Bank rate.

At least double.

Yes, probably double.

Okay. That's helpful. Thanks, guys. Appreciate it.

That concludes today's question-and-answer session. Mr. Greer, at this time I will turn the conference back to you for any additional or closing remarks.

Okay. Thank you, Leann. And thanks to everyone for joining us. If you have further questions today, please don't hesitate to call Investor Relations.

This concludes our call. We hope you have a good day.

That does conclude today's conference. Thank you for your participation. You may now disconnect.