Alan Greer - Executive Vice President, Investor Relations Kelly King - Chairman and Chief Executive Officer Daryl Bible - Chief Financial Officer Chris Henson - Chief Operating Officer Ricky Brown - Community Banking President Clarke Starnes - Chief Risk Officer.

Betsy Graseck - Morgan Stanley Gerard Cassidy - RBC Paul Miller - FBR Capital John Pancari - Evercore ISI Matt Burnell - Wells Fargo Securities Erika Najarian - Bank of America Michael Rose - Raymond James Amanda Larsen - Jefferies Marty Mosby - Vining Sparks Nancy Bush - NAB Research.

Greetings, ladies and gentlemen, and welcome to the BB&T Corporation Fourth Quarter 2015 earnings conference. Currently, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. 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, Robert, 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.

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 our comments.

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. Please refer to the forward-looking statements in our presentation and our SEC filings.

In addition, please note that our presentation includes certain non-GAAP disclosures. Please refer to page 2 in the appendix of our presentation for the appropriate reconciliations to GAAP. And now I'll turn it over to Kelly..

Thanks, Alan. Good morning, everybody, and thanks for your interest in BB&T and as always thanks for joining our call.

So, I think the fourth quarter overall for us was a very solid quarter, particularly given the challenging environment we have out there that [indiscernible] organic performance and really was a great year from a strategic point of view.

So our core loan and deposit growth numbers are bit better than we expected, GAAP growth numbers included the impact of the acquisition as you all know. We grew revenues and held the net interest margin stable, which was a very comforting trend. Also, we have a very strong level of capital and liquidity.

And so, overall, we continue to be a very strong company. If you focus on the quarter in terms of earnings, we made $502 million or diluted EPS of $0.64, which was flat with last quarter and we did have $50 million in pretax merger-related restructuring charges.

So if you ex that we had what I call operating or core earnings of $0.68 per share excluding merger charges. If you look at GAAP ROA, it was 1.03%, return on tangible common was 13.37%, but if you adjust for the merger and restructuring charges, ROA was 1.09%, and return on tangible was 14.19%.

Revenue totaled $2.6 billion, up $164 million versus the fourth quarter. That was primarily due to Susquehanna and revenue was annualized 10.8% compared to the third. So we did have strong revenue growth. Now, that did include acquisition but that's part of our business. So that's real revenue increase.

For full year, we totaled $9.8 billion, including acquisitions was up 4.1% and we did have record fee income for the year. Our net interest margin, as I indicated, was stable at 3.35%, which is an important consideration. Efficiency did improve to 58.8%, as we achieved positive operating leverage.

I would point out to you that we are really focused on expense management. We're working through the Susquehanna and we'll be working through the National Penn conversions, which really gives us an excellent opportunity to become more efficient, which we're absolutely committed to do.

Average loans and leases held for investment totaled at $134.8 billion fourth quarter versus $130.5 billion in the third quarter. Excluding acquisitions, our average loans are a little better than we expected, growing approximately 2% annualized versus the third.

Now if you take out residential mortgage, which you'll recall we are intentionally running down and continue to do that, it's up 4.5%. So pretty good loan growth quarter. Organic growth was very strong in C&I, direct, retail and equipment finance.

From a strategic point of view, we're very happy that we did receive formal approval from all of regulators on National Penn and now expect to move that closing up to April 1 and we still plan to do the conversion about mid-July and so the cost saves from National Penn will still be back second half loaded because you don't really get the cost saves until the conversion.

You could argue why we do merger conversion, but if you know we've done a lot of mergers for a long time and it's best to take your time and do it right rather than get in a hurry and do it wrong. So we'll get the savings by the end of the year, but it will take our time doing it. Susquehanna's going great. We did that conversion in mid-November.

I will point out this is the largest conversion ever based on loan and deposit accounts. So we had 144,000 loan accounts, 790,000 deposit accounts, so it was a big deal. It's going extraordinary well.

All the regions are running really, really smoothly and an early look by Ricky and his people at the combination of National Penn and Susquehanna looks really great. I mean it's frankly better than we anticipated when we announced the combination.

So if you're following along on the slide, if you look at Slide 5, I'll give you a little more detail with regard to our loan growth, which, as I said, was 4.5% ex-acquisitions and ex-residential mortgage. C&I loan growth was strong, estimated core C&I loan growth was up $848 million or 7.8% annualized.

That was largely layered by corporate lending and production in the branch network. C&I lending was mostly in large participations as it was in previous quarters, so it's very competitive, spreads are tight, but the spreads are flattening out. So that's a good sign. End of period balances increased $335 million, again led by large corporate.

So right now looking forward for the next quarter, we expect C&I to continue to grow. It could be a little slower depending on strengthened manufacture. I want to particularly point out to you that our oil and gas portfolio is not large for our company. It's $1.4 billion outstanding, which is about 1% of our portfolio.

It's very conservative portfolio, 67% is upstream, 30% is midstream and we only have about 3% in support services. At the end of the fourth quarter, we had no delinquencies, no losses, and we have no energy loans or non-accrual. So, I know there's been a lot written and talked about energy, but energy is just not a negative story for us.

It's a good, solid story. And we don't anticipate any major problems in that area. Obviously, if oil goes to extreme lows, we'll have some challenges, but because of the absolute size of this business is small, we just do not anticipate that to be a big issue for BB&T.

End of day, we still have an area with a very strong quarter, up $108 million, about 40% annualized. That's really being driven by new markets that we're adding, some new lines we're offering and we expect it to continue to grow, although probably not at quite that pace. In CRE construction and development, we increased 1.6% annualized in the quarter.

Excluding acquisitions, end of period balances did decline a bit. We expect C&D growth to become seasonally soft until the spring. CRE income producing increased 2.5% annualized, excluding acquisitions. That was mostly broad-based, office, hospitality, industrial.

The market fundamentals in those spaces continues to improve, although spreads continue to tighten.

And so looking at next quarter, we expect core IPP to slow and to really be about flat, mostly because of the competitive pricing and we're just not -- we'll just not try to book loan just to -- book loan into prices that's not acceptable, we just rather not have them.

Average direct retail lending is a really good story for us, increasing $237 million, almost 11% annualized due to our HELOC portfolio, direct lending, auto lending in the branches. Our wealth division is doing great, producing about 30% of our retail volume. It's just a really good story. We have really good momentum heading into the first quarter.

Might be a little bit slow just because it's seasonal, but underlying strategic direction in that portfolio has strong momentum as we look forward. And if you look at sales finance on the other hand, it did decline $406 million or 17.5%. That was very consistent with our strategies.

We simply are unwilling to participate in the tighter spread market that exists in that space. With increased capital that is required today just simply does not make sense to book loans where there's not a reasonable risk adjusted return on capital.

So we've been very careful and judicious in looking at the kind of assets we're willing to book, and right now sales finance is just not a particularly profitable area. That doesn't mean we're getting out of the business. We are restructuring the business, however, you heard us say it recently.

We've now implemented a flat rate compensation program for our dealers and we're watching the spreads carefully. I would point out that we did pick up a portfolio called the Hahn Auto Leasing business from Susquehanna, which we are exiting as we don't choose to do auto leasing. And so that will be winding down.

That will be a little bit of a negative impact, but it won't affect our fundamental strategies. Average residential mortgage that like you've been hearing from everybody was down 5.9% linked quarter annualized. We are selling all of our conforming production and originations were 30% lower than the third quarter, of course that was largely seasonal.

So we expect to see applications continuing to be soft as we head through the winter months. Gain on sales was down about 5%. Our correspondent channel lately shifted to 55%. So there's lot of moving parts in the mortgage business today. The whole [indiscernible] disclosure program is definitely slowing down production and booking of transactions.

It's hard to know what the underlying issues are in terms of consumer preferences, in terms of millennials, et cetera, choosing to own homes or not. Personally, I think, it's a little bit early to call all of that.

What we do know right now though is that mortgage production is down and part of that is substantially because of the mortgage disclosures that takes just a long, long time. I would point out on a very positive note that overall the community bank loan production is really accelerating, it's the best it's been in years.

Our commercial production's up 16.7%, retail's up 44% compared to the last fourth quarter and that momentum will continue as we head into the first and second quarters. Other lending subsidiaries grew $227 million or 7.3%. That's a good number. It's actually a little seasonally weaker though because of seasonality [indiscernible].

Strongest ones in this area was Grandbridge, equipment finance and Regional Acceptance. With respect to the first quarter, again seasonally slower, but good in terms of the long-term strategies in those portfolios.

So to sum up, we expect average loans held for investment to be up modestly, about 1% in the first quarter with continued pressure given seasonality in our seasonal portfolios. Just a comment with regard to the overall economy, because that obviously impacts the loan production.

There's been a lot written and said over the last few weeks about the issues in the stock market. We believe there's a lot of overreaction going on. It's like you woke up January 2nd, all of a sudden everybody decided the world's falling apart and we reject that.

We don't see any fundamental structural changes between the first part of December and the first part of January. The world just doesn't happen that fast. Obviously a huge confluence of negative psychology going on, but we're trying to look past that.

So what we focus on is the fact that yes, oil is down and that is a factor in terms of the oil space, but oil is overall really stimulative. It's stimulative to consumers. It's stimulative to businesses. It's stimulative to airlines. Oil is stimulative.

The strong dollar has other implications, but in terms of consumer purchases it's stimulative because obviously imports are a lot cheaper. And so what we would say is that it's not a bullish environment it's no different from what we talked about the last two, three quarters.

The economy's growing at 2%, 2.25% kind of growth rate, which is not great but it's not falling. I would say for all of those pundits that are saying the sky is falling we would respectfully disagree with that. So, if you look at our Slide 6, just a comment or two on deposits, continues to be a good story for us.

Our non-interest deposits increased $1.7 billion or 15% annualized. That doesn't include acquisitions. If you take out acquisitions, total deposits were about flat by design, but non-interest bearing deposits grew 7.5%, which was very good. So, we're doing a really good job in improving our mix and reducing our cost.

Ex Susquehanna our non-interest bearing deposit. Costs remain low at 24 basis points. I will point now on a very bright note that we introduced in the fourth quarter our new U digital mobile online platform. It is doing extraordinarily well. We now have over 650,000 users and it is gaining momentum as we go forward.

We believe it is the best integrated platform in the business today and is certainly a big driver of our new account production today. So, overall, we feel really great about our deposit performance.

We feel really good about our digital strategy and while there's plenty to do we believe we will stand out as a real positive performer in the whole digital space as we go forward. So, now with that I'll ask Daryl to give you some more detail and then I'll summarize after that..

Thank you, Kelly and good morning everyone. Today I'm going to talk about credit quality, net interest margin, fee income, non-interest expense, capital and our segment results. Turning to Slide 7. Our credit quality remains very strong.

Loans 90 days or more past due declined $69 million, mostly driven by loans acquired from the FDIC and impaired loans. Loans 30 to 89 past due increased 13%, mostly because we conformed Susquehanna's delinquencies to our more conservative methodology. We also had some seasonal growth, which is typical for the fourth quarter.

NPAs declined 4.3%, mostly because of the sale of non-performing residential mortgage loans. This was offset by a more conservative approach for determining non-accrual status for mortgage loans in HELOCs. Excluding the loan sale, NPAs were essentially flat compared to last quarter.

Net charge-offs increased slightly to 38 basis points in the quarter, led by higher charge-offs at regional acceptance. The increase at regional was due to seasonality, declining small car values and regional's Texas exposure. Regional accounted for about half of the total charge-offs. Overall, we are very pleased with credit quality.

Looking forward, we expect NPAs to remain in a similar range in the first quarter next year. We expect charge-offs to be in the range of 35 basis points to 45 basis points. Continuing on Slide 8. Our allowance coverage ratios remain strong at 2.83 times for charge-offs and 2.53 times for NPLs.

The allowance to loan ratios was 1.07%, compared to 1.08% last quarter. Remember, all of our acquired loans have a combined mark of about $750 million from all of our acquisitions. So the effective allowance coverage is significantly higher. We recorded a provision of $129 million for the quarter compared to net charge-offs of $130 million.

As Kelly mentioned earlier, we have a very clean and conservative energy portfolio that's about 1% of our loan portfolio or $1.4 billion. The allowance coverage for these loans is approximately 5% given the stress in the sector. Turning to Slide 9. Net interest margin was 3.35%, flat compared to third quarter and in line with our guidance.

Core margin was 3.12%, down 3 basis points. Both GAAP and core margin were impacted by larger balances at the Fed for the majority of the quarter and lower loan yields.

We expect GAAP and core margin to increase modestly in the first quarter, due to higher rates on earning assets, driven by recent rate increase, lower Fed balances, and the ability to lag deposit rates. We became slightly less asset sensitive this quarter, mostly due to investment and funding mix changes.

As you can see, we will continue to benefit from additional rate hikes. Continuing on Slide 10. Fee income for the year was a new record. Our fee income ratio was 41.8% for the quarter. Looking at a few components of fee income. Insurance income increased $26 million for 29% annualized, mostly due to seasonal factors.

Investment banking and brokerage experienced a decline of $14 million, mostly due to higher capital markets activity last quarter. Mortgage banking income decreased $7 million, mostly due to lower gain on sale of loans and lower saleable production offset by better commercial mortgage income.

Other income increased $15 million, due to $25 million higher income related to assets of certain post employment benefits and $12 million in the client derivative income, offset by a $20 million decrease in partnership and other investment income. Non-interest income should increase modestly next quarter.

This will be led by stronger insurance and investment banking revenues with lower mortgage and service charge income. Turning to Slide 11. Non-interest expenses totaled $1.6 billion, essentially flat from last quarter. Personnel expense increased $11 million, driven by higher salary expenses from Susquehanna.

In addition, we had some offsetting expenses with higher post employment benefit expense and lower medical and retirement cost. Average FTEs were up just a bit over 1,000 due to Susquehanna. Excluding acquisitions, FTEs remained flat. Occupancy and equipment expense increased $9 million, mostly due to acquisitions.

Merger related and restructuring charges totaled $50 million. We do not expect a material amount of merger related costs next quarter. Our effective tax rate was 31.7% and we expect a similar rate next quarter.

Non-interest expense should be flat on a GAAP basis next quarter, as we lower our merger related charges will be offset by seasonally higher FICA and employee. We are confident we will achieve the cost saves from our acquisitions. We also expect to improve of efficiency throughout 2016 with fourth quarter efficiency ratio around 56% to 57%.

Turning to Slide 12. Capital ratios remain very strong with Common Equity Tier 1 of 10.2%. Fully phased in Common Equity Tier 1 increased to 10%. Our LCR decreased to 130 and our asset liquid buffer at the end of the quarter was very strong at 13.5%. Let's look at some segment results, beginning on Slide 13.

Community Bank's net income was up $9 million from last quarter and up $22 million from the fourth quarter of last year. This was driven by commercial lending, retail lending and deposits, as well as higher funding spreads on deposits, partially offset by lower rates on new commercial loans.

Net interest income increased $87 million with about half of that driven by Susquehanna. Finally, with all the regulatory approvals we received for the planned acquisition of national Penn, we expect to close on April 1st with a third quarter systems conversion. Turning to Slide 14.

Residential mortgage banking net income totaled $49 million, down $10 million from after quarter, driven by lower gain on mortgage loan production, partially offset by increasing net servicing income. Gain on sale spreads dropped slightly to 103 and 58% of our production mix was purchase. Looking at Slide 15.

Dealer Financial Services income totaled $42 million, down $2 million from last quarter. The provision was up due to higher charge-offs in dealer finance and regional acceptance. Turning to Slide 16. Specialized lending net income totaled $71 million, up $2 million from last quarter, driven by higher commercial mortgage income and leasing income.

Looking at Slide 17. Insurance services net income totaled $36 million, up $15 million from last quarter, mostly driven by a seasonal increase in commercial property and casualty insurance and higher life commissions, due to seasonality and improved production.

Year-to-date same store sales achieved about 1% growth as the market for insurance pricing is softer. Turning to Slide 18. Financial services segment had $103 million in net income, up $21 million from last quarter. Corporate banking generated significant loan growth of 30%. Wealth experienced 16% loan growth and 21% growth in transaction deposits.

Non-interest income decreased $10 million linked quarter due to lower SBIC partnership income and investment advisory fees. In summary, we achieved broad-based loan growth and revenue growth due to Susquehanna, continued excellent credit quality and positive operating leverage.

We look forward to executing on the opportunities with our merger partners in the coming quarters. Now let me turn it back over to Kelly for closing remarks and Q&A..

Thank you, Daryl.

So in summarizing, again, we did have a solid quarter, good loan and deposit growth, real momentum in the Community Bank, stable margins as Daryl described, excellent credit quality, strong capital, strong liquidity, acquisitions give us a real opportunity in terms of cost saves and revenue enhancement as we go forward, and while we don't think the economy's tanking, we don't think it's going to be super robust either.

It's kind of a slow, steady as you go activity. But even so we have huge opportunities in new markets, in new product penetrations, though. Overall, a good quarter and we think we have a decent momentum as we head forward into the first. So, with that we'll turn it over to Alan for Q&A..

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

Thank you. [Operator Instructions] We will take our first question from Betsy Graseck with Morgan Stanley..

Hi, good morning..

Good morning..

I just had a question on loan growth and on reserves.

On loan growth, I saw your commentary on the outlook for 1Q, but maybe you could give us a sense as to how you're thinking about the loan book over the course of the year, given the fact that you just made one acquisition or are about to make another one, wanted to get your sense of how you're planning on driving loan growth on a core level, as well as through the acquisitions..

Thanks, Betsy. I'll give you and then ask Rick to comment on this. I feel relative to the economy, I feel pretty good. This combination of Susquehanna and National Penn giving us the number four market share in Pennsylvania is a real opportunity for us.

We are further along in those two mergers than we've been in any mergers we’ve ever done that I can recall. And Pennsylvania is a really good market, a nice, diversified market between Philadelphia and the Lancaster area. So, it's our kind of area. So, we feel good about that. Florida is doing really, really well now.

Texas is having a little bit of a dampening effect because of energy. But you know energy is only about 10% of the overall impact. So, I tell people, you say Texas was increasing by 1,000 people a day, so now maybe it's down to 850. Texas is still doing really well.

And we have such tiny shareholder, whilst I think it's going to be relative to the economy a pretty good loan year for us. Ricky would you comment on that..

Yeah Kelly, I would say that we are pretty well positioned in Pennsylvania. We think that will be an opportunity. Obviously in new markets you've got to stabilize, build your brand, get your sales culture in place, but we feel very positive about that. From a core perspective we're seeing really strong growth in Texas.

I would support that Texas is not just all oil. To be sure, but there's a lot of other things. We've been pleased with our loan growth in the Texas market. Florida across the whole state has rebounded. We've seen really solid growth in the state of Florida. We've got opportunities to grow our ABL business.

We're looking really closely at how we make that more effective. We're pleased with growth in small commercial and small business with the strategies that we've been employed. We'll be careful with CRE. You’ve heard Kelly talk about that and we've got to be careful with pricing. We've got to be careful with risk.

But, the last two quarters in the third and the fourth, Community Bank growth on a linked basis has been the best it's been in probably five, six or seven years. Production as Kelly said is up. Our activity levels are good. I would not say that means that we think the economy's doing outstandingly well.

We just are grinding it out, finding opportunities. Our guys are working really, really hard and I feel good about where we are and as we go into 2016 I feel as good about making our loan growth goals in the Community Bank in terms of where we've been over the last several years than any of those years many I feel really good about where we are..

Okay. Thanks for the color. Just wanted to have the follow-up on the allowance. Daryl, in the past I think you've mentioned wanted to make sure the ALR ratio doesn't go below 1% and I know you called out the marks that you've got.

So, are you thinking about the ALR as the 107 print or are you embedding in your thoughts the marks that you've got?.

It really includes both. When we go through the model, Betsy, every quarter we go through an analysis that look at how the loans are rated and how they're going to perform and what the embedded losses are and the marks are part of the embedded losses and what's on balance sheet. So, I think we feel very good about our current allowance level.

As we said in the last couple quarters, as we grow our balance sheet we're going to continue to have to provide for loan growth, which means we're going to have to get paid for incremental growth from that perspective.

So, I would expect the provision unless something changes materially to be basically charge-offs, plus also coverage for loan growth going forward..

Okay. So some reserve build related to loan growth..

Correct. .

Okay. Thank you. .

And we will take our next question from Gerard Cassidy with RBC..

Thank you. Good morning, Kelly, good morning, Daryl..

Good morning. .

Hey, Gerard. .

Coming back to the commercial real estate comments that you guys just made, can you share with us some of the underwriting concerns that you have? And can you relate that at all to what the regulators came out with recently about their concerns about underwriting standards in commercial real estate?.

I'll make a comment, Gerard, then let Clark give you much more color. We've said for several quarters as you know that the competition in the whole at CRE space has been very difficult. And that's been really low cap rates being used and high advance rates. And so we've maintained our steady conservative underwriting.

For example, everybody's underwriting on these low cap rates. We underwrite on long term expected normal cap rates and that makes a big difference, how much you advance. So, we look at a lot of deals, we don't get them, but we're fine with that. We're just not going to violate our risk appetite to get volume in that space.

But Clarke you could add some color on to that..

Yeah Gerard, you've seen recently the regulators sent back out all the historical interagency guidance around CRE, which is clearly a signal that they think that it's moving a little too fast right you now. We see and hear most about multifamily concern about just the sheer number of continued starts or units in pipeline.

At some point that's going to outstrip certainly the [indiscernible] markets in balance today and fundamentals look really good. We are seeing some markets where rents are as high as home ownership.

You're seeing some of that again, but we're seeing underwriting things like lenders underwriting off these low cap rates looking at pro forma trended rents that are above market, really low vacancy, et cetera, et cetera, and certainly the regulators are just asking everyone to go back to the fundamentals in which Kelly described well for us, which we look very much at the cash flow and not so much just the low cap rate environment that we've been in the last few years..

Can you guys give us a flavor on the cap rates that you both addressed, what you're using versus what you're seeing in the marketplace?.

So for example, probably the most aggressive - you're seeing cap rates in the multifamily space in the 4 to 5.5 range rate properties, office would be in the 5.75 to 7.75 retail, down as low with 6, industrials low as 550, hospitality down to 6. And so again, we don't underwrite merely on the cap rate.

We're going to look at a stressed cash flow coverage and we're going to look at existing market rents and we're not going to look at those pro forma escalations and we're going to look at stress exits. So, a lot of lenders are lending against that really low cap rate.

So, it looks like you've got a lot of equity in the deal, but it's really probably over-financed. So, our loans would typically have less proceeds, given our approach..

Great. And Kelly, to come back to your comments about your digital channel, that as rolled out successfully. Can you give us some color if you look at it over the next two to three years, is this going to impact the number of branches that you need.

Do you see your branch count falling or shrinking in size, the individual branches? And then second, do you have any metrics on the cost savings that if you steer somebody into this digital channel rather than using a teller for a transaction, what kind of cost savings you guys are seeing?.

Let me give you an overview. Gerard and Ricky can give you more detail. [indiscernible] What we've said, even though U is extremely successful and that will be true for the industry. We're clearly seeing transactions slowly, methodically reducing in the branches.

And at the same time though when you talk to Xers and Yers and the lineal’s they will still tell you that one of the top two preference items in terms of selecting a bank is the convenience of a branch.

Fact is, people still want to be able to go into a branch and see somebody to have a complex product or have a problem and there is a little bit of just pure psychology that we’re eyed by the branch and that’s where are money is and it makes me feel good.

SO, you are not going to see a dramatic change in the number of branch, but you will see an increasing focus on the size of the branches, the structures, the staffing in the branches and all of that will help to relatively reduce our cost as we shift more into the digital platform. But Ricky, you could give a bit more color on that..

Yeah. So, let me just talk about the branches just a little bit. We've been on a very methodical long-term pruning of our branch system. We've not had any real major branch reductions other than one time several years ago, but we constantly look at our branches, we look at underperforming branches. We look at opportunities to consolidate branches.

So, we're all over that. Secondly, we've been on a pretty steady path of reducing headcount in our branches in response to less transactions in the branches. So, we are already running pretty all gone lean in our branches today.

We're also believing that the folks in the branches need to know more, do more, so this sort of universal concept, something we're embracing and moving forward on so that lesser people, better people, better enabled people can do more for our clients.

And what we're finding is our associates like it because they feel better armed to take care of client needs and it also creates savings for us. So this is an evolutionary process. I don't view it as a revolutionary process. We have to continue to bon top of it. We are seeing clearly reduction of branch transactions, it’s steady. It continues to be.

It's not gone over a cliff. Branches still are important. They're part of our branding. They're part of the convenience that we have to have. They're part of the omnichannel development. So it's about having you, but it is also about having good branches. It's about having great ATMs.

It's about having a great call center, it is about having a great experience 24 hours a day, seven days a week and that's what we're trying to put together at BB&T. A lot of focus on digital and the U platform is we think unique and different and it's got lots of accolades.

Kelly mentioned over 650,000 users, the last number that just came out yesterday was over 700,000 users. The positive impact from our associates, the feedback from our clients is all very, very good.

Now, to get to the cost of transactions, we have not really done that to say what if a transaction's done in U, what did it say? There's no question, self service would save money, no doubt about that. But overall, what we find is we can get somebody to do U, we think they're going to do more at the branch.

We think they're going to do more at call center, they are going to do more across all of our platforms and so at the end of the day that gives us a better chance to have a bigger share of wallet, better referrals from them and ultimately drive the revenue, while overall aspects around cost reduction, ultimately leads to positive operating leverage in the branch that's what we're trying to achieve..

I know it sounds comical, this is a very important question for us and others. So, if you take a portfolio of clients as those clients move to more mobile digital technology and as Ricky continues to downsize to 5 and the number of staff in the branches. There is no question in my mind than to aggregate net cost to that portfolio of clients goes down.

That's a big deal for the industry. [indiscernible] 10 years or 15 years for it to phase out, but it is a big positive trend for our industry..

Great. Thank you, guys. .

And we will take our next question from Paul Miller with FBR Capital..

Yeah, thank you very much, guys. On the insurance line, I know you sold some – it looks like we were a little bit overestimating that insurance. I don't think we were completely factoring in some of the insurance sales.

How should we look at that going forward? Is this a good run rate on a seasonality basis, what you guys did in the third and fourth quarter?.

Well, this is Chris. We were a little lighter in the fourth quarter, primarily because we've got really, we got a soft market, really cranked up in the fall. So, average P&C prices today are down about 4%. We might be a little heavier in that us because we're heavier in property.

But our new business growth has been, given the market, really good, up north of say 3% to 4%. So, on average, if you kind of look at like, look at same store sales when you pull out acquisitions, et cetera, we're up about 1.5% or so.

We think this next year with sort of run rate and growth, we think potential acquisitions, we think we could be up in say the 3%, 4% kind of range. Next quarter, probably up in the 10% sort of range. And there's less volatility. We still have volatility from quarter-to-quarter, but there's becoming less volatility.

We think first quarter's certainly become one of our stronger quarters, first and second, second could be a little stronger than first quarter, but pretty much similar run rates I would say..

And can you just add real quick color on why pricing was soft in the second half of the year?.

Yeah, what you've got in the general market is a lot of overcapacity. We just have not had huge catastrophes to sort of eat up the capital. So, you've got retailers which the standard underwriters are just sort of bidding each other up for price and they're trying to take deals from the next guy.

So you got pricing on the retail side falling rather substantially. We're the second largest wholesaler. We try to keep about half of our business in retail, half in wholesale for this he very reason, because generally when retail is struggling, wholesale is a bit better.

We're seeing pricing actually hold up in wholesale P&C pretty well today and we as you know being the second largest, we've got pretty good efficiencies. On the Amber side, which is more of an MGA, specific sort of wind cat underwriter, you've got deep, discounted price.

We've been able to make it up for the most part with volume in terms of the bottom line. It's really all about overcapacity in the market and each other really kind of competing heavy on price. That all rectifies when you have a catastrophe. It sort of flips the other way then..

But keep in mind one of the really positives about our insurance strategy is as you grow your client base better than the market, which we're doing, as you have a high retention rate better than the market, which we're doing, you're building in basically the way I think about it is a really positive annuity story.

Because, best I can tell catastrophes will probably continue to have for since the creation of the earth, so I think it probably will continue. And so when they occur, premiums will go up. Premiums will go up, our commissions go up with virtually no increase in our cost structure. So, it's not there today, but it will be there..

And I think Kelly's right. I mean our retention which is the amount of existing business you retain at renewal is about 93%. We think the peers are probably in the upper 80s, mid to upper 80s. So, we think we clearly are advantaged there. The other thing with the pricing market, in early 2000s, used to have huge volatility. You had up 30%.

I think in 2007, we might have been down in the mid-teens. Today, you see much less volatility. They might be up and down 6% or 7% because they have much better forecasting models to determine losses. So, it’s within a much tighter range..

Okay guys. Thank you very much..

We will take our next question from John Pancari with Evercore ISI. .

Good morning..

Good morning. .

Good morning..

On the loan growth side, I know you mentioned that you saw some impact from manufacturing sluggishness there. So, I guess if you can give us a little bit of color about what you're seeing in manufacturing and how that's impacting growth. If you could just give us a little more color there, thanks..

Hey, John, this is Clarke. We haven't seen it substantially impact growth yet. I would say the early signals that we've seen out of that is mostly when we look at large Company manufacturers or exporters. Their sales are softer. Their margins are down. Profitability is strained a bit.

But we've not seen that necessarily translate yet into slower overall demand in the market. So, it's been more of just a subtle signals as we continue to analyze the credits..

So our comment was really saying that looking forward if there's a substantial decline in manufacturing that would impact loan growth..

John..

Sorry about that.

On the pricing side, wanted to see if the widening spreads at all, if that - you're seeing in the market, if that has helped - given you any relief on the pricing side at all? And then separately, when we look at your loan growth and I know you've commented on the pricing competition a couple times being a factor, normally you're in that 5% to 6% total loan growth range.

You're running right now a little bit below that.

Should we expect that you're looking at more like a 4% annual range as we move through the full year, mainly given these headwinds?.

John, I think the way we look at it, you heard us say this before, it's probably what GDP is plus 1% or 2%. Our estimate and what our plan has is loan growth in the 3% to 4% range next year. But there's a lot of volatility right now. But that's what we have in our plan.

As far as loan spreads linked quarter, versus third versus fourth, C&I was pretty much stable. A little bit of deterioration in CRE.

Pretty stable in C&I and on the consumer side sales finance as Kelly mentioned in his earlier comments really well, but flat, about 1% on prime indirect auto, which is one of the reasons why we're shrinking that portfolio.

And the bright spot is in Ricky's growth, a direct retail, we have strong growth in retail and our spreads are continuing to widen. We're up about 10 basis points, 15 basis points in that sector..

Okay.

And then one last one from me, going back to Paul's line of questioning around insurance, just to reconfirm, that 7% decline year-over-year in your insurance revenue, would you say that's all attributable to pricing?.

No, no, no. Remember, June 1st we sold American Coastal and so we had - that business was worth to us about $145 million in revenue. So, we had in say the first five months of the year, we had in about $53 million or so and then from June 1 on we would have lost about $92 million in revenue. So it's really relative to selling.

And when you look back at our common quarter comparison for this quarter versus fourth 2014, that's pretty much all American Coastal. If you pull out American Coastal, we're in fact up a couple of percent. So it has to do with the sale of American Coastal..

Got it. Got it..

And remember, the American Coastal sale was not a net negative. We diversified. We reduced our risk. We reinvested that money in and risk and produced more stable, more profitable margin business in that area. So it was a net positive to us, but it shows a negative on the revenue line..

In fact, I would even say we invested in a higher margin business. At the end of the day, it should drive more profitability..

Okay.

So barring that noise and barring the pricing pressure, there's nothing structurally about your insurance business that's a drag on the revenue at all?.

I'd say quite the opposite. We're outrunning the market. The market's down 4%, we're up 1.5% on same store sales when you pull out acquisitions. What you're seeing in the number is all American Coastal related..

Got it. All right. Thank you..

We will take our next question from Matt Burnell with Wells Fargo Securities..

Good morning, folks. Thanks for taking my question. Kelly, maybe a question for you in terms of capital distribution. With your dividend payout at or maybe slightly above the 30% levels as we calculate it, I know how important dividends are to you relative to your investor base.

I guess I'm curious how you're thinking about potentially increasing the dividend in 2016 and 2017 and any color you can provide on how you and the board are thinking about buybacks would be helpful. Thank..

Nothing's really changed in terms of our capital deployment strategy. As you know, we made it very clear that capital should first be allocated to organic growth and second to dividends and third to M&A and fourth to buybacks. So nothing's changed about that. Nothing's likely to change about that.

These are long-term concepts that we run our business by. So you would expect to see us think about kind of a steady relatively positive increase in the dividend. You would expect to see us hold our total capital request for deployment to the low side of what a lot of people do, because we are committed to keeping a relatively strong capital position.

And keep in mind, there is a big issue out there yet to be determined that is around the counter cyclical buffer. Not many people are talking about it, but that is a potential increase in capital. And so we're going to be conservative so that we don't end up having to go get capital a at a time when it's not market friendly.

So given all of that, I would you say that you will see our performance in 2016 kind of look like 2015. Whether we do specific buybacks or not, as always it will be a function of whether or not we have acquisition opportunities that allows us to use up that extra capital like we have done in the last couple of years.

And a function of what our price is. We're simply not going to go out and buy back stock when the price is high and it produces us negative internal rate of return for our existing shareholders..

Okay. Thanks, Kelly. That makes sense. And Clark, maybe a question, a theoretical question for you relative to energy.

I appreciate BB&T's portfolio is below your peers in terms of your loan exposure, but in terms of how you're thinking about the trend in non-performing or criticized assets relative to losses, how do you think about provisioning against a prolonged period of low oil prices and how does that dovetail with the idea of losses because the collateral you hold against those exposures being a lot lower than potential provisions?.

That's a good question, Matt. Obviously, just like everyone else, we are monitoring the oil and gas exposure daily and redoing our price decks and looking at the sensitivities and stressing accordingly and we're going down right now to at $20 or below in our stress case.

So my biggest concern is that while we believe even down pretty low, we've got very strong asset coverage and our PV9s look good. I don't think even at low rates we fundamentally have a lot of loss exposure. I'm more concerned about this time around, there's a lot of layered bond debt behind the senior secured lenders.

And traditionally that was not the case. And so what could happen this time if it stayed down long and low, it could cause a lot of non-accrual risk as you try to work through all that layered debt. And that could cause you to have to work through and consider discounts or losses beyond the collateral coverage you normally see.

So we're trying to think about all of that and take a conservative view of loss given default, even if we've got good collateral coverage view right now. We're trying to make sure we stay ahead of that. I think our 5% reserve, given the quality of our portfolio, is very, very prudent and it takes those kinds of things into consideration..

And just so we're clear, Clark, what's your expectation if oil does stay at the $20 level of potential additional losses or if you want to think about it this way, reserving?.

The true answer is no one really knows. It's all an estimate. And everybody has different opinions. But we have done work in our sensitivity, in our allowance process, and even down to a $20 level that in an ago aggregate basis we have asset coverage. And even if you look at the cash flows, discount that, we think it would not be material.

Certainly, if it continues to stay down we would have to put more on the watch list potentially move some to non-accrual and a provision accordingly, but even with all that, we don't think it's a material number at this time..

And keep in mind, when you're doing reserve based lending, the fact that price goes down doesn't mean that they are all automatically evaporated. The oil's still there. The gas is still there.

And so while you may have an extended period of time at lower prices, the cash flow and payoff the loan, the odds of losses in that kind of scenario is still extremely low..

Okay. Thanks for your color, guys..

And we will take our next question from Erika Najarian from Bank of America..

Good morning. My first question dovetails a little bit on the capital planning question.

Kelly, clearly the earnings outlook for the industry, particularly those that don't have your scale, has been ratcheted lower even in these past couple of weeks and I'm wondering what your appetite is in terms of taking advantage of that lower earnings outlook and the decline in stock prices as you think about more acquisitions in 2016..

Well, Erica, I think your question is insightful. I think the longer the challenging environment persists, particularly in some spaces, maybe like in the energy space, it's certainly putting disproportionate amount of pressure on certain companies.

And to the extent that it lasts a while, it certainly could cause them to re-evaluate their strategic thinking going forward. So we remain from a long-term point of view committed to our acquisition strategy. Recall that it is to grow on an average basis 5% to 10% of our assets.

And that's an area you could see the probability increase of potential partners that might be interested. So it always comes down to two things. Well, three things. It comes down to a cultural shift, but we don't really talk to people that are cultural fit. And then it comes down to their willingness to combine and then it's just mathematics.

So to the extent that they are more challenged and that changes their appetite to consider strategic combination and to the extent that our performance does better and our price does better, that would enhance the possibility of us being a able to do combinations..

Got it. And just my second question is for Daryl. I just wanted to make sure I understood. The 56% to 57% efficiency ratio guide was for 1Q and I guess the follow-up to that is a lot of investors are now starting to strip further interest increases out of their model. You don't seem to be as pessimistic.

But could you deliver continued improvement in your core efficiency if the Fed is indeed one and done?.

So, Erica, in my opening comments, we said that our efficiency ratio throughout 2016 would continue to improve and by the fourth quarter of 2016, we would have an efficiency in the range of 56% to 57%.

When we put together our operating plan for 2016 a couple of months ago, we were very conservative and looks like we were at least based upon the futures now on target.

But we've only embedded the December rate hike that we got in the plan until we get to the fourth quarter of 2016 and then I think in November, December timeframe we have another rise. So we basically have interest rates flat for 10 months of the year in 2016.

We didn't have any more rate increases factored in when we came up with our operating plan and with these efficiency targets..

Got it. Sorry. Missed that. Thank you..

You're welcome. .

We will take our next question from Michael Rose with Raymond James..

Actually, Erica, just asked my questions. Thanks..

And we will go next to Ken Usdin with Jefferies..

Hi, this is Amanda Larsen on for Ken.

Is your outlook for NII to grow 12% to 14% year-over-year in 2016 factoring in the forward curve, is that still intact given the Expedited and PBC closure versus your expectations last year?.

Big picture wise, I would tell you that excluding acquisitions, both the benefit we get from Susquehanna and National Penn, we feel very good that we can grow NII year-over-year from 2015 and 2016. That number is probably in the $150 million to $200 million range.

With the acquisitions that the NII grow significantly more than that, just because we have a bigger balance sheet, higher earning assets. But this is the first year in a long time where we basically feel core is stabilized and potentially starting go up. We're going to grow our loan book and we're going to grow organic core NII in 2016..

Thank you..

We will take our next question from Marty Mosby with Vining Sparks..

Daryl, I wanted to ask you about the deposit beta assumptions that you've incorporated into your asset sensitivity estimates..

Okay. They really haven't changed for a couple years. So when we show our sensitivities, Marty, in an up 200 scenario, we have all of our deposit betas averaging around 60%. What we have seen to date -- so we've had a rate rise increase in December.

We've had and we're projecting an outlook of positive margin in the first quarter of a couple basis points, it's really dependent on how successful we are and what the market does on how deposit rates change. I think we feel very good up 2 or 3 basis points in margin and we'll see if it's any better than that, depending on deposit line..

I did know your 60%, the actual performance so far hasn't been anywhere close to that. So when you're looking at this estimate, if you bring that down, how far do these numbers go up if you assume 10% or 20% deposit beta..

I would say -- I can give you a range and kind of bracket it because it's probably in between the range. I would say that our margin will be up 2 to 3 in the lower end and maybe double that, 4 to 6, on the higher end depending on how we have to adjust deposit prices. The retail deposit rates are pretty static.

Commercial has been inching up a little bit. But it really depends on how things play out and it's probably not going to be the same deposit beta for all the rate increases. We're going to have lower deposit betas in the first couple of rate increases and as rates continue to rise, you're going to have probably faster deposit beta.

So it's going to be very fluid and very dynamic going forward..

Two to three times better performance if the deposit beta, especially on the first couple of rate rises is much better than what was incorporated here. And then the other thing I was going to ask as a follow-up is what really matters then is the asset yields and how they can go up.

I was looking at the -- what would be prime or LIBOR based lending that you can see right on the income statement, construction lending or revolving credit. Those rates went up like you would expect even with only two weeks of the rate rise. The one line item that you can't really see very well is C&I, which is the one that really matters.

How much of those loans are embedded there or tied to LIBOR or prime and would be impacted by the short-term rates?.

Yeah, so we had about $70 billion of loans that are tied to LIBOR and prime. I think it's about $50 billion LIBOR and about $20 billion in prime. You are right in that the majority of the LIBOR does move fairly quickly. Some of it immediate, some first of the month, but prime tends to move first of the month or quarterly so there's a little bit of lag.

So even though rates rose in the middle of December, we still have not received the full benefit of all of our assets repricing and we're in the middle of January. It probably takes a good full two months, maybe three months before all the assets are going to be positively impacted..

All right, thanks..

We do have time for one more question. We will go next to Nancy Bush with NAB Research..

Good morning. I have a funding question and it's kind of tags onto Marty's question. In past cycles you guys have been big issuers of CDs. Some of your funding has been more CD dependent in past years and then you sort of backed away from CDs.

What's the sort of CD philosophy going into the rate rise cycle? It seems that you are already doing some CD specials in some markets and I just wanted to see how your CD funding philosophy may have changed..

Nancy, as well as you know, our company, you'll recall that our company was built with a lot of mergers of small community banks and thrifts that had a huge portion of their funding from CDs.

And so as we layer in these acquisitions, we're constantly in a process of rationalizing those deposit structures because a good portion of those CD portfolios that we inherit each time are really, really price sensitive portfolios. And as we bring the pricing more in line with our normal pricing, a fair amount of those CD portfolios tend to exit.

So that's why you've seen a kind of relative decline in CD financing over the last few years. You'll see some more of that as we think through Susquehanna, National Penn, although the price variation for them is not as different as it had been, some of our acquisitions in the past.

We think CDs are a necessary and important part of our ongoing funding structure. There's a portion of that portfolio that is kind of core bread and butter, fully committed clients that we always keep. And we're willing to pay a little more to keep those because they're long-term, stable uses of our services.

On the other hand, you always have the one that's are single service clients and they're shopping 15 banks and going to the one that has the highest basis point CD and we don't tend to keep those.

So I suspect as rates go up, you will see our CD portfolio increase some, but it won't be as dramatic as you may think because we are growing our DDA and other funding sources at a very fast pace. And so that we intentionally and not as CD dependent as we've been in the past. It depends on the company.

But with our variety of funding sources, I don't think CD financing for you us in the future will be what it was in the past..

Okay. If I could also ask, Daryl, if you could just -- I missed the summary of the energy portfolio or what may be dependent on energy. Could you just give us the numbers again, please, from a total perspective..

Sure. I mean, we have $1.4 billion in outstanding and energy loans, and our allowance that we have allocated to energy is approximately 5%..

Are those energy loans primarily Texas centric? I mean is this sort of one of the characteristics of going into Texas? Or are they distributed in other geographies as well?.

Nancy, this is Clark. They're originated out of a specialty group out of Houston, but they're all over the country in all the different energy bases..

But, Nancy, in case you missed that, it's a very conservative portfolio, 67% is upstream, 30% is midstream and only 3% is support services and we also have no delinquencies, no losses, and no non-accruals..

And percentage investment grade if you have that..

That's -- 75% of our portfolio of course, I recall, are either in upstream or investment grade portfolios..

That's right. So it's high majority is near investment grade or investment grade..

Okay. All right. Thank you..

And this concludes our Q&A session. I will turn the call back to our moderators for any additional or closing remarks..

Okay. Thank you everyone for joining us. We have no further commentary at this time. This concludes our call. Thank you and I hope you have a good day..

And this does conclude today's conference call. Thank you again for your participation and have a wonderful day..