Truist Financial Corporation (TFC) — Q3 2016 Earnings Call Transcript

Thank you, LeAnn, and 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 may 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 two 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. So overall, I think we had a very strong performance quarter. We have record quarterly earnings, and we completed a few strategic agreements which will benefit future quarters, which I’ll describe. We had net income of $599 million, which is up 21.7% versus 2015, and 42.7% annualized versus second quarter 2016. Our diluted EPS was $0.73, up 14% versus the third quarter and up 42% annualized versus the second. If you adjust for EPS, it totaled $0.76 excluding merger-related and restructuring charges on a few other items on slide four. GAAP ROA, ROE, and ROTCE were 1.15%, 8.87%, and 15.20%, which I think reverses filing in this environment. Taxable-equivalent revenues totaled $2.8 billion, up 13.1% versus the third quarter of 2015 and 3.9% versus the second quarter of 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 Daryl will give you a lot more color on that just a little bit. Our GAAP efficiency ratio improved to 61.7% versus 65.4% in the second quarter of 2016. Our adjusted efficiency ratio improved to 58.7% versus 59.6% in the second quarter. Importantly, non-interest expenses were $1.7 billion, a decrease of 19% versus 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. Actually, we had a respectable 2.2% annual growth, consistent with economic growth. NPA did continue a slight decrease of 4.9%. We did settle a loss-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 regarding 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. We also repurchased $160 million of outstanding shares. As indicated, merger-related restructuring charges were $43 million pre-tax or $0.03 negative impact to diluted EPS. Charitable contribution was $50 million pre-tax, which had a $0.04 dilution of EPS. On the other hand, the settlement of FHA-insurance loan matters net of recoveries was a positive $73 million or $0.05, and the determination of the FDIC loss-share agreement, $18 million, was a penny. So, if you net those out, it was a $0.03 net negative impact on EPS. Now slide five, a few comments regarding loans. They were up slightly, 0.3%. For several quarters now, we have indicated to you that we have been allowing our residential portfolio at the Company to decline, that’s a strategic decision. Recall that the mix of our business and expectations regarding rising rates are driving this. The risk-adjusted return is not at a level we would like it to be on a marginal basis. So we will continue that runoff and sales for now, especially in the prime portfolio. The new portfolio, which we restructured some quarters ago into a flat program, is transitioning quite well. The old portfolio is running off today, but the new portfolio is growing more profitably. So we feel good about that, but it does show a loan decline. Our DDA growth continued to be very strong at 14.3%. We feel really good about that. We are increasing market share in most of our markets. And we are managing our costs at a very low 0.3%. So, our deposit business is doing extremely well and supporting the asset growth we have. Let me turn it over to Daryl for some additional detail, and then we’ll have questions.

Thank you, Kelly and good morning everyone. Today, I am going to talk about credit quality, net interest margin, fee income, non-interest expense, capital, and our segment results. Turning to slide seven, 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 is 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 eight, 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 non-performing borrowers are paying as agreed. Allocated reserves increased to 11.5%. This is mostly due to the implementation of guidance from the recent shared national credit review that was received in early October. We continue to have a good quality mix with less than 10% in oil-field services. Lastly, the reserve coverage per call, a very modest portfolio, rose to 13.7%. Turning to slide nine, 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 portfolios, 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 $670 million. We have 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 expect GAAP margins 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, non-interest income totaled $1.2 billion, up $34 million compared to last quarter. The fee income ratio improved to 41.9%. Looking at a few other changes in non-interest income; insurance income decreased $55 million, mostly driven by seasonal decline and 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 pursuant for this employment benefit. 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 the seasonal decline in mortgage banking income. Turning to slide 12, we had an excellent quarter in terms of expense management. Non-interest 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 incentives expense due to seasonality. Merger-related and restructuring charges decreased $49 million, largely due to lower acquisition-related charges. Last quarter’s restructuring charges were related to real estate in the amount of $19 million. Additionally, other expenses decreased by $34 million, mostly due to the $73 million net benefit related to the settlement of certain FHA-insured mortgage business. This is 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 remained 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 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’s net income totaled $338 million, an increase of $43 million from last quarter and up $78 million from the third quarter of last year. Non-interest income increased $13 million driven by higher service charges on deposits, letters of credit, and bankcard fees. The majority of growth experienced in the Community Bank includes acquisition related. However, the 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 saleable loan volume, as well as a net recovery from the settlement of FHA-insured loan matters. Production mix was 57% purchase and 43% refinance, similar to last quarter. Gain on sale margins were slightly down 3 basis points to 1.06 versus last quarter. Looking at 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. Non-interest income totaled $412 million, down $53 million, mostly driven by seasonal declines in commercial property and casualty insurance. Non-interest expense decreased $21 million, mostly due to lower personnel expenses, operating charge-offs, and business referral expenses. Turning to slide 19, the Financial Services segment had $83 million in net income, down slightly, mostly due to modest declines in Corporate Banking loan growth. While it generated strong loan and deposit growth, 8.6% and 13.7% respectively compared to last quarter. Lastly, the provision increased by $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 in revenues, continued strong credit quality, a relatively stable net interest margin, and excellent expense control. Looking forward, we expect to improve outlook for loan growth, continue benign credit, and solid expense control.

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, and market acceptance in all of our new markets is very, very good. 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 challenged. Still, 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 be based, we think, probably somewhat lower levels of pay-offs. We keep looking at possibilities of asset purchases from some other institutions that are rationalizing their balance sheets. When you put it all together, we think that we’ll be in the 1% to 3% range. I frankly expect much of an impact on the fourth quarter. But here in 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 is the kind of slowdown that everybody has talked about, which is a result of anxiety. I saw a report a couple of days ago that about 60% of the market is really, really anxious about the elections. I think when all this subsides, however it goes, it will lead to less uncertainty and less anxiety, which will instill a bit more confidence. Then people will be a little bit more willing to invest, and make acquisitions, and borrow money. I think that’s a bit on the deposit side. We did have several good strategic agreements that have helped future earnings. We continue our system investments, and I’ll point out that 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’ll turn it to Alan.

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

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 a base of $1.691 billion. Just want to make sure that was the right base, Daryl. And also, Kelly, is it too early in the budgeting process to ask about progress on this level in 2017?

Yes, Erika, I think you’re spot on with the $1.691 billion.

Yes, so it is early as you pointed out in the budgeting process. But we’re being very, very intense about our expectations for next year. I think as we look forward for next year, based off this base of expenses they’re kind of flattish. So we do not see a material increase and some opportunities with a slight decrease.

And 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 billion dollar in securities roll-off next quarter, could you give us a little bit better sense of what those remixing strategies are?

It’s just our normal strategies of growing our loan book in specialized areas 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 a positive outlook. 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 from decline as our purchase accounting runs off over the next couple of years.

Daryl, just to follow-up on that. What’s your outlook on, in terms of NII dollars, the 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?

So, 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 the third quarter, mainly due to a slightly 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, setting us up for 2017. I’d say the dollar is probably down in that $20 to $30 million range on a linked-quarter basis.

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

LIBOR, as you know, moved up with the money market changes that happened this month. LIBOR will likely stay at relatively high levels as we cross over year-end. That should benefit us as we have a lot of loans still tied to the LIBOR rate. We have three times more assets than we have funding and liability starts that are tied to LIBOR. So, I think we feel good. In our forecast right now, we do have an increase in December. We aren’t really forecasting anything out for 2017 right now, but we do account for the increase in December.

Daryl, I was wondering if you could just elaborate a bit on why you expect securities to go down in Q4? I guess we’ve seen some pickup in the long-term rates. So I would have thought that maybe reinvestment yields are a little more appealing now than say three to six months ago?

I would say if we were to buy securities now, we’re still 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 1s. From a liquidity perspective, our securities portfolio can shrink a little bit. We also feel really good that that will set us up for a strong 2017. We’ll have optimal opportunities that can enhance performance numbers as things start to happen in 2017.

And then a question for Kelly, just you mentioned there might be some opportunities for asset purchases from other banks. Just wondering if you could elaborate on that?

Matt, I think what you’re seeing is that everybody in this low environment is taking a hard look at the structure of the balance sheets and their ability to accumulate capital. Like us, I think everybody is looking at the risk-adjusted return of assets in business. 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 specific asset, high-risk or a non-cooperative one, they may choose to exit. We’ve seen some of that. It’s not a big deal out there, but you’re seeing some of it, and we are continuously looking into the market to take advantage of any of those that come about because our strategy is to grow from the organic market and with opportunities that allow us to achieve some additional growth. That’s one thing we had some success with this year, and we think it will happen going forward.

And then just on the whole bank deals, is still there much market out there?

Yes, there's still a lot of market activity.

Thank you for taking my questions. I just want to follow-up in regard 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 during 2016?

Kevin, this is Daryl. I’ll answer. We really aren’t giving a whole lot of guidance for 2017 right now. We’ll give much more clarity as we get into January and finish our planning process. But 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 around 1%. What Kelly said in 2017 is we’re going to try to hold that expense rate flat, maybe down a little bit, but we’ll do our best with all the competing priorities to keep our expenses relatively flat for 2017. We’ll give you more color as's things get finalized in our operating plan.

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

Yes, good question, Kevin. So we had $33 million in MSR valuation income, and $18 million was from the valuation adjustment to the MSR. Every now and then you have to update your prepayment models, and we found that our asset valuation was lagging behind peers that we index. We had to adjust our prepayment models, resulting in that $18 million valuation adjustment. If you take that out, we had good hedge performance of $15 million—that was just a good performance in the TBAs that we had that we were 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?

We had benefits and the basis impact, yes.

Wanted to just 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. But just I know you indicated the guidance for the fourth quarter, and Kelly, I know you cautioned a little bit around some lack of demand mid-market commercial borrowers, etc. So how do you think that plays out for 2017, and what type of general level of growth could we expect?

John, this is Clarke Starnes. I’ll take that. Basically, the fact is, Kelly mentioned our production was actually pretty good for the third quarter, not substantially different from what we have seen year-to-date. They’ll be challenged with headwinds for the pay-off. Assuming those pipelines continue to stay strong. 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 where we think the economy is going to grow, we think that we can grow a little bit faster than that. But we don’t believe we can preview anything well beyond that.

And then 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, borrowing any moves by the Fed? I know you’re around 60% currently. Is it fair to assume that we can get to the high 50s without a move from the Fed? Thanks.

When we get through the planning process, we always have our business lines planned positive operating leverage. We want them to stay within the risk appetite of what they’re trying to accomplish. We’re going to have a plan that puts the other positive operating leverage. So, hopefully, we will be able to generate improvements in efficiency. But we really aren’t guiding to any specific number. It’s really going to depend on 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.

Hi. Good morning, Kelly. Good morning, Daryl. Maybe, same question on a different topic. Kelly, can you talk a little bit about the recent Tarullo speech, does it at all change the way you think about excess capital? And I guess, in addition, at this point, you’re under $250 million and hence no longer subject to the qualitative component. However, over the next few years, you would likely pass this. So, does this change the way you have thought about surpassing $250 million? I know historically you talked about a large strategic action would probably be likely. But you’ve obviously made comments that that’s off the table for now. I’m interested in what you thought of the speech and how you’re thinking about excess capital.

Ryan, I think that the speech was very consistent with what he’s been saying for the last two to three years. He had been appropriately moving to adjust some of the initial Fed criteria around CCAR. He clearly believes that the CCAR process needs to be much tougher on the large systems versus large regional banks like BB&T. I think he succinctly codified his movement in that direction. From our point of view, frankly, it doesn’t change a lot because we have a robust CCAR process. We’re not going to dismantle it just because we want to be below $250 million, that wouldn’t make sense. Number one, the way we’re doing CCAR today, we actually benefit from it. We think it's a healthy process. So we would continue basically as it is; in any way, in contrast to dropping the whole requirements. Certainly, we wouldn’t drop it and then have to pick it back up if we did it strategically at $250 million. It was encouraging and that I think the signal is that the intensity of change regarding banks under $500 billion is not going to increase; in fact, it'll stabilize. As he said, the scrutiny from the Fed is focused on the SIFIs, in which relative terms this is good news for us.

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 multi-family and office, where we’ve heard some cautious comments from some of your peers, and what your expectations for growth there going forward?

Ryan, this is Clarke again. Certainly, we are being more cautious in the CRE sector. The two areas we’re most cautious in right now are multi-family, because we believe that market may have peaked or is peaking. There are a lot of projects in the pipeline that could affect absorption and vacancy rates. We’re also cautious about hospitality. We think that’s also peaked and likely to have some over-capacity in the future. Overall, banks are being more cautious and underwriting has tightened and pricing increased for those ever-active in that space.

The question on your long-term debt and your FHL book, you have foreign change billion of pretty high-class staff underneath. I was just wondering in terms of as you’re cleaning up some of the income statement. Is there any opportunity to call, and what would that entail? Would it be just able to be retired? Or could you just take a charge and move on, that’s everything?

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

And second, in terms of what is in the numbers, I saw in the business line that it said 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 just kind of what the organic growth outlook is for the insurance business?

Sure, Ken. It’s Chris. It’s going very, very well. We’re getting the synergies we expected. We’re probably halfway through that process, so the conversion will occur in February. You’re following us right in the organic growth, primarily due to pricing and excess capital in the market. It is generally in the 1% range. If you look at us year-to-date, we would be growing right around 1%. Several factors are driving this; pricing is one. If you look at the mix of the businesses we're in, the pure property and casualty business is probably down in the 1% to 2% range. Our cap property business, through our AmRisc unit, is likely down in the 15% to 20% range. So 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 is unusual in this industry today, and I think that speaks well to the revenue we’ve built over the years. The recent storm was not large enough to create price increases because there’s so much excess capital. On the other hand, it does impact our performance payment, though not significantly. So the run-rate, looking forward, is that we have a chance to continue positive growth and potentially accelerate if the economic conditions improve. But I’d say it’s in that sort of 1% to 2% range moving forward.

I just have a quick follow-up. Most of my questions have been asked, but I do want to follow-up on the investment securities balances. I was wondering if the Q4 2016 level you expect will be a good run rate for 2017, or if we should expect further declines?

Steve, this is Daryl. I would say—we’ll continue to run down our investments. We’ll probably average our securities down another $2 billion give or take from where they were. They were down about $1 billion from the second to the third quarter, and maybe down about $2 billion linked quarter from the third to the fourth.

And then regarding the investment banking and brokerage fees, it was a pretty stable quarter-over-quarter despite the closure of capital markets business. I was 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’re right—we did shut that down. Although we’re continuing to move forward in M&A. I’d expect next quarter to be up slightly, maybe a 1% to 2% range until we digest all that and then accelerate from there.

Good morning, guys. This is Jason Harbes on Matt’s team. I just had a question on the expense guidance. So, the 1% decline, I think you quantified, sounds like that will roughly offset the anticipated decline in the spread income this quarter. And then with fees relatively flat, it should be relatively flat EPS in Q4, I guess is what the outlook is telling us. I had a question on the credit guidance. With relatively stable net charge-offs and the expectation that you’ll need to start provisioning for growth, is there any guidance you can give us on how you think about the rate of reserve build for the anticipated loan growth?

Jason, this is Clarke Starnes. I think we put it on our deck. We believe our reserve rates are pretty much more or less at the bottom given where we are at this stage of the cycle as we come through the crisis and as we rebuild portfolios that are now seasoning. We’ve been in a benign economy, so we would not anticipate our reserve rate to go lower. The likely impact on provision is NPLs plus enough reserve build to maintain dollars, to hold that reserve rate we have today. That’s how we’re currently thinking about it.

So keeping the reserve rate relatively stable over the next few quarters would be the expectation now, okay. And then just a question on the core NIM expectation. I guess if we attribute it to relatively stable in Q4, assuming we get a rate hike in December, what will be the expectation if we didn’t get a rate hike?

The rate hike is so late in December. It’s not going to have a significant impact. You’re getting the LIBOR benefit just crossing over at year-end. I wouldn’t view that as a significant concern for the fourth quarter.

I’ve got just 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 is the case with many in the industry, and we’ve seen a recovery in many of the Texas Bank stocks. Are you comfortable with the size today, and are you looking to grow if M&A is off the table, or is it more of a de novo strategy?

The energy portfolio is really just a very small portion of our strategy in Texas. We review the energy portfolio as more of a national strategy. I expect it to continue to grow modestly as the overall industry continues to recover from lower rates. With regard to Texas in general, our acquisitions on the city branches and de novo branches are growing extremely well. The Texas market overall is doing well. We are starting to see a little softness in Houston around some multifamily knowledge, which you might expect—nothing dramatic. You’re beginning to see the effect of that a bit, but nowhere else across Texas. We’re gaining momentum substantially. We have about $7 billion or $8 billion operations in Texas which is strong with 14th in market share, up from 53rd in market share when we started in 2009. Texas is still growing about 1,000 people a day. So we’ll continue to grow faster than the market in Texas and continue to build out our franchise with de novo branch expansions. We will certainly, in the long term be in some acquisitions, but that’s not a part of our strategy today. Our organic strategy is going very well, and we feel Texas loves us. We’re having a lot of success there.

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

I would say our merger-related costs have probably been in the $20 million to $30 million. It’s pretty much phasing down. This might be the last quarter of substance; we’re getting some little dribbles and drabs in maybe the first part of ’17. But I’d say $20 million to $30 million in the fourth quarter.

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

Chris, the fourth quarter tends to find seasonality in those platforms. The retail-oriented platforms tend to have higher loss rates in the second half of the year, while the seasonality goes the other way in the first half. I think all-in-all, the fourth quarter represents more of a seasonal peak than it does a run rate.

And, 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. They’re relatively small compared to the total of the bank, and there are some specialized niches where there is still more penetration opportunity to expand market share. So, I think we would expect those to grow higher than the bank average.

Thank you, LeAnn. And thanks to everyone for joining us. If you have further questions today, please don’t hesitate to call Investor Relations team. And this concludes our call. We hope you have a good day.