Truist Financial Corporation (TFC) — Q4 2018 Earnings Call Transcript

Thank you, Andrea, and good morning, everyone. Thanks to all of our listeners for joining us today. On today's call, we have Kelly King, our Chairman and Chief Executive Officer; and Daryl Bible, our Chief Financial Officer, who will review results for the fourth quarter and provide some thoughts for 2019. We also have Chris Henson, our President and Chief Operating Officer; and Clarke Starnes, our Chief Risk Officer to participate in the Q&A session. We will be referencing a slide presentation during the call. A copy of the presentation as well as our earnings release and supplemental financial information are available on the BB&T website. Let me remind you 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 2 in the appendix of our presentation for the appropriate reconciliations to GAAP. And now I will turn it over to Kelly.

Thank you very much. Good morning, everybody, and thank you very much for joining our call. So we had a strong fourth quarter, and what I would call, a great year. The quarter had record revenues, very good expense control, improved loan growth, excellent asset quality and strong returns, and the year had a record $3.1 billion in earnings. GAAP net income was $754 million, up 22.8% versus the fourth quarter '17. If you exclude merger and restructuring charges, we had a record $813 million in income. Diluted EPS was $0.97, up 26%, but we made a lot of progress, which I'll refer to later, in our Disrupt to Thrive reconceptualization initiative, so we had a substantial restructuring charge this quarter. Our adjusted diluted EPS was a record $1.05, up 25%. Our adjusted returns were very strong. ROA at 1.53%, return on common equity 11.99%, and a very strong return on tangible common at 20.41%. Taxable equivalent revenue was a record $3 billion, up 1.5% annualized versus the third, primarily driven by good loan growth, NIM expansion, strong performance in insurance and investment banking. Loans held for investment averaged $147.5 billion, up a very strong relative to the environment, a very strong 3.6% annualized. Net interest margin increased 2 basis points, core net interest margin increased 3 basis points, both of which were better than we expected. Our adjusted efficiency ratio improved to 56.5% versus 57.3%, almost a whole point, creating very strong positive adjusted operating leverage. Adjusted noninterest expense totaled $1.7 billion, up slightly 0.6%, but I point out that for the whole year it was down slightly, which is what we indicated at the beginning of the year. So we feel very good about our expense control. We had outstanding asset quality again. Nonperforming ratio was 0.26%, a decrease of 1 basis point. Net charge-offs were 38 basis points versus 35 basis points in the third quarter and 36 basis points in the fourth quarter '17, both very low and very stable. Regarding strategic initiatives for the quarter, as I said, we made substantial progress in our Disrupt to Thrive initiative. We have been discussing this for almost 2 years now. We started out talking about reconceptualization in all of our businesses. We moved that in terms of wording for our people's benefit to disrupt or die to get everybody's attention that in this market, you simply have to make major tough decisions to pay away expenses from the old bank to build the new bank of the future. We have now moved the term Disrupt to Thrive, pointing to the future, and that is resonating very well with our people, and we're getting substantial cost reductions out of this. We are investing a substantial amount of this in our digital platform and other technological investments that allow us to innovate for the future, which is critical to our success. We had a very successful Investor Day. I hope you all were there. If not, I hope you'll come to our next one at our BB&T Leadership Center; that was a good night and day for all attending. We completed $375 million in share repurchases. As I indicated, we did have some significant merger and restructuring charges, mostly around our Disrupt to Thrive initiative. Our pretax was $76 million; after tax, $59 million or $0.08 per share. If you follow along in the slide deck, I'm on Page 5, looking at loans. We had very strong loan growth, overall 3.6%, and really good C&I, which is annualized at 4.3%. This was led by good performance in corporate banking, dealer floor plan, equipment finance, automobile lending, and recreational lending. Our C&I loan growth was negatively impacted by a seasonal decline in mortgage warehouse lending as premium finance always has a seasonal slowdown during this quarter. Indirect loan growth was also hindered by a seasonal slowdown in Sheffield. Still, very good C&I performance. Our retail portfolios increased due to strong growth in mortgage and indirect lending. We're excited about what's happening in mortgage. Recall that we have been optimizing our mortgage portfolio for about 3 years, reducing the kind of mortgages that were not offering a good risk reward relationship. We've now restructured that focus, and we're achieving better yields and lower risk, so we like what we're booking in the mortgage area. Dealer finance and regional grew 6.6% annualized. Recreational grew strongly at 11.8%. So very good performance across the retail portfolio. We also had good momentum in the loan book. During the quarter, our end-of-period loans were up 6.3% annualized, and C&I was up a very strong 14.7%. So really good loan performance across the board. On Page 6, regarding deposits, it was a challenging quarter. We had a total deposit increase of 1.4%. We did see noninterest-bearing deposits decline on an annualized basis of 3.2%, but our total DDA and liquid accounts were only down 2.4%. What is really happening is companies are putting money to work, which from an economic perspective, we view as very good news. We supported our loan growth with additional focus on time deposits; we have plenty of room to grow those deposits. Our average noninterest-bearing deposits decreased $442 million versus the third quarter, primarily in the business area, while the percentage of noninterest-bearing deposits was 34% compared to 34.4%, so not a very big change there. The cost of interest-bearing deposits was 78 basis points, up 12 basis points, while total deposits were 0.52%, up 9 basis points. Before turning to Daryl, I would say overall, we see the real economy as still solid, and optimism is still high. There's certainly a lot of chatter about the government shutdown, Brexit, and trade talk, which, if continued at a high rate over time, could impact the real economy. But so far, on Main Street, we don't see that. You can tell from our loan performance that we had a very strong quarter. Feedback from our people suggests that this positive momentum will continue unless there is too much rhetoric coming from D.C. and other places that causes everybody to be depressed. We don't believe that will be the case. We think the trade talk will wind down over the next 2 or 3 months, and the government shutdown will be resolved. Regarding Brexit, it's hard to predict, but we don't think it will materially impact our business. Main Street has been a driving force for BB&T for about 10 years. As global companies are performing better, these factors tend to affect global companies more than they affect Main Street, which is a relatively strong positive for BB&T. Thus, we feel good about the economy, the optimism, and our performance as we move forward. Let me turn it over to Daryl now for some more details.

Thank you, Kelly, and good morning, everyone. Today, I'm going to talk about credit quality, improving margins, strong fee income, well-managed expenses, and our guidance for 2019. Turning to Slide 7, credit quality results this quarter continue to be very strong. Net charge-offs totaled $143 million, up 3 basis points over the third quarter '18 and 2 basis points compared to last year. This quarter's increase reflects seasonality in the consumer portfolio. Our NPAs are at historic low levels with an NPA ratio at 26 basis points, primarily driven by a decline in nonperforming C&I loans. There was a slight NPA increase in several smaller portfolios. Continuing on Slide 8, our allowance coverage ratios remain strong at 2.76 times for net charge-offs and 2.99 times for NPLs. The allowance to loans ratio was 1.05%, flat from last quarter. Excluding loans and acquisitions, the allowance-to-loan ratio was 1.09% versus 1.11% last quarter. We recorded a provision of $146 million compared to net charge-offs of $143 million, resulting in a small allowance build of $3 million this quarter. Turning to Slide 9, the reported net interest margin was 3.49%, up 2 basis points. The core margin was 3.40%, up 3 basis points. The core margin increase reflects our asset sensitivity coupled with the September rate hike. The cost of interest-bearing liabilities rose 14 basis points versus 12 basis points last quarter. The increase in large time deposits impacted the increase in interest-bearing liability costs. Asset sensitivity showed a modest reduction from last quarter. Our loan portfolio continues to be balanced between fixed and floating loans. Continuing on Slide 10, noninterest income was $1.2 billion. Our fee income ratio was down slightly to 42%. Excluding the decrease of $36 million in nonqualified income, fee income was up $32 million or 10.4% annualized. Insurance income increased $39 million, mainly due to seasonality and strong new business. The Regions Insurance acquisition contributed $34 million in revenue. Even when excluding Regions, insurance income was up 8.4% from last year. This is a strong performance. We also saw record investment banking and brokerage fees in the quarter, which is up 25% from the fourth quarter '17. Other income was down $77 million, mostly due to fewer SBIC gains and nonqualified income. Continuing on Slide 11, our expense management continues to be robust. Adjusted noninterest expense came in just over $1.7 billion, up slightly from a year ago, which includes Regions Insurance and the nonqualified expense. Excluding merger and restructuring charges, Regions and the nonqualified expense, expenses were up $23 million from last quarter and $20 million from a year ago. Including the Regions acquisition, average net FTEs decreased 381 versus the third quarter of '18, and we are down almost 1,200 for the full year. Merger-related charges increased $58 million, primarily due to severance and facility write-downs. We are managing expenses effectively, contributing to positive adjusted operating leverage versus last quarter and last year. Continuing on Slide 12, our capital and liquidity remain strong. Common equity Tier 1 totaled 10.2%. Our dividend payout ratio was 41%, and our total payout ratio was 91%. Common shares repurchased totaled $375 million in the fourth quarter. The LCR ratio came down 11 percentage points due to an unfavorable funding change. Turning to Slide 13, we have a new format for our segments focusing on revenue and its drivers. Community Bank Retail and Consumer Finance net income was $384 million, a decrease of $9 million from last quarter. The $17 million revenue increase was driven by a $17.5 million increase from deposit spreads, which improved 11 basis points, loan balance growth of $624 million, and a $3 million increase in service charges on deposits, partly offset by a $7 million decrease in loan spreads with a decline of 5 basis points. Loan production fell from last quarter due to a seasonal decline in auto, Sheffield, and mortgage. The decline in deposits was driven by seasonality and industry trends. Continuing on Slide 14, Community Bank Commercial net income was $329 million, an increase of $19 million from last quarter. Revenue improved $23 million, primarily due to a $22 million increase from deposit spreads improving 14 basis points. An increase in dealer floor plan balances was offset by declines in C&I and CRE. Loan production was up 11% from last quarter, driven by strong C&I production. Turning to Slide 15, Financial Services and Commercial Finance net income was $155 million, an increase of $6 million from last quarter. Revenue increased $29 million, driven by record investment banking and brokerage fees and loan growth. C&I loans drove the loan growth in the quarter, with C&I and CRE loan production increasing by $2.8 billion over the prior quarter due to strong demand for credit. Interest-bearing deposits decreased as we chose to fund the corporation with lower-cost sources. Turning to Slide 16, Insurance Holdings' net income totaled $77 million, an increase of $34 million from last quarter. Revenue increased $44 million from last quarter due to PNC seasonality, increased life insurance commissions as a result of improved production and an increase in performance-based commissions. On a like-quarter basis, organic revenue growth was 9.5%. On Slide 17, you will see our outlook. Looking to the first quarter, we expect total loans held for investment to be up 1% to 3% annualized linked quarter due to seasonality in some of our loan portfolios. We expect net charge-offs to be in the range of 35 to 45 basis points, and the provision is expected to match charge-offs plus loan growth. Based on the current flatter and lower yield curve, we expect GAAP margin to be relatively flat and core margin to be up slightly versus linked quarter. Fee income is expected to increase by 3% to 5% versus the same quarter last year, and expenses are expected to rise by 1% to 3% compared to the same quarter last year. Finally, we expect our effective tax rate to be 20% to 21%. Full-year guidance has not changed from what we discussed at our Investor Day in November. We're better positioned for loan growth momentum starting in 2019 than any other time in the last decade. Our insurance and banking businesses are well-positioned for continued growth. We have financial flexibility to manage costs and invest in the business. We continue to generate and grow revenues faster than expenses, resulting in positive operating leverage. In summary, the quality of earnings this quarter was excellent, resulting in record revenues and adjusted earnings, positive adjusted operating leverage, good loan growth, very strong credit quality, and excellent expense management. Now let me turn it back over to Kelly for closing remarks and Q&A.

Thanks, Daryl. As I emphasized, again, we believe overall it was a very good year. Solid earnings, record $3.1 billion for the year, great returns, adjusted internal tangible common at 20.4%, good loan growth at 3.6%, margin increased as Daryl described, adjusted expenses were slightly up for the quarter but down for the year, with positive operating leverage, asset quality was great, and most importantly, we made excellent progress in our D2T initiative, where we are building the new bank while controlling expenses. For that reason, we believe our best days are ahead. Rich?

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

I just wanted to ask a couple of questions. One is on the expense outlook for 2019. I want to make sure the base for 2018 is minus just the $146 million of merger charges?

Yes, the base is just excluding the merger-related charges. If you look Lana in 2017 and 2018, we were basically right at $6.8 billion, excluding restructuring charges. So that's really the base that we're guiding for '19.

Okay, great. And does your guidance still include 2 rate hikes for 2019?

No. We have a curve and our forecast now that has basically no Fed increases in there, and we have a pretty flat curve throughout the year. If you look into 2020, you might actually have a potential drop in the curve, but right now, just dealing with '19, it's flat on the Fed and a relatively flat curve across maturities.

Okay. And then just one more question in terms of the CD cost. Can you tell us what the incremental new cost of the CDs is coming in at?

I would say if you look at our promotional retail CDs that we're offering, we have a 2% special in the 12-month range. And I think if we go out a little longer in term, we're in the 2.5% range. On the marginal CD dollar, probably be split between, they'll probably more go into the shorter end of that. Overall, the CD renewal cost is significantly lower than that, but on the margin, that's what's driving that incremental growth. This quarter, we did choose to fund more in euro-dollar time deposits, which is driving up the total interest-bearing deposit costs. It's priced off of LIBOR; we're usually around a LIBID rate. So if you look at 3 months LIBOR right now, we're at 277. So we're probably in the 260 to 265 range.

Just a couple of questions. One is on the loan growth. Kelly, you mentioned how you've got some acceleration in C&I. Maybe you could speak to some of the not only areas that are driving that but also how much you think there is legs to that outlook or that asset class? And then also, on the residential side, is that acceleration more decisioning on your part to retain rather than securitize? So just a couple comments there will be helpful.

Yes, Betsy, the C&I acceleration is really bifurcated between our Corporate Banking initiative and also our Community Bank, which is doing very well. We're seeing strong growth in industrials and energy, consumer discretionary, and information technology. Our Main Street portfolio performs well across the board; it's not driven by CRE. We're being very tight in terms of underwriting for CRE, so it’s good solid traditional C&I. And yes, the residential mortgage focus is about retaining the high-quality, better yielding purchases rather than deciding whether direct or through acquisition. As I indicated earlier, we're achieving better yields relative to risk than we were seeing a couple of years ago, and that drives our residential outlook.

Yes, okay. Because I was just wondering on the C&I side, obviously, the parts of the capital markets were closed at the end of 4Q. And I was wondering if your C&I loan growth was a function of that and borrowers needing to go to banks rather than capital markets. Is there any...

Yes, absolutely, Betsy. I think the capital markets have recognized that there is a lot of risk in highly leveraged financing transactions, and the right decision was made to step back. Companies were coming back to the bank market, which is encouraging for us. While some banks might lose business on the capital market side, we don't lose it since we don’t participate there; we just benefit when traditional financing picks up.

Yes, we had good loan growth even with seasonal portfolios down in the quarter with warehouse and premium finance and others. So we started the year with strong end balances.

And we are seeing strong yields in dealer floor plans as well.

Okay, that's helpful. And then just separately, I wanted to ask about...

Did we lose you, Betsy?

Maybe we can move on to the next one.

Betsy, you can come back. We lost you at the end.

Oh, sorry about that. Okay. So then just separately on Page 12 of the slide deck, you talked about a plan to repurchase $425 million shares in 1Q '19. Could you just speak to that bullet point? And is that a pull forward of the second half? Or is that an add-on?

No, Betsy. This is just part of our normal plan that we had authorization for, for CCAR 2018, and I think it was around $1.7 billion in total. Remember, we used some of that up on the acquisition of Regions in the third quarter of last year. On Investor Day, we talked about increasing and leveraging the company potentially down to 9.75 to 9.5. We're still waiting for the Fed and the NPR and comment letters, which I think are due in the next week or so. After that, they'll go through their process. Once that is approved, we'll layer in what we're planning to do for CCAR '19, and I think we'll announce those plans sometime towards the end of the second quarter or early third quarter.

Right, okay. And so is this 1Q '19 run rate of $425 million, do you think you'll likely do as well in 2Q '19?

Yes, ma'am. Yes, it is consistent with our CCAR '18 plans.

Okay. Yes, I just wanted to ensure that you meant the first quarter of 2019, just wanted to clarify.

Wanted to ask a couple of questions on the 2019 outlook. It sounds like you could have some setup for some very nice operating leverage for this year. I wanted to ask you to help us think through the fixed variable nature of your expense base. How do you keep costs flat irrespective of 2% to 4% revenue growth?

So, John, it's tricky and it's hard, but what we are really intensely focused on is, as we keep calling it, the D2T initiative. But what it really is, is a broad-based, across the company look at reconceptualizing our businesses and ensuring that we are efficient. We're looking at layers of management and spans of control. We're finding lots of ways, frankly, to be more efficient and more effective, resulting in expense savings. What we're doing is shifting much of that expense into new initiatives, think digital, more marketing, etc. Some will fall into the bottom line. It's probably like 60%, 70% being reinvested into business and 30% to 40% dropping to the bottom line. We could have more fall into the bottom line, but we believe now is the time to invest for the future. That’s why you're able to see revenue growth with flat expenses; we just have a new approach at BB&T.

Okay. And the restructuring charge was pretty large this quarter. Is there a reason that was particularly large this quarter? Would you expect to have a continuation in the absence of actual mergers or acquisitions? Would you expect restructuring charges to continue this year?

Yes. It was high this quarter. Two-thirds of it was severance costs related to our expanding layers initiative that we started in the fourth quarter, and the other one-third was in real estate. If you look at 2018, we had just under $150 million in merger and restructuring charges. My estimate right now is that in '19, it will be less, around $75 million to $100 million, focusing more on real estate write-downs as we continue to close more retail branches, possibly some back-office consolidations, and some associated space. There will still be some severance charges in '19, but not as much as what we're seeing currently.

Okay. And then last thing was, Daryl, on the revenue growth outlook; the 2% to 4%, could you provide a little bit of a sense of the split there between net interest income and fees? What is the bigger driver as you consider the revenue outlook for '19?

Yes, I would say it's probably weighted 60% in fees and maybe 40% in NII. It's a function of the flatter curve we're observing right now, but that can ebb and flow a bit. We're seeing strong loan growth, and if we keep our margins stable, we'll see robust NII growth. So we have to see how the year plays out. Right now, we're experiencing strong momentum in insurance, investment banking, and brokerage, and even our retail fee businesses are performing well.

Your asset quality continues to be excellent. I have a couple of questions. We've heard a lot of rhetoric about the leverage loan market being very competitive right now. I'm curious what kind of exposure you guys have there and what kind of lending you’re doing?

Jennifer, this is Clarke. Just to remind you all from Investor Day, we only have about $1 billion in leveraged finance, and it would not be on the very aggressive end. It's typically long-term companies we know that might be doing an M&A transaction and would be bringing that leverage down pretty quickly. So it's well underwritten. We have about $1 billion, and we also have no meaningful indirect exposure to anything like CLOs or BDCs, so that's about it. It's less than 1% of our total loan portfolio.

Okay. A separate question. I know paydowns were pretty high for the industry last year. I'm curious what you guys saw in the fourth quarter relative to the rest of the quarters in 2018?

Substantially less. On the C&I side, we benefitted from some of the capital markets 'noise.' We saw fewer paydowns, and we actually experienced greater utilization — probably almost 200 basis points on our undrawn commitments. That was nice. However, we noticed more paydowns, particularly linked to standard projects in our CRE portfolio going to market. As Kelly mentioned, we're trying to be very cautious with new originations. We did see some paydown there, but it was more just standard practice.

Kelly, can you talk a little more about the noninterest-bearing deposits? You mentioned how they were down slightly because more customers are using them to put to work in your businesses. If interest rates do not go any higher this year, do you think that there will be a stabilization in the noninterest-bearing deposits? Or if your customers continue to see growth opportunities, should we expect to see these deposits decline throughout the year?

I think to your point, Gerard, and if rates rise, you'll see that trend accelerate because the marginal cost of funding a project becomes more expensive if you utilize all the people's money rather than your own. If rates remain stable, I think that trend will level out. Keeping a disproportionately low level of liquidity remains attractive, influencing much of customer behavior. Obviously, nobody can predict, but my personal belief is if rates rise, it will continue; if rates stabilize, the trend will stabilize as well.

Very good. And then as a follow-up, you mentioned that credit is very strong today, reminiscent of the conditions prior to the financial crisis. When we review your return on equity during that time, it was notably high at 15% to 16%; return on tangible common equity was almost 27%, and ROAs were somewhat higher. As we proceed, how do you think you can elevate your ROE above today's level of just over 11%?

That's a good question we’re all pondering, Gerard. If you look at adjusted ROE today, it's possibly higher than it was in 2006 because equity has roughly doubled. Therefore, from an adjusted basis, I contend ROE is quite high. Importantly, I expect to gradually see ROE rise as equities normalize. During our Investor Day, we began to move toward a more normalized ROE target of around 9.50 to 9.75. This means that ROE will rise concurrently with profitability improvements fueled by our ongoing initiatives. Thus, we envision a consistent upward pressure on ROE, where return on tangible equity will naturally align. We're quite optimistic about this.

First, more of a detailed question. I just wanted to ensure I understand the numbers regarding the deferred compensation impacts on noninterest income and expenses. Is that — the $36 million reduction to other income, fully offset in the expense line? And I ask because on Page 11, it mentions an $18 million benefit for nonqualified deferred comp in the first bullet; in the second bullet, it states $36 million, and I think the text implies that they offset each other. I just want to clarify the two moving parts and whether they fully offset.

Yes, Saul, it's Daryl. It is dollar-for-dollar offset. So, it's recorded in other income and personnel cost, and they cancel out each quarter. We saw a significant market movement in December, hence the big change. Otherwise, we would have seen robust fee revenue growth, and our expense guidance would still be within range.

Right, right. Okay, got it. I just wanted to ensure that I got that right. Okay. On the insurance business, pretax margins improved a bit this quarter. Can you remind us how you envision the glide path to getting toward your target — I believe it was 30%? How long do you anticipate it will take? Also, could you share what trends you’re observing in that business regarding volumes, client retention, pricing, and all the factors contributing to the top line?

Right, happy to. This is Chris, Saul. Yes, the target was really just to aim for the 25%, 26% range over about a 3-year period, and we saw a nice increase this year into the 22%, 23% range from about 19%. As you may recall, John Howard, our President, presented some details at Investor Day about this; we really began to transform this business from top to bottom starting back in April. We're tracking on 31 initiatives that will take 2 to 3 years to see benefits, but we’re already observing traction. To answer your questions about pricing, we’ve seen consistent pricing this year around a range of 2.5-3; it has stabilized around 2. New business production is up 10% for the fourth quarter and 11.4% year-to-date. These figures are the strongest I’ve seen in a decade, and they’ve driven core organic growth of 9.5% for the fourth quarter and 6% year-to-date. We're ahead of the industry, which is approximately 4.5%. We have numerous operating improvements underway, including synergies from the Regions acquisition. Regions has been accretive to our margins already. We are implementing robotics to enhance cost efficiency and reinventing our employee benefits business. It's a busy but exciting time. Looking ahead, following significant events like the wildfires and Hurricane Michael, we see less than $80 million in loss exposure, which helps sustain pricing for 2019. Therefore, we expect market growth of 3% to 5%, and we anticipate being at the top of that range.

Okay. Just to clarify, when you say the 3% to 5% range, you're referring to overall revenue?

That would be organic growth.

I wanted to consider a broader perspective. If you were assessing your 2019 guidance, where do you think you may outperform existing guidance? What are the key tension points, be it loan growth, expenses, or elsewhere that you’re focused on because you see potential upside?

My view on the upside, there’s likely more potential in loan areas, but looking at the industry, our numbers appear relatively robust. Should the economy accelerate beyond our projections, we could see some upside, translating into increased revenue. Credit quality is low, and there’s minimal risk of deterioration unless there’s a broader economic crisis. Consequently, tax rates are largely stable, and we consider expenses decent at flat levels. Overall, I agree there’s significant upside potential in loan and revenue growth.

Okay, helpful. If I'm reflecting on the increase in time deposits this quarter, could you share your thoughts on future funding composition? How do you perceive NIM in light of potentially flowing into higher-cost funding sources, along with the push and pull challenge with risks involved moving forward?

Yes, we maintain a balanced approach in funding the company. We aim for good laddered maturities, avoiding significant maturity clumping at a single point. It's a balanced approach; our Treasurer, Donna, and her team are instructed to fund the company at the lowest possible cost while abiding by our liquidity parameters. This quarter, they moved a lot of marginal funding into euro-dollar time deposits while being more proactive on our retail side with strong promotions in MMDA accounts and retail CDs. It's really case-dependent as to how we manage funding and overall cost strategy, staying vigilant about maintaining our margins.

Returning to the outlook, your figures indicate better than expected loan growth this quarter. However, you are still holding on to your full-year '19 outlook range of 2% to 4%. Can you discuss the possibility of revising those estimates upward if loan growth continues to be strong?

Certainly, if we experience the kind of production we’ve had recently, our current metrics suggest that. Should payoffs remain lower than what we've seen, which is a welcome change, and if utilizations increase driven by the capital markets and related factors, we could see an upward movement. The largest wild card currently happens to be overall economic sentiment, especially given external factors such as recent chatter surrounding the government shutdown. The moment there's a significant sentiment shift, we could either gain more optimism leading to upside in loan growth or the opposite could result. We consider a reasonably likely scenario aligns with what we’ve projected—3% to 4% is indeed a robust figure for the year, with potential high-side capabilities as well.

Got it, helpful. Additionally, regarding the margin, can you share how the margin might progress in the event the Fed does not increase rates? How do you suggest these dynamics play out over the coming quarters? Is incremental expansion still achievable?

Yes. John, this is Daryl. I'd indicate that we will continue to balance our assets. Half of our loans are short-term while the other half are longer-term. Additionally, as long as our fixed assets are repricing higher, we will be able to offset the increased deposit costs we expect. If we don't see any more Fed increases this year, we anticipate dragging on point margins, though the core margin should remain relatively flat, possibly showing some slight growth as well. I feel confident that core margin could stay steady or go up a bit, even if reported GAAP margin experiences a decline.

Got it, understood. Lastly, the modified LCR ratio decreased by about 11 percentage points. Do you anticipate it will be around 115% by year-end?

We will manage that ratio accordingly. We will see how the Fed NPR unfolds. Our recent funding choices — particularly the shorter-end wholesale funding — have impacted this ratio by bringing it down. However, those choices were strategically made to save us funds while enhancing our net interest margin.

I wanted a little clarity on something you’ve mentioned earlier. It seems you suggest that capital markets are starting to recognize the risks they've been taking and this is good for you, but simultaneously, we see C&I loan demand accelerating from banks. How should we feel comforted that we’re not merely witnessing risk migration from capital markets back onto bank balance sheets?

You're absolutely right, Geoffrey; some of the risk from capital markets is returning to some banks, but not BB&T. Our growth is driven primarily by more Main Street type financing rather than capital market fluctuations. Your observation is insightful, but for BB&T, the conditions differ significantly, and we are focused on traditional lending rather than capital markets.

Understood. Additionally, regarding your BSA/AML consent orders, you were released from the FDIC consent order back in summer, but the Fed consent order remains. Could you provide an update on that? What steps are you taking? How much longer do you anticipate it will remain?

Yes, you’re correct. While the FDIC's order has been lifted, the Fed's remains. This revolves around building a robust BSA/AML program, which we have accomplished. A remaining project for automation was completed by year-end. All required work from regulators has been carried out, and we anticipate that the Fed's order will be lifted shortly. Based on the feedback we've received, we have done everything required and validated both internally and externally through consultants. Hence, we are optimistic about a relatively fast resolution.

Understood. Following the lifting of the Fed order, do you anticipate this will change your M&A approach?

As mentioned during the Investor Conference, we’re intensely focused on the initiatives we've discussed, and we are truly excited about our D2T initiative. The momentum has been solid, our progress is encouraging, and our personnel is enthusiastic about the advancements we’re making. The results support this; we see expenses managed well and robust loan growth, which reflects a productive strategy.

Okay. Thank you, Andrea, and thanks, everyone, for joining us today. If you have any additional questions feel free to reach out to me, and we can discuss later. Thank you, and have a great day.