BB&T 2Q16 Earnings Call Notes

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BB&T (BBT) Kelly S. King on Q2 2016 Results

We’re focusing on expenses at a more intense rate

“I do want to reinforce that we are intensely focused on expenses. We’ve been focusing for a number of years, as you heard me describe about reconceptualization of our business, that continues, but I would say to you, it continues at a much more intense rate.”

The economy is relatively slow, yield curve will be flat for a period of time

” The economy is relatively slow. We project a relatively low flat yield curve for a period of time. And as a result, we are accelerating our focus on expense reductions.”

The economy is ok, Brexit is over exaggerated

“Speaking of the economy, we think the economy is okay, still growing at about 2% to 2.5%. It’s been an interesting six months as we came out of the first of the year when everybody thought the world was coming to an end with changes in China and so forth, and then it settled down, more recently everybody has gotten very, very excited about Brexit. We think the Brexit change is serious, but it’s been over exaggerated in terms of its impact on the world and certainly on us.”

Pre crisis we were running at 15% ROE, normalized we think that falls to 13% based on increased capital and 11.5% based on the economy

” Pre-crisis we and the other good banks were operating at about 15%. You got to start from kind of the top. Way I think about it is about 2% kind of right off the top because of higher capital. And then, you’ve got about 1% to 1.5%, which is just the economy, margins, et cetera, and then the difference really is in increased regulatory costs and some technological cost. So from the capital point of view, we’re going to continue to try to manage our capital efficiently, but it’s going to stay high compared to past period. So that 2% at least for the short run is kind of non-retrievable, but that gets us to, say, 13%. So the 1% to 1.5% in terms of economy, obviously, can come back, and come back quickly, depending on the growth rates in the economy and the margins. ”

I think the flat rate scenario is overstated

“I personally think the flat rate scenario that everybody projecting is overstated. The underlying strength of our economy is not great, but it’s good. Fed, I believe, clearly knows they need to raise rates, and I think they will the minute they see a window, which could still easily happen at least one rate increase towards the fall.”

Investing in technology is about getting to scale and being more efficient

” And then the whole thing about regulatory and technological cost is about becoming efficient; scale is part of that, and then they just need to settle in that we have put into place.”

I think we can definitely be in the 10% range

“I frankly think in the bottom line, Gerard, that it’s a material change, and that over the next couple of years, I certainly think we’ll be in the 10% range over the next couple of years, and covering cost of capital. I don’t have any concerns about that. From 10% to 12% or 13% is more difficult, as I’ve described, and somewhat circumstantial based on what’s going on in the world, but we will be in the top tier of the performing banks based on the then existing circumstances.”

Remember that the efficiency ratio is a ratio

“I know everybody likes to be hyper-focused on the efficiency ratio, and we’re willing to talk about it. But remember that it is a ratio, and so we have a lot of visibility in terms of the numerator, but we don’t have as much visibility in terms of the denominator, that is revenues. Obviously if we did nothing today with our expenses, and the economy got better and margins got better, our efficiency ratio would go down. I mean, you wouldn’t give us any credit for that, but that’s what would happen.”

Not doing M&A until they right size what they’ve already got

” Our shareholders understand we are not going to do M&A, until we feel good about executing on what we already have invested in. Recall we bought $35 billion worth of assets over the last year and a half, and we got plenty of work to do to right size that, and get the returns for our shareholders. So I think where we are, I think this is where we’re going to be, and is just really that simple.”

Daryl N. Bible – Chief Financial Officer & Senior Executive Vice President

Excluding energy, NPAs are stable

“NPAs decreased 1.9% to 40 basis points, with the majority of the loan portfolio showing improvement. If you look at the graph, excluding energy, NPAs have improved steadily in recent quarters.”