BBT
#Yes.
I think we will end up this year with improvement.
It may be in the [57-ish] kind of range.
Pretty confident about that.
We still think over the next two or three years, we will get to the mid-[50s].
And I know some people talk about the low [50s].
That's not going to happen unless you get a substantial ramp-up in the yield curve.
Remember this is a numerator/denominator problem.
We are assuming the economy will grow at 2%, 2.5%.
And there will be a slow ramp-up in the yield curve, but not dramatic.
Therefore, it makes it harder to grind out efficiency improvements.
Still though, with the opportunities we have to generate additional revenues out of our investments we've made and the ability to generate additional efficiencies from the investments we've made, we think will be able to hit those targets.
Our strategies, in terms of capital deployment, remain the same.
But we've always said they adjust from time to time.
The ones that don't change is you always use capital benefits to get the maximum organic growth you can get.
Number two has been and will remain dividends.
The swing is between buybacks and M&A.
So what I was leading to earlier is there is a flip there, going forward, for a while, in terms of buybacks being more important than M&A as we focus on realizing these opportunities.
With regard to dividends, we can sort of hope.
Our CCAR application is in and, as you know, we never can say for sure what's going to happen.
But we would certainly expect to have a dividend in increase.
Because even though our dividend payout's somewhat high, it's not high by traditional standards.
And it's not high relative to the stable revenue streams that we have.
So we are very comfortable with the dividend increase this year.
<UNK>, are you talking about primarily the energy area.
We made our decision, <UNK>, some time ago, to be a long-term player in the energy market.
We are not going to change that long-term strategy.
Energy is an important business for the country, for the world, and for us.
We enter into relationships on a very conservative selection basis and a conservative underwriting basis.
Obviously, everybody is really energized about ---+ no pun intended ---+ about concerns about energy now.
And we're taking it very seriously.
And we're marking our boot really aggressively and all that.
But, look, I think there's a much higher chance that oil will be at $50 by the end of this year than $30.
And I think, over the long term, the energy business will still be a really good business.
And so we will stick with it, and we will stick with our really good clients and will continue to be supportive to the industry.
That would be for the entire CCAR period, which would extend into 2017.
If you look at National Penn and Swett & Crawford, those two add in approximately $100 million to $110 million in expenses into the second quarter off of their base.
If you add in maybe an additional $30 million more in expense saves, then that leaves about $60 million left, approximately.
I would say second quarter, usually, we have higher revenue so you pay out higher commissions.
That's a percentage there.
And then probably the next biggest increase that we have across the board is probably just in technology and IT.
We continue to invest in those areas, and those areas continue to increase some.
I feel that we are very focused on our expenses.
I think we have a chance of maybe exceeding what we are saying, beating it.
But right now, we are just putting out conservative numbers from an expense base.
As <UNK> said, we will focus on improving efficiency throughout the year.
With all these acquisitions closing first of this quarter, it's going to be really messy trying to put it all together.
Yes, correct.
No, <UNK>.
I think this is more temporary.
I think that we've had a range of 41%, 42%.
45% has been kind of high, frankly.
We think in terms of 42%, 43% is kind of normal.
We don't want to get too far out of balance one way or the other.
It depends on, again, the interest rate environment.
If your interest rates go down, then your net interest stream income goes up as a percentage.
But on a normalized basis, I'm fairly comfortable with our net interest income anywhere in the 40%, 42%, 43% level.
Originally, you had the net interest income being down, which would drive the ratio up.
On the other hand, insurance is not at the level that it would be relatively because it affects the business, and so that would affect it.
The temporary impact has been the removal of American Coastal last year, which, of course, will come right back now when we add Swett & Crawford.
So it's not any change, <UNK>, from a long-term point of view at all.
It will be right back where we want it to be: 42%, 43%.
And then probably, hopefully, hang in that level because, hopefully, the net interest income comes back up.
Yes, <UNK>.
That's exactly right.
I'm not trying to say that we wouldn't dare do any tiny little bitty something.
But as a practical matter, we're just not focusing on M&A now in the insurance or bank, which are our two primary areas.
Truth is, we've got a lot going on in both of them.
We've just set out so much opportunity.
And there is a time to buy, and there's a time to run.
The last 24 months were the time to buy because the times were right.
There was a window for us, and there were some really good opportunities.
And we are really happy about what we did.
And now is the time to take some time and to adjust what we've done and run it really, really well and get the benefits for the benefit of our shareholder.
This is a shareholder-driven strategy, building our profitability up and reaping some of the benefits of the recent investments we've made.
That applies to insurance and banking and basically everything else.
Well, all of us have to wait to see what Fed approves.
As a practical matter, if I were you modeling, I would be modeling for higher buybacks.
It's lower.
The resi runoff is planing out, if you will.
Then you get the seasonal activity buildup in the second.
It's going to be ---+ from an organic basis, I would say we have a little bit more loan growth from second to third, how we sit now.
Visibility out a couple of quarters is not perfect.
But if we're 1% to 3%, you might add another percent or two to that for second to third.
But we'll see how the economy plays out.
No, no, our request has the same flexibility in it that we've always had.
But the guidance I'm giving you with regard to our focus on profitability management versus M&A is very hard.
<UNK>, this is <UNK>.
What I would say from a CCAR perspective, obviously nothing is approved yet.
But the last several years we've focused and we've traditionally been one of the higher ones on the payout ratio on dividend.
We hope that would continue with CCAR 2016.
As far as the total payout ratio goes, I would say we like where our capital ratios are today.
As <UNK> said, we're going to probably use 25%-plus up in capital for organic growth.
So the remaining percentage would probably be in buybacks.
<UNK>, it's really a matter of looking at the number of deals.
Ideally, to be honest, we wouldn't have done as many deals in as short a period of time as we did.
It's just they were available.
And I wish you could, but you can't ideally lay out your M&A plans on a linear basis and reject them whenever you want to have them.
They come when they come, and you take advantage of them when they are there.
We took a bit more in the last year and a half at one time than I personally would like to have.
And you combine that with all the other activities we have going on, there's huge investments in the back room in terms of systems and processes and so forth.
It's my very strong intuitive judgment, and our collective team's judgment, that it's time to focus on taking advantage of what we have.
Sometimes people think about M&A and all this as kind of a linear upward sloping line.
It's not.
It's more like a stair step.
You ramp up in terms of acquisitions; and then you take a period of time and you rationalize them; and then you ramp up again.
We are in the flatter part of the stair step where we are going to be focusing on rationalizing what we've already invested in.
We think that's shareholder friendly because if you continually roll up all the time, you're never getting any real payback until you stop growing or doing M&A for little while.
And that's not fair to the shareholders.
This is more about taking advantage of what we did in the last year and a half.
And when we get that done, we will be interested in M&A again.
But for right now, we are focused on getting the advantages of what we've already done.
You know, what I would say is right now we would be forecasting margins to probably be in the low [340s], probably throughout 2016.
Our rate hike that we have in November helps us, but it's not a huge impact in the fourth quarter.
We are pretty much not assuming on any real rate rise off that.
We feel very good about our mix.
The mix is going in our favor ---+ loan mix, funding mix and our spreads are coming in nicely.
And our core margin has stabilized.
So I feel GAAP margin in the [340s], low [340s], is about right.
Good question, <UNK>.
The rate hike is in November.
It really didn't have a huge impact on net interest income.
You look at the yield curve, we would keep our yield curve relatively constant where it is today.
We don't really think it's going to steepen up much in our forecast that we have.
If you look at our balance sheet, our balance sheet is pretty balanced.
About half of our assets are floating and half are fixed.
When the curve actually came down some in the early part of 2016, the fixed portion got hurt a little bit from a net interest income perspective because those get priced off the yield curve.
But we did a great job with our funding costs, keeping that very stable.
All that is very sticky.
We're having huge growth in funding and wider margins in our deposit franchise right now.
On a year-over-year basis, <UNK>, I think I feel fairly comfortable that we will have 12%-plus growth in NII on a year-over-year basis from 2016 to 2015.
Could you translate that for me a little bit, <UNK>.
(Laughter).
Purchase accounting, what I could tell you is that the Susquehanna purchase accounting is starting to come up a little bit.
But we have National Penn that will have the first time for go on for this quarter.
So purchase accounting is going to be pretty robust for most of this year.
It will trend down over time.
But 2016, I feel very comfortable that GAAP margin will be in the low [340s], second, third, fourth quarters.
And core margin, we feel, is stabilized, starting to improve some.
That could actually get into the low [320s].
