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BB&T CEO rethinking future M&A as industry reaches digital 'tipping point'

BB&T Corp. is focused on a resurgence of "Main Street" banking as the company continues to ward off woes regarding an FDIC consent order that a unit entered into in December 2016.

Executives on the company's 2016 fourth-quarter earnings call said the consent order, regarding internal control deficiencies related to its Bank Secrecy Act and Anti-Money Laundering compliance program, is already factored into the company's run rate. In December 2016, the company said it had made investments to upgrade its processes and systems, and that it expects to enter into a similar order with the Board of Governors of the Federal Reserve System.

"We are way down the road in terms of resolving the issues that we needed to improve on," Chairman and CEO Kelly King said. "So, it's important. We need to fix it, but we've substantially already done it, to be honest."

Management said they expect core expenses to be below the $1.7 billion in the first quarter. They also indicated they are optimistic on the regulatory front and expect related costs to remain stable. Over time, they expect regulatory relief could lower expenses by 20% to 25%. They also said they are optimistic about the prospect of a lower corporate tax rate, noting that it could have a huge impact on their bottom line.

"Main Street has been really struggling for the last eight years," King said. "We believe what's getting ready to happen is a substantial resurgence of Main Street ... So overall, I will just tell you that things look pretty good. Lower taxes, less regulation, higher interest rates and faster GDP growth. Overall, [its] a really good proposition for the banking industry."

The consent order effectively prohibits the bank from participating in whole-bank acquisitions. Still, the order didn't stop analysts from peppering King with questions regarding M&A activity as he continued to refute that the company is searching for new opportunities.

"Independent of the BSA issue, we're not ready to get back into bank M&A yet," King said, adding: "There's a chance we are facing a near-term tipping point with regard to the value of branches as the digital technologies really accelerate and reduce the interactions of the branches. It's not to say that we would have no interest, but it changes economics."

He said as branching activity continues to slow and more and more customers begin to utilize the digital platform, branch "pruning" will be more aggressive. The company closed 25 branches in the 2016 fourth quarter.

The consent order also meant that the company formally switched to buybacks. On the call, King said to expect a substantial increase in buybacks in the first quarter, and possibly a special cash dividend.

Executives also said the company is encouraged by recent price hikes in the energy sector and are seeking to grow its energy portfolio in 2017.

BB&T reported fourth-quarter 2016 net income available to common shareholders of $592 million, or 72 cents per share, compared to $502 million, or 64 cents per share, in 2015's fourth quarter.