Truist Financial Corp (TFC) 2006 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the fourth quarter 2006 BB&T earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Tamera Gjesdal, Manager of Investor Relations.

Thank you.

Ms. Gjesdal, you may begin.

Thank you, Ferrar, and thank you to all of our listeners for joining us today.

This call is being broadcast on the internet from our website at bbandt.com/investor.

Whether you are joining us this morning by webcast or by dialing in directly, we are very pleased to have you join us.

As is our normal practice, we have with us today John Allison, our Chairman and Chief Executive Officer, and Chris Henson, Chief Financial Officer, who will review financial results for the fourth quarter of 2006 as well as a look ahead.

After John and Chris have made their remarks, we'll pause to have Ferrar come back on the line and explain to those who have dialed into the call how they may participate in the question and answer session.

Before we begin, let me make a few preliminary comments.

BB&T does not make 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.

Additional information concerning factors that could cause actual results to be materially different is contained in the Company's SEC filings including, but not limited to, the Company's report on Form 10-K for the year ended December 31st, 2005.

Copies of this document may be obtained by contacting the Company or the SEC.

And now it is my pleasure to introduce our Chairman and CEO, Mr. John Allison.

Thank you, Tamera, and good morning and thank all of you for joining us.

Let me outline the areas I'd like to discuss.

I want to give you some insight on our financial results for the fourth quarter and for all of 2006, give you a brief update on our merger and acquisition activity, and then share with you a few thoughts on the future both from a financial and a strategic perspective.

Then Chris will give you some in-depths in several areas and then we'll have time for questions.

The quarter did have a substantial amount of nonrecurring charges, a total of $198.1 million after taxes.

The two primary charges were $46.9 million in after tax on security losses, which we had previously announced.

The good news is we repositioned the security portfolio at a very favorable time.

We will recover that loss in 2007 and have benefits going forward into 2008 so it was a very positive move from a long-term perspective.

We also had a charge of $139.1 million related to leverage leases.

On January 4th, 2007 the U.S.

District Court issued a summary judgment in the favor of the Internal Revenue Service related to our treatment of the leverage leased transaction that we entered into in 1997.

We'd filed a lawsuit to pursue a refund of $3.3 million in taxes plus interest that had already been paid and recorded on that transaction.

Our counsel had advised us that summary judgment was highly unlikely so this action was very unexpected from our perspective.

While we disagree with the decision and we do intend to appeal, due to the timing of District Court's ruling and its potential impact on our other leveraged lease transactions, we have recorded additional tax reserves totaling $139.1 million after tax in the fourth quarter of 2006.

As we had previously indicated, we intend to adopt both FEN 48 and FSB 13-2 in the first quarter.

We had already anticipated that the adjustment resulting from these changes in accounting would include an amount related to leverage leases.

With the recent court ruling and resulting fourth quarter charge, the adoption of FEN 48 will no longer include any amount related to leverage leases.

This event is not expected to have a material effect at all on future earnings.

Obviously at some point we would have an opportunity for recovery, but that could be a long time in the future depending on how the appeal process goes.

Because of the one-time charges, our GAAP net income for the fourth quarter was $250.8 million, down substantially from last year.

Operating earnings, however, were very encouraging.

Operating earnings were $448.9 million, up 5.4%.

GAAP diluted EPS for the fourth quarter was $0.46, again down from last year.

Operating diluted EPS for the fourth quarter was $0.82, up 5.1%.

The operating EPS beat the consensus estimate by $0.05.

A number of people count equity comp in the operating earnings.

We've been excluding it this year and tend to account it next year, and if you counted equity comp, then we beat the consensus by about $0.04, which we're very pleased with.

Also it was a $0.03 increase compared to the third quarter, which is a 15.1% annualized increase in operating EPS.

Cash basis EPS was $0.85, which is up 3.7% compared to last year, but it's a 14.5% annualized increase compared to the cash basis EPS in the third quarter.

Obviously we're very encouraged with the quarter to quarter trend and the overall operating results.

Based on the operating earnings, the cash basis ROA was 163.

The cash basis ROE was 27.87, obviously good numbers.

Looking at the year, again we were affected by the tax, leverage tax adjustment and the bond losses and some merger-related expenses primarily.

Our GAAP net income was $1,528.5 million.

It's actually down 7.6%.

But operating earnings were $1,742.7 million, up 4.1%.

GAAP diluted EPS was $2.81, down 6.3%, but operating diluted EPS was $3.20, up 5.3%, and I think that's a fairly good measure of performance, 5.3% core earnings growth rate.

Cash basis EPS was $3.34, up 4.4%.

The operating earnings results for the year in terms of returns looks similar to the quarter with a cash basis ROA of 166 and a cash basis ROE of 28.44, obviously very healthy returns.

Kind of looking at the factors driving earnings, we're pleased that we had a small improvement in the margin from 368 in the third quarter up to 370 in the fourth quarter, still down a lot from the fourth quarter 2005 when it was 382, and Chris was going to give you some real insight on the margin.

We know that's an important issue.

Looking at noninterest income, we had some very good numbers and very encouraging numbers.

Again, taking out purchase acquisition, so you can call this a core noninterest income growth number, annualized third to fourth, noninterest income grew at a 10.5% rate, fourth to fourth 7.2%.

Year-to-date 2006 compared to 2005, 8.9%.

Very good number in this type of environment.

If you look at some of the main areas that affect noninterest income, insurance is our single biggest noninterest income source and our insurance commissions continue to do well.

Fourth to fourth we were up 6.7%, again excluding purchases in all of these categories.

Annualized link up 11.9%, year-to-date 9.9%.

Based on some numbers that I saw at the end of the third quarter, we have the best internal growth rate of any of the major brokers in the U.S. so insurance is doing very well.

Service charges, on the other hand, were kind of disappointing.

Fourth to fourth, down 2.7%.

Annualized link, we were up a little bit, 7.4%.

Year-to-date service charges were essentially flat.

The rate environment impact that as we're getting less commercial account analysis fees as commercial accounts are getting higher earnings credits at higher rates.

Also, our own pricing strategy offering more free prices to drive faster deposit growth rate impacted those numbers.

If you look at our nondeposit fees and commissions, which are primarily bank card and debit card, I had a very good year, fourth to fourth up 13.7%.

Annualized link was only up 1.9% but that's because we had a Visa marketing rebate in the third quarter which is an annual event you don't get every year.

And then for the year, our nondeposit fees and commissions grew at a 19.1% core growth rate, very encouraging.

Investment banking and brokerage, fourth to fourth, up 3.6%.

Annualized link was down 37% annualized.

Year-to-date up 5.7% so not as fast of growth as we'd like, but a decent number.

Trust revenue fourth to fourth up 6.8%, down slightly.

Annualized link year-to-date up 5.1%, a decent number.

Mortgage banking is interesting.

If you take out mortgage servicing rights, fourth to fourth we were down 8.4%.

We were up 63% on an annualized link and year-to-date we were up 6.2%.

If you include mortgage servicing rights, which is how the final accounting is done, fourth to fourth we were down 6.5%, annualized link up 29%, and year-to-date we were up 1% so essentially our mortgage banking revenues were flat for the year.

And it's interesting.

Originations in the fourth quarter of 2006 were almost exactly the same at basically $2.5 billion as in the fourth quarter of 2005.

Net revenue growth, again excluding purchases, annualized third to fourth 8.1%, fourth to fourth 3.8%, year-to-date 5%.

Our fee income ratio in the fourth quarter was 40.9% over our intermediate goal which we're raising the next five years to get to 45%, but healthy long-term progress there.

Noninterest expenses on an operating basis excluding purchases, annualized third to fourth 2.6%, fourth to fourth 5.2%, year-to-date 7.6%.

Obviously the 7.6% annualized number we're not happy with.

We think we made some good investments and made that happen, but we're not happy with that number and we're going to be focusing on that.

Chris is going to give you some more insight into the expenses in just a minute.

Looking at growth, average loan growth continued to be what I would call decent.

Annualized third to fourth on a GAAP basis, total loans grew 8.1%.

Taking out purchase and securitizations, total growth was 7.3%.

Commercial was 6.4, direct retail 4.2, sales finance 12.4, revolving credit 6.8, mortgage 29., excuse me, mortgage 6.8, and specialized lending 24.9%.

The fourth to fourth numbers look similar at 8.1% total, except that mortgage volumes were a good bit less in terms of portfolio growth from third to fourth.

Year-to-date numbers were on a, excluding purchases were 9.1%.

You get similar numbers, except that mortgage year-to-date 16.5, so our third to fourth growth rate was a lot slower in mortgage and our sales finance growth rate year-to-date was only 3.2% compared to 12.4% third to fourth.

So if you look at the major categories, commercial has been relatively steady.

We're having a fairly material mix change as our commercial real estate lending activity has slowed a little bit by our choice, but mostly by slowing in the marketplace and a commercial and industrial lending activities picked up pretty significantly.

So we're -- we're getting a moderate growth rates in commercial and a fairly big mix change, which is a little bit of a challenge for us in that commercial real estate is a big business for us and it is slowing, but C&I is picking up.

Direct retail has kind of drifted down in the 4% to 5% range reflecting less activity in the housing market, less home equity lines, which is our primary direct retail product.

Mortgage activity in terms of production has remained relatively flat, but the big difference is we slowed our portfolio pretty significantly in the fourth quarter as we had a mix change, with more people going to fixed ARMs than we traditionally sold the fixed portfolio.

And secondly, we're starting to sell part of our ARM portfolio because we don't like ARM pricing right now relative to what we see interest rates being.

So we're selling more of our ARM production, which we traditionally held.

Good news, our sales finance business is doing much better.

We think we are moving market share in the sales finance business partly related to the challenges the manufacturers' finance ARMs are having, which are pretty significant.

We now have the number one market share in our whole footprint in terms of the sales finance business for banks.

We feel not as big as some of the sales finance subsidiaries, but they're losing share.

One thing that we think will help sustain a healthier sales finance growth rate in 2007 is we're substantially increasing our focus on boat marine financing and on recreational vehicle financing.

While we've had small niches in both of those businesses, we have primarily been like 95% been in the automotive business, automobile finance business and sales finance.

We are a very large market shareholder along the coast.

We have a lot of marine dealers that are deposit customers of ours.

We think this is an opportunity.

It'll take a while to get up, and we didn't have any effect in the fourth quarter, but will help us sustain a faster growth rate this year.

Also, our specialized lending businesses are doing very well, particularly Regional Acceptance, our subprime automobile finance arm.

They're all growing well and producing very healthy returns.

Deposit growth for the year has been the good news.

In a broad context, noninterest bearing deposits have been a challenge.

Without, if you take out purchase acquisitions fourth to fourth for noninterest bearing, we're down 3.1%.

Annualized link down 7.3%, year-to-date basically flat at 1%.

Still seeing a lot of movement out of DDA into cash management accounts, a lot of people moving into CDs as the interest rate -- reflecting the interest rate environment.

Interest checking, though, is very encouraging.

Without, take out purchases, up 9.6% fourth to fourth, annualized link 6.6%, year-to-date 11.7%.

In client deposits in total, again taking out purchases, fourth to fourth up 9.8%, annualized link 7.3%, year-to-date 8.9%.

Really good year for us in the deposit business.

As we mentioned last time, we moved deposit market share in every state we operate in except West Virginia where we maintained the number one share.

For the year, we added a net of 122,000 net new transaction accounts.

As we talked about last year, a lot of our focus was shifting to deposit business and we've had really, really encouraging results.

Asset quality remains excellent.

We did have a tiny uptick in nonperformers at the end of the third quarter.

They were 0.28% of assets.

At the end of the fourth quarter they were 0.29%.

If you actually look at the numbers, almost all of the increase in nonperformance was in our specialized lending businesses.

However, those businesses have traditionally had a seasonal swing and you can go back and look at past years.

They're just getting bigger businesses where the fourth quarter is higher.

The reason for that is twofold.

In specialized lending, we get a fair number of repos around automobiles and we intentionally hold them because it's not a good time to sell automobiles in the fourth quarter.

And then we sell them in the first and second quarter in the specialized lending numbers tend to go down.

In addition, a fair part of that client base is very dependent on tax refunds.

We don't think the little run up in specialized lending is anything but the seasonal increase we've had in the past.

It's just a little bigger because specialized lending is a bigger portion of our business and we expect nonperformers in specialized lending to actually fall in the first and second quarter.

At least that's what our history has been.

Charge-offs were very good news.

Charge-offs were $68.1 million, actually down from the fourth quarter of 2005 when they were $68.9 million.

Charge-offs as a percentage of loans improved from 37 basis points last year to 33 this year, and if you take out specialized lending charge-offs in the fourth quarter of last year were 0.25 and fourth quarter this year 0.18, extremely good numbers.

Year-to-date also great numbers.

In 2005 we had 0.30 charge-offs, which is a good number by itself.

This year it dropped to 0.27, and if you take out specialized lending, charge-offs improved from 0.19 to 0.14 so really good looking credit quality numbers.

In terms of provisioning, we did provision $72.7 million compared to charge-offs of $68.1 million so we provisioned $4.6 million more than we charged off.

For the year, we provisioned $240.4 million, charged off $215.8, provisioned $24.6 million more than we charged off.

Our reserve did fall some based from 1.08 to 1.06, which really reflects the mathematical consideration we use in setting loan loss reserves, but our coverage has remained very strong.

The coverage to charge-off was 3.29 years worth of charge-offs and the coverage to nonaccruals of 3.41 so very strong coverages relative to the charge-offs and nonaccruals.

Our credit quality, we're probably, we've certainly reached the low point.

We might see some increase in nonperformers going forward but we don't see it.

Right now, we don't see a dramatic increase.

We think our asset qualities still very good by long-term standards, excellent really.

We don't expect a significant increase of charge-offs or nonperformers in 2007 unless the economy does a lot worse than we expect it to do.

So we're not, we're seeing some minor bumps here and there, but we're really not seeing anything significant in terms of deterioration and credit quality.

One comment on the long-term trends, which we remind ourselves about.

We've used our MOE, which is now in 1995 and over that period since 1995, the compound annual growth rate in operating diluted EPS has been 10.3%, which is a really good long-term number.

Couple of follow-ups in summary looking at the results.

Obviously we're unhappy about the tax hit, but we're very pleased with the operating earnings in the fourth quarter.

Particularly, if you look at the relative trend, relative to the third quarter, a very healthy growth rate and we're pleased to have exceeded the consensus estimates.

Year-to-date operating earnings increased 5.3%, which we think is kind of a pretty good measure of performance for the year.

We had some good things, healthy loan growth, healthy deposit growth, healthy fee income growth, excellent asset quality.

Some degree of those were undermined by the margin pressure from the inverted yield curve.

Our own choice to make pretty heavy investments for the future and the lack of growth in service charges reflecting a more aggressive strategy of attracting transaction accounts.

Some other factors that were important.

Independent research that we've commissioned for several years indicates that we continue to improve our service quality and have better service quality than our primary competitors.

One factor that has driven that better service quality is that we continue to have a lot less turnover than the industry and we actually improved our turnover in 2006.

We did make heavy investments to the future.

We actually opened 51 new branches in new locations.

We did simultaneously close and consolidated 39 locations to improve efficiency and we added 45 locations through merger.

We added to our product line pretty significantly in capital markets, increased our sales staff pretty dramatically in metro markets.

We also substantially increased our advertising and marketing budget, and hopefully these investments will pay off in the future.

Now let me change direction a little bit and make a couple comments about M&A and then I'll talk about future results.

In 2006, we acquired, converted and integrated both Main Street and First Citizens.

We did meet our cost saving goals.

It's really too early to call the revenue results yet but we think we'll get there.

While there were challenges around both of these mergers, overall, they went well.

We still expect them to be accretive by the second half of 2007 or at the worst in 2008.

In December, we agreed to acquire Coastal Federal, a $1.7 billion bank headquartered in Myrtle Beach, South Carolina.

Gives us the number one market share in Myrtle Beach and adds to our already number one market share in Wilmington.

These are both great growth markets, tremendous amount of activity in both of these markets and have great growth prospects.

Lots of people are moving in.

These are retirement, first class retirement markets.

It's a high-performing company.

It's a great cultural fit.

Tuesday, Ricky Brown and I began the visiting process.

We went to shake hands with our home office people in a number of their branches, very high-quality people.

This is going to be a good deal for us.

Beginning in January, we also consummated our AFCO/CAFO acquisition, which takes us number two in the U.S. in premium finance and number one in Canada, which obviously fits great with our insurance agency brokerage system.

We got back in the agency acquisition business, which has kind of been upset with all of the commotion in the insurance agency industry.

We made a high quality acquisition in Florida and hope to do some more insurance agency acquisitions in 2007 as we've done in the past.

In 2007, we'll also continue to look for community bank acquisitions that look like Coastal, the kind we've done in the past.

My guess is the pace will be similar to 2006.

We'll probably do a couple of deals, although community bank acquisitions or any kind of acquisitions are totally unpredictable.

We certainly are not expecting to do a large acquisition as some analysts implied.

That's certainly not on our radar today.

As I've said on a number of occasions in the past, going back several years, we would certainly consider doing a merger of equals with the commercial bank and investment bank and insurance company in the next five to ten years, which is a long time horizon, where BB&T's culture survived.

The press made a fairly big deal out of a Bloomberg article about this issue but it really wasn't news.

It's something that those of you that have been listening to this call have heard for a number of times.

What I had been saying is that in an industry that's rapidly consolidating, there are going to be some opportunities for merger of equals that make economic sense.

But there's no sense of urgency about doing it or no special.

There was no special news in the article and what we've said in the past.

Of course, BB&T was built with a merger of equals so we know that they can work.

And of course, any merger of equals we did would be immediately accretive to our shareholders or we wouldn't do it.

While it's possible we'd do a merger of equals or something more dramatic might happen in 2007, my personal opinion is that 2007 is most likely to be a relatively uneventful year for BB&T in terms of overall merger activity.

I hope you'll see a few small community bank acquisitions like Coastal and some insurance agency acquisitions and that's what we expect, although, again, mergers is an unpredictable area.

Now me share with you a few thoughts about the future.

I would just give you a reminder that everything that Tamera said was true about the future.

We don't provide earnings guidance and anything I say about the future could easily be wrong.

In fact, a number of the things I've said in the past turned out to be wrong so future predictions are guesses at best in today's world.

I would like to share with you a broad set of parameters about our financial growth expectations.

I'll talk about both from a GAAP perspective and an operating perspective adjusted for purchases.

We think our noninterest income from a GAAP perspective will grow 12% to 13% with acquisitions playing a role in that.

Our operating guess for noninterest income, we think on an internal basis will grow 8% to 9%.

Noninterest expense is an area where we're going to put a lot of focus on.

On a GAAP basis, our noninterest expenses will probably increase 6.5% to 7.5%.

But on an operating basis, we're trying to hold our noninterest expense to 4% or so.

That compares to 7.6% in 2006 so a lot of focus on lowering the noninterest expense growth rate.

On loan side, we think from a GAAP perspective, something like 10% to 11%, on an operating perspective 7.5% to 8.5% loan growth.

Client deposit growth, GAAP wise, 7.5% to 8.5%.

Operating without purchases, 6% to 6.5% growth rate in client deposits.

We're going to continue growing our portfolio.

We're going to deemphasize to some degree our CD growth rate in client deposits because we've got a positive market share and developed the momentum and now our focus on client deposits is really trying to drive transaction accounts.

A lot of our energy in 2007 will be on more effective expense control.

We reduced our goal for de novo locations to 35.

Where we increased our FTEs in 2006, 1,600, we expect a substantially smaller increase in FTEs in 2007.

In fact, we're hoping to grow our assets $10 to $11 billion by adding only a couple hundred people.

So we're expecting much better growth rate and assets relative to FTEs.

We think we paid up front for the increased producers in 2006 and won't have to make that investment in 2007.

We'll continue to work very hard on improving the execution of our sales models in our new regions, especially our metro markets.

We'll also continue to enhance our perfect client experience model which is already producing superior client service results.

We're placing a great deal of energy towards driving faster transaction deposit growth in the microbusiness segment, penetrating the noncredit service needs of the larger corporate market, and growing our commercial and industrial loan portfolio recognizing that CRE loan growth rate is almost certainly going to be slower.

Objectively, the first half of 2007 will be somewhat challenging.

You all remember the first quarter.

We have some pretty material seasonality factors.

However, I'm very optimistic about the second half of 2007 and 2008.

I think we'll do very well unless something happens to the economy or something happens in the interest rate environment that we don't expect, which obviously could happen.

With that said, now let me turn it over to Chris to give you some in-depth analysis of several areas and then we'll have some time to answer questions.

Thanks, John.

Good morning to everybody.

I would also like to welcome each of you to the conference call.

As normal, just like to speak to you briefly about net interest income, net interest margin, noninterest expenses, taxes, and capital.

If you first look at net interest income based on operating earnings, obviously continues to be challenging to generate net interest income given the yield curve.

If you look at our linked quarter performance, however, you can see earning asset growth was up about 4.7% adjusted for purchases, which produced $978 million and net interest income up 6.4% annualized increase over link quarter, adjusted for purchases.

If you look common quarter comparison earning asset, very solid, 6.4%, adjusted for purchases.

Produced again $978 million and net interest income up 1.7% increase over the prior year quarter adjusted for purchases.

And then on a year-to-date basis, solid growth and earning assets of 7.6, adjusted for purchases and produced just under $3.8 billion in net interest income, up 2.5% increase over prior year adjusted for purchase acquisitions.

If you look at, moving to the margin, based on operating earnings, first looking at linked quarters.

As John pointed out, we did bump up 2 basis points from 368 in the third quarter '06 to 370 in the fourth quarter '06.

Looking at the fourth quarter 2006 versus prior year quarter, we were down 12 basis points from 382, fourth '05 to 370, and fourth '06 and for the year year-to-date basis down 15 basis points from 389 in '05 to 2006 at 374.

At 370 net interest margin for the fourth quarter, we were basically in our projected range when you consider the benefits of the bond restructure.

During the fourth quarter, we did remain liability sensitive and obviously continue to operate in a difficult interest rate environment with inverted yield curve.

In fact, it inverted a bit more as we progressed through the quarter.

Continued to experience loan pricing pressure.

However, liability cost did stabilize somewhat in the quarter.

We continue to focus a lot, as John pointed out, on organic deposit growth, and once again, as a result we're able to fund our loan growth and I think that's very healthy to the extent we continue to have really good loan growth.

We did continue to experience a shift in the mix of the deposit base or high cost deposits, but it was offset somewhat in this quarter by slower rate of increase in liability costs.

If you look at the yields and rates, first kind of looking at link quarter, you can see the total interest bearing liability rates increased much lower, as I pointed out, compared to last several quarters, up 11 basis points.

Last several quarters have been more in the 30 basis point range as did loan yields.

They increased slower, as well.

We also received more contribution this quarter from securities portfolio.

Looking at common quarter comparison, you see more reflective of what you see in the past, spread down 18 basis points to the function of interest bearing liabilities, increasing 102, while total earnings assets up only 84, and that's really driven by other interest bearing deposits increasing.

They were up 132 basis points and client CDs were up 124 basis points.

But still very worthwhile to fund loan growth if you have it as opposed to broker deposits.

Did want to provide some additional information related to our margin as you look toward the first quarter.

Our margin will be affected by the implementation by FAS 13-2, related leverage leases and the IRS deposit we established.

I just want to clarify that.

There are really two ways you can pay the IRS, through a direct payment or by establishing an interest deposit with them to preclude the accrual of interest.

We elected to establish a deposit on January 2nd, 2007 based on the expected timing of our trial and recommendations from advisors.

The funding of the deposit, the accounting change, specifically 13-2 and seasonal factors, could cause the margins to dip into the 350s in the first quarter and then restore to the mid 360s later in the year due to the timing of the cash flows in the lease portfolio, just the way it kind of works through.

Do want to reiterate what John pointed out.

There should be no material effect on '07 earnings, future '07 earnings, as a result of these changes.

And also I really believe our core margin for the core banking operation remains relatively stable.

Also wanted to share with you the outcome model which continues to be based on blue chip consensus forecast, assumes a 25 basis point reduction in Fed funds in May with flat inverted yield curve for the balance of 2007.

Turning attention to noninterest expenses.

As John, I think, covered well, we did experience higher than normal noninterest expense growth rate year-to-date basis adjusted for purchases, 7.6%.

As a result of [inaudible] de novo branching advertising, the new campaign in capital markets products, virtual sales staff, et cetera, but really believe the common quarter comparison at 5.2% adjusted for purchases really more reflective of potential where we are currently.

Want to update you on the cost savings revenue enhancement initiatives.

We achieved $75 million in savings in 2005 and also an additional $65 million in the year 2006, bringing our total to $140 million since inception versus our $175 million goal.

We are on target to achieve the remaining 35 during the first half of '07 as originally planned and most of the success in 2006 has come from reorganizing and centralizing the vendor management process.

We built a completely different process that sort of drives our vendor decisions and is really working well, continuing to get good benefits from it.

Also specifically centralizing and rebidding several of our large vendors, for example office supplies, janitorial loan maintenance, a reduction in overall real estate square footage.

That was something we apply a lot of focus and energy to about 18 months ago and really got some good benefit in this year.

And just in general how we handle some very simple, mundane things like statements and those sorts of things.

If you drill down a little bit into noninterest expense, first looking at year-to-date.

As we said, we were up 7.6% after purchases.

That is a total growth of about $248 million, and look at the drivers of that.

The first one would be personnel expense, which was up about $181 million.

And 75% of that number really is -- it's FTEs.

It's about 1,380 FTEs after purchases, about half of which are revenue-producing.

And it's incentives and insurance, investments, banking network, and lower debt capital.

So it's really all FTE related.

If occupancy, look at the second driver is really about $13.5 million that make up the number, then occupancy and equipment and the large majority of that is additional rent expense, primarily for the de novo offices.

And a third driver is about $53 million in other operating expenses.

About 40% of that number would be revenue producing items, primarily incentives for our venture capital arm, BB&T Capital Partners in Windsor Mezzanine.

And small amounts in there for consulting, which is really revenue initiative kind of ideas that come out of that.

There's also some advertising in the revenue number.

In the nonrevenue piece, which is about 60% of that $53 million, it's items of few small legal settlements and legal charges and most notably, I guess, the IRS lawsuit.

If you look at the common quarter comparison, again I told you it was a little more reflective, I believe, of sort of where we are currently.

It's up about 5.2.

And looking at the drivers there, after purchases, that would be about $45 million and really two primary drivers.

One, again, personnel expense.

It's about $36 million and that consists of, again, about 80% of that is FTEs were up about 1,040 or so.

And additional market valuation in red-eye trust and some advertising and increase in expense and a small amount in there for legal expense.

So it's really more of the same, just different period.

I wanted to update you briefly,John mentioned our acquisitions in process and just give you an update on our cost savings.

As a reminder, Main Street, we estimated $24.6 million in savings and we did convert that in September.

And First Citizens we estimated $6.6 million converted in November so total of $51.2.

In the fourth quarter, we realized $7 million in savings and year-to-date we're at about $11 million so the grand majority of that additional savings should be realized in '07.

Year-to-date, by the way, was '06.

I thought I might have mentioned '07.

And just kind of closing expenses.

Target expense growth rate, as John pointed out, in the 4% range after purchases.

Just wanted to say our focus really is in execution going forward instead of additional initiatives.

We think we're in the right initiatives.

We just need to effectively work those through fruition.

Make a few comments about taxes.

As we -- as I previously talk about, we are going to adopt FEN-48 and FAS 13-2 first quarter.

We did anticipate the adjustment from these changes having some leverage lease amount.

As John pointed out, due to the recent court ruling, we've and taken in the fourth quarter, adoption of FEN-48 will not include any amount related to leverage leases.

And if you look at our tax rate, effective tax rate, third quarter we were at 32.94% and moved down to 31.71% in the fourth, primarily as a result of some year-end true-up in state and federal.

If you look forward, we would expect effective tax rate in the first quarter to be in the range of 33.5%.

Obviously that's going to, to move up or down, but in the range of 33.5% in the first quarter.

Looking at capital, wanted to just point out one thing that we've had a meaningful improvement in both unrealized losses on securities available for sale and also the fair value of derivatives portfolio since mid-year, primarily as a result of declining rates, but also result of realizing some of the losses in the security portfolio.

It's been a meaningful move since the end of June.

To remind you, our primary capital targets are to maintain leverage capital at 7%, intangible equity that we mentioned last call at 5.5% through the end of year equity, the total assets at the end of the period was 9.7.

Total risk-based capital was 14.3.

TO1 stood at 9% in the period and leverage capital in the period was 7.22, well above our target of 7 in anticipation of some of the charges that we have mentioned.

Intangible equity in the period, 5.6%.

As for share repurchases, on year-to-date, we've repurchased 22.3 million shares for $936 million average cost.

It's just under $42 and we repurchased no shares in the fourth quarter.

Our plan for future buybacks, we do have -- we do plan to repurchase in the range of 7 to 9 million shares in '07 and given the equity adjustment required for FAS 13-2 and some of the smaller accounting changes, we expect most of that activity to occur in the last half of the year.

And finally, I'd just like to remind you our first quarter dividend, $0.42, and that represents a 10.5% increase over the prior year quarter.

And with that, that concludes my comments.

Thank you, Chris.

Before we move to the question and answer segment of this conference call, I'll ask that we use the same process as we have in the past to give fair access to all participants.

Please limit your questions to one primary inquiry and then one follow-up.

If you have further questions, please reenter the queue so that others may have an opportunity to participate.

Now, I'll ask the operator, Ferrar, to come back on the line and explain how to submit your questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from the line of Jason Goldberg with Lehman Brothers.

Please proceed with your question.

Thank you.

Chris, just a clarification in terms of your net interest margin expectations.

I guess did you expect it to go to the low 350s in the first part of the year and then build up to the mid 360s?

Is that what you said?

Yes -- no.

We didn't say low mid 350s.

We said it could dip into the 350s in the first quarter.

And then build back to the mid 3--?

Go back to the mid 360s throughout the year primarily as a result of the timing of the cash flows.

And is there any benefit in that number with respect to the restructuring that you have done?

Well, certainly the restructure would have been built in, a portion of it in the fourth and we would get some additional benefit in '07.

Okay.

And I guess is there an offset to the way the leases kind of work in terms of the margins?

In other words, is there an offset somewhere else?

Not sure I follow that question.

The way the accounting works for the leases, the negative effect is in the first quarter and then after that, it's actually positive.

Yes, it's all timing, Jason.

It's quirky, only word I've got to say.

You have to rerun the cash flows every single lease, lay them over the top of each other, and you kind of get the result.

It's timing.

Okay.

And then, if you look, I guess with respect to MPAs, you talked about how the specialized portfolio works in terms of seasonality.

But if you look at your specialized and I guess net charge-offs, it looks like they've gone from 270 basis points in the second quarter to 310 in the third to 355 this quarter.

Just talk to the trends maybe in terms of what's driving that increase.

The expectation is that the charge-offs will drop in the first again and then start building them back across the year just like the nonperformers.

They both have had that historical pattern.

And it relates to the subprime automobile business, which is the big driver.

The reason it's more visible, it's just that the specialized lending is a bigger part of our business, and it relates to two things.

It relates to tax refunds and it relates to, which a lot of this client base depends on, and it relates to values of automobiles, because you have a fairly high repo ratio in this business and it's easier to sell automobiles in the spring than it is around December, November.

And that, obviously, we can't be certain that historical seasonal pattern will continue.

And I personally grilled our specialty finance guy yesterday about the issue and he's convinced that you'll see a decline in nonperformers and charge-offs in the first quarter as you have historically seen in those businesses.

Appreciate that.

Yes, sir.

Our next question comes from the line of Gary Townsend with Friedman Billings Ramsey.

Please proceed with your question.

Gary Townsend, your line is open.

Yes, this is actually Bob [Ramsey] speaking for Gary Townsend.

If you could explain quickly, I was looking at the provision for income taxes between your operating and GAAP statements, and it looks like the difference there is about $104 million.

I know $139 of it has to do with the leverage leases.

What is the other $30, $37 million or so?

Right.

You got the bond losses in there?

Plus the $46.9 after tax bond loss, and then there's a little bit of just year-end true-up and state and federal.

Okay.

Thank you.

That's all I have.

Sure.

Our next question comes from the line of Nancy Bush with NAB Research, LLC.

Please proceed with your question.

Good morning, guys.

Morning.

Couple of questions here, mostly about the rate outlook.

You're still liability sensitive.

You're looking for a rate cut in May.

That increasingly looks like it's not going to happen.

So what happens if the Fed just sort of stays stable through the year or indeed late in the year decides they're going to raise rates?

So I mean is it too late at this point to do anything about that?

Will you be materially impacted?

If you could just give us some clarification there.

Nancy, in looking, this is something we've looked at very carefully.

The real issue for us is the emerging of the yield curve.

If, let's say the Fed were to raise rates and all the other rates moved with them, it would make almost no difference to us.

If the yield curve inversion gets worse, i.e., the Fed raises and long-term rates don't move proportionately, that would hurt us.

So we're only liability sensitive in the sense that we benefit from falling rates, but our biggest issue is the yield curve itself.

So the -- if the yield curve, even if rates didn't move down and the yield curve were to move quote to normal, it would actually help us.

Okay.

So the yield curve really is a critical factor.

So we shouldn't look just at the direction of rates when we think about you?

Right, it just depends on how they move together.

Okay.

Secondly, John, the loan mix changed from CRE to CNI.

Your economic area, now my economic area as well, has suffered over the last few years.

And is this change making you more optimistic about just sort of the fundamentals of the economy down here?

Yes, I think it is, Nancy.

I think part of it's our own effort.

We've redirected in a way from CRE towards CNI.

But part of it is that we're seeing a fairly healthy in-migration of businesses out of other parts of the U.S. based on labor costs, replacing.

We went through a 2 or 3-year period that was pretty dramatic in a lot of our smaller towns and we have dominant market shares related to textiles and furniture.

And to some degree tobacco, but mostly textiles and furniture.

That's not getting any better.

But what is happening is you're seeing more and more light manufacturers, and some of them pretty sophisticated.

Electronic parts, automobile, I mean airplane parts, et cetera, moving in and replacing the textile and furniture manufacturers because you got a skilled labor force at a low cost with no unions and good work ethics.

And we probably still have another year or two to go, but I think in another year or two, a lot of those mid-sized markets, which we tend to have whopping market shares of, will actually be better off because the jobs they lost weren't very good.

They were jobs and the new jobs are going to be better.

And I think that transition is kind of systematically taking place and that's reflected somewhat in our CNI activity.

Great.

Thank you very much.

Yes, ma'am.

Our next question come from the line of Jennifer Thompson with Oppenheimer.

Please proceed with your question.

Morning.

Good morning.

You mentioned that seasonal factors impact your first quarter.

Could you just go over a couple of the key metrics you expect to be impacted 1Q?

Yeah, I'm happy to do that.

It would be primarily in service charges and insurance.

We tend to have our better quarters our second and fourth quarter.

And third would kind of be sort of in that priority.

First quarter is our weaker quarter in terms of insurance.

You can see it down in the 10 to 15 million kind of range, I guess.

And then service charges are just typical seasonal kind of after the holiday kind of issues.

So that is, those are the two primary areas.

I guess, this year, which is a little unique, will be this funny, for lack of a better word, accounting for the [Lilow] transactions where we'll have some dip in net interest income that will come back, actually improve in the -- after the first quarter.

That's right.

That one should not be a recurring thing in future years.

Right.

But still, it sounds like you're looking for it to get back to the 360s, which is still below the fourth quarter level.

So is that correct?

What we, what we're simply saying, yes, in the first quarter, if you don't have net interest margin, I understood you to say noninterest income --

Non -- yes.

Net interest margin would be potentially a dip into the 350.

We're not certain that will happen, but it's potential.

And then you would see the timing of the cash flows of these leases begin to kick in and restore that as you kind of move through the balance of the year.

That's just the quirk of the --

What is the fourth quarter, Chris? -- better in the high 360s or -- ?

Yes, probably in the, in the high 360s, potentially even low 370s.

So about a fourth quarter of next year, our margin may be better in the fourth quarter of this -- of 2000 -- by fourth quarter of 2007, may be better than fourth quarter 2006, but we're going to take a dip in the end.

In the balance for the year, it's probably, it's probably where we talked about finishing, sort of in that mid 360s kind of range.

Got it.

And then in terms of the balance sheet growth, given some guidance on the loan growth, would you expect earning asset growth to look very similar to that or is there any plans to do anything with the securities portfolio beyond what you've already done?

The securities portfolio would grow slower than the loan portfolio.

We're continually looking at options in the security portfolio, but we don't have any real material plans at this point in time to do anything, but we are analyzing the securities portfolio pretty much perpetually right now.

Great.

Thank you very much.

Yes.

Our next question comes from the line of Mike Mayo with Prudential Equity Group.

Please proceed with your question.

Good morning.

Morning, Mike.

You mentioned first half has more challenges.

Were you referring to the service charge in insurance or something more general?

I mean, it's already been challenging.

Is it getting worse or is it more the same?

No, it's no worse, I misunderstood her question.

I thought she was talking about noninterest income and we just have the seasonal.

If you followed our Company the last several years, noninsurance and service charges just typical seasonal first quarter.

Okay.

Nothing abnormal at all.

And with regard to your projections for expense growth, 6 to 7% seems pretty aggressive.

And you spend that sort of money, if you don't get the revenues you could be caught short with operating leverage, so what kind of went into that forecast?

That's a GAAP number because of acquisitions.

The purchase, the number taking out purchases is 4%.

Okay.

The core number's 4.

So the real expense number is going to be 4%.

Obviously, if we do acquisitions as we planned, we're going to get that effect.

But you've got revenue connected with that.

But the core number's 4%, which is down from 7.6% this year or 2006.

We're looking at a pretty material reduction expense growth compared to 2006 in core number.

And is that a function of expectation for less revenue growth or something you're doing differently?

It's a function of restructuring a whole bunch of things within the bank and really putting intense focus on expenses.

Last year and really the year before, we were trying to move out of a, do lots of mergers and get organic revenue growing which we've had some very strong success in, and now we want to consolidate what we've done, keep the revenue momentum, but we don't have to invest at the margin.

We've pumped our advertising budget up, but we don't have to pump it up as much.

We added a bunch of salespeople in new markets.

We don't have to do that again.

We still got them.

We just don't have to add marginal salespeople.

So a lot of it is trying to reap the benefits of the investment that we've made in 2005 and 2006 as we were moving away from a very heavy focus on merger and acquisitions towards more of a focus on organic revenue growth.

Because the number of those investments were first time investments we won't be repeating.

All right.

Thank you.

Yes, sir.

Our next question comes from the line of Tony Davis with Ryan Beck.

Please proceed with your question.

Good morning, John, Chris.

How are you?

Hi, good morning.

Couple things, John.

I wondered if you got anymore -- well, as I look at you, this is a bank with, I think you have less than 50 credit relationships because they're larger than $50 million.

So loan granularity has always been a key asset here.

I understand though you're going to be trying to sell banking related services to the larger middle market companies in your market and I just wonder how you plan on going about that.

If you will be leading with credit, will that cause you to raise your hole in it and are you setting times here by which you'll either have some type of treasury or capital market insurance relationship with them or you'll exit the credit?

We are trying not to [inaudible] credit recognizing that we'll have to do credit to make it, make it -- to get in the door in some cases.

We're not looking at any material increase in our inside lending limits that we wouldn't normally have.

We based those on our capital positions.

Don't think it'll have a material effect on the granuality of our portfolio because at the same time, we're trying to drive our micro and small business growth rates in CNI lending to a higher level.

But what we've seen over the last several years is there's a large number of corporate clients that have basically one way or the other approached us over the years that aren't necessarily so thrilled about not having -- having a limited number of options in our marketplace with who they could do business with.

We pretty much just stayed out of that market as a long-term strategy.

When we did this economic analysis on economic profit, it demonstrated that we were foregoing a big chunk of economic profit in the market and we thought we could get in it, recognizing we'll have to make some credit commitments, but these are generally very low risk relationships from a credit perspective.

But we think our treasury services, our asset management services are as good as anybody we compete against, and we think we have an opportunity to grow those services and to grow deposit accounts in particular.

If you look at our distribution, and for some, say a large retail operator in the cash management area, we have better distribution, better collection than almost anybody does in many of our markets.

So we think there's an opportunity in that upper end of the corporate middle market, lower end of the real corporate market, that we consciously passed on that's a low risk from a credit perspective, not a high profit margin from a credit perspective, but where the profit is in the other banking services, and we think it's a real opportunity for us.

That's not a major factor, then, John, in the increased CNI that you're talking about this year?

Most of what we've been growing in CNI has been the commercial middle market, small business bracket, what we've had in 2006.

Finally, I wondered if you have any more updated information.

I think the latest info you provided was at the end of '05.

But do you have any more information on the progress you're making in closing that performance gap between you and core markets?

Yes.

We followed it on a quarterly basis and we've made some, some progress, but our core markets are still doing better, although we just looked at our President's Award, which is pretty much in a comprehensive objective evaluation of new versus core.

And of the most improved regions, three out of the top five were new markets and the regions with the best results, three out of the top five were new markets.

So we're starting to get places like east Tennessee and north Atlanta and east Florida, interestingly enough.

All were new markets to us that all finished in the top five in overall performance, which they weren't finishing in.

So we're getting a movement improvement in our new markets and there's still a gap.

There's still a ways to go.

And I really think it's going to take us another couple of years.

It's taken us longer than we expected in some cases, but it's been a tough competitive environment to achieve dramatic improvement and results because of the pressure on deposit pricing.

That's still $1 billion revenue number, as I recall.

Yes, and it's getting there.

It's getting there.

Thanks.

Yes, sir.

Our next question comes from the line of Christopher Marinac with FIG Partners.

Please proceed with your question.

Thanks.

Good morning, John.

Good morning, Chris.

Morning.

I wanted to ask you about the branch openings that you mentioned that they would be a little bit lower than they planned.

Does that lower by 5 or 10 branches, John?

We had, this year we started, we actually opened 51 locations, but we got 60 in process.

We had been talking about doing 60 again in 2007.

When we looked at the economics and the heavy investment we were making, we cut that number back to 35.

So to what extent does some of the new electronic deposit mechanisms from commercial customers and some day retail folks impact?

That's a great question.

I wish I knew the exact answer for that.

We were a leader in commercial deposit gathering at our clients' location.

We actually sell our products at other banks and we're having great success with it.

Item capture at the client's place of business.

It is still not economically feasible for small businesses.

You've got to have enough volume -- for the microbusiness and it's certainly not anywhere near feasible for the retail side.

The other thing is, we still have lots of evidence that the vast majority of our clients that we add our net new transaction accounts come from people that go into a branch.

Now they may choose to mostly do their banking online, but still in terms of client gathering and for the micro and small business marketplace and the typical retail customer, branches remain essential.

My own feeling is that it's going to evolve very much as it has in most businesses where the people that have physical distribution and have really good online capacity have a competitive advantage over somebody that just has physical distribution or just has online.

But in terms of our marginal investment, we looked at our data processing budget and we're putting a disproportionate amount of it in to online banking, adding lots of bells and whistles to the online banking product.

We've had a lot of success with opening accounts online with the client selection.

And so we are really focusing, we took one of our executive management members, Barbara Duck, and focussed her on totally on electronic banking in general and includes the call center and the ATMs but a lot of it's online, online banking.

And clearly it's becoming a more important part of our business, but I don't think it replaces the branches in any kind of reasonable time expectancy.

And we've been very carefully following how we're doing on deposits, how we're doing on profitability on a de novo location, because that was new to us.

We mostly got here through acquisitions and our numbers are very encouraging.

We're, generically speaking, beating our deposit growth goals and beating our earnings growth goals out of these locations and we've cut the turnaround time, or the time to break even, pretty significantly.

Although, they're still dilutive for 18 months, but we're having great success.

So today, you still need branches and probably will for the next 10 years.

Great, John, that's helpful.

Just one quick question for Chris was the loan yield.

Is there any scenario where you see loan yields falling?

I mean, before any main change by the Fed, more deals to be stable?

That's a good question.

I don't foresee them falling.

I really think, there's a possibility rates could increase.

And we're still as a portfolio, our commercial portfolio is still about 78% or 9% variable, which would kind of go the other way.

Really not, I see the pricing pressure is still there and I think we saw a little bit of that this quarter, but fortunately we saw also an offset in reduced liability pricing.

So I don't think I see it really taking a hard dive.

Okay.

Great, guys.

Thank you again.

Our next question comes from the line of John Pandtle with Raymond James.

Please proceed with your question.

Thank you.

You noted the change in mix that you're starting to see in terms of loan growth by category.

I was wondering if you could highlight any changes that you're perhaps seeing on a geographic basis, which markets are stronger, and where you're seeing the biggest changes in terms of demand?

That's a good question.

I would say interestingly enough, in terms of relative growth rates, a number of the faster growing areas, we're seeing slower commercial real estate activity than we were seeing.

Florida, metro D.C., the coast of the Carolinas, the activity has slowed some.

The more interior normal markets, I would say, activity is relatively solid and maybe even some cases picking up compared to what it was.

So it's kind of areas that were just doing really fast have slowed down and areas that were not going so fast, if anything, maybe sped up a little bit.

Our specialty finance businesses are a little unique.

They're pretty much national in scope so you've got some different mathematics going on there.

In general, we're getting better growth rates in our new markets and that's growing on a slower base, although a few places like Kentucky we still haven't got the kind of momentum we'd like to have.

But I mentioned east Tennessee, north Florida, east Florida, places like that, in general even though the market might be slowing down, if you look at our total lending activity, it is picking up pretty healthy in a number of those kinds of markets.

Okay, and that feeds into a related question.

Commercial real estate and residential construction typically have been key drivers of loan growth and earnings growth for a lot of community banks that you've purchased in the past, and with the slow down you're seeing, are you getting more looks?

Are you seeing more opportunities in acquisitions?

A lot of community banks are interested in selling.

The problem is their prices are still too high.

The only way we could do a Coastal was because we had whopping end market savings.

If you don't have whopping end market savings, based on our models, a lot of community banks are still overvalued.

I think there's a lot of potential sellers out there.

I think there are fewer potential buyers at current prices.

Usually at some time that correction takes place.

And I'm, I may be all wet but I think community bank is going to have a pretty challenging environment.

I think one of our challenges is we're a lot of a traditional bank.

If we didn't have insurance and a few other things going for us, it'd be a real tough environment for us and a lot of community banks don't have that.

So I think you might see some price correction in community banks.

I don't know that.

All it takes is one nutty acquisition and the prices go back up.

But I think there are a lot of people interested in selling, but they just want prices that probably don't make a lot of economic sense unless it's an end market deal where somebody's got some really whopping cost savings.

Okay.

Thank you.

Yes, sir.

Our next question comes from the line of Matthew O'Connor with UBS.

Please proceed with your question.

Good afternoon.

Good afternoon.

I was wondering if you could give a little more detail in terms of the net checking account growth, what it was last year versus the 122, and did the growth accelerate at all this year?

Chris, have you got those numbers?

Yes, give me just a moment.

Yes, '05 -- let's see -- I don't see the total.

Annual average would have been, I can get it, just a second, would have been about 89,000.

Yes.

That's what I remembered, right at 90,000, so we went from right at 90 to 122,000.

So it actually picked up.

89.6, actually.

It actually went, by the way, on a per account, it went from 552 to 744 on a per branch per week basis.

Per branch per month, excuse me.

Okay.

And do you have a target for '07?

John, I have not heard the '07 target.

We do, I don't -- let me, hold on a second, if I can remember it.

It is slightly higher, but not a lot higher.

I'm going to say this off the top of my head.

It's about 125,000.

That's about what I would think because we made a lot of leap over the last 18 months.

We became far more price aggressive, which is one reason our service charges didn't grow as much, more free stuff which was a leak.

We can't do that going forward, so it'll probably slow the marginal growth rate some, but it's a little bit up, but not as big of increase as we had in 2006 versus 2005.

Okay.

I apologize, another detail question here.

It's not all that meaningful but if you look at the all other fees, they increased quite a bit linked quarter and I was just wondering is that seasonality or -- ?

That's other interest income?

Correct.

Yes.

Other interest income.

It's really two items.

Primarily it's an increase in capital partners, valuation of judgment, adjustment about 7.5, and then cash surrender value on just a year-end accrual or true-up on our portfolio.

Okay.

And that's 7.5 wouldn't likely, we should back that out going forward?

No, we've had nice contribution.

For example, we've had good contribution every quarter this year.

It's just a little less in third than fourth but we've had two out of the last five quarters have been equal to what this was.

Okay.

That's helpful.

Thank you.

Operator, we have time for one more question, please.

Thank you.

Our final question comes from the line of Jefferson Harralson with KBW.

Please proceed with your question.

Hi, thanks.

John, I was going to ask you a question about an area of lending that we've seen some losses in, other banks.

That's land lending and construction lending.

Can you talk about what you see out there?

There's a lot of builders walking away from options and we have seen some relatively large NPAs at other banks.

Can you talk about what you're seeing out there in those two business lines?

Yes, it's our major focal in terms of our efforts right now.

Right now, we've seen a few smaller subdivisions that we've got some problems in.

But there's, we're still able to find buyers fairly quickly.

We really, and our portfolio so far, knock on wood, we are not seeing any kind of major deterioration in commercial real estate.

I think a couple reasons.

We tend to, we don't tend to do the great big track developers.

We don't do any business, practically speaking, with our national companies, mostly local guys that have been in the market a long time who have been through cycles and have had -- have kept pretty good control on their inventories.

So we are not seeing any material deterioration in commercial real estate problems, not to say it couldn't happen.

I think what would really, what really would do it would be if something happened to the economy and you had unemployment rates, or if long-term mortgage rates jumped up.

But as long as long-term rates stay relatively modest and the economy stays relatively healthy, I think because we've got in-migration of population into our markets, it cures many sins and we're still selling a lot of houses across most of our footprint.

Even an area that's interesting, even I was visiting Myrtle Beach, I mentioned, if you look at Myrtle Beach, if you finance a bunch of condos on the ocean, you've got a problem.

We didn't do any condos on the ocean.

If you're financing mid-sized homes one-half a mile inland, you're doing fine.

People are still buying those houses, still coming out of the northeast, they're still cheap.

So knowing the local markets is really, really important.

So I'm not going to say we're not going to have any problems, but we're not seeing any major deterioration and I think the mix of our business, we're not likely to see any major deterioration unless something happens very different in the overall economy.

Okay.

Thanks.

And a follow-up for Chris on the benefit of restructuring on the margin this quarter.

Is it safe to say it's somewhere in the range of 10 basis points or is that or do you know the exact number there?

Off the top of my head, I don't.

Jefferson, it's -- I don't recall.

John, do you recall?

I don't.

It probably would be better to call him back because I don't remember.

What date did you execute the restructuring transactions on?

Yes, it was all throughout the quarter.

And --

We didn't execute until December, I don't think.

No, yes, but we -- but what I was going to say was most of it would have settled very late in the quarter.

So you really don't have in this quarter all the benefit that you'll have kind of going forward.

Okay.

Thanks a lot, guys.

Sure.

Thank you for all of your questions.

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Thank you.

Thanks.

Ladies and gentlemen, this does conclude today's teleconference.

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