Truist Financial Corp (TFC) 2008 Q2 法說會逐字稿

The BB&T Corporation conference call will begin momentarily.

Please standby, we are about to begin.

Greetings ladies and gentlemen.

All participants are in a listen-only mode.

As a reminder, today's conference is being recorded.

It is now my pleasure to introduce your host, Tamera Gjesdal, Senior Vice President of Investor Relations for BB&T Corporation.

Thank you, you may begin.

Good morning everyone.

Thank you Millicent.

Thanks to all of our listeners for joining us today.

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

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

As is your 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 second quarter of 2008, as well as provide a look ahead.

After John and Chris have made their remarks, we will pause, have Millicent come back on the line, and explain how those who dialed into the call, 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.

Additionally 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 10k for the year ended December 31st, 2007.

Copies of this document may be obtained by contacting BB&T or the SEC.

Now it is my pleasure to introduce our Chairman and CEO, John Allison.

Thank you, Tamera.

Thank all of you for joining us this morning.

I would like to discuss with you our financial results for the second quarter and year-to-date, primarily focusing on asset quality, we are also trying to give you a feel for our core business performance.

I will share with you a few thoughts about the future, and we will have time for questions after Chris' comments.

Our GAAP net income for the second quarter of 2008 were $428 million, we did have a couple of nonrecurring gains, we made a $47 million before tax, and $30 million after tax gain, on the sale of the rest of our Visa ownership, a private sale.

We also had a $36 million gain before tax, $22 million after tax gain on the extinguishment of debt to the Federal Home Loan Bank.

Our funds management team did a great job of picking the right point in the yield curve when the market overreacted to the Federal Reserve comments, and were able to get a $36 million gain, and reduced our financing costs of about $4 million this year.

So a one-time gain and a reduced financing cost.

We took both of those gains out in computing our operating earnings, operating earnings for the quarter $377 million.

Our GAAP EPS was $0.78, down 6% from last year.

Our operating diluted EPS for Q2 was $0.69.

The was one penny above the Consensus estimate of $0.68.

Cash basis EPS was $0.71.

Looking at our returns, on a cash basis our internal assets was 1.22%, and our internal equity was 21.44%, pretty healthy returns in this type of market.

Looking at the year-to-date results, GAAP net income was $856 million, down 2.6%.

Operating earnings year-to-date $778 million, GAAP diluted EPS $1.56, down 2.5%.

Operating EPS of $1.42.

Cash basis EPS $1.48.

The returns for the year were similar, cash basis, ROA of 1.27%, Cash basis ROE of 22.12% for the six months.

Let's take a look at the fact that is driving earnings, the really good news is that we continue to have a fairly significant improvement in our margin, the margin improved to 3.54% in the Q1 to 3.65% in the Q2, up 11 basis points, and was above the margin of 3.55% for the second quarter of 2007.

We have got a very positive trend to control margins, we think that will continue.

Chris is going to give you some additional insight into that area.

Noninterest income, we were reasonably pleased with, in light of the market we are in, looking at our annualized growth rate from Q1 to Q2, and trying to get a same sales store growth rate by taking out nonrecurring items, fair value accounting, purchase acquisitions, and mortgage servicing rights, the annualized increase in noninterest income in first and second was 25.8%.

That is a seasonal factor, we have a stronger second than first but still a good trend.

Second to second, Noninterest income was up about 1%, our quarter did a little better as we had a fairly big fall in our other noninterest income.

Year-to-date Noninterest income is up 2.9%.

Looking at the specific business lines, excluding nonrecurring items and purchases, insurance revenues second to second were down 3.9%.

Up 22.5% annualized and essentially flat for the year.

That is actually good performance in that premiums and commissions in the insurance business are falling anywhere from 10 to 15% in the commercial market area.

We could have flat revenue this year reflect pretty major positive movement in market share from our insurance operations.

Service charges on deposit accounts were also very encouraging up 13.9% second to second.

47% linked quarter, and 11.6% year-to-date.

We were able to attract 35,000 net new transaction accounts in Q2, 70,000 year-to-date, we are actually having a positive market share movement in that regard.

Nondeposit fees and commissions, primarily our debit card and bank card fees, continued to do well, Second to second up 8.6%.

Annualized link 34.6%.

Year-to-date 9.9%.

Investment banking and brokerage down 1% second to second, and up about 2% year to date.

It has been very flat, in terms of banking and growth, which is actually very good in this kind of a market.

Advisory revenues down 5%, second to second.

Down 2.5% year-to-date reflecting the stock market valuations.

Mortgage banking income, and this also excludes mortgage service rights and fair value accounting, second to second was down 4.3%.

That is a little bit misleading in the sense that our residential mortgage business is doing extremely well.

Residential originations were 4.7 billion in Q2 of '08, compared to 3 billion in Q2 of '07, up 57%.

And our revenue, from residential mortgage originations up 25%.

We are clearly seeing a flight to quality with the eliminations of a number of our irrational competitors, like Countrywide.

We weren't in any of the business like participating businesses that have again away, we are benefiting from the changes in revenue from the mortgage market.

Practically all of our originations now are going into the secondary market portfolio, and very little of our residential production.

We did have down revenues in the commercial mortgage business as you would probably expect, with the demise of the CMBS markets.

Mortgage revenues for the quarter were down 48%.

We do have outlets through Freddie and Fannie to do apartments and other entities, and we are pretty optimistic we are going to pick up in commercial mortgage revenues in the second half of the year.

We have plenty of opportunity there, we find we also have a number of insurance companies we work with.

The Commercial market has been down.

Other income second to second, as down $19 million, year-to-date down $61 million.

Year-to-date, a lot of miscellaneous items.

Looking second to second, the primary factors causing the reduction were low income housing partnerships, where we got tax advantages down $13 million, and our venture capital partners, down $15 million, which we pretty much expect in this type of market.

Partly offset by about $10 million in increased derivative revenues for business we are doing for our clients.

Other income probably at a low point, we don't expect to get any lower than it has been going forward.

Looking at net revenue growth, pretty good numbers in light of this kind of environment annualized first to second, and again, without nonrecurring items and fair value accounting purchases and mortgage services and the like, trying to look at the same store number, annualized first to second up 23.4%.

Second to second up 5.9%.

Year-to-date 5.7%.

A very healthy trend in this kind of economy.

Noninterest expenses we feel pretty good about.

Again looking at Operating excluding purchase and fair value accounting, annualized first to second was up 18.3%.

A lot of that was seasonal, commissions and other things related to increased revenue, second to second, only up 2.7%.

Year-to-date only up 2.6%.

We feel pretty good about expense control, and Chris is going to give you more insight into that area.

Let's look at loan growth, which we also thought was healthy for this type of environment.

Looking at annualized first to second on a GAAP basis, total loan growth was 9.3%.

Taking out purchases and our decision to sell some leveraged leases, which you don't want in this kind of tax environment, we had healthy growth, particularly in our commercial lending business, where on an annualized basis commercial loans was 16.3%.

Retail was down 1.4%, sales Finance up 10.5%.

Line of Credit 6.5%.

Mortgage 7.1%.

If you take out the warehouse, the mortgage was actually down 2%, as I mentioned earlier, almost all of the mortgage production going in the secondary market.

Specialized lending up 10.8, up to 13.7 if you take out the loan sale for sale in process.

And total 10.6%.

Looking second to second.

You had similar trends, but you see the momentum that is happening on a GAAP basis, total loan growth of 9.1%.

Taking out purchases and leveraged leases, second to second commercial, 12.9%.

Direct retail is 0.7%, essentially flat.

Sales coming in at 6.3%.

Revolving credit 14.9%, mortgage 8.9%, and 5.3% if you take out the warehouse, specialized lending 3.8%, 6.1% if you take out the warehouse.

In total 9%.

Year-to-date the numbers are similar except the total adjusted growth rate is 8.4%.

What you saw is a pretty healthy growth in momentum in Q2, reflecting a strong growth primarily in our commercial industrial loan business.

I don't know if you call it a flight to quality, but a lot of companies are looking for strong sources of financing, we are seeing more rationality in the marketplace, in terms of pricing, in terms that has kept us being willing to extend credits in some cases.

So we are having opportunity to penetrate relationships that we might not have been able to penetrate in the past.

Some of our competitors are fairly end focused, and they focus more on that.

We also had some growth in our nonresidential commercial real estate, in general, lower risk credits that could have gone to the CMBS market in the past.

We are getting some opportunities there.

We are I think reducing our risk, i.e., leveraging down our risk in this environment.

We are getting high quality opportunities.

Direct retail business is very slow.

Mostly because consumers don't have any equity in their homes, or resources to borrow it with.

It is a very slow business.

Sales finance, particularly given a market we are doing well in, we are probably gaining market share in the automobile finance business, as the manufacturers finance arms are struggling.

And we are having some growth in both our boat and RV business, because of exits from the market, and are able to do very high quality.

So those markets are being financed in the marketplace.

So if you look across all of our portfolios, we are seeing somewhat I will call flight to quality, we are seeing more rational pricing and more rational terms in all of our lending business segments.

Looking at deposit growth, noninterest bearing deposits, taking out purchase acquisitions, second over second down 2.5%.

annualized linked up 13%.

Year-to-date down 2.9%.

I think the declines reflect the lack of liquidity in our client base, they haven't got the cash, and that is reflecting slow growth there.

Total positive growth again taking out purchased acquisitions, second over second 5.3%.

annualized linked flat, 0.5%.

Year-to-date 4.5%.

We made a conscious decision to bring down our CD rates, and keep them in-line with money market rates.

Some of the CD rates hung in the marketplace.

Some of our competitors were struggling a little bit to get their CD rates higher, we tried to get our rates in-line with the market.

We don't think we lost any clients.

We think that basically it was a rate chop that we can get back at any point in time, and it certainly helped improve our margins, I think it was a very good strategy in light of what is happening in the marketplace.

It was a conscious strategy.

In terms of asset quality, which what is everybody is interested in, and focused on.

Our Nonperformers did increase from $989 million at the end of the first quarter, to 1.301 billion at the end of the Q2.

As a percentage of assets 0.73 to 0.95.

Practically all of the increase was related to residential real estate one way or the other.

Our charge-offs for the quarter were $170 million, up from $125 million, and as a percentage in the Q1 we had 0.54 charge-offs, in Q2 0.72.

Excluding specialized lending, 0.32 in the Q1, 0.53 in the second.

Year-to-date our charge-offs have been 0.63 and 0.43 excluding specialized lending, if you think about this economic environment, those are very good numbers, up a long way from what we had in recent years, but very good numbers.

The provision for credit losses in the quarter was 330 million.

Charge-offs were 170.

We added $160 million to the provision, year-to-date we have provided 553 million, charged-off 295 million, and therefore increased the provision by 258 million.

The increase in the provision of the provision expenses obviously is running through operating results, and if you took out the cost of the rising provision, our operating results would be pretty impressive.

We have been able to eat a big increase in our provision expense.

Looking at the ratio of the allowance of lend losses to nonaccruals, in the Q1 it was 1.44.

It was 1.24 in the second quarter.

In the third, excluding the loans held for sale portfolio, has increased from 1.05 at the end of the Q2 of last year, 1.19 first quarter this year, now 1.33.

So we increased the reserve by 14 basis points during the quarter.

Let's take a look at the specific components of the loan portfolio that we have been focusing on, particularly our residential and real estate lending businesses.

Those of you that have the earnings press release, look at the last page, page two, the credit supplement, I will make a few comments about these portfolios.

The portfolio we are most concerned about and follow the closest is our residential acquisition development and construction loan portfolio.

It is on the top of page 2, and you can see there that our total portfolio is 8.6 billion.

That is actually down from 8.768 billion at the end of Q1, declining some even though we are having to fund developments we had in process.

It does represent 9% of our loan portfolio.

You can also see that we have a very small condo portfolio, we are very glad about that.

Nonaccruals, the increase in the portfolio from 275 at the end of Q1, to 412 at the end of Q2, and charge-offs increased to 0.74%, that is gross charge-offs.

We do have a loan loss reserve that is specifically allocated to that portfolio.

That loan loss reserve is 5.5% of the loans.

That is up from 4% from the end of the Q1, we have 4.12 nonaccruals, and a reserve of 5.5% against that portfolio, which has been increased.

If you look at where our residential construction and development lending is, the biggest concentration is in North Carolina, where we had some rise in nonperformers, but are still doing well, it had deteriorated some but still looks good.

Our challenges are primarily in Atlanta, Metro DC, reflected in the Virginia and some of the Maryland numbers, and in Florida.

Fortunately we have a relatively small portfolio in Florida, where we are having the biggest nonaccrual numbers.

Our highest losses in Atlanta.

There is some confusion about our other commercial real estate, we tried to give you some more information in that regard.

The next item looks at other commercial real estate loans, basically nonresidential related loans, they have three primary components there, commercial construction, 2.2 billion, land development, 2.6 billion, and Income producing properties 5.7 billion.

For a total of 10.6 billion, about 11% of our loan portfolio.

This portfolio as you can see is very diversified, as was the residential portfolios, if off of our client base is diversified over lots of clients.

And the performance numbers today are very good.

Nonaccruals are 0.78.

Charge-offs are 0.05.

We are having some increase in nonaccruals in the portfolio, but nothing dramatic, so far it is doing very well.

We are watching it very closely because traditionally commercial real estate follows residential real estate, and so far that portfolio is performing very well as you can see from the numbers.

Our big concentration in commercial real estate is in North Carolina, where we are continuing to have excellent performance.

The only two markets we had any problems in so far are Florida, we can see the nonaccruals are up 2.2, in east Tennessee where the nonaccruals are fairly high, but we have got a very small portfolio, and get a couple of cases that make those numbers go there.

So far our commercial properties excluding residential are doing well.

Going back one page, in your supplement back to Credit Supplement page one, looks at both our residential and home equity portfolios, we have a large residential mortgage portfolio, something we have had for a long time.

You can see the break up there, prime mortgages $12 billion, 3.2.

in Alt-A.

Construction 1.7.

And we have a small sub prime portfolio, $608 million.

But that came from Landmark, our consumer finance subsidiary, a very traditional business serving higher risk, lower income borrowers.

You will note that the portfolio, the traditional prime, Alt-A, and construction firms, almost all first mortgages, also note very good loan to value, our Alt-A portfolios has a 67% loan to value.

So we are well secured in that regard.

Still good loss ratios, we are having more problems in the construction permanent portfolio was higher nonaccruals and charge-offs, basically what happened there are a lot of people were building houses expecting to sell their old house, and now they can't sell their old house and can't get the equity for the construction loans, note that even though the sub prime portfolio was small, the loss ratios aren't very bad at 1.46%.

Looking at our residential mortgage loans, our primary concentration is in North Carolina and Virginia, the biggest problems we are having are in Florida, and in Atlanta, you can see there from the numbers, similar to other issues.

The total mortgage portfolio 17.672 billion compared to 17.804 billion at the end of Q1, as I mentioned we have actually been slightly shrinking that portfolio because our margin of production has been going into effect at this point.

Nonaccruals are 147.

Gross charge-offs 0.23, which is still a very good number.

Traditionally in that portfolio we run about 3 to 5 basis points, it was up a lot but we still have excellent quality in the mortgage portfolio.

Looking in our home equity portfolio, we have classified it into two categories, one was our home equity loans and lines, home equity loans are basically six payment loans made secured by somebody's home.

We have a pretty good sized portfolio, $9.5 billion, small size 49,000, high credit scores 725, very high credit scores.

It is about the home equity loan portfolios, it is about 10% of the total loans, 77% is first mortgages, and the average loan to value is 67%.

We have 0.51 nonaccruals, and 0.50 charge-offs.

We have only extended this portfolio to our own client base as our home equity lines, the end market and loans to people and almost all of them have checking accounts, savings accounts, and other kind of relationships with us.

Our home equity lines, we have a $5 billion portfolio.

Small size $34,000, high credit scores, 759, those are very high scores, 5% of our total loan portfolio, 23% of that portfolio is firsts, and the average loan to value is 67.6%.

Nonaccruals are small 0.27.

But Charge-offs were 0.86, the reason for that one is when we are having a problem with home equity lines in this environment, we aren't buying into firsts, particularly in places like Florida we do end up charging off the whole balance.

You will see that the dispersion of the portfolio again, it is concentrated in #1 in North Carolina, in Virginia, also we are still having our major problems in Florida, Atlanta, and northern Virginia, and the metro DC market area, you will note we have a very small portfolio in Florida.

Looking at the whole portfolio, nonaccruals were 0.42 at the end of June, 0.40 at the end of Q1, so not much deterioration.

Charge-offs were 0.63.

That is a high number for us, but not a high number by our industry standards.

In addition to housing related credits, we had some questions about how their sales financed business, and how regional success as to a high rate of dollars in our businesses.

Sales finance losses were up some, but they remain at manageable levels, through June net charge-offs were 0.71, compared to 0.39 last year.

Obviously a good bit higher, but off of a very low base, and a lot better than the industry is doing.

At this point we don't expect a material increase in sales finance losses for the rest of the year.

Regional acceptance is our high risk automobile business, in fact experiencing improved charge-offs and improved nonperformers compared to the second half of 2007.

Part of that is seasonal factors, and other factors are government rebate checks certainly helped, but also because we tightened our standards pretty significantly in 2006, which is impacting 2008.

Another interesting factor in the sales finance business, many of our loans are for nice larger cars like SUVs, and when we do have to repo them, we are having bigger losses.

Most of the recently accepted loans are on small cars.

And when we have to repo smaller cars, we are not having as high of losses, because the small car market has held up.

And recently we are also benefiting pretty materially from what has happened with the automobile manufacturing finance subsidiaries, because maybe unintentionally, they were buying very deep, and are not doing that anymore, we are actually now, actuality reducing the risk, the portfolio is still growing very rapidly, because there is less competition in the market now in that segment.

a quick comment about the process, nonaccruals and charge-offs, because people have been asking us about that, for our retail portfolio, we basically follow the FDIC guidelines, based on the past two statistics, the attempt to market collateral, and the market at the time of nonaccruals.

And then taking any additional loss of gains at the time of sale.

In the case of second lien home equity, as I mentioned earlier, because of falling real estate values, we typically are now taking 100% charge-offs instead of buying [deferred].

On commercial real estate, including residential construction lending, we watch the client relationships carefully, if we anticipate any problems, we put them on a watch list.

At that time we sign a specific loan loss reserve.

What we expect to happen if things go in the wrong direction.

If that continues to deteriorate, we mark them down to market.

Then we take and put them on nonaccrual, then if they do foreclose or take a beating and lose the foreclosure, we have an appraisal done, and take another markdown if necessary at that time.

Traditionally we have not had significant losses, once we have got an asset into our own real estate portfolio.

This year we are chasing a little bit of a moving targets, because the real estate values continue to decline.

We don't expect any material losses from the ultimate liquidation of our other real estate portfolios.

We actually mark them down to a discount of market.

If we put in a property today, we will have two appraisals done, and we because of the cost of selling it, we will typically mark it down to 75% of the current appraised value.

We just typically don't have big losses in that portfolio.

We are a collateral lender, and we don't typically have large losses when we go through foreclosures like this.

One of the issues I will just make a quick comment on, because people have been asking us about it, is our exposure to Freddie and Fannie.

Like every other major financial institution in the US, a substantial portion of our investment portfolio is Freddie and Fannie mortgage backed securities, as you note these securities are collateralized by prime mortgages, and extremely low loss ratios, so we are really not practically speaking, very dependent on Freddie and Fannie dollars.

We have $310 million in senior debt for Fannie and Freddie.

We don't have any subordinated debt or any deferred stock, or any common stock of Freddie or Fannie.

So far, whatever motion has been in the marketplace, it has not had any effect on our origination business.

We don't have any pick-a-payment mortgages for CDOs, or SIVs, or any of those other type of popular capital investments.

That concludes the comments on asset quality.

Let me talk a minute about dividends and capital.

Those are very important issues in today's world.

Before we made a decision to increase our dividend, we went through a very analytical process, trying to stress test our capital ratios, what we viewed as worst case scenarios, obviously they are not the worst case possible, but we thought they were far worse than what we actually expect to happen.

The worst case scenario, and we don't expect this to happen.

Worst case scenario is that our loan loss is to rise at 1% in 2008, and we would raise our reserves to 2%.

The economy would remain bad in 2009, and our loan losses would go to 1.5%, and we would raise our loan loss reserve to 3%.

Even with these scenarios, and I think they are for us are very worst case scenarios, and do not expect them to happen, we would still be well capitalized by regulatory standards, and pay our dividend without raising any additional capital.

Obviously we had to make a lot of assumptions about what happens in the economy, but under those assumptions, which we think is the worst case and we don't expect it to happen, we could still continue to pay our dividend and not raise capital.

BB&T is somewhat unique for a large publicly traded company, in that we are over 70% owned by individual shareholders who care a lot about dividends.

You have heard about that.

BB&T had paid a cash dividend every year since 1903.

We have increased our dividend for 37 consecutive years.

Continued compound annual growth rate of the dividend of 10.4%.

We are very committed to our dividend.

A couple of quick comments on mergers and acquisitions, we are not pursuing any community bank acquisitions in this environment, even though there are a number of banks that would like to be acquired, basically because of the difficulty in performing due diligence on their real estate portfolios.

We are continuing to look for opportunities to expand our insurance operations, we are pleased with the California purchase, and hope to announce additional agency acquisitions in the future.

Due to the falling premiums and initial volume, this is a difficult market for independent agencies, we have an extremely efficient insurance operation, and the best revenue production per employee in the industry.

Let me share with you a few thoughts about the future, and then summarize my thoughts about our current performance.

Reinforcing Tamera's opening comments, anything I say about the future could easily be wrong, it probably will be wrong, with this kind of environment.

Frankly, this is one of the more difficult environments I have been in the financial services industry, because of the endless number of surprises, including the increased variety of capital market products, and the international integration, have exponentially increased the complexity of our industry.

For us the biggest issue is asset quality, and specifically what has happened to the residential real estate markets.

Based on past experience, and our own economic forecasts, we believe that real estate markets still have a ways to decline.

It probably will continue to through this fall, but we will be beginning to recover in the spring of 2009.

We also believe that after that, we will have some normalized appreciation in real estate, probably in-line with wage increases, usually what is ultimately termed real estate value in the 4 to 5% range.

Because we think the major problem in real estate was overbuilding, which will be corrected to north of the inventory process, and the prices have gotten too high in some markets.

The fundamental demand has not changed.

The general consensus forecast as I am sure many of you have seen is for slow growth remaining this year, and now many more forecasted projected slow growth in a big chunk of 2009, which we think is a reasonable economic anticipation.

Last time I shared with you our guess, I said it was a guess, and I will say that again, our loan losses for 2008 would be in the 50 to 60 basis point range.

Real estate markets have deteriorated faster than we expected, and have deteriorated in some of our core markets where we hadn't had deterioration before.

We now estimate, or guess probably is a better word, loan losses for 2008 will be in the 0.75 to 0.85 category.

That includes our specializing lending, which raises losses by about 20 basis points.

So your core businesses will still be in a pretty acceptable range, but a lot higher than we have been running in recent years.

Obviously in that kind of context, nonperforming assets will continue to rise.

This will require us to continue to provision for loan losses at an elevated level.

On the other hand our core business I think is doing very well.

We are experiencing healthy C&I loan growth.

We are gaining market share in many of our business lines, norms loan pricing in terms have returned to more rational standards which opens opportunities to us, our competitors are internally focused, our fee income business is doing fairly well, even though insurance revenues are under stress, we are gaining market share in the insurance business pretty rapidly.

There clearly is a fight to quality in a number of business lines as evidenced by our very rapid growth in our residential mortgage origination business.

We are achieving regionally effective expense control.

The most encouraging trend is our improving net interest margin, which we expect to continue.

No question, this is a very challenging environment.

We are a large residential real estate lender.

I don't underestimate the short-term challenges we face, because there are many.

However I believe that this correction cycle will actually be good for BB&T in the long-term, there was a lot of irrational lending activity going on before the correction started.

It has been a long time since we had a economic correction.

We have to turn trade-offs that weren't making any sense.

We were being hurt by the origination sale marketplace, which was very rational at the end of the cycle.

And undisciplined competitors, I believe underwriting will be more rational going forward, which will benefit BB&T.

Also in contrast to many financial institutions, because we were not involved in most of the product lines that have disappeared, we do not have a loss of revenue going forward.

Even though there are very challenging times for us, I am very optimistic about BB&T long-term.

With that said, let me turn it over to Christopher Henson for some more in depth analysis in a number of areas.

Good morning, welcome to all of you joining the call this morning.

As normal I would like to cover briefly with you net interest income, net interest margin, noninterest expenses, taxes, and capital.

First, looking at net interest income, based on operating earnings if you look at the year-to-date comparison, it had very healthy earning asset growth, up 7.6%, adjusted for purchases, produced 2.124 billion in net interest income, a 7.8% increase over five years adjusted to purchases, if you look at linked quarter, we had a strong earning asset growth of 9.2% adjusted for purchases.

Produced net interest income of 1.090 billion.

A very strong 21.8% annualized increase over the linked quarter adjusted for purchases.

The common core basis earning assets were up 7.6%.

Adjusted for purchases again, 1.090 billion in net interest income, a 9.9% increase over prior year, adjusted for purchased acquisitions.

As John said we are very pleased with our margin performance up 11 basis points on a linked quarter basis.

3.54 in first, and 3.65 in second, common quarter comparison we were up 10 basis points 3.55 in second quarter '07, to 3.65 Q2 of '08.

On a year-to-date basis, we were up 1 basis point from 3.58 to 3.59.

During Q2 we did continue to benefit from the significant decline in rates that occurred late last year and early this year.

While also hedging against rising rates anticipated in 2009.

Our positioning, obviously it continued to work pretty well as margin improvement accelerated during Q2.

While we continued to experience healthy loan growth, and an increase in nonaccruals, we also began to experience improved new loan spreads.

We are seeing that across a number of businesses.

Client deposit growth remains slow.

Funding mix did continue to shift towards the high cost alternatives, as you heard John talk about back in CD pricing, et cetera.

If you look at the rate and yields, on a year-to-date basis, you can see total earning assets were down 84 basis points, while our total interest bearing liability costs were down 104.

Our spread improved year-to-date 20 basis points.

On a linked quarter basis, total earnings assets were down 47 basis points.

While total interest bearing liability costs were down 65 basis points.

So a spread improvement of 18 basis points during the quarter.

You can also see the linked quarter in our securities portfolio declined 17 basis points.

Loan yields declined primarily due to 88 basis point reduction in commercial loans and leases, you may recall that portfolio is 73% variable priced.

Total interest bearing liability costs again declined significantly, as a result of large declines, primarily in Fed loans purchased and other borrowing line, as well as the long-term debt line due to repricing.

We actually benefited from some of our corporate debt that we had swapped to variable.

All deposit and funding categories once again declined during the quarter, as it did in the prior quarter.

Margin performance was obviously pretty strong in the quarter, we began to see improved loan pricing as I said, but the main driver was the 11 basis point improvement in net interest margin during the quarter, was a decrease in Federal interest bearing liability costs, really resulting from three items, one, appropriately balance sheet positioning, to benefit from the falling interest rates.

Effective control of the deposit and funding costs, and also realizing and benefiting from a full quarter's worth of rate reductions, most of which occurred prior to this quarter.

Our outcome model, which we said in the past was based on the Blue Chip Consensus forecast, assumes the Fed's funds rate will remain flat, at a 2% level for the balance of 2008.

It will begin rising in 2009.

For our forecasts, we expect the margins to continue to increase throughout the year to the low 370s by year end, as our $27 billion CD portfolio begins to reprice to current market levels.

Turning attention to noninterest expenses, we were pleased with the overall expense control.

During the second quarter, the noninterest expense growth rates adjusted for purchases, fair value accounting changes, were very favorable on both the common quarter and year-to-date basis, while the linked quarter noninterest expense growth rate appears high, it is offset by a significantly higher linked quarter noninterest income growth rate, both rates which are fairly typical when comparing second to first, Q1 is generally our lowest revenue quarter with respect to noninterest income and related expenses due to seasonality.

It is also important to note that we achieved positive operating leverage on a year-to-date and linked quarter basis, and maintained a strong operating efficiency as evidenced by the cash basis efficiency ratio of 51.2%.

That is actually the lowest quarterly efficiency ratio we have seen in the last five quarters.

Also interesting to note the number of end of period assets used in Q2, when you pull out or exclude acquisitions, we were actually down 6 FTVs in Q2.

Drilling down a little bit.

If you look at the linked quarter comparison expenses, we had an 18.3% increase, adjusted for purchases, or total noninterest expense was up 43 million adjusted for purchases.

It really came in two areas, personnel expense was up about 14 million, other operating was up 27.

Looking first at personnel, it was due to increases and the change of market value in rabbi trust, salaries due to annual increases which occur for us the 1st of April.

And an increase in equity based comp, due to a change in vesting requirements we made for retirement eligible employees.

You might recall in past years we have absorbed that expense all in Q1, and with this change it will be spread more evenly across Q2 and Q3.

We are getting a negative comparison back to first internally.

Also we had an increase of insurance incentives, and all of those parts were offset by a decrease in executive incentives.

In looking at other operating expense, which was up 27 million, the number of items that increases in advertising and marketing expense, legal feels, partially due to the credit environment, professional services fees, increased write-downs from foreclosed properties, data process and software expenses, and a small increase in employee travel.

Looking at common quarter basis, we very pleased with about a 2.7% increase over prior quarter, in '07, the same quarter in '70 adjusted for purchases.

Total Noninterest expense was up 26 million, again two areas drove that.

Personnel was actually down 11 million common quarter, and other operating was up 33.

First looking at personnel, what drove the decline, we had decreases in incentives and executive incentives, insurance incentives, the banking network incentives, and also Scott & Strongfellow, our retail brokerage incentives.

We also had a decline in pension plan expense, market value rabbi trust, and also our VEBA, our healthcare expense based on actual claim experience.

All those offset by increases in salaries, again due to salary increases, and the equity based comp issue I just mentioned.

Looking at other operating expense, it was up 33 million, again driven by some of the same items, increasing retail and commercial bank card bonus rewards expense, legal fees, again a result of the credit environment, increase write-downs on foreclosed property, maintenance on data processing software and professional services.

On a year-to-date basis we were up 2.6%.

Adjusted for purchases or 49 million, driven by 3 categories, personnel, occupancy and equipment, and other operating, actually personnel was down year-to-date, down 20 million, driven primarily by pension plan reduction and expense, a reduction in rabbi trust and insurance incentives, executive incentives, and also equity based comp, due to the change in vesting.

Occupancy and equipment was up 10 million, the drivers there were IT equipment expense, denovo rent experience, and then normal rent expense excluding denovos, as well as a small piece of communications expense for communications equipment.

Other operating up 59 million, against the same items.

Retail and commercial bonus rewards or bank card bonus rewards expense, professional services, write-downs of foreclosed property, fewer gains on the sale of real estate, legal fees, as a result of the credit environment, and maintenance expense on foreclosed property.

I have to say overall we feel really good when we pull out purchased acquisitions on a year-to-date, common being up in the 2.6 to 2.7% kind of range.

Quick update on the expense savings bank acquisitions, we really only have one, Coastal Financial, as you recall we converted Coastal in August of 2007.

We targeted savings of $27 million, to date we have saved 25.7 million, so we are at 94%.

And Q2 generated $7 million of those savings.

Moving to taxes, want to comment on the effective tax rate, and what to expect going forward.

If you look at our effective tax rate on an operating basis, Q1 we were at 31.57%.

We declined in Q2 to 27.64%.

What was driving that was a $7 million credit, we received additional interest for settlement of normal audits with the IRA, and then also low income housing tax credits, that are flowing through from investments that were made in the latter half of '07.

Looking forward, the effective tax rate we expect to be in the 30.5 to 31.5% range for Q3, and for the full year 2008.

Looking at capital, really no what I call significant changes to capital strategy during the quarter.

Overall the capital position remains strong.

As John said, we do not plan to raise any capital, given the stress scenarios that he discussed.

Looking at the capital ratios, equity to total assets at the end of period, was stable with Q1 at 9.4%.

Our risk based capital ratios in the period, Tier 1 was down from 9% Q1, down just slightly to 8.9%.

Q2 2008, total risk based capital in the period was even with Q1 at 14.1%.

Leveraged capital in the period was down just slightly, from 7.3% Q1, to 7.2 in Q2.

But well above our 7% target.

All of our risk based capital ratios continue to remain strong in a tough environment.

Potential equity, was up just slightly to 5.7%, above our target of 5.5.

We did not repurchase any shares during the first half of 2008, and do not plan to repurchase any in the near term, but as always constantly evaluate our position, based on market capital lenders.

As a reminder ,we did increase our dividend one penny to $0.47, our third quarter dividend, which represents a 2.2% increase over the prior year quarter.

So that concludes my comments at this point, I will turn it back over to Tamera for further instructions.

Thank you Chris.

Before we move to the question and answer segment of this conference call today, I will 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 the one follow-up.

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

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

Thank you.

The question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS).

Our first question from Betsy Graseck with Morgan Stanley.

Thanks very much.

Good morning.

Couple of questions on the residential portfolio, you were indicating I think during the call that you had pretty good LTV levels on your first and second liens, is it possible to indicate the type of values that you are looking at?

I just want to make sure I understand what you're using for the denominator there, and how it relates to your other loan values going forward?

Are you talking about what we showed on the report of sales for loan to value?

What are you using values at the time the loans were made?

Yes.

In general, they are valued at the time the loan is made, except in our residential portfolios, the home equity, we do update those periodically.

Usually once a year.

Most are these are valued at the time the loan was made.

Okay.

Using your estimates will decline somewhat going forward, we make those adjustments for what we would think going forward, is that fair?

That would be fair, yes, although it will vary by markets, obviously the kind of adjustments you would have to make.

Right, no, absolutely.

Then on the NIM you indicated that NIM would be going up into the low 70s by the end of this year, largely due to CD rollovers, and could you help us understand how you would think that NIM would migrate, if the Fed raised earlier, or if the Fed is raising in '09 as you indicated.

Obviously we had 325 to 350 basis points of fall, so we have a $27 billion CD portfolio, it has an average maturity of about 7 months.

So you are going to see a pretty good repricing, or a pretty good chunk of it repricing in Q3, to the extent the Fed will increase early in the year, that will have a greater impact, if it increases later in the year it will have less of an impact.

But from such a large, a fall from such a high level, it would take a substantial level of increase at this point to I think have a significant negative impact on the margin.

But do you think that as you go into '09, the margin then stabilizes, even with the Fed rate increases?

I see some slight improvement and then more stabilization.

We actually swung our interest rate risk position, we are fairly new to the fact that the attributes are reacting slightly benefit from rising rates.

Because we feel like the downside rate risk has gone close to zero, so we would benefit slightly in terms of net interest income and rising rates.

We begin to put that upgrade protection on our really towards the end of Q1, beginning of second.

To protect yourself in '09.

One tricky thing, back to the original question, about trying to adjust this rate to value, some of the loans could be three or four years old, and they weren't all appraised at the high point in the real estate cycle.

Do you understand what I am saying?

Right.

Weighted average obviously.

In the restructured loans that you are dealing with in the mortgage space, are you having much progress with regard to restructuring troubled loans, that can then be refinanced by the FHA, such as taking it off your balance sheet?

We are having some of that, and we have a fair amount of success working with borrowers, under stressful conditions.

We are trying to work with as many borrowers as we can, obviously for their sake.

The tricky thing is some people just don't want to work with you, because their house is under order, and they don't want to be cooperative.

We are able to move some to FHA, all along we have been a pretty big FHA lender, so the movement to FHA is actually helping us, in terms of volume of our business, we are able to move some to FHA, and just work out some things with people, to refinance for a longer term or something.

Okay.

And they stay in restructured loans for how long, before they would migrate back to performing if they were--?

Formally restructured, they have to be back on a regular payment term before they would come out.

Okay, so you reduce the interest rate, they stay in restructuring until--?

The interest rate has to be consistent with the market.

If you reduce the rate below the market they stay under the [prepaid].

Got it, okay.

Just lastly on the construction book, did I hear you right that you mentioned that you are carrying any nonperformers at 75% of the appraised value?

We put them on other real estate, we take them to other real estate, take them from nonaccrual to other real estate, we have another set of appraisals done, and we discount that appraisal by about 25% because of the cost of carry and the cost of sell, something appraised at $1 million, put it on other real estate, it would be valued at $750,000.

Got it.

Have you been successful in selling any of those assets?

Yes.

We are actually having a pretty good flow through.

We are able to sell.

Do you give us a sense of what kind of marks you are seeing, are you getting any recoveries or --?

Traditionally on other real estate we have actually made a small profit.

We are making small losses now, because the real estate value, say if you mark it down 90 days ago, even with a 25% markdown off appraised value, you are chasing a moving target.

You have got your other carrying costs.

We are taking small losses to what percentage.

And we carry some things, we make big gains on, the appraisals on some properties is tricky today.

So on some we may take losses on.

Adam Bargstrom, Sterne Agee.

Hi gentlemen.

Good morning.

Good morning.

Couple of questions, I was wondering if you talked about capital adequacy, talk about the stress test scenario that you guys ran through, I was wondering if you could just, so we all have that clear, walk through that again, I then was curious in the scenario, if you guys, I know you talked about regulatory capital ratios being well capitalized, I was also curious, did you look at tangible equity assets to assets?

Yes.

I had a follow up, thank you.

What we did, obviously we had to make assumptions about our underlying earnings, we raised the loan losses in 2008 to 1%.

Higher than we think we will have.

That is the worst case, not the worst possible obviously, but the worst case in any probability.

We took reserve to 2%.

Then we assume that 2009 was a bad year, the economy remains weak, and our losses went up 1.5%, and we raised the loan loss reserve to 3%.

Which again we think it is a lot worse than is very likely to happen to us, in that case, we not only met our regulatory capital guidelines, but we basically met all of our other capital goals, including keeping our tangible equity to asset ratios near, we might have dipped a little bit under the 5.5 goal, but not materially under the 5.5 goal.

That is assuming we continue with our dividend, and we didn't need to go raise capital.

Obviously we wouldn't be underlining something, and how well your core business is doing, obviously that could move around.

But what we thought was worst case scenario, worse than we expect, we still didn't have to raise capital.

Okay.

Fair enough.

Then I was curious, I just wanted to get your take on looking at the nonperforming assets, bit of a jump this quarter, and certainly overprovided relative to charge-offs, but one ratio that seemed to back down a little bit, was the coverage of nonperforming assets by the reserve, I was curious if you look at that ratio, and what your thoughts are going forward?

Are we at kind of a minimum coverage ratio here, would you like to see that build going out?

That is kind of a result of the whole process you go from establishing what you think your charge-offs are going to be and what your reserve ought to be, versus something that you actually manage to.

We go through a pretty elaborate process of estimating the losses in our portfolio, we haven't identified losses, if we have a unknow loss, we set up a specific reserve, and for the rest of the portfolio you look at your past loss experience and your expected loss experience, and allocate reserves based on that.

So you don't really exactly manage against the reserve against nonperforming assets and nonaccruing loans, so it is more of a residual.

It has been going down I think just as part of the reserving process.

Last one, I promise.

I think you talked about this last quarter, but I don't recall, in looking at your home equity portfolio, and second I guess second lien portfolio, what percentage of that of the home equity piece, I am assuming that the second mortgage, is that a floating, a credit line type structure, or is that a fixed amortized loan?

What is the percentage utilization?

Home equity lines would be lines which have open amounts in them, and may or may not be fully funded.

The percentage utilization that I remember is about 50%.

I don't have a number.

Chris, I don't know if you have a number?

I don't.

T o be honest with you, there are some cases where people are low utilization and then they totally fund up, we are refreshing all of these lines every year, we are refreshing the credit scores, we look at the credit scores every year, and if somebody is having a big change in credit scores, we will stop the availability under the line.

Most of your problems honestly come from people that have already fully funded their lines.

Not like if you get a sudden funding, that people are going to get into financial troubles, it might happen a little bit, but that is not the typical case.

The typical case is somebody has already funded up the line, and need to involve their other credit availability.

Another point I would make, is that 35 to 40% of those equity lines are behind BB&T firsts.

We will take our next question from Matt O'Conner with UBS.

Can you give us a sense of what charge-offs you are assuming for the residential construction book on the back half of the year?

Including your overall charge-off items?

Chris, do you have that number?

No I don't.

You may have to call us back on that.

Not a problem.

Separately in terms of the Visa gains, who are you selling the Visa positions to?

It was a private sale and we actually can't disclose the buyer, but it is obviously another Visa bank.

Okay, so it is still just to other member banks at this point, there are no other markets in there?

You can't sell it to the general market, you have to sell it to another member bank.

That is it, thank you.

Next to Mike Mayo with Deutsche Bank.

Hi.

I just had a general question on how the worst case loan losses, that is something that I always poll investors, when I poll investors they often say, maybe 200 basis points would be worst case, or even base case sometimes, you kind of have a worst case of 100 or 150 basis points of loan losses.

If you could remind us maybe why you think your loan portfolio is less risky than say the industry, and then a related question is last quarter you thought you had flat loan losses, and as you mentioned the real estate markets got worse, it is an estimate, and I appreciate you giving the estimate.

What kind of confidence do you have that it will be in the new range of 75 to 85 basis points, given what you seen in the last three months?

In terms of the second question, I have a high level of confidence it will be in that range, but obviously I might be wrong.

I think we have gotten more cautious, because we missed last time, in terms of the expectation of losses.

For us to get to 200 basis points I think would take a really, really severe economic correction.

It is just in the nature of our business, the fact we are a large collateralized lender, largely we do end market stuff.

We don't do anything esoteric.

In our history, we have never had anything close to 200 basis points of losses.

It would just take a really huge economic correction which is not, I just haven't seen that kind of estimate from any kind of economists.

We think, obviously we could be wrong, but we think that the 100 and 150 is the worst case scenario, that has anything of probability.

It is obviously not the worst case possible.

We don't see close to 2% losses, based on our portfolio and the long-term history.

The specialized lending increase, can you elaborate and when you started seeing that, and maybe even loss rates through the quarter?

Specialized lending is actually down, in terms of losses, because of regional acceptance doing better.

So our losses are down in nonperformers today, our specialized lending business, the reason I think regional acceptance is the big driver, is the high risk automobile business, the reason it is doing better is because of a little bit of seasonality, and the government rebate checks helped that market, and they tightened their terms a good bit a couple of years ago, and it is starting to reflect in the portfolio now.

Our expectations, and regional acceptance will go up some from now, because they seasonally benefit from taxes, but we don't think they will go up any higher than they did in the second, we think it will be better than last fall.

They think based on all of their underwriting standards, that they are actually underwriting at a lower risk rate today, because some of the people that the GMAC or Ford Motor Credit would take in the past are not taking them now, that are less risky than our average portfolio.

And the way we make a profit is our rates are much higher than regional acceptance.

Are you surprised the auto losses are holding in?

Do you accent that part of the consumers showing weakness in terms of real estate, wouldn't you expect to deliver sec to auto?

We are getting in our traditional sales finance business.

The traditional automobile business.

What we will get there is somewhat higher loss rates, but also when we repo a SUV, we are getting a lot more loss per car.

In the high risk market, people got to have cars to get to work.

They can live in an apartment, and I think they tend to, if they have got a job, they are going to keep making their car payment.

What would really increase the losses there, would be if you had a significant increase in unemployment.

Because that group is more vulnerable to unemployment.

We are seeing more problems there.

We are actually having a little lower loss ratios after we repo them in that market, because they mostly finance really small efficient cars, that is what these people can buy, and the loss ratio, you repo a high mileage, low small car, it is lower than it used to be, so the retail values on those cars are holding up very well.

Versus the resale value on an SUV.

They are benefiting a little bit from the mix change of people buying small cars.

Next question comes from Nancy Bush with NAB Research.

Good afternoon John.

Could you just update us a little bit on conditions in Atlanta right now?

Are you seeing stabilization in the market?

What's sort of the inventory, has it increased, is it about stable, et cetera?

I was talking to Lars Anderson, our Atlanta Georgia regional President this morning literally, and the last couple of months, we have had I would call a slight improvement in Atlanta.

Now how much a couple of months trend is, I don't know, I don't know.

I would expect we will continue to get some improvement for the rest of the summer, and then the fall a real issue, because a lot of builders will be wondering if they make it through the winter.

Most house sales take place in the spring, summer is okay, fall is okay, and then winter is weak.

If we will get more problems it will probably come out of the winter.

If we seem to be getting near the bottom in Atlanta, we are not having anywhere near the proportionate increases that we were having six months or nine months ago.

What we are having is a little more increase in places like North Carolina, where we had almost no problems six months or nine months ago.

Atlanta I think is getting near the bottom.

We will see when the fall gets here.

How about DC, same kind of evaluation on that?

DC is kind of quirky in that the interior areas are doing okay, the further you are away from DC, your commute distances, that is where we were having our problems.

Like the eastern panhandle of West Virginia, places you wouldn't think of, that DC commute area, I would say those areas are still drifting down a little bit, although prices have stabilized in the area, particularly the turnovers have slowed.

Secondly, John, this is a look ahead, and you said this is certainly one of the more challenging environments that you have ever seen in your career, for those that have covered the industry for a long time, the observation is that the industry just keeps making the same mistakes in new ways.

I am just wondering what your thought process is, about how you are going to keep your company from making the mistakes the next time around?

I think what happens when you get through long periods of good times, a lot of loans work out that wouldn't work out in tough times, it is hard to maintain that discipline through the cycle.

What we try to do is at least be in businesses that we understand, and not get in things we don't understand, or get into things that don't make any sense.

Which is why we avoided things like participate in mortgages that really don't have a true sub prime portfolio.

The CDOs and SIVs and those kind of things.

I think that we will try to continue to have that kind of discipline.

I do think the market itself will help.

Because if you are trying to make a profit and your competitors are doing lots of crazy stuff, you can't just close the bank down and not do anything.

Certainly at the end of the cycle, there was a lot of stuff going on.

The people that were doing that, either won't be in business, or won't be doing those kinds of things anymore.

The market itself will help us in that regard.

I don't know what the next 18 months is like.

I am fairly optimistic that in 5 or 6 years, after that we have gone through this directional process and return to rationale, we have been doing a lot of internal talking, we look at the problems we do have, almost all of them are things where we make exceptions to our own policies, our policies, if we had followed them the way we are supposed to follow them, we would certainly have had a few problems of things that you can't avoid.

But we would have less home equity loans, the [exception] area that you have got the problems in.

But what we were doing was always more conservative than the market, we were chasing a market that had gotten too liberal in lending standards, particularly with underpricing risk, it was taking.

Thank you.

We will move next to Steve Alexopoulos with JPMorgan.

Hi, everyone.

Gentlemen, when you look forward are you getting incrementally more cautious on your consumer loan book, given what we are seeing out there in the economy?

The loan this quarter looks like prime mortgage and nonperformers were up fairly substantially from last quarter alone.

Just want to see what you are thinking on the consumer side of the loan portfolio here?

There has clearly been a drift in that the problems started in the high risk end, and we are having more problems with people that have good credit scores, that you would never based on long time formulas expected to have problems, I think a lot of consumers got over-confident and maybe over-extended themselves, I don't think though, unless we have a really big economic correction, I don't think that those A grade portfolios are going to be very stressed.

I really don't.

In fact I think you are going to see in the consumer business, assume we don't have a big recession, we are already surfacing the home equity problems, stuff that shouldn't have been done.

The rest of your home equity portfolios are performing very well.

I would say in six months or maybe less, you are going to start seeing better loss ratios in the portfolios, because you will have surfaced your problems.

The vast majority of consumers are under financial stress, as long as unemployment remains at a reasonable level.

That is helpful.

Do you have the updated estimates of the LTVs in the residential A&D book?

I would not have it.

I don't know if we have even got that all consolidated together or not.

No.

Okay.

That was my follow-up, thanks.

We will take our next question from Greg Ketron with Citigroup.

Good afternoon.

A couple of questions.

On the acquisition development and construction portfolio, John, I think the expectation is pretty much that anybody has got an ADT book that is large, should the experiencing high level of losses, and we are seeing people report losses in Florida, and out West in the 3 to 4% range or higher, that fact that you have continued to have much lower than peer losses on your portfolios, I was just wondering if you could share color on it beyond the mix issue, certainly North Carolina in itself, but beyond the mix issue, what are the factors you think that are keeping your losses lower than your peers have experienced?

I think Client selection, we deal with clients who have been in market a long time.

Not doing any out of market lending.

I guarantee have the biggest problems with people that came in from the Midwest and went to California, there are lots of local banks that we previously got, had it's highest risk activity we have got coming out of house, we see that the people that do the high risk projects in our area are people that came from out of the market.

The other thing is we are a collateral lender, we get a lot of collateral in our deals.

So I think all of those things are helping us.

Our leadership team has been around a long time.

We went through several real estate corrections particularly in the '90s.

We try to have some memory about that, maybe not enough memory about that.

I think that is why we are having better experience.

We obviously expect our losses to go up, but not anywhere near that kind of range.

Is it your sense that maybe from a loan to value perspective, that you underwrote them with a lower loan to value than what peers were?

Lower than a lot of people were doing.

I am positive about that.

We are sometimes in joint relationships, in fact we are seeing this fairly often, where a client deals with us and does not deal with somebody else.

Almost in every case, our deal looks a lot better than their deal, because we insisted on collateral, or better case in the event of a liquidation than some of our competitors were.

Obviously we have got a loan loss reserve of 5.5% of our whole portfolio.

We have certainly made plenty of mistakes, and I think we made less than most people.

One other question, in terms of flow like 30 to 89 days, you don't disclose that in your financials that will be coming out when the call reports are filed, but is there any color that you can provide on those trends as the quarter progressed?

We had an increase in 30 day past dues across most of our portfolios.

I can't remember how significant it was, but we are having a higher 30 day past due number.

Is it significantly higher?

Or is does it continue to trend upwards similar, compared to the trajectory compared to what you have seen?

I think, it wouldn't have radically jumped, but it has been consistently trending up.

Great.

Thank you.

Yes.

Our next question comes from Jefferson Harralson with KBW.

Thanks.

I wanted to ask you guys about your pretax pre-provision earnings very high.

With the credit costs increasing, do you expect a ramp up in your special asset section, where it might be hard to defend this pre-tax pre-provision earnings level, or this efficiency ratio?

I think pre-tax, pre-provision, I think we can maintain or sustain that kind of performance, I am glad you asked that question.

I think that is what we feel good about.

What we feel b is the rapidly increase in our loan loss provision.

But if you take out that rapid increase in loan loss provision, the rest of our business is doing fairly well for this kind of environment.

Based on everything we know, unless the economy changes on us, we think we can sustain that kind of trend.

If we have a risk, which is the loan loss is bigger than we think, or those kinds of things, our core business is in pretty good shape, independent of that.

Okay.

Thanks.

First you have the other commercial real estate loan data for the first time this quarter.

The loss ratio out there, and the nonaccruals are for the entire period of year-to-date June 30, do you have the numbers handy of what they were in Q2, or Q1, so we could back in to what those trends were this quarter?

That might be better offline.

Don't have it handy, Jefferson.

I will contact you guys offline.

Thanks a lot.

Kevin Fitzsimmons, Sandler O'Neill.

Just wanted to ask you real quick about we saw the increase in nonperformers, and we saw the increase in 90 day past due, and still accruing, can you give us a sense on what the earlier stage delinquencies are doing, the 30 to [90] days past due directionally, and magnitude what you are seeing there?

They are increasing kind of the same kind of increase and pace that we have had, I would say we have got the numbers somewhere, Chris, do you remember off the top?

I was looking at them yesterday, but I cannot remember and I don't think I have got those here.

Kind of trending up I would say if you look at the last couple of quarters, the 90 day past dues and the 30 day past dues have been kind of going up at the same pace.

Okay.

Great.

Lastly, the deposit service charges had a lot of strength linked quarter, you mentioned seasonality was a big reason for it.

Should we expect that to just be flat up slightly over, or should we expect that to ratchet down going into next quarter?

We have done a couple of things.

We have attracted a lot of new accounts, and account growth numbers, a fair number of those accounts will end up paying some kind of service charge, like maybe an overdraft charge

And then we have changed some of the methods, and changed some of the pricing for a variety of our products.

So going forward on a quarter to quarter basis, we should have pretty good comparisons to last year, then we will have whatever normal leverage we have in the third versus second, and fourth versus the second.

But there is no reason you should expect a big fall-off of the third versus second.

If anything, I think the numbers will be headed up, because commercial account analysis is going to go up because the earnings rate is lower, just processing the same number of checks, and getting rate, and getting more balances or pay a higher service charge, and then the other thing is because of financial duress, you are having more overdrafts.

People are overdrafting their checking accounts.

I think we will have reasonably profitable trend in service charges.

Although we have a number of callers with questions remaining in the queue, due to time constraints this will conclude today's question and answer session.

If you have further questions or need clarification, contact the BB&T Investor Relations department.

Thank you for your participation today, and have a great day.

Thank you everyone for your participation in today's conference.

You may disconnect at this time