Truist Financial Corp (TFC) 2010 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the BB&T Corporation second quarter earnings 2010 conference call on Thursday, July 22, 2010.

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

A brief question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Tamera Gjesdal, Senior Vice President of Investor Relations for BB&T Corporation.

Thank you.

You may begin, Tamera.

Good morning, everyone.

Thank you, Barbara, and thanks to all of our listeners for joining us today.

This call is being broadcast on the Internet from our website at bbt.com/investor.

We have with us today Kelly King, our Chairman and Chief Executive Officer, Daryl Bible, our Chief Financial Officer, and Clarke Starnes, our Chief Risk Officer, who will review financial results for the second quarter of 2010, as well as provide a look ahead.

We will be referencing a slide presentation during our remarks today.

A copy of this presentation, as well as our earnings release and quarterly performance summary, is available on the BB&T website.

After Kelly, Daryl and Clarke have made their remarks, we'll pause to have Barbara come back on the line and explain how those who have dialed into the call may participate in the Q&A 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 on slide one of our presentation, and in the Company's SEC filings.

Our presentation includes certain non-GAAP disclosures, and we would refer you to slide two and the appendix of our presentation for the appropriate reconciliations to GAAP.

And now it is my pleasure to introduce our Chairman and Chief Executive Officer, Kelly King.

Thank you, Tamera, good morning, everybody, and thank you for joining our call today.

It's going to be a little bit different today than in the past.

We've asked Clarke Starnes, our Chief Risk Officer, to join us, and we're introducing a slide deck for you which we hope will make it a little easier for you to follow our commentary.

So I'm going to cover the quarterly highlights.

Talk about a few special items effecting earnings, talk about a very significant loss (inaudible) disposition strategy we've been embarked on, a little bit on revenue and earnings power, talk about the Colonial Integration, and cover some of the issues and impacts as well as the regulatory changes.

And Clarke's going to cover some more detail with you on credit trends and outlook, and a good set of detail on our NPA disposition strategy.

Following Clarke, Daryl will give you some more detail on margin and the second quarter assessment of acquired loans, he'll talk about our balance sheet deleveraging strategy, talk about fee income, expenses and efficiency, taxes and capital.

And then as Tamera said, we'll allow plenty of time for questions.

So overall, we consider it to be a very solid quarter.

There are several very significant strategic developments during the quarter we want to be sure we drill down and make sure you fully understand those.

But we are very pleased that we had $210 million available for our common shareholders, which is up 73.6% on a linked quarter basis, that was up an annualized 46.9.

So we did make $0.30 a share EPS GAAP, up 50% compared to second quarter 2009, up 44.6% annualized linked quarter.

We did have three pennies in merger related charges.

So, EPS excluding [MERC] would be $0.33.

The margin improved substantially, up from 3.88% to 4.12%.

We'll be giving you some increased guidance with regard to that.

We just caution everybody though that, remember that 80% of that margin increase gets offset in a reduction in non-interest income through the FDIC loss share arrangement, but net net it is still very good but it's not quite as good as it appears on the gross increase.

Importantly, our non-performing assets declined on a linked quarter basis by 3.1%.

This is as a result of our more aggressive strategy on our disposition of non-performing assets, we'll give you more color on that, but we did dispose of $682 million of problem assets in the quarter.

So as a result of that disposition strategy, our charge offs for the quarter did pop up to 2.66%, which includes a substantial increase due to the disposition strategy.

So $148 million in the charge offs you'll see related to this disposition strategy, so on an adjusted basis what you might call our normalized core charge offs were 2.06%, up a little bit from previous guidance but not material.

We want to talk to you a good bit about this aggressive strategy, that is intended to accelerate as we move through the cycle.

The provision for credit losses is $650 million.

This does include the additional $148 million related to the disposition strategy.

The losses to loans remains strong at 2.84%, including covered loans, and the coverage in poor economic performing loans improved to 98% excluding covered loans.

We executed on a material balance sheet deleveraging strategy.

We simply thought the market was at an appropriate time to lock in significant gains, and frankly, due to the market rally, it really better positions our balance sheet for the future in terms of rising rates, and Daryl will give you a good bit more detail on that.

We feel very, very good about our loan book for the quarter.

We averaged $95.1 billion.

Our average loans increased an annualized 0.6% compared to first quarter 2010.

The average loans increased annualized 2.6% excluding ADC.

So what we're really seeing, and Clarke is going to give you a lot of detail on this, is very strong growth in our auto strategy, specialized lending, CNI and some other important areas.

The overall growth is muted because of the planned reduction in, we will say specifically ADC, but the strategy of diversifying our asset structure is absolutely on track, and materials sales this quarter with regard to that, likewise we continue to execute very effectively on our deposit diversification strategy.

You'll recall a year and a half ago, we told you we would be working on diversifying the balance sheet on the asset and liability side.

We've made a lot of progress in that.

Daryl's going to give you a lot of color with regard to our deposits, but transaction accounts increased 28.4% compared to second quarter of 2009.

So very strong client deposit growth.

Our capital ratios all improved substantially during this cycle, as a result of deleveraging as well as the overall very good performance.

Turn with me to slide four now.

I'm going to give you a lit bit more color with regard to the material unusual items.

What basically happened was we delevered the balance sheet by selling a net of $8 billion in securities.

There were two reasons for that, one is, we've had a long standing goal of keeping our securities in the 15% to 20% range.

We had let that rise up because of the heavier capital additions we had coming out of TARP and all that transition in our capital structure.

And so we saw a market opportunity to delever, and frankly take some nice gains, and really this improves our asset sensitivity.

We still believe, although the economy is in a bit of a stall now, as we come out of this we think there's impending higher inflation and pending higher interest rates and so we want to be careful to be appropriately asset sensitive.

We sold $661 million of mostly retail mortgage loans.

We took losses of $69 million related to that.

Also we had $90 million of allowance build excluding the impact of the non-performing strategy.

A lot of folks I think at this time are maybe rushing to release allowance, but we're not doing that.

We're choosing to be very conservative.

We don't think the economy is getting ready to go into a double dip, but we do think it's in a bit of a stall and we just want to be very conservative as we move through the next couple of quarters to be sure we're on solid footing as we look forward, before we start making material changes in our allowance position.

We did increase our OREO write downs and losses during this quarter, related to part of this whole re-focus on the disposition strategy, so we made a major effort during the quarter to get everything really updated on appraisals.

For example, the average age of all of our appraisals is six months, so we really shortened our appraisals, took some additional write downs because of that, and really put ourselves in a position to be able to continue to execute on this strategy over the next few quarters, assuming our current conditions remain the same.

Continuing on the strategy if you go to page, slide five, what we really saw during this quarter and slightly before the quarter started was a, really a change, kind of an inflection point in the market.

We had told you going back a year and a half ago, we didn't think it was appropriate for a company as strong as BB&T to go out and dump assets in a market that was panicked and that was trying to buy us at $0.10 on the dollar.

On the other hand, we never intended to be a long-term problem asset holder or real estate holder.

And so as we saw this inflection point, which really was a result of more buyers coming into the market, the investors are always very smart , they know when to come in.

There's a lot of cash on the sidelines, and so the bidding for assets is up materially over a year ago and even six months ago, so we get better valuations, better bids, and it makes sense to key in on this strategy.

And so we implemented a strategy of being aggressive this quarter.

We plan to continue that in the next two or three quarters, assuming the economy doesn't tank, and assuming that the investor appetite remains kind of consistent with where it is today.

So if you think about what we really did, we sold $385 million of problem retail loans.

We sold $45 million of problem commercial loans, we moved another $127 million to held for sale, which are aggressively marked so that they're ready to be disposed of.

And lots of activity with regard to doing so.

And we sold $252 million of the foreclosed properties.

So the total of all of that is how you get to $682 million of problem asset disposal.

So it was a very effective execution strategy, and again we will continue that over the next two or three quarters, assuming pricing remains current.

If you look at slide six, you'll see the result of the strategy as non-performing assets in the top chart continued their rate of decline, the rate of increase had been declining substantially from 21% in second quarter of 2009 to 5.6% increase in first quarter of 2010, and a 3.1% decline this quarter, which is very, very good.

It is interesting that this is the first reduction in non-performing assets we have had since the first quarter of 2006, so we feel really good about that.

And also the underlining trends in many of our business continue to either be very stable or improved, consumer and specialized lending trends continue to improve meaningfully, mortgage and direct retail trends are very stable.

C&I and other CRE portfolios continue to have fund deterioration, but it is very manageable, nothing creating any kind of shock, nothing different than what we had expected.

If you look at the bottom chart, you see non-performing loans to loans did begin to descend, begin to decline, and we would expect to see non-performance continue to climb in the coming quarters.

Again, assuming there's no major changes in the economy, and our ability to execute on the strategy that we're embarked on.

If you look at slide seven, you'll see the effect of that on charge offs.

Where we did have, again $148 million of our charge offs were really a result of this particular strategy.

We do not expect significantly higher cumulative losses through the cycle due to this strategy.

This is really, if you can think about it, pulling charge offs forward because we think the time is right to go ahead and resolve those transactions.

We will see a benefit as the NPA reductions will reduce overall credit costs, legal, professional and other administrative costs.

So without this strategy, our core losses would have been 2.06%, so that's a little higher than the beginning of the year.

I think we talked about charge offs being in the 180-ish level.

Now you might talk about the year being in the 190-ish, maybe 2, but not dramatically different.

A little higher but not a dramatic change.

Looking forward, we expect charge offs to be relatively level in terms of core.

Now again, you'll see the actual charge off numbers be a little more volatile because remember what happens when you have these asset dispositions, is you eliminate those allowances that have already been set aside, and you pull it through the charge off account.

So effectively it's already pre-charged off, if you can think about it that way.

We just now recorded the actual entries, so don't get alarmed about our absolute increase in charge offs, we see no material change with regard to our actual core charge offs.

If you look at slide eight, you will see this helped us with regard to our reserve.

As I said earlier, we maintained a very conservative view with regard to our reserve.

We chose to build the reserve by $90 million, excluding the impact of the NPA disposition strategy.

We certainly could have taken a different view, because by eliminating the assets that we did and the allowances related to that, certainly it would have made sense to allow the reserves to come down.

But we chose to be, again, conservative on that with a $90 million effective build, because we really want to be conservative until we get a little bit more clarity.

Frankly, I thought by this time in cycle we'd have more clarity.

My sense is the last six, eight weeks, the economy has gone into a bit of a stall.

I don't think it's going to double dip, but it is a stall, and we need to see how we come out of that.

I will tell you that I think that stall is a result fundamentally of the European crises, the Gulf oil spill, all of the rhetoric around our financial reform, all of that creating a lot of uncertainty in the marketplace.

Now that most of that is coming to a reasonable conclusion, we expect some certainty to return to the market and a resumption in the kind of growth, although it will probably continue to be relatively slow growth.

With regard to reserves, we would expect provision and loan losses to continue to cover net charge offs in coming quarters.

We expect to maintain a relatively conservative (inaudible) in the next couple of quarters with regard to reserves.

But if we have better clarity when it comes to next quarter or fourth quarter, we are in a position to begin to mitigate the investment we've made in allowances as we have clarity with regard to the economy, and frankly as we dispose of more of our more difficult assets.

So if you look at slide nine, just a couple of drivers of performance.

We're very pleased in our loan growth, as I said, and also our underlying revenue.

Net revenues increased 43.9% on an annualized linked quarter basis, now part of that is a seasonal factor.

As you know, we've had a big positive kick in insurance, we really got that this time but other things responded as well.

If you exclude securities gains and loss share impact, net revenues increased on an annualized basis 6.4% compared to first quarter of this year.

If you look at earnings power, pre-tax pre-provision earnings available to commons totaled $885 million, up an annualized 36.6% compared to first quarter.

Again, if you exclude gains on securities and foreclosed property costs, our pre-tax pre-provision was a very strong $906 million.

And the way I like to look at it was not exactly a GAAP way of looking at it, but what I like to look at is what's happened to the core normalized kind of earnings.

So if you exclude purchases, mortgage banking and special items, our pre-tax pre-provisional earnings power increased 4.9% compared to second quarter of 2009, which in the context of the economy and in the context of the conservative position we're taking with regard to our credit portfolio, I consider to be very good.

If you turn to slide ten, a brief update on Colonial.

It continues to be extraordinarily successful.

We did do the system conversion at end of May, and with virtually no issues.

We've never had a conversion, particularly this size, with virtually no issues at all.

Employees did a phenomenal job, I congratulate all of them.

We did have more merger charges in the second quarter because we did the conversion in May.

So we expect charges will be substantially lower in the second half, in the range of $10 million to $20 million for the whole second half.

We do expect to hit our cost savings run rate of $170 million by the third quarter, we're absolutely on track for that.

I'm glad to report to you that the Colonial Branches are doing great.

The employees are, you'd think they've been with us for 30 years, they're just completely settled in.

The communities love us, the opportunities in the marketplaces, particular places like Alabama and Texas are extremely receptive to our brand offerings.

To give you some perspective, already the Colonial Branch has originated more than $600 million in loans, and if you look at the retail client deposit, they're up from acquisition, which is very atypical.

You'd expect a material decline before you start rebuilding, but we've had a slight increase, which is very, very encouraging.

The Colonial Branches are already have moved to kind of a current run rate base of producing net new transaction accounts of about 70% of the rate of our legacy BB&T branches, so off to a great start.

A huge potential.

Great strategic move for us, and frankly turning out to be a pretty good deal for the FDIC as well because the performance of the loans are better than we expected, as Daryl will describe to you, and that benefits the FDIC as well as us, it's a win-win for everybody.

Finally, before I turn it to Clarke, I want to mention a couple of thoughts with regard to regulatory changes on slide 11.

Obviously there are a lot of changes, you can see a whole page.

I'm not going to spend a lot of detail on this, because frankly so much is uncertain today, to try to assume one has a lot of specificity with regard to what all this means.

I think it is naive.

It's just freshly signed yesterday.

It's 2,300 pages.

It's going to take months and years to figure all this out.

Who knows whether there will be clean up deals and what interpretations and regulators will be, so it's merely a guess at best to try and nail these down.

I know you'll want some specificity, I'll just mention with regard to Reg E, the NSF issue.

Remember there have been two changes with regard to that, in the first quarter of this year, we and others made changes on our own relative to the market with regard to changing our NSF routines.

In July 1, really actually kicks in August 15, fed changed so that clients had to opt in for NSF support.

We've said before, that we thought without any adjustments to our product make up, that that would be a negative about $75 million in 2010, could be an average of 140 to 150 in early 2011, but I will caution you to say that's before any changes in our product not lined up.

We are right in the midst of deep analysis with regard to product changes.

There will be substantial product changes.

Increasing fees and reducing costs, and so a substantial portion of that reduction will be eliminated.

With regard to the Durbin Amendment.

The credit and debit card fees, interchange fees, it really is just hard to tell.

I mean, so far, the fed has about a year to figure out what the rules will be, there's so much ambiguity in the language of the law in terms of incremental cost, variable cost, soft cost, it's really, really hard to know.

I mean, potentially could be material, but again in all honesty if it turns out to be material in terms of a reduction, we'll make other changes with regard to, for example charges, charges on debit cards, elimination of reward programs, et cetera.

So, you're just not going to see at least us take all of this negative without making material changes.

So but overall an aggregate in those two areas, probably some net negative effect over two or three years.

I do not personally believe it will be substantially material to our company.

If you look at deposit insurance, there's certainly going to be changes there, but it's hard to determine any material increase in cost.

There will be some, but what happened there was the total FDIC coverage permanent went up from 100,000 to 250, but remember we were already paying insurance on our total liability base anyway, so it's hard to let that cost anything.

We do have a two-year increase unlimited coverage of transaction accounts.

And then maybe some increase cost with regard to that, but we don't have any specificity from the FDIC yet with regard to that.

So it is hard to see whether there is any meaningful increase in that area.

In capital standards, they did change the qualification of [trucks] in Tier One Capital, but it phases in over a five-year period.

We'll have $3.2 billion of that Tier One Capital that will be phased out, that gives us plenty of time to pick the right times to readjust our capital structure to comply with that.

We're just really not concerned about that, don't think that will be a material issue for us.

If you look at the Bureau of Consumer Financial Protection, there's no immediate impact to us or anybody else on that.

I will tell you from a long-term point of view, that concerns me probably personally more than anything else in the whole legislation.

But we'll have to see how it plays out.

So it's just a lot of negative unintended consequences, that depends on how it's executed.

The Financial Stability (inaudible) Council is a net positive.

And we think that, we think that's good.

The Federal Insurance Office could be positive for us, since they'd have more control over the various 50 states.

Insurance regulators, that could be good.

(Inaudible) some minor changes, nothing material there.

All the other changes you see listed here at the bottom practically have no impact on us at all or a minimal amount to be mentionable.

So, when you get through with all these regulatory changes in the short run, while there are certainly some negative forces with regard to reg e and interchange, we think over the ensuing period of time, much of it will be mitigated, and it's not a dramatic impact in terms of our ongoing performance.

Yet, we want to be very transparent and say there's a lot to be understood and there's a lot to be worked out.

We'll just have to see how it plays out over time.

So with that, let me turn it to Clarke now and let him give you a good bit more color on our disposition strategy and our loan growth in some of the other

Thank you, Kelly, and good morning, everyone.

If you'll follow with me on slide 12, I'll try to share some thoughts about our overall credit quality trends for the quarter.

As Kelly indicated, we're very pleased with the overall results, which reflect directly the concerted effort to accelerate the resolution of our problem assets.

And as you can see, our overall metrics did improve on a linked quarter basis with lower early stage delinquencies a continued lower level of 90 days still accruing in our first reduction in NPA's, as Kelly said, since first quarter of 2006.

Our losses, if you exclude the marks on the loan sales and the allocated reserves that went with that, were approximately 2.06% for the quarter versus 1.99%, linked quarter first.

Our heaviest losses continued to be centered in our ADC portfolio.

To give you some context on that, ADC represents about 10% of our commercial portfolio, but 50% of our total commercial losses.

It represents 5% of our total loan portfolio and is generating 30% of our losses, and represents 30% of our remaining NPL, so that's where our focus is on an accelerated disposition strategy.

We were pleased that we reduced our ADC balances about $526 million for the quarter, and over $2 billion on our, over the last four quarters, which is about a 30% reduction over the year.

And I would note for you that we were able to reduce, over the last year, our Atlanta and Florida exposures by over 50%, and that's where we've had our highest default rates and severity.

The good news for the quarter is we continue to see stabilization in our consumer oriented and retail likes portfolios in specialized lending, and those have lower early stage moderating non-performers and very good loss experience.

We are continuing to see some deterioration in CNI and CRE, outside ADC, however those levels of deterioration are well within our forecast, and we believe at this point they're manageable.

If you'll look with me on slide 13, I'll try to provide a little more color around the problem asset dispositions for the quarter.

We've described many times for you, historically we've approach problem asset management differently than other banks.

We have a strong commitment to work with our clients during difficult periods, trying to avoid early forced liquidation.

This is a form of a bridging strategy to a better market, and it has served us very well over the years.

It results in a long-term basis, lower non-performers and losses, and frankly very loyal clients for the long run.

So we've been able to do this through very good client selection and what we believe is superior underwriting.

While this strategy's continued to work well during the cycle, and we've avoided, as Kelly said, dumping assets into a highly stressed market, it does appear it's time for us to be more aggressive, and I think that's for two primary reasons.

One is it's very clear that asset pricing liquidity for these problem assets and real estate is very much improved over the last two years.

And another point that's very important is the clients are also much more realistic about where values are and what their position is, and they're more willing to be cooperative with us in these liquidation strategies, that makes it easier than adversarial liquidations.

So in the second quarter, we initiated a three pronged NPA reduction strategy.

And it really had three components.

One was a targeted non-performing residential mortgage bulk sale.

The second was, and the initiation of a non-performing commercial note and short sale program, which we initiated late in the quarter, and then a very aggressive OREO liquidation effort.

And that also included, as Kelly said, a major revaluation of the entire portfolio from an appraisal standpoint.

And that resulted in $682 million reduction in problem assets, as Kelly mentioned.

We additionally moved $150 million of both commercial and residential mortgage problem loans to held for sale.

We have targeted sales for those in the third quarter and going into the fourth quarter.

These sales were accomplished with a consolidated additional loss against the remaining unpaid balance of approximately 12%.

The bulk of this additional mark was really related to the bulk mortgage sale, and that was not a surprise to us, because you obviously have to pay a higher liquidity premium to do a large sale through a dealer.

We're seeing much more modest marks on our commercial and mortgage short sales, and you'll see us focus heavily on that strategy in the remaining quarters, but we felt like this mortgage sale gave us a very good jump start in our disposition strategy.

One other point that I think is very important for the quarter, we did a deep review of our top 50 problem commercial credits.

We aggressively identified those credits that likely needed to be considered for liquidation now, and this resulted in a number of those credits being put on non-accrual.

So you will note a $400 million or so increase in NTL's in commercial, but that was very targeted and by design, and we've developed very specific liquidation strategies for these credits in upcoming quarters.

So we feel very good about our plan, and I believe you will see meaningful improvement as we come through the next several quarters as we execute on this plan.

On slide 14, it looks at early stage indicators which are very positive across the board.

We continue to experience very stabilizing trends in our early 30 to 89, 90 day still accruing outside a mortgage change we made for the quarter around FHA credits was actually down as well.

We have very low levels relative to the industry in those areas, so what we believe is these early stage improvement in roll rates and migrations are clearly indicating improvement in many subportfolios, and will help us get better clarity around our credit as we move forward.

On the next slide, you will, we did want to give you a little bit of detail around our TDR's and restructured loans.

We know that was a big topic last quarter.

As we told you, we've gotten much better clarity with our regulator agencies and auditors regarding TDR classification.

And as a result, our rate of increase in TDR's incrementally for the quarter actually moderated considerably, 14% increase versus 60% in the quarter, as we told you it would.

Approximately 80% of all of our modifications in the TDR status are performing.

And over 90% of those TDRs and 83% of total TDRs are performing, 90% of performing TDR's, and 83% of all TDRs are actually current from a delinquency standpoint.

And even after six months seasoning, we have very low re-default rates on these assets, so we'll continue to utilize modifications as appropriate in the future as an effective strategy to help troubled borrowers.

On slide 16, we were very successful with our best quarter ever in OREO sales.

We liquidated $252 million of properties for the quarter, generating $231 million of proceeds.

The other big note for you is that the mix dramatically improved.

We sold 29% of that disposition was in lots and land, up considerably from prior quarters.

Inflows were also lower than prior quarters and within our expectations.

Additionally, the incremental marks we took on the sales and even the revaluations for the quarter, if you go back to losses against the original unpaid balance of the loans at non-accrual that have flowed all the way through OREO are roughly about 44% mark.

And that's very consistent with the low 40s we've been experiencing for the last several linked quarters.

And finally, I'm very happy to report the third quarter pipeline is very strong.

We're already up to $120 million under contract.

And we have several of our top ten properties ready for sale.

On the next slide, we did experience a large OREO expense for the quarter related to the sales and our revaluation process.

As part of the risk reduction strategy, we did a comprehensive review of the entire OREO portfolio, and reappraised over 1,600 properties for the quarter to ensure that we had appraisals on average that were no more than six months old.

And that did result in an incremental write down linked quarter of about $61 million, but we do believe this positions us very well to accelerate disposition in the future.

And finally on slide 18, I want to talk a little bit about growth.

We feel very good about our loan growth results for the quarter.

Even though market demand is very weak, I think some of the numbers I've seen are that the industry's generally contracting about 6%.

We believe, we're bucking that trend.

Our growth is much better, we believe reflecting market share movements resulting from our strong brand position.

The other thing, as Kelly said, the compositions of growth also very positively supports our diversification efforts around real estate and move away from so much real estate concentration.

So outside the targeted runoff in ADC and the covered portfolio, we actually grew 2.6 for the quarter.

CNI was very positive at 2.5%.

We're really benefiting from a major investment we've made in corporate middle market banking.

We have a number of new bankers aligned with our industry vertical teams, and they're producing excellent results right now.

Our corporate book was up 12.6% for the quarter.

And production from these corporate teams was actually up 60% for the quarter, so we're taking full advantage of that, and we think that will help us in the future.

Specialized lending continues to perform particularly well around our small ticket equipment company, and our low risk premium finance business.

In the main general bank, our auto book and our credit card portfolio also is growing very nicely, along with the excellent quality trends we're seeing there.

Another final note there is that we did have strong originations for the second quarter at $17.45 billion, up 13.4% on a linked quarter basis, and that's setting us up for a very strong pipeline in Q3, which will give us, we believe, better than industry growth opportunities as we move forward.

So with those comments, let me turn it over to Daryl for his thoughts for the quarter.

Okay.

Thank you, Clarke.

Good morning, everyone.

Continuing on in the presentation, let's turn to page 19.

As Kelly talked about, non-interest earning deposits are up nicely at 19.2% annualized on a linked basis.

Interest checking is also up 17.1%.

We are very pleased with the progress we are making on improving our deposit mix.

Net new accounts increased 123% on a common basis, and 68% on a linked quarter basis, primarily due to Colonial and the success in our sales initiatives.

We continue to manage our costs and mix by aggressively reducing CD pricing and balances, given softer loan demand.

As a result, CDs are down 27% on an annualized linked basis.

Other interest bearing deposits are down 90%.

As a result of not needing euro dollar funding, which is part of the deleverage strategy.

If you turn to page 20 of the presentation, our margin continues to benefit from better than expected performance on loans acquired from Colonial, and lower deposit costs.

Net interest margin increased to 4.12% for the second quarter, up 56 basis points compared to the second quarter of 2009, and 24 basis points compared to the first quarter of 2010.

Excluding the benefit from the cash flows of covered assets, net interest margin would have been 3.81% in the second quarter, which is flat from adjusted first quarter margin.

The core margin benefited from lower deposits up to three basis points, as well as improved credit spreads in retail and commercial loans.

Offsetting these positives was unfavorable mix change due to the deleverage strategy.

Adjusting for the deteriorating asset quality, including OREO, net interest margin would have been approximately flat on a linked quarter basis and three basis points better on a common quarter basis.

If you normalized asset quality, we would probably have about 12 basis points higher net interest margin.

We expect margins to be relatively stable in the 4.12% range, plus or minus three basis points for the remainder of the year.

Let me take a moment to talk about the second quarter cash flow assessment.

The results indicate further positive performance on the acquired loan portfolio, resulting in additional loan accretion of $100 million.

For the fourth quarter, we received $242 million of accretable yield and $3 million on other accretables, totaling $245 million.

We have approximately $3.4 billion left in accretable yield to flow through earnings.

This will occur over the life of these assets.

Recovery of previous (inaudible) loan pools resulted in $2.3 million reversal of provision.

We have only three out of the 41 pools which are now impaired.

As a reminder, approximately 80% of most of the additional accretion and provision reversals are offset in the FDIC receivable and non-interest income.

Also due to better performance, as Kelly talked about, we established a liability to pay the FDIC as a result of the call back.

Turning to page 21.

During the second quarter, we sold $13 billion of securities with a taxable equivalent yield of 3.99%.

And purchased $5 billion of mortgage-backed securities yielding 3.32%.

As you've heard us say, our stated target for the securities portfolio is to be in the range of 15% to 20% of earning assets.

By deleveraging, we've reduced our securities to 18% of earning assets.

So we are in the right place where we want to be.

While our longer term goal is to be neutral to interest rates, the deleverage strategy increases our asset sensitivity.

For example, up 100 basis points in interest rates, we went from 0.47% to 1.56% in interest income over the next 12 months.

As you know, the single most important variable when looking at sensitivities is really the data on managed rate deposits.

We model very conservative repricing assumptions compared to market rate changes, so that we will be in a position to pay very competitive rates as interest rates rise in the future.

The portfolio duration of a securities portfolio decreased from 4.6% to 3.7% , and lastly, as we shrunk the balance sheet, all of our capital ratios improved across the board.

Turning to page 22.

Our fee income ratio improved from 40.8% to 39% in the first quarter of this year.

Insurance continues to perform reasonably well given soft market, up 2.1%.

Mortgage banking income increased 96% on a linked quarter basis due to lower interest rates resulting in higher refinance activity.

Service charge on deposits were essentially flat despite the adoption of our self imposed lower fee policy.

Other non-deposit fees and commission continues to show growth in the direct pay and letter of credit business.

Check card fees and bank card fees are both better due to higher activity and increased penetration.

Other income variance of negative $44 million is comprised primarily of decreases in $19 million in (inaudible) trust, $10 million related to lower trading gains, $10 million in client derivatives trading and $2 million in decreased payroll processing income due to the sale of our payroll business in the fourth quarter of 2009.

As we stated, the FDIC lost share in the amount of a negative $78 million reflects an 80% offset of additional accretion identified in the first quarter of 2010 and second quarter of 2010 cash flow assessments.

We expect non-interest income to be relatively stable, to down slightly in light of the regulatory changes, but over time we believe we'll be able to offset the majority of these changes and produce positive growth over the long period of time.

On page 23, our efficiency ratio experienced slight deterioration due to the Colonial conversion and higher cost associated with the credit environment.

Efficiencies is expected to flatten out over the next couple of quarters, and improve as credit cards start to subside, and low regulatory costs will be headwinds.

Merger related charges, as Kelly talked, in the Colonial conversion was about $10 million to $20 million left in merger related expenses.

All of the Colonial cost savings have been realized, and we expect the full run rate of $170 million this quarter.

Current occupancy and equipment costs reflect reasonable run rate going forward.

Professional services increased primarily due to increased production and out sourced services.

Loan processing charges increased primarily due to mortgage loan repurchase reserves of $3 million, approximately $2 million for merchant expense and 1.5 million for commercial loan inspection and appraisal fees.

Other non-interest expense was up due to an increase in advertising and public relations expense, of approximately $8 million, $2.5 million in deposit related expenses, and $10 million in other operating charge offs.

Excluding special items, and expenses related to the Colonial acquisition, non-interest expenses were up 4% compared to the second quarter of last year.

The risk reduction strategy Kelly and Clarke referred to earlier will reduce our non-interest expenses over time.

Turning, looking at FTDs, they decreased 326 on a linked quarter basis of 1,657 on a common quarter basis, primarily attributable to Colonial.

Finally, our effective tax rate for the quarter was 10% compared to 19.8% in the first quarter.

We expect our effective tax rate for the full year to be in the mid teens, assuming no unusual items.

Turning to page 24, capital ratios remain very strong and all improved from the first quarter levels.

Tangible common at 7%, up from 6.4%.

Tier One common at 8.9%, up from 8.6%, Tier One Capital at 11.7% up from 11.6%, and leverage at 8.9% up from 8.7%.

We remain one of the strongest capitalized financial institutions in the industry.

This concludes my remarks.

Let me turn it back over to Tamera, to explain the

Thank you, Daryl.

Before we move to the Q&A 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.

You'll be limited to one primary question and one follow-up.

If you have further questions, please re-enter the queue.

Additionally, after we finish the Q&A segment, we'll ask Mr.

King to come back on the line for some closing remarks.

Barbara, if you wouldn't mind please, come back on the line and explain how to submit a question.

(Operators Instructions).

We'll take our first question from Betsy Graseck with Morgan Stanley.

Good morning.

Good morning.

How are you.

Good.

I wanted to dig in a little bit into the loan sales and just get a sense of some of the color around the loan sales.

You were indicating that the market had changed a little bit, and I guess what I'm wondering is, what, at what type of price point are you willing to sell?

Obviously you're taking some losses I just wanted to understand, are you determining the volume of what you're selling based on the specific hurdle rates that you're trying to hit or is it a function of something else?

Betsy this is Clarke I'll answer that.

We are looking for at the relative pricing in the market and we have, we do have a threshold of, we try to look at a current mark on present value basis versus the cost to hold these assets over time, and we feel like of course, the mortgage sale was the bulk sale through a dealer, we knew that would have a much heavier mark but our strategy for the commercial note sales and the remaining mortgage short sales that we're doing would have much more modest marks, so we factored all that in to our consideration, versus our write downs we're already carrying on those loans and the allocated reserves and our strategy is to try to dispose of these assets with little remaining P&L mark in not raise our cumulative losses that we feel like are already embedded in there.

Okay.

So the follow-up is in terms of timing during the quarter, you indicated the commercial sale was late in the quarter but I'm just wondering, did the decline in rates have anything to do with the decision to sell the loans?

Did it bring down your hurdle rates to the extent that more loans you decided to sell?

Was there any movement within the quarter, April, May, June?

Okay.

Betsy this is Daryl.

What I would tell you these loans really don't trade too much on the direction of interest rates.

So what we looked at the quarter, we made a decision kind of mid, mid point in the quarter that we were going to sell these and we just kind of went through and executed the transaction.

It was competitive process, and we just thought the timing was right based upon what Kelly said earlier, there were more bidders, more competition and just higher valuations of what we've seen in the past for these types of credits.

I think that's particularly the case on the, Daryl's point the residential mortgages would be more sensitive to rates, Betsy, both the commercial side is a lot less sensitive and it's more of a customized one off, and so it's more based on the, the investor's view of property the return it's not as great driven.

And the 120 you have under contract right now for the current quarter is more residental or?

That's commercial OREO, and it's really OREO and it's probably a similar mix to what we've seen, it's a pretty good percentage of lots and lands.

I would say in excess of 30% component of lots and lands, which included several subdivisions.

Thank you.

Thank you.

And next we have Craig Siegenthaler with Credit Suisse.

Thanks, good morning Kelly, good morning Daryl.

Hey Craig, how are.

Good.

Good.

Just a follow-up to Betsy's question on.

MPA disposition.

And maybe actually it's even better if Clarke handles this one but of the $682 million of loans, we know now about $79 million are delinquent but can you give us what this mix looked like in the first quarter?

Meaning what was non-accrual and what was accruing as of the first quarter for the 682?.

The majority of the assets were not accruing in the first quarter, so very little of these would have me this quarter.

These were existing delinquent problem assets that were already on non-accrual.

Okay.

Got it and just a second question I'm wondering when is the typical timing of the [Safety] and (Inaudible) Examination?

That varies over time.

Sometimes they're on an annual cycle.

Sometimes they're on a 15 or 18-month cycle.

It, it varies all over the place.

Got it.

Was there one and the first and the second quarter?

We don't disclose when we have (Inaudible) Examinations.

As you probably know, all of our regulatory relationships are all non-disclosable based on regulatory review.

I mean, regulatory rules.

Okay.

Got it.

All right great.

Thanks for taking my questions.

Sure.

And next is Bob Patten of Morgan Keegan.

Good morning, everyone.

Hey Bob.

First of all, Tamera and Alan, good job on the PowerPoint it was very helpful.

Secondly, Kelly a million Colonial was such a good deal tore you, you had it scheduled and on plan for everything you want to get out of there.

Where do you see this landscape, obviously regulatory environment changes the rules.

Little banks have limited access to capital, are you guys, can you about the land of both little banks and larger banks in terms of next two years and over the next five years, I'd like to get your view thanks.

Yes, thanks Bob.

Well, I think it, I think it's material to be honest.

I think as the rule making becomes clear and as we understand that the economics of all the changes, first of all, it will be very difficult for the smaller institutions to make the kind of adjustments to their cost and revenue structure that some of the bigger banks will make, so the net residual impact on them will be worse in my view.

But more importantly, I really expect for the next 2 or 3 years to see a substantial increase in regulatory compliance and cost, and I think that could be really, really problematic for the smaller, smaller institutions.

It won't be easy of anybody but scale matters, and so you know, if you are substantially larger complying with the, any one particular rule, the fix cost of compliance is a sensitive thing for a large institution as it is for a small one.

Again both of those cycles make it really, really difficult for the smaller institutions in the new, in the new world, and so I personally predict a pretty substantial consolidation over the next few years coming out of all this.

Not just the regulatory reform but the whole economic crisis.

I mean, what the crisis has done it's revealed some of the fundamental flaws in the strategies and execution abilities of institutions.

I'm not trying to be critical of my peers it's just a realistic answer to the question, and so I think, I think the smaller institutions have a tough row to hoe going forward.

I think the bigger institutions will have to adapt their strategies, and we'll be able to do so and so you'll see, you'll definitely see a higher concentration of the business slow controlled by the top, let's say 15 institutions, five years from now than there is today.

One last sort of follow-up on that, do you see BB&T as a bigger southern power house or do you see it going more national in 5 or 10 years?

Well I way I see it over the next five or so years, ten years in the vapor is kind of a long way out there in the next five or so years, let's me say I see us continuing to do fill-in the Mid-Atlantic and southeast, as you know (Inaudible) we're basically in the top five in market share in all of our markets so you can continue to improve there, but you don't expect to see substantial size.

We have an enormous opportunity in Texas, which you know have 26.5 million people.

So we'll be focusing on a lot of attention on Texas so our core banking business the way to think about us in the next few years is substantially additional penetration in the Mid-Atlantic and southeast, and substantial penetration in Texas.

On non-core business which is you know on material you can expect to see them continue to be national businesses and even in the case of AFCO and CAFO our insurance pending business is an international business but we have the number one market in share position in US and Canada so we will continue to grow those businesses on a national scale based on the economic reality of the performance.

Thank you, Kelly.

Sure.

And next we have Jefferson Harralson of KBW.

Hey, good morning, guys.

Hey.

Ask one more question on the OREO cost and the disposition strategy.

As target you know $600 million or $700 million a quarter and would you expect that the OREO costs remain flattish if you're successful in what you're trying to do?

We would expect continued sales or dispositions in a similar range for the next several quarters, but we think our core OREO costs will be relatively moderating as we move forward, so we don't expect a big rise in the OREO write down expense since we've done a deep revaluation of the portfolio.

Okay.

Thanks.

And final be on the margin and the increase from Colonial, is that, do you think that's a fairly, sounds like you're thinking that's a fairly recurring benefit that's going to come as long as the losses is at Colonial stay where you think they're going to be?

Yes.

Jefferson, I mean, the people that are working out the loans in Colonial are doing a great job and because of that, we're getting a huge benefit out of that.

And what I, in my prepared remark I talked about additional yield of $3.4 billion that will flow through the earnings over the life of these assets.

I think we're going to have this benefit for a while.

And how about just the 3.81 core margin, could you just give us some guidance where you think those go?

Yes, I think our core margin excluding a acreable yield is performing very well.

It was stable quarter over quarter, our credit spread I talked about improved both on retail and commercial.

Donna and Ricky are doing a great job on how we managing our deposit pricing, I think overall the core margin of Company is holding up really well, and with the positive benefits that we're getting on the workout of these Colonial assets we're seeing huge benefits.

Okay.

Thank you guys.

Yep.

Thanks

And next we have Heather Wolfe of UBS.

Hi, good morning.

I just had a couple quick follow-up questions on the margin.

Daryl, when you give the guidance in the back half of around current levels, how much visibility do you have into the timing of the Colonial disposition assets?

That's a good question, Heather.

What I would tell you is we run the cash flows every quarter.

We've been running the cash flows the last two quarters now, and what we're seeing is that improved performance on the mark, which is basically moving dollars from non-creatable to creatable, which is why we're seeing more inflows into the creatable yield which is helping margin.

I have projections for the rest of the year and into next year.

That could reverse if the performance goes the other way.

Right now we have a favorable trend, Sandra and her team in Florida are doing a great job working these assets out.

It take a lot of work and effort to do a good job with these assets as long as the economy stays where it is, I think we'll perform well.

There's always variables if it's worse in certain places I think we feel pretty comfortable for the rest of year if we were where we were for this quarter.

Just a point of clarification on the re-class from non-creatable to creatable.

At least in some of the other banks we've seen that re-class doesn't always flow through NII each quarter, is there something related to your loss share agreement that makes you recognize that in NII immediately?

It's not immediate.

It moves into creatable, and then it goes through earnings over time over the life of the assets.

So -- to really look at the accounting there's three pieces so part of the benefit goes through [non-interest] margin then you have an offset in the FDIC receivable then you have impairment that also flows through on provision side so last quarter you recall we did have impairment on eight pools now with we're down to three pools, but you have moving parts on three areas on the income statement.

One point of clarification, so the margin pop that we saw this quarter, related not just to the re-class from non-creatable to creatable but disposition on impaired assets; is that correct?

No, what I would say, when we re-ran the cash flows we had better performance on these assets which allowed us to move more dollars into creatable, and the dollars that were in creatable, the portion of that's actually paid off this quarter basically think of it like a bond, it's accretion on a bond, so a portion of that creatable yield goes into earnings over time as an assets runoff.

Got it.

Okay.

Thank you very much.

Appreciate it.

You're welcome.

Next we have Kevin Fitzsimmons of Sandler O'Neill.

Good morning, everyone.

Good morning.

Just two quick things on the subject of TDRs I know we've talk the past couple of quarters about a lot of that growth being the re-alignment of how you guys were defining TDRs versus the regulatory guidance that came out in October of 2009.

Wondering if we're, are we basically at a level now where that re-alignment is done and so any further in TDRs will be just what the organically is occurring and then secondly?

Just wondered if you guys could touch on the gulf oil spill and I know a lot, you know the Colonial presence is basically protected by the FDIC but in terms of your legacy Florida exposure, where you're most concerned about and what you're watching closely.

Thank you.

Hey Kevin this is Clarke as far as the TDR I think you're exactly right.

I think last several quarters we had noise around clarification on the classification, and that, that's pretty much behind us, so I think any incremental TDR inflows you see at this point will be true modification due to deteriorating borrows in our ability to help them, so I think that's the way you ought to look at it.

As far as the Gulf Coast exposure, we have taken a deep dive on that and just for reference we have about $2.5 [billion] of loans in those affected areas.

The good news for us is the far majority of those assets are wrapped with a loss share and even at this point we're not seeing a big increase or incidents of borrowers coming to us with issues related to the spill yet, and for those that are, many of the cases they are filing claims.

We are anecdotally seeing some benefit on the east coast of Florida the tourism side of course, you see some of the activity migrating over there unfortunately for those on the gulf side, but as far as our legacy assets in those areas, it's very minimal and we just don't think there's going to be much impact.

Okay.

Thank you.

Yes.

And next we have Paul Miller of FBR Capital Markets.

Hi, guys this is actually William Wallace on for Paul today.

I had two quick questions.

One is I appreciate how it's practically impossible to really predict the impact of any of the regulatory reform changes out there, but I'm wondering if as it relates to the [reserving] portion the debit fee portion of the bill that was just passed, if you would be willing to quantify the debit fee income from 2009 or perhaps expectations for 2010?

Yes, our kind of bucket if you will in that kind of run rate is about $230 million.

So you could -- some people tried to do is, to project what percentage of that they will lose, based on the vague language in the law about covering incremental costs and fraud costs, but again, as I've said earlier, William, the, it really is virtually pulling numbers out of the air in our opinion to try to figure that out in terms of what the actual effect will be, and then again, you're just not going to see companies sit by and not make changes it's so easy to change it, for example, today we don't even have a charge for a debit card so if we have all these reductions income, we'll have a $5 a month or whatever charge a debit card and so it's not hard to substantially mitigate that the irony of this which oftentimes the congressman does not understand the unintended consequences of their actions is it will probably drive up costs to the consumers.

I agree.

And I think you mentioned in your prepared remarks that you are currently have a study to figure out where some mitigating product offerings et cetera could come from.

Do you expect that we might hear from that next quarter or is this something that could take a little longer to figure out?

I think you'll begin to see some of it next quarter.

And, and then it will be ensuing over the next several quarters but you'll begin to see definitely from us information regard to changes next quarter.

Okay.

Fantastic and then lastly I may have missed it in the remarks, but I know you said you're tax rate was about 10%, was there any favorable recovery or anything in there?

I know you said the mid teens effective rate for the year I'm just trying to figure out what happened in the quarter for that rate?

Yes, William it's really, when you have to forecast the earnings for the Company we basically 15 or 16%, so since we're at 19% the first quarter we had to lower to 10% this quarter, but we think we're be in the mid teens for the rest of the year, averaging that in the rough date for the end of the year as well.

And next we have Adam Barkstrom of Stern, Agee.

Hey everybody good morning.

Good morning.

Hey Daryl I wanted to follow up on the tax rate.

I mean, remind me or remind us, I mean, why that rate, you're saying 15 to 16% for the year, why that so low.

Yes, it's a function of how much tax free income that we have in relation to how much taxable income.

So if you look we have a couple billion dollars of municipal in the investment portfolio we have also government finance unit that's also tax he exempt we also have a couple hundred million in tax credits.

If you factor all that in and you use that proportionally, since our taxable income is down, then it basically comes out to be what the tax rate would be, as our earnings increase and taxable income goes up, then our higher, you'll see a higher tax rate out of us, but as we have all this lower tax exempt income, which is lower tax income, that's why you're seeing a lower rate from us.

Got it and then my follow-up.

Kelly maybe for you and maybe Clarke, you could, you could chime in as well, just thinking about this asset disposition plan this quarter, I think I have a sense, but is this going to be kind of an ongoing initiative are was this sort of for this, at least for 2010 kind of a hard look at the portfolio and you talk to Kelly, you talked about pulling in future losses into this quarter because of a number of elements, but I'm just curious, in you characterized core charge offers versus non-core charge offs.

I'm just curious if we're going to see this in the next couple of quarters or is this kind of, at leaf for 2010, was this kind of it?

No, Adam, I think it's what we've basically started in the second quarter a strategy that we'll be continuing for the next few quarters, again, assuming the economy remains constant and the, and the investor appetite remains constant.

The big changes do you have to go to the base for no buyers for anything today the investor community changes dramatically they smell the things to turn is the time to buy, so the demand if you will is increased substantially, and we wanted to be in the market while the demand was high, so what you saw in the second quarter was a substantial bulk sale in mortgage because that's as you know the most commodities high product that's easy to package up and sell as kind of a total package, and then a smaller amount of, of commercial, so the ongoing strategy is fairly intense in looking at specifically commercial types of transactions.

It's possible you do a bulk sale around that, although I say it's unlikely.

Mostly you'll see a fair amount of activity in commercial dispositions over next 2 or 3 quarters and, and in the lumpiness will be just you how many get done in meeting one particular quarter but the strategy will be consistent.

Okay.

And then, hey Clarke just one quick one, back in the foot notes, looking at the 90-day past due, you got highlights at non-accrual policy change related to the FHA/VA guarantee loans.

Could you give us 2, 20 seconds on that?

Absolutely what we found is that we were more conservative in the industry around when we were non-accruing FHA/VA insured loans when many others were not, and what's occurring as you know the FHA is requiring modification programs for service or so a lot of origination that we sold in the Jenny pools you have to buy back out and do mode zone and let those season and go back by the way they're insured and we have been overly conservative in placing those on non-accrual when we had clearly recoverable interest on those, and so we did a policy change to ensure that we only non-accrued, we accrued what we would be entitled to on insurance recovery, and that's the big change there, so it really moved, out of the non-accrual bucket into the 90 days still accruing.

And next we have Chris Spar with CLSA.

Good morning I'm calling in behalf of Mike Mayo.

Just a quick question on the margin and the timing of the sales securities, can you give us an instant when you sell it in the quarter.

Yes, the securities were sold kind of in the middle of quarter if you look at the average balance sheet, I mean, our balance sheet's about showing only about $4 billion or $5 billion reduction, if you look at the balance sheet at the end of the quarter you can kind of see where the new balance sheet run rate is.

From a margin perspective.

I would say it didn't have a huge impact on margin and as you saw it initially, it reduces your cheapest source of funding which is your overnight money.

Your fed funds that's why it had a little bit of pressure on the margin.

And under what rate scenario are you basing your margin outlook, your core margin outlook.

Our base forecast basically we use bull chip and we also look at the forward curve, the model that we have on the forecast we talked about, basically has rates flat up until mid next year when the fed starts to increase rates and I think we have maybe a 50 or 75-basis point fed fund rate by the end of '11 it's a very modest rate rise.

If rates stay stable, though and don't go up for the foreseeable future, it would have minimal impact on our margin.

And next we have Christopher Marinac with FIG Partners.

Thanks good morning.

Could you clarify how much of the reserve is allocated toward the TDRs sort of what the similar to what the Q had disclosed last quarter?

I'm not sure I have that with me Daryl, we can certainly follow-up.

I don't know if I have that data with us, Tamera

Yes Chris we can call you after the call and give you that number.

Okay.

That will be great.

Thanks very much.

Okay.

Next we have Gary Tenner with Soleil Securities.

Good morning.

Good morning.

Good morning.

Question regarding non-accrual inflows, actually, if I missed it in the slides I apologize but what were they in 2Q and remember mind us what they were in 1Q?

Inflows were, were more modest in Q1 related to our commercial so the big change for Q2 was on the commercial side so we actually had inflows on commercial of about $400 million.

That was up from first quarter and the inflows related to the other portfolios were relatively stable to down.

Okay.

Could you not give us a total for each quarter?

We can certainly follow back up, again, we don't have that detail information here.

Okay.

Fair enough.

We were steady for our OREO (Inaudible).

Okay.

Great.

Just second a question.

Kelly I was talk wondering if you can talk about dividends, buy back how the relative changes you're outlook there.

It's pretty long lead time on exclusion of trust preferred, how do you look at that now?

Yes I don't think the trust preferred changes my view necessarily at all with regard to dividends We have type, truth is, during that five-year period of time we project substantial improvement in the economy.

Substantial improvement in earnings, we'll be creating capital at substantial rate and so we'll have all kinds of options around in building capital to common equity -- to trust deferred (Inaudible - Background Noise).

I don't think we'll try to do that with income we'll probably along the way replace many of that with regular preferred or based on if we get a deal or something, we might issue some extra common but another way to deal with that, so our strategy with regard to dividends remains unchanged, except that I had said earlier that we had kind of a fall, hoped maybe by the fourth quarter we might be in a position to have a modest increase in dividends.

The stalling of the economy gives me some pause with regard to the certainty around that earlier prediction and so I guess the way I feel today is this stall basically kind of pushing things out a couple quarters.

We'll have to see it's just my own personal economic assumption, and so we would still expect to be thinking in terms of considering a dividend increase as we head into the first part of 2011 but it's very unlikely at this point that we would consider something in the fourth quarter of this year.

Next we have Ken Usdin with Banc of America, Merrill Lynch

(Inaudible).

Just question on securities portfolio, I understand repositioning for longer term, but if the fed is presumably on hold for a while what level of loan growth would you need to keep the margins stable on the coming quarters.

Right now, the cash flows since we shrunk the portfolio is a little bit over $2 billion for the rest of the year, so I think we feel comfortable that we'll be able to replace the cash flows and securities reinvest those to keep the size where it is and we are hopeful that loan demand starts to have growth in the third and fourth quarter.

Thanks.

Although we have a number of callers left in the queue unfortunately we're out of time I'd now like to turn the call back over to Mr.

King for closing remarks thank you.

Thank you, Tamara, thank you everybody for joining us we really appreciate your interest in following us quarter to quarter.

But thanks for your support.

Overall we consider this to be another very solid typical BB&T kind of quarter.

Fundamental core performance most of our businesses remain very strong despite sluggish economy.

Consistent with what we've said all along.

We did implement more aggressive strategy when prices were appreciate appropriate to reduce our balance sheet risk and exposure to non-performing assets, that's off to a good start we continue to remain very conservative with regard to our allowance position.

Regardless of little hesitancy in the economy.

So we'll see how that plays out.

We certainly saw a great opportunity in terms of de-sensitize and deleveraging our balance sheet and took advantage of that, which also allowed us to strengthen our capital levels which you know are among the leaders in the industry we are clearly on track, which I think maybe the most important take away with our long-term plan to diversify our loan mix and our deposit mix which will ultimately end up in a more profitable and stable revenue chain.

As we have less volatile exposure to those days so if you think about it from a long-term point of view we remain very, very optimistic even as we struggle to get some economic footing nationally, we think that is more temporary in nature and the long-term opportunity for us is wonderful.

Remember we still have this major re-intermediation that is already taking place as a shadow market is basically shutdown.

We don't think it will change much.

The re-intermediation is strong.

Consolidation in the industry is going to allow the stronger institutions like BB&T to participate more effectively, so we feel extremely confident about the future.

We're not out of the wood.

We're not declining victory.

We're not trying to be over confident don't hear me say that.

But what we have to do we know how to do and we're doing it with deliberation and consistency.

And so when you look beyond that temporary execution on the remainder of the credit cycle the opportunity for us on a revenue and profitability perspective looking forward looks very, very optimistic.

Thank you all very much for coming and your support and hope you have a great day

And that does conclude today's conference call, thank you for your participation.