Truist Financial Corporation (TFC) Q3 2010 Earnings Report, Transcript and Summary

Greeting, ladies and gentleman, and welcome to the BB&T Corporation Q3 Earnings 2010 Conference call, on Thursday, October 21, 2010. [Operator Instructions] 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.

Thank you, Andrea, and good morning everyone. Thanks to all of our listeners for joining us today. Of course, this call is being broadcast on the internet from our website at BBT.com. 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 the results for Q3 2010, as well as provide a look ahead. We will be referencing a slide presentation in our remarks today. A copy of the presentation as well as our earnings release and performance summary is available on the BB&T website. After Kelly, Daryl, and Clarke have made their remarks, we will pause to have Andrea come back on the line and explain how those who have dialed in to 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 1 of our presentation and in the company's SEC filings. Our presentation includes certain non-GAAP disclosures please refer you to page 2 in the appendix of our presentation for the appropriate reconciliation to GAAP. And now it is my pleasure to introduce our Chairman and Chief Executive Officer, Kelly King.

Thank you, Tamara, and good morning, everybody. Thanks for joining our call. Let me just start by saying I would kind of describe our quarter improving performance in credit quality, and very strong performance in most other areas, which we’ll describe. So a few quarterly highlights – strong improvement in earnings compared to ’09, Q3 net income available to shareholders is $210 million, up 38.2%, and our EPS is $0.30, up 30.4%. I feel good about our revenue, net revenue is up 4.2%, up 1.1% annualized linked with securities gains. And importantly, our pre-tax, pre-provision earnings was up 61% excluding security gains. You’ll recall a couple of years ago we told you that we were pursuing a five year strategy of overall balance sheet improvement, as we looked to diversify our asset and our liability side. We’ll explain to you the progress in regard to that. For the loan area, we grew annualized linked quarter in all non-real estate loan areas, in fact, growth accelerated in most of the portfolios in the quarter, we’ll show you some detail on that. We had 6.1% growth in mortgage loans, annualized quarter and very strong mortgage revenue growth. In fact, our origination for $6.7 billion in Q3 compared to $5 billion in Q2. Very pleased about average non-interest bearing deposits increasing 15.4% on an annualized linked-quarter basis. A very strong balance sheet and capital levels, which continue to improve, Tier 1 common is 9%. We had 130% allowance for the coverage of NPLs helpful investment, if you exclude covered loans. Importantly, we want to discuss with you the substantial progress in the closing of problem assets. We told you last quarter we were embarking on a more aggressive disposition strategy, which we started in the second and substantially progressed on in the third, and we mentioned intra-quarter that we’d be transferring over $1 billion to help us, so we did that. We transferred $1.3 billion in non-performing loans to help the sell and we’ve written those down consistent with actual sales experience, in terms of the mark. Very good sales activity, we sold $207 million of NPLs in the quarter, we also sold $244 million of other real estate loans, and we currently have more than $350 million of NPA under contract to sell, so a lot of really good activity, and all that activity is consistent with the market level that we expected. Importantly, our TDRs, our NPAs, our NPA inflow and foreclosed property expenses all declined during this quarter. If you follow along on the deck, you go to slide four, security exchange unusual item for the quarter. We did take $239 million of security gains in the quarter, which is an usual income item, obviously, in conjunction with some other unusual items that we had. There was a $0.21 positive impact. We did have a $321 million, or $0.28 negative impact related to the transfer of NPLs, and then we had a small remaining Colonial merger charge of $10 million, or $0.01. So the way I think about this, I always try to get back to what I feel like our normalized earning rate is, so if you take the $0.21 in security exchange away, and then if you add back the $0.28 in unusual earnings impact because of the NPL transfer, and the penny of merger related charges, you start out with 30, add back 8, so I think of a normalized run rate of about $0.38. Obviously we can debate that, but that’s the way I think about it. If you look at our underlying community bank performance, we’re making really good continued progress. We continue to have the best value proposition in the market, where our community banking models deliver the best service in reliable and competitive responsive competent service. We know that because we continue to evaluate that in terms of the outside market research that we have provided for us by (Merrill Corp), and I’m pleased to share that we have a substantial improvement in our very high level, and also a substantial improvement in terms of the gap over our major in market peers. So remember, our value proposition is the best in the market place, because value functions have quality relative to (inaudible 0:14:46). Our community bank has been working very hard in terms of efficiency improvements, so their discretionary expense has decreased by 4% compared to last year. We’re making good progress in terms of building out community bank presence in Texas. You’ll recall, from Colonial, we picked up about $830 million in deposits, 22 branches in Dallas/Ft. Worth and Austin. We’re now building out a corporate banking presence across the state, particularly in Houston, with a lot of emphasis in the energy space. The Colonial acquisition continues to provide very significant growth and (inaudible 0:15:25) opportunities, particularly in the Alabama and Florida, where they had such a large presence. To give just a little bit of color on that, we had a 53% increase in retail production per relationship manager in the Colonial market during Q3, and a substantial improvement in net new account openings, from a negative $10,000 in Q3 ’09 to a plus $2,400 in Q3 ’10, so nice momentum there. We also had net new transaction accounts increase from $17,400 in Q3 ’09 to $37,000 Q3 ’10. I think a lot of that is because of our very low turnover, which continues to improve, so we feel good about the quality of service we deliver. If you look at page six, we continue to have really good improvement in C & I, and CRE mix improvement. On the balance sheet side, that’s one of our key objectives. In fact, our percentage of C & I, the total loans improved from 30.7% in Q3 ’09 to 31.4% Q3 ’10. I know that’s not a major increase in actual outstanding, but the actual production, the commitments are even much greater than that, so (inaudible 0:16:52). On the deposit mix, our DDA presented a total deposits increase from Q3 ’09 from 16.2% to Q3 ’10 to 19.4%, so that’s a really nice improvement there. Really good progress in the small business area. 20% growth in total households, compared to last year’s 4.9% average includes Colonial. We had double digit growth in most services. We’re spending a lot of time now on our bundling sales efforts, which were 34% more effective, compared to last year, so that’s really getting traction for us, which is the real key to long term service results and profitability in small business. Our corporate banking emphasis is really getting traction, as we had a 20% annualized growth in our large corporate banking outstandings and commitments. That’s growing very, very well, as I said, we’re developing a Texas bank energy chain, which has a lot of promise. So really good corporate banking progress. A lot of progress in various lending niche areas. I’ll show you in a minute, but a really good number in terms of diversified growth in those lending areas. Our wealth strategy is working very well. Record revenues, about 29% on an annualized linked-quarter basis. We continue to add producers in the wealth division area, we’ve recently launched an ultra-affluent strategy in the wealth area, so we’re doing a really good job there. It’s important (inaudible 0:18:25) the last four or five years and it’s really doing really well. In insurance, we continue to do really well, relative to the market. As you know, insurance continues to be a soft market, but we had record revenues, up 1% of the year. That may not sound great, but it’s much better than the industry, which we think is down about 8 to 10%. And our insurance revenues are now consistently over $1 billion and we recently improved to sixth largest market share, sixth largest broker in the United States, and in the world. If you look at slide seven, I’ll give you a little color in terms of our non-real estate loan portfolios. If you look up, you’ll see that our loan portfolio from Q3 ’09 is essentially flat. That’s what we told you would happen, we said that it would be basically flat, and as we grew non-real estate areas and we’ll add the real estate areas to run off. C & I Q3 to Q2 annualized is up 6%. Other CRE, as we planned, is down 5.5%. Sales finance, automobiles, (inaudible 0:19:31) paper was up 10.4%, revolving credit was up 9.1%. Mortgage was up 6.1%, specialized lending, I’ll give you that detail in a minute, which is up 20.8%. I would point out, in direct retail, it was down 3.6%. We, like everybody else, are still struggling in direct retail. We are seeing a little momentum, because the rate of decline is slowing, generally, but it’ll probably be about two quarters or so before we see that drawn to depositing. I’ll point out to you that our ADP portfolio was down Q3 to Q2 $771 million, and Q3 to Q2 annualized reduction of 59%. Obviously, that’s a substantial reduction and very much in line with what we had planned to do. So overall, if you exclude the loan sales transfer, the transfer to help the sell, our loan growth was 3.2%, which we think is very good. So in summary, all the non-real estate loan portfolios grew, the pace accelerated in almost all the areas. Loan production for Q3 was $18.4 billion, up an annualized 20.8% compared to Q2 ’10. So that’s real encouraging, I think, to see the loan momentum begin to pick up. I don’t know that the overall market has been picking up that much, to be honest with you, but I think we’re really moving market share on a lot of cases, in particular in the large corporate market, and specialized lending. On slide eight, just to give you a little color about our specialized great niche areas, I mentioned that our prime sales finance automobile paper was up 10.4%, we did have a smaller non-prime portfolio that’s 5.9, more importantly, the link has a really good possibility of improving, a really, really good program there. Our revolving credit card was up 9.1%. Insurance premium finance is up 55%. Now that’s organic and (inaudible 0:21:35) that we were able to acquire, a good portfolio during the last year, that’s worked very well. Small ticket finance, through our small finance area has increased 38%, there’s some really good granularity there. We finance, for example, all terrain vehicles, loan boards for commercial operators, etc., so that’s really good paper. Asset based lending’s growing very fast, 21% increase. And our mortgage warehouse lending operation though small, is gaining traction, and there’s a real market opportunity for us there. It’s growing 43%. So you see, in all these areas we had strong benefits from these previous investments. We’ve been investing in these areas for the last ten years, and it’s really beginning to come home now, at a very, very good time. By growing these areas, it improves our diversity in non-real estate segments, it grows our overall granularity, geographic and product diversification, and one thing I would mention to the group, just for us all to watch over the next few years, this is substantially the way I think you’re going to see remediation occur. We talked about over the last 25 years how we just undermediated out of the banking system, and market shares went down from 80 to 30%, well you’re going to see, over the next several years, in my opinion, a process of re-intermediation where a substantial amount of those previous assets that were sold out of the banking system will come back to the bank, that will be a very good thing. And you’ll see a lot of that occur now, just organically. A lot of it will occur in a different sort of organic approach, in that we’ll buy paper from originators that would have historically taken that paper through securitization process, they’ll now bring it more directly to us, which is a really good growth strategy for us, and I think you’ll see in other institutions as well. If you look at page nine, just a little bit of detail on our deposits. We’re very pleased about this. Our non-interest bearing deposits, DDA, increased 15.4%. I would point out there, you see the interest checking is down 43%, a couple of points there. It’s just a small portfolio, and it’s mostly municipal funds, so we basically price that dependent on what our funds needs are, so you know, with loan growth being slower, and other DDA going well, we didn’t need as much in municipal funds, so we pulled back on pricing. Other type deposits have grown 2%. CDs are down 39%, that is absolutely by design. We have been managing our margins and holding rates back on single service, more expensive CDs, particularly in some of our markets, like Florida, where the pricing gets very, very sensitive. We’re not losing relationships, we’re simply not carrying those CDs at a time when it’s relatively more expensive than makes sense for us. So our total deposits were down, but I want you to understand that the net underlying areas that we’re interested in growing, are growing very nicely. For example, we’ve been really pursuing transaction accounts, which are up 17% compared to Q3 ’09, and annualized 5.6% compared to Q2 ’10. So really nice growth there. Our mix is improving, in terms of CD pricing and municipal pricing. We’ve increased our net new transaction account development from $17,400 in Q3 ’09 to $37,700 for Q3 ’10, so really big increase there, and we increased net new transaction accounts by $111,000 this year, an 98% increase over 2009. So if you look through the underlying numbers on the loan side, and on the deposit side, you see this really nice improvement, really strong momentum, and we feel very, very good about that. So let’s go to Clarke now, and let him give you some color on the loan area.

Thank you, Kelly, and good morning, everyone. If you’ll begin with slide ten, I’ll share some thoughts regarding our overall credit trends for the quarter. You know, as we discussed many times, our primary credit issue throughout this cycle has been the stress on the single family ADC portfolio. If you guys do the math, you’ll see as a frame of reference this portfolio represents today, about 4% of our loans, but has generated almost 30% of the non-accruals and losses of even this quarter. So as a result, we’ve been aggressively liquidating this portfolio. You can see on the chart, from a peak of nearly $9 billion in Q1 2008 to the current level, total level of $4.2 billion. If you exclude the ADC loans we transferred this quarter and held for sale, we have about $3.8 billion remaining in the portfolio, so if you look at that for Q3, what’s left in the held for investment portfolio was down $600 million and we reduced it almost $2 billion over the last four quarters. So we think we’re making substantial progress in this liquidation strategy. You can really see that in the stress markets and geography where we’ve had our biggest severity. For example, Florida is down over the last 12 months 55%, Atlanta down 58%, and D.C. Metro down 76%. We believe the remaining exposure in the portfolio will have a less relative severity than these higher stress markets, and we’re very focused right now, continuing acceleration strategy to dispose of this segment as quickly as possible over the next several quarters. As Kelly indicated, we’re very pleased with the overall results of our problem assets disposition strategy, and the momentum we are building toward this effort. In Q3,we actually assembled a team of about 12 sales specialists, together with some significant operational and marketing support to begin a sales program for about $1.3 billion in commercial NPLs that were transferred to the held for sale category, and the way I think you ought to think about this, our effort consists of a four pronged strategy. It’s in this priority, it’s short sells to the borrowers, third party direct, third party bulk, and then some option. The way to think about that is we get our best pricing execution when we’re dealing more directly to the borrowers, but it takes a longer time to do that, so at auctions you can do it much quicker, but you’ve got to do your discounts. So what we’re really trying to do is blend these various liquidation alternatives to achieve the best execution that we can, while balancing the time to liquidate. So we also will continue to work on this strategy along with our current and previous ROE liquidation strategy, which I’ll talk about in a moment. So as a result of these efforts through the quarter, our credit quality metrics improved on a linked-quarter basis, with the second consecutive quarterly reduction in NPAs which were down 42%. If you actually exclude the NPLs that we moved to the warehouse, total NPAs remained in held for investment were down almost 21%. The way we did this, we sold about, as Kelly said, about $451 million of NPAs for the quarter, approximately $207 million in commercial NPL notes, out of the warehouse and $244 million of OREO, and we’re very pleased that we got about $350 million of problem assets under contract, as we move into Q4. We also have pending LOIs for a large segment of the assets, so we’re very pleased with the interest we have in these assets, and our ability we think over a reasonable period of time, to have these things liquidated at reasonable pricing. The pricing for the NPL sales for the quarter were within our targeted range, so it was approximately $0.55 on the original unpaid balance, so we marked the remaining NPLs in the warehouse accordingly, consistent with these sales efforts. On slide 12 you’ll note that our GAAP charge offs for the quarter were 5.34% in total. That does include the impact of the portfolio marks in the warehouse, the previous non-accrual rate write downs, and the release of the specific reserve for transfer reserves related to that $1.3 billion of loans. So we’re very pleased. If you think about it this way, our core losses, which we define to exclude the write downs related to the warehouse assets were approximately 1.8%, which is actually a little better than our previous guidance of 2%, and I think it’s important to note that while we’ll continue – we may continue to incur non-GAAP losses in excess of 2%, if we continue to accelerate the sales of non-performers, we might chance in our guidance for core losses outside that liquidation strategy at this time, and that remains in the 2% range. It’s also noteworthy, we think, for Q3 that this is the first quarter since the recession began that our total provision did not cover total charge offs, and so the result of our allowance model and our view of underlying credit trend supported the release of the reserves related to the loan shelter sale, and we didn’t have an incremental allowance build. Additionally, we’re very pleased the allowance covers NPLs held for investment, actually went up to 130 versus 98% in Q2. So what we would think about, is looking ahead, we expect near term provisions to continue to fund the core losses, but we don’t expect that we’ll need to replenish any allocated allowances related to held for sale, as long as the economy continues to hold up. So I guess the main point about reserves is that we will remain prudent and conservation regarding our allowance until we’re convinced the economy is on a firm footing and we work through our real estate exposure. On slide 13, we’d like to share some data with you regarding our OREO portfolio. We actually had a 5.9% decrease on a linked-quarter basis, and another strong sales quarter at $244 million and the mix, again, was very good for us, almost 30% of land and light inventory and very pleased that we sold four of our top ten properties for the quarter, and we have a very strong pipeline under contract already, about $116 million, and we continue to see very active investor interest in all our properties. Our mark for the OREO sold for the quarter in total was about 48%, not materially different. That’s against original unpaid principle balance. That’s not materially different from what we’ve seen in previous quarters. Another noteworthy fact is that our land and lighting inventory is the lowest level since Q2 2009, so I think that’s more evidence that we continue to methodically work through these land exposure issues. We also discussed last quarter that our foreclosed property and maintenance expenses were elevated in Q2, primarily due to an aggressive revaluation effort on appraisals. Therefore, we feel very good that we had a significant decrease in total write downs and maintenance expenses for the quarter, and yet our average age of property in inventory and age of appraisals actually improved, so we feel very good about the current valuations we have for the portfolio. Turning to slide 14, our early stage results on delinquency also generally support the improvement that Kelly talked about and stabilizing trends in the overall portfolio. Very pleased that TDRs, which we know has been a big discussion in prior quarters were actually down almost 9% compared to Q2. While we continue to believe that there are times that appropriate loan mods can support our clients, and ultimately help us reduce problem loans and reduce losses, we do have a strict standard in categorizing modifications of TDRs, so we feel like we’re very conservative in what we call a TDR, and that’s evidenced by the fact that nearly 80% of our TDRs are performing and others performing TDRs 86% are actually current. So we think that’s reflected in very good redefault rates, relative to what the industry is seeing. I would say, however, that we do not expect to see significant increases in our TDR levels in future quarters. We’re working very hard to prevent new TDRs unless necessary. Regarding early stage, 30 to 89 and 90 plus, we did see some increase in 90 day, that was primarily related to our residential mortgage area. Those are mod attempts for government insured FHA and VA loans, so we feel fine about that. There was some bumpiness in the 30 to 89, that’s not unusual, as we move through the second half. Even a little bit of seasonal uptick in the consumer area, including the mortgage area, around the governmental loans. And then a little bit in the commercial area, again, we don’t think there’s any pattern there, so it’s typical variation you would see quarter to quarter. On slide 15 is part of our NPA reduction efforts. We’re also working very hard to reduce the rate of new inflow. What we’ve shown you this quarter is some information about our total inflow, so a positive development for Q3 is that we did see a little bit of a turn in total inflows, inflows which I’m particularly pleased about, because we did see reduction in the commercial portfolio, despite the fact that we were doing less TDRs for that book, so we certainly could have had less inflows, had we done more mods, and we didn’t choose to do that. So the majority of the inflows, really we think, reflect our efforts to more aggressively manage the liquidation of previously identified watch list clients. So I think the point there is the inflows we are experiencing are not surprising, but they’re on our watch list, and we’re taking aggressive efforts to recognize that and liquidate these credits at this point in the cycle. As a result, we’re beginning to see and our watch list total, watch list accounts peak, and we’re stabilizing and we’re seeing less new additions to the bank’s overall watch accounts. Inflows for consumer, and specialized money portfolio have been very stable over the last year or so, and a definitive improvement in the resi section, so again, our issue is around the commercial side, and we’re working very hard to improve that, and we think we’ll hopefully see lower inflow as we move to future quarters. On slide 16, I would like to close my section of the presentation by talking about the residential mortgage business, in light of the issues facing the industry. I think you’ll see on this slide that we’re trying to demonstrate our long term approach to this business, which we think is different, and it’s helped us avoid the negative impact that foreclosure concern, or liability risk are having on some of our competitors. The way we think about this is that residential mortgage is a critical service for our long term banking clients. Therefore, we never viewed the business as an independent line of business, so it’s fully integrated into our banking model, and we don’t have a separate mortgage company on standalone basis, so our overall company values and cultural imperatives drive how we view the business, and prevented us from participating in any of the aggressive mortgage practices, and we didn’t really participate in the private level market, where so many of the problems have spawned. In fact, as evidenced again, by a recent award from J. D. Powers for top rated service mortgaging, so what all that means is from a foreclosure standpoint, that we thoroughly reviewed our practices, and we do not believe we have any issues of concern. We have a small group of very knowledgeable specialists who prepare our affidavits, there’s no rubber signing. We have no assignment issues, because frankly, we didn’t participate in the hyped up securitization of the area, and we primarily originate loans from the GSE for our own portfolio, and we retain the service and we have a very strong belief about offering (inaudible 0:38:25) appropriate for every borrower, and then we didn’t use MERTH to do our foreclosure, so we do not plan, at this time, to have moratorium on our foreclosures. From a repurchase risk, we have a very manageable risk in this area. We only had $35 million in 2009, and $45 million year to date, through this year, and we’ve got about $14 million in reserve. We’re up a little bit in Q3, but we believe it’s very modest compared to a $60 billion investor servicing portfolio and relative to the industry. And finally, I do want to tell, our mod program, we never did the mass mod; we’ve always done them on a client basis, consistent with our values. Very targeted, fully underwritten mods, for example, we’ve got excellent results. We did 4000 trials in 2010, and we had over 70% conversion rate, and from what we’ve seen the industry’s at about 20%, so overall the mortgage story for BB&T, we believe, is very good. So with that, let me turn it over to Daryl for his comments.

Thank you, Clarke, and good morning everyone. Let’s continue with slide 17. Mid interest margin for Q3 for 409, down 3 basis points. The primary reason for decrease in mid interest margin was the result of reinvesting securities into lower yields. However, looking at our core fundamentals of our operating business, we are benefiting from positive asset mix changes, positive funding mix changes, and expanding credit spreads. The positives helped neutralize the re-investment into lower yields security and non-interest dropped by three basis points. Our adjusted mid interest margin which reflects the FDIC indemnification asset as an earning asset, like some of our peers do it, improved slightly to 383, up one basis point. The improvement was driven by our forecast of covered asset cash flows, resulting in a net $6 million increase in interest income, a $35 million improvement in FDIC receivables, an additional impairment virtually offset by recovery, resulting in an increase in provision of $29 million in this quarter. Given the current level of NPAs and interest reversals, if you adjust these figures for a more normalized level, our mid interest margin would have been approximately 12 basis points higher. Looking into next quarter, and assuming our balance sheet performs in a similar fashion, with load and deposit and the interest rate environment stays the current level, I would expect mid interest margin to drop 10 basis points, plus or minus three basis points. The primary driver, again, for this is the decrease and the reinvestment of security into lower yields. Turning to page 18, during Q3 we continued with our strategic derisking of the securities portfolio by selling $10.7 billion of securities at a give up yield of 3.55%, and purchasing $12.4 billion high quality short average life securities and floating rate securities yielding an average of 1.8%. This generated net gains of $239 million for the quarter. For the past two quarters, we have sold a large amount of past due securities and generated over $450 million in gains. Given today’s low rate environment, many of these gains will have evaporated due to the high refinance activities that we are seeing in the mortgage backed securities. As a result of our reinvestment, the duration of the investment portfolio changed from 4.0 years to 2.9 years. In addition, as the securities pay down, we will receive approximately $1.5 billion in cash each quarter, from the shorter life portfolio. We hope that as interest rates rise, we will be able to invest in either higher yielding loans or securities. We remain within our stated size target for the CREs portfolio, 15 to 20% of earnings assets. Currently we are at 17.8%. This strategy will result in less OCI risk associated with this portfolio. Due to a smaller size and shorter duration, the risk of having a large negative unrealized losses was cut in half, in a face paced rising grade environment. Lastly, as you can see, our interest rate sensitivity remains slightly asset sensitive, so while the FED is not looking to raise rates in the next year or so, when they do raise, our mid interest margin will be in a position to benefit. In the long term, we strive very hard to maintain a relatively neutral interest rate position so that we can produce a constant and stable mid interest margin. Turning to page 19, our fee income ratio improved to 42.3% from 40.8% in Q2 of this year. Insurance income was down, due to seasonality and pretty much spot on from last year. Service charges on deposit decreased $17 million from last quarter, due to YE changes that were implemented mid quarter. You can see that we are performing better than original estimates due to some initial key changes I’ve rolled out. We will continue to adjust pricing of our products well into 2011, but the goal is minimizing as much as possible the loss of revenue. We will update you more in the future quarters as our changes are implemented. Mortgage banking income, for Q3 was $184 million. Compare that to $110 million in Q2, up $74 million, primarily due to higher production levels, wider mortgage spreads on sales, and mortgage servicing rights. Other non deposit fees include commissions, increased 59.3% on a linked-quarter basis, primarily due to strong results in our PNI lending activities. Check card and bank card fees both remain strong due to higher activity and increased production on common quarter basis. An FDIC loss year amount of a negative $43 million reflects a new offset of additional accretient identified during the cash flow assessments. This was mainly driven by a change in interest on securities, and the additional provision of certain impaired functions. On page 20, our efficiency ratio increased slightly to 54.1% from 53.7% last quarter. Remember, we used SNLs definition of efficiency, which is not factoring in expenses related to foreclosed property and other selected items. Personnel expense decreased $7 million, or 4.3% in annualized linked, due to individuals reaching their annualized limits for social security and unemployment, and decreased production of (inaudible 0:45:38) due to economic conditions. Additionally, our FTEs decreased 272 on a linked-quarter basis, to 1,490 on a common quarter basis, primarily related to Colonial. Additionally, regulatory charges increased due to deposit and temporizer related costs. In Q2 we told you foreclosed property expense would begin to come down. We are pleased to report that foreclosed property expense decreased $73 million due to a decrease in write downs, and watch listed foreclosed property, as well as maintenance cost. Excluding special items such as security gains, major related changes, valuation adjustments for MSR and other miscellaneous items not introduced by this, we’re down 17.6% annualized for Q3. Our effective tax rate was 11%, which is very similar to last quarter. We expect that tax rate to be about the same in Q4. Finally, given the growth in revenues, coupled with lower expenses, shows positive operating leverage on a linked-quarter basis. Total revenue increased 4% on an annualized basis, expenses decreased 24%, headed by lower write downs on foreclosed properties. On the next page, all of the capital ratios remain very strong, industry leading numbers. Tangible common at 7%, Tier 1 common improving to 9%, Tier 1 capital at 11.7%, leverage capital improving to 9.3% and total capital at 15.7%. Regarding Basal III, all of our capital ratios are already above the Basal III limits, after making all the property adjustments. Based on what we know today, they are Tier 1 common at 8.2%, Tier 1 capital is 8.7%, leverage capital at 5, and total capital at 15%. We are waiting for US regulators to weigh in with any additional adjustments they might make, but feel pretty confident t we will not have to raise any common equity gain to meet required capital levels. With that, let me turn it back over to Tamara to let her explain the Q & A portion.

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 question. If you have further questions, please re-enter the queue. I will now ask Andrea to come back on the line and explain how to submit the questions.

Thank you Tamera. [Operator Instructions] Our first question will come from Betsy Grasek with Morgan Stanley. Betsy Grasek – Morgan Stanley: Thank you, the basic questions I have is on asset disposition strategy. You took a mark to market as you move the loans to the held for sale category, you know the question that I get this morning from you folks is how do we know that that’s an appropriate mark? and if you weren’t able to sell it, why shouldn’t there be some forward incremental mark going forward? So maybe you could just do some color as to how you address that question.

Hey Betsy, this is Clarke. I’ll take that. As we told you, we feel very comfortable about our current mark, at $0.55 blended, because that’s basically what we’ve sold the NPLs for that we have under contract for the quarter, so we think right now, based on our four pronged strategy, I would say we’re not out there just to liquidate all these in bulk at auction with high liquidity premiums. So the four pronged strategy is important for us to get the blended rate that we want. We’ve also got good response from the investors. We work very hard, they have been very complimentary about our documentation in the files, and the actual assets themselves, they were better looking than what they had seen, other purchases they had made. We feel good about what we’re selling and how we’re selling it, and so I guess the proof will be in the pudding, around whether we continue to sell at these rates, and if we’re not able to, obviously we would have additional impairment through future quarters against other income, so again, we feel good where we are right now, and we’re very confident we’ll get these assets liquidated over the next several quarters. Betsy Grasek – Morgan Stanley: I guess the follow up is on the flows, you know, the inflows to non accruals. You just seem to be still elevated, I suppose, in Q3, how do you see that projecting and how far along do you think you are in this process?

Well, I mentioned to you that we were pleased that they turned down from Q2, particularly in the commercial area. Actually, if you look at it, commercial was down, residential mortgage was down, home equity was down, and we were basically flat in sales finance and specialized lending, which they had seasonal impact on the second half, so we feel good. But you have some seasonal influence there, but going against that seasonality was real improvement, particularly in the commercial area. I think what gives us the best confidence there is the fact that our watch list is not incrementally going up, so as long as the watch list is stabilizing and the inflows there are going down, then we feel confident that we will see lower nonaccrual inflows as we move forward. Betsy Grasek – Morgan Stanley: Thanks.

With that, we’ll move to our next question, from Jefferson Harralson with KBW. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.: Thanks, I wanted to ask you, when I see that you quantified the $321 million of impact of loans moved to held for sale, should we take that as the actual mark on the $1.3 billion that were moved to held for sale? Or is that $321 million a different number?

The $321 million is really the earnings impact, you get it through the price of $0.55 that we have it on the books, plus any sales that we did through the quarter, just a combination of both of the pieces. Remember, some of the loans were already written down and some of them already had specific reserves attached to it. Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.: Okay. Thank you. And the follow up on the (inaudible 0:52:28) warranty, you guys say you have $60 billion that originated and sold, what percentage of that do you think is delinquent and why don’t you think that you’ll get a deep amount put back on the delinquent loans?

Jeff, this is Clarke. Again, we’re running – our mortgage delinquency runs lower than the industry average, so again, what we produced is principally prime conforming and sold to Freddie and Fannie, we have a little bit of FHA, we have about $9 billion of governmental FHA and VA, so again, we think our delinquencies are less. Our discussions with the agencies kind of support the fact that they view our credit better than the industry, and we’ve not seen a huge increase in the repurchase request at this point, and we still resolve a number of those even before any sort of repurchase activity, so I think our relationships with the GSE is very good and there’s no indication through those discussions that we have any impending significant increase. Jefferson Harralson – Keefe, Bruyette & Woods, Inc.: Okay, thanks.

Moving next to Bob Patten, with Morgan Keegan. Bob Patten – Morgan Keegan: Good morning, guys. Just a bigger picture question for Kelly or Clarke. What are you gauging as the general health of the Carolina markets right now in terms of the cycle? Are you seeing any change from where you were Q1, Q2? Also in terms of the sale markets, are you seeing a pickup in activity, are you seeing liquidity coming in from new sources? Just give us some color there, please.

Yeah, Bob. I think the Carolina market is pretty similar to what we see across the board. If you take the non real estate sectors, then what you see is the first five or six months we had a pretty good increase in activity, then frankly it’s kind of been stalled in the last, let’s say three months or so. When you talk to people, it’s really about hesitation, about the uncertainty coming out of Washington, some people are just waiting for the election. But there’s a pretty strong demand, and the people need to invest. They need to expand plans, they need to buy equipment, so they’re just waiting for the election. Now my own sense is, based on the polls and from talking to people, I think we are going to get a positive change at the election, in which case confidence will be restored, so I think you will see momentum picking up. So I feel like Carolina is in lock step with the rest of the mid-Atlantic and Southeast. In terms of our sales activity, these things are encouraging. Even when the general economy stalls, you know, some modest investor appetite has not changed. One thing I’ve observed over 38 years is when you go through these cycles, the smart money knows when to act, and the smart money is out looking, today. They know, I believe, that we’re on the edge – at the inflation point, they know we’re likely to see, after the election, a renewed level of confidence, so a lot of uncertainty will be removed. They know with trillions of dollars of monetary and fiscal spend put into this economy that you’re going to see a round of inflation and higher interest rates, and so smart money moves to buy real estate at this point in the cycle. They’re going to know the cycle, they do it at the end of the year, and I think it will continue. Bob Patten – Morgan Keegan: Thanks, Kelly. And Clarke, just a quick question on NPA inflows, obviously you guys are making a lot of progress, picking up some rate strategy, but we’ve had another $1.3 billion of inflows. Can you talk about the composition of the inflows? And when do you think we’re really going to see a fall in a substantial way? Is it one quarter, two more, three quarters out? What’s your sense here?

Good question, just to give you some color, NPA inflows were $1.262 billion for the quarter, $934 million was in the commercial area, that was down from $1.5 billion in Q2. Our mortgage was 145, down from over 200, and our home equity was about 58 down from 62, so you see the big number is still the commercial inflows, and again, we were actually pleased for the quarter, because we purposely did less mods, TDR mods, and we were more aggressive in forcing stuff to non-accrual or through liquidation, particularly into the warehouse on the held for sale, so I think you see all that reflected in the number, which is still certainly higher than we want it to be, but it’s still down. So again, it goes back to the watch list is improving, that’s the acid test, and so I think for us, we would suggest that the trajectory ought to start coming down over the next several quarters, and the absolute levels will be more dependent upon how strong the economy engages here, and if things continue to hold up. Hopefully it will be sooner rather than later. Bob Patten – Morgan Keegan: Okay, thanks Clarke. Appreciate it, guys.

And next we have Craig Siegenthaler with Crédit Suisse. Craig Siegenthaler - Crédit Suisse AG: Thanks, morning everyone. Just to build on that last question, if we change the topic from inflows to non accruals to net charge offs, how many more plus 2% net charge off quarters do you think we have here? Do you think it’s more like one to two, or do you think it will be a little longer, like four to five? I’m just trying to kind of gauge the time line here.

We believe unless there’s a unforeseen significant shock in the economy, in our view of the internal state markets, where they are today, we would be hopeful that you’re probably talking about one or two, not a number of quarters. Craig Siegenthaler - Crédit Suisse AG: Got it, and then maybe just help me quantify, on slide 15, you have the watch list there. What was the actual decline of the watch list, sequentially?

We don’t typically disclose our internal watch list. I would just tell you it was a meaningful reduction, particularly over the last 60 days or so, but again, what we said and feel good about is that it peaked in the spring, and it’s very much stabilizing, despite these more aggressive efforts to identify and liquidate these assets, given the market timing issues we’ve talked about before.

And Craig, I would just add to that, given what Clarke had said, that’s pretty important, because we are very conservative in terms of putting them on the watch list. We always have been, we don’t want to fool ourselves, we don’t want to fool anybody else, so if we have concerns, we put it on the watch list. So the fact that it is stabilizing and starting to go down is a really important point. Craig Siegenthaler - Crédit Suisse AG: Great, thanks Kelly.

And next we’ll go to Gerard Cassidy with RBC. Gerard Cassidy – RBC: Thank you, good morning guys. Now in regards to the mid interest market, what do you see it doing going forward in 2011? I know you pointed out what it’s going to do in Q4, but do you still see continued pressure because of the securities reinvestment yields that are much lower than what you had on the books prior to the sale of the securities?

Hey Gerard, Daryl here. You know, that’s a very difficult forecast to make. I would probably say we could give you much better color next quarter when we go through kind of our target for 2011. What I would tell you is as long as we continue to get momentum on the balance sheet, and our loans are growing, and we’re having capable mixed changes there, and we’re at security on deposit strategies, all of those are positive. As we dispose of our non-accrual assets, that’s positive. So you know, I don’t want to give you a forecast yet, but you know, the trends are looking good, and better, so we can get through the next quarter and then we’ll be able to give you a better outlook. Gerard Cassidy – RBC: Okay, and then the followup, obviously this has been a challenging year for BB&T from a credit perspective. Traditionally banks have used Q4 as a so called clean up quarter, throw in the kitchen sink, put them on steady footing for the following year. What do you guys see in Q4? Could we see another quarter similar to this one, where you very aggressively attack the non-performing assets and following the strategy you just announced today?

As Kelly indicated, we moved $1.3 billion of NPL assets in and aggressively marked those which really drove up the total losses for the quarter. We don’t see anything on the underlying core losses, as we said, that would change our forecast, and it’s not our intent to move a slug that large in Q4, so we don’t intend or see any big Q4 seasonal clean up, if you will, at this point. Gerard Cassidy – RBC: Thank you.

And our next questions comes from Vivek Juneja from JP Morgan. Vivek Juneja – JPMorgan: Hi Clarke. I have question on the mark that you’ve taken. So you brought these down, just since this is a lot of moving parts here, you brought these loans up to is it $0.55 on the dollar? Is that correct?

That’s correct. Between the initial non-accrual marks, the time we put these in the non-accrual, the transfer, charge down of the allocated reserve and in the final charge off mark, we took off total about that 45% range. Vivek Juneja – JPMorgan: And $1.3 billion that was transferred – that’s the gross amount? That was transferred to held for sale? Or is that the net amount?

The gross amount, which we would call the unpaid principle balance, what the client actually owes us, was roughly $1.7 billion, the book balance after initial write downs, but prior to reserve, was approximately $1.3 billion. Vivek Juneja – JPMorgan: And then on the new inflows that you have, how much of those are marked down?

Typically, at the time of non-accrual, we would generally, depending on the asset class; I know your question is probably concerning commercial, it’s approximately 25%, can be as high as 30%. So very asset specific, but it’s generally going to be in the 25 to 30% range. And that does not include our allocated reserves. That’s just the non-accrual mark. We have additional reserves, obviously, on those lines. So the combination is very similar to the 45%. Vivek Juneja – JPMorgan: And in terms of geography, the stuff that you sold, any color on what you have sold versus what’s sitting there in the portfolio that’s to remaining to be sold?

Good question. As you would suspect, a fair amount of inventory in the Atlanta area and the Florida markets, and just because the sheer size of our portfolio, we have some Carolinas credits in there as well, so a good niche for that. Those would be the three largest markets for what we put in, and it would be a similar story on what we’ve been able to sell, or put under contract.

I would say this, we are seeing in several interests, back to Kelly’s point, investors particularly like the late deterioration in the Carolina’s market, they’re coming in now and buying in particular some land and holding inventory in anticipation of a better market ahead. Vivek Juneja – JPMorgan: Great, thank you.

And next we’ll go to Christopher Marinac with FIG Partners Christopher Marinac – FIG Partners: Thanks, good morning guys. Daryl, I noticed an increase on the interest income on the covered loans, in the asset balance sheet. I was curious that that income was all accredable yield and would that number be possibly higher in future quarters?

Yeah, Chris, we had 6 point increase net, so loans were up $18 million, securities were down $12 million. If you actually look at the accredable yield piece, that also improved. We were at $2.9 billion last quarter and now we’re at (inaudible 1:05:13). Christopher Marinac – FIG Partners: Thank you, and Kelly, just a big picture question. Do you expect or are you seeing any change in terms of other banks behavior toward you, from an M&A perspective? Are you getting more requests for discussion, do you expect that to change in the next six to 12 months?

Chris, you know, I think right now what’s happened is everybody is kind of still hunkered down focusing on getting through this part of the cycle. I think everybody that I’ve talked to at various meetings, in general, believes that as we head into the mid part of ’11, you’re going to begin to see a lot of merger discussions. I think they’re settling in a pretty clear reality that we are going to go through a pretty substantial level of consolidation, just because the major things have changed. I mean, you know, it’ll be tough to generate revenue for a lot of institutions in a sluggish economy. We have huge increase in technologic and regulatory costs, and so the economics of producing a superior term is changing. I think that’s kind of settling in on people’s minds, so I think what you’ll see is a lot of discussion in the early part of the year, probably more activity in the mid to latter part of the year. Now we think we are well positioned in terms of future merger opportunities, we’re – we think we one of the best positioned if not the best positioned in the mid Atlantic or southeast in terms of being a consolidated, just because of the cost save opportunities, as well as the fact that we think our story plays well in terms of revenue generation, with this cycle, which has been best in our peer group. So you know, it’s hard to know, we’re not out today trying to create mergers, I’ll tell you that, and I don’t think anybody else is. But I do think we would be very positive with regard to having discussions in the next 12 months or so. Christopher Marinac – FIG Partners: Great Kelly, thanks very much.

Our next questions comes from Kevin Fitzsimmons with Sandler, O’Neill. Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P.: Good morning everyone. Kelly, most of my questions have been already asked and answered, but one quick one. You have talked before in prior quarters about wanting to be out there on the forefront of returning capital to shareholders and the dividend is of particular interest to you all. Is that – where do you gauge that right now, given the M & A opportunities that are out there, and the continued work – working through the EMPAs? Thanks.

Yeah, Kevin, that’s a major discussion issue for us, and probably most big companies. As you well know, dividend strategies are important to us, just because of our substantial level of retail clients. So you know, we want to be, frankly, one of the early ones to see some type of dividend increase. I would remind you that we have the second highest dividend yield in our peer group today, but we’re unlike a lot of our peers, because we were the last to cut, and we cut it only $0.15, and we already have a $0.2 ½ dividend yield, but I think you can begin to think about us being probably one of the earliest ones to raise -- our actual incremental rate may not be as much as others, just because of where we already are. That having been said, the issue, as you all know, Kevin, that we have to look at is we need to continue to see more clarity in the economy, I think you’ll see a lot better clarity after the election. At least from my point of view, I think you need to see continued, improved loan quality, trends we are seeing, but we still have to see this regulatory capital issue resolved, you know, around Basal III, we’ll be getting more information kind of almost by the day, but we need to kind of let them settle in on what that’s going to be before anybody can make a decision. So I’m pretty optimistic as we head into next year, or the next few quarters, we’ll be in a position to consider a small dividend increase, I think we’ll keep our yield at probably a very attractive level, relative to others, and we’ll just have to take it a quarter at a time. I don’t want to mislead anybody, the truth is, today we just don’t know. There’s still uncertainty. But it’s a lot more certain today than it was six months ago. Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P.: Okay, thank you.

And our last question today comes from Peter Denushu with Carlton Capital. Peter Denushu – Carlton Capital: Kelly, Daryl, Clarke, thanks for taking my call. I think I understand the disposition strategy, and I definitely think it’s the right move, but help me, and we talked a lot about inflows, and I appreciate the slide. So inflow’s almost $1.3 billion, so they’re up in the quarter, right? If I exclude the $300 to $400 million that we had last quarter, for kind of the onetime review at the time. That was the number, right?

The number last quarter was $1.050 billion – Peter Denushu – Carlton Capital: Yeah, right. But you had the 400 that was added because it was the one time kind of true up for the top loans?

Well, what we did was we looked really hard at our large watch list accounts, as we always do, and we aggressively, as we begin to disposition strategies, force those accounts toward liquidations, which resulted in the non-accruals. That process continues today, and that’s why the inflows aren’t down more, and we’re doing less modifications, but it’s the same watch list accounts that we’re working through. Peter Denushu – Carlton Capital: Right, so here’s what I’m trying to figure out. So you have 1.3 coming in, and 451 sold, and then you charged a good amount right, and that was held back, we funded that with security change and a chunk of the reserve, and that makes sense. But I’m trying to look – I hear you on the trajectory being in the right direction, but what I’m looking for, and you can see further up the pipe than we can on the migration. What I’m looking for is a real substantial inflection and you know, do you see it that way? Or is it more kind of a steady progress?

It all depends on the economy and the markets and how the individual clients perform against those variables. But we need to see inflows probably more in the $500 million range to get that inflection, so we don’t believe we’re that radically far from it, particularly with the aggressive actions we’re taking. We think we can get there in a reasonable period of time. Peter Denushu – Carlton Capital: Okay, last question, guys. This is a follow up. How much of the 1.3 was ADC? I know that maybe the season was weaker than maybe a couple of home builders were hoping for.

It was over 50%. Really almost two-thirds, because we had a little bit of commercial ADC in there as well. Peter Denushu – Carlton Capital: Okay, thanks for the color guys.

Thanks everybody for your questions. Let me just make a couple of wrap up comments. First of all, we consider this, overall, a very, very good quarter. The underlying points – our business is strong, our client service metrics are at historic highs, and I remind you that’s a core issue with any company. Moving forward is what kind of value proposition are you in the marketplace. Loan growth accelerated during the quarter in non real estate areas, that’s a really big deal. We’re maintaining positive revenue growth, in a very challenging environment. In fact, this is the second quarter we got best in our peer group from 608 through 610, so very strong growth, positive revenue growth. You know, our primary challenge relates to late cycle credit issues, primarily ADC which Clarke has addressed very well. We will outperform through the whole cycle and emerge through the whole cycle. When you look at the shareholders value, and we’re very confident we’ll be (inaudible) disposition strategy. I do understand people with questions about it, it’s nothing new. We’ve said all along that our clients would lag through this segment, we said that our NPAs would increase in a lagging fashion, and we simply decided it was time because of the increased investor appetite to dispose of remaining levels of nonperforming assets, which is exactly what we’re doing, and the execution was very consistent with what we expected. So we’re very confident that it will be executed appropriately. Finally, just to remind you, the sense of BB&T, because I think there’s all this focus on real estate can overshadow the core issues, which is the real important sense of BB&T. We have significant revenue strategy growth going forward, we talked about wealth, we talked about large corporate, we talked about specialized lending areas, we talked about DDA improvement, just huge, huge relative opportunities for us. It’s the remediation process and others that have the capital to be able to pursue it, it’s going to be huge, we’re already seeing that happening. Our community banking structure continues to be the best strategy in the marketplace in terms of providing best value proposition. There will be merger opportunities as we move through this cycle. We will be appropriate aggressive with regard to that, we have growing markets, even those Florida and Atlanta are subdued today, I remind you that they are fantastic markets in the long term point of view, with 18 million people in Florida and it’s still warm in January. Don’t forget that when you think about the future. And we believe we have the best overall team on the field today. So we’re very confident about the future, you know, it’s easy in the depths of the summer storms that on the other side there’s typically a really pretty rainbow. At BB&T we are looking forward to the rainbow and we are excited about the future. Thank you all for your support, and have a great day.

Thank you. Ladies and gentlemen, with that we conclude today’s earnings call. We do thank you for your participation and ask that you have a great day.