BB & T (BBT)

Q2 2010 Earnings Call

July 22, 2010 8:00 am ET


Clarke Starnes - Chief Risk Officer and Senior Executive Vice President

Daryl Bible - Chief Financial Officer and Senior Executive Vice President

Kelly King - Chairman, Chief Executive Officer, President, Member of Executive & Risk Management Committee, Chairman of Branch Banking & Trust Company and Chief Executive Officer of Branch Banking & Trust Company

Tamera Gjesdal - Senior Vice President of Investor Relations


Adam Barkstrom - Sterne Agee & Leach Inc.

Craig Siegenthaler - Crédit Suisse AG

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P.

Betsy Graseck - Morgan Stanley

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc.

Gary Tenner - Soleil Securities Group, Inc.

Christopher Marinac - FIG Partners, LLC

William Wallace - FBR Capital Markets & Co.

Robert Patten - Morgan Keegan & Company, Inc.

Heather Wolf - UBS Investment Bank



Greetings, ladies and gentlemen, and welcome to the BB&T Corporation Second Quarter Earnings 2010 Conference Call on Thursday, July 22, 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.

Tamera Gjesdal

Good morning, everyone. Thank you, Barbara, and thanks to all our listeners for joining us today. This call is being broadcast on the Internet from our website at We have with us today Kelly King, our Chairman and Chief Executive Officer; and Daryl Bible, our Chief Financial Officer, and Clarke Starnes, our Chief Risks 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 summaries is available on the BB&T website. After Kelly, Daryl and Clarke have made their remarks, we will 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 1 of our presentation and in the company's SEC filings. Our presentation includes certain non-GAAP disclosures and we would refer you to Slide 2 and 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.

Kelly King

Thank you, Tamera. Good morning, everybody. Thank you for joining our call today. It could be a little 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 [indiscernible] (13:58) position strategy we've embarked on. Moving on revenue and earnings power, talk about the Colonial integration and cover some of the issues and impact of the regulatory changes. And Clark's going to cover some more detail with you on credit trends and outlook and a good bit of detail on our MPA 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 key 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 here in the quarter, we want to be sure we drill down and certainly make sure you fully understand those. But we’re very pleased that we had $210 million available for our common shareholders, which is up 73.6% on a linked quarter basis that is up an annualized 46.9%. So we did make a $0.30 a share EPS GAAP up 50% compared to second quarter '09, up 44.6% annualized linked quarter. We did have $0.03 in merger-related charges and so EPS excluding Merit 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 large share arrangement but net is still very good but it's not quite as good as it appears on the growth increase.

Importantly, our nonperforming assets declined on a linked-quarter basis by about 3.1%. This is a result of our more aggressive strategy on our disposition of nonperforming assets. [indiscernible] (16:05) 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-off 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, which I may 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 the rest of the strategy that has intended to accelerate and move as we go through the cycle. But the provision for credit losses is $650 million, that does include the additional $148 million related to the disposition strategy, allows losses to loans remained strong at 2.84% including covered loans, and the coverage of [indiscernible] (17:13) and nonperforming loans improved to 98%, excluding covered loans.

We executed on our material balance sheet deleveraging strategy, essentially thought the market was at an appropriate time to lock in significant gain 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 bit more detail on that. We feel very, very good about loans for the quarter. We averaged $95.1 billion. Our average loans increased an annualized 0.6% compared to first quarter of '10. Average loans increased annualized 2.6%, excluding ADC. So what we're really seeing, of course trying to give you a lot of detail on this, is very strong growth in our auto strategy, specialized lending, C&I, and some other important areas. The overall growth is muted because of the planned reduction in real estate, specifically ADC. But the strategies of diversifying our asset structure is absolutely on track and material steps this quarter with regard to that, likewise we continue to execute very effectively on our deposit diversification strategy. If you recall, a year and a half ago we told you we would be working on diversifying the balance sheet on asset and liability side. We’ve made a lot of progress in that. Daryl’s going to give you a lot of color with regards to our deposits but transaction accounts increased 28.4% compared to the second quarter of '09, so very strong client deposit growth. Our capital ratios all improved substantially during the cycle, as a result of deleveraging as well as the overall very good performance.

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