Good morning, ladies and gentlemen and welcome to the BB&T Corporation First Quarter 2017 Earnings Conference. [Operator Instructions] As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Alan Greer of Investor Relations for BB&T Corporation. Mr. Greer, please go ahead.

Thank you, Debbie and good morning everyone. Thanks to all of our listeners for joining us today. On today's call, we have Kelly King, our Chairman and Chief Executive Officer and Daryl Bible, our Chief Financial Officer, who will review the results for the first quarter of '17 and provide some thoughts for next quarter. We also have other members of our executive management team who are with us to participate in the Q&A session: Chris Henson, our President and Chief Operating Officer; and Clarke Starnes, our Chief Risk Officer. We will be referencing a slide presentation during our comments. A copy of the presentation as well as our earnings release and supplemental financial information are available on the BB&T website. Let me remind you that BB&T does not provide public earnings 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. Please refer to the cautionary statements regarding forward-looking information in our presentation and our SEC filings. Please also note that today's presentation includes certain non-GAAP disclosures. Please refer to Page 3 and the appendix of the presentation for the appropriate reconciliations to GAAP. And now, I will turn it over to Kelly.

Thanks, Alan. Good morning, everybody. Thank you very much for joining our call. As always I really appreciate your interest in our company. So it's a very good start to 2017. We had record quarterly revenues, good expense control and strong returns. Our net income available to common shareholders was 348 million, down 28%, but remember that included several major items I'll discuss in just a moment. So adjusted net income was 611 million which is up by significant 15.1% versus first quarter of '16. Adjusted EPS totaled $0.74, up 10.4% versus the first quarter of '16 and our returns were really good. Our adjusted ROA was 1.21%, adjusted return on common equity was 9.18% and return on tangible common equity was 15.56% and our risk related adjusted assets return was 1.5%, very, very good returns. We had record taxable equivalent revenues totaling 2.8 billion, up 9.1% versus first quarter of '16 and up 7.6% annualized versus fourth quarter, so good revenue momentum, driven more by net interest margin, which increased 14 basis points to 3.46% versus fourth quarter. Our fee income ratio declined slightly to 42.1% versus 42.6%, but let me just make a point of emphasis here. Remember that it's down from where we typically had at around 44%, the reason is because our fee income ratio, every time we do a merger gets diluted because the smaller institutions just don't have all of the fee services that we have, that's one of the reasons we acquire these companies and so while it's down, there's really an indication of an alternative because over two or three years we'll bare all that fee income pack ended for those companies, so that's not a negative, it's just an implicit opportunity. If you're travelling with me still on slide 3, our…

Thank you, Kelly, and good morning everyone. Today I'm going to talk about credit quality and interest margin, fee income, non-interest expense, capital or segment results and lastly provide some guidance for the second quarter. Turning to Slide 9, we had a really strong quarter with regard to credit quality, improving in all categories. Net charge-offs totaled $148 million, down slightly. Loans 90 days or more past due and still accruing decreased 14.8%, loans 30 to 89 days past due decreased 25.3% due to seasonal improvement in our consumer-related portfolios. NPAs were down 1.5% from last quarter. Looking at the second quarter, we expect net charge-offs to remain in the range of 35 to 45 basis points assuming no unexpected deterioration in the economy and we expect NPAs to remain in a similar range. Turning to Slide 10, our allowance coverage ratios remain strong at 2.49 times for net charge-offs and 2.05 times for NPLs. The allowance to loans ratio was unchanged at 1.04%. Excluding acquired portfolios, the allowance to loans ratio remained at 1.13%. So, our effective allowance coverage remained strong. Provisions for credit losses matched net charge-offs at $148 million. Going forward, we expect loan loss provision to match charge-offs plus loan graph. Turning to Slide 11, compared to last quarter, net interest margin was 3.46%, up 14 basis points. Core margin was 3.28%, up 10 basis points versus last quarter. The increase in GAAP margin resulted mostly from higher earning asset yields, security through ration adjustments from prior quarter, the impact of the Federal Home Loan Bank termination, offset by slightly higher deposit betas due to the recent rate increase. As a reminder, we restructured $2.9 billion of Federal Home Loan Bank advances at the beginning in the first quarter and recorded a pretax loss of $392…

Thanks, Daryl. So, just to reemphasize we think it was a great start to solid operating earnings, good expense control as Daryl described. We have future opportunities to continue to rationalize expense structure and our mergers and rationalized expense structure in our branches, including branch closures. And so, when you put all that together with our focus on our six focal areas, we think the opportunity for us to continue to improve is very good. The key is on the consistent in our execution, which is what we're going to take very good about. Now, I will turn it to Alan.

Okay, thank you, Kelly. At this time we'll start the Q&A session. Debbie, if you could come back on the line and explain how our listeners may participate in the session.

Thank you, gentlemen. [Operator Instructions] We'll go first to John McDonald with Bernstein.

Hi, good morning guys.

Good morning.

The fee income looked good this quarter and the guide for growth for the second quarter, 6% to 8% year-over-year, wondering what you see as some of the drivers of the fee income improvement year-over-year. And then also on the insurance, you had a good quarter. Could you just speak to the economics of that business whether you are seeing any improvement in pricing and some of the trends there?

Hey, John, this is Chris. Fee income is certainly one of the drivers and next quarter will be insurance. I'll come back to that in just a moment. We're going to see we believe investment banking doing much better. We have, just as Daryl said, a little of pullback. In fact, we had a number of deals that sort of popped in the fourth quarter, so we see that pipeline building back. We think that could be in 10 to 12, maybe in 13% kind of range. We think mortgage has - mortgage pipeline with rates down and beginning to rebuild a bit. That won't be a big quarter, but we think we could see a little bit of pickup there and then trust investment grocery up slightly, so then all the other check cards would be up a bit as well. Going back to insurance to follow-up on your question, first quarter is always seasonally strong in the sense, as Daryl said, we get good EB pickup, because that's the only one of those contracts we kind of build, but second quarter is actually our best quarter of the year. So, we see possibility to be up 5% or 6% kind of range second quarter and that business I would say underlying, we're very happy with the trends we are seeing. While pricing is still down in the 3% to 4% range, our core organic growth is up 1%. So, we're really outpacing the pricing through underlying new business growth and we're seeing that in our core business and Internet services, which is across the banking footprint. That grew 11% in new business production this year, I mean, this quarter. Our California business grew about 15% and wholesale, you might recall, we converted Swett & Crawford into CRC, our primary wholesale business this quarter. We actually expected it to be down and it was really about flat, so really a good pickup there. And then our life business was up about 8.3%. So, all in all we had a really good quarter seasonally. We tend to see them drift, which is our large in retail down that fourth quarter is sort of their best quarter. So, all in all really good overall performance in insurance and I mean clearly we're taking market share in footprint.

Okay. Thanks, Chris and Daryl, just a follow-up. When you coupled that fee income outlook with the expense guide, what are you thinking for the progression of the efficiency ratio as you look at your adjusting number of first quarter going into second quarter and the rest of the year?

John, I mean every quarter we're always out trying to achieve positive operating leverage. When you look at second quarter, we do have an uptick in expenses just for seasonality and we continue to have our technology investments. So, I would say second quarter is too close to call right now. But we feel very confident we will have positive operating leverage, improved efficiency on a year-over-year basis. Basically in the second half of the year we're really seeing a kick-in.

Great, okay, thank you.

We'll take our next question from Gerard Cassidy with RBC.

Good morning, Kelly, and good morning, Daryl.

Good morning, Gerard.

Kelly, I want to follow up on your comment about artificial intelligence and robots. Where do you think you are in that process? Is it the first inning or not even the game hasn't even started yet? And what do you envision over the next two or three years on what this could do to your operating expenses by making you more efficient?

So, Gerrard, as it were, it's sort of in the first inning. We've actually tested some areas to be sure that we are so comfortable with the whole concept of AI and robotics working. Just to give an example, Daryl did a test in his financial reconcilement area, so we took one process where a human working with a computer took two hours to do the track and solve the process. Once we applied AI and robotics, it was only in 15 minutes. So, we are engaging some people specialized in this area to help us over time. We will learn how to do this for ourselves, but we are using outside expertise. I think it's a big deal, Gerard. When we get our methodology being fine-tuned, we'll boost up the entire company starting with the most sensitive opportunities and then moving down. It's hard at this stage of the game, but this is kind of saying that allows us to invest into new areas if we need to invest and like digital, new markets et cetera and really keep a tight lid on the background expenses. That's why we're optimistic in terms of longer term operating leverage, because we will have to continue to invest in new technologies et cetera, but at the same time we'll simultaneously reduce on the cost our traditional process-oriented activities and frankly I'm pretty excited about it. It's a bit early if you were to claim victory but the concept is really sound.

And in talking about this, what's your total technology budget for, not just for this, but when you look at tech spending this year, what kind of number you're looking at?

Gerrard, this is Chris. Of our $11 billion in revenue, we probably - CapEx is probably in the 4% to 5% range, so four to $500 million. The grand majority of it frankly would be technology spends. It could be of a sample structure, so I was compliance, but we actually are spending a lot of time. We actually changed the way that we have visibility that this is going to really begin to try to tweak away from compliance and allocate more of those dollars toward discretionary digital and revenue client service kind of efforts. That obviously will take some time, but if that pivot is appropriate we think for this point in time and a good chunk of that would be digital as well.

Great and then just as a second question, Daryl, on the LCR, I think you said you're about 124%. If regulations change and you're not held to an LCR ratio as other banks and again I know this is kind of far-fetched. But what's a more comfortable number if you were mandated to be carrying this LCR at the level you're carrying in now?

Yeah, we probably have some room for it to come back down, maybe down about 20%, 25% give-or-take. I mean it's definitely adding a lot of value, it's lowered everybody's profitability returns. It's not efficient use of the balance sheet. So, we can definitely bring it down and over time we can continue to optimize portfolio on the balance sheet.

Great, thank you, guys.

We'll go next to Matt O'Connor with Deutsche Bank.

Hi. I was wondering if you could talk a bit more on the expense side. The expenses were lower than certainly we had expected this quarter. The rhetoric around expense efforts that you have to match cost seems quite positive. But on the outlook for the second quarter was a little bit higher than I would have thought. So, maybe just square at all and I - if I recall correctly, you talked about costs being below $1.7 billion on average, I think you would imply a little bit higher for the second quarter. So, just square all the kind of expense moving pieces that I laid out there.

So, Matt, obviously there are a lot of moving pieces. Second quarter you get some season rate increase and all of our salary increases kick in and [indiscernible] you get that. We are still in the midst of spending frankly a lot of money on resolving our BSA AML issue improving that platform. We're way down the road with regard to that, but expenses are still building and will probably continue to build through the second quarter after which it will plateau and come down. At the end of the year, that will be down but it's probably going to be up in the second quarter. So - and then technology, of course, is always kind of high. So, you got your normal seasonal in the second quarter. You got your consistent technology and some spiking in BSA, which will probably substantially grow up in the second quarter relative to first and then you get that baggage ahead towards the end of the year.

Okay. And then just think about the $1.7 billion on average for this year or below the $1.7 billion, is that still a reasonable target all in?

Yeah, I think so when you go down.

Yeah, I think once we get through the pick that Kelly talked about through the next quarter or so, I think we will be back closer to 1.7 or maybe a little bit below that.

Okay, great.

We'll go next to Kevin Barker with Piper Jaffray.

Thank you. In regards to your comments regarding regional acceptance corp, you mentioned 8.9% net charge-off for this quarter and you've changed your underwriting standards. Have you seen a dramatic improvement in your credit losses and your charge-offs following the changing underwriting standards? Or are you still seeing some credit softness across the space in auto for those type FICOs?

Hey, Kevin, this is Clarke. Certainly, we have seen improvement particularly starting to turn in our 30 to 60, 60 to 90 in non-performers and that makes us feel really good about the losses coming down and leveling off as we move forward. I would remind you our actual losses were actually 8.6 for the first versus 8% last year, full year last year with 7.33, we think there is a high probability of things whole that we could bring losses in for 2017 at a similar level to '16. So, what we've been experiencing in the industry has been experiencing this big hit on severity, Majority of the subprime lenders are financing smaller compact cars. And while the overall main hand has been fairly stable, it's really been hit hard on the small cars and so the severity is what we've been hit with. The good news is our underwriting changes that we began really in the third quarter of 2015 are kicking in and it offset a lot of that. So, I think you look at a lot of the ABS subprime pools. Losses are still going up and they're north of 10%. So, we think we're doing a lot better. But we think it will be continued challenge for those that have not made the appropriate adjustments.

Okay. And then in your opinion, do you feel that you're going to start to see a settling out of residual values sometime this year or do you feel like it's something that could occur next year given the stress we've seen in used car prices?

It's a great question. I think there is still risk of more deterioration. However, I will say in March, as we came through the quarter, we did see some firming to a degree particularly in that smaller car segment, but - and the overall index was more or less flat. But generally we're hopeful that we may have seen the worst, but it may not have been and we believe the underwriting changes we've made will help mitigate it even if it softens a little further.

Okay. Thank you for taking my questions.

We'll go next to Matt Burnell with Wells Fargo Securities.

Good morning. Thanks for taking my question. Kelly and Daryl, maybe you could drill down a little bit into your commentary about increasing the efficiency within the Community Bank. Obviously, there was a nice improvement this quarter. But what are you doing now to drive that efficiency ratio down going forward specifically?

So, let me give you a general response, Matt, and I will let Chris to drill down a little bit further. So, we win on a several year process rationalizing our expense structure in the Community Bank. The most obvious of that is downsizing the number of tellers and platform people as the number of transactions have been coming down about 4% a year for us for the last several years. So, we in account cortically following that decrease in transaction is relatively downsizing the number of platform participants. That continues. We are accelerating our focus on the consolidations' closing branches. We did 40 or so last year with respect to 100 or so neighborhood this year. We don't believe branches are going away, but the fact is the dynamics around what's been closed today versus what we closed five, 10 years ago changed, because of a substantial increase in digital transaction capability and usage of our clients and so five digital capabilities are very, very good. People are gravitating to that and that's giving us more comfort in terms of different kind of branch closures than we've done in the past. So, let me let Chris give you more color on that.

Yeah, thanks, Kelly. I think Kelly is exactly right. I mean consolidated teller and the relationship banker role and something we call branch banker that really was done 18 months or so ago and we're really kind of hitting our stat there and that has certainly created some efficiency sort of in the branch. Secondly, as you heard, we've had two of our best quarters in terms of just outright revenue production in one production. Just to give you some sense, commercial loan production over a year ago was up 22%, retail up about 25%, so we're - as we commented at the front end of the call, we really are seeing Main Street come back. I mean these are the people. Our portfolios are much more granular than peers typically our size and I mean these are the people that really sort of go represent all of us. They believe that we are seeing them kind of work with their financials. I think thirdly the comment on the branches is something that we really try to take and heed and be sure for it about but yet be on our front foot and so we did about 2% reductions last year. Kelly said transaction was down about 4%. We think we would do 100 or so this year and these are typically branches that are within markets where we have a good brand feel in those markets and we don't think we've been testing them a lot and we don't see a lot of loss of business. We are monitoring that pretty closely. Part of the reason is beginning to transition more towards our digital efforts and so we've got in our retail business about 4.6 million clients. We have about 60% of them that are using - actively using digital technology today and business about 50% is using digital technology. The retail clients, which is really about 2.5 million that are digital clients, about three quarters of those are using our new U platform. So, it gives us a real opportunity to kind of scale up, not only those who are using, to help them fully utilize that technology, but then also bring in another couple of million over on the system. So, tremendous amount of opportunity gives us I think a really good platform that can offload some of these branches frankly because they have a new channel that they become accustomed and accountable to working with. So, today we've got about 30% of our transactions being done digitally and I think that helps enable this whole branch optimization strategy.

And this is for my follow-up, could you provide a little more color on your commentary about improving the corporate banking loan growth. You mentioned increasing the whole size as one area that you're considering, but are there specific industries within the corporate banking platform that you're going to target as well?

Hey, Matt, this is Clarke. I will answer that. As far as specific industries, we may have mentioned over the last four or five years, we've built a number of specific industry verticals and experienced corporate bankers and those would be the focal areas for us as a pretty diversified set of industry, so that's nothing really new. There is just - we're still early in that, taken advantage of that build out that we've already done. So, that's where we would play areas where we have expertise and specialization. But as far as our relative commitments, we are very granular. We look at syndications - we're in the same transaction with our peers. We tend to have commitments that are anywhere from 50% to thirds of the average of the group. So, we think we can move that up marginally given the size of our company and still have a more granular portfolio. But that alone combined with those new verticals gives us a great growth opportunity.

And as we increase those exposures, we're going to get a bigger piece of that.

Okay. Thanks for the color, gentlemen.

We'll take our next question from Marty Mosby with Vining Sparks.

Good morning.

Good morning.

I wanted to ask you about capital payout ratio and you mentioned that it was going to be above 100% as you looked into next year. I think the 100%, 106% this quarter, would that be against with merger-related cost and some of that restructuring in the number? So, we're looking at next year with all the merger-related costs and everything.

Yeah, Marty, to be honest with you, we really don't expect many more merger-related. We might have a little bit more restructuring costs as Chris talked about maybe in branches and all that. But it's not going to be a meaningful number going forward. So, the total payout ratio of 100% will be half of our GAAP net income, but I wouldn't see there could be any significance from a run rate perspective.

Got you. And then when you look at the liquidity coverage ratio of 124, you already, even without changing it, have room to deploy that liquidity. If I kind of roll back to where you sliced out the loan portfolio, you've got about 30% of your own portfolio in that optimizing kind of category. If you think about, there is the ability like you said this is deflating returns in earnings to utilize that excess capital even under the current construction of the regulation and constraints. Why are we looking at this optimizing portfolio, especially residential mortgages, which you know while rates could go up you still can build that portfolio with a high yielding portfolio to use some of that liquidity.

I think that's in the lines of what we're thinking as we right size and optimize both prime auto and mortgage businesses those will probably come down some overtime which gave us higher returns for the whole balance sheet or increase overall profitability. We are exiting those businesses, they're still quarter our company still very important, but there are just really low return businesses, so from mortgage we're still selling anything we can conforming, but we're keeping a good jumble clients and some low good [indiscernible] from that perspective and prime auto is just really, really competitive right now, and I think there's probably better uses of our capital and other loan areas.

So to your question the way I think about this is, while those portfolios are optimizing, remember we are accelerating growth and our core portfolios. And the best case is to optimizing portfolios run down to core portfolios run up, the years get better kind of relationships et cetera only you yields up you don't build up, you don't build additional liquidity which some things on the line issue in your question. So if there were not to happen now and yes, we do have some opportunity to reduce some of that liquidity and term and to reduce funding because there are other types of sort of security types of investments. So we have a lot of leverage to pool, but the lever is replacing optimize portfolios but core portfolios.

As you increase the profitability in a company and our balance sheet growth wouldn't be as much because all kind of trading that gives us much more confidence to happen much higher pay off to stay very strong from a capital perspective.

This streams with the optimizing portfolio being almost a third of the overall portfolio, the math of trying to balance the acceleration to offset it comes pretty challenging they'll try to overcome the drag that's coming from that large of a percent of your portfolio?

But it is to keep in mind more of that the more important whether your [indiscernible] as not as quick of restructuring that you might think.

Okay, thanks.

We'll go next to Ken Usdin with Jefferies.

Hi everyone, this is Amanda Larsen on for Ken.

Good morning.

Are you at the point where you'd look to growth security balances or do you expect to say a bit cash heavy with the anticipation of better loan growth in 2H?

Amanda we look at it right now is, we're very comfortable with our security balances, now we're well about 20% give or take of our balance sheet is in securities very parish from that perspective. We got a question earlier of LCR goes away though should we adjust that will kind of how that plays out. Now as far as increasing security balances at the end of the day it's still a lower earning asset so you really don't want to have you want to have enough on the books for your liquidity, but you really don't want to have too much on there, because it's not going to improve your returns, and it's probably not a great capital use.

And it's not particularly good time and there are the securities when you going right for us.

That's right.

Okay. And then your deposits bit of continue to be very low; can talk about how industry deposit expiring versus your expectation and also your willingness to be more competitive given the opportunity that you see on the asset side?

Yeah so, I think the whole industry including us have been modeling deposit data has to be moving much higher than what's actually playing out reality. You look at the first two increases that we had last year and then this year and December, our deposit data is for less than 10%. So one that we just had in March we're expecting that to be probably 10% to 15% range. So we've been modeling data has between 40% and 60% requesting much higher in that. And we're just seeing it much more muted on the retail side. We are paying up and being aggressive to our corporate clients and we have to - but for the most part it's just much lower. The forecast that we gave you, but that includes is you know two more rate increases later this year, one in the middle of the year and one at the end of the year, and we model of conservative data, so we're looking for data is be up 30% to 35% next time that could be opportunity if that's not going to happen, and then the one at the end of the year we're modeling that to be 40% to 50% which CFL plays out could be another opportunity price.

Okay, great. Thank you very much.

We'll take our next question from Saul Martinez with UBS.

Hi, thanks for taking my question, good morning. First question is sort of more of a big picture question Kelly, you've been pretty consistent in terms of expressing optimism about policy reforms sentiment amongst your clients I mean American proving the outlook for better economic growth. But until now there has been something of disconnect between sentiment indicators and core data whether would be a loan growth or some poor economic data more broadly. Do you think there is a risk that optimism starts to fade, if we don't get policy changes if dysfunction in Washington continues however you want to term it at what point do you think your client - at what point do you start to worry that the optimism that is building that you've expressed starts to keep become more muted?

Well, I think there is kind of the big - really big question for us all right now. First of all with regard to why has the increased optimism not yet shown up in hard data, that's not pricing it all to me because remember a period of time, we're going to have 90 or sort of days, and it takes a period of time for that optimism to translate into evaluating what kind of projects you're going to do or you're going to buy, et cetera. But as I said earlier, we are already seeing that. We are seeing actual hard data were clients are talking to us about expansions, I can loan requests for expansions, but frankly out of rate we haven't seen in eight years so that's why we said our community banks having it's best production ever, it is happening for us on Main Street. Now the question implicit in your question is, if they don't do anything in Washington do that chill it could stop it. And the answer is obviously yes. If they make no progress in Washington at all then eventually that optimism will turn to pessimism and now return into the reduction and spending and that were return into has more economic growth, and is it do really do a badly business sort of capable of then all return into recession. But here is the reason that the resiliency of the activity in the marketplace will be stronger than you might think. Remember that eight plus years these companies have not been investing. They're using 20 year old computers. They're driving trucks of 300,000 plus miles. At some point regardless of how frugal you want to believe you can't got a replacement of few computer and buy few trucks. And then the other thing is kind of a psychology and that is after feeling bad and conservative and not invest in fair reviews [ph] you kind of want to invest. So number one, they need to invest, number two, they want to invest. So that's why you're seeing this really little excitement out there today. I don't think it will wine immediately, but by the end of the year let's say if there's been no positive movement on taxes regulation, healthcare and all that combined then I will be very worried to be honest. And so my message to Congress which I sent chance I get is, there's a lot riding on them get their right together and you know we're talking about a future for our kids and our grandkids, we have a wonderful opportunity here to grow this country at much faster pace and shame on them if they don't execute.

That's helpful. Have you seen any increases in utilization rates thus far?

No, not really, if so what we're seeing if the actual longer quiz which are moving through the pipeline, so we've got the production numbers which show substantially you have pipeline substantially up, as we head on into the set of quarter that will began to - that will be a nice show up and increase loan activity that's why we would say in our core portfolio we're projecting 4%, 5% growth in that for the second quarter because of that activities shown to reality.

Okay, that's great. That's helpful. Thanks a lot.

We'll take our next question from John Pancari with Evercore ISI.

Good morning.

Good morning John.

Given the size of the optimization portfolios and everything, can you just talk about your expectations for where loan growth could trend in 2018, if we do see the macro improvement and Kelly as you said, if we see the tax reform and infrastructure reform et cetera, is there likely to be optimization portfolios at that point or do they go away and we get overall loan growth in the high single digits instead of mid single digits. How should we think about that?

Well, I'll give you - and Clarke can respond. Maybe we are expecting in this quarter the portfolio that will continue to increase if everything else holds constant in terms of the workable climate et cetera. Then as for the optimization portfolios gets lower and lower then that will translate into higher and higher, so we're already moving this year's total - this quarter's total long projections from slightly down last quarter to 1% to 3% this quarter. That was certain to move on though. When you get to a run rate of optimization portfolios being merged out, yeah, you have been asking resurgence [ph], but does take a little bit of time to happen.

Absolutely yeah, I certainly think you could see the 5 to 6, to 6 to 8 as this thing gets legs and moves forward, so certainly the opportunity is there.

Okay, alright thanks and then could you talk a little bit about the banks overall exposure to the retail industry. Sorry, if I missed any comments on that front, but just interested in the exposure in the CRE book as well as your C&I portfolio.

Sure John, we think about it generally a three book as I know, there's a lot of ways to define that when you all ask that question, but the way we think about it as for as our CRE book. So where we have specific exposure to retail centers and retail leases through operators, it's about $4.1 billion exposure. We generally get about that almost 70% of that would be what we consider neighborhood anchored type grocery centers, those sorts of things very granular, very high occupancy right now, so it certainly bothers risk, we feel good about that. We have about $600 million level outstanding through REIT space and retail of which the 80% of those are investment grade and very conservative in how we underwrite there. And then as far as direct retailer exposure, we have about $1.3 billion in outstanding there and probably 30%, 40% of that flashes to investment grade. So while we're certainly cognizant about issues and the structural changes that the ecommerce and other trends are having in that space, we feel like it's certainly performing well now and manageable as we look forward.

Okay, great. Thank you.

Our next question is from Nancy Bush with NAB Research.

Good morning guys. I just Kelly, wanted to ask, I mean you talked about the optimism and the economy et cetera, et cetera. North Carolina has had some of its own unique issues to deal with over the past years, so I mean, have you seen any blips in business activity there? There were all kinds of threats made et cetera, et cetera and has that issue impacted things?

No, there's been a lot of talk about it, there's been a lot of innuendos, but the actual optimism out there in North Carolina is very, very bullish, very positive into business community, they have to drive regions in North Carolina very strong. I'm not saying it couldn't happen, as you know since that was protected over a long period of time and I'm not saying it's not nice to have the best alternate terms here and all, but that's not the drivers of the primary economy. So drivers of the primary economy has not been impacted by this and so I'm glad we've - I'm glad we've kind of got it behind us because it puts a negative look on North Carolina that is not as loud and I'm glad it's behind us, but it had a material impact on the [indiscernible].

Okay, this is a follow up. This sort of dividing of the loan portfolio into these three buckets, is this something that just happened or is this been ongoing and I'm very curious about optimizing portfolio, is that a new designation or is this been around for a while and you just now named it?

We just named it Nancy. Frankly, it's been a strategy we've been using for some period of time. We felt that frankly our message wasn't being as clearly understood and so we just thought naming it will help per say and I think it will because it's very rational. I mean if you kind of look at a quarter negative point terms and long guidance level, what's good about that, but when you look under it and you say the quarter is doing well, the seasonal down, yeah, you got to optimize because you're breaking the profitability that makes me feel pretty good.

Alright, thank you.

Thanks, Nancy.

We'll go next to Jennifer Demba with SunTrust.

Thank you, good morning. Just curious if you could get some more color on the anticipated resolution of your BSA/AML issues and what your thoughts are about your M&A height is and when that might be lifted.

As far as BSA/AML front, we're making really good progress even though the market only heard about it in the last few months, we've been working on it probably a year and a half. I think in terms of execution on the actual processes to be a first class BSA/AML shops, we're in the ninth inning [ph], more work to do, we're well in the ninth inning. And then you got the validation period of time where you have to satisfy your sales and the regulators that your processes are working, that will take a period of time. I think we have a pretty good shot of moving through this constrain order in a relatively rapid period of time. Solvency has three to four yearlong which is what people worry about, I mean I think as extremely remote for us. The kind of problems we have with pure process, we didn't have the - any FY evaluations, any money laundering those kind of things, we just had some process things we needed to change to meet the standards today. And so we're well along that. We have a really, really great experience BSA officer that actually worked and wrote most of the regulations, so we are very confident that we will be exiting this in the reasonably foreseeable future. Of course the M&A thing is restricted in terms of typical commercial banks and the area is not absolutely determined that you can't do one but it's practical money problem where they were branched on a regular commercial bank item that is centered to feel time. We think we do have flexibility to do other acquisitions in terms of technological space and insurance space et cetera and we sort of still continue to pursue those. But I don't think the future of our M&A activity is sort of far as some people may think and as I've said earlier that's still an important part of our long term strategy. I still believe we're going to see a pretty good and fast consolidation of the industry because once you get there, all of their proposed - I've talked about changes and taxes and regulations et cetera, et cetera. Hopefully that rising tide hits all the ship, putting all the ships on the same rising tide, so each of your scales that we talked about repeatedly is still there. We think the foundation is super mix and we still think it to be a part of our future.

Thanks, so much.

Ladies and gentlemen, this concludes our question-and-answer session. Mr. Greer, I'll turn it back to you for any closing remarks.

Okay, thank you Debbie and thanks to you everyone for joining us today. We do have a few left in the queue, so we'll kind of call you later this morning or feel free to call Investor Relations, This concludes our call and we hope you have a good day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect.