There is plenty of competition in the industry and arguably an excess capacity, yet a lot of new bank continue to start up. I think many are naive about how difficult the environment really is and that there will be some disappointed bankers and investors this year.

On the unforeseen

We did not expect the yield curve to flatten as much as it has. We were prepared for rising interest rates but did not expect short term-rates to rise so much and long-term rates to rise so little.

On innovative ideas

The most visible is Commerce Bank in New Jersey, which has gone to long hours. What they did was really innovative and caused other banks to react with longer hours. That made everybody less profitable but it will be interesting to see where it goes from here.

On BB&T

We've been uniquely successful in our community banking strategy where we still operate as a network of 34 community banks that allow for very local and personal relationship-based service. We feel like a community bank but have the resources of a larger organization, which we think is the best of both worlds. And we've defined and redefined that strategy over a period of 15 years.

Another important development is our insurance business, which is a bigger part of our revenues than at any other large bank. That's helpful because it's fee-based revenue and very predictable, much less volatile than the lending business. On industry change

We see a major transformation in the payments business. With debit cards and electronic technology there is a revolution in how payments are made and processed. We see the whole business in a radical transformation over the next 5 to 10 years. Check volumes are in a free fall and this changes how customers interface with the bank -- they're coming into the branches less.

On competition

Our primary competition is Bank of America, Wachovia and SunTrust, who we go head to head with in most of our primary markets. Over the years we've had more direct competition with smaller banks but we're still getting more from larger banks because of our size.

On North Carolina

Unfortunately North Carolina has moved from a low-tax pro-economic freedom environment to a relatively high-tax, less freedom state. In some ways it has lost some of the pro business advantages of Southeastern states. A lot has been justified by education but the results haven't transformed the educational system. It's not the ultimate cure to our educational challenge, especially in our rural markets. We need competition in our educational system, and personally I think we need a voucher system to do that. We need to reconceive the whole educational system and ultimately move toward privatization because it's too important to be run by the government.

On incentives

Our incentives are the quality of the university system, not direct subsidies to particular companies. I think the incentives that matter are relatively low tax rates and a great university system.

On globalization

Because of changes in technology and education we are competing with people in other parts of the world that are better educated than before and willing to work a lot harder than we are for a lot less. I was talking to somebody in the furniture business the other day who said he could buy it and ship cheaper from China than make it here in the U.S. So people aren't going to have the same jobs. We are going to have to better knowledge-based jobs. A lot of the work that is leaving such as in textile factories is not the best work. There is also no way to stop it. Pandora is out of the box. Efforts to restrict world trade or place restrictions on China are foolish. That is not going to change anything.

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