First Financial Bancorp (FFBC) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Irwin Financial second-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Mr. Will Miller. Mr. Miller, you may begin.

Thank you, John. Good afternoon and thank you for joining us. I am joined today by Greg Ehlinger, our CFO, and Jody Littrell, our controller.

Before we start with our presentation, I want to make you aware of important cautionary disclosures in connection with the forward-looking statements we will be making on this call. The cautionary disclosures are in our written earnings press release and in our recent SEC filings.

We reported a second-quarter loss of $107 million, the majority of which reflect costs of the strategic restructuring we announced in July to exit the home equity and small ticket leasing equipment businesses. The home equity and small ticket asset sales will bring us over $400 million in supplemental liquidity. $325 million has already been received from the small ticket sales and $90 million will be received from the home equity whole loan securitization shortly.

Our risk-based capital ratios remain above the regulatory standard for well-capitalized banks and we expect capital ratios to increase in the third quarter. When our transformative asset sales are completed, we will have removed about $1.6 billion in assets from our books. If these assets had been removed at June 30 and all the exit costs booked, we would have had 12.1% total risk-based capital, well above the 10% regulatory standard for well-capitalized banks.

The asset sales are part of the strategic restructuring efforts we announced on July 25. Since then, we have closed the sales on our US and Canadian small ticket leasing assets on July 30, receiving a net increase in our liquidity of $325 million. As previously announced, we have signed two agreements that will substantially reduce our exposure to the home equity business, the principal source of our recent losses.

One agreement will remove $1 billion or over 75% of the home equity loans from our balance sheet when completed upon receipt of third party approvals for the transfer of the servicing. The other agreement caps our exposure on our remaining $316 million of home equity whole loans at approximately $150 million before tax. By the way, two weeks ago, we reported this same number on an after-tax basis of $100 million.

Through this restructuring, we will relieve our balance sheet of $1.6 billion in assets. We will receive net cash proceeds of $400 million from the July and August asset sales. We expect to return to profitability in the first quarter of 2009 after the bulk of the restructuring and exit costs are behind us and we expect we will continue to be above the regulatory standards for a well-capitalized bank, even with the recognition of these restructuring charges in each quarter.

The strategic restructuring will enable us to return our focus to small business lending and providing banking services to local communities, businesses that have traditionally been profitable for us. I will now turn the call over to Greg to discuss our results in greater detail.

Good afternoon. Net interest income of $62 million decreased 4% on a sequential quarter basis. Non-interest expense decreased from the first quarter of 2008, reflecting cost reductions taken in light of our recent operating performance.

The consolidated net interest margin declined modestly to 4.38% compared to 4.44% during the first quarter. Reflecting our desire to reduce future credit risk, the consolidated loan and lease portfolio declined 10% annualized during the quarter, totaling $5.5 billion at June 30. We had $10.75 per share in common shareholders' equity as of June 30 and at quarter-end, the Tier 1 leverage ratio and total risk-based capital ratios were 7.2% and 10.7% respectively. The same capital ratios at Irwin Union Bank and Trust were 8.8% and 11.0% respectively.

To address economic conditions, we substantially increased our allowance for loan and lease losses. The allowance totaled $216 million as of June 30, up from $159 million at the end of March. The ratio of allowance for loans and lease losses to nonconforming loans and leases was 203% at June 30, up from 160% a quarter ago.

30-day and greater delinquencies decreased modestly on a consolidated basis from 2.20% from 2.30% at March 31. And importantly, the 30-day plus past dues for the Commercial Banking and Franchise Finance portfolios, which we are retaining after the restructuring, both declined more meaningfully on a quarter-over-quarter basis. The 30 plus rate fell to 87 basis points in the commercial bank and to 27 basis points for Franchise Finance.

The increase in nonperforming assets in the Commercial Banking segment was also much lower in the second quarter than in the first. Perhaps too early in the cycle, but we hope these are signs of a bottoming out of distress in these portfolios.

Turning now to the segments. Commercial Banking lost $8.8 million during the second quarter as we added $10.5 million to loan loss reserves in excess of charge-offs of $14 million for a total loan loss provision of $24.5 million. The segment's allowance for losses grew to 1.75% of loans at June 30, up from 1.36% at March 31. The Commercial Banking segment's loan portfolio declined modestly during the quarter. The net interest margin was 3.66%, down from 3.76% during the first quarter, reflecting competitive deposit conditions.

The Commercial Finance line of business lost $23.4 million in the second quarter, down from earnings of $4.4 million in the first quarter. But as a reminder, we sold the lease portfolio of this segment in July and we were required under mark-to-market accounting to reflect the losses on these portfolio sales in the second-quarter numbers even though the assets were not removed yet from our balance sheet.

The Franchise Finance channel, which is unaffected by the strategic restructuring, earned $1.7 million. This portfolio of franchised loans totaled $650 million at June 30. Our loan sales in Franchise Finance totaled $12 million, down from $61 million in the first quarter with net gains of $700,000 or 5.8% of loans sold, which is in line with our historic pattern. We are pleased we continue to be able to sell franchised loans at an attractive premium in the current market conditions.

Credit quality of the Franchise Finance portfolio was relatively stable as the rate of 30-day plus delinquencies was half the March 31 rate while nonperforming loans increased only modestly to 78 basis points at June 30 compared to 58 basis points at March 31.

The Home Equity segment, which we are exiting, lost $44 million during the second quarter compared to a loss of $16 million in the first quarter. The increased loss reflects the effect of higher loan loss provisions. 30-day and greater delinquencies on the total portfolio increased from 5.66% at the end of March to 6.06% at June 30. Loan loss reserves on the portfolio to be retained totaled $60 million or 19% of that portfolio at quarter-end.

Our other bank and non-bank consolidated entities lost $30 million during the second quarter. We took a $25 million deferred tax valuation allowance and recorded an other-than-temporary impairment of $4 million after tax on a small portion of our securities portfolio.

So in summary, as Will noted, we reported a second-quarter loss of $107 million, most of which reflects costs related to the strategic restructuring we announced in July to exit the home equity and small ticket leasing businesses. The sale of home equity and small ticket assets will bring us over $400 million in supplemental liquidity.

Our risk-based capital ratios remain above the regulatory standard for well-capitalized banks and we expect capital ratios to increase in the third quarter as we complete the major components of the strategic restructuring.

Finally, we believe the strategic restructuring will enable us to return our focus to small business lending and providing banking services to local communities -- both businesses that have traditionally been profitable for us. John, Will and I would like to open the call to questions, please.

(OPERATOR INSTRUCTIONS). Stephen Geyen, Stifel Nicolaus.

Good afternoon. Just wondering with the sale of the $316 million in whole loans, the total exposure is $150 million minus the $40 million that are retained or not securitized. Do you retain the residual benefit if losses aren't in excess of the I guess $110 million?

Hi, Steve. The $316 million breaks out between the $40 million that is not included in the securitization and on that, we have taken pretty heavy reserves. I think there is only $9 million or so of remaining exposure after reserves on those $40 million.

The $276 million that is going into the securitization has transferred risk on about $100 million of it and then we have taken additional reserves and so we have put those two together when we talked originally in the first press release about $100 million after tax and in this press release, about $150 million before tax, but those are essentially the same number.

Okay, and have you retained any of the residual?

Oh, sorry, yes. Technically, we do retain the residual interest, but we aren't really counting on having any value in it in the $150 million. So when we say the loss exposure, we are not attributing any value to the residual, just to be clear.

Okay. And for the $316 million, have the reserves -- I'm sorry. You did break it out. You said $40 million?

The $316 million breaks out into $40 million and $276 million.

And the reserve you said is about $9 million?

No, no. The reserves on the $40 million are $31 million leaving $9 million left and the reserves on the $276 million are about $28 million or $29 million.

And for the Franchise Finance business, could you talk about the historical growth rate, the outlook and what your plans are for that business down the road?

Stephen, we have not provided pro forma growth rates for that business. We will remind folks that it was one that we started from scratch in the summer of 2001. It was profitable for us in its first year of operation. It has grown to about a $650 million portfolio today. It has retained its profitability, good credit quality throughout both the early cycle when the portfolio was very young, but in recent periods. It is a business that we expect to be able to continue to grow. We have a very small marketshare in it, a subsector of the banking industry that is dominated by one player, General Electric, which has recently bought a number of our other competitors. So we do believe that there is an opportunity to pick up marketshare.

And importantly, as we manage the balance sheet and the growth of the balance sheet, it is a business that we routinely have been able to sell our paper to other banks that don't have a distribution platform or direct sales distribution platform the way we do and we have routinely gotten very attractive returns in the secondary markets. We will balance our growth in that business, being mindful of not being concentrated in that segment, but we expect to be a good contributor to our future profitability.

Okay, thank you.

Ross Demmerle, Hilliard Lyons.

Good afternoon. In your comments just a few minutes ago, you talked quite a bit about the liquidity that you have and the high capital ratios. But then in some of your written comments, you talk about possibly raising capital and I guess I wonder what might trigger the need to do that?

Well, in the current world of the stress in the banking system in general, while we remain above the well-capitalized regulatory standards, flexibility is always as much to us as any other bank. So all we are signaling there is we are continuing to look at it.

Do you think you would go the private or the public route or are you just keeping all options open?

We want to keep all options open. It is a very unsettled time and while we think we have got good cushions, it is a time when there is no such thing as too much liquidity or too much capital.

And then on the franchise business side, is there a concentration in the restaurants at all or is there like the top two maybe?

Yes, the top concept is 11%; that is Dunkin' Donuts. The next concept is like 9%. It is a well-diversified portfolio both by concept and geographically. In fact, one of the reasons we began selling franchise loans initially was to manage portfolio concentrations and that is when we figured out that you can sell them at nice premiums and that that could enhance the returns in the business. The second biggest concentration -- I've just looked it up -- is Wendy's at 9% and then Denny's at 9% and then Sonic at 8% and well-diversified beyond that.

Okay. And then on the Commercial Banking side, you talked about 30-day delinquencies being down as a definite positive. Outside of that, are there any indicators that lead you to be as optimistic as you are about the commercial bank being profitable next quarter?

Well, I think the two are that the delinquencies are down and we had a big jump in nonperforming assets in the first quarter and while they went up again in the second quarter, they didn't go up anywhere near as much.

Also, just as we look at the pipeline of troubled loans and potential charge-offs, we are not seeing the same rate that we absorbed in the second quarter. We are seeing the charge-off rate in our current forecast -- things can change -- but as it sits right now, falling back to more normal levels.

Okay. And the nonperformings, are they residential construction loans to developers or are they just related somehow to residential construction and what category would they sort of fall in?

Ross, the weakest section of the portfolio today are loans to developers principally for residential development or multifamily development where that is being stressed in the state of Arizona due to some changes in immigration laws that we talked about I think last quarter.

Okay. And then Michigan, how is that shaping up these days?

Actually, Michigan is -- for instance, Michigan was not a really large part of our charge-offs in the second quarter. It seems to have sort of stabilized at the depressed levels it had. So from the beginning of the year, the nonperforming assets in Michigan have actually fallen.

On a percentage basis.

On a percentage basis of the portfolio, from 2.52% to 1.80%. So we are not -- we have got a book of business to work through in cleaning up the troubled loans there, but it is not getting any worse.

Okay. Are you actually seeing growth in any of your markets right now on the commercial lending side?

Well, the healthiest one is central Indiana, but I wouldn't say we are seeing robust growth. Here in our home market of Columbus, there has been sort of two offsetting things. One is the expansion of some of our local businesses, in particular Cummins, which is building a new office building and hiring a lot of new people on the one hand, but we also had a pretty bad flood, I don't know, a month or two ago, but when you put those two things together, it is doing okay. But no place is really robustly growing at this point.

Is the Honda plant out in Greensburg, is that drawing much in the way of business?

It is starting to. It opens I think early next year. So the 5000 jobs that they're going to add to that area will ramp up over the course of the rest of this year and into next. So it has produced some construction business right now, but I think the real employment boost is yet to come.

Okay, thanks.

[Bill Chen], Barrington Partners.

Thanks for taking my question. First thing, just the other assets line, what is in there, $269 million?

We are pulling out a schedule here, Bill. Just a second.

Please take your time.

Jody, go ahead.

The $269 million, the biggest chunk of that is a deferred tax asset, roughly $120 million. We also have an investment in some bank-owned life insurance, roughly $50 million. So that is $170 million of your $270 million. Other big components would be software, $10 million of software.

REO would be in there.

REO of about $15 million, some other investments in some low-income housing, $15 million. I think that is all the big items.

I believe the asset side of the investment in our capital trust are in there as well. That would be about $10 million or $15 million I think.

Remaining items are some prepaid and some other intangibles and --. But the two big things are our bank-owned life insurance portfolio, a little over $50 million and our deferred tax asset, which, as we noted in the release, we put a valuation adjustment up this quarter of about $25 million.

And so the $120 million is net of that?

We have $120 million in total and then part of that gets carried back and then the remaining portion is what we are carrying the reserve against.

(multiple speakers) -- and you guys wrote off about $25 million, $30 million, right?

It was $25 million, yes. And the $120 million was gross. I am sorry.

So the $120 million is gross before the write-off?

Right, yes, I misspoke earlier.

Okay. So right now, it is about $100 million?

Around $95 million, yes, net of the valuation adjustment.

Okay, great. The second thing, in terms of the transactions that you guys did for the home equity loans, I am still trying to get my arms around it. So you could kind of give us a little bit more clarity and details on what those were? How those transactions were structured exactly? What the loans were bought for, kind of what they were on -- how many cents on the dollar they were, how much in cash did you get for the loans, both for the $1 billion and that $316 million?

Bill, let me separate the transactions really into two. There will be one more coming up when we transfer the platform and the master servicing right and that is what will help us complete those transactions.

I am going to start by reminding everybody that, for years, we did secured financings through the ABS market before that market closed in 2007. And the structure of our secured finance transactions -- say one transaction -- was such that we left the loans on the balance sheet the day that we did the ABS transaction. So there is about $1.016 billion of loans that are on our balance sheet at June 30 that were funded by collateralized debt. Those loans never left the balance sheet. When we did the securitization, the securitization, the ABS funding came on the balance sheet and simply replaced other funding sources.

That transaction, because it failed sale treatment under GAAP, even though the loans were legally sold to the Trust, that transaction is one of the things that we need to finish up in the third quarter. Those loans can't leave our balance sheet until we complete the transfer of the servicing right, the servicing obligation there.

And so the first transaction we did with Roosevelt that closed a couple of weeks ago was for them to buy the bundle of the residual asset that is legally a certificate, but not anywhere on our balance sheet because these were financings for GAAP. They also bought the mortgage servicing rights that were created through securitization and they also bought the draw obligations on the HELOCs underlying those loans. And our HELOC portfolio, to be clear, has traditionally been about 20% or 30% of our total portfolio. So they bought a bundle a couple weeks ago, closed on it, paid us a de minimis amount of money for it, $250,000, and what they thought were servicing rights, residuals and future draw obligations. So that was transaction number one.

Effectively, we didn't get paid very much, but we took those loans off or will take those loans off the balance sheet as soon as the servicing transfer gets approved. And of course, we cap off any remaining exposure to those loans when the servicing gets transferred and future draw rates have been moved.

The second transaction is what we refer to as the new securitization and the new securitization is designed to mirror those other securitizations we have done. So we took approximately $300 million, about $276 million, and we are going to put that into a private securitization with the buyer. The buyer will give us -- will put cash into the trust. The trust will issue notes.

Those loans will stay on our balance sheet because the structure is one that fails the sale treatment under GAAP, even though legally we have moved the loans. There will be a residual interest created that Steve Geyen asked about, and we will continue to put an ALLL up against those loans. So we will walk you through that as well.

So on the securitized loans we have at June 30, about $28 million of ALLL. Will also mentioned that we have $30 million of ALLL against another subset of $40 million of loans that are not part of that transaction. So when we get done with this, we will have about $60 million of that $28 million plus $31 million, $59 million of ALLL.

So the buyer will put money into the structure. How much money did they put into the structure?

I think we have made reference to that in the 8-K a couple of weeks ago. It is just shy of $100 million.

And can I ask you who the buyer was.

You can and I think we released that. I am looking around the room. We released that in the 8-K, did we not? You know what? I am going to point you to the 8-K and if it is in the 8-K on July 25, there is the name and if it wasn't in the 8-K, then I am being annoying because we were asked not to disclose it.

Oh, okay, because the only thing in the 8-K is that Roosevelt was managing the securitization. There was just never any discussion of who it is that is putting the money up.

What we disclosed in the 8-K is what we had permission from the people on the other side of the table to disclose. And I am sorry we are having a memory blank right now, but that is where you get the right information.

Somewhere in that organization, but it is probably not our role to --.

Fair enough.

-- to be specific on what part of the Roosevelt organization.

Sorry. So I guess what I am trying to make sure is I understand how it is that you guys are capped at $150 million. So basically you guys have the $276 million, a third party put in $100 million into the securitization trust, right?

Right.

And then you had another $40 million that is still sitting on the balance sheet and then so what is happening is -- sorry -- I am just trying to keep everything together. The $[41] million has a reserve against it?

Right.

And then of the $276 million, someone put a $100 million left in there, so there was about $176 million left and then you've got a $20 million reserve against that, which brings that to about $150 million, $160 million?

Pretax.

That is how that works out.

Yes, you are in the right ballpark, but you have got above $150 million and we get a little below $150 million, but it is okay.

Close enough for horseshoes and hand grenades.

Could I come back to your deferred tax asset agreement? I was breathing down my poor controllers neck and made him skip a line. The gross [DDA] is $137 million of the other assets. So you do the valuation allowance of $25 million and you get a net of $112 million. I just wanted to correct the figures because breathing down his neck, we lumped a couple of things together we shouldn't have.

Okay, really appreciate that. The other question I had, you have $560 million in real estate construction and land development loans. Can you give a little bit more clarity on what those are exactly, how much of it is land-held, how much of it is construction, what is the geographies, the LTVs, kind of the standard things that we would see from most banks?

Sure. The first thing I would say is that, of those, there are about 527 loans or so in that $564 million portfolio, so the average loan size there is about $1.1 million, $1.2 million. We have personal guarantees on all but six -- sorry -- 10, all but 10 of those 527 loans and all the $6 million. So this is a relationship blending model that looks to the global cash flow of the borrower, not project finance. It only looks to the collateral of the project. And that is a very important part of our approach to lending overall, but particularly in the construction and land development area.

The breakout of the C&LD loans, the largest component of it is land only. That is about $230 million. The second largest component is just less than $150 million of commercial construction and that would be nonresidential. The commercial construction projects we do are always or nearly always presold or pre-leased, which is another very important part of how we approach this business.

We have done some studies that go back to 1999, so they include the last recession and look at what kind of loss rates we have once a loan goes into default. Now this is general types of loans, not that I'm quoting here not specific to construction loans. But we take the same structuring approach of asking for personal guarantees and doing global cash flow lending on everything we do in the commercial area.

Over that range of '99 to 2007, the loss given default, including that period of the '01-'02 recession, for us was around 22%. Now the range of the worst year we had was 30% and the best year we had was 13%. This is again after something goes into default. And in our loss reserves, instead of the 22% that we had as a historical average over the period, we used that worst year, 30%, as the assumption of what we will lose once something goes into default when we set reserves. So that is part of the reason why we feel we have done an adequate job of building up the reserves, particularly in the second quarter to reflect the stress that we have seen there.

I'm sorry. You said commercial construction was $250 million. Did I write that right?

No, sorry. Commercial construction was a little less than $150 million. Land only was about $230 million. Those are the two big categories.

And how about geographies and LTVs?

I know that on a land loan, we won't go above 65%, but that is the max. Greg, are you able to pull up some (technical difficulty) information on the construction or land development?

And is that the original LTV?

Yes, of course. And again, we don't always go up to 65%, but that is the max. If a recent appraisal shows a decline in the value, we will go back to the borrower and ask them either to pledge more collateral or put more cash in the deal to bring us back to our 65% LTV ceiling. Sometimes that is not always possible if the individual is stressed, but the people who are in that situation would be in our classified nonperforming categories and be getting these reserves that I was talking about.

So you were asking for some of the information on sort of geographic dispersion of the construction and land development and I think Greg has pulled that out.

Here in Indiana, our construction and land development portfolios are $135 million and that is the largest of any of our markets in terms of C&LD exposure. And a reminder for those of you not here in Indiana, our Indiana portfolio is really sort of the north side of Indianapolis, down south through just south of Columbus and west over to Bloomington, which is where Indiana University is and then we eased over to Greensburg, which Ross Demmerle asked about the Honda plant. So the greatest concentration of our C&LD is there. It's about $135 million. Phoenix, which is obviously of interest to folks, it's about $100 million of C&LD exposure. Las Vegas is about $82 million. Salt Lake City, out West, is $33 million. Sacramento is about $50 million.

Sacramento is where we had the biggest stress in the second quarter. Over half the charge-offs came from three, large residential development loans in Sacramento. And so we did a real scrub of that market in the second quarter.

But having scrubbed that, we really only now have I think about $11 million in -- $12 million in Sacramento that we would classify as watch, substandard and classified. So we ran it through the second-quarter provision and charge-offs, but we have got the Sacramento portfolio we think pretty good, $12.5 million of what we call watch, classified, substandard and classified.

So the $52 million is net of all the charge-offs and everything else, right? It's what's left?

You need to remind me of the $52 million.

Sacramento that you --.

Yes, yes, yes, that would be after the charge-offs.

I'm sorry. One quick question, the $100 million securitized, going back to the home equity loans, the $100 million was not a loan from you guys, right?

It was not.

No, no, no.

It was a third-party -- (multiple speakers).

It's real cash being provided by an independent third party.

And it is cash we will receive as additional net liquidity when the securitization closes.

Okay. And that is where that $90 million -- $415 million minus the $325 million equals $90 million. That is basically that cash?

That is the cash, yes. (multiple speakers).

And looking at your land loans, your reserve rate now is about 20%. Do you expect that to increase or it pretty much kind of stays where it is?

Bill, the correct answer to that question is we think that is appropriate right now and if conditions change either direction, we are supposed to move that and we will.

Okay, great. Thanks for the clarity, guys. I appreciate your time.

Gregg Summerville, Tecumseh Capital Partners.

Sounds like we lost Gregg.

Gregg Summerville, your line is now open.

Hello, hello.

Okay, John, I will see him later today.

Hello? Hello?

The Company is still on the line.

This is Gregg. Sorry about that.

Hi, Gregg.

I had it on mute. Actually you won't see me. I am leaving town. Sorry about that. Hey, I wanted to go back over the risk-based capital and get a little bit more clarity. You talk about once you close on the rest of these loans that your risk-based capital will improve from the 7.2 to 10.7. I don't have what that improves to. I think it is 11 something. But then as I was racing through the Q, I see that you have got the potential for another $40 million to $60 million in charge-offs and then ongoing operations, of course, are generating profits. So as you sort of pro forma this out to the end of the year, how are things going to look at that juncture once you take the potential $40 million to $60 million, but you have got profits from ongoing to offset that to some degree?

Gregg, this is Greg Ehlinger. Gregg, we had capital just shy of 11% at the consolidated level and 11% even at the Irwin Union Bank and Trust level. And what will happen when we complete the transactions after we get the third-party approvals to move the securitization loans principally, what has happened already, as Will made note, we have closed on the small ticket lease transactions and we have got that cash in pocket. So you migrate from June 30 to sort of a June 30 pro forma. The asset side will go down about $1.6 billion. So at the bank for example, we have got risk assets today of about $5.2 billion that will go down by $1.6 billion, down to $3.6 billion. That's obviously the denominator.

On the numerator side, we talked in the Q about exit costs that we have not yet been able to incur due to the timing and the timing driving the GAAP utilization of that. Those are just slightly over $100 million. We used $105 million in the Q.

There will also be some additional adjustments to the numerator. A significant one is that the amount of reserves that we can count in our Tier 2 capital will come down as our assets come down. So when you take the $1.6 billion of loans and leases that we are selling out of the balance sheet, the regulatory rules would cause the amount of allowable reserves and capital to be reduced as well. That is formulaic for all banks.

And so our total capital adjustments, the numerator of the equation, will go down about $130 million to $140 million. If I split that down the middle at about $135 million. We have a $135 million drop in the numerator, about a $1.6 billion drop in the denominator and that would push the capital ratios up from the high 10%s at the holding company and 11% flat at the bank to just about 12% or 12.1% or 12.2%.

Okay. Now does that -- now does that -- but does that still include this $40 million to $60 million that you put out in the Q of potential charges relating to termination, etc., etc.?

Yes, actually, it includes more than that. If you add it all up in the Q, we said we are in the neighborhood of $210 million of restructuring and exit costs, $105 million of which were booked in the second quarter. So the numbers Greg just went through includes the rest of the $105 million.

Okay, fair enough.

Sorry, the other $105 million. Excuse me, the rest of the $210 million.

And a second question, as you exit this year and sort of put all this behind you, one thing I'm trying to get a feel for it is what you feel you could achieve in terms of the earnings power of the bank, in terms of a more normalized ROA as you go out on this sort of new set of assets and sort of this new structure. Have you got any thoughts on that?

Yes, I am going to posit here a return to a more normal post recession credit environment rather than try to hazard guesses about how long the recession will last or how deep it will be. Historically, our commercial bank has earned in the 75 to 80 basis point ROA and we would like to move that up. In fact, we have some plans to grow fee income that would move that up closer to 1% return on assets. The Commercial Finance business, which will be about 15% of the balance sheet, 15% to 18%, has historically earned in the 150 to 200 basis point ROA. So we would be hoping to get that -- well, actually keep that, it is already there, in that range. So that would give us a weighted average ROA in the 120 to 130 range after you think about slimming down the parent company and getting everything right-sized.

All right. Thanks a lot.

[John Rodas], [Stephen Capital].

Actually, it's Joe. Good morning, Will; good morning, Greg. Actually most of my questions were answered. I really was trying to go through the capital, but let me just ask one other related question. Obviously, you guys did have some flooding come through your area unfortunately. Any major disruption for customers and just sort of your big picture view on the impact near term, long term.

Sure. I mean let me answer starting with sort of the self-centered point of view and then moving to the community point of view. From an Irwin Financial perspective, we have been through our portfolio and do not see a major impact on the small business portfolio we have from the flood. There are some small businesses who were affected by it, but there are others in construction-related businesses for whom repair business has gone up and actually produced a pickup for them as repairs are made.

Since we are not a big mortgage lender in terms of retaining the portfolio, we are a big mortgage lender in Columbus in terms of producing mortgages and we retain the servicing, but we sell off the mortgages themselves to the agencies. We don't have a lot of exposure on the homeowner side either. So it is not likely to be a large impact on -- or it hasn't been and there is not likely to be a large impact on Irwin Financial.

Now from a community point of view though, the flood was highly damaging and in some areas of the community devastating. We sit at the confluence of two Rivers and essentially what happened is this huge storm got stalled in a large triangle of land north of both of those rivers and so they both flooded. One has a very wide flood plain of about two miles and therefore, didn't create a lot of damage, although it did damage some homes along it.

But another is a relatively narrow river we actually call [Hall Creek] that, in recorded history, had never flooded before and it went way over its banks. And along that creek, there were some 1000 to 1500 homes that some of which will not be inhabitable again. There was the hospital, which is probably the biggest single impact on the community. We actually lost our emergency room for a couple of weeks before they brought one in -- a portable one in trailers and that fortunately, just this last Monday, they opened the permanent emergency room, but the hospital won't be fully reopened until October.

Now they are not a borrower of ours, but they are an incredibly important part of the community and so we have been reaching out to try to help them. We have offered them one of our former branches that we still own as office space and we have done payroll for them and things. The whole community has really banded together to try to help the hospital.

There was some damage at Cummins, the tech center in one of the plants, but they were actually able to get those back up and running without significant disruptions to their production schedule, which was amazing.

Finally, along this creek, we did have one branch, which was flooded and has been closed since the flood and we will reopen it next week. So it has been a very trying time for the community. Fortunately, the impact on us has been muted, almost none on the credit side and of course, we have seen some drawdown of balances in the Columbus market by the hospital and others as they cover payroll and make repairs while awaiting their insurance reimbursement.

Will, thank you.

That may have been more detail than you wanted, Joe, but we live here and sorry, I kind of -- it was a big event.

Thank you. I appreciate it.

Bill Chen, Barrington Partners.

One last quick question. I apologize if you guys already answered it. Once all of these transactions are done, do you have any thoughts on where the tangible book value is going to sit?

Bill, I will just give you some dots you can connect because we have not actually put a pro forma out on that, but we had tangible book value of about 1075 that we reported in the Q. We think that the remaining restructuring activities, including the additional asset write-downs that we couldn't do at June 30, but will do when the approvals get done and we get the residuals traded and other exit costs, we said in the Q as well that that is about $105 million, an amount in the third and fourth quarter that will be similar to what we actually booked in the second quarter. And we have got slightly over 29 million shares outstanding. So there are your dots, 1075, about $100 million plus after tax of additional cost to complete this strategic restructuring, just shy of $30 million.

30 million shares.

30 million shares of stock.

Okay, great. Thanks very much.

We have no further questions at this time.

Thank you, John. We appreciate everybody's attention and time this morning or this afternoon, sorry, and I have to say from our perspective, we are pleased to be getting this many complicated deals done in this environment. While the costs are large, we are fortunate enough to be able to absorb them and we are focused on our future, past our restructuring as well and looking forward to returning to have a much simpler, cleaner and more profitable business. Thank you, all.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.