First Horizon Corp (FHN) 2004 Q2 法說會逐字稿

Welcome to First Horizon National Corporation's second-quarter 2004 earnings conference call.

Today's call is being recorded.

In addition, you can listen along simultaneously at www.shareholder.com/ftb/medialist.cfm.

Hosting the call today from First Horizon National is Ken Glass, Chairman and Chief Effective officer and Marty Mosby, Chief Financial Officer.

They are also joined by Mark Yates, Director of Investor Relations.

Before we begin, management has asked me to inform you this conference call contains forward-looking statements involving significant risks and uncertainties.

A number of factors could cause actual results to differ materially from those in the forward-looking information.

Those factors are outlined in the recent earnings press release and more in the most current 10-Q and 10-K.

First Horizon National Corporation disclaims any obligation to update any of the forward-looking statements that are made from time to time to reflect future events or developments. (OPERATOR INSTRUCTIONS).

Now it is my pleasure to turn the floor over to Ken Glass.

Sir, you may begin.

Thank you, operator.

To all of you on the phones, good morning, and thanks for joining the call.

As the operator stated, I have Mark and Marty here on the call with me and we appreciate all of you taking an interest in First Horizon and we are certainly excited to be on the call to talk to you today.

As you know, our recent methods of communicating with you have been mostly at conferences and one-on-one meetings.

However, we feel hosting a quarterly call gives us one more opportunity, and a very timely one at that, to provide additional transparency, as well as discuss performance trends and the Company's growth opportunities directly with you.

We have plans to have a call each quarter.

But since this is our first and, therefore, before we talk about second-quarter earnings, I would like to make a few general comments.

Our Company has reached a defining moment in its 140-year history.

While most of you knew us primarily as a regional banking company when we were First Tennessee, today, First Horizon National Corporation has offices in 42 states and has more customers outside the state of Tennessee then it has within.

We have made the first major expansion of our banking franchise this year in Virginia and now have 7 offices in operation all running ahead of plan.

We used to be a regional bank with large mortgage and capital markets operations.

Today all 3 of our business segments have achieved national penetration with plans for additional expansion.

We have a clear strategy for continuing this growth.

It is our plan to remain one of the few leading financial service organizations to offer a complete portfolio of financial products and services in niche markets tailored to individual customer needs and distinguished by unparalleled customer service.

Now for the $64 million question, how is our strategy performing in this rising interest rate environment?

Looking at this quarter, my answer is very well.

Our business banking responded by doubling pre-tax earnings from second quarter '03.

Our national cross-selling efforts has now penetrated more than one-third of our customer base with more than 1 product.

And our mortgage operation performed as expected given the fall off in refis.

Only the fixed income sales and our capital markets business missed the mark, and that was because customers were sitting on cash anticipating rising interest rates.

In short, our business mix balance performed as expected.

One point I would like to make, our approach is people and relationship-based.

As we grow, we will continually add brick and mortar in key markets but mostly we will do it with superior sales forces, targeting specific markets and customers.

To that point, we now have over 1700 mortgage relationship managers, and 4 years ago, that was 700.

We continue to grow our base of business lenders, now totaling 80 in various markets outside of Tennessee.

And we have 12 wealth management teams in strategic markets with aggressive plans to add to that number.

You may know that First Horizon has won many awards for being an employer of choice.

This distinction allows us to hire and retain the best people.

Our people are the best because they are engaged, and believe me, our Company is full of people passionately committed to First Horizon and our future.

As someone once said, it's better to have one person with passion than a roomful of people merely interested.

I believe that the new reporting segments that you will see this quarter will make it easier for you to understand our results.

These new segments reflect our Company's evolution from a regional bank to a national financial services company.

We have now put all commercial and consumer banking activities across all our brands into one retail commercial banking segment and separated out mortgage banking and capital markets activities.

This should allow you to see clearly the growth and profitability within each as we execute what I think is an excellent strategy.

Over the last five years, this strategy has produced, on average, EPS growth of 16 percent, return on equity of 23 percent and return on assets of 1.6 percent.

Second quarter continued a period of transition for us and I am very pleased with the way we have performed.

Here is Marty Mosby to go through the numbers and then we look forward to taking your questions.

Let me reiterate Ken's greetings and thank all of you for joining us.

Looking at the quarter, for the second quarter that ended June 30th, we reported earnings of $118 million or 92 cents diluted earnings per share compared to earnings of $118 million or 90 cents diluted earnings per share for the second quarter of 2003.

As noted in the press release, this included a onetime $8 million charge associated with the adoption of SAB No. 105.

Before the effects of the adoption of SAB No. 105, earnings for the quarter were approximately $124 million or 96 cents diluted earnings per share or approximately 7 percent earnings growth over last year's second-quarter numbers.

As you have seen in the press release, we were able to maintain our profitability levels even in a challenging environment.

Return on average shareholders' equity and return on average assets were 25.5 percent and 1.75 percent, respectively, for the second quarter.

As reported in our new segments, we continue to execute the rebalancing of our earnings within and among our business segment.

This quarter, retail commercial banking activities represented 60 percent of this quarter's earnings while mortgage banking and capital markets contribution percentages declined to 27 percent and 15 percent, respectively.

In addition to realigning our segment, we have furnished a financial supplement, which includes significant detail on each business segment.

The supplement is also available at our website, at www.FirstHorizon.com.

Summarizing this quarter's results, you need to understand 5 major drivers.

Two market conditions negatively impacted this quarter.

Declines in fixed income sales and compression in mortgage origination margins.

However, 3 favorable trends are exceeding our expectations -- lower asset quality costs; servicing profitability improvement; and increased profitability of consumer and builder financing lending on a nationwide basis.

These results reflect the healthy business mix we have today and as we continue to see solid earnings growth and profitability during a transitional quarter.

As many of you will soon see or have seen in the press release as well, there are several unusual items that you might have noticed.

We recognized a divestiture gain from a sale of a small merchant portfolio; securities gains from investment portfolio restructurings; and a venture capital investment.

Additionally, like the second quarter of last year, our favorable tax settlement for prior year's tax returns was reflected in this quarter's tax rate.

On the other hand, hedge ineffectiveness unfavorably impacted this quarter significantly.

The net impact of all these items was insignificant to the bottom-line result.

Now let's take a quick look at each segment's performance.

The press release and our SEC filings include more detailed information.

So I will only hit on a couple of key points.

In our retail commercial banking segment, pretax earnings grew $56 million as the national expansion initiatives in First Horizon created further advances in cross-selling.

Asset quality costs were reduced, and efficiency improvements continued.

We increased penetration among our national customer base to 34 percent, who have multiple financial services.

As a result, revenues from national retail commercial banking activities increased from 31 percent in the second quarter of last year to 39 percent in the second quarter of this year in respect to our total retail commercial banking revenues.

Loan growth of 20 percent reflected strength in consumer and construction lending, as well as renewed signs of commercial loan growth.

Checking and savings account balances grew 5 percent as an introduction of convenient hours and free checking, and our Tennessee and Virginia markets held product sales.

Additionally, this quarter's results include $3 million in incremental investment spending on our middle Tennessee and northern Virginia market expansion.

Going forward, the retail commercial bankings earnings, the national expansion strategies, further market penetration in Tennessee related to opportunities created by the disruption from recent industry consolidation, and return on investments made in additional full-service financial centers in middle Tennessee and northern Virginia, should enable double-digit revenue growth in the retail commercial banking activities in the quarters ahead.

Asset quality should remain stable at current levels and improvement in efficiencies should provide further operating leverage.

Moving on to the mortgage banking segment, pretax earnings decreased $58 million, as we would have expected from last year's peak in the refi market.

This included the realization of the unfavorable $8 million impact of the onetime accounting change related to SAB 105.

The remaining $49 million decrease in earnings was primarily driven by declining origination revenues due to a drop in refinancing activities and the emergence of competitive pricing pressures.

In connection with the lower level of refinancing, servicing profitability returned due to the reduced impairment expense as well as a decline in operating expenses as activity levels fell.

Mortgage origination volume fell 41 percent to $9 billion as refinancing volume declined from 76 percent of total originations in the second quarter of 2003 to 47 percent this quarter.

In contrast to the reduction in refinancings, home purchase originations increased 29 percent as the growth in the sales force continued.

Additionally, pricing concessions increased us competitive pressures in the market unfavorably impacted origination revenues by $16 million.

On the other hand, the servicing macro hedge performed as expected with servicing net revenues improving from a loss of 26 million in 2003 to 14 million net revenue in 2004.

The mortgage servicing portfolio was 72 billion on June 30th, 2004, a 13 percent increase from 64 billion on June 30th, 2003.

Additionally, as refinancing activity has slowed, impairment costs fell from $72 million to zero.

This quarter's servicing revenues were also impacted by 2 significant factors -- first re-stratification of the servicing portfolio tranches, triggered by the impact that rising interest rates had on the predominant risk characteristics of the mortgage servicing rights portfolio produced impairment of $15 million; secondly, servicing revenues were impacted by an unfavorable change in hedge ineffectiveness of $28 million, primarily driven by the shift and the shape of the yield curve.

As a result of improvements in processes and technology, productivity improved resulting in a 24 percent reduction of servicing costs.

Looking ahead a continuation of recent trends in interest rates, origination volume from refinanced mortgages and competitive pricing pressures could continue to negatively impact mortgage banking profitability.

Servicing profitability, however, should remain strong due to the slowdown in prepayments.

Capital markets pretax earnings declined $20 million, primarily due to a reduction in fixed income security sales.

The intensification of the Fed's initial interest rate hike made fixed-income investors cautious, forcing them to delay their purchases, especially in June.

On a comparison basis, it's important to note last year's second quarter was favorably impacted by higher cash flows from the prepayments of mortgage-backed products and agency calls raising the revenue bar even higher.

Revenues from other sources fell $8 million from last year's peak second and fourth quarters, primarily due to a decline in the volume of trust-preferred issuances.

Going forward, revenues from fixed-income securities sales may remain subdued as investors anticipate the impact that future Fed tightenings might have on bond yields.

As soon as investors' expectations for future increases and long-term interest rates moderate, their demand should return to historical levels.

Finally, the corporate segment saw pretax losses lessened by $20 million due to reduced discretionary spending, balance sheet restructurings to take advantage of the higher rate interest rate environment, a security portfolio restructuring and a venture capital gain.

Let me close by looking at what this quarter's performance means to our outlook for this year and over the long-term.

Given that current expectations for our operating environment, our earnings per share growth for 2004 should be in line with industry growth of 6 to 8 percent and consistent with the current First Call's consensus outlook.

I do want to note that this outlook excludes the $8 million impact from the SAB No. 105 onetime accounting change experienced this quarter and is based on assumptions regarding key drivers of First Horizon's operating environment.

As we look into the future, we believe that First Horizon's strategies will achieve a long-term growth rate, which will continue to rank us among the high-performing financial services companies.

Now let me turn the call back over to Ken and we can entertain some of your questions.

Before we go to the questions, I would like to summarize with a couple of comments.

First, our management team is extremely excited about the opportunities that lie before us.

First Horizon is evolving rapidly into a true national company with the strategies and business mix to compete effectively in those markets that we have targeted.

And secondly, we hope our new way of reporting our business segments will be helpful and as always, we appreciate your interest in our company and thank you.

And now we will take your questions and we will turn it over to the operator.

(OPERATOR INSTRUCTIONS).

Jackie Reeves, Ryan Beck.

I just wanted to ask maybe some broader questions about the quality of earnings this quarter from your perspective.

And then also dive more into the credit quality side, if you will.

Sure, thank you, Jackie, for calling.

You just want to know broadly the --

I was curious as to, you know, when you take a step back and the quality of earnings if you could just address, you know, do you think it was from your perspective, one of the stronger core earnings you have posted in terms of the roughly 92 cents?

Or do you think it was a little light on the quality because of the gains that you had?

Sure.

This is Ken.

Our strategies worked very, very well in this environment, and when I look at operating earnings before the impact of 105, it was 96 cents.

And that is a very strong performance.

There is noise in the earnings.

I keep thinking every quarter, it's the last quarter we are going to have unusual type transactions, but each quarter we have them and I think that is going to be a continuation.

We do have a complex business mix and that generates reasons for us to prune portfolios and make acquisitions of certain things.

And when you net out the noise, it nets out to practically no impact.

And so once you do that, you come real close to the mid-90s and we can argue about whether it's 95, 96 or 97 operationally, but it's in the mid-90s.

And when we started this year, going into this year, our target was to be at approximately $1.25 by midyear or third quarter, and we are moving very well -- operationally -- and we are moving very well toward that target, if we are not already there.

The disappointment is the fixed income revenues and profitability.

But that is a temporary market situation.

Now whether that will come back right away or it will be a negative market for us the entire third quarter, that's hard to predict.

It won't be as positive in the third quarter as we had thought entering the year.

But that is, as I have said already, temporary.

So I could not overstate how solid our core earnings are in my opinion.

We would like more, yes.

Are we off target?

No, not from a strategic standpoint.

If I can provide just some specifics around that just so we drill down and know exactly what items we're talking about.

Sure.

I think the items that would jump off the face of the income statement are going to be the divestiture gain that we had, which was a small merchant portfolio.

That was 1,000,008, that was an Internet portfolio that we basically -- we are getting out of that side of the business.

It was a channel that we thought might work and we basically decided it would be better to divest that one.

So that was a very small piece of our business and gave us 1,000,008 gain.

Securities gains and losses was made up of 2 things, which is investment portfolio restructuring and a Hickory venture capital gain this quarter.

That was $3.2 million.

If you look at the tax recovery on an after-tax basis, we had one just very similar, almost exactly the same number last year.

So when you compare last year's quarter results and this year's quarter results, that neutralizes it because we had the same conclusion to prior-year returns.

That was about a $6 million number; if you look pretax, that number was around $9 million.

Hedge ineffectiveness is a number that we talked about, and actually when you remember back, we were going to, and had in the past, talked about every quarter excluding that and it just got to be a non-issue for many years, I mean since 2001.

This is the first quarter that you actually did see the shape of the yield curve play into that and so we had a $13 million -- 13.1 to be exact -- loss this quarter that was embedded in our servicing revenues related to this hedge ineffectiveness.

So when you look at those 4 items, those would be the 4 unusual items that would be included in the operating numbers that basically, once you look at all those, they net out to literally no impact to the bottom line.

So then when you look at that, you isolate SAB 105 because it was an external SEC-mandated accounting change and that number would then be the main difference between what we would report at 92 cents and what we would say would be an operating number at 96 cents.

Thank you, Marty, that was very helpful.

On the credit quality side, clearly, I've read through the release and you are talking about a mix change and everything else, but it is still a little uncomfortable I guess for me to see the reserve continuing to move down as non-performing assets were jumping a bit in addition to the balance sheet growth.

Could you just give me maybe a little bit more color in terms of what's going on there?

Yes, our delinquency rates are as low as they have been since back in the mid-90s.

The non-performers have been very flat; what you see is just noise that's kind of bouncing around from deals that we are working through right now.

So there's not really any new non-performers coming on.

It's just as we are working through what's on the list, there will be some growth and decline as you sell or expand some of those positions.

If you look at watch lists, it's going down.

If you look at our charge-offs, they are down this quarter at 30 basis points.

So if you look at where we are at in the sense of still providing over our charge-offs, charge-offs at $11 million, provision at about 12 million this quarter, that has been a very consistent pattern and what we are seeing is the mix of ones, especially an incremental growth that we are getting out of the consumer side, especially the HELOC portfolio just does not require the provisioning that the average would for the portfolio.

So when we are looking at our model, we have been very consistent with our underlying model from asset quality standpoint and the provision for the allowance.

And that's been something we really stayed consistent and provided I think a very, as we talked with you all in the past, that cushion (ph) to the actual amount of charge-offs.

Ed Najarian, Merrill Lynch.

Two questions -- first question has to do with capital markets business.

Obviously, we have seen long-term rates come back down a little bit again in the last month.

And I am sort of wondering, shouldn't you expect that to reinvigorate your bond sales a little bit?

And then if that is not sort of proving to be the case and investors are still waiting on the sidelines somewhat, wouldn't that give you some reason to believe that investors will, therefore, be a little bit more on the sidelines throughout this whole macro rising rate backdrop, which could persist for awhile?

That is number one.

And then number two, if you could just go through the actual servicing fee revenue to give us a sense of sort of what it was -- I guess just sort of what all the pieces were that net out to the 14.4 million of servicing fees.

Thanks.

Let me address the fixed income.

Yes, I agree with you that rates have moved since the quarter end, and what we experienced in the last quarter, we would expect some pickup in the fixed income.

How rapidly that picks up, I don't know.

Our anticipation is that as you have these measured increases by the Fed, the volume will continually move up, but ratchet up but not in a big jump at one time.

So it will be gradual over the next several months.

The positive thing about our capital markets area, though, when you view that as a negative, is the additional income streams that we have been able to generate in the strategies over there.

The preferred trust is picking back up.

In the second quarter, it was curtailed because of the potential change in the classification of that as tier one capital or not.

So we are seeing a pickup already in the volume of preferred trust activities.

Bank-owned life insurance activities are picking back up.

So in our non-fixed income streams and all the things in the equity market are showing increased volume.

So we have got some positives going on there.

It's just that that fixed income is still large but relative to our total earnings stream, the news is it's not nearly as large as it was.

So that's our view on that.

Did you expect the second quarter to be the trough in your capital markets profitability?

In other words, did you expect it to be higher in the third quarter?

Yes, we see a slight improvement in the third quarter, yes.

And Marty will give you the detail on the servicing fees.

All right.

Let me put a little advertisement into our supplement.

Because Pete Macawicky (ph) and his group out at First Horizon had spent a lot of time creating some great detail to answer a lot of these questions.

So the numbers I am going to pull off here and explain to you are outlined in that supplemental financial that is available to everyone now.

So it is something to make sure you look at because a lot of the detail that we've wanted.

Net servicing fees for this quarter were $54.4 million.

That is 30 basis points on the servicing portfolio.

Early payoff interest expense was $6.4 million.

That is an important number because as refis slow, that negative number or drag will go away.

That actually will mirror the escrow balances that roll off.

Ancillary fees was $5.5 million.

If you look at amortization this quarter, we had $38.9 million worth of amortization.

We had basically no impairment costs as we talked about earlier.

We had NII on swaps of 21.6; that's the NII that comes from our hedge position.

We had the ineffectiveness number of 13.1 and that again is important because that number in the past was positive $5 million in the first quarter, but minus $1.8 million in the fourth quarter of last year and a negative $3.8 million in the third quarter.

So if you look at quarter to quarter, that number is either positive or negative, it's always been pretty small.

That 13.1 is extraordinarily large this quarter.

So again that number would be expected as you forecast into the quarter to go to zero.

And then you have a couple of small items, which is the amortization of your MSR -- and time decay of MSR's, which is a negative 4.6, and then the hedge mark-to-market and time decay of 4.4.

So when you look at those items, that is how you would basically net down to the 14.4.

But the two critical items there is the ineffectiveness, which is the $13 million number and when you look at the early payoff interest expense, because those will begin to see improvement as we move forward.

Just to follow up on that, when you go through the impairment portion, the amortization and the impairment, why would there not have been some positives offset on the impairment side?

I mean you said it took all this impairment costs when rates were following.

Shouldn't the raising rate environment made the impairment number more positive?

Well it was positive in the sense that last year during the second quarter, it was a negative $72 million.

Right.

So impairment going from a negative 72 to zero would be the positive trend that you would have seen which would correlate to the pattern that you are expecting.

You still had refis in this period of 47 percent.

So you still had, in this quarter, 47 percent of originations and the overhang of the refis that came from the first quarter hooked into the number.

So as you look at impairment, reducing it to zero is what we would have expected as we came out of the tail end of that refi period.

Because we had looked at and made sure that we had the right reserves and that's what we talked about that temporary reserve being there for.

Last question, then, given that there are so many pieces rolling around how we come up with the total servicing income, is there any realistic way to come up with an outlook or a forecast or a range of what we should expect it to be in future quarters?

Yes, actually.

What I am looking at is if you look at the 30 basis points on the servicing portfolio, that will give you your good gross amount of servicing fees.

So you take the growth of the servicing portfolio times 30 basis points, back out the amortization, you would assume at this point -- I would just assume impairment mitigates, we will just keep it at zero.

If you look at your NII swap number, so that number would maintain -- you take the ineffectiveness out and then you role in the patterns that we have seen in the amortization of time decay and hedge mark-to-market, which are small numbers, and you can see the 5-quarter or 6-quarter trend in the supplement and you basically end up with the net number.

So pretty much where we are this quarter with the hedge ineffectiveness added back in.

And the early payoff interest improvement, yes.

Amy Eisner, Friedman, Billings, Ramsey & Co.

I was wondering if you could give us a sense as to, you said that the Virginia branches are all operating ahead of plan.

How large do you expect your Virginia franchise to get?

And what other markets are you looking at for near-term expansion?

Amy, that Virginia franchise, without acquisitions, we would anticipate would be closer to 2.5 to a $3 billion bank in about 4 to 5 years.

We are rapidly approaching a billion.

So without acquisitions -- and we would not mind making, excuse me, we would not mind making some small acquisitions in that market.

We have, in addition to the Virginia market, there are about 15 states we have reciprocity with and another group of states that we do not.

Those that we have reciprocity, we would look at going in de novo.

In total, there is about 15 markets similar to the market we went into Virginia that we have expansion plans into.

Some of those will be with branching like we did in Virginia.

Some of them will be more heavily concentrated on people and less with branches.

So our plan is to be in 10 to 15 of those markets in the next 3 or 4 years.

Let me add the merger activity that's going on in the industry accelerates our opportunity to do those things because people are available, brick and mortar becomes available and the customer disruption is there, all favorable to our strategy.

Christopher Marinac, FIG Partners.

(No response.)

Your line is open.

Please check your mute button, sir.

Hi, good morning.

Sorry about that.

I wanted to ask you related to the comments earlier about the steepness of the yield curve in the quarter, Marty or Ken, can you describe that?

Is that more of a swap curve that you're speaking towards or educate us more on kind of what specifically was going against you?

Yes.

It was a very similar thing that I think has happened to -- when you look at the hedge ineffectiveness and the yield curve, it's the outside of the curve, which is the difference between the -- and it is the swap curve -- it's the difference between the 8, 7-year and the 10-year.

So the movement between those 2 things is what created this change.

We have now restructured that swap book because what is happening is as you were going through the cycle, you were actually rolling down the curve.

So we have gone in now and put it back so that it would be right on top of the 10-year, is what you would typically want; and so that hedge ineffectiveness would be now pushed in a sense mitigated because of what we have been able to do in the portfolio restructuring of those swaps.

Okay.

So you would say that the basis risk you experienced is no longer true now?

That's right, we had lessened that quite a bit.

Separately, if we looked over at the cost of the mortgage banking business, what have you done I guess intra-quarter in Q2 that kind of parlays into lower cost, lower overhead coming into the second half of the year, just in mortgage banking?

Well we continue to look at a couple of things.

One is if you look at our cost of servicing, we have pushed that number down now to $58 per loan which I think is over a 20 percent reduction.

Again as we go through the process, what we would look at is the same things that we did before, contract labor, so we will pull the contract labor back out.

If you look at the coming into the second quarter, again, the refis were picking up.

So the things that we had done going into last year, we then began exporting back out, which is again expanding contract labor, as we are now getting back to the refi period and market that we thought we had with -- and pull that contract labor back in; or look at, like we did last time, a number of hours so we started to pull the capacity back when the production was at that level, so we pulled a number of hours back to 30 hours per week; we looked at all our direct costs in the sense of commissions and incentives are directly related to the volume that's created, so that's naturally rolls off.

So when you look at all those things, we have I think incremental capacity and we have done very well to expand that incremental capacity when the market begins to pick up and then pull that incremental capacity back in according to the amount of production that we have.

Okay.

And I guess last question if you look at the total amount of servicing relationships you have, what would be the penetration on the bank side here as of the end of June?

We have penetrated 34 percent, a little over 500,000 customers, with more than 1 product.

And Ken, does that 34 percent relate back to the 517,000 of loan service?

Yes.

Okay, great.

Yes.

And I will remind you that just a couple of years ago, that was 17 and viewed as very high relative to performance of others and historical performance of our own.

And we could not be more excited about that success, and that's one of the major reasons you see our profitability in the retail commercial bank on a national basis improving.

Chris, thank you for your interest and your participation in the call.

We have fast approached our ending time and we have got time for one more question.

David Honold, KBW.

Good morning.

Thanks for taking my question.

I just had a quick question on capital management.

What was the shares repurchased in the quarter?

And what's your comfort level on a tangible capital ratio going forward?

What we would look at is -- we have repurchased shares for options outstanding, and so as any options are being exercised, we repurchased that to make sure that our diluted shares don't increase any.

That, each quarter, is roughly a million shares.

So as you look at that, then that would be at least a million shares that we are buying back.

We have bought back in the past for divestitures and things like that, so as we've gotten gains, we have been able to redeploy that into share repurchase.

And if you look at capital management, we look at all our different ratios.

And if you look at our well capitalized and the regulatory ratios, what we have done in the trust preferred and the subordinated debt has actually increased those pretty nicely over the last year.

And then when you look at our tangible equity assets, we are probably 50 basis points above what we would be very comfortable with.

But in general, you know, what we're doing is making sure we're keeping our capital ratio there because we have so much growth.

I mean with 20 percent loan growth with the opportunities that our businesses are bringing to us, share repurchase just does not give us the return that that growth opportunity that we're continuing getting from those national expansions and our business segments provide.

Okay, thanks.

And then just one follow-up on the tax rate.

Outside of this quarter's onetime adjustment, what is a good core run rate for us to use going forward?

We have been consistently between 33 and 34 percent.

Thank you, David.

And I want to thank everyone for your interest again in participating in the call.

Sorry we did not have time for all questions, and I would encourage you to call Mark Yates or Marty Mosby with any and all questions you have.

Thanks, a lot, for participating and have a great day.

And this does conclude today's conference call.

At this time, you may disconnect.