Home BancShares Inc (HOMB) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, welcome to the Home Bancshares Incorporated fourth quarter 2010 earnings call. The purpose of this call is to discuss the information and data provided in the quarterly earnings release issued this morning. The Company presenters will begin with prepared remarks, then entertain questions. (Operator Instructions) The Company has asked me to remind everyone to refer to their cautionary note regarding forward-looking statements. You will find this note on page three of their form 10-K, filed with the SEC on March 2010. At this time, all participants are in a listen-only mode and this conference is being recorded. (Operator Instructions) It is now my pleasure to turn the conference over to our first presenter, Mr. Allison. Mr. Allison, the floor is yours, sir.

Thank you, Mack. Welcome to Home Bancshares 2010 fourth quarter and year-end conference call. With me today is Randy Sims, Randy Mayor, Kevin Hester, and Brian Davis. Even though on January 3, we reported a loss for the fourth quarter, 2010 on a core basis was the best year in the Company's history, and I believe set the stage for the future. During the fourth quarter, we allocated $63 million to loan loss and charged to reserve with $53 million. As I said in the conference call, about 50% of the losses were in Florida, that I've been telling were you coming at some time and the other 50% was in Arkansas. And we will talk more about those in the conference call today, if you choose to do that. Now, it is what it is. And we deal with what we see. I think you will recognize that we deal with the losses in the manner that we should deal with them. We were probably the first bank in the country to write-off trust deferred because the domino effect throughout the country. We talked a lot about the negatives.

Let's talk about the positives of 2010. We completed six FDS transactions probably more than any else has done. We increased our total assets by over $1 billion, $1.1 billion, $1.2 billion. We increased our Florida franchise substantially. We had record net interest margins. We had a record net interest income. We had a core efficiency of approximately 50% and a record fourth quarter core income with November and December being the best two months ever on a core basis. We continue to pursue FDIC transactions. And with our loan and fraud problems behind us, coupled with the 2010 accomplishments that I just stated, 2011 is shaping up to be an outstanding year. I am going to turn the podium over to Randy Sims, our CEO. And I will be around for question and answer. Randy?

Thank you, Mr. Chairman. As you described, the fourth quarter was a very unusual time for Home Bancshares. While we were disappointed with the asset quality issues, we are optimistic about 2011. Our core earnings, margin, efficiency ratio and capital are very strong. In fact, if you take out all of the noise in the adjustments, the fourth quarter income, core income, was one of the best in the history of Home Bancshares. Add to the mix our 2010 acquisition and we are poised for a very bright future with the Florida franchise in outstanding location. Let me just review those acquisitions real quick.

In the fourth quarter, we acquired two Florida panhandle banks in Wakulla Bank, headquartered in Crawfordsville, and Gulf State out of Carrabelle. This brings our total acquisitions to six in 2010. These six 2010 acquisitions added to our Florida market one additional branch in Key West, six branches in the number one destination city in America, Orlando and 28 branches in the panhandle, stretching from Panama City Beach, to Tallahassee, Florida, markets in which we have great opportunities for growth or incredible market share, and in some cases as much as 92% to 100% of the market. We set our sights on acquisitions this year to add real community banks with core customer accounts, and that is exactly what we were able to acquire.

As a result of these acquisitions, we ended 2010 with assets of $3.76 billion, as compared to $2.68 billion for a year-end 2009, up over $1 billion. This is growth with a little over 40% for the year. Total deposits for the year was up from $1.84 billion, to just shy of $3 billion, at $2.96 billion, or 61% growth. We now have 49 branches in Arkansas, and 47 branches in Florida. A few of those in Florida will be consolidated but without doubt, we have built a great Florida franchise that we would love to add to in 2011.

Now let's get to some of the actual numbers. We recorded a fourth quarter loss of $13.8 million, or $0.51 diluted loss per common share. Before the tax benefit, the loss was $23.9 million, for the quarter. The four integral parts of that loss consists of a provision for loan losses of $63 million, and a $3.6 million charge to investment securities. Offsetting those losses was a $23 million pre-tax gain on two FDIC-assisted acquisitions, net of merger expenses, and strong core income of almost $20 million. The $63 million provision allowed us to charge-off $53.4 million for impairment for certain loans. $23 million of the charge-offs were in Arkansas and related to one borrower. Arkansas asset quality remains strong as it has been throughout the past year.

And while loans and investment losses may be charged off, the Company will continue to aggressively pursue the repayment. There will be recoveries but the process will involve lengthy litigation. On a year to date basis, we ended with income just shy of $15 million that resulted in a return of 0.55%. Cash ROA was 0.61%. Certainly not what we wanted, but given the fourth quarter adjustments, a decent return for the year. More importantly, as I mentioned, a good strong core run rate taking us in to 2011. Our net interest margin on a fully taxable equivalent basis finished at 4.19%, up five basis points, as compared to 4.14%, in a quarter over quarter basis, and down from 4.35% on a link quarter basis.

However, there were negative adjustments to interest income of $745,000 that without would have resulted in a very strong interest margin of almost 4.3% for the quarter. Our net interest margin continues to be consistently strong. Our goal for this year was to keep our margin above 4%, and we were able to accomplish it. Our strategy of holding our loan rates up in excess of 6% continues to pay dividends to the Corporation. The net interest margin in dollars was 38.5% increase to $33.4 million, compared to $24.1 million for the fourth quarter of 2009. On a linked quarter in dollars, net interest income was up $3.2 million, or 42.4%, on an annualized basis. Non-interest income was $31.9 million, and that included the one-time gain on acquisitions and the charge to investments that we have already discussed.

Even with all of the noise, the quarter was strong with mortgage income having a very good quarter. Non-interest expense on quarter over quarter basis was $26.2 million, compared to $16.3 million in the fourth quarter of 2009. But of course, we are a much bigger organization with our acquired institutions. As I stated earlier, we have grown 40% in assets and over 60% in deposits. On a linked quarter at length, $23.3 million to $26.2 million, that included expenses for the two newly acquired institutions. The efficiency ratio improved 10 points to an all-time low of 38.3%, from 48.4%, but of course this included the one-time bargain purchase gains.

Let's switch to loans and asset quality. Loans not covered by loss shares were at $1.89 billion at quarter end, and covered loans were $571 million, or 23%. The loans to deposit ratio ended at 83%. Our non-performing non-covered loans were $49.5 million for the quarter. Non-performing non-covered loans as a percent of total non-covered loans, in other words, our non-performing loans to loans throwing out our acquisitions, with the covered loans, showed an increase moving to 2.62%, from 2.13%, on a quarter over quarter basis. Our non-performing, non-covered assets were $61.2 million for the quarter. Non-performing non-covered assets as a percent of total non-covered assets increased moderately to 2.08%, from 1.95%, on a quarter over quarter basis.

Our loan loss reserve remained very strong at a record level just over $53 million. As a percentage of non-covered loans, it ended at 2.82%, as compared to 2.24%, as of September 30. The allowance for loan losses was 108% of total non-performing non-covered loans, as compared to 105% last quarter. Book value per common share was $15.02 as of December 31, compared to $14.71 at December 31, 2009. Common equity to assets was strong at 11.4% and tangible common equity to tangible assets was 9.7%. So the quarter was very noisy, filled with multiple one-time non-reoccurring transactions. While the perfect storm of the fourth quarter was very disappointing, our history and posture is to aggressively meet our problems head-on, and that is exactly what we did. We took the appropriate action, at the appropriate time.

The FDIC-assisted acquisitions we have made during 2010 will continue to improve our base earnings in future years. Our strong and growing core numbers are proof our metrics are solid, and our asset quality numbers will improve throughout the year. Capital continues to be strong in every comparison, and our allowances are at record levels. Over the past nine months, we have had incredible growth for our corporation, and established a strong footprint of community banking in Florida, especially in the panhandle. We are very optimistic 2011 will be a great year for Home Bancshares. That pretty well covers my prepared report. And I am now going to turn you over to our CFO, Randy Mayor, to give a little more color on the financial results of the quarter. Randy?

Thanks, Randy. We did have some volatility in the margins for the quarter compared to prior quarters. As Randy mentioned, the margin declined from 4.35% to 4.19%, or 16 basis points and as mentioned in the press release, there was approximately $745,000 in extraordinary interest income loss due to the charge-offs in the quarter, and the fraudulent bond issues, which accounted for 10 basis points of the decline, leaving the normalized margin at 4.29%, or down six basis points. You will also notice that the investment yields declined for the quarter. The non-taxable yield declined 79 basis points, of which approximately 57 basis points is attributable to the fraudulent bonds, with the remaining coming from maturities and calls within the portfolio.

The taxable yield declined 118 basis points, partially as a result of acquiring $46 million in investments in the FDIC transactions, with an average yield of around 2.96% and partially as a result of purchasing $30 million in relatively short-term bonds, with an average yield of 1.13%, in an effort to try to put some of our excess liquidity into earnings, without going long-term on the investment side. Overall, we believe the 4.35% margin number is a more accurate for our ongoing run rate, given the fact that we also have $25 million of FHLB borrowings maturing by February 1 at an average rate of 2.85%. And $26 million of Internet deposits which were acquired in the FDIC transactions that mature in January with an average rate of 1.80%, which should help to continue to reduce our cost of funds. Randy, those are my comments.

Thank you very much, Randy. And of course, with all of the changes, we're going to want to know more detail on loans and asset quality and I will turn you over to Kevin Hester, our Chief Lender. Kevin?

Thanks, Randy. As previously mentioned, we do not consider the occurrences in the fourth quarter to indicate a deteriorating asset quality situation in our Arkansas market. The Arkansas charge-offs were primarily due to two large borrowers related to a significant change in collection expectations on a C&I credit and a fraud that involved several banks in the Arkansas area. The Florida charge-offs are a continuation of asset quality issues that we have been fighting for the past couple of years. 60% of the Florida charge-offs were centered in two relationships that could not perform to the terms of their debt structure any longer and were charged down to current appraised value or to what the current cash flow could support.

The remainder of the Florida charge-offs were spread across 25 credits that are in the legal process, and we took the appropriate charge to reduce their balances to the current value. Adjusted for the fourth quarter charge-offs, loans not covered by loss share declined by $10 million. This decrease was primarily in Arkansas, where rate competition has been more intense. We continue to evaluate lending opportunities. But rate competition in our own internal profitability requirements have made quality loan growth difficult to obtain. Non-covered other real estate owned decreased by $1 million to $11.6 million in the fourth quarter. 54% of this balance is located in Florida. As we have said in previous quarters, we continue to work through the legal process in Florida and we'll move properties to OREO as quickly as the process will allow. [PDRs] decreased $11 million in the fourth quarter.

The majority of the increase in the non-performing, non-covered assets and loan percentages was related to the remaining balance of the large Arkansas and Florida loans that were partially charged off in the fourth quarter. New non-performing loans, not related to loans that were charged off, only increased $3.8 million in the fourth quarter. Adjusted for fourth quarter charge-offs, early stage delinquencies decreased by $9 million in the fourth quarter. We are encouraged by this decline. On the lending side of the acquisition, we have incorporated the two fourth quarter additions into our lending process, and are encouraged by the progress they are making both in addressing problem loans that existed and in establishing a new credit culture in the organizations. Randy, that's all I have for today.

Thank you very much, Kevin. That pretty much covers our report. We're glad 2010 is behind us. And we look forward to 2011. I will now turn it back over to our Chairman to sum up, or to go to question and answers.

Thank you very much. I think at this time, we will go to Q&A. Mack, if you're ready to go to questions and answers, we're ready to go.

(Operator Instructions)Our first question today comes from Jon Arfstrom of RBC Capital Markets.

A couple of questions. Maybe Kevin Hester first. You talked a little bit about the rate competition in Arkansas, and just curious if you could give us an idea of what the demand looks like? I mean are you seeing more opportunities in your pricing discipline is preventing you from booking some of these loans? Or is it still what you describe as a sluggish environment?

There are opportunities out there. And I think our rate discipline does keep us from going after some of those. I don't think it is as sluggish as it was two or three quarters ago.

But we approved about, at Conway yesterday -- this is Johnny, we approved about $6 million worth of loans yesterday under our terms and conditions in Conway, so I'm beginning to see it come back a little bit.

And this is Randy. I'm not sure that the rate discipline prevents us on some of the opportunities, just because some of those opportunities, those rates, are so low, that our 6% wouldn't make that much difference. We would not do the loans at that particular rate. And some of them that I'm seeing.

Would you say, is it a fair generalization to say you're a little bit more optimistic on the ability to grow the balance sheet in 2011?

Yes.

I would agree with that.

Okay. Johnny, another just somewhat unrelated question for you. I think you're right. You are probably the most active bank, or one of the most active banks in 2010. I'm curious what your view is for 2011, whether or not you think you will get as many looks at acquisitions? And then a little bit on your sense on the competitive environment and bidding on those banks.

Let me take the second part of that first. What we're running into is banks that have $600 million, $700 million, $800 million worth of assets. The competition is intense. We were outbid by $50 million on the last one that came out. Shocking number. Absolutely shocking number. We have done six. We think we know what we're doing. I'm not sure that the people that beat us by $50 million have a clue. So when you run into those deals, there is nothing you can do about it. You wouldn't have done it anyway. Like Randy talked about loan rates a while ago, somebody comes in and does a LIBOR minus 0.5%, I don't even know what LIBOR is, so we don't do LIBOR, so you run into some of those that just doesn't make any sense and there is nothing you can do about them. You just let them go and go on down the road and wish the buyer the best.

From our side, we think there is still $17 billion, $18 billion worth of deals out there that we're going to try to play on. Our team was not hurt last night, John, but our team had been on due diligence, landed in Little Rock, and it is all over the news, something had happened to the landing gear and sparks were flying everywhere. And I saw our people on television today. But we're very busy right now. Kevin's teams are out looking and are scheduled for the next three or four weeks. So over the holidays was a good break for them because these people have given their heart and soul for the last year. And they're back out starting again. So we're excited about that. We will continue to be aggressive. I would like to pick up somewhere in the billion plus category. And that will do us for a while.

And I might just add to, that our focus is going to be just a little bit different. We are really trying to concentrate on acquisitions that add to our existing footprint and that makes real sense for us.

I guess that ties into my last question here. You talk a little bit about branch consolidation. But also you mentioned de novo, and I'm just wondering in the panhandle, is it somewhat of a dual track where it is nice if you get something, and you get it for an attractive price, but you also want to attempt to integrate everything and maybe fill in some of the holes? Is that the way to look at it and think about it?

Well, when I mentioned that some of those will be consolidated, I was primarily talking about where we have now have two locations in the same town, or in the same area, that it just doesn't make sense from a standpoint of total deposits or total transactions for us to maintain those two locations, both from an efficiency standpoint, and just from a sheer size, that we can take our resources and place them elsewhere. Bottom line, those are the consolidations that we're talking about. We're certainly not talking about getting out of any of the markets. And in fact, we've got some great opportunities down the road, both in Orlando we barely cover that market, it is as big as the state of Arkansas.

And then around that panhandle you look at Tallahassee, you look at Panama City, there is still great things going on there, that we need to make sure that our locations are in the right place, and that we go after as much of the market that we can. They are just great opportunities that we're really excited about, and as soon as those acquisitions mature, and get to the point where they can really get out and start going back after retail, and business accounts, we're going to be out there. Orlando, which was our first acquisition, is there. Bob Birch now has responsibility for the Orlando market. He is the guy that built such a great franchise in the Little Rock, north Little Rock area, and he is there participating with them, and helping them to get back out and take control, and grow. I hope that answers it. I hope that wasn't too long.

Thank you.

The next question we have comes from Joe Fenech of Sandler O'Neill.

Johnny, you touched on TARP repayment on the call a few weeks ago you said it would happen within the year, maybe sooner that you don't think you need to raise capital to pay it back. Any change or update to the time able you laid out or your capital plans?

No, I haven't -- interesting you said that. We have been looking this morning before the call at the new program the government has, the Small Business Lending Program. That is an interesting deal. You could take your rate from the 5% to a 1%, and you can pay back any portion of it you want to pay back at any time. The compensation problem that exists today you don't have, and you have the right to buy back stock. You can increase dividends. So we may, in the interim, we may apply. I think applications have to be in by March 31, Joe. So we may apply for that. It doesn't change my outlook at this point in time. But if we're able to increase small business lending by 10%, it lowers that rate from 5% to 1%. And I probably would keep it at that rate, up until the time the rate jumps. So maybe a little -- still, on the same path that I'm going to look at the other side of that.

So are you leaning towards that, would you say, Johnny? Or are you still in the exploration stage?

No, we're going to do it. We're going to file for it. It doesn't matter. We've got to pay the interest anyway. And if we're able -- if the economy is turning, we're able to do more small business lending, that will lower that rate substantially. So we get it down to 1%, I will probably keep it.

Kevin, on the TDRs you said down $11 million. Is that down from the $72 million number at the end of the third quarter, the performing TDR number?

Well, overall, it was $80 million. And it went down to $69.7 million overall.

Okay. And then on the expense line, guys. You put in the release to maybe take a look at the five or six branch closures from some of the deals. Can you put some numbers around that in terms of what you're expecting, potential cost savings, maybe give us an overall efficiency target that you're shooting for this year?

Well we're shooting -- I'm shooting for below 50. Let me say this, Joe. I think I said it on the call the other day. When we use -- when we acquire, when we're bidding, we use about 30%, 33% that the costs say. That has been our history. We have the first two that are in. It takes six months to really know the number. We're at 76% on one, and 53% on another of the first two acquisitions. So they're performing far better than we anticipate. And the [pools] by the way are performing far better than we expected. You didn't ask that question. I thought I would throw that in. So it is a little early. But if you got two branches in one town, and you don't need but one branch, that savings is 100%. So it should be substantial on these branches that Randy is talking about, it will be substantial.

So it is 40% to 50% would you say, Johnny, for all of the deals combined, reasonable to assume, conservatively?

I think conservatively, just stay with 40%. You know how conservative we are. Stay with 40%. I really am expecting 60%. But that is my goal. We're running at that rate right now. And the average we're running about 60%. Most of these transaction, as all of the RTC assets I bought back in the late '80s, these deals turn out a little better than you anticipate. The real key to tracking that improvement is the data processing conversion. We have done three of the six. The other three will be complete as of March 11. So that is the real key in being able to accurately track the improvement.

Okay. Thanks. And then Randy Mayor, can you step us through the margin dynamics one more time? First, I think you said the run rate margin is about 4.30% or so and then secondly, just the details on the FHLB and the Internet deposits one more time, if you don't mind?

Yes, the 4.35%, we feel is a pretty good gauge for us going forward there. And we do have some maturities that happen in January, both on the FHLB side, and on the Internet deposits that we acquired that have already rolled off, or rolling off by the end of the month. So that is going to give us a little bit more room on our cost of fund.

The Internet deposits are at what rate, Randy?

They were 1.13% I think and the FHLBs were 2.90% or something like that. That will give us a little bit more breathing room. As you know we do have quite a bit of liquidity as most banks do pent up and if we can use that we can deploy a little bit more and leverage a little bit.

I think we're down to $180, $190 million in cash, liquidity, so we're wanting to deploy, but frankly deploy too much of it in long-term assets, we think the rates are going to go up.

Okay, great, guys. Thanks.

The next question we have comes from Andy Stapp of B. Riley & Company.

Just to follow up --

Congratulations on your company's performance. I read that article yesterday.

Thank you. Just to follow up on the last question, do you have the -- I missed it, the balances of the borrowings in Internet deposits that are rolling off?

It is about $25 million of each.

Okay. And do you have the -- do you know what you're expecting for the effective tax rate this year?

This is Brian. It should be about 34%.

Okay. And --

Andy, you want to know how much money we are going to earn?

That would be great to know. It would make my life easier.

I got my number. I might be choked around here but I tell them what my number is.

That would be helpful. Have you estimated the impact of the -- what they're talking about, in regards to the Durbin amendment?

I don't know what that is. I'm sorry.

I'm sorry, that's the -- on the interchange fees.

Oh, yes, I'm sorry. We have looked at that to a degree, Andy, and we won't be as harshly impacted because of the size limitations on there, since we're under the $10 billion number, we don't think there will be quite as much of an impact on our fees as would be a bigger bank.

Okay. Those were my questions. The rest were already answered answer. Thank you.

The next question we have comes from Matt Olney of Stevens capital.

Most of my questions have been answered but I want to circle back on the TDRs with Kevin. Can you give us an idea of the mix of TDRs in the state of Arkansas versus Florida? And if that changes very much from the last few quarters?

This quarter is about it 60% Florida, 40% Arkansas, and I don't anticipate -- I don't have the numbers in front of me for previous quarters but I don't think the mix has changed dramatically in the last two or three quarters.

Okay. And also, circling back on the credit discussion from probably the last conference call, that the fraud that was discussed on the call, with the securities impairment, was the loan to that individual also an entirely charged off, or is there still something on non-accruals on that individual?

The loans related to those bonds were charged off. We do have one loan left on the books that is secured by real estate that is fully covered. The cash flow support, the balance, we have a brand new appraisal that is well over the balance that we have. So we don't think we have any impairment there. But any of the loans that were related to the bond issue are gone.

And is the loan that you spoke of supported by the cash flows, is that still accruing?

No, it is not.

It is put on non-accrual at year end.

Even though it is paying, we put it on non-accrual. At the will come back on accrual before too long, we think. We anticipate. We just got the appraisal on it. We wrote it down to 4.2%. We just got an appraisal for 5.9%. So we feel pretty good about it. We're not going to ride it back up. We will just leave it where it is. But it is cash flowing, doing fine.

It was one of the early deals. And it is a pretty good project, really.

Okay. And last question, on the capital ratios, do you have any preliminary regulatory numbers as of 4Q 2010?

We have been working on these. They are not the final ones. We had a 9.7% TCE ratio. I mean I would anticipate the leverage ratio being a little above 12%. The tier one and total risk-based capital will still be super strong. They will be -- the tier one will be above 6%, probably close to 17%, and the total risk base should be plus 17%, almost 18%.

Okay, guys. Thanks for your help, appreciate it.

Let me tell you one more thing. We've made a change at the Company. In the past, when a loan went non-performing, you start the legal process, and it doesn't get -- it doesn't move to OREO. We never charged that loan until it went to OREO, once we got the appraisals in and went through the legal process, it could run a month to a year to get our hands on the property, and once we got our hands on the property, at that point, we made it -- we charged it. If there was a loss in that, we charged it. We made a change. As soon as the loan now goes to legal process, we take it and charge it. If we get appraisals and charge it at that point in time.

So all of these loans that you're hearing about in this fourth quarter, that is a result of the -- a lot of that was a result of the change. We -- particularly Florida, we made the change in Florida. And once it goes legal, we charge it at that point in time. So you won't be seeing a lot of big charges coming. If I'm correct on the asset quality numbers, you won't be seeing a lot of big -- there will be some charges this year, but we've got them allocated for. We only have, on the TDRs, we only have five relationships that are in excess of 30 days on the TDRs, and all five of those are specifically reserved for. So if that gives you a little comfort, I thought -- it gives me comfort, so.

That is great color. Thank you very much.

The next question we have comes from Brian Martin of FIG Partners.

Could you guys just give a little color on your thoughts for the disposition of the remaining non-performings, now that you've taken the hit this quarter as aggressively as you did? As far as what your targets are, what you think is realistic as far as moving these down this year?

Well, a lot of those are in the legal process. So you're at the mercy of the courts and your borrowers to work those out. So it is hard to put a timetable on that when you're dealing with the courts.

As far as -- go ahead.

We got -- and we only had $11 million, $10 or $11 million in the OREO bucket. I said on the last call that we had 41 pieces of OREO in the Keys, and we had deals on nine of those. Well, that was correct. But that is covered and uncovered. We only actually had eight pieces OREO, legacy loans out of the Florida Keys, of which one of those, there is a deal on one of those eight pieces. So some of them will come pretty quick and some of them won't. We think Arkansas will clean up pretty wick. One of the charge-offs we took on this last, when we took the charge-offs, was the $5 million charge on the only non-recourse loan that this Company had in existence, in northwest Arkansas. We will recover money on that property. It is dirt.

It is 400-acres of great dirt right in the middle of Fayetteville, Arkansas. So there will be recoveries on it. But one reason I wanted to charge it like we did is I don't know when it will recover. But at some point in time it will recover. It is going to be slow as that market has been slow up there. But we think we have them priced right. We think we've got everything that is moving, that way priced properly, where we can move it out. I don't have an answer for you right now, because as Kevin said, we only got $11 million worth of OREOs and we charged $50 million, so we got a lot of stuff moving through the pipeline into OREO.

Okay. All right. Thanks.

(Operator Instructions)The next question we have comes from Derek Hewett of KBW.

Quick question, regarding credit, given that you have a reserve to loan ratio of 2.8% right now, are you comfortable with that level on a go forward basis? Or should we expect that to maybe trend down a little bit in 2011?

I'm expecting -- it is Johnny. I'm expecting it to trend down. I'm expected that to come down. I think Joe Fenech asked on the last call, did I think we peaked? I think we peaked around here. We might see, it might go from 2.8% to 2.9% or to 3% but I don't think -- I think we're pretty well done. I think we've -- I think I told you on the last call, if there is a bad loan left in the system, this Chairman doesn't know about it. I have to get it -- let's get it out of here. We just analyzed, I don't think there is anything left. So Kevin, do you got any color on that?

The only color I would add is if we see non-accruals come down. I think if we see non-accruals come down, I think you may see the reserve come down.

As well as something that made it through the legal process that had a specific allocation on it, that we go ahead and charge and get rid of.

Okay. Great. And thank you. And then did you guys provide the accruing TDR total or just total TDRs?

We were discussing just the total.

Total TDRs is what he was talking about.

I can provide just a little bit of color. This might not be exactly what you're looking for but he mentioned that we had $69 million of TDRs, and when we get down to it, $57 million of those are performing, and $12 million of those are on non-performing, they're in the non-performing numbers already.

Okay. Great. Thank you.

And it appears that we have no further questions at this time. We will go ahead and conclude our question-and-answer session. At this time, I would like to turn the conference back over to management for any closing remarks.

Thank you, Mack. It was a tough quarter for the Company. I think I said in the last call, it was embarrassing to our management team, and to us. We let our shareholders down. We don't like doing that. We won't continue doing that in the future. I believe 2011 is ready to be a great year. A little color on the C&I loan, when there were -- looking more on the big C&I loan is the timing situation based on those receivables and we even loaned him an interest line back I don't know, 18 months ago to carry his stuff through. As we wrapped up all of his assets at that time and picked up additional collateral, that was about $1.5 million.

And as we expected, one of the assets sold and paid that line off, and we had (inaudible) line, it was -- I don't remember what it way, $200,000 or $300,000 worth of interest on there, going forward, when we determined that we weren't as high as I said on the totem pole on that payout, as we anticipated. And immediately, when we saw that, it wasn't a choice, as we have always done, it was take action and we took action and I can assure you, I've said I think the asset quality is in great shape here. I hope that we peaked. I think we have. Unless something comes out of the woodwork that we don't know anything about, I think 2011 will be a great year. I appreciate all of your support. We appreciate your support. You've been with us and you've supported us.And I don't think we will let you down in 2011. Thanks for joining us today.

We thank you gentlemen for all of your time. The conference is now concluded. We thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you.