Hancock Whitney Corp (HWC) 2009 Q3 法說會逐字稿

Good day, everyone.

Welcome to the Whitney Holding Corporation third quarter 2009 earnings conference.

Today's conference is being recorded.

Joining us today are John Hope, Chairman and CEO, John Turner, President, Tom Callicutt, CFO, Joe Exnicios, Chief Risk Officer, and Steve Barker, Comptroller of the Bank.

At this time, I'd like to turn the conference over to Mr.

Steve Barker.

Please go ahead, sir.

Good afternoon.

During today's call, we may make forward-looking statements.

Forward-looking statements provide projections of results of operations or of financial condition or state other forward-looking information such as expectations about future conditions and descriptions of plans and strategies for the future.

Whitney's ability to accurately project results or predict the effects of future plans or strategies is inherently limited.

We believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions but actual results and performance could differ materially from those set fourth in the forward-looking statements.

Factors that could cause actual results to differ from those expressed in the Company's forward-looking statements include but are not limited those outlined in Whitney's SEC filings including the risk factors section of the Company's Form 10-K and 10-Q.

Whitney does not intend and undertakes no obligation to update or revise any forward-looking statements and you are cautioned not to place undue reliance on such forward-looking statements.

I will now turn the call over to John Hope, Chairman and CEO.

Thank you for joining us today.

Whitney is a strong franchise that continues to report a stable core deposit base and a top ranked net interest margin.

Whitney's loan portfolio outside of Florida, while somewhat stressed today, remains in line with our expectations and we are managing problem areas aggressively.

Core earnings drivers, what we consider to be our net interest margin fee income and non-credit related expenses, have remained stable.

As loan demand remains weak in the current economic environment coupled with charge-offs, foreclosures and loan sales, our total loans declined $315 million in the third quarter.

However, despite the loss in earning asset volume, we reported expansion in our net interest margin to 4.11% for the third quarter.

We believe the management of the net interest margin is one of the key differentiators for Whitney.

Our margin has been consistently ranked not only in the top of our peer group but also in the top 15 when compared to margins at the country's 100 largest banks.

The largest component of our expense base, personnel, was down linked quarter.

Expenses associated with problem credits in OREO, excluding our provision for OREO valuation allowance in the second quarter remained stable over the past two quarters.

Continued lower valuations on residential related property in Florida combined with the additional general economic stress resulted in a provision of $80.5 million for the third quarter.

The need for this elevated loan loss provision once again lead to a net loss for the quarter.

The net loss of $30 million plus the $4.1 million dividend on the preferred stock issued to Treasury under TARP resulted in a $0.50 loss per diluted common share.

Whitney's capital ratios at September 30 remained above those to be considered well capitalized.

The tangible common equity ratio remained stable at 6.42% while the leverage ratio declined slightly to 8.99%.

Tier 1 and total capital ratios were 10.55% and 13.37% respectively.

Over the past couple of months, we've worked on our own internal stress test.

Tom Callicutt will review the process shortly.

However, I would like to point out that the results of that test indicates what we believe to be our adequate levels of Tier 1 common capital today.

Tom.

Thanks, John.

Total loans at the end of the third quarter were down $315 million from June 30, 2009, with reductions in most sectors of the loan portfolio and across our regional markets.

Commercial and industrial loans including commercial real estate loans secured by properties used in the borrowers business were down $215 million, construction land and land development loans were down $76 million, and other CRE loans were down $15 million.

Included in the quarter's decline were charge-offs of $63.5 million, foreclosures of approximately $16 million, and larger problem loan resolutions of $16 million.

The shared national credits portfolio totaled $681 million at September 30, 2009, down $102 million from June 30, 2009.

Approximately $282 million of the total shared national credit portfolio is related to the oil and gas sector.

Average deposits in the third quarter of 2009 were down 1.5% or $137 million compared to the second quarter of 2009.

Period end deposits were down approximately $264 million or 3% as compared to June 30, 2009.

The decline is mainly related to competitively bid public fund deposits and deposits held in treasury management suite products used by corporate customers.

Demand deposits comprised 34% of total average deposits.

Net interest income tax equivalent for the third quarter of 2009 decreased less than 1% or $800,000 compared to the second quarter of 2009.

As John mentioned, while average earning assets were down between these periods, the net interest margin improved 6 basis points to 4.11% from 4.05%.

The margin expansion reflects a 9 basis point decrease in the cost of interest bearing deposits.

Certificates of deposits from a special campaign a year earlier matured or renewed in September 2009.

The start of schedule rate reductions on deposits from a special money-market campaign offered during the second quarter of 2009 also benefited the cost of funds in the third quarter.

As in the past two quarters, the lost interest on non-accruing loans reduced the net interest margin by approximately 20 basis points.

Non-interest income for the third quarter of 2009 decreased 10% or $3.2 million from the second quarter of 2009.

The decline is more of a reflection of non-recurring items in the second quarter than any significant negative trend in fees.

As the level of refinancing activity slowed during the third quarter, fee income from Whitney's secondary mortgage market operations declined 27% or $800,000.

Other non-interest income declined $2.7 million or 22% in the third quarter in part due to the $1.8 million distribution from an investment in a local small business investment company posted in the second quarter of 2009 and a reclassification of fees from other non-interest income to bank cards as a result of a change in vendors.

Total non-interest expense decreased $8.2 million or 7% from the second quarter.

The second quarter of 2009 included a $5.5 million special deposit insurance assessment that was imposed industry wide by the FDIC.

The provision for valuation allowances on foreclosed property declined $3 million during the third quarter.

Total personnel expense for the third quarter of 2009 decreased $800,000 or 1.5% from the second quarter of 2009.

There was a $500,000 decrease in share based compensation that reflected the lower cost of the 2009 award relative to the cost of prior awards that vested in the second quarter.

Sales based incentive plan compensation was also lower in the third quarter.

No management cash bonuses have been accrued year-to-date in 2009.

Before I turn the call over to Joe, I would like to take a minute, as John indicated, to discuss our internal stress test and why we believe that the current capital levels of the Company and the bank are adequate to absorb further credit losses during this difficult economic cycle.

Whitney elected to perform a stress test of its loan portfolio using the methodology employed in the supervisory capital assessment program, or SCAP, designed by the regulators.

We engaged outside consultants to help us with the details of the SCAP methodology and to advise us about the building of a model to estimate potential losses.

This model was built by Whitney personnel and was quite sophisticated.

In fact, the consultants have commented that Whitney's model is every bit as sophisticated as those used by many much larger banks.

We use the model to calculate potential losses at a granular level based upon recent charge off history adjusted for qualitative factors.

We segregated the portfolio by geography, loan product type, and risk rating.

We competed a base loss percentage for each segment based upon a weighted average of charge-offs over the past two years.

We then adjusted the calculation for qualitative and macroeconomic factors then we applied the resulting two year charge off percentages to the December 31, 2008, loan portfolio by segment.

The results of our internal stress test indicate adequate levels of Tier 1 common capital today to absorb losses in the most likely base case and what we believe to be within an immaterial shortfall or a rounding error of less than $10 million even in the most adverse case scenario.

Now I'd like to turn the comments over to Joe Exnicios who will discuss credit.

Thanks, Tom.

Before I get started in an effort to provide some additional effort that investors and analysts have requested we have posted some additional data slides pertaining to our loan portfolio on our website.

I will be referring to some of these slides in my comments.

Whitney provided $80.5 million for credit losses in the third quarter compared to $74 million in the second quarter.

Impaired loans, mainly residential related real estate in the Tampa, Florida, market accounted for more than half of the quarters total provision as current appraisals in Florida continue to decline.

The remainder of the quarter's provision was related to an increase in total criticized loans of $131 million, smaller consumer charge-offs and qualitative adjustments.

As detailed on slide 4, approximately $100 million of the increase in criticized loans came from oil and gas credits and commercial construction, land and land development loans service from our Texas market.

To illustrate what our property type and geographic exposure is for the construction and development and income producing CRE portfolios, we have provided a break down of those portfolios on slides 5 through 8.

What those graphs show is that the construction and development portfolio in Florida is mainly comprised of residential lots and undeveloped land while Texas' main sectors are retail, multi-family and commercial lots and land.

The retail sector is the largest component of income producing CRE with the largest geographic exposure in Louisiana, and while Texas' exposure to the retail sector is the largest among geographies at approximately 60% of income producing CRE, the total outstanding is only $73 million.

Our hotel-motel exposure, as we have previously indicated, is concentrated in Louisiana, as is our exposure to office buildings and industrial and warehouse lending.

We continue to believe that the level of stress we are seeing in the Texas portfolio is different from what we experienced in Florida.

The type of credit is different, real estate valuations in the Houston market did not appreciate in value as significantly as those did in Florida and the industry supporting the economy are more diverse.

As we have discussed in the past, the energy sector is one industry impacting our criticized numbers in Texas.

Loans outstanding to oil and gas industry customers represented approximately 11% of total loans at September 30, 2009.

About one-third of the loans related to exploration and production lending with the balance supporting the industry through transportation, supplies and other services.

At the end of the third quarter, approximately 13% of the total energy portfolio was criticized.

We still are not seeing new investment additional activity from the drilling and exploration companies and this lack of activity continues to impact the service companies.

Until the outlook on commodity prices translates to increased activity, we expect to see continued stress on this portion of our loan portfolio.

Gross charge-offs are detailed on slide 11.

During the third quarter, net charge-offs totaled $61.9 million or 2.86% of average loans on an annualized basis compared to $46.7 million or 2.09% of average loans in the second quarter of 2009.

The majority of the gross charge-offs were out of our Florida market.

Residential related credits in Florida accounted for 68% of the gross charge-offs while Florida in total accounted for 76% of the gross charge-offs.

To date, we have charged off approximately 25% on average of the original book value of our current impaired loans.

The current book value, net of the charge-offs, of the impaired loans at September 30 has been reserved approximately 16% on average.

The loan loss provision exceeded net charge-offs by $19.1 million during the current quarter which further strengthened the allowance for loan losses to 2.81% of total loans at September 30, 2009, that's up from 2.5% at June 30, 2009, and 1.55% a year ago.

Several of you have asked us previously to detail our allowance by state.

Slide 10 gives that break out.

Enhancements to our allowance methodology provided for the segmentation of the qualitative factors and the break out of the allowance by geography.

Non-performing loans in total were down $7.3 million to $406 million at September 30, 2009, while non-performing assets were flat.

Non-performing loans are broken down by geography on slide 10.

At September 30, loans past due 90 days or more and still accruing totaled $15 million down from $20 million last quarter.

Loans past due in the 30-89 day category totaled approximately $87 million, that's up $10 million from the June 30 figure.

As John Hope mentioned earlier, while we continue to deal with the issues in our Florida portfolio, our loan portfolio outside of Florida is performing in line with our expectations despite increasing levels of stress from the overall economic environment.

For example, as we've noted on slide 10, non-performing loans to total loans were 4.8% at September 30.

Excluding the Florida portfolio, that same ratio was 1.8% at quarter end.

Based on what we know today, we believe we have a handle on what the issues are, however, as I've said before, the environment we are in today is unprecedented and we are going to remain cautious.

From time to time things could happen that may indicate asset quality may begin to turn around.

We just do not think it would be prudent to try and predict when those things may happen or if they do whether they can be sustained.

I'd like to now turn the presentation back over to John Hope.

Thank you, Joe.

Addressing credit issues remains our top priority, however, we are also committed to investing in our future so that we will be poised to capitalize on the opportunities when the current challenges subside.

We believe that once we get through the current cycle the core strengths of Whitney will once again become apparent.

As the economy continues to show signs of improvement, and consumers and businesses are not as hesitant to borrow, we expect to once again report balance sheet growth.

As the rate environment begins to increase, while we have to earn through floors on a portion of our variable rate loans, the expansion in our net interest margin will help add to revenue.

Credit costs and credit related expenses will begin to normalize and help bring our efficiency ratio back down also as we continue to work to implement Project Genesis, our enhanced and previously discussed technology project.

We remain committed to our strategic plan with the goal of creating long-term value for our shareholders.

And now we'll be glad to open it up for questions.

(Operator Instructions).

Our first question today will come from Jeff Davis with FTN Equity Capital Markets.

Good afternoon.

Hi, Jeff.

John or Joe, I guess on credit, criticized loans in Florida were down just a little bit and I know you took a truckload of net charge-offs in the state, but are we at a point where the Florida issues maybe don't get better but we start to plateau?

Yes, we'll let Joe talk to that.

I think that it's fair to say that we're probably at that point in the cycle.

As you know, the charge-offs are sort of lagging indicators and even after you've obtained stabilization you may still have a quarter or two where you'll still be charging off some loans but I think that's a fair assessment.

Are the appraisal values in Florida, and for that matter elsewhere, (inaudible) county or wherever, are they starting to flatten out versus when you -- versus the prior update?

I'm not sure we can say that what you're asking I think is have we reached the bottom.

We're probably getting close but there's really no indication that we've hit the bottom.

Some of the positive things that have happened is we have had some sales and some of those sales have been at or near the appraised value with respect to ORE assets.

Now, we have also been successful selling some notes, many of them in that Tampa region, and the discounts there have not been nearly as significant as they might have been some time ago.

You'll recall we've talked to you in the past about our decision not to bulk sale notes.

We've done that on a very selected basis and, again, the sales that we've done in the third quarter have been at or near appraised values.

Okay.

And last question and I'll let someone else go.

Tom, can you just briefly walk us through the parameters that you all assumed on SCAP in terms of lost category between base and severe for just some of your major lending categories like C&I, CRE, C&D?

Well, I can tell you, Jeff, that I don't think we're going to release the exact numbers but I can tell you that we fell within the government's guidelines in all categories but one that I can remember and that was only slightly off.

All right.

And you're running the SCAP through year-end 2010?

That is correct.

Okay, thank you.

Our next question will come from Adam Barkstrom with Sterne, Agee & Leach.

Hello, gentleman.

Wanted to follow-up on Jeff's question if I could.

You guys looking at your SCAP analysis.

Tom, you mentioned in your comments that under one scenario you were I guess above the "capital requirement" and then on the most draconian, if you will, you were not much below it.

Just kind of curious, can you share with us what you guys are thinking about internally as sort of a minimum, what are you looking at capital wise?

Is that a tangible common number and what is that number internally?

Well, we don't give out capital targets, Adam, so we think we have adequate capital today as I said in the presentation and we were heartened by the results of the stress test because we think where we missed it a little bit in the adverse case is just a rounding difference.

I'll just add one thing to that.

Before this is all said and done and when things begin to normalize, Whitney would like to be in the top range of where our peer group sits from a capital perspective.

Got it.

And, Tom, if you could, I'm sorry if it's in the release somewhere in the numbers somewhere, can you share with us the net DTA balance for the quarter?

I don't think it's in the release and I don't have it at my finger tips.

I'm sorry I didn't hear the question.

Deferred tax asset balance, but we can get back with you, Adam.

Okay, and then one more and I'll let somebody else jump on.

Could you maybe, one of the things you've highlighted in the press release the shared national credit balances?

We tried to give you that so that--

That's not my question.

Right, okay.

I'm sorry if I talking a lot.

It's a lead up to my question.

There's two areas you said reduced your shared national credit balances by $100 million and you also had $16 million in problem loan resolutions.

I just wondered if you could give us some general color as to what you're doing in both of those categories as far as a work out perspective or resolution perspective?

Adam, I'm not sure, let's first address the reduction in shared national credits.

That, for the most part, was just performance under the terms of those credits and it was what I would consider to be normal pay downs.

And then on top of that we had approximately $16 million in note sales, so that would have accounted for some portion of that.

Joe, the $60 million problem loan resolutions those were note sales?

Yes.

Okay, very good.

Thank you, gentlemen.

Thank you very much.

We'll go on to Jon Arfstrom with RBC Capital Markets.

Thanks, good afternoon guys.

Hi, Jon.

A couple of questions.

Joe, can you talk a little bit about your approach to Florida lending at this point, maybe also a little bit about the churn in terms of pay off in loan sales versus origination?

John, if we can split that into two questions, one we'll let Joe Exnicios talk to the problem resolution in Florida and we'll let John Turner speak more to the current competitive or lending environment in Florida.

Yes, this is John Turner.

We're seeing a few opportunities in Florida in the Tampa Bay region in particular where we have assembled I think a really quality group of commercial bankers and that's a transition that has occurred over the last 12 months where we're building a team of commercial bankers and wealth bankers that really reflect what Whitney has historically been and will continue to be strategically going forward.

So we are, as a result of that, seeing some opportunities to move business from some of our competitors and we believe it's high quality C&I and wealth business primarily in that market.

In the panhandle there's still not a lot of economic activity occurring there and I would tell you that we're really not seeing much in the way of new loan opportunities.

Jon, I could tell you with respect to our workout, we have some of our best work out specialists full time down in the Tampa area.

We've hired a new senior credit administration officer down there.

We're being as aggressive as we possibly can.

The resolution on many of these is simply going to be through the foreclosure proceedings and we're moving as expeditiously as we can and we're working very aggressively and proactively to be positioned to dispose of ORE at or near appraised values as quickly as we can.

Any guess as to how much of the ORE is in Florida?

At the present, I don't have the exact percentages, but it's probably 75%.

It's the largest percentage.

We have been able to manage our ORE portfolio, as you notice it hadn't increased very much and that's not because we're not taking loans in.

We're taking them in and we are moving them out at a pretty level pace.

Okay.

And then just one other question.

Yield on earning assets moved up a bit from the previous quarter.

I think I know what the driver is on that, but could you talk a little bit about what you feel the driver is and if there's more room to go in terms of asset yield?

Well one thing is we're still having a little success in establishing floors in our variable rate loan contracts so we're up to about 58% today of all of our variable rate loan contracts have floors in them and that's up from just above 50% in the prior quarter.

I think it also had to do with the mix as we pay down these problem credits to non-accruing credits that effectively raises the yield on the overall portfolio which we are doing.

Great.

That's helpful, thank you.

Jon, let me just clarify.

Between Florida and coastal Alabama, we probably have approximately 80% of our ORE portfolio and that's pretty evenly balanced between Alabama and Florida.

Okay, thank you.

Thank you.

We'll move on to Bain Slack with KBW.

Hi, good afternoon.

Hello.

I wanted to know, do you all have, are your TDRs or modified loans in your non-performing loan category?

They would be if we had anything but we don't have anything.

You don't have any?

Okay.

And I guess the other question I had with regard to more personality, you all touched on it a little bit.

It seems like there's been a lot of press releases with hiring both Whitney from competitors and by competitors from Whitney.

Could you give us I guess color of sort of two things.

One, I guess where the biggest threat is for you all and what you're doing to maintain your key employees and what opportunities you see in your footprint to also take advantage of maybe some of your competitors' key employees that would be advantageous to Whitney?

Well, okay.

We're real focused on our commercial and business strengths.

We have had some success in recruiting a line of business manager for our retail banking line of business, [Betty Call] from Wachovia, [David Fretty] who is now running our commercial line of business came to us from Capital One and has a great background in commercial banking with a specific focus on treasury management, and we were able to hire Mark (inaudible) and Bill Perkins in our trusts and investments area, all very experienced, very capable staff, support line of business managers and that really was a weakness as we looked at the development of our strategic plan.

We had great bankers in the field but we didn't have the support staff to help develop systems and processes internally and create consistency across our footprint so we're excited about having them on board.

We're very focused on the New Orleans metropolitan market.

We think the MSA between Baton Rouge and New Orleans provides a great opportunity for us to leverage our home town presence and we consistently do that.

Recent market share numbers that have come out to indicate we're continuing to grow our market share in the New Orleans market and we think long-term south Louisiana in general is a good place for us to be in focus.

Houston is a good market for us as well and I mentioned we had added some commercial and wealth bankers in the Tampa Bay market.

We think we have a great group of bankers and so we're always concerned about others trying to hire our quality people and we are going to continue to make sure we invest in them, giving the development opportunities and challenge them with additional professional opportunities to ensure we can keep them.

I'll just say to kind of wrap that up if I may, one of the competitors has enjoyed making a lot of noise.

We don't compete that way.

We don't really talk a lot about our competition one way or the other.

We like to just do our job.

Right.

Great.

I appreciate that.

We'll move to Michael Rose with Raymond James.

Good afternoon.

I'm seeing across the wire you guys are going to raise $200 million in common stock?

Yes.

I think the wire is out.

All right, but didn't you just say that relative to your SCAP analysis that you felt like you had enough capital to get through the cycle?

We did say that, but we can't make anymore comments beyond that except through the press release.

Okay.

And just going back to your SCAP analysis, can you walk us through what you use for PPR, pre-provision net revenue number?

I don't have that in front of me, I'm sorry.

Okay, thank you.

We tried to be very realistic about it and it went through an exhaustive venting.

I'll add a couple more comments to that.

We've chosen not to talk about the details of the stress test.

We're going to share the results of it with you which we did, but we don't really see much value in getting into the details and I think we are very comfortable that the stress test does indicate that we have adequate capital for defensive purposes.

Okay, and just finally, can you give a sense of where the increase in 30-89 days past due loans came from by geography?

Yes.

I can do that.

We had -- actually had decreases in the Texas market and Louisiana.

We had slight increases in Alabama, Mississippi, and Florida.

It was in total, the net was an increase of $5 million.

It was really pretty stable.

Okay, thank you.

I think if you back up and look at the credit metrics the one thing I would hope you would take away with you is there is stability in those, not just in the past due numbers but look at non-performers that basically were flat.

Some slight increase in the Texas criticized but beyond that, overall, if you step back and look at credit metrics it's I think we're seeing first quarter of some improving stability.

The other thing I'd point out is remember that $80 some odd million is on an $8 million plus base so it really is only about 1% of total.

Fair enough.

Thank you guys.

We'll move on to Kevin Reynolds with Wunderlich Securities.

Well, the press release took care of my primary question about raising capital, but I guess I do have another question.

If you're, when you look out there at the competitive landscape, and I know, John, I believe you said you don't like to talk as much as you like to executor, those are my words more than yours.

Well again, some people like to talk but we prefer not to.

Understandable and I guess my question is clearly, you're struggling a little bit right now and you've got some heavy things on your plate.

Are you finding that that's making it more difficult for you as you look out there at talent and opportunities and I guess specifically with the wave of consolidation that no doubt is coming, does it maybe tie one hand behind your back the fact you're dealing with some of these issues or is there a level of conversation that's going on with the regulators and all of it that we are not privy to that -- ?

Well obviously the regulator part of it I can't respond to but let me kind of talk in general tone to what I think you're asking.

First of all, when you lose somebody, you do face a little bit of pressure but generally speaking in my experience in banking and I've been at this 36 years, it's usually very much overblown.

It's not -- it doesn't turn out to be near the challenge that people would make it out to be.

I would say that from a competitive perspective, even more so with the New Orleans situation that things stable now, we aren't -- that's just not a high priority issue for us.

It may have been when we, when some of those guys first left but it's no longer on the top of our list of things to worry about.

In terms of being able to take advantage of opportunities, we early in this process we basically broke the bank down into the good bank, bad bank organizational structure and Joe Exnicios, our Risk Officer, took on the management of the problems on the loan side and John Turner, our President, total focus was on continuing implementation of the strategic plan and I would suggest to you the very fact that we were able to hire two teams of private bankers, one in Houston and I'm talking about maybe six people in each location, two teams of private bankers in Houston and Tampa would indicate to me that we're not having a problem, that credit is not keeping us from hiring people.

The Whitney reputation is sound, the people like doing business our way of doing business so unequivocally no, it's not keeping us from hiring people and I would tell you that the couple of people that we have lost have not been around credit issues.

It's primarily been around salary.

Okay, thank you.

We'll go next to Dave Bishop with Stifel Nicolaus.

Good evening gentlemen.

Hi, Dave.

Wonder if you could talk about what you're seeing in the central district in New Orleans in terms of your hotel/motel exposure in terms of criticized assets.

Obviously there's been some talk of slowdown in the convention market down there in tourism.

What are you seeing in terms of migration over the past quarter, past 90 days?

Dave, thanks for asking that question.

We just happen to have the answer for that one.

We have recently and you'll see on slide 8 our $229 million in hotel-motel exposure about 68% of that is in Louisiana with the balance of that being in Florida.

We have recently done a stress test on each of the hotels that $229 million figure would I guess help you indicate or understand that it's not a tremendous exposure but we have done a rather in depth stress test on each one of these and we do have some isolated hotel situations where there have been problems.

One of the notes that we've sold in the last quarter was a hotel property and that was actually one of our largest hotel exposures but we're keeping a close eye.

A lot of these hotels even those located in the French Quarter, they've been through these sort of situations before.

They experienced this after the events of 9/11.

They went through a terrible time period immediately after the floods in 2005.

They are very good at reducing their expenses and doing the best they can during these difficult times, so although we do have a handful that we've got on our close watch list, for the most part, the portfolios holding up rather well.

Got it, and in terms of the energy portfolio, they're obviously the national exam was pretty scary to read through there.

Any sort of commentary in terms of credit down grades or provisioning?

Well, sure.

Let me give you a little overall quality or a feel for the quality for the shared national credit portfolio.

A year ago, what we generally do usually in May of each year we get the SNIK report for the previous calendar year-end so for the previous year we had approximately a 95% pass rate and there was some deterioration in the subsequent year.

We're now at approximately a 90% pass rate and we have had a couple of down grades in the energy sector out of our Houston market but with our pass right now being at 90% we have 4% special mention, 4% in substandard and 2% warrant rated.

So the increase really came in in the special mention portion and why we had 2% non-rated I haven't gotten to the bottom of that yet, but in any event, 90% of the portfolio is a pass and I think that gives you some idea of the quality.

Great.

Thank you.

(Operator Instructions).

We'll move to Al Savastano with Fox-Pitt Kelton.

Good afternoon guys.

Just a couple more questions on the SCAP.

If you can just repeat, I think you answered it before but does the capital, did you factor in the capital raisins your SCAP analysis?

No.

Okay, great.

And then could you give us an idea of your ending loan loss reserve if there was any significant change from current levels and the SCAP analysis?

No, I don't know what that number is at the moment, Al, and I don't think that's a detail that we would release.

I'm just wondering if you brought it down to more historical levels, if you kept it more like --.

Well, I think that it would be abnormal under the process if you didn't bring it down to some more normal levels at the end of the loss period.

Okay.

But don't assume it came to a low point.

Okay, fair enough.

And then the last question on the SCAP test.

I'm assuming you looked at a Tier 1 common ratio like the other banks did as well?

We did.

That's what we compared it to.

Okay.

Perfect.

And then one final question on the liability, you talked about with the CDs and the money market, did all of that come through the third quarter or should there be additional benefit?

No, I think there should be some more because there's more CDs to reprice, but more than that we didn't see a very long period of that repricing of the money-markets.

Okay, can you give us some idea then on maturities and rates?

I'm sorry?

Maturities and rates.

Maturities and rates?

I don't know at the moment off the top of my head, but--

Al why don't we get Trisha to follow up with you.

We'll follow-up with you, Al.

Thank you.

We'll move to Jerry [Kronin] with Sandler O'Neill Asset Management.

Thanks, my question was asked.

We do have a follow-up question from Adam Barkstrom with Sterne, Agee.

Yes, hi, guys.

With I guess the press release, the capital, was that planned to hit during, I'm just curious of the timing of this.

Did you guys plan for this to hit?

I'll be honest and tell you we wanted to send it out maybe a little bit earlier but there were loose ends that had to be tied up so it's out and we'll go to work on it tomorrow morning.

Got it.

And then if I could, John, how does this, what's your, how does this change or modify your thinking on previous comments about repaying the TARP?

Our TARP plan is not going to change.

Our TARP plan really is consistent with needing to see an overall improvement in the credit metrics and once we see a definitive trend establishing the return to normalcy in credit then we'll begin to talk to the regulators about that.

All right.

Fair enough.

Thank you, gentlemen.

We do have a question from Barry Cohen with Knott.

Your line is open.

Asked and answered, thank you.

Thank you very much.

At this time I'd like to turn the conference back over for closing remarks to John Hope.

Please go ahead.

Let me first address the CD issue, there was about $175 million of CDs that matured and they carried an interest rate of about 4.25%.

Money-market deposits were at 2.35%.

Okay.

If there are no other questions, we appreciate very much your participation today and look forward to visiting with you again soon.

Thank you.

That does conclude our conference.

We thank you for joining us.