Hancock Whitney Corp (HWC) 2010 Q1 法說會逐字稿

Good afternoon, and welcome to the Whitney Holding Corporation first quarter 2010 conference call.

(Operator Instructions) As a reminder, this program is being recorded.

Participating in today's call are John Hope, Chairman and CEO, John Turner, President, Tom Callicutt, CFO, John Exnicios, Chief Risk Officer and Steve Barker, Comptroller of the Bank.

I would like to hand the call over to Steve Barker for opening remarks

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

Forward looking statements provide projections of results of operations or financial conditions 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 effect of future plans or strategies is inherently limited.

We believe the expectations reflected in the forward looking statements are based on reasonable assumptions, but actual results and performance could differ materially from those set forth 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 to those outlined in Whitney's SEC filings including the risk factor section of the Company's Forms 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.

Good afternoon, everybody.

Our first quarter results were in line with our expectations which we discussed with you also at the last quarter's conference call.

The overall trend in credit metrics moved somewhat sideways this quarter, as criticized and non performing loan totals showed slight net increases, but the results continue to support our view that we likely turned the corner on credit deterioration last quarter.

The provision of $37.5 million was down slightly from last quarter.

It declined $43 million or 53% from a peak of $80.5 million in the third quarter of 2009.

Net charge-offs of $37.1 million were down almost $17.5 million from the fourth quarter, and down almost $25 million from the third quarter of 2009.

Revenue results for this quarter reflect the reduced level of economic activity in our market that we, along with others in the industry, noted last quarter.

Demand for credit remains weak, which led to a decline in both our loans outstanding and net interest income.

We still expect loan demand to remain weak in the second quarter, with slow growth expectations for the second half of 2010, as the economy continues to show some signs of recovery.

Expenses net of an estimated $4.5 million loss resulting from repurchased obligations on certain mortgage loans originated and sold by a subsidiary of a recent acquisition were up only 1% linked quarter.

We continue to focus on managing the expenses we can control, and I believe we've done a good job there.

However, we also recognize that in light of the revenue challenges we currently face, ongoing expense control is and will be critical.

Despite these headwinds, I remain encouraged by the prospect of an improving economy, and by the strong foundation we are creating and the traction we have gained from our strategic initiatives.

The most severe real estate related issues in Florida and coastal Alabama which have impacted credit for over a year now appear to be slowly subsiding along with the related need for outside loan loss provisions.

We now expect the loan portfolio to perform as it typically would in a historical recessionary environment.

As we continue to focus on credit issues, we remain equally focused on revenue generation, and have recently made several strategic hires and have successfully introduced some updated products for our customers.

Project Genesis, our major technology conversion is on track.

And, during this past quarter we updated our general ledger, our first system to convert under the Project Genesis.

The main customer related systems conversion is currently scheduled for 2011.

Also, I remain hopeful that we will soon see a return to consistent quarterly profitability.

John Turner -- excuse me, Tom Callicutt, our CFO will now take the floor.

Okay, thanks, John.

I'll talk some about the balance sheet and the income statement details.

Total loans at the end of the first quarter were $8.1 billion, which is down $330 million, or 4% from the end of 2009.

Included in the quarter's decline were charge offs of $40 million, foreclosures of approximately $19 million, and problem loan sales of approximately $5 million.

In addition, $65 million of criticized oil and gas industry credits paid off during the quarter.

There was also approximately $50 million of repayments on some seasonal commercial and industrial credits during the quarter.

The remainder of the decline, $150 million, reflects scheduled repayments, reduced line use on commercial lines of credit, and the impact of limited new loan activity.

As John noted, we still expect loan demand to remain weak in the second quarter, and could see further balance sheet contraction as the year progresses.

Average deposits in the first quarter were $9 billion, relatively unchanged from the fourth quarter.

Period end deposits at March 31st, were also $9 billion, down $188 million or 2% compared to year-end 2009, which included seasonal commercial and public fund deposit inflows.

Non-interest-bearing deposits of $3.3 billion at March 31st, were unchanged from year-end.

Non-interest bearing demand deposits comprised 36% of total average deposits.

I would like to discuss one final item regarding the balance sheet before I move to the income statement.

As many of you know, the rules surrounding our ability to support a deferred tax asset are more limiting for regulatory capital purposes than for GAAP.

This quarter we were required to increase the amount of the deferred tax asset disallowed in our regulatory capital calculations by over $50 million, and this caused the decline that you see in our regulatory leverage ratio.

We were, however, able to continue to support the full tax asset on our books, and we have every reason to believe that we will realize all of the deferred tax asset over time.

Application of these rules may continue to impact regulatory capital measurement in future quarters.

Now on to the income statement.

The lower level of earning assets, largely a result of the weak loan demand was the main factor behind a decrease of $4.8 million in net interest income during the first quarter, although the fewer number of days in the current quarter accounted for almost $2 million of the decrease.

The net interest margin of 4.15% was relatively stable and down only five basis points from the fourth quarter, reflecting mainly the reduced level of loans and the earning asset mix.

Funding costs and loan yields were relatively stable between the quarters.

Interest loss on non-accruing loans was somewhat higher during the first quarter and reduced the net interest margin by approximately 20 basis points.

Non-interest income for the first quarter decreased $800,000, or 3% linked quarter.

Deposit service charge income was down $600,000, primarily from reduced account analysis and NSFOD activity.

We expect these NSFOD fees will trend lower in light of new consumer protection regulations beginning in the third quarter of 2010.

Secondary mortgage market income was down approximately $400,000 or 16% on lower levels of production during the quarter.

As a side note, dividend income from one of our grandfathered assets totaled $400,000 this quarter.

This item has been a recurring first quarter only event and totaled $1 million a year ago.

Total non-interest expense for the first quarter increased 5%, or $5.6 million linked quarter.

As John noted earlier, the increase related mainly to an estimated $4.5 million loss, resulting from repurchased obligations on certain mortgage loans.

These loans were originated and sold by a recently acquired entity prior to the acquisition date.

Historically, we've not had any putbacks on Whitney originated mortgage loans.

Total personnel expense for the first quarter increased $600,000 from the fourth quarter.

Employee compensation increased $700,000, mainly as a result of adjustments to 2009 sales based incentive plan compensation in the fourth quarter of last year.

No management cash bonus was accrued during the first quarter, or during all of 2009.

Employee benefits declined $100,000 during the first quarter.

Loan collection costs, including legal services and foreclosed asset management expenses and provisions for valuation losses, remain elevated and total $8.5 million in the first quarter, relatively unchanged from the fourth quarter.

I'll now turn the floor over to Joe Exnicios who will discuss credit.

Thanks Tom.

As John mentioned in his opening comments, while we did not see an improvement in all of our credit metrics this quarter, what we did see supported a likely turn in our overall credit picture of last quarter.

The issues that impacted us most severely for over a year, that was residential real estate valuation declines in Florida and Alabama are subsiding as is the need for larger provisions.

For the first quarter, Whitney provided $37.5 million for credit losses, that's a decrease of $2 million from the $39.5 million the fourth quarter, and a significant decrease of $27.5 million, or 42% from the first quarter of 2009.

But as John noted earlier, and more importantly, the provision for the first quarter was down $43 million from its peak of $80.5 million in the third quarter of 2009.

That's not to say that Florida and Alabama credits are still not impacting our provision expense, because they are, just not as significantly as in previous quarters.

The majority of the first quarter's provision, approximately $30 million or 80%, continued to come from the Florida and Alabama portfolios, and was predominantly real estate related.

This compares, however, to a provision of approximately $69 million from Florida and Alabama credits in the third quarter of 2009.

The Louisiana and Texas portfolios continue to perform as expected, in a recessionary environment.

While these portfolios remain under some stress and contribute to a high level of criticized loans, they have not had as significant an impact on the Company's overall provision and charge offs as the Florida and Alabama portfolios have.

For example, the Texas portfolio, which is 27% of total criticized, accounted for only 5% or $1.9 million of the gross charge-offs in the first quarter, and only 5%, or $10.5 million, of the total gross charge-offs for all of 2009.

Net loan charge offs in the first quarter were $37.1 million or 1.81% of average loans on an annualized basis, compares to $54.5 million, or 2.59% of average loans in the fourth quarter.

This also compares favorably to our peak level of charge offs of $63.5 million in the third quarter of last year.

Approximately 80% of this quarter's total gross charge-offs came primarily from Florida and Alabama markets, and included mainly real estate related credits.

The total criticized loan portfolio Increased $23 million net during the first quarter.

Criticized loans in Louisiana and Florida were up $14 million and $22 million respectively, while Texas balances declined $13 million primarily from the oil and gas payoffs Tom noted earlier.

Total criticized construction land and land development loans increased $70 million net during the first quarter with almost 80% of the increase coming from loans serviced in our Texas market.

General economic and market conditions continued to delay the successful completion of various retail and other income producing CRE projects and stretch the financial capacity of the developers.

Although delays in meeting project targets, such as lease-up time frames specified in our underwriting criteria have prompted us to include these loans in our criticized totals, we believe that most of the underlying projects remain viable.

Even more so in an improving environment, and will support the debt service.

In many cases, we are dealing with more seasoned developers.

Many of the projects are developed properties, not raw land, and the deterioration on appraised values is not nearly as steep as what we saw in Florida and Alabama.

Our bankers are working with customers daily to develop and implement strategies to deal with the difficult conditions, and as of May 31st, only $23 million of construction and development credits in Texas were non-performing.

Over all, we believe these credits have lower loss expectations and do not require outsized loss provisions.

Non-performing loans, a sub-set of criticized loans totaled $437 million at March 31st a net increase of $23 million from year end 2009.

Approximately 75% of the non-performing loan total came from Whitney's Florida and Alabama markets.

Impaired loans, a sub-set of non-performing loans individually evaluated for impairment totaled $363 million.

The total of cumulative charge offs and the current reserve on these loans represented approximately 38% of the original contractual principal balance of these credits.

The allowance for loan losses remained solid at 2.77% of total loans at March 31st, compared to 2.66% at December 31st 2009, and 2.17% a year earlier.

During the first quarter, we added $19 million in loans to the ORE portfolio and sold almost $7 million.

The sales during the first quarter were mainly single family residences, condos, and individual lots, and continue to be sold close to the current appraised value.

As we noted last quarter, we believe we have worked our way through the most severe issues in Florida and coastal Alabama, and we expect the portfolios outside of those markets to continue to perform in line with historical recessionary credit trends.

Some other credit measures may fluctuate as we continue the cleanup process throughout 2010, and we expect most credit metrics should begin to return to a more normalized level sometime in 2011.

Now as a reminder, we have some supplemental credit slides for the first quarter and they are available on our website.

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

Thank you, Joe.

We'll now open the call to questions.

(Operator Instructions) Our first question comes from Steven Alexopoulos from JPMorgan, your question, please.

Did you guys review the catalyst that's resulting in the additional, I guess, $25 million of DTA being excluded from regulatory capital?

You mean the additional $50 million?

Oh, was it additional $50 million?

Yes.

Yes

They have different criteria as to time periods when you can consider carry backs and carry forwards from GAAP.

It's a shorter period.

Okay.

So it doesn't have to do with after the quarter was just seeing higher losses for the next couple of quarters?

Wouldn't be anything like that?

We use the same projections for both computations.

Okay.

Looking at the $4.5 million loss related to the repurchase obligations, could you just give a little more color on that?

What entity was acquired, how much risk is there that we see that again in the next couple of quarters?

Well, it was a recent acquisition.

It was -- that had a mortgage company, and we recognized the potential for claims when we did due diligence, obviously, but they didn't arise to the level of considering that they were an imminent loss at all.

I think if the economy were better, we would never hear about these, but that's -- I think everybody is experiencing this.

We hope that we have accrued what we need to accrue for what we know, but you could always be presented with more from both our own book, although we've never had one that has been presented to us for pay back.

And just one final question.

Are you guys planning to opt into the extension of the unlimited FDIC insurance on transaction accounts?

This is John Turner.

We're considering that now.

There are a number of factors that we think are important to work through, and we have not made that decision yet.

Okay.

Thanks.

Thank you.

Thank you, our next question comes from Jon Arfstrom from RBC Capital Markets.

Your question.

Please?

Thanks.

Good afternoon, guys.

Just one follow-up on the repurchase expense.

Was there anything in Q4.

No, this is the first time we've had anything like that in the history that we know of Whitney.

And the $4,5 million, you did take a forward looking view of that as well and tried to capture what you thought was a reasonable amount for future quarters?

We tried to book what we thought was a FAS-5 loss.

As best we could with the knowledge we have today.

Right.

Okay.

Okay, good.

That's helpful.

And then, Tom, I think in your prepared comments, you talked about a problem loan sale of about $5 million.

Was that the right number?

Yes.

How -- it seems like you're a little bit more optimistic on credit, and I'm just curious if you've seen some firming in and of your non-performing valuations, or REO valuations, and if there's the opportunity to get a little bit more aggressive than trying to reduce the NPL and ORE balances.

John, this is Joe.

We reported, I think, in the fourth quarter that throughout 2009, we were selling our ORE at slightly more than 94% of the appraised value.

We have clearly seen a stabilization of valuations in Central Florida and Coastal Alabama.

That doesn't mean we won't occasionally have a credit, there will be some slippage for a particular reason, but the precipitous decline has really tapered off, so that is providing us an opportunity to occasionally be able to execute a note sale.

And, the $5 million, I don't remember, that might have been two or three note sales, that wasn't just one sale.

There was still sort of one off, it wasn't part of a package transaction.

And then I guess the last questions.

Is there any particular area of your footprint in the Gulf that may be bouncing back stronger than you had expected?

I recognize these things are still weak and there's a ways to go, but anything that may have been surprising you on the upside?

No, I don't think so.

I think New Orleans has probably performed as well as any of the markets we're in today that we didn't have a high high or a real low low.

We're hearing good positive things about developments in the Houston market, but not seeing anything particularly yet that would reinforce that.

Okay.

Thank you.

Thank you.

Our next question comes from Adam Barkstrom from Sterne Agee.

Your question, please.

Hi, guys, good afternoon.

Good afternoon.

Hey, was wondering, you mentioned in your opening commentary, and it's in your press release, too, the fact that you guys had made several strategic hires.

Wondered if you could give us some color on that.

Yes, we've talked about a number of the folks we've hired over the last nine to 12 months, various lines of business heads.

We're continuing to add to our brokerage business with key brokers.

We have added a couple mortgage originators.

We've added some treasury management sales people.

Most recently we've added a group of commercial real estate bankers who we think bring both the capacity to generate business, and also to help us formalize the commercial real estate line of business here at the bank, which we think is important, and gives us some -- provides some longer term opportunity.

Did the commercial real estate bankers, just curious, can you tell us where they came from, and are they primarily in the New Orleans market?

They are in the New Orleans market.

We would probably rather not make a big deal about where they came from.

But they're experienced bankers.

One of them has 30-plus years experience.

The other two 20-plus years, and they're from the New Orleans market, but have regional real estate relationships.

Okay.

Fair enough.

And then, hey Tom, wondered if you could maybe help us think about, the margin.

I think we were, perhaps, looking for, stable to slightly up this quarter, instead of -- not down much, but just curious.

I'm sorry, what?

Go ahead.

I would say that down 5 basis points is stable to us, but --

That's fair.

Okay.

That's fair.

How should we -- any color you can give us about how we should be thinking about that margin number going forward?

Is it kind of within this range, or anything either way that's going to affect that going forward?

I don't think it's going to be anything that's going to make it go up.

I think it will still be what we would think is a relatively stable range, but with the drop off in loans, if we see some more shrinkage in the second quarter, you could see a little down tick in the margin, but I don't think it would be significant at all.

Okay.

And then just one last one.

I'm just curious if you could -- any kind of TARP update you could provide?

The story is the same on TARP.

We would really like to get it paid back.

There are two requirements, we believe, this is no conversation with the government just two requirements that we see.

One is an improvement in our credit metrics, and, two, indications that we are returning to normalized or some regular profitability.

Obviously we have yet to see to that, but we believe that there is a pretty good probability we'll be headed in that direction fairly soon.

Our next question comes from Kevin Fitzsimmons from Sandler O'Neill

Good afternoon, guys.

Good afternoon

I was wondering if you could just help connect the dots with the comfort that you're drawing from the underlying trends, and that you did make the turn last quarter, and that we saw the -- granted a slight tick up in criticized loans this quarter.

And I know you talked about a big part of that coming from Texas, where you don't see as much loss potential, but Florida C&D did still tick up this quarter compared to a decline last quarter.

Is that more of a timing thing, should we not look as much into that?

Or is it more just based on you guys feeling the real estate values are stabilizing, and just help us get some comfort there?

Kevin, this is John Hope.

Let me make a quick response, and then if Joe Exnicios wants to add some more to it, because I think your question is important, and my guess is a lot of the folks out there will be interested in how we respond to it.

I want to go back to, and I just -- I happen to have some of the comments that were made at the fourth quarter conference call, and I want to go back to that conference call and remind you what we said at the time.

We said that 2009 was something we didn't particularly enjoy, because of the pain that we experienced, but we felt confident about, at the time I said, where we are today, and then I went on to say we are not done with credit.

2010 will still be a challenging year.

However, I am comfortable -- I'm continuing to quote -- however I am comfortable that the credit situation is normalizing, and I do not expect any more hefty provisions.

And then I think the next statement should be insightful.

While the quarters may be lumpy, we are focused on the full year and the long term, and are hopeful that we will soon see a return to full year profitability.

And Kevin, the only thing I would add to that today is, nothing has changed.

Okay.

That's great.

Thank you very much.

Thank you.

Our next question comes from Jennifer Demba from Suntrust Robinson.

Your question, please.

Tom, hi.

On the interest margin, are you expecting, over the near term, that you would continue to see stable to down, I guess, is how I would characterize it, given funding costs probably can't improve much more?

I don't think there's any reason we would think it would go up at this point, unless -- well, unless we had some loan growth, which I think we said we probably wouldn't in the very near term, so I think it would be what I would call stable, but it would be stable trending downward a little bit.

Okay.

And you indicated before that you think loan demand will improve over the -- in the second half of the year.

Is that -- is that because your pipeline is improving, or are you just expecting lower charge-offs, or both?

We're beginning to see a little bit of improvement in our pipelines.

I wouldn't characterize it as significant at this point.

Again, much of what I'm getting is anecdotal feedback that the markets are more positive, and we're seeing a few opportunities, and so we're continuing to believe that we'll begin to see loan growth in the second half of the year.

I'll add one other thing to that, Jennifer.

We've seen a firming up in the energy sector, which is very encouraging.

That sector seems be to improving, and, that's an important sector for us.

Okay.

Thank you very much.

Thank you.

Our next question comes from Kevin Reynolds from Wunderlich Securities.

Your question, please

Good afternoon everyone.

The question, and I hope this doesn't sound wrong coming out of my mouth, but looking beyond 2010, and John the comments you made about last quarter's characterization of asset quality, let's look beyond that for a second.

You stated in your materials and I think again on the call, or you all did, characterize it as an expectation -- or, I'm sorry, performing as expected in a recession.

Could you talk about what that implies in terms of expectations when we're looking at sort of 2011 when we get to that point, and you say, all right, we're back to normal.

What does that mean considering that this recession is different than the last recession which was different than the one before?

Wow, a couple of different, I think, questions kind of rolled into one.

Let me try to respond, and if I don't answer your question, just tell me.

I think the point we were trying to make first of all was that the outsize provisioning that was required in Florida, due principally to the precipitous drop in real estate values, we're through most of that.

And that in no way relates to Whitney's historical credit performance in a recessionary environment.

We've never quite experienced anything like that before.

We were trying to send a message that we thought we for the most part we're pretty done with that.

That doesn't mean there won't be a loan to pop up occasionally.

When we said that we are returning to what would be a more normalized experience in a recessionary environment, go look at our track record during previous recessions, and I think what you'll see is the track record is pretty good.

We tend to have-- this is a Whitney characteristic-- we tend to have a relatively higher level of criticized assets and in some cases non-performing assets that do not necessarily translate into charge-offs that you would typically expect of the banking sector.

We tend to do better if terms of net charge-offs.

We are in a still in, I think, a very stressed severe recessionary environment in the country, so I'm not trying to tell you that we're not going experience some challenges and some losses.

We will.

But we're moving out of an environment that was not typical of Whitney, and we're now becoming something that I think is more predictable based upon our historical track record.

Did that answer your question?

I think it did, for the most part, and, yes, and it's -- I know it's hard to put specifics on something like that, looking that far ahead.

If you're trying to get some indication of when we think "normal" is, that's kind of hard to do.

All right.

Fair enough.

Your next question --

Let me go back.

I want to add one other thing to that last discussion.

We are still perform -- based upon our stress tests, and based upon the most likely scenario under that stress test, we are still performing at a level of about 85% of indicated charge offs.

So I think our results have been predictable, and we're comfortable that we are well in line with the results under the stress test.

Your next question comes from Al Savastano from Macquarie.

Your question please?

Hi, guys.

How are you doing?

Hey, Al.

Just a question on the energy portfolio given the changing in criticized this quarter from the credits that paid off.

Can you remind us how much you have and how much is in oil and gas, and natural gas, and then the second part of that question is, at what price points do you start to become a little bit more worried on those portfolios, both natural gas and oil prices?

All right.

Let me start -- we are probably, on average, about 11% of our outstandings would be in the energy sector, Al.

Maybe about a third of that would be in the E&P sector.

We are a little bit more heavily into gas reserve lending, as opposed to oil.

We still have a fairly conservative price deck that we run our economics against.

We take a look at that at least on a quarterly basis, and what we try to do is we try to conservatively underwrite.

We have a stressed price deck, and that's our discipline, and it has served us well.

So it's hard to say at what price level, because it depends at what price level you have priced your reserves and your collateral, and what you're lending.

So, yes, if there was a precipitous drop in oil prices or gas prices, that would be stressful for folks that are operating in that economy, and you could -- you could certainly anticipate that that would roll over into the -- to the banking lines, but it's -- I don't think there's a number or a range within which if you go below, you get into trouble.

I mean, where prices are right now, and the range that they're traded in, we're doing very well, but, precipitous declines could always be troublesome.

Okay.

So just a quick follow-up then.

If natural gas prices fall by another dollar or so, is that in the range of a precipitous drop?

Yes, at another dollar, that would be on a -- percentage-wise, a pretty substantial drop.

Well, remember, too, Let me make this point.

A lot of our customers are hedged, and you can't just go by the price of a commodity.

We don't necessarily require a hedge, but for customers it's good business practice to hedge some of that stuff.

So I would be careful trying to draw too many conclusions just about the price of the commodity.

Okay.

That's very helpful.

Thank you.

Thank you.

Our next comes from Dave Bishop from Stifel Nicolaus.

Your question, please.

Yes, I was wondering, turning back to the margins there.

Obviously eventually the Fed will reverse course here someday.

In terms of the interest rate sensitivity, obviously some of the loans are bumping along in floors , any sense how far the Fed has to move in terms of the primary interest there or LIBOR to get these loans a penetration of the

Well short-term, we're liability sensitive now because of the floors, and it would need to move, on average, about 175 basis points for us to completely clear the floors and start reaping the benefits of an interest rate raise.

I'm sorry, 175 basis points.

Yes.

And that's to clear all floors.

All floors.

That's on average, kind of.

And for Joe, I think you had some commentary about the impaired loan portfolio (inaudible) the cumulative marks and the allowance on that portfolio?

Well, we have a reserve against the impaired portfolio of about 13%.

And we have already charged off against contractual balance 29%.

29%?

Yes

Got you.

And then I don't know if you can share this, in terms of reserve, obviously loan productions are down but in terms of reserving in the current environment versus maybe even 18 months to 12 months ago, in terms of first the commercial real estate portfolio there, what are you setting reserves at on new production?

Well, our methodology basically requires us to take a look at our loss history over certain periods of time.

And then we take a look at the current environmental and other qualitative factors to determine whether we think the environment is going to result in the potential for greater loss in the existing portfolio, and at this time, as you might imagine, those qualitative factors are adding to the reserve calculation.

So that's all part of the process, part of our methodology.

There's a -- I can't give you a certain percentage today, but we evaluate by risk rating what the loss history is, by geography, by loan product type, and as we evaluate all of the factors that we think have an impact on a particular segment of the portfolio, we adjust our loss factors either up or down, or in some cases we leave them exactly where they are for an historical loss perspective.

Your next question comes from Gary Tenner from Soleil Securities.

Your question, please.

Thanks, good afternoon.

Just a question on the mortgage purchase obligations Was there any sort of reserve accrual for this quarter or was that charge--was that total pass through?

It's an accrual, Gary.

We're still discussing some of the issues and it was an estimate of what we thought the potential loss could be.

So that's an estimate of what you think your overall potential loss is as opposed to just based on the inflows coming in (inaudible)

What we know today, yes.

And remember these loans were originated before acquisitions.

So it doesn't involve any loans originated since then.

So it's kind of not an ongoing issue.

It's whatever was there at that point.

Our next question is from Bain Slack from KBW.

Your question, please.

Hello?

Sir, your line is open.

Can you hear in the?

Yes.

Okay.

Hey, one question quickly on the criticized loan levels, looking at last quarter, they were down a little bit.

I think we discussed about an inflexion point.

I know they're not up much, but with regard to the granularity, one of the comments I think you had said was that obviously if loans that are coming on are somewhat lumpy or somewhat large in size, they could go up.

Is that what we're seeing a little bit this quarter with regard to the size of the loans that came onto the criticized levels?

Yes, I think that's exactly correct, and some of these are commercial real estate projects, so that would typically be the case.

Let me just add a thought there, too.

The -- a lot of the ones that just came on, we've mentioned earlier, were coming in from Texas, and they are commercial real estate projects where there's lease up going on, where there's retail development, so there's underlying cash flow.

That's a significantly different deal than what we faced in Florida, where basically the underlying collateral was just land.

Okay.

So maybe it's fair to say then that the character of the criticized level certainly is better now than what it was, even if the balances may be --

I would say dramatically better.

The dollars may be up, but the potential for loss exposure is down substantially.

Okay.

And do you have the dollar amount for tier one capital, and for leverage?

We're getting it.

Okay.

And I guess my last question, I guess --

Any of the slides?

I guess the last question I had, while you're getting that number, is with regard to the, I guess kind of going back to the two hurdles, John, I think you were describing on TARP, improving credit and getting toward profitability, if we were -- I mean, assuming we were going to be pretty much there, either this year, or 2011 at some point, to pay back TARP, I assume obviously it brings the regulatory ratios down a little bit, but the leverage ratio would fall, I think sort of after the fourth quarter would have fallen down about 8.6%.

Is that a comfortable level, or maybe the other way I want to ask is, what is a comfortable level that you guys would like to be at above the regulatory requirements that you currently have for capital levels?

Tom, you want to --

Well, we have -- we have not, in our capital plan, Bain, ruled out raising some debt that -- or trust preferred that would count as tier one capital.

So I don't know that we have a specific target for that, so I don't know that you can necessarily think that the tier one ratios would come down.

Okay.

Your number for total tier one capital was $1.181 billion in round dollars.

Okay.

Great, thanks, guys.

Thank you.

This does conclude the question and answer session in today's conference.

I would like to turn the program back to Mr.

Hope.

Thank you, everybody, for your interest and your questions.

We hope to see many of you first week at the Gulf South Conference here in New Orleans and have an opportunity to visit some more and further develop maybe and of the things that we discussed today.

Thanks again for your participation.

Thank you, ladies and gentlemen, for your participation in today's conference.

This does conclude the program.

You may now disconnect.

Good day.