Regions Financial Corp (RF) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the fourth quarter 2006 Regions Financial Corporation's earnings conference call.

My name is Katina, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of this conference, at which time you may press star, one, on your touch tone telephone to participate. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Dowd Ritter, President and CEO.

Please proceed.

Good morning, everyone.

This is List Underwood, and we appreciate your participation this morning.

Our presentation will discuss Regions' business outlook and includes forward-looking statements.

Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about Region's general outlook for economic and business conditions.

We also may make other forward-looking statements in the question-and-answer period following the discussion.

These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially.

Information on the risk factors that could cause actual results to differ is available from today's earnings press release, our Form 10-K for the year ended December 31, 2005, our Form 10-Qs for the quarters ended March 31, 2006, June 30th, 2006, and September 30th, 2006, and the Form 8-K that we filed today.

As a reminder, forward-looking statements are effective only as of the date they are made, and we assume no obligation to update information concerning our expectations.

Dowd?

Thank you, List, and good morning, everyone.

We thank you for joining Regions' fourth quarter earnings conference call, which is our first since completing the merger with AmSouth on November 4.

Also with me this morning is Bryan Jordan, our Chief Financial Officer.

We're very pleased with Regions' fourth quarter performance.

Combined earnings excluding merger charges were $0.65 per share, in line with our expectations.

It's an understatement somewhat to say that the results this quarter contain a number of moving parts, and Bryan will go over those in detail in his remarks in just a moment.

But before turning it over to Bryan, I'd like to give you an update on the merger integration.

We've accomplished a great deal since the merger was announced nearly eight months ago.

In fact, we're currently on track to meet or exceed all of our merger integration goals.

To date, we have named over 600 key leaders, almost evenly split between former AmSouth and legacy Regions senior managers.

We've adopted a matrix organization model designed to balance and enhance decision making between the lines of business and geographies.

We've selected all of our major applications systems and created the relating conversion plans.

We finalized the product sets for each of our lines of business.

We've identified 160 branches to be consolidated, which will contribute greatly to our operating efficiency.

We've established a timeline for our branch and system conversions.

We've also created a new mission statement and core values, and have reached agreement to divest 52 branches with some $2.7 billion of deposits, as required by regulatory agencies, and would expect to close those sales by the end of the first quarter.

At the same time, we've focused on retention of not only customers, but our associates who interface with those customers.

We fully recognize that a first step in the retention and satisfaction of customers is to retain the bankers that those customers know and trust.

To ensure continuity of our associate base, we've instituted attractive retention bonuses, as well as structured new incentive compensation plans as we go forward.

Another key to maintaining customer satisfaction is to ensure that there's no account disruption during upcoming conversion events.

Four bank branch system conversions are planned, with the first scheduled in July of '07.

We're confident in our ability to successfully execute and deliver a seamless transition for our customers.

Regions has an experienced integration team, detailed careful integration plans are in place, and there has been, and will continue to be, extensive training and testing prior to each conversion.

Moreover, our internal surveys show that our associates are committed to providing outstanding customer service as we continue to meld these two organizations.

Our goal is to grow the customer base throughout the integration process, just as we did when Union Planters and Regions merged.

Continued dedication and hard work on the part of associates, along with a broader array of products and services offered through our larger, more convenient distribution system will allow us to achieve this goal.

All in all, I could not be any more satisfied with our progress at this stage of the merger.

We're on target with our original financial projections, including the identification and expected realization of merger cost saves.

And I'm increasingly confident that we're well prepared to take advantage of the merger's many opportunities to grow revenues, improve our operating efficiency, and obviously to enhance the long-term returns to our shareholders.

Allow me to mention a couple of other recent developments.

First, as you probably saw this morning, we signed a definitive agreement to sell EquiFirst to Barclays.

We would expect to close the transaction in the -- excuse me in the first half of this year.

This is an important strategic move for us.

This business was neither fully integrated nor complementary with our other lines of businesses.

Also yesterday, the Regions Board of Directors at its meeting announced a new share repurchase authorization of 50 million shares.

And this new program is in addition to the existing plan, which has approximately 14 million shares remaining under its authorization.

We have an enviable business mix, including Morgan Keegan, and strong trust and wealth management offerings.

We have dense market share in very attractive geographic areas.

We have a healthy, diversified loan portfolio, strong capital levels that provide us the flexibility to grow, pay dividends, or repurchase shares, and very importantly, we have a hard-working, extremely talented employee base.

In short, Regions is well positioned, the merger is off to a great start, and we feel very good about our future.

With that, let me turn it over to Bryan.

Thank you, Dowd, and good morning, everyone.

I'll reiterate Dowd's comment that in spite of all of the moving parts in this particularly complicated quarter, we are very pleased with the underlying results, which are in line with our expectations.

As Dowd stated, diluted earnings per share were $0.65, excluding $0.09 of merger charges.

This number includes an approximate $0.03 mortgage servicing rights, MSR, impairment charge.

We did not realize any security gains this quarter as we have at times in the past.

Additionally, there were $11 million of charge-offs related to conforming credit policies between the two legacy companies.

I'll give you more details on these items in just a minute.

The net interest margin, with modest contraction, is still strong.

Loan growth is contributing to earning asset gains and healthy net interest income.

Banking and Morgan Keegan revenues are continuing to increase.

Merger saves are on plan and credit quality remains sound.

Having said that, there are several things to keep in mind when analyzing our fourth quarter results.

First, the fourth quarter includes a full 3 months of results from legacy Regions operations, but only two months of legacy AmSouth results.

This impacts average share count, as well as income statement and average balance sheet line items.

Second, purchase accounting adjustments now reflect November 4th actual purchase date market values.

These merger date purchase accounting adjustments are in some cases significantly different from our original estimates, which I'll address in a minute.

Third, in connection with the first quarter's planned divestitures, we moved $2.7 billion of deposits and $1.6 billion of loans to held for sale.

And finally, during the quarter, we recognized $273 million of pretax merger-related items, approximately $88 million of which flows through the income statement, with the remainder being reflected in the excess purchase price allocation on the balance sheet.

Purchase accounting and planned divestitures not only distort fourth quarter comparisons, but will also make it difficult to compare first quarter 2007 to fourth quarter 2006.

We're providing as much detail as possible in our financial supplement so that you'll be able to better work through the noise and project core trends.

The Regions' banking franchise performed well during the quarter, driven by growth in C&I lending, which was offset somewhat by slower commercial real estate lending resulting from seasonality and generally weaker demand.

When you look at growth on a combined basis, removing the impact of purchase accounting and divestitures, the loan portfolio grew at a mid single-digit annualized pace versus the third quarter.

Deposit costs steadied this quarter, resulting from a slow down in the migration of low-cost transaction accounts into higher rate CDs.

As a general statement, I would say that we have begun to see some rate stabilization.

In addition, we are seeing some softening in CD rates, combined with some more aggressive money market rates in selected markets.

As you might expect, we are very focused on retaining our current deposit customers, while continuing to add new ones.

As a result, even during the implementation phase of our merger, we are aggressively marketing to new consumer and small business checking households to maximize low cost deposit growth as we move into the new year.

One example is our new interest bearing free checking account, which is a somewhat unique product in our markets.

Also during the quarter, credit quality remained strong.

Net loan charge-offs totaled $56.1 million, or an annualized 27 basis points of average loans.

As stated earlier, included in that total of net charge-off figure was about $11 million related to conforming AmSouth's and Regions' credit policies.

Conforming our policy calls for a more accelerated recognition of losses on various consumer loan types.

Also in the fourth quarter charge-off amount was $7.1 million related to overdraft loans.

In previous quarters, these losses had been recorded as noninterest expenses and did not flow through the reserve.

Given current credit trends and assuming continued moderate economic growth, we expect 2007 net loan charge-offs in the mid-20 basis point range.

The ratio of nonperforming assets to total loans plus other real estate was 0.40% as of year end, a 12 basis point decrease as compared to the third quarter ratio of 0.52%.

This decrease was driven by a couple of factors, one of which was the merger.

AmSouth had a lower NPA ratio than Regions, which naturally brought the combined ratio down.

In addition, just after the merger was completed, we sold $28.5 million of nonperforming loans, also helping lower the fourth quarter ratio.

During the quarter, we reclassified $52 million from our loan loss allowance to a reserve for unfunded liabilities and letters of credit.

Going forward, we will report reserves for credit losses, which will equal the loan loss allowance plus the unfunded liability and letter of credit reserve.

At year end 2006, reserves for credit losses were 1.17% of total loans.

Fully taxable equivalent net interest income was strong at $1.1 billion, benefiting from solid loan growth and a 4.1% net interest margin.

However, keep in mind that fourth quarter's margin benefited from purchase accounting adjustments, as well as the fact that AmSouth was included for only about two months.

Also in the quarter, near deal closing time, $5 billion of mortgage-backed securities were sold out of AmSouth's portfolio, with an offsetting reduction to wholesale borrowings.

At the same time, we entered into receive fixed swap positions with a combined notional amount approximating $3 billion.

The net impact of these transactions had little impact to fourth quarter earnings, but did increase net interest margin and reduced asset -- and reduce our asset sensitivity, leaving our balance sheet in a slightly asset sensitive position at year-end.

As a result, Regions is very well positioned, with considerable flexibility to handle interest rate moves, either up or down.

Looking ahead, we currently expect the fully taxable equivalent net interest margin to average around 3.9% for the full year 2007.

This assumes a stable interest rate environment with the yield curve little changed versus year end 2006, low to mid single-digit loan growth compared to December 31 ending balances, and low to mid single-digit deposit growth.

Deposit pricing will continue to be the largest variable influencing the margin in 2007.

On the noninterest revenue side, service charges, trust and brokerage fees were strong.

While mortgage revenues remain soft.

Morgan Keegan's revenues rose $77 million linked quarter, including approximately 2 months contribution from AmSouth Investment Services.

Earnings were $47 million, or $16 million above the third quarter.

Equity and fixed income banking results were particularly good.

The Trust also had a strong quarter, reflecting higher asset values and semiannual fee payments.

When you exclude amounts related to the merger, Morgan Keegan had a great quarter.

On that basis, revenues were up approximately $37 million or over 20% versus the third quarter, and net income was higher by about $9 million or over 30% compared to last quarter.

As we move into the first quarter, Morgan Keegan's investment banking pipeline of potential deals is expected to decline somewhat compared to the seasonally strong fourth quarter.

Morgan Keegan's balanced business mix and ability to capitalize on new opportunities provided by AmSouth's customer base bode well for overall 2007 results.

Mortgage banking business remains a challenge.

During the quarter, EquiFirst was negatively affected by continued early payment default losses and a lower level of loan sales, while a pretax $27 million MSR impairment charge impacted earnings at Regions Mortgage.

Fourth quarter's underlying expense control, however, was excellent.

We realized $6.6 million of merger-related cost saves, and are on track to meet our full year 2007 net cost save target of $150 million.

Cost saves will grow throughout the year as conversion events are completed.

Normalized full year 2007 expenses are expected to be in the $4.1 billion to $4.3 billion range, excluding merger charges, but including the impact of divestitures and purchase accounting.

As mentioned earlier, average diluted share count will increase in 2007's first quarter.

Shares issued for the merger with AmSouth will be outstanding for the entire 3 month period, compared to only about 2 months of the fourth quarter.

During the fourth quarter, 5 million shares were repurchased at an average cost of $37 per share.

We anticipate continuing our repurchase program at this quarterly rate or higher in 2007, given our strong year-end 2006 capital position and earnings prospects.

With the new authorization that Dowd mentioned earlier, we now have approximately 64 million shares authorized and available for repurchase.

Before wrapping up, I'll touch on our purchase accounting adjustments.

If you saw our November presentations, you realize that the impact of our actual purchase accounting adjustments on fourth quarter results are different from those provided in earlier presentations, which were based on June 30th pro forma financial statements.

The largest driver of the mark-to-market change relates to the CD mark, which was affected by changes to the assumptions used in our fair value methodology and overall lower interest rates.

The mark related to the leverage lease portfolio was also more favorable than originally projected.

You might remember that we originally projected the impact of purchase accounting to be dilutive to 2007 earnings.

But as a result of the changes I just described, as well as changes to other marks due to movement in the yield curve, we now expect purchase accounting to have a net positive impact of about $0.04 to $0.06 per share in 2007.

To sum up, we're pleased with Regions' 2006 operating results, and we are optimistic about 2007 prospects.

There will, though, be a couple of noisy quarters at the beginning of the year.

Keep in mind that divested branch sales are expected to be completed late first quarter.

We estimate that these sales will reduce annual revenues and expenses by approximately $131 million and $43 million respectively.

Since the branch sales will close later in the first quarter, you should adjust annual estimates accordingly to get the impact to 2007.

Also seasonal factors tend to make the first quarter comparisons more difficult.

And due to our conversion schedule, merger cost saves will ramp up throughout the year.

As Dowd said, we're committed to successfully integrating Regions and AmSouth, and fully capitalizing on the merger's substantial opportunities.

We made good headway in the fourth quarter, and look forward to continued success, operationally and financially, in 2007.

Operator, we're now ready to take questions.

Thank you for that presentation, gentlemen. [OPERATOR INSTRUCTIONS] Todd Hagerman, Fox-Pitt Kelton.

Bryan, I just wanted to follow up on some of your comments on the accounting adjustments in the branch divestiture.

Just if you didn't mention it, could you just talk a little bit more about the -- with the $1.6 billion in loans, and then the corresponding deposit loss with the divestiture, could you give us a little bit more insight, just in terms of the expected margin impact?

And just in terms of from a funding perspective if any of that needs to be replaced, how we should think about that going forward?

Yes, you'll have a -- you'll have to replace the net funding.

The impact on revenue, when you net it all out, is about $130 million, $131 million, I think.

It's about $43 million, $45 million in net expenses.

Not a tremendous amount of impact that I'd try to adjust for in fee income.

So net, it is going to be a little over $80 million, around $80 million pretax impact on an annual basis.

Given that that occurs throughout the fourth quarter, most of it -- excuse me, the first quarter, most of it occurring at the end of the first quarter, I'd take roughly three-fourths of those numbers to adjust to get an annual impact for this year.

Net-net, I'd expect it to impact us by, oh, plus or minus $40 million after tax on a full year basis.

Excuse me, on a 2007 basis.

Great.

That's helpful.

And then just following-up on the credit side, and some of the moving parts there.

Just in terms of the portfolio that you sold, can you give a little bit more detail in terms of which bucket those came out of?

They were mostly small business and real estate credits.

I don't have any detail about which organization they came out of.

But it was mostly small business and commercial real estate.

Anything lumpy in the number?

Any syndicated or participated credit in that number?

No.

No, nothing lumpy.

We feel good about credit quality.

Our past due trends continue to be very good.

We feel good about the level of nonperforming assets at year-end.

We feel good about the outlook for credit in 2007.

Okay.

And then just finally, with the charge-off number that hit the real estate mortgage line, that $15.9 million, anything special or unique there, outside of what you mentioned in terms of the policy change or shift?

No, most of the changes that you see there are -- in that mortgage line there's a little bit of -- that's not just all residential, there's a little bit of commercial credit in there.

But you do have some of the -- part of the $11 million falls in there.

And then the rest of it falls into that other consumer line.

Great.

Thanks very much.

Kevin St. Pierre, Sanford Bernstein.

Just a question on the share repurchase and the increased authorization.

You mentioned that we can anticipate a rate of repurchase at or above the fourth quarter levels.

Is there a -- can you tell us a minimum leverage ratio or tangible capital ratio that you'd be targeting?

Or how quickly might we see the share repurchases come in?

Good morning, Kevin, this is Bryan.

We have not set a tangible capital ratio.

We ended the year at 6.45.

We feel like we've got the opportunity to move that down.

And we would expect to do that.

My guess is over time, that number would work down to 6% or less.

Given that, given the strong earnings capability we see in 2007, the limited balance sheet growth, low to mid single-digits earning asset growth, we think that provides us an opportunity to repurchase shares in 2007.

That, coupled with the fact that we have not made significant use of tier one capital, we think that provides additional opportunity.

And our view is -- the Board's view is that the authorization they approved yesterday provides us significant flexibility to accomplish those things this year.

Okay.

Thanks very much.

John Pandtle, Raymond James.

Question relates to the relative performance of the Regions and AmSouth franchises.

In the third quarter, there was pretty significant divergence in the performance of those two organizations.

And I know you may be reluctant now that it is a combined Company.

Just trying to get a sense of the old stand-alone institutions, how they performed in the quarter, and where you see the greatest opportunities for improvement on the revenue side.

John, this is Bryan.

Good morning.

We -- reluctance has nothing to do with it.

We merged in -- we merged ledgers and started combining systems on November the 4th.

And what is still separate, both organizations continue to perform very well.

Pleased with the balance sheet growth that we saw and the deposit trends.

And -- but in effect on November 4th, we were looking at a combined entity, combined securities portfolio, everything was put together.

And tracking individual results is virtually impossible for us.

Okay.

I was just trying to get a sense of, anecdotally, perhaps, where you'd think, or get the sense that there's improvement.

On a related note, wanted to get your sense early on in terms of employee and customer retention and/or attrition, what you're seeing relative to expectations.

Basically at this point, we're very pleased in terms of customer retention.

We obviously have gotten some metrics that we're using for both organizations, and are using it across the entire footprint as of year-end as a starting point.

And following that along with some very significant new account openings, so far this year a marketing campaign, while we're still supporting two brands in several markets.

So at this point, we feel very good about it.

There are two, both a quality council internally, as well as a part of all of the geographies management goals that we're focused on that customer retention.

And think we really have our hands around it.

Okay.

Thank you.

Ed Najarian, Merrill Lynch.

My questions have mostly been answered.

But I just wonder if I can get a little insight on what gives you confidence with a 25 basis point charge-off ratio for '07?

I mean, we're seeing a lot of credit normalization happening throughout the industry.

And I'm just wondering why you feel you can keep the numbers so low?

Thanks.

Ed, this is Bryan.

Good morning.

We -- I'll go back and reiterate what I said.

I really wanted -- I said mid-20s.

And if you take where we were through 2006, and you do all the normalization things, fourth quarter -- in terms of taking out the $11 million of conforming charge-offs, and you take out $7 million of overdraft charge-offs that previously would have gone through noninterest expenses, you ended up the fourth quarter with roughly what would have been a 19 basis point level of charge-offs.

So the mid-20s is an uptick from there.

So there is some amount of credit normalization built into that.

As we look at the pipeline of potential problem assets, as we look at the content of our portfolio of problem assets, we've got some things in there that we're keeping an eye on.

But we don't see significant problems that are going to cause a significant uptick in credit losses at this point in 2007.

Just a follow-up.

When you divest the loans related to the sale of branches, will there be some reserves going away with that, or not?

Yes, the reserves get relieved in the basis adjustment for that.

It's already been reclassified out of there.

Okay.

Thanks.

Jefferson Harralson, KBW.

I wanted to ask a question on the EPS impact of the mark-to-market adjustments this quarter, if you could give a little more detail if possible on the change in that CD mark?

Hey, Jefferson, this is Bryan.

The impact of purchase accounting on the fourth quarter was roughly $0.02, spread out between the margin, offset with roughly $26 million, $27 million of higher expenses due to CDI amortization, et cetera.

The CD mark in particular, keep in mind the pro formas that we pulled together for the proxy filing were based on June 30th.

When you go through that exercise, there's inherently less precision in the valuation process because you're looking at whole portfolios, you're trying to estimate on interest rates in place at that time.

When we got into November, we used an outside valuation expert.

We go into a lot more detail in terms of breaking the granularity of the portfolio up.

We're using current interest rate curves.

And the CD portfolio, and I mentioned earlier the lease portfolio were two areas, that when you broke them apart, you refine the assumptions around maturity dates and things of that nature, cash flows, you got significantly different marks.

And -- .

Great, and the -- and the plus $0.02 this quarter.

So most of the positive accounting mark is reflected in the run rate going forward?

Yes, it actually erodes over the course of the year.

It probably -- if you take just the margin impact of it, you'd have roughly $20 million more benefit in the first quarter than you would have in the fourth quarter.

So it declines over the course of the year.

So that will impact the margin as you work through the year.

So I'd say it's probably at the high point now, and starts to decline throughout 2007.

All right.

Thank you.

On another topic, do you have a target on the percentage of net income that you want to give back to shareholders in the form of a dividend, plus a buyback using 20 million shares, looks like you're at 80% maybe?

Is that 80% kind of a target of how much you want to give back this year?

Well, we have not set a target per se.

We're managing to deploy capital smartly in the business.

And where we don't have immediate opportunities or near term opportunities to invest it in the business, we're going to take those opportunities to repatriate the capital to shareholders.

Okay.

And lastly, and I'll step off on that.

EquiFirst, was that sold at a gain?

Right now, the notional -- or, the price is roughly $225 million.

That will be trued-up when will close, which will be later in the year.

It will be trued-up based on the closing balance sheet.

As it stands today, we would have a slight gain.

All right.

Thanks a lot, guys.

[OPERATOR INSTRUCTIONS] Ken Usdin, Banc of America Securities.

I wanted to follow-on on a couple of prior questions.

First of all, Bryan, when you were talking about the mark-to-market, can you give us a little bit of color as far as how that translates into the net interest margin as opposed to dollars of margin?

So if the fourth quarter was 410, and you're expecting full year of 390, again, do we have a bleed down through the whole year and you end up below that 390?

Can you just give us kind of how we expect that to move directionally?

Yes, Ken.

Good morning.

The net interest margin impact in the fourth quarter was, oh, probably 18 basis points, plus or minus a basis point, something like that.

The point I was making to Jefferson a little earlier, if you have a $20 million difference in the impact of purchase accounting in the first quarter of '07 versus the fourth quarter of '07, that's roughly 8 basis points of margin.

So that purchase accounting is going to make a difference of 8 basis points between the fourth quarter -- excuse me, between the first quarter and the fourth quarter of 2007.

So it does, in your words, bleed down over the course of the year.

So that does -- that will bring the margin down over the course of the year.

But then, to follow-on that, to get -- so you're starting at around 4% to get to a year of 390.

We've gone through this before in past years, but that would imply that you're either coming out meaningfully below 390.

By the fourth quarter.

The problem with the round numbers is, everybody wants -- I'm not being critical, but wants to assign a point estimate to it, it's going to be above or below that.

Purchase accounting is going to impact it.

We continue to expect to have a yield curve that is slightly inverted.

We expect that deposit costs will continue to tick up.

We think that there's the likelihood as we go through the integration that we'll put more money into deposits, as we protect our customer base and transition through the integration.

But I would expect that margin to tick down throughout the year.

I wouldn't say at this point that I expect it to be meaningfully, because I can't define that below 390 when we get to the end of the year.

Okay.

Got it.

My second question was just related to EquiFirst.

Do you expect that the transaction to be accretive or dilutive to earnings?

How does that work through?

Obviously, you might have had some anticipated revenue expenses.

But so aside from the gain that you might recognize at the time of sale, what do you expect the impact to earnings to be?

We would -- based on the 2007 results, I would expect that it would be accretive a couple of pennies, maybe a little bit more, to 2007 earnings.

So basically, on just the cost going away, more than the expected revenues that you might have received?

Yes, we -- that's -- this last half of 2006 has been a very difficult operating environment for that business.

It's a good business.

It's just one that has been going through a difficult operating period, and we've incurred some losses in the third and fourth quarters of 2006.

Okay.

Thanks a lot.

Christopher Marinac, FIG Partners.

Bryan, I wanted to ask you about the mortgage business.

From a standpoint now that Equifax -- or, EquiFirst has been sold, do you keep the servicing long-term, or have you made a decision on that?

No, we haven't made any decisions on that.

We've got a sizable servicing platform that the legacy Regions have.

We've got our servicing conversion that has been subserviced from AmSouth planned for the next several months.

And so we're trying to get it all on one servicing platform.

There are plenty of opportunities for us to evaluate all of our businesses, and that's not one we've looked at this point.

Okay.

And as a follow-up on EquiFirst, do you have any residual risk, if you will, on loan repurchases?

Or are you indemnified from those?

Well, a lot of that will be figured out at the closing period.

We have got to -- the terms of definitive agreement specifically lay out some actions that we'll take during this intervening period.

We don't see a significant amount of residual risk.

And what we do have, we think is what we can adequately reserve in the accounting at closing.

Okay.

Great.

Thanks very much.

Richard Bove, Punk, Ziegel.

Hi, Bryan.

I've been jumping between phone calls, so if I missed this, I apologize.

But if you had the full three months of AmSouth included in the fourth quarter as opposed to only from November 2nd, can you tell us what the earnings of the Company would have been?

No.

I can't.

That's impossible to do.

We really put them together, and I've not even tried to track what they would have been from a net income perspective.

I don't think it would have made a tremendous amount of difference on an EPS basis.

What I'm trying to figure out, is what your base earnings power is.

And it seems to me that the questions related to margin, are trying to get at whether there's going to be a significant drop in Regions' earnings in the first quarter and throughout the year.

Because the net interest margin is going to be somewhat lower, because, I guess the EquiFirst sale is going to be a plus because it was losing money, and because there are other charges associated with the integration of the two firms.

In other words, is the earnings power of this Company 10% lower in 19 -- I'm sorry, in 2007, than it was in 2006 as a result of this acquisition?

If I can get you to sort of set merger-related off to the side, and focus on operating earnings, I think you're accurate, in that the margin should contract a little bit as we go out through the year.

You could see a little tick up in credit cost.

We expect our fee income businesses to do well, and to do better, including Morgan Keegan and our mortgage businesses in 2007.

And then the other big element is we expect a significant ramp-up in cost savings throughout the year.

Keep in mind that we realized roughly $6 million of cost savings in the fourth quarter of 2006.

We anticipate a net cost savings realization of at least $150 million in 2007.

So that needs to be factored into the analysis, as well.

So I wouldn't expect anything like 10% decline, if you're looking at it on an operating earnings basis.

Okay.

Are you going to give us any guidance at all as to what we should be thinking about where the base earnings power of the Company is, either in net income or EPS going forward?

I'm assuming from what you're saying that the first quarter's not going to be a good one.

Well, as tempting as it is, we're going to resist the temptation to give guidance.

So how do we think about the stock if we have no idea what the earnings are going to be?

Well, I think we've given you a lot of information.

If you take the legacy AmSouth and everybody have models, or most everybody had models built around legacy AmSouth and legacy Regions, and if you weight the two for the exchange ratio, and you apply the information associated with what's going on with purchase accounting, and what's happening with cost saves, we ought -- that ought to give you a pretty good starting point in trying to estimate the earnings power.

I would tell you, though, it's going to be relatively difficult.

Particularly since we don't know really what you earned in the fourth quarter, because you can't calculate it, and we can't calculate it.

We don't know what the margin is going to be, or the direction of the margin in 2007.

And we don't know what the integration costs might be outside of the merger for the full year 2007.

So it's kind of putting stockholders out there on a limb, not having a clue as to what this Company is going to earn next year.

I think you -- I don't intend to be argumentative, but I do think that the EPS numbers that we reported in the fourth quarter are clean.

We talked about some items which would be, whether you choose to add them back or not, are additive to those numbers.

So I think you can get the earnings power of the organization based on the fourth quarter.

Okay.

Thank you.

[OPERATOR INSTRUCTIONS] Gary Townsend, Friedman, Billings, Ramsey.

Hi, this is actually Bob Ramsey.

I've seen in the past in the supplement, it includes the profitability of your mortgage business, breaking out both Regions Mortgage and EquiFirst.

And I didn't see those numbers this time.

Could you tell me what the profitability was of those two?

Yes, Regions Mortgage, the conforming business made about $5 million, and the nonconforming business lost around 10.

Okay.

Thank you.

And then just one other question.

We've been talking about expenses.

Do you think it's fair to say that with cost saves sort of ramping up in the second half of the year, that efficiency will be more or less where it was this quarter for the first half of the year?

Well, I think that I don't want to give you estimates.

It's difficult to estimate the timing of some of these cost saves, but we're pushing to get them as rapidly as we can.

I would expect to see continued overhead efficiency ratio improvements throughout the year.

And I'm -- and I think on the whole, you'll see operating efficiency improvement for the whole year of 2007 versus 2006.

Okay.

Thank you.

There are no further questions at this time.

I would now like to turn the presentation back over to Mr. Ritter for closing remarks.

Well, if there are no further questions, operator, let us just thank everyone for joining us today.

We appreciate it, and we will stand adjourned.

Thank you for your participation in today's presentation.

This concludes the presentation.

You may now disconnect.

Good day.